AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1997
REGISTRATION STATEMENT NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FINE AIR SERVICES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 4522 65-0140639
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
BARRY H. FINE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2261 N.W. 67TH AVENUE FINE AIR SERVICES, INC.
BUILDING 700 2261 N.W. 67TH AVENUE, BLDG. 700
MIAMI, FLORIDA 33122 MIAMI, FLORIDA 33122
(305) 871-6606 (305) 871-6606
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
KENNETH C. HOFFMAN, ESQ. RICHARD C. TILGHMAN, JR., ESQ.
GREENBERG, TRAURIG, HOFFMAN, STEPHEN A. RIDDICK, ESQ.
LIPOFF, ROSEN & QUENTEL, P.A. PIPER & MARBURY L.L.P.
1221 BRICKELL AVENUE 36 SOUTH CHARLES STREET
MIAMI, FLORIDA 33131 BALTIMORE, MARYLAND 21201
(305) 579-0500 (410) 539-2530
(FACSIMILE) (305) 579-0717 (FACSIMILE) (410) 539-0489
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
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 effective 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. [ ]
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value ... $149,500,000 $45,303.03
===============================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
---------------
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>
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.
SUBJECT TO COMPLETION
JUNE 5, 1997
SHARES
[LOGO]
FINE AIR SERVICES, INC.
COMMON STOCK
------------
Of the shares of Common Stock being offered hereby shares are
being offered by Fine Air Services, Inc. (the "Company") and shares are
being offered by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
the shares being sold by the Selling Shareholders. Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price of the Common Stock will be
between $ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company intends to apply for quotation of the Common Stock on the Nasdaq
National Market under the symbol " ."
------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 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>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ...... $ $ $ $
- ----------------------------------------------------------------------------------
Total(2) ...... $ $ $ $
==================================================================================
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $ .
(2) The Company and the Selling Shareholders named herein have granted to the
Underwriters a 30-day option to purchase up to additional shares of
Common Stock solely to cover over-allotments, if any. To the extent the
option is exercised, the first will be sold by the Selling
Shareholders and the balance will be sold by the Company. To the extent that
the option is exercised in full, the Underwriters will offer the additional
shares at the Price to Public shown above. If the Underwriters exercise this
option in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to Selling Shareholders
will be $ , $ , $ and $ , respectively.
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about ,
1997.
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
DILLON, READ & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[RESERVED FOR ART WORK]
----------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND COMBINED FINANCIAL
STATEMENTS OF THE COMPANY AND NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS
ASSUMES THAT (I) THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND
(II) THE COMPANY'S SHAREHOLDERS HAVE CONTRIBUTED TO THE COMPANY ALL OF THE
OUTSTANDING CAPITAL STOCK OF AGRO AIR ASSOCIATES, INC. ("AGRO AIR"). SEE
"CERTAIN TRANSACTIONS."
THE COMPANY
The Company is a leading provider of air cargo services between the United
States and South and Central America and the Caribbean. Since 1994, the Company
has been the largest international air cargo carrier serving Miami International
Airport ("MIA"), based on tons of cargo transported to and from that airport.
MIA is the largest international cargo airport in the United States and the
third largest international cargo airport in the world. The Company's services
include: (i) integrated air and truck cargo transportation and other logistics
services ("scheduled cargo services"); (ii) long- and short-term ACMI (aircraft,
crew, maintenance and insurance) services and AD HOC charters ("ACMI services");
and (iii) third party aircraft and engine maintenance, repairs and overhauls,
training and other services. The Company's scheduled cargo services provide
seamless transportation through its MIA hub linking North America, Europe, Asia
and the Pacific Rim with 29 South and Central America and Caribbean cities. The
Company's customers include international and domestic freight forwarders,
integrated carriers, passenger and cargo airlines, major shippers and the United
States Postal Service. The Company's revenues have grown, principally as a
result of the expansion of its scheduled cargo services, from $29.0 million in
1993 to $94.2 million in 1996, a compound annual rate of 48.1%.
According to MergeGlobal, the worldwide air freight market had revenues of
$64 billion in 1995 and has grown at a 9.1% compound annual rate since 1985
(measured in revenue ton kilometers). Boeing forecasts the United States/Latin
America air freight market will be the fifth fastest growing air freight market
in the world from 1995 to 2005, with an average annual growth rate of
approximately 7.1%, as measured in tons. MIA is the largest air gateway to South
and Central America and the Caribbean, with more than 80 pure-cargo flights to
the region per day. MIA is the primary transhipment point for goods moving by
air between North America and South and Central America, representing 72% of
total tonnage in 1995. MIA's air trade with South America tripled from $3.1
billion in 1990 to $10.9 billion in 1996.
The Company markets its scheduled cargo services through a sales network
consisting of seven domestic sales offices serving 55 major U.S. cities, five
international sales offices serving over 29 cities in Europe, Canada, Asia and
the Pacific Rim and 27 sales offices in South and Central America and the
Caribbean. The Company receives cargo at its MIA hub and its foreign operations
stations (i) through its domestic and international sales network, (ii) from
other airlines pursuant to interline agreements and (iii) directly from freight
forwarders and other shippers. The Company utilizes its own fleet of 15 DC-8
aircraft and the services of other airlines through interline and other
contractual relationships to provide reliable air cargo service between MIA and
South and Central America and the Caribbean. The Company has interline
relationships with over 50 airlines, including Air France, China Air,
Continental Airlines, Iberia, Korean Air and Virgin Atlantic. The Company's
scheduled cargo services transported 32,000 tons of freight in 1994 and 75,000
tons of freight in 1996, a compound annual increase of 53%. The Company plans to
expand its scheduled cargo services by acquiring up to four widebody aircraft
and as many as three additional DC-8s by the end of 1998.
The Company's customers utilize the Company's ACMI services to obtain lift
capacity without acquiring their own aircraft. Under a typical ACMI contract,
the Company supplies an aircraft, crew,
3
<PAGE>
maintenance and insurance, either on a regularly scheduled or AD HOC basis,
while the customer bears all other aircraft operating expenses, including fuel,
landing and parking fees and ground and cargo handling expenses. The Company's
ACMI customers also bear the risk of utilizing the cargo capacity of the
Company's aircraft. By offering ACMI services in addition to scheduled cargo
services, the Company is able to schedule its fleet to satisfy demand on its own
routes while improving utilization and generating additional revenue from ACMI
services.
The Company's FAA-approved repair stations perform a full range of
maintenance, repair and overhaul services for DC-8 aircraft and Pratt & Whitney
JT3D-3B aircraft engines. The Company also operates professional pilot and
mechanic training schools. The Company's recent move into a new hangar and
maintenance facility at MIA enables the Company to expand its third party repair
and maintenance services while performing all necessary repairs and maintenance
on its own aircraft. The Company began actively marketing its third party repair
and maintenance capabilities in 1996 and intends to seek certification to
provide similar services for other types of aircraft, including the widebody
aircraft the Company intends to acquire with a portion of the net proceeds of
this offering. As a result, management expects that the Company's revenues from
these services will increase in the future.
COMPETITIVE STRENGTHS:
ESTABLISHED MARKET POSITION. Since 1994, the Company has transported more
international air cargo to and from MIA, the principal air gateway for South
and Central America and the Caribbean, than any other carrier. The Company
believes that regulatory and other restrictions imposed by U.S. and foreign
governmental authorities would make it difficult for a new airline entrant to
obtain the necessary operating authority and route rights to duplicate the
Company's business. Management also believes that the scarcity of available
facilities at MIA will inhibit potential competitors seeking to duplicate the
Company's operations.
LOW AIRCRAFT AND OPERATING COST STRUCTURE. The Company maintains a low cost
structure through: opportunistic acquisition of used aircraft, engines and
spare parts; elimination of duplicative costs by centralizing its flight and
maintenance operations in Miami; "in-sourcing" activities such as training,
aircraft and engine repairs and maintenance; and using its own ground and
cargo handling personnel and equipment. The Company's uniform aircraft fleet
has allowed it to standardize its spare part inventories, maintenance and
training operations, thereby increasing operating efficiencies and improving
the reliability of the Company's air cargo services.
ASSET OWNERSHIP. The Company has made a substantial investment to acquire
the assets necessary to support its operations, including 15 DC-8 aircraft,
20 spare aircraft engines, an extensive inventory of spare parts and aircraft
components, maintenance and engine repair equipment and substantially all of
the equipment and vehicles for its aircraft ground and cargo handling
requirements. Management believes that the value of the Company's operating
assets is substantially in excess of their book value, and following the
Company's use of a portion of the net proceeds of this offering to retire
long-term debt, it will have no debt service associated with these assets.
The Company has also made a substantial commitment of capital and resources
to obtain required governmental authorizations, develop its sales and
marketing network and build the infrastructure necessary to support its
scheduled cargo and ACMI services.
EXPERIENCED MANAGEMENT TEAM. The Company is led by an experienced management
team, headed by Messrs. Frank and Barry Fine, who together have over 50 years
of experience in the air cargo industry and whose knowledge of the South and
Central American and Caribbean business environment has been a key element of
the Company's success. The other key members of the Company's management
team, including those responsible for the Company's flight operations,
maintenance and repair facilities, as well as marketing and sales activities,
each have over 20 years of industry experience, including experience in the
Company's markets.
4
<PAGE>
DIVERSITY OF CUSTOMER BASE. The Company offers a wide range of air cargo
services to a diverse customer base that includes international and domestic
freight forwarders, integrated carriers, passenger and cargo airlines, major
shippers and the United States Postal Service. The Company provides scheduled
cargo services to over 1,200 customers, none of which accounted for more than
5% of the Company's total revenues in 1996. Because the Company is able to
provide its customers a broad range of services tailored to their particular
needs, management believes that the Company is well positioned to benefit
from the expected growth in demand for air freight transportation between the
United States and South and Central America and the Caribbean.
GROWTH STRATEGY:
INCREASE LIFT CAPACITY. The Company intends to increase the number of
markets it can serve and its capacity in existing markets by adding up to
four widebody aircraft and as many as three additional DC-8s by the end of
1998. Widebody aircraft have longer range and significantly larger volume
capacity than DC-8s and will permit the Company to extend its route structure
to serve the southernmost countries of South America and to more economically
serve high cargo volume routes on which the Company currently operates
multiple daily flights. DC-8s that are utilized on these routes will be
redeployed to increase capacity to existing markets and to develop service to
new destinations that are more efficiently served with narrowbody aircraft.
In addition, to capture a greater share of air cargo traffic between Europe
to South and Central America and the Caribbean, the Company will consider
utilizing its widebody aircraft to directly serve a limited number of
European destinations that can support the volume necessary to economically
operate trans-Atlantic service.
EXPAND SALES NETWORK AND TRANSPORTATION LOGISTICS SERVICES. The Company
plans to expand its domestic and international sales network by opening new
domestic sales offices, adding sales personnel, increasing the number of
general sales agents who market the Company's services domestically and
internationally and expanding the Company's interline relationships. The
Company also plans to increase the scope of its transportation logistics
services, particularly in South and Central America and the Caribbean, where
other airlines and freight forwarders play a much smaller role in arranging
for these services.
EXPAND ACMI SERVICES. Management believes that the Company's acquisition of
widebody aircraft will enable it to market its ACMI services to a broader
range of customers, including those who require the longer range and/or
larger volume capacity of these aircraft. The Company also plans to utilize
its existing and any newly acquired DC-8s to increase its ACMI capabilities.
The Company was incorporated in Florida in 1989. Certain of the Company's
business has been conducted through Agro Air, a Florida corporation incorporated
in 1982 which will become a wholly-owned subsidiary of the Company upon
completion of this offering. See "Certain Transactions" and Note 14 of Notes to
the Company's Combined Financial Statements. Unless the context otherwise
requires, references in this Prospectus to the "Company" refer to the combined
operations of the Company and Agro Air. The Company's principal executive
offices are located at 2261 N.W. 67th Avenue, Building 700, Miami, Florida,
33122 and its telephone number is (305) 871-6606.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ........................ shares
Common Stock offered by the Selling Shareholders ......... shares
Common Stock to be outstanding after the offering(1) ...... shares
Use of proceeds .......................................... To acquire additional aircraft, hushkit
the Company's existing aircraft, repay
debt and for working capital and
other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol .....................
</TABLE>
- ----------------
(1) Excludes (i) shares of Common Stock reserved for issuance pursuant to
the Company's Incentive Compensation Plan (the "Incentive Plan") and (ii)
shares of Common Stock reserved for purchase under the Company's
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Simultaneously
with this offering, the Company will grant to certain officers and other key
employees options to purchase an aggregate of shares of Common Stock,
exercisable at the initial public offering price. See "Management--Stock
Plans."
6
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- --------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Scheduled cargo services ............... $ -- $ -- $ 19,941 $ 40,124 $ 54,775 $ 11,693 $ 16,174
ACMI services ........................... 22,266 29,025 44,420 35,340 35,520 5,430 9,126
Repairs, training and other ............ -- -- 492 885 3,953 1,796 626
Total revenues ........................ 22,266 29,025 64,853 76,349 94,248 18,919 25,926
Operating income ........................ 3,596 3,889 12,139 11,703 13,208 1,305 3,349
Net income ................................. 5,473 3,128 14,198(1) 11,038 13,028 1,465 3,170
Pro forma net income(2) .................. 3,414 1,951 8,794 6,818 8,058 914 1,977
Pro forma net income per share(2) .........
Pro forma weighted average
shares outstanding(3) ...................
OPERATING DATA:
Destinations served (end of period) ...... -- -- 9 21 27 27 29
Tons of freight transported--
scheduled cargo services ................ -- -- 32,072 64,906 75,923 18,360 19,404
ACMI block hours flown .................. 9,566 12,943 15,280 12,068 12,289 2,146 3,050
Aircraft in service (end of period) ...... 8 13 13 14 15 14 15
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
--------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 4,831 $ -- $
Working capital ............... 16,162 (7,849)
Total assets .................. 65,341 60,999
Total debt ..................... 9,581 29,250
Stockholders' equity ......... 47,793 14,450
</TABLE>
- ----------------
(1) Net income for 1994 includes a $2.2 million gain on insurance settlement,
representing the excess of insurance proceeds over the net book value of an
aircraft that sustained significant damage. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
(2) For each of the periods presented, the Company and Agro Air (collectively,
the "S Companies") were S corporations and, accordingly, were not subject to
federal and certain state corporate income taxes. The pro forma information
has been computed as if the S Companies were subject to federal and all
applicable state corporate income taxes for each of the periods presented,
assuming that a 37.6% tax rate would have been applied had the S Companies
been treated as C corporations. See "Dividend Policy and Prior S Corporation
Status," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview" and "Certain Transactions."
(3) Includes that number of shares of Common Stock which, had they been issued
(at an assumed initial public offering price of $ per share less
underwriting discounts and commissions), would have generated cash
sufficient to fund the portion of the S Corporation Distributions in excess
of the Company's pro forma net income for the twelve-months ended March 31,
1997. See Note 14 of Notes to the Company's Combined Financial Statements.
(4) Pro forma to give effect to the (i) cash payment of approximately $4.8
million and issuance by the S Companies of approximately $19.7 million
promissory notes (the "S Corporation Notes") to their existing shareholders
(collectively, the "S Corporation Distributions") and (ii) establishment of
a $8.8 million net deferred tax liability, in each case, calculated as if
the S Companies had converted to C corporations as of March 31, 1997. The
actual amount of the S Corporation Distributions will depend upon the S
Companies' earnings from April 1, 1997 to the conversion date, and the cash
portion of the S Corporation Distributions will depend upon the amount of
cash available for distribution. See "Dividend Policy and Prior S
Corporation Status."
(5) Pro forma as adjusted to give effect to the sale of the shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $ per share and the application of the net proceeds
therefrom as described in "Use of Proceeds."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
INTERNATIONAL BUSINESS RISKS. The Company derives a majority of its
revenues from providing air cargo services and ACMI services to South and
Central America and the Caribbean. The risks of doing business in foreign
countries include potential adverse changes in the diplomatic relations of
foreign countries with the United States, hostility from local populations,
adverse effects of currency exchange controls, restrictions on the withdrawal of
foreign investment and earnings, government policies against businesses owned by
non-nationals, expropriations of property, the potential instability of foreign
governments and the risk of insurrections that could result in losses against
which the Company is not insured. The Company's international operations also
are subject to economic uncertainties, including, among others, risks of
renegotiation or modification of existing agreements or arrangements with
governmental authorities, exportation and transportation tariffs, foreign
exchange restrictions and changes in taxation structure. At some foreign
airports, the Company is required by local governmental authorities or market
conditions to contract with third parties for maintenance, ground and cargo
handling and other services. The performance by these third parties of such
services is beyond the Company's control, and any operating difficulties
experienced by these third parties could adversely affect the Company's
reputation or business. In addition, traffic rights to many foreign countries
are subject to bilateral air services agreements between the United States and
the foreign countries, are allocated only to a limited number of U.S. carriers
and are subject to approval by the applicable foreign regulators. Consequently,
the Company's ability to provide air cargo service in some foreign markets
depends in part on the willingness of the U.S. Department of Transportation (the
"DOT") to allocate limited traffic rights to the Company rather than to
competing U.S. airlines and on the approval of the applicable foreign
regulators. See "Business--Government Regulation."
GROWTH STRATEGY IMPLEMENTATION; ABILITY TO MANAGE GROWTH. The Company's
growth strategy includes (i) increasing its scheduled cargo services to South
and Central America and the Caribbean as well as the possible expansion of such
services to other international markets such as Europe, (ii) increasing its ACMI
services and (iii) possible acquisitions. The Company's ability to execute its
growth strategy will depend on a number of factors, including existing and
emerging competition, the ability to maintain profit margins in the face of
competitive pressures, the continued recruitment, training and retention of
operating employees, the strength of demand for its services and the
availability of capital to support its growth. Expanded international operations
are likely to involve increased costs and risks including those related to
foreign regulation, intensified competition, currency fluctuations and exchange
controls. In addition, future growth is likely to place strains on the Company's
management resources, management information systems and financial and
accounting systems. There can be no assurance that the Company will be
successful in implementing its growth strategy, and the Company's failure to do
so effectively could have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Growth Strategy."
COMPETITION. The air freight industry is highly competitive. The Company's
cargo services compete for cargo volume principally with other all-cargo
airlines, integrated carriers and scheduled and non-scheduled passenger airlines
which have substantial belly cargo capacity. To a lesser extent, the Company's
cargo services also compete for freight forwarding business with fully
integrated carriers, some of which are also customers of the Company. The
Company's ACMI services compete primarily with other airlines that operate
all-cargo aircraft and have lift capacity in excess of their own needs. Many of
the Company's competitors have substantially greater financial and other
resources and more extensive facilities and equipment than the Company. There
can be no assurance that the Company will be able to continue to compete
successfully with existing or new competitors. See "Business--
Competition."
CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP AND OPERATION. The airline
business is highly capital-intensive. The Company has made significant capital
investments to acquire the aircraft, ground
8
<PAGE>
and cargo handling equipment and an inventory of spare parts necessary for the
operation of its business. The Company historically has purchased, and intends
to continue to purchase, used aircraft, which tend to require more maintenance
than newer generation aircraft. Older aircraft tend to be subject to more
Airworthiness Directives ("ADs") promulgated by the U.S. Federal Aviation
Administration (the "FAA") than newer aircraft, and are required to undergo
extensive structural inspections on an ongoing basis. Currently, the Company
fleet consists of a single aircraft type, and an AD requiring significant
modifications to that aircraft type could require the Company to invest
significant additional funds in its aircraft or ground its fleet pending
compliance with the AD. The Company cannot predict when and whether new ADs
covering its aircraft will be promulgated, and there can be no assurance that
compliance with ADs will not adversely affect the Company's business, financial
condition or results of operations. In addition, to satisfy FAA rules regarding
allowable noise levels, the Company must install "hushkits" on its existing
fleet at an estimated cost of approximately $1.6 million per aircraft. There can
be no assurance that the costs of acquiring and installing hushkits on the
Company's aircraft thereof will not exceed management's estimates or that the
installation can be completed on a timely basis. See "Business--Government
Regulation."
AVAILABILITY OF ADDITIONAL AIRCRAFT AND AIRCRAFT PARTS. The Company's
growth strategy depends in large part upon its ability to acquire additional
aircraft to increase its lift capacity. The Company's strategy has been to
acquire used aircraft that formerly were in passenger service and to convert
such aircraft to cargo use. The market for used aircraft can be affected by a
number of factors, including increased demand from other cargo carriers, which
could limit the number of available aircraft and increase the acquisition cost
thereof. Certain parts and components required for the operation of the
Company's existing aircraft may not be readily available in the marketplace when
the Company requires them, and the inability of the Company to obtain necessary
components or parts in a timely manner could adversely affect the Company's
operations. There can also be no assurance that any aircraft acquired in
passenger configuration can be converted to cargo configuration on a timely
basis. See "Business--Growth Strategy."
CYCLICAL NATURE OF AIR FREIGHT INDUSTRY; SEASONALITY AND FLUCTUATIONS IN
QUARTERLY RESULTS. The air freight industry is highly sensitive to general
economic and political conditions, and the results of operations and financial
condition of air cargo carriers such as the Company can be adversely affected by
economic downturns in global or regional economies that result in decreased
demand for air freight transportation. Any prolonged general reduction in the
world air freight market could have a material adverse effect on the Company's
growth or financial performance. The Company's business has been, and is
expected to continue to be, seasonal in nature, with a majority of the Company's
revenues and operating income falling in the second half of the year
(principally the fourth quarter). The Company's fourth quarter revenues and
operating income are typically higher due to an increase in cargo transported in
anticipation of and during the holiday season. An interruption in the Company's
operations during this period due to unanticipated maintenance, compliance with
ADs, severe weather or other factors beyond the Company's control could have a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality."
COST AND AVAILABILITY OF FUEL. Fuel is a major expense for all airlines,
and the cost and availability of aviation fuel are subject to economic and
political factors and events which the Company can neither control nor
accurately predict. Higher fuel prices resulting from fuel shortages or other
factors could adversely affect the Company's profitability if the Company is
unable to pass on the full amount of fuel price increases to its customers
through fuel surcharges or higher rates. In addition, a shortage of supply could
have a material adverse effect on the air freight industry in general and the
financial condition and results of operations of the Company. See
"Business--Aircraft Fleet--Fuel."
CONTRABAND RISK. Customers may not inform the Company, despite the
requirement to do so, when their cargo includes hazardous materials. In
addition, the Company's own checks and searches for hazardous materials,
weapons, explosive devices and illegal freight may not reveal the presence of
such materials or substances in its customers' cargo. The transportation of
unmanifested hazardous materials
9
<PAGE>
or of contraband could result in fines, penalties, flight bans or possible
damage to the Company's aircraft. In one such instance, the government of Peru
has alleged that the Company supplied a chartered aircraft, which transported
weapons to Ecuador in February 1995 during the Ecuador-Peru conflict, and has
revoked the Company's right to fly into Peru or over Peruvian airspace. The
particular flight at issue was a chartered aircraft, and the Company denies any
wrongdoing. The FAA found after an investigation of the matter that there was
not sufficient evidence to support a conclusion that the Company violated
regulations governing the transportation of hazardous materials by air. However,
the Company continues to be subject to the Peruvian flight ban and is unable to
predict when this ban will be lifted. There can be no assurance the Company will
not be subject to fines, penalties or flight bans in the future, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Security and Safety."
DEPENDENCE UPON MANAGEMENT AND KEY PERSONNEL. The Company's success depends
to a significant degree upon the continued services of J. Frank Fine and Barry
H. Fine, as well as the Company's ability to retain other members of the
Company's senior management team and key personnel. The Company does not have
employment agreements with any of its officers or employees and does not
maintain "key man" life insurance. The loss of services of Messrs. Frank or
Barry Fine or certain other officers or key personnel could have a material
adverse effect on the Company's results of operations and its future prospects.
See "Management."
EMPLOYEE RELATIONS. Many airline industry employees are represented by
labor unions. The Company's employees have been subject to union organization
efforts from time to time, and the Company is likely to be subject to future
unionization efforts as its operations expand. The unionization of the Company's
workforce could result in higher employee compensation and working condition
demands that could increase the Company's operating costs or constrain its
operating flexibility. See "Business--Employees."
GOVERNMENT REGULATION. The Company is subject to extensive government
regulation under U.S. laws and the laws of the various countries which it serves
as well as bilateral and multilateral agreements between the United States and
foreign governments. The Company is subject to the jurisdiction of the FAA with
respect to aircraft maintenance and operations and other matters affecting air
safety. The FAA has the authority to suspend temporarily or revoke permanently
the authority of the Company or its licensed personnel for failure to comply
with FAA regulations and to assess civil penalties for such failures. The
Company must also remain "fit" under applicable DOT regulations governing, among
other things, air carriers' financial health, record of compliance with DOT
regulations and U.S. citizenship requirements. The FAA also exercises regulatory
jurisdiction over the transportation of hazardous materials. To provide
scheduled service to foreign countries, the Company must obtain permission for
such operations from both the DOT and the applicable foreign government
authorities and comply with all applicable rules and regulations imposed by
these foreign government authorities. The failure of the Company or its
employees to comply with applicable government regulations could subject the
Company to substantial fines or penalties or could result in the suspension or
loss of the Company's licenses, permits or authority to operate its aircraft or
routes. In addition, the adoption of new laws, policies, or regulations, or
changes in the interpretation or application of existing laws, policies or
regulations, whether by the FAA, the DOT, the U.S. government or any foreign,
state or local government to whose authority the Company is subject could have a
material adverse impact on the Company and its operations. See
"Business--Government Regulation."
UNINSURED LOSSES; COST OF INSURANCE. The Company is subject to potential
losses as a result of third party claims arising from accidents involving the
Company's aircraft or an aircraft that the Company has repaired or maintained.
Substantial claims resulting from such an accident could exceed the Company's
policy limits and have a material adverse effect on the business, financial
condition and results of operations of the Company. Aviation insurance premiums
historically have fluctuated based on factors that include the loss history of
the industry in general and the insured carrier, and the ability of the Company
to maintain adequate insurance coverage on economical terms could be adversely
affected by general industry conditions or losses incurred by the Company.
10
<PAGE>
CONTROL BY PRINCIPAL SHAREHOLDERS. J. Frank Fine and Barry H. Fine will
each beneficially own approximately % of the Company's outstanding Common
Stock after completion of this offering (approximately % if the Underwriters'
over-allotment option is exercised in full). As a result, each of these
shareholders will be in a position to significantly influence the outcome of
matters submitted for shareholder approval, including the election of directors,
mergers, sales of assets and other corporate transactions, and together, they
will have sufficient voting power to determine the outcome of any matters
submitted to the shareholders. See "Principal and Selling Shareholders."
RESTRICTIONS ON FOREIGN OWNERSHIP AND CONTROL. Under applicable regulatory
restrictions, no more than 25% of the voting stock of the Company can be owned
or controlled, directly or indirectly, by persons who are not U.S. citizens. The
Company's Amended and Restated Articles of Incorporation (the "Articles")
provides that no shares of capital stock may be voted by or at the direction of
persons who are not U.S. citizens unless such shares are registered on a
separate stock record. In addition, under existing DOT precedent and policy,
actual control must reside in U.S. citizens. Federal statutes also require that
at least two-thirds of the Company's Board of Directors and its President be
U.S. citizens. The Company's Articles and Bylaws limit the aggregate voting
power of non-U.S. persons to 25% of the votes voting on or consenting to any
matter. Furthermore, the Articles and Bylaws do not permit more than one-third
of the Company's officers or directors or its President to be non-U.S. citizens.
See "Description of Capital Stock."
POSSIBLE ANTI-TAKEOVER EFFECTS OF FLORIDA LAW, CHARTER PROVISIONS AND
PREFERRED STOCK. The Company is organized under the laws of the State of
Florida. Certain provisions of Florida law may have the effect of delaying,
deferring or preventing a change in control of the Company. In addition, certain
provisions of the Company's Articles and Bylaws may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that a
shareholder might consider in its best interest. The Board of Directors can
authorize and issue shares of preferred stock with voting or conversion rights
that could adversely affect the voting or other rights of holders of the
Company's Common Stock. In addition, the issuance of preferred stock may have
the effect of delaying, deferring or preventing a change of control of the
Company. See "Description of Capital Stock--Anti-takeover Effects of Certain
Provisions of Florida Law and the Company's Articles and Bylaws."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have outstanding shares of Common Stock. All of the of
these shares to be sold in this offering will be freely transferable by persons
other than "affiliates" of the Company without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining shares of Common Stock are beneficially owned by
Messrs. Frank and Barry Fine (the "Principal Shareholders"), are "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including exemptions contained in Rule
144 under the Securities Act. The Principal Shareholders have agreed that
without the prior written consent of Alex. Brown & Sons Incorporated, they will
not, during the 180 day period commencing on the date hereof offer, sell or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock. Sales of substantial numbers of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock. See "Shares
Eligible for Future Sale."
LACK OF PRIOR PUBLIC MARKET AND VOLATILITY OF STOCK PRICE. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market for the Common Stock
will develop subsequent to this offering or, if developed, that it will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiation among the Company, the Selling Shareholders and the
Representatives of the Underwriters. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. Upon
commencement of this offering, the Common Stock will be quoted on the Nasdaq
National Market, which has experienced and may continue to experience
significant price and volume fluctuations which could adversely affect the
market price of the Common Stock without regard to the operating performance of
the Company. In addition, the Company believes that factors such as
11
<PAGE>
quarterly fluctuations in the financial results of the Company, earnings below
analyst estimates and the financial performance of other publicly traded
companies could cause the price of the Common Stock to fluctuate substantially.
DIVIDEND POLICY; S CORPORATION DISTRIBUTIONS. Until immediately prior to
completion of this offering, the S Companies will be treated as S corporations
under the Internal Revenue Code of 1986, as amended (the "Code") and comparable
provisions of state income tax laws. Accordingly, the S Companies have made and,
prior to this offering will make periodic distributions to their shareholders in
amounts at least sufficient to provide them funds for tax obligations payable by
them on account of the S Companies' earnings. Immediately prior to the
completion of this offering, the S Companies will convert from S corporation to
C corporation status. In connection with this conversion, the S Companies will
effect the S Corporation Distributions, consisting of cash and S Corporation
Notes (which, at March 31, 1997, would have been approximately $24.5 million),
with the result that the Company's retained earnings and shareholders' equity
will be significantly reduced. In addition, the Company will record a one-time,
non-cash charge against earnings in the third quarter of 1997, resulting from a
net deferred tax liability in connection with the S Companies' conversion from S
corporation to C corporation status. Had the Company recorded this liability on
March 31, 1997, the amount of this charge would have been approximately $8.8
million. Following completion of this offering, the Company does not anticipate
paying any further cash dividends for the foreseeable future. See "Dividend
Policy and Prior S Corporation Status," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions."
DILUTION. Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution of approximately $ per share of Common
Stock from the initial public offering price. See "Dilution."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock being offered by the Company hereby are estimated to be approximately $
million ($ million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $ per share, after
deducting underwriting discounts and commissions and the estimated offering
expenses. Of such net proceeds, the Company will use (i) approximately $60
million to acquire up to four widebody aircraft and as many as three additional
DC-8s by the end of 1998, which includes approximately $3 million for spare
parts for its widebody aircraft and the cost to convert the acquired aircraft to
cargo configuration if necessary; (ii) approximately $19.2 million to install
hushkits on 12 of the Company's DC-8s; and (iii) approximately $9.6 million to
retire all of the Company's long-term debt, which bears interest at rates
ranging from 7.5% to 10% per annum and matures at various dates through March
2003. For a description of the Company's long-term debt, see Note 9 of Notes to
the Company's Combined Financial Statements. The Company will use the remaining
net proceeds for working capital and other general corporate purposes, which may
include payment of the S Corporation Notes and the acquisition of complementary
businesses. From time to time, the Company evaluates possible acquisitions but
is not currently considering any specific acquisition. The Company intends to
invest the net proceeds from this offering in interest-bearing, investment grade
obligations pending application thereof in the manner described above. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Shareholders.
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
Until immediately prior to completion of this offering, the S Companies
have been subject to taxation under Subchapter S of the Code and comparable
provisions of state income tax laws. As a result, the net income of the S
Companies, for federal and certain state income tax purposes, was reported by
and taxable directly to the S Companies' shareholders during that time rather
than to the S Companies. The S Companies historically have paid cash dividends
to their shareholders in amounts at least sufficient to provide them funds for
tax obligations payable by them on account of the S Companies' income. In
connection with their conversion from S corporation to C corporation status, the
S Companies will effect the S Corporation Distributions (consisting of cash and
S Corporation Notes) to their shareholders prior to the conversion. The S
Corporation Notes will have a one-year term and bear interest at 6.25% per
annum. The S Corporation Distributions will represent the S Companies'
accumulated taxable income which has not been distributed to their shareholders
prior to the conversion date. If the S Companies had converted to C corporations
as of March 31, 1997, the aggregate amount of the S Corporation Distributions
would have been approximately $24.5 million. The actual amount of the S
Corporation Distributions will depend upon the S Companies' earnings from April
1, 1997 to the conversion date, and the cash portion of the S Corporation
Distributions will depend upon the amount of cash available for distribution. In
addition to the S Corporation Distributions, prior to this offering Agro Air
will assign to its shareholders the right to receive the proceeds of a $2.5
million judgment plus interest. See "Certain Transactions."
Following this offering, the Company does not intend to pay cash dividends
as it intends to retain any future earnings for reinvestment in its business.
Any future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997: (i) the cash and cash
equivalents and total combined capitalization of the Company; (ii) such cash and
cash equivalents and combined capitalization on a pro forma basis to give effect
to the S Corporation Distributions and the recognition of a deferred tax
liability resulting from conversions of the S Companies to C corporations; and
(iii) such pro forma cash and cash equivalents and combined capitalization as
adjusted to reflect the sale of the 0,000,000 shares of Common Stock offered by
the Company hereby at an assumed offering price of $00.00 per share and the
application of the net proceeds therefrom after deduction of underwriting
discounts and commissions and estimated offering expenses. This table should be
read in conjunction with the Company's Combined Financial Statements and Notes
thereto and the other financial information appearing elsewhere in this
Prospectus. See "Use of Proceeds," "Dividend Policy and Prior S Corporation
Status" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents ....................................... $ 4,831 $ -- $
======== ======== ========
Long-term debt, less current portion (1) ........................ $ 8,153 $ 8,153 $ --
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no
shares issued and outstanding, actual, pro forma and pro forma
as adjusted .................................................... $ -- $ -- $ --
Common stock, $1.00 par value; 8,000 shares authorized, 2,500
shares issued and outstanding actual; $0.01 par value, 50,000,000
shares authorized; and shares
issued and outstanding pro forma and pro forma as adjusted,
respectively (2) .............................................. 3 3
Additional paid-in capital ....................................... -- 14,555
Retained earnings ................................................ 47,898 --
Net unrealized holding loss on investment securities ............ (108) (108) (108)
Total stockholders' equity .................................... 47,793 14,450
-------- --------
Total capitalization .......................................... $ 55,946 $ 22,603 $
======== ======== ========
</TABLE>
- ----------------
(1) For a description of the Company's long-term debt, see Note 9 of Notes to
the Company's Combined Financial Statements.
(2) Excludes (i) shares of Common Stock reserved for issuance pursuant to
the Incentive Plan and (ii) shares of Common Stock reserved for
purchase under the Stock Purchase Plan. Simultaneously with this offering,
the Company will grant to certain officers and other key employees options
to purchase an aggregate of shares of Common Stock, exercisable at the
initial public offering price. See "Management--Stock Plans."
14
<PAGE>
DILUTION
As of March 31, 1997, the Company had a pro forma net tangible book value
of $14.5 million, or $ per share, after giving effect to the S Corporation
Distributions and recognition of a $8.8 million net deferred tax liability
resulting from the conversion of the S Companies to C corporations. Pro forma
net tangible book value per share is determined by dividing the pro forma net
tangible book value (tangible assets less total liabilities) of the Company by
the number of shares of Common Stock outstanding. After giving effect to the
sale of the shares of Common Stock offered by the Company hereby at an
assumed offering price of $ per share and the application of the net proceeds
therefrom after deduction of underwriting discounts and commissions and
estimated offering expenses, the Company's pro forma net tangible book value as
of March 31, 1997 would have been $ million, or $ per share. This
represents an immediate increase in the pro forma net tangible book value to
existing shareholders of $ per share and an immediate dilution to new
investors of $ per share. The following table illustrates such per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price .................. $
Pro forma net tangible book value before offering ......
Increase attributable to new investors ..................
-----
Pro forma net tangible book value after offering .........
Dilution to new investors(1) ...........................
$
=====
</TABLE>
The following table sets forth as of March 31, 1997, on a pro forma basis
to give effect to the S Corporation Distributions, the number of shares of
Common Stock purchased from the Company, the total difference between existing
shareholders and new investors with respect to number of shares purchased from
the Company, the total consideration paid and the average price per share,
assuming an initial public offering price of $ per share but before deducting
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ---------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... % $ % $
New investors ...............
----- ------- ----- ------- -------
% % $
Total ..................... 100.0% $ 100.0%
======= ======= =======
</TABLE>
The foregoing tables do not reflect (i) the possible exercise of options to
purchase shares of Common Stock granted or which may be granted after
completion of this offering under the Incentive Plan, of which options to
purchase shares at the initial public offering price will be granted upon
completion of this offering, or (ii) the issuance of up to shares of
Common Stock under the Stock Purchase Plan. See "Management--Stock Plans."
15
<PAGE>
SELECTED FINANCIAL DATA
The balance sheet data set forth below as of December 31, 1994, 1995 and
1996 and the statement of operations data for each of the years in the
three-year period ended December 31, 1996 have been derived from the Company's
audited combined financial statements. The balance sheet data as of December 31,
1992 and 1993 have been derived from unaudited financial statements of the
Company not included herein. The balance sheet data as of March 31, 1996 and
1997 and the selected statements of operations data for the three months ended
March 31, 1996 and 1997 have been derived from the unaudited combined financial
statements of the Company which, in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results for the full year. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Combined Financial Statements and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1992 1993 1994
--------- --------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Scheduled cargo services ................................. $ -- $ -- $ 19,941
ACMI services ............................................. 22,266 29,025 44,420
Repairs, training and other .............................. -- -- 492
-------- -------- -----------
Total revenues ............................................. 22,266 29,025 64,853
Operating expenses:
Flying operations .......................................... 19,944
Aircraft and traffic servicing ........................... 4,098
Maintenance ................................................ 12,724
General and administrative ................................. 8,746
Selling ................................................... 3,315
Depreciation and amortization .............................. 3,887
-----------
Total operating expenses ................................. 18,670 25,136 52,714
-------- -------- -----------
Operating income .......................................... 3,596 3,889 12,139
Interest and other income, net .............................. 2,059
-----------
Net income ................................................... $ 5,473 $ 3,128 $ 14,198(1)
======== ======== ===========
Pro forma net income (2) .................................... $ 3,414 $ 1,951 $ 8,794
======== ======== ===========
Pro forma net income per share (2) ........................ $ $ $
======== ======== ===========
Pro forma weighted average shares outstanding (3) .........
OPERATING DATA:
Destinations served (end of period) ........................ -- -- 9
Tons of freight transported--scheduled cargo services ...... -- -- 32,072
ACMI block hours flown .................................... 9,566 12,943 15,280
Aircraft in service (end of period) ........................ 8 13 13
BALANCE SHEET DATA (END OF PERIOD):
Working capital ............................................. $ 1,347 $ 3,917 $ 4,861
Total assets ................................................ 20,998 29,502 45,313
Total debt ................................................ 10,919 17,274 13,946
Stockholders' equity ....................................... 7,132 9,537 23,754
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- --------------------
1995 1996 1996 1997
----------- ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Scheduled cargo services ................................. $ 40,124 $ 54,775 $11,693 $ 16,174
ACMI services ............................................. 35,340 35,520 5,430 9,126
Repairs, training and other .............................. 885 3,953 1,796 626
-------- -------- -------- ---------
Total revenues ............................................. 76,349 94,248 18,919 25,926
Operating expenses:
Flying operations .......................................... 25,971 36,610 7,880 9,467
Aircraft and traffic servicing ........................... 7,475 7,939 1,684 2,118
Maintenance ................................................ 8,340 9,894 1,683 2,889
General and administrative ................................. 11,482 14,111 3,506 3,994
Selling ................................................... 4,454 3,096 695 1,263
Depreciation and amortization .............................. 6,924 9,390 2,166 2,846
-------- -------- -------- ---------
Total operating expenses ................................. 64,646 81,040 17,614 22,577
-------- -------- -------- ---------
Operating income .......................................... 11,703 13,208 1,305 3,349
Interest and other income, net .............................. (665) (180) 160 (179)
-------- -------- -------- ---------
Net income ................................................... $ 11,038 $ 13,028 $ 1,465 $ 3,170
======== ======== ======== =========
Pro forma net income (2) .................................... $ 6,818 $ 8,058 $ 914 $ 1,977
======== ======== ======== =========
Pro forma net income per share (2) ........................ $ $ $ $
======== ======== ======== =========
Pro forma weighted average shares outstanding (3) .........
OPERATING DATA:
Destinations served (end of period) ........................ 21 27 27 29
Tons of freight transported--scheduled cargo services ...... 64,906 75,923 18,360 19,404
ACMI block hours flown .................................... 12,068 12,289 2,146 3,050
Aircraft in service (end of period) ........................ 14 15 14 15
BALANCE SHEET DATA (END OF PERIOD):
Working capital ............................................. $ 9,735 $ 15,778 $ 8,858 $ 16,162
Total assets ................................................ 57,026 65,886 52,793 65,341
Total debt ................................................ 12,529 10,657 10,898 9,581
Stockholders' equity ....................................... 32,624 45,030 33,768 47,793
</TABLE>
- ----------------
(1) Net income for 1994 includes a $2.2 million gain on insurance settlement,
representing the excess of insurance proceeds over the net book value of an
aircraft that sustained significant damage. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
(2) The pro forma information has been computed as if the S Companies were
subject to federal and all applicable state corporate income taxes for each
of the periods presented, assuming that a 37.6% tax rate would have been
applied had the S Companies been treated as C corporations. See "Dividend
Policy and Prior S Corporation Status," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Certain Transactions."
(3) Includes that number of shares of Common Stock which, had they been issued
(at an assumed initial public offering price of $ per share less the
underwriting discount and commissions), would have generated cash sufficient
to fund the portion of the S Corporation Distributions in excess of the
Company's pro forma net income for the twelve months ended March 31, 1997.
See Note 14 of Notes to the Company's Combined Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS "FORWARD-LOOKING STATEMENTS" WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS," ABOVE, AND
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION ALSO SHOULD BE READ IN
CONJUNCTION WITH THE COMPANY'S COMBINED FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company derives its revenues from three sources: scheduled cargo
services, ACMI services and repairs, training and other services provided to
third parties. During the past three years, the Company's revenues increased at
a compound annual rate of 48.1% to $94.2 million in 1996 from $29.0 million in
1993. The Company's revenue growth during this period has been substantially the
result of the introduction and expansion of scheduled cargo services. The
Company began offering scheduled cargo services at the beginning of 1994 and has
expanded its service to include 29 South and Central American and Caribbean
destinations as of March 31, 1997. Revenues from scheduled cargo services
increased at a compound annual rate of 66.6% from 1994 to 1996 and represented
58.1% of total revenues in 1996, compared to 30.7% of total revenues in 1994.
The shift in mix of the Company's revenues during the past three years has
impacted its operating margins, as the Company has committed significant
resources to build the infrastructure to support its scheduled cargo services,
including moving to a new cargo warehouse and new MIA hangar facilities, opening
additional domestic and foreign sales offices, and adding sales, flight,
warehouse, cargo and ground handling personnel. Management believes that the
Company will be able to utilize its existing infrastructure and fleet, as well
as the additional aircraft it intends to acquire, to expand its scheduled cargo
services to new destinations in South and Central America and the Caribbean.
Management plans to continue to emphasize the development of scheduled cargo
services for future revenue growth while at the same time expanding the
Company's ACMI services. ACMI services have been more profitable than scheduled
cargo services primarily because increased demand for ACMI services during the
fourth quarter generally has resulted in higher aircraft utilization and more
profitable ACMI rates.
Revenues from scheduled cargo services consist principally of charges for
freight transported on the Company's scheduled cargo routes and charges for
transportation logistics services, such as truck and interline transportation of
freight, local pick-up and delivery, warehousing and assistance in document
preparation and processing. The Company sells air cargo services to destinations
its serves directly, destinations served by its ACMI and AMI (aircraft,
maintenance and insurance) customers and destinations served by other airlines
on an interline basis. Freight rates are structured based upon the type of
freight, weight or volume, delivery service and the destination. Beginning in
the third quarter of 1996, the Company's revenues from scheduled cargo services
include fuel surcharges that the Company instituted following significant
increases in fuel prices during the year. During the first quarter of 1997, fuel
prices began to decline, and the Company removed its fuel surcharges in certain
markets in the second quarter of 1997.
Revenues from ACMI services are derived from both ACMI and AMI contracts
under which the Company supplies its aircraft for specified cargo operations or
on an AD HOC basis and charges its customers for such services on a per block
hour basis subject, in certain instances, to specified minimum charges. The
Company's ACMI customers are responsible for substantially all other aircraft
operating expenses, including fuel, landing and parking fees and ground and
cargo handling expenses. The Company's AMI customers are responsible for the
same operating costs as ACMI customers and also provide their own crews.
Revenues from repairs, training and other are comprised principally of
charges for third party maintenance services, including airframe, component and
engine maintenance, repairs and overhauls, as well as spare parts sales, leasing
and training.
17
<PAGE>
Flying operations expenses are comprised principally of fuel costs, crew
costs, overflight, landing and parking fees, aircraft rental expenses, expenses
for transporting freight to and from the Company's MIA hub from its sales
offices and interline transportation expenses. Flying operations expenses
associated with ACMI services, such as fuel, overflight, landing and parking
fees, are either paid directly by the Company's customer or billed to the
customer on a direct pass-through basis. Most of the Company's ACMI customers
purchase their own fuel.
Aircraft and traffic servicing expenses are comprised principally of
personnel and equipment repair expenses associated with the Company's cargo
warehouse, cargo handling and ground handling operations and communications,
personnel and third party expenses related to flight planning. Aircraft and
traffic servicing expenses have increased over the past three years as the
Company has added personnel to handle the increase in scheduled cargo services.
Maintenance expenses are comprised principally of labor, parts and supplies
associated with the maintenance, repair and overhaul of the Company's aircraft
and engines and third party maintenance services. Costs associated with major
maintenance ("C" and "D") checks are capitalized when incurred and amortized
over their expected useful lives, ranging from 3 years for "C" checks and engine
repairs to 8 years for "D" checks. Other maintenance expenses, including
expenses associated with routine maintenance checks, are expensed when incurred.
Because the Company pays for maintenance whether its aircraft are used in
scheduled cargo service or ACMI service, maintenance expenses are not affected
by changes in the mix of revenues from these two services.
General and administrative expenses are comprised principally of salaries
and benefits for executive and administrative personnel, insurance, security
expenses and rent, utilities and other occupancy expenses associated with the
Company's cargo warehouse and MIA hangar facilities and domestic and
international operations stations and sales offices.
Selling expenses are comprised principally of salaries and benefits for
sales personnel, commissions paid to third party general sales agents,
advertising and marketing expenses and provision for bad debts.
Depreciation and amortization expenses are comprised principally of
depreciation on aircraft, aircraft components and ground equipment, and the
amortization of capitalized major airframe and engine maintenance, repairs and
overhauls.
Immediately prior to this offering, each of Messrs. Frank and Barry Fine
will contribute his interest in Agro Air to the Company, and Agro Air will
become a wholly-owned subsidiary of the Company. The Company's Combined
Financial Statements included in this Prospectus reflect the combined results of
the Company and Agro Air for all periods presented. During all such periods, the
Company and Agro Air were S corporations and, accordingly, were not subject to
federal and certain state corporate income taxes. See "Dividend Policy and Prior
S Corporation Status" and "Certain Transactions." Pro forma net income assumes
that the Company and Agro Air were subject to federal and all applicable state
income taxes applicable to C corporations and was calculated using a tax rate of
37.6%.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage
of total operating revenues represented by certain revenue, expense and income
items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Scheduled cargo services ............ 30.7% 52.6% 58.1% 61.8% 62.4%
ACMI services ........................ 68.5 46.3 37.7 28.7 35.2
Repairs, training and other ......... 0.8 1.1 4.2 9.5 2.4
------- ------- ------- ------- -------
Total revenues ..................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
Operating expenses:
Flying operations .................. 30.8% 34.0% 38.8% 41.6% 36.5%
Aircraft and traffic servicing ...... 6.3 9.8 8.4 8.9 8.2
Maintenance ........................ 19.6 10.9 10.5 8.9 11.1
General and administrative ......... 13.5 15.0 15.0 18.5 15.4
Selling .............................. 5.1 5.8 3.3 3.7 4.9
Depreciation and amortization ...... 6.0 9.1 10.0 11.5 11.0
------- ------- ------- ------- -------
Total operating expenses ............ 81.3 84.6 86.0 93.1 87.1
------- ------- ------- ------- -------
Operating income ..................... 18.7 15.4 14.0 6.9 12.9
Interest and other income, net ...... 3.2 (0.9) (0.2) 0.8 (0.7)
------- ------- ------- ------- -------
Net income ........................... 21.9% 14.5% 13.8% 7.7% 12.2%
======= ======= ======= ======= =======
Pro forma net income .................. 13.6% 8.9% 8.5% 4.8% 7.6%
======= ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES.
Revenues increased 37.0% to $25.9 million in the first quarter of 1997 from
$18.9 million in the first quarter of 1996, due to increases in revenues from
both scheduled cargo services and ACMI services. Total block hours flown by the
Company's fleet increased 28.0% to 5,514 in the first quarter of 1997 from 4,309
in the first quarter of 1996 due to the addition of one aircraft placed into
service in December 1996 and increased utilization of the existing fleet.
Revenues from scheduled cargo services increased 38.5% to $16.2 million in
the first quarter of 1997 from $11.7 million in the first quarter of 1996, due
to increases in cargo rates and the collection of fuel surcharges in most
markets and, to a lesser extent, due to an increase in tons of freight
transported. During the third and fourth quarters of 1996, the Company increased
its cargo rates by approximately 15%. Fuel surcharges were instituted in most
markets during the third quarter of 1996 and accounted for approximately $1.5
million of revenues from scheduled cargo services in the first quarter of 1997.
Tons of freight transported increased 5.7% to 19,404 in the first quarter of
1997 from 18,360 in the first quarter of 1996, primarily as a result of
increases in freight transported to and from destinations already served by the
Company (principally in Venezuela and Ecuador) and, to a lesser extent, from
sales of air cargo service to new destinations. The Company attributes the
increased load factors to increased sales efforts by the Company's domestic and
international sales network. As of March 31, 1997, the Company offered scheduled
cargo service to 29 destinations, compared to 27 destinations as of March 31,
1996.
Revenues from ACMI services increased 68.5% to $9.1 million in the first
quarter of 1997 from $5.4 million in the first quarter of 1996, due primarily to
an increase in ACMI block hours. Total block hours flown for ACMI services
increased 38.9% to 3,050 in the first quarter of 1997 from 2,146 in the first
quarter of 1996. The Company added two new ACMI customers in the first quarter
of 1997 and also
19
<PAGE>
increased aircraft utilization by selling ACMI services on the northbound leg of
several flights operated on the southbound leg as scheduled cargo service.
Revenues from ACMI services also increased due to increases in ACMI rates
instituted during the fourth quarter of 1996.
Revenues from repairs, training and other decreased to $626,000 in the
first quarter of 1997 from $1.8 million in the first quarter of 1996, due
primarily to $1.2 million of airframe and repairs performed on a single aircraft
during the first quarter of 1996. Revenues from third party engine repairs
increased to $265,000 in the first quarter of 1997 from $38,000 in the first
quarter of 1996, as a result of engine repairs performed in the first quarter of
1997 for Boeing. The Company began actively marketing its third party repair and
maintenance capabilities in 1996 and expects that its revenues from these
services will increase in the future.
OPERATING EXPENSES.
Flying operations expenses increased 20.3% to $9.5 million in the first
quarter of 1997 from $7.9 million in the first quarter of 1996, due primarily to
increased fuel costs and, to a lesser extent, increased intermodal, interline
transportation and other costs associated with scheduled cargo services. Fuel
costs, which constitute a significant portion of flying operations expenses,
increased significantly in the first quarter of 1997 compared to the first
quarter of 1996 due primarily to higher fuel prices. As a percentage of total
revenues, flying operations expenses decreased to 36.5% in the first quarter of
1997 from 41.6% in the first quarter of 1996 as a result of the increase in ACMI
service revenues to 35.2% of total revenues in the first quarter of 1997 from
28.7% in the first quarter of 1996.
Aircraft and traffic servicing expenses increased 23.5% to $2.1 million in
the first quarter of 1997 from $1.7 million in the first quarter of 1996, due
primarily to the addition of personnel to handle the increase in scheduled cargo
services, as well as increased third party cargo handling expenses at
destinations where the Company contracts for such services. As a percentage of
total revenues, aircraft and traffic servicing expenses decreased to 8.2% in the
first quarter of 1997 from 8.9% in the first quarter of 1996, due to the shift
in mix of revenues and economies of scale associated with the Company's new
cargo warehouse facilities.
Maintenance expenses increased 70.6% to $2.9 million in the first quarter
of 1997 from $1.7 million in the first quarter of 1996, due primarily to the
increase in block hours operated during the first quarter of 1997. In addition,
during the first quarter of 1996, the Company performed more maintenance as part
of "C" and "D" checks, the costs of which are capitalized rather than expensed,
than during the first quarter of 1997. As a percentage of total revenues,
maintenance expenses increased to 11.1% in the first quarter of 1997 from 8.9%
in the first quarter of 1996 due to the difference in the types of maintenance
performed during each period.
General and administrative expenses increased 14.3% to $4.0 million in the
first quarter of 1997 from $3.5 million in the first quarter of 1996, due
primarily to increased rent associated with the Company's new MIA cargo
warehouse and hangar facilities and increased professional fees. These increases
were partially offset by a decrease in aircraft hull and liability insurance
premiums in the first quarter of 1997 compared to the first quarter of 1996. As
a percentage of total revenues, general and administrative expenses decreased to
15.4% in the first quarter of 1997 from 18.5% in the first quarter of 1996, as
the Company's existing infrastructure was able to support higher revenues.
Selling expenses increased 87.1% to $1.3 million in the first quarter of
1997 from $695,000 in the first quarter of 1996, due primarily to increased
commissions and selling expenses and the addition of sales personnel to support
the growth in scheduled cargo services. Commissions and other selling expenses
related to scheduled cargo services increased $195,000 in the first quarter of
1997 compared to the first quarter of 1996. The Company's provision for bad
debts increased $219,000 in the first quarter of 1997 compared to the first
quarter of 1996 due largely to the bankruptcy of one customer. As a percentage
of total revenues, selling expenses increased to 4.9% in the first quarter of
1997 from 3.7% in the first quarter of 1996, primarily due to the increased
provision for bad debts during the first quarter of 1997.
20
<PAGE>
Depreciation and amortization expenses increased 27.3% to $2.8 million in
the first quarter of 1997 from $2.2 million in the first quarter of 1996, due
primarily to increases in equipment and leasehold improvements as well as
increased amortization of capitalized airframe and engine repair and maintenance
costs. As a percentage of total revenues, depreciation and amortization expenses
decreased to 11.0% in the first quarter of 1997 from 11.5% in the first quarter
of 1996.
OPERATING INCOME. Operating income increased 154% to $3.3 million in the
first quarter of 1997 from $1.3 million in the first quarter of 1996. The
Company's operating margin increased to 12.9% in the first quarter of 1997 from
6.9% in the first quarter of 1996 due to the change in mix of revenues.
INTEREST AND OTHER INCOME, NET. Interest and other income, net decreased
$339,000 in the first quarter of 1997 compared to the first quarter of 1996, due
primarily to a $364,000 gain on the sale of four surplus aircraft engines in the
first quarter of 1996. Interest expense decreased 14.4% to $225,000 in the first
quarter of 1997 from $263,000 in the first quarter of 1996 due primarily to
lower average outstanding indebtedness during the first quarter of 1997 as a
result of scheduled principal payments on long-term debt.
NET INCOME. Net income increased 113% to $3.2 million in the first quarter
of 1997 from $1.5 million in the first quarter of 1996. Pro forma net income
increased 116% to $2.0 million in the first quarter of 1997 from $0.9 million in
the first quarter of 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES.
Revenues increased 23.5% to $94.2 million in 1996 from $76.3 million in
1995, primarily due to an increase in revenues from scheduled cargo services.
Total block hours flown by the Company's fleet increased 11.9% to 21,642 in 1996
from 19,340 in 1995 due to the addition of one aircraft placed into service in
1996 and increased utilization of the existing fleet.
Revenues from scheduled cargo services increased 36.7% to $54.8 million in
1996 from $40.1 million in 1995, due primarily to increases in tons of freight
transported and cargo rates and to a lesser extent to fuel surcharges collected
during the fourth quarter of 1996. Freight tonnage increased 17.0% to 75,923 in
1996 from 64,906 in 1995, primarily as a result of increases in freight
transported to and from destinations already served by the Company (principally
in Ecuador, El Salvador, Puerto Rico and Venezuela), and to a lesser extent from
sales of air cargo service to new destinations (Colombia, the Dominican Republic
and Jamaica). As of December 31, 1996, the Company offered scheduled cargo
service to 27 destinations, compared to 21 destinations as of December 31, 1995.
Management believes that increased load factors were largely the result of
expansion of the Company's domestic and international sales network. During 1995
and 1996, the Company added domestic sales offices in Atlanta and Chicago and
entered into general sales agent relationships for the marketing of the
Company's scheduled cargo services in the western United States and portions of
Canada and Europe. Cargo rates increased approximately 15% during the third and
fourth quarters of 1996. Due to significant increases in fuel prices, fuel
surcharges were instituted in most markets during the third quarter of 1996 and
accounted for approximately $1.5 million of revenues from scheduled cargo
services in 1996.
Revenues from ACMI services increased slightly to $35.5 million in 1996
from $35.3 million in 1995. Revenues from ACMI services in 1995 reflected higher
than normal ACMI rates received for several emergency relief cargo flights after
a Caribbean hurricane and additional ACMI business that the Company obtained
during the temporary discontinuation of air cargo service by a competitor. Total
block hours flown for ACMI services increased 1.8% to 12,289 in 1996 from 12,068
in 1995.
Revenues from repairs, training and other increased to $4.0 million in 1996
from $885,000 in 1995, due primarily to increased airframe and engine overhauls
and repairs, including $1.7 million of airframe
21
<PAGE>
repairs performed on a single aircraft during 1996. The Company's move during
1996 to a new hangar facility at MIA provided the Company the capability to
accomplish a wider range of third party maintenance services, including airframe
repairs and maintenance.
OPERATING EXPENSES.
Flying operations expenses increased 40.8% to $36.6 million in 1996 from
$26.0 million in 1995 due primarily to increased fuel costs and to a lesser
extent increased intermodal and interline transportation and other costs
associated with scheduled cargo services. As a percentage of total revenues,
flying operations expenses increased to 38.8% in 1996 from 34.0% in 1995 as a
result of the increase in revenues from scheduled cargo services as a percentage
of revenues to 58.1% of total revenues in 1996 from 52.6% in 1995.
Aircraft and traffic servicing expenses increased 5.3% to $7.9 million in
1996 from $7.5 million in 1995, due primarily to the increase in 1996 in the
number of flights operated for scheduled cargo services. As a percentage of
total revenues, aircraft and traffic servicing expenses improved to 8.4% in 1996
from 9.8% in 1995, as the Company was able to achieve economies of scale
associated with its new cargo warehouse facilities.
Maintenance expenses increased 19.3% to $9.9 million in 1996 from $8.3
million in 1995, due primarily to the increase in block hours operated during
1996. Despite the significant increase in maintenance services for third parties
and the increase in the number of block hours flown during 1996, as a percentage
of total revenues, maintenance expenses improved to 10.5% in 1996 from 10.9% in
1995 due to operational economies as a result of the consolidation of the
Company's maintenance operations at its new MIA hangar facility.
General and administrative expenses increased 22.6% to $14.1 million in
1996 from $11.5 million in 1995, due primarily to increases in expenses
associated with the expansion of scheduled cargo services as well as increased
rent related to the Company's new cargo warehouse, new MIA hangar facility and
operations stations and sales office facilities added during 1996, as well as
the addition of personnel. Nevertheless, as a percentage of total revenues,
general and administrative expenses remained constant at 15.0% in 1996 and 1995.
Selling expenses decreased 31.1% to $3.1 million in 1996 from $4.5 million
in 1995, due primarily to an increase in reserves for bad debts in 1995. The
Company provided reserves of approximately $891,000 for bad debts in 1995
compared to only $16,000 in 1996. Commissions and other selling expenses related
to scheduled cargo services were approximately $3.2 million in both 1995 and
1996. As a percentage of total revenues, selling expenses declined to 3.3% in
1996 from 5.8% in 1995, as the Company realized increased revenues from
scheduled cargo services without a corresponding increase in sales personnel.
Depreciation and amortization expense increased 36.2% to $9.4 million in
1996 from $6.9 million in 1995, primarily due to increased depreciation related
to the acquisition of an additional aircraft during the second quarter of 1995
and the amortization of capitalized airframe engine repair and maintenance
costs. As a percentage of total revenues, depreciation and amortization expenses
increased to 10.0% in 1996 from 9.1% in 1995.
OPERATING INCOME. As a result of the above factors, operating income
increased 12.8% to $13.2 million in 1996 from $11.7 million in 1995. The
Company's operating margin decreased to 14.0% in 1996 from 15.4% in 1995, due
largely to costs associated with the development of scheduled cargo services.
INTEREST AND OTHER INCOME, NET. Interest and other income, net increased
$486,000 in 1996 compared to 1995. Other income in 1996 included a $364,000 gain
on the sale of four surplus aircraft engines. Interest expense decreased
slightly to $966,000 in 1996 from $985,000 in 1995 due primarily to lower
average outstanding indebtedness during 1996 as a result of scheduled principal
payments on long-term debt.
22
<PAGE>
NET INCOME. Net income increased 18.2% to $13.0 million in 1996 from $11.0
million in 1995. Pro forma net income increased 18,2% to $8.1 million in 1996
from $6.8 million in 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES.
Revenues increased 17.6% to $76.3 million in 1995 from $64.9 million in
1994, due to an increase in revenues from scheduled cargo services. Total block
hours flown by the Company's fleet decreased 5.9% to 19,340 in 1995 from 20,549
in 1994 due to lower utilization of the fleet for ACMI services.
Revenues from scheduled cargo services increased 101.5% to $40.1 million in
1995 from $19.9 million in 1994, due to an increase in tons of freight
transported. Tons of freight transported increased 102% to 64,906 in 1995 from
32,072 in 1994 as a result of increases in freight transported to and from
destinations already served by the Company (principally in Brazil, Costa Rica,
Panama and Venezuela), and the introduction of cargo service to Ecuador and
Puerto Rico. The Company introduced scheduled cargo service to six destinations
during the first half of 1994 and introduced service to three other destinations
during the second half of 1994. Therefore, the increase in 1995 revenue from
existing destinations resulted in part from the Company providing cargo service
to these destinations throughout 1995 compared to only a portion of the year in
1994. As of December 31, 1995, the Company offered scheduled cargo service to 21
destinations, compared to nine destinations as of December 31, 1994.
Revenues from ACMI services decreased 20.5% to $35.3 million in 1995 from
$44.4 million in 1994, as the Company discontinued most domestic ACMI services.
The Company had provided ACMI services to several domestic customers, which
required the Company to maintain crews and maintenance personnel at multiple
locations throughout the United States and generated lower margins than the
Company's other ACMI business. During 1995, management decided to discontinue
providing ACMI services to these customers and allocate the Company's resources
to the expansion of scheduled cargo services. As a result, total block hours
flown for ACMI services decreased 21.0% to 12,068 in 1995 from 15,280 in 1994.
Revenues from repairs, training and other increased 79.9% to $885,000 in
1995 from $492,000 in 1994, principally due to increased revenues from third
party maintenance services and engine repairs.
OPERATING EXPENSES
Flying operations expenses increased 30.7% to $26.0 million in 1995 from
$19.9 million in 1994 due primarily to costs associated with an increased number
of flights operated for scheduled cargo services. The increase in flying
operations expenses in 1995 was higher than the corresponding increase in
operating revenues as a result of the increase in revenues from scheduled cargo
services as a percentage of revenues to 52.6% in 1995 from 30.7% in 1994. As a
percentage of total revenues, flying operations expenses increased to 34.0% in
1995 from 30.8% in 1994 as a result of the change in mix of revenues.
Aircraft and traffic servicing expenses increased 82.9% to $7.5 million in
1995 from $4.1 million in 1994, due primarily to the expansion of the Company's
scheduled cargo services. In addition to an increase in the number of scheduled
cargo flights operated in 1995, the Company operated scheduled cargo services
for the full year in 1995 compared to only a portion of the year in 1994. In
addition, during 1995 the Company began operating its cargo warehouse facility
on a 24 hour basis, which resulted in an increase in warehouse and cargo
handling personnel expenses in 1995. As a percentage of total revenues, aircraft
and traffic servicing expenses increased to 9.8% in 1995 from 6.3% in 1994.
Maintenance expenses decreased 34.6% to $8.3 million in 1995 from $12.7
million in 1994. During 1994, the Company completed modifications to all 13 of
its aircraft to comply with an FAA airworthiness directive, at a cost of between
$75,000 and $100,000 per aircraft. In addition, during 1995 the Company hired
additional maintenance personnel to perform maintenance tasks for which the
23
<PAGE>
Company previously had used third party labor at higher rates. As a percentage
of total revenues, maintenance expenses decreased to 10.9% in 1995 from 19.6% in
1994, due primarily to changes in the Company's scheduled maintenance program.
During 1995, the Company modified its maintenance program which resulted in
additional maintenance tasks being performed during "C" and "D" checks, the
costs of which are capitalized rather than expensed.
General and administrative expenses increased 32.2% to $11.5 million in
1995 from $8.7 million in 1994, due primarily to increases in personnel,
telecommunications and other expenses associated with the expansion of scheduled
cargo services, as well as increases in rent expenses. During 1995, the Company
moved to a new cargo warehouse handling facility and opened three new domestic
sales offices. As a percentage of total revenues, general and administrative
expenses increased to 15.0% in 1995 from 13.5% in 1994, as the Company expanded
its infrastructure to accommodate existing and planned growth in scheduled cargo
services.
Selling expenses increased 36.4% to $4.5 million in 1995 from $3.3 million
in 1994, due primarily to an increase in commissions and other selling expenses
associated with scheduled cargo services and a $300,000 increase in provision
for bad debts. Commissions and other selling expenses related to scheduled cargo
services increased to $3.2 million in 1995 from $2.3 million in 1994. As a
percentage of total revenues, selling expenses increased to 5.8% in 1995 from
5.1% in 1994 due to the increase in revenues from scheduled cargo services,
which involve higher commissions than ACMI services.
Depreciation and amortization expense increased 76.9% to $6.9 million in
1995 from $3.9 million in 1994, primarily due to increased depreciation
resulting from the acquisition of an aircraft during the first half of 1995 and
higher amortization of capitalized airframe and engine repair and maintenance
costs in 1995 resulting in part from modification of the Company's maintenance
program to incorporate certain tasks as part of major maintenance checks. As a
percentage of total revenues, depreciation and amortization expenses increased
to 9.1% in 1995 from 6.0% in 1994.
OPERATING INCOME. Operating income decreased 3.3%, to $11.7 million in 1995
from $12.1 million in 1994, due largely to costs associated with the development
of scheduled cargo services. The Company's operating margin decreased to 15.4%
in 1995 from 18.7% in 1994.
INTEREST AND OTHER INCOME, NET. Interest and other income, net decreased
$2.7 million to an expense of $666,000 in 1995 compared to income of $2.1
million in 1994, primarily due to a $2.2 million gain on insurance settlement in
1994. This gain represented the excess of insurance proceeds over the net book
value of a Company's aircraft that sustained significant damage during takeoff
in May 1994. The aircraft, which was being operated by a lessee at the time of
the accident, was declared a total loss by the insurers. There were no injuries
or third party liability claims as a result of the accident. Interest expense
declined 10.5% to $985,000 in 1995 from $1.1 million in 1994, due primarily to
lower average outstanding indebtedness during 1995 as a result of scheduled
principal payments on long-term debt.
NET INCOME. As a result of the above, net income decreased 22.5% to $11.0
million in 1995 from $14.2 million in 1994. Pro forma net income decreased 22.5%
to $6.8 million in 1995 from $8.8 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Over the past three years, the Company has funded its operations and the
expansion of its business primarily through cash flows from operating
activities. At March 31, 1997, the Company had cash and cash equivalents of $4.8
million compared to $972,000 at December 31, 1996. The Company had working
capital of $16.2 million at March 31, 1997, compared to $15.8 million at
December 31, 1996.
Net cash provided by operating activities was $10.1 million and $4.2
million in the three months ended March 31, 1997 and 1996, respectively. This
increase in cash flow from operating activities was due primarily to the
increase in net income and a decrease in accounts receivable during the first
24
<PAGE>
quarter of 1997. Net cash provided by operating activities was $14.8 million,
$17.3 million and $15.1 million in 1996, 1995 and 1994, respectively.
Net cash used in investing activities was $4.2 million and $1.5 million in
the three months ended March 31, 1997 and 1996, respectively. During the first
quarter of 1996, $1.9 million in proceeds from sales of property and equipment
offset the $3.4 million in cash used for purchases of property and equipment.
Net cash used in investing activities was approximately $11.9 million, $15.3
million and $11.0 million in 1996, 1995 and 1994, respectively, and primarily
represented additional flight equipment acquired and capitalized airframe and
engine maintenance, repairs and overhauls. Net cash used in investing activities
in 1996 also included property, equipment and leasehold improvements associated
with Company's move to its new MIA hangar facility. Net cash used in investing
activities in 1994 was reduced by approximately $3.9 million due to the receipt
of insurance proceeds from the accident involving an aircraft leased to a third
party.
Net cash used in financing activities was $2.1 million and $2.5 million in
the three months ended March 31, 1997 and 1996, respectively. Net cash used in
financing activities was $2.4 million, $2.1 million and $4.2 million in 1996,
1995 and 1994, respectively. Cash used in financing activities in each period
primarily represented principal repayments of indebtedness incurred for the
acquisition of aircraft. The Company made distributions to its shareholders of
$324,000 and $303,000, $1.1 million, $1.2 million and $845,000 in the three
months ended March 31, 1997 and 1996 and the years ended December 31, 1996, 1995
and 1994, respectively, primarily to enable the shareholders to pay income taxes
related to the Company's income. In connection with their conversion to C
corporation status, the S Companies will make the S Corporation Distributions in
cash and S Corporation Notes. If the S Companies had converted to C corporations
as of March 31, 1997, the aggregate amount of the S Corporation Distributions
would have been approximately $24.5 million. The actual amount of the S
Corporation Distributions will depend upon the S Companies' earnings from April
1, 1997 to the conversion date, and the cash portion of the S Corporation
Distributions will depend upon the amount of cash available for distribution.
The Company expects to repay the S Corporation Notes from operating cash flows.
In addition, the Company may be required to make future payments to its existing
shareholders pursuant to a Tax Indemnification Agreement if there are
adjustments to the S Companies' tax returns. See "Dividend Policy and Prior S
Corporation Status," "Business--Legal Proceedings" and "Certain Transactions."
The Company's tax returns for the years ended December 31, 1993 and 1994
are currently under examination by the Internal Revenue Service ("IRS"). The
examination relates specifically to the Company's treatment of certain repairs
and maintenance, including safety checks mandated by the FAA, as expenses for
tax purposes. The Company believes that its treatment of such costs as
deductible for tax purposes is proper and is prepared to defend its position
vigorously, if it becomes necessary. Should the IRS take the position that these
costs should have been capitalized and subsequently depreciated, a substantial
assessment could result. Any such assessment will be taxable directly to the S
Companies' shareholders, rather than to the Company, and the Company will be
required to indemnify such shareholders for the amount of the assessment and any
taxes incurred by them on account of the receipt of such indemnity payment.
Because the examination is in process, the amount of such an assessment is not
presently determinable. However, the Company does not believe that the payment
of any such assessment will be material to its financial condition. See "Certain
Transactions" and Note 2 of Notes to the Company's Combined Financial
Statements.
Following completion of this offering and application of a portion of the
net proceeds to repay the Company's outstanding long-term debt, the Company will
have no bank debt. During 1997, the Company intends to establish a $25 million
revolving credit facility for working capital and equipment purchases. The
Company currently is discussing the terms and conditions of such a facility with
banks although no bank has yet offered the Company a commitment for such a
facility.
The Company has no material commitments for future capital expenditures,
apart from normal scheduled major airframe and engine repairs and maintenance
and the hushkitting of its DC-8 aircraft.
25
<PAGE>
Over the next three years the Company will be required to install hushkits on
its existing DC-8 aircraft to comply with noise abatement regulations at an
estimated cost of $1.6 million per aircraft. The Company intends to purchase
hushkits for this purpose from a related party. See "Certain Transactions."
Management believes that the cost of the hushkits to be purchased from the
related party will be significantly lower than the cost of other hushkits
available in the market. The Company intends to utilize a portion of the
proceeds of this offering to purchase up to four widebody aircraft and as many
as three additional DC-8s by the end of 1998. The Company expects that the
widebody aircraft will be acquired for between $12 and $14 million per aircraft,
which includes the cost to convert such aircraft to cargo configuration if
necessary. The Company expects that the additional DC-8 aircraft will be
acquired for between $2 and $5 million per aircraft, depending on the type of
DC-8s acquired, which includes the cost to convert such aircraft to cargo
configuration if necessary. See "Use of Proceeds."
The Company believes that the net proceeds from this offering, together
with cash flows expected to be generated by operations, will be sufficient to
meet its anticipated cash needs for working capital and capital expenditures for
at least the next 18 months.
SEASONALITY
The Company's business has been, and is expected to continue to be,
seasonal in nature, with a majority of the Company's revenues and operating
income falling in the second half of the year (principally the fourth quarter).
The Company's fourth quarter revenues and operating income are typically higher
due to an increase in freight transported in anticipation of and during the
holiday season. In addition to increased fourth quarter revenues from scheduled
cargo services, the Company typically has realized a majority of its ACMI
service revenues from flights conducted during this period.
The table below sets forth selected unaudited quarterly financial and
operating data for 1995 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
1995 FISCAL QUARTER ENDED 1996 FISCAL QUARTER ENDED
--------------------------------------------- ---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ---------- ----------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Scheduled cargo services ......... $ 7,667 $ 9,142 $11,915 $11,400 $11,693 $12,099 $13,333 $17,650
ACMI services ..................... 5,445 6,643 6,820 16,433 5,430 7,347 6,841 15,902
Repairs, training and other ...... 68 104 133 580 1,796 818 542 797
Total revenues .................. 13,180 15,889 18,868 28,412 18,919 20,264 20,716 34,349
Operating income .................. 2,252 1,467 935 7,049 1,305 1,434 1,264 9,205
Net income ........................ 2,202 1,371 719 6,746 1,465 1,269 1,087 9,207
</TABLE>
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 specifies new standards designed to
improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on an
international basis. Some of the changes made to simplify the EPS computations
include: (a) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS, (b) eliminating the modified treasury
stock method and the three percent materiality provision and (c) revising the
contingent share provisions and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not yet determined
the impact of the implementation of SFAS No. 128.
26
<PAGE>
INDUSTRY OVERVIEW
According to MergeGlobal, the worldwide air freight market had revenues of
$64 billion in 1995 and has grown at a 9.1% compound annual rate since 1985
(measured in revenue ton kilometers). Boeing forecasts the United States/Latin
America air freight market will be the fifth fastest growing air freight market
in the world from 1995 to 2005, with an average annual growth rate of
approximately 7.1%, as measured in tons. MIA is the largest air gateway to South
and Central America and the Caribbean, with more than 80 pure-cargo flights to
the region per day. MIA is the primary transshipment point for moving goods by
air between North America and South and Central America, representing 72% of
total tonnage in 1995. MIA's air trade with South America tripled from $3.1
billion in 1990 to $10.9 billion in 1996.
South and Central American and Caribbean countries are gaining increasing
importance in worldwide trade, much of which has been spawned by the region's
improved economies, expanding middle class, dismantled tariff barriers and the
privatization of state monopolies. South and Central American and Caribbean
trade has become global, with consumer and industrial goods being imported from
North America, Europe and Asia, and South and Central American and Caribbean
products increasingly finding new export markets, especially in the United
States. Between 1988 and 1994, United States exports to South America nearly
doubled from $14.7 billion to $27.3 billion.
Air cargo demand in South and Central America and the Caribbean is expected
to increase as these markets continue to grow and as trade between the
southernmost countries of South America increases, fostered by the 1995 free
trade pact between Argentina, Brazil, Uruguay, Paraguay and Chile (the
"Mercosur" countries). The Mercosur countries have a population of 200 million
people, a combined GDP of $850 billion and comprise 70% of the total land area
of South America. The Company believes that continued economic development in
the Mercosur countries will further increase demand for widebody air freight
services to this region from Europe and the United States through MIA.
Air cargo traffic between the United States and South and Central America
and the Caribbean flows nearly equally northbound and southbound although it
does not flow evenly in and out of each country due to trade imbalances. Limited
air freight service by passenger carriers and restraints on their transportation
of hazardous cargo have led to the growth of all-cargo carriers in these
markets. Providing air cargo service to South and Central America and the
Caribbean requires special skills to deal with the varied requirements of
numerous foreign government authorities and to transport goods through
relatively inefficient and ill-equipped customs and cargo handling operations at
many foreign airports.
As multinational corporations have demanded more sophisticated and
customized transportation logistics services and increasingly sought to
outsource their transportation logistics functions, freight forwarders have
emerged as important participants in the domestic and international air freight
markets. Major international freight forwarders increasingly have become
reluctant to arrange transportation of their customers' freight with integrated
cargo carriers (such as FedEx, UPS or DHL) because these carriers compete with
the freight forwarders for the same cargo customers. A majority of southbound
air freight to South and Central America and the Caribbean is handled by freight
forwarders, which seek low-cost, reliable service to fulfill their customers'
varied shipping requirements.
The growth of the worldwide air freight market depends partially on the
market for freighter aircraft. Many air freight carriers operate used aircraft
to minimize the fixed costs of aircraft operation. The Company believes that,
over the next five years, an adequate supply of used DC-8s and widebody aircraft
will be available, principally due to refleetings by passenger carriers to newer
generation aircraft, resulting in "cascading" of used aircraft to the air
freight industry.
27
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is a leading provider of air cargo services between the United
States and South and Central America and the Caribbean. Since 1994, the Company
has been the largest international air cargo carrier serving MIA, based on tons
of cargo transported to and from that airport. MIA is the largest international
cargo airport in the United States and the third largest international cargo
airport in the world. The Company's services include: (i) integrated air and
truck cargo transportation and other logistics services ("scheduled cargo
services"); (ii) long- and short-term ACMI (aircraft, crew, maintenance and
insurance) services and AD HOC charters ("ACMI services"); and (iii) third party
aircraft and engine maintenance, repairs and overhauls, training and other
services. The Company's scheduled cargo services provide seamless transportation
through its MIA hub linking North America, Europe, Asia and the Pacific Rim with
29 South and Central America and Caribbean cities. The Company's customers
include international and domestic freight forwarders, integrated carriers,
passenger and cargo airlines, major shippers and the United States Postal
Service. The Company's revenues have grown, principally as a result of the
expansion of its scheduled cargo services, from $29.0 million in 1993 to $94.2
million in 1996, a compound annual rate of 48.1%.
The Company markets its scheduled cargo services through a sales network
consisting of seven domestic sales offices serving 55 major U.S. cities, five
international sales offices serving over 29 cities in Europe, Canada, Asia and
the Pacific Rim and 27 sales offices in South and Central America and the
Caribbean. The Company receives cargo at its MIA hub and its foreign operations
stations (i) through its domestic and international sales network, (ii) from
other airlines pursuant to interline agreements and (iii) directly from freight
forwarders and other shippers. The Company utilizes its own fleet of 15 DC-8
aircraft and the services of other airlines through interline and other
contractual relationships to provide reliable air cargo service between MIA and
South and Central America and the Caribbean. The Company has interline
relationships with over 50 airlines, including Air France, China Air,
Continental Airlines, Iberia, Korean Air and Virgin Atlantic. The Company's
scheduled cargo services transported 32,000 tons of freight in 1994 and 75,000
tons of freight in 1996, a compound annual increase of 53%. The Company plans to
expand its scheduled cargo services by acquiring up to four widebody aircraft
and as many as three additional DC-8s by the end of 1998.
The Company's customers utilize the Company's ACMI services to obtain lift
capacity without acquiring their own aircraft. Under a typical ACMI contract,
the Company supplies an aircraft, crew, maintenance and insurance, either on a
regularly scheduled or AD HOC basis, while the customer bears all other aircraft
operating expenses, including fuel, landing and parking fees and ground and
cargo handling expenses. The Company's ACMI customers also bear the risk of
utilizing the cargo capacity of the Company's aircraft. By offering ACMI
services in addition to scheduled cargo services, the Company is able to
schedule its fleet to satisfy demand on its own routes while improving
utilization and generating additional revenue from ACMI services.
The Company's FAA-approved repair stations perform a full range of
maintenance, repair and overhaul services for DC-8 aircraft and Pratt & Whitney
JT3D-3B aircraft engines. The Company also operates professional pilot and
mechanic training schools. The Company's recent move into a new hangar and
maintenance facility at MIA enables the Company to expand its third party repair
and maintenance services while performing all necessary repairs and maintenance
on its own aircraft. The Company began actively marketing its third party repair
and maintenance capabilities in 1996 and intends to seek certification to
provide similar services for other types of aircraft, including the widebody
aircraft the Company intends to acquire with a portion of the net proceeds of
this offering. As a result, management expects that the Company's revenues from
these services will increase in the future.
28
<PAGE>
COMPANY HISTORY
For approximately 20 years prior to founding the Company's predecessor in
1976, J. Frank Fine owned farming operations in 12 different Latin American and
Caribbean countries and, as a result, had depended on the airlines serving these
countries for timely delivery of his products to processing plants located
primarily in the United States. Many of these airlines did not maintain adequate
capacity to handle the seasonal needs of growers or were ill-equipped to handle
the special requirements of doing business in Latin American and Caribbean
markets. Perceiving a need for reliable transport, in 1976 Mr. Fine acquired two
early model Boeing 707 aircraft which he leased to airlines serving those
markets. In 1982, Barry H. Fine joined the Company, which at the time owned
three aircraft which it leased primarily to international airlines serving South
and Central America and the Caribbean. To maintain control over its operating
costs and improve the turn-around time and reliability of its aircraft, the
Company developed its own maintenance and repair capabilities, and was certified
in 1986 as an FAA repair station for DC-8 aircraft, and in 1987, as an FAA
repair station for Pratt & Whitney JT3D-3B aircraft engines. By 1989, the
Company's fleet consisted of five DC-8 aircraft, which it leased on an AMI basis
to a number of domestic and foreign airlines for both regular and AD HOC cargo
service throughout South and Central America and the Caribbean. The Company
received its U.S. air carrier operating certificate in November 1992. The
Company began developing its own cargo routes in 1994 and has expanded the
coverage of its scheduled cargo services from nine destinations as of December
31, 1994 to 29 cities in 21 countries in South and Central America and the
Caribbean as of March 31, 1997. The Company opened its first regional sales
offices in Houston and New York in 1994. Since that time, the Company has
expanded its sales network to include additional regional sales offices in
Chicago and Atlanta, 14 cargo sales offices in South and Central America and the
Caribbean and general sales agents that represent the Company in the western
United States, Canada, Europe, Asia and the Pacific Rim and in 13 South and
Central American and Caribbean cities.
COMPETITIVE STRENGTHS
Management believes that the Company's success has largely been the result
of the following strengths:
ESTABLISHED MARKET POSITION. Since 1994, the Company has transported more
international air cargo to and from MIA, the principal air gateway for South and
Central America and the Caribbean, than any other carrier. Currently, the
Company operates over 70 round-trip cargo flights per week to South and Central
America and the Caribbean. Management believes that the Company has achieved its
market position as a result of the Company's excellent reputation for
reliability and service among a range of customers that include freight
forwarders, integrated carriers, passenger and cargo airlines and major
shippers. The Company believes that regulatory and other restrictions imposed by
U.S. and foreign governmental authorities would make it difficult for a new
airline entrant to obtain the necessary operating authority and route rights to
duplicate the Company's business. Management also believes that the scarcity of
available facilities at MIA will inhibit potential competitors seeking to
duplicate the Company's operations.
LOW AIRCRAFT AND OPERATING COST STRUCTURE. The Company maintains a low cost
structure through: the opportunistic acquisition of used aircraft, engines and
spare parts; elimination of duplicative costs by maintaining favorable labor
rates and other operating costs associated with the centralizing its principal
flight and maintenance operations in Miami; "in-sourcing" activities such as
training, aircraft and engine repairs and maintenance; and using its own ground
and cargo handling personnel and equipment. The Company also seeks to increase
its profitability and enhance aircraft utilization by maintaining a balance of
scheduled cargo services and ACMI services for third parties. The Company's
uniform aircraft fleet has allowed it to standardize its spare part inventories,
and maintenance and training operations, thereby increasing operating
efficiencies and improving the reliability of the Company's air cargo services.
The Company's low cost structure also enables it to utilize its aircraft
profitably in lower yielding freight markets.
29
<PAGE>
ASSET OWNERSHIP. The Company has made a substantial investment to acquire
the assets necessary to support its operations, including 15 DC-8 aircraft, 20
spare aircraft engines, an extensive inventory of spare parts and aircraft
components, maintenance and engine repair equipment and substantially all of the
equipment and vehicles for its aircraft ground and cargo handling requirements.
Management believes that the value of the Company's operating assets is
substantially in excess of their book value, and following the Company's use of
a portion of the net proceeds of this offering to retire long-term debt, it will
have no debt service associated with these assets. The Company has also made a
substantial commitment of capital and resources to obtain required governmental
authorizations, develop its sales and marketing network and build the
infrastructure necessary to support its scheduled cargo and ACMI services.
EXPERIENCED MANAGEMENT TEAM. The Company is led by an experienced
management team, headed by Messrs. Frank and Barry Fine, who together have over
50 years of experience in the air cargo industry and whose knowledge of the
South and Central American and Caribbean business environment has been a key
element of the Company's success. The other key members of the Company's
management team, including those responsible for the Company's flight
operations, maintenance and repair facilities, as well as marketing and sales
activities, each have over 20 years of industry experience, including experience
in the Company's markets.
DIVERSITY OF CUSTOMER BASE. The Company offers a wide range of air cargo
services to a diverse customer base that includes international and domestic
freight forwarders, integrated carriers, passenger and cargo airlines, major
shippers and the United States Postal Service. The Company provides scheduled
cargo services to over 1,200 customers, none of which accounted for more than 5%
of the Company's total revenues in 1996. Because the Company is able to provide
its customers a broad range of services tailored to their particular needs,
management believes that the Company is well positioned to benefit from the
expected growth in demand for air freight transportation between the United
States and South and Central America and the Caribbean.
GROWTH STRATEGY
The Company's growth strategy revolves around capitalizing on its position
as a leading provider of air freight transportation services between the United
States and South and Central America and the Caribbean. Principal elements of
the Company's strategy are as follows:
INCREASE LIFT CAPACITY. The Company believes that there are opportunities
to expand its air cargo services to South and Central America and the Caribbean
and intends to strengthen its market position by utilizing both the capabilities
and capacity of its existing aircraft and the increased range and capacity of
the widebody aircraft it intends to acquire. Management believes that the
Company's existing DC-8 fleet will accommodate expected growth in air freight
service demand in the Company's existing markets and can also be employed
effectively to commence service to new markets within South and Central America
and the Caribbean. The Company intends to increase the number of markets it can
serve and its capacity in existing markets by adding up to four widebody
aircraft and as many as three additional DC-8s by the end of 1998. Widebody
aircraft have longer range and significantly larger volume capacity than DC-8s
and will permit the Company to extend its route structure to serve the
southernmost countries of South America, such as the Mercosur countries, and to
more economically serve high cargo volume routes on which the Company currently
operates multiple daily flights. DC-8s that are utilized on these routes will be
redeployed to increase capacity to existing markets and to develop service to
new destinations that are more efficiently served with narrowbody aircraft.
Management believes that increasing the number of destinations the Company
serves will enhance its ability to develop and broaden relationships with
freight forwarders, airlines and other shippers. In addition, to capture a
greater share of air cargo traffic between Europe to South and Central America
and the Caribbean, the Company will consider utilizing its widebody aircraft to
directly serve a limited number of European destinations that can support the
volume necessary to economically operate trans-Atlantic service.
30
<PAGE>
EXPAND SALES NETWORK AND TRANSPORTATION LOGISTICS SERVICES. The Company
plans to expand its domestic and international sales network by opening new
domestic sales offices, adding sales personnel, increasing the number of general
sales agents who market the Company's services domestically and internationally
and expanding the Company's interline relationships with major international
airlines. The Company has general sales agents that market its air cargo
services in the western United States, Canada, Europe, Asia and the Pacific Rim.
The Company supplements the air cargo sales efforts of its own personnel and
general sales agents by entering into interline relationships with international
airlines that sell air freight services to destinations served by the Company.
The Company intends to expand the number of such relationships and the amount of
air freight it transports for these airlines. The Company also plans to increase
the scope of its transportation logistics services, particularly in South and
Central America and the Caribbean, where other airlines and freight forwarders
play a much smaller role in arranging for these services. The Company already
offers its customers intermodal services, such as local freight pick-up and
delivery, in El Salvador and the Dominican Republic.
EXPAND ACMI SERVICES. Management believes that demand for ACMI services
will continue to increase, from South and Central America, Caribbean and
domestic carriers seeking to increase their lift capacity without committing to
purchase or lease additional aircraft. Management further believes that the
Company's acquisition of widebody aircraft will enable it to market its ACMI
services to a broader range of customers, including those who require the longer
range and/or larger volume capacity of these aircraft. The Company also plans to
utilize its existing and any newly acquired DC-8s to increase its ACMI
capabilities. By continuing to provide ACMI services with its existing and any
newly-acquired aircraft, the Company believes that it can further increase
aircraft utilization at the same time it expands its scheduled cargo services.
AIR CARGO SERVICES
The Company's scheduled cargo services provide seamless transportation
through its MIA hub linking North America, Europe, Asia and the Pacific Rim with
South and Central America and the Caribbean to serve the varied needs of
international and domestic freight forwarders, integrated carriers, passenger
and cargo airlines, major shippers and the United States Postal Service. The
Company offers its customers a number of services, including scheduled cargo
services, ACMI services, AD HOC charters and transportation logistics services,
such as warehousing, local pick-up and intermodal transportation of freight.
SCHEDULED CARGO SERVICES
The Company offers regular air cargo service between its MIA hub and 29
cities in South and Central America and the Caribbean, of which 13 are served
directly by Company routes, 13 are served by customers that utilize the
Company's aircraft on an ACMI or AMI basis to service such routes and three are
served by other airlines pursuant to interline relationships. Cargo service is
offered on a pre-booked, priority or space-available basis, and the Company
imposes no size or weight restrictions on shipments, except limitations
necessitated by the capacity of the aircraft serving the particular route. The
Company does not dedicate a particular aircraft to any one route and maintains
the flexibility to adjust its flight services, number of daily flights and the
cargo capacity of the aircraft serving each destination and to add intermediate
stops to pick up or deliver additional cargo based on variations in demand. The
Company has operated as many as six flights per day to a particular destination
to meet the demand for air cargo service to such destination. The Company's
scheduled cargo services transported 32,000 tons of freight in 1994 and 75,000
tons of freight in 1996, a compound annual increase of 53%.
The Company's freight rates are based upon the type of freight, weight or
volume, delivery service and destination. Rates vary depending on the type of
freight and, in most instances, durable goods command higher rates than
perishable or dry goods. The Company offers priority next day delivery service
at double the Company's normal rates and second day delivery service which is
billed on a space-available basis. Rates on longer routes generally are higher
than short-haul destinations. Freight
31
<PAGE>
is priced on a per kilogram basis and is adjusted for low weight, high volume
freight in accordance with industry standards. The Company also offers pallet
rates for larger shipments. From time to time, the Company's customers require
the shipment of hazardous or restricted materials or oversized pieces which
require additional handling, and the customer is charged higher rates. The
Company charges a base rate plus prevailing second carrier agreement rates for
its interline services.
As of March 31, 1997, the Company offered scheduled cargo services to and
from MIA and the following destinations:
<TABLE>
<CAPTION>
DESTINATION
- -----------------------------------------------
DAYS OF SERVICE ROUND-TRIP FLIGHTS
COUNTRY CITY PER WEEK(1) PER WEEK(1)
- ------------------------ -------------------- ------------------ --------------------
<S> <C> <C> <C>
Barbados Bridgetown(2) 2 3
British Virgin Islands Tortola(3) 1 1
Colombia Bogota(2) 6 18
Colombia Medellin(2) 1 1
Costa Rica San Jose 3 3
Dominican Republic Santo Domingo 6 6
Dominican Republic Puerto Plata(2) 2 2
Ecuador Guayaquil 5 7
Ecuador Quito 5 7
El Salvador San Salvador 3 3
Guatemala Guatemala City 3 3
Guyana Georgetown 2 2
Haiti Port-au-Prince(2) 2 2
Honduras San Pedro Sula 3 3
Jamaica Montego Bay(2) 3 3
Jamaica Kingston(2) 3 3
Netherlands Antilles Aruba(2) 1 1
Netherlands Antilles Curacao(2) 1 1
Nicaragua Managua 3 3
Panama Panama City 3 3
Puerto Rico San Juan 5 5
Surinam Paramaribo(2) 1 1
Trinidad and Tobago Port-of-Spain(2) 2 4
Turks and Caicos Grand Turk(2) 1 1
Turks and Caicos Providenciales(2) 1 1
U.S. Virgin Islands St. Thomas(3) 5 5
U.S. Virgin Islands St. Croix(3) 5 5
Venezuela Caracas 6 12
Venezuela Maracaibo 5 5
</TABLE>
- ----------------
(1) Represents the typical number of days of service and round-trip flights per
week that the Company offers air cargo services to and from each
destination. The actual number of days of service and round-trip flights per
week to a destination vary depending on demand.
(2) The Company sells air cargo services on these routes, which are served by
other carriers that utilize the Company's aircraft on an ACMI or AMI basis.
(3) The Company sells air cargo services for these destinations, which it does
not directly serve. Customers' cargo is transferred pursuant to an interline
arrangement from San Juan, Puerto Rico.
The Company transports a broad range of goods and commodities. Generally, a
majority of the southbound freight consists of durable goods, such as industrial
equipment and parts, electronic and computer equipment, medical instruments,
pharmaceuticals, vehicles, oilfield equipment, magazines, newspapers and mail,
consumer durables and textiles. Northbound freight is comprised mainly of
finished textiles, pharmaceuticals, handicrafts, seafood, flowers and fruits and
vegetables. Many of the items that the Company transports northbound to the
United States are perishable commodities, and its
32
<PAGE>
customers rely on the dependability of the Company's cargo service and its
ability to accommodate seasonal and variable air freight requirements.
CARGO SALES NETWORK AND MARKETING
CARGO SALES NETWORK. The Company's sales network is comprised of the
Company's Miami headquarters, six regional sales offices in major U.S. cities
(four of which are Company operated and two of which are operated by general
sales agents), 27 sales offices in South and Central America and the Caribbean
(14 of which are Company operated and 13 of which are operated by general sales
agents) and general sales agents in Europe, Canada, Asia and the Pacific Rim.
The Company's sales efforts are designed to maximize utilization of the
Company's scheduled cargo service by seeking to achieve a balance between
southbound and northbound air cargo shipments.
Each of the Company's sales offices markets the Company's air cargo
services to customers within its region. The Company's U.S. sales offices, as
well as its offices in El Salvador and the Dominican Republic, have
transportation logistics capabilities, including intermodal relationships with
major trucking companies for local pick-up and delivery of customers' freight.
Company personnel solicit shipment orders and process air waybills and other
documentary requirements for customers' shipments. In areas not covered directly
by the Company's own sales personnel, the Company engages general sales agents
on a commission basis to sell its air cargo services. Most of these general
sales agents represent the Company on an exclusive basis to destinations served
by the Company. Air cargo sales made by general sales agents are based on the
Company's published rate sheets and are documented utilizing the Company's air
waybills.
The following table sets forth the locations of and the major cities served
by the Company's sales network:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
- ----------------------------------------------- ------------------------------------------------
LOCATION AND CITIES SERVED DATE OPENED LOCATION AND CITIES SERVED DATE OPENED
- ---------------------------- ---------------- ------------------------------ ---------------
<S> <C> <C> <C>
MIAMI, FL 1st Qtr. 1994 Caracas, Venezuela 1st Qtr. 1994
Ft. Lauderdale, FL Guatemala City, Guatemala 1st Qtr. 1994
Jacksonville, FL Managua, Nicaragua 1st Qtr. 1994
Orlando, FL Maracaibo, Venezuela 1st Qtr. 1994
Tallahassee, FL San Pedro Sula, Honduras 1st Qtr. 1994
Tampa, FL San Salvador, El Salvador 1st Qtr. 1994
Panama City, Panama 3rd Qtr. 1994
HOUSTON, TX 1st Qtr. 1994 San Jose, Costa Rica 3rd Qtr. 1994
Albuquerque, NM Bridgetown, Barbados(1) 2nd Qtr. 1995
Dallas/Fort Worth, TX Georgetown, Guyana(1) 2nd Qtr. 1995
Little Rock, AK Guayaquil, Ecuador 2nd Qtr. 1995
New Orleans, LA Paramaribo, Surinam(1) 2nd Qtr. 1995
Memphis, TN Port of Spain, Trinidad(1) 2nd Qtr. 1995
Oklahoma City, OK Port Au Prince, Haiti(1) 2nd Qtr. 1995
Tulsa, OK Quito, Ecuador 2nd Qtr. 1995
British Virgin Islands(1) 3rd Qtr. 1995
NEW YORK, NY 1st Qtr. 1994 San Juan, Puerto Rico 3rd Qtr. 1995
Baltimore, MD Turks and Caicos Islands(1) 3rd Qtr. 1995
Boston, MA U.S. Virgin Islands(1) 3rd Qtr. 1995
Buffalo, NY
Hartford, CT
Newark, NJ LONDON, ENGLAND(1) 4th Qtr. 1995
Norfolk, VA Amsterdam, Holland
Philadelphia, PA Brussels, Belgium
Pittsburgh, PA Dublin, Ireland
Richmond, VA Frankfurt, Germany
Washington, D.C. Paris, France
Prestwick, Scotland
Milan, Italy
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
- ----------------------------------------------- -----------------------------------------------
LOCATION AND CITIES SERVED DATE OPENED LOCATION AND CITIES SERVED DATE OPENED
- ---------------------------- ---------------- ----------------------------- ---------------
<S> <C> <C> <C>
SAN FRANCISCO, CA(1) 1st Qtr. 1995 Bogota, Columbia(1) 1st Qtr. 1996
Denver, CO Kingston, Jamaica(1) 1st Qtr. 1996
Portland, OR Medellin, Colombia(1) 1st Qtr. 1996
Salt Lake City, UT Montego Bay, Jamaica(1) 1st Qtr. 1996
Seattle, WA Puerto Plata, D.R. 1st Qtr. 1996
Santo Domingo, D.R. 1st Qtr. 1996
CHICAGO, IL 1st Qtr. 1995 Netherlands Antilles(1) 1st Qtr. 1997
Cleveland, OH Sao Paulo, Brazil 2nd Qtr. 1997
Cincinnati, OH
Detroit, MI
Indianapolis, IN
Kansas City, MO TORONTO, ONTARIO(1) 1st Qtr. 1997
Lincoln, NE Calgary
Milwaukee, WI Regina
Minneapolis/St. Paul, MN Vancouver
Omaha, NE Winnipeg
St. Louis, MO
MONTREAL, QUEBEC(1) 1st Qtr. 1997
LOS ANGELES, CA(1) 1st Qtr. 1995 Ottawa
Las Vegas, NV Quebec City
Phoenix, AZ
San Diego, CA HONG KONG AND BEIJING(1) 2nd Qtr. 1997
Bangkok, Thailand
ATLANTA, GA 1st Qtr. 1996 Djakarta, Indonesia
Birmingham, AL Guangzhou, Peoples Republic of China
Charlotte, NC Ho Chi Minh City, Vietnam
Columbia, SC Kuala Lumpur, Malaysia
Greensboro, SC Osaka, Japan
Jackson, MS Seoul, South Korea
Knoxville, TN Shanghai, Peoples Republic of China
Nashville, TN Singapore
Taipei, Taiwan
Tokyo, Japan
</TABLE>
- ----------------
(1) Represents the office of a general sales agent or interline sales agent.
MARKETING. The Company's sales personnel and general sales agents market
the Company's air cargo services directly to freight forwarders, integrated
carriers, passenger and cargo airlines and major shippers. The Company
participates in international air cargo trade shows and advertises its services
in industry trade journals. General sales agents directly market the Company's
air cargo services to potential customers within their territories using the
Company's trade name. In addition, some of the Company's general sales agents,
such as Air Cargo Partners (an affiliate of Virgin Atlantic), which represents
the Company in Europe, include the Company's air cargo services in their sales
literature and published rate sheets.
TRANSPORTATION LOGISTICS SERVICES
Freight forwarders, integrated carriers and airlines generally deliver
their cargo to the Company's facility at the point of departure. Accordingly,
most of the freight transported by the Company is either delivered to the
Company's MIA hub for shipment to South or Central America or the Caribbean, or
to a Company operations station in South or Central America or the Caribbean for
shipment to the United States or beyond. Smaller freight forwarders with less
developed logistics capabilities often rely on the Company to arrange for truck
or air transportation of their cargo between the Company's MIA hub and the point
of origin and/or destination. In addition, some major freight forwarders request
the Company to arrange for shipment, generally by truck carrier, of their
customers' freight from the point of origin to expedite shipment and minimize
administrative and handling costs.
34
<PAGE>
When the Company provides transportation logistics services, Company
personnel determine the best means of, and then arrange for, the transportation
of the freight between the Company's warehouse facilities in Miami and the
customers points of origin and destination. Whenever possible, the Company seeks
to achieve cost savings for its customers by consolidating shipments and using
major truckload carriers to transport the consolidated freight. Southbound
shipments that are more time-sensitive or which have a value that justifies the
cost of expedited delivery usually are transported by air on scheduled passenger
or cargo airlines to Miami. Each Company sales office maintains warehouse
capabilities for storage and consolidation of freight, generally through
arrangements with local third party warehouse operators.
The Company offers its customers a variety of ancillary services tailored
to their particular needs. These services include arranging for local pick-up
and delivery, warehousing of cargo shipments, expedited document delivery for
customs clearance and priority notification to consignees of cargo arrival. The
Company also assists in the preparation of air waybills and shipping documents
(including customs export declarations, pro forma and foreign consular invoices
and other customs documentary requirements), assists its customers in obtaining
export or import licenses and arranges for cargo insurance. The Company
generally charges its customers additional fees for each of these services.
CUSTOMERS
FREIGHT FORWARDERS. Freight forwarders are important participants in the
domestic and international air freight markets. Major international freight
forwarders increasingly have become reluctant to arrange transportation of their
customers' freight through integrated cargo carriers (such as FedEx, UPS or DHL)
because these carriers compete with the freight forwarders for the same cargo
customers. As a result, management believes that air cargo service companies
such as the Company, who can provide reliable air cargo services and handle the
air and truck cargo transportation requirements of both large and small freight
forwarders, have an opportunity to capture an increasing share of the air
freight market. Management estimates that sales to freight forwarders in 1996
accounted for approximately 86% of the Company's revenues from scheduled cargo
services. Freight forwarder customers include major international freight
forwarders (such as Air Express International, Danzas, Eagle USA, Expeditors
International, Fritz Companies and Nippon Express) as well as smaller regional
freight forwarders.
INTERLINE CUSTOMERS. Many major international airlines sell air cargo
services to destinations they do not serve directly and utilize other airlines
or cargo carriers to transport their customers' cargo from the cities they serve
to the ultimate destination. For example, most of the Company's European
interline customers fly to Miami or one or more major South and Central American
or Caribbean destinations but sell air cargo services to other destinations to
which they have no direct flights. These airlines will deliver cargo to the
Company at its MIA hub or a regional sales office for transportation to the
Company's South and Central American or Caribbean destinations. The Company also
delivers cargo from South and Central American and Caribbean destinations to
interline customers at its MIA hub. The Company currently handles interline
freight for the following airlines:
35
<PAGE>
<TABLE>
<S> <C> <C> <C>
Aerolineas Argentinas Cargolux LACSA Polar Air Cargo
Aeromar Carnival Airlines Laker Airways Qantas Airways Limited
Aero Transcolombiana Challenge Lan Chile Airlines South African Airways
Air Canada China Airlines Lauda Air Surinam Airways
Air France Continental Airlines Laparkan Taca International Airlines
Air Haiti Copa Airlines L.T.U. Int'l Airways Tampa Airlines S.A.
Air Jamaica Delta Airlines Lufthansa Airlines Tolair
Air U.K. El Al Malev Tower Air
Alitalia Fast Air MAS Air TransWorld Airlines
ALM Antillean Airlines Faucett Martin Air Turks Air
Amerijet Finnair Midas Airlines United Airlines
Austrian Airlines Four Star Cargo Midwest Express Airlines U.S. Airways
Avensa/Servivensa Iberia NICA Varig Brazilian Airlines
Aviateca Interamericana Northwest Orient Virgin Atlantic Airways
British Airways Korean Air Pan Am
B.W.I.A.
</TABLE>
OTHER CUSTOMERS. The Company's customers also include the United States
Postal Service, the U.S. Department of State, industrial manufacturers,
distributors and other large corporations that arrange for the shipment of their
own air freight. Because of the Company's reliability, reputation and position
in its South and Central American and Caribbean markets, several major
multinational corporations have also either directed their independent freight
forwarders to use the Company's air cargo services or designated the Company as
their air carrier of choice for shipments to or from these markets.
ACMI SERVICES
The Company's customers utilize the Company's ACMI services to obtain lift
capacity without acquiring their own aircraft. The Company currently has ACMI
contracts with over 15 customers, most of which are international airlines.
Under these contracts, the Company provides its aircraft from as infrequently as
one flight per week to as many as twelve flights per week, or on an AD HOC
basis. In addition, two of the Company's aircraft currently are dedicated
exclusively to service under AMI contracts that expire in 1999. The Company also
provides ACMI services for the seasonal or peak demands of Latin American
produce and flower growers and domestic delivery services such as the United
States Postal Service and United Parcel Service. Additionally, the Company has
received certification to fly equipment and cargo for the U.S. Department of
Defense .
A typical ACMI contract requires the Company to supply the aircraft, crew,
maintenance and insurance for specified cargo operations, while the customer is
responsible for substantially all other aircraft operating expenses, including
fuel, landing and parking fees and ground and cargo handling expenses. Under the
contract, the Company has exclusive operating control and direction of its
aircraft and its customer must obtain any government authorizations and permits
required to service the designated routes. See "--Government Regulation." Most
of the Company's ACMI contracts do not require the Company to operate a specific
aircraft for its customer. Generally, the Company's ACMI contracts are for a
two-year term but are cancelable by either party upon five days' written notice.
With the exception of two aircraft operated by AMI customers, all of the
Company's aircraft are operated both on its own cargo flights and for ACMI
customers. This enables the Company to schedule its fleet to satisfy demand on
its own routes while improving fleet utilization and generating additional
revenue from ACMI services.
AIRCRAFT FLEET
The Company's operating fleet is comprised of 15 narrowbody DC-8s, which
are short- to medium-range (2,000 to 3,000 nautical miles), medium cargo volume
(72,000 to 93,000 pounds) aircraft. The
36
<PAGE>
Company's fleet includes three "stretch" DC-8s, which have a longer fuselage and
more cargo volume capacity and are generally utilized by the Company to serve
higher volume routes. The Company maintains flexibility to adjust on a daily
basis the aircraft it uses for its own cargo routes based on demand. For
example, the Company may respond to low demand on a particular route by
utilizing the same aircraft to handle two or more destinations or to satisfy
higher demand on another route by utilizing its stretch aircraft or adding
additional flights. Similarly, although the Company may commit to provide a
cargo flight for an ACMI customer at a particular time or date, the Company
maintains the flexibility to utilize whichever of its aircraft best serves the
capacity and distance required for the flight.
The Company's aircraft range in age from 26 to 38 years, with an average
age of approximately 31 years. During 1996, the Company's average daily aircraft
utilization was between six and seven block hours per operating day, with an
average round-trip flight duration of six block hours. Based on the DC-8's
useful life estimated by the FAA and McDonnell Douglas and the Company's current
maintenance program, the Company expects to be able to operate its DC-8 aircraft
for at least 10 more years.
The following table contains information concerning the Company's operating
fleet as of June 1, 1997:
<TABLE>
<CAPTION>
NO. OF PALLETS APPROX. CARGO MOST RECENT MAJOR
AIRCRAFT TYPE UPPER/LOWER CAPACITY (LBS) MAINTENANCE CHECK (1)
- ---------------- ----------------- ----------------- -----------------------
<S> <C> <C> <C>
DC-8-61F 18/4 91,300 June 1997
DC-8-61F 18/4 92,000 April 1997
DC-8-61F 18/4 91,800 February 1996
DC-8-55JT 13/2 92,700 October 1996
DC-8-54JT 13/2 92,300 March 1996
DC-8-54JT 13/2 91,700 May 1997
DC-8-54JT 13/2 92,300 November 1996
DC-8-54JT 13/2 92,200 July 1996
DC-8-54JT 13/2 89,200 August 1995
DC-8-54JT 13/2 92,600 December 1995
DC-8-54FM 13/2 91,500 November 1995(2)
DC-8-51F 13/2 77,200 March 1995(2)
DC-8-51F 13/2 75,200 February 1995(2)
DC-8-51F 13/2 75,300 in progress
DC-8-51F 13/2 72,300 in progress
</TABLE>
- ----------------
(1) The most recent major maintenance check for each aircraft was a "C Check",
unless otherwise indicated.
(2) The most recent major maintenance check for this aircraft was a "D Check."
The Company intends to increase its lift capacity by acquiring up to four
widebody aircraft and as many as three additional DC-8s by the end of 1998.
Widebody aircraft, such as the McDonnell Douglas DC-10 or the Lockheed L-1011,
are capable of mid-range and long-range flights carrying a larger volume cargo,
resulting in operating efficiencies and economies of scale. The Company believes
that operating widebody aircraft will allow it to commence service to more
distant destinations which cannot be effectively served by the Company at
present due to the cargo capacity and range of its current fleet, as well as
increase its flexibility to serve current markets where air freight demand is
strong. To the extent the Company utilizes widebody aircraft to service existing
routes, it will redeploy the DC-8s currently serving those markets to increase
capacity to other markets, develop service to new markets which are more
efficiently serviced by narrowbody aircraft and increase its ACMI services.
FLIGHT OPERATIONS AND CONTROL. The Company's flight operations (including
aircraft dispatching, flight following and crew scheduling) are planned and
controlled by the Company's dispatch and flight operations personnel from the
Company's MIA base. The Company's flight control office is manned 24 hours per
day, seven days per week. Logistical support necessary for operations into the
airports served by the Company's flights also are coordinated from the Company's
MIA base.
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<PAGE>
To enhance the reliability of its service, the Company seeks, when
possible, to maintain at least one spare aircraft at all times. The spare
aircraft can be dispatched on short notice to most locations served by the
Company when a substitute aircraft is needed. Maintaining one or more spare
aircraft allows the Company to better ensure the availability of aircraft for
its regular cargo flights and to provide its ACMI customers with a high dispatch
reliability.
MAINTENANCE. The Company performs at its own facilities substantially all
of the inspections, maintenance and repairs required to keep the Company's
aircraft in operation and in compliance with the Company's FAA-approved
maintenance program. Whenever possible, the Company also utilizes its own
employees to perform line maintenance, such as correcting irregularities noted
by flight crews and maintaining aircraft log books, at the foreign airports
served by the Company. By maintaining its own fleet, the Company believes that
it reduces the maintenance costs, minimizes out-of service time for its aircraft
and achieves a high level of reliability.
Maintenance required by the FAA includes: routine daily maintenance;
maintenance every 150 hours or six months, whichever comes first (an "A Check"),
at an approximate cost of $500; scheduled maintenance every 425 hours or 12
months, whichever comes first (a "B Check"), at an approximate cost of $7,000;
scheduled major maintenance work every 3,300 hours or 36 months, whichever comes
first (a "C Check"), at an approximate cost of $500,000; and a major maintenance
overhaul every 25,000 hours or 12 years, whichever comes first (a "D Check"), at
an approximate cost of between $1.3 million and $1.6 million. The Company
generally schedules major maintenance on its aircraft during periods of lower
utilization. The Company estimates that, at current rates of operation, seven
scheduled C Checks will be completed on the Company's aircraft in 1997 and four
will be completed in 1998 and that, on average, one of its aircraft will require
a D Check each year.
Since 1986, the Company's maintenance facility has been certificated as an
FAA repair station to perform maintenance on DC-8 series aircraft and their
related avionics and accessories, including all required airframe maintenance,
ranging from routine inspections to major airframe overhauls, as well as ADs and
service bulletin compliance. The Company also operates an FAA certified repair
station for Pratt & Whitney JT3D-3B aircraft engines, which performs complete
repair services on all Company aircraft engines. The Company's MIA facility
accommodates up to two large widebody aircraft (such as Boeing 747s), three
medium widebody aircraft (such as McDonnell Douglas DC-10s or Lockheed L-1011s)
or three narrowbody aircraft (such as DC-8s) simultaneously for repairs and
maintenance. See "--Facilities."
The Company's maintenance and engineering personnel coordinate all routine
and non-routine maintenance operations, including tracking the maintenance
status of each aircraft, communicating with maintenance personnel in connection
with every arrival and departure, consulting with manufacturers and vendors
about procedures to correct irregularities and training the Company's line
maintenance personnel on the requirements of the Company's FAA-approved
maintenance program. The Company conducts virtually all of its own maintenance
training.
The Company owns 20 spare Pratt & Whitney JT3D-3B aircraft engines and an
extensive inventory of spare aircraft parts and consumable materials required to
support line maintenance, scheduled airframe maintenance and engine maintenance
and repairs. In addition, the Company owns larger aircraft components, such as
airframe structures, landing gears and flight controls. The Company also owns
three DC-8s that are used solely for parts and has a supply of parts from four
disassembled aircraft. The Company opportunistically purchases spare parts,
spare engines, entire inventories and other aircraft components when "bulk"
purchases of these items have been available or market conditions are otherwise
favorable. Generally, bulk purchase opportunities have arisen when airlines or
manufacturers of parts sell large amounts of inventory in a single transaction
or in conjunction with a bankruptcy. Opportunistic inventory purchases have
allowed the Company to obtain a large inventory of spare parts at a lower cost
than could have been obtained by purchasing on an individual basis. From time to
time, parts may become unavailable or be in short supply. In the past, the
Company has been able to design and manufacture from manufacturers' drawings
structural parts pursuant to a limited
38
<PAGE>
license granted by the manufacturer. The Company believes that such practices
will continue to be available within the industry in the near future.
TRAINING. The FAA mandates initial and recurrent training for most flight,
maintenance and engineering personnel. Initial pilot training consists of a
two-month program that involves FAA regulations and licensing exams, emergency
and security procedures, handling of hazardous materials, systems, flight
simulator sessions and actual operating experience with the Company's aircraft.
The Company generally hires pilots whom it has "pre-screened" as a result of
such training. The Company pays for all of the recurrent training required for
its pilots and pays for most of the training of its ground service and
maintenance personnel. The Company's training programs have received all
required FAA approvals.
The Company operates its own professional training schools at its
FAA-approved MIA facility, where it conducts all of the training programs
required for its personnel. In addition, the Company offers training to
third-party individuals in an effort to control its overhead costs related to
training. Generally at least 25% of each training class is comprised of
third-party individuals. The Company often hires outstanding members of its
training classes, which provides it with a supply of pilots and maintenance
personnel.
GROUND SUPPORT AND EQUIPMENT. The Company utilizes its own ground handling
personnel and equipment for loading, servicing and maintaining the Company's
aircraft at MIA and at most of the other airports served by the Company.
FUEL. Fuel is a significant operating cost. The Company purchases most of
its fuel from World Fuel Services Corporation at MIA. The Company generally
purchases bonded fuel which is tax-free to the Company because the fuel is
utilized for international flights. The Company's exposure to fuel risk is
reduced to the extent that it provides air cargo services under ACMI contracts,
under which the customer is responsible for providing fuel. In the winter
months, the Company engages in a limited amount of market hedging against
possible winter price increases. The Company does not believe that fluctuations
in the price of fuel have had a significant impact on its results of operations
in recent years because it has been able to pass on increases to customers in
the form of fuel surcharges.
INFORMATION SYSTEMS
The Company has invested significant management and financial resources in
the development of information systems to facilitate its cargo, flight and
maintenance operations, provide its personnel accurate and timely information
and increase the level of service and information provided to its customers.
Information concerning the status of shipments currently is available only to
the Company's personnel, but the Company intends to increase the amount of
information available on-line to its customers. The Company also utilizes the
U.S. Customs Department's Automated Manifest System, which was first made
available at MIA, to expedite customs clearance for its customers' air freight.
This system allows the Company to electronically transfer its cargo manifest to
customs while a flight is in transit and "pre-clear" much of the cargo, thereby
reducing transfer delays, promptly releasing freight and allowing it to be
transported to its destination more quickly.
The Company's maintenance operations utilize information systems with bar
coding to track and control spare parts inventory and costs associated with each
maintenance task. In addition to maintaining records concerning the maintenance
status and history of each major aircraft part or component, as required by FAA
regulations, the Company utilizes its information systems to track the labor and
parts cost of each maintenance task performed by its personnel.
The Company's flight operations dispatch department utilizes
Company-developed software to coordinate the Company's flight and crew
schedules, track flight time (both for scheduling of aircraft and parts
maintenance and overhauls and for invoicing the Company's ACMI customers for
their flights) and provide Company personnel and customers with flight status
information.
39
<PAGE>
SECURITY AND SAFETY
SECURITY. The Company conducts various security procedures to comply with
FAA regulations. The Company's customers are required to inform the Company in
writing of the nature and composition of their air freight. The Company also
conducts daily cargo searches, x-rays its customers' air freight and conducts
searches for hazardous materials, weapons, explosive devices and illegal
freight. The Company uses search dogs in Miami to seek out explosives and
controlled substances. The Company also conducts searches for contraband in
foreign countries at the point of origin prior to departure for the United
States. Notwithstanding these procedures, the Company may transport contraband
which could result in fines, penalties, flight bans or possible damage to the
aircraft. The Company believes it maintains an excellent cooperative
relationship with U.S. Customs, the U.S. Department of Agriculture and the U.S.
Drug Enforcement Agency.
SAFETY AND INSPECTIONS. Management is committed to the safe operation of
the Company's aircraft. In compliance with FAA regulations, the Company's
aircraft are subject to various levels of scheduled maintenance or "checks" and
periodically go through complete overhauls. See "--Aircraft Fleet--
Maintenance." The Company's maintenance efforts are monitored closely by the
FAA, with FAA representatives often being on-site to observe maintenance being
performed. The Company also conducts extensive safety checks and audits on a
regular basis. All of the Company's flight operations and maintenance manuals
are FAA approved.
In 1996, the Company underwent a Regional Aviation Safety Inspection
Program (RASIP) inspection, during which a team of regional FAA inspectors
conducted a focused inspection over a one-week period. The FAA advised the
Company that there were no material adverse findings as a result of the RASIP
inspection. In connection with the Company's move to its new hangar facility,
the Company underwent an audit by the local FAA Flight Standards District
Office, which resulted in the reissuance of the Company's repair station
certificate for that facility. In accordance with national FAA policy and
procedures, in April 1997, the Company passed a National Aviation Safety
Inspection Program (NASIP) inspection, the most stringent and in-depth FAA
inspection, in which a team of national FAA inspectors thoroughly audited and
inspected the Company's entire maintenance and flight operations for a period of
three weeks.
RISK MANAGEMENT
The Company is exposed to potential losses that may be incurred in the
event of an aircraft accident. An accident could result in substantial cost to
repair or replace a damaged aircraft or claims for damaged or destroyed cargo
and significant potential liability for claims for injury or death to third
parties and Company crew members. The Company purchases hull insurance for its
aircraft on an agreed value basis to provide coverage for total losses and
repair expenses in the event of a partial loss, subject to a $500,000 deductible
in the event of partial losses. The DOT requires airlines to carry at least $20
million of liability insurance. The Company currently maintains public liability
insurance in the amount of $200 million per occurrence. The Company has had a
low claim experience and believes that it enjoys a good reputation with its
insurance providers.
To insure against risks associated with its maintenance and engine repair
operations, the Company maintains aviation and airline products liability,
premises and hangarkeepers insurance in amounts and on terms generally
consistent with industry practice. To date, the Company has not experienced any
significant uninsured or insured claims related to its maintenance or engine
repair services.
The Company is legally responsible to its customers for the safe delivery
of cargo to its ultimate destination, subject to contractual and legal
limitations on liability of $20.00 per kilogram ($9.07 per pound) for
international flights. The Company carries insurance for these claims.
40
<PAGE>
COMPETITION
The air freight industry is highly competitive. The Company's scheduled
cargo services compete for cargo volume principally with other all-cargo
airlines, integrated carriers and scheduled and non-scheduled passenger airlines
which have substantial belly cargo capacity. To a lesser extent, the Company's
scheduled cargo services also compete for freight forwarding business with fully
integrated carriers, some of which are also customers of the Company. The
Company's ACMI services compete primarily with other airlines that operate
all-cargo aircraft and have lift capacity in excess of their own needs. The
Company believes that the most important competitive factors in the air freight
transportation industry are price, flexibility and the quality and reliability
of the cargo transportation service. Competition in the ACMI business is
dependent principally on the payload and cubic capacities of available aircraft,
price and reliability. Many of the Company's competitors have substantially
greater financial and other resources and more extensive facilities and
equipment than the Company.
FACILITIES
All of the Company's aircraft loading, unloading, maintenance, flight
operations and ground handling are accomplished at its MIA hangar facility,
which consists of a 250,000 square foot building, with 100,000 square feet of
hangar space; approximately 450,000 square feet of aircraft ramp space; 50,000
square feet of parts storage space; 30,000 square feet of maintenance shops and
work areas and flight operations center and training space; 20,000 square feet
of administrative offices; and approximately 50,000 square feet of expansion
space which the Company can employ in the future for offices or additional work
shops. The hangar facility accommodates up to two large widebody aircraft (such
as Boeing 747s), three medium widebody aircraft (such as McDonnell Douglas
DC-10s or Lockheed L-1011s) or three narrowbody aircraft (such as DC-8s)
simultaneously. Management believes that the Company's new maintenance
facilities are more than adequate to meet the Company's own maintenance needs
for at least the next several years and will permit the Company to take
advantage of opportunities to provide third party maintenance and airframe
repair work.
The Company maintains two cargo facilities at MIA. The Company's main cargo
facility consists of 56,600 square feet of warehouse space, which is utilized
primarily to process air freight for export and 13,500 square feet of office
space, at which the Company's executive offices and Miami sales offices are
located. The Company's other cargo facility consists of 22,500 square feet of
warehouse space which is utilized primarily to process imports. The Company
maintains facilities near MIA totaling 40,000 square feet where it performs
engine repair and overhaul work and additional warehouse space to store spare
aircraft parts.
The Company leases its MIA hangar facility from Metropolitan Dade County
under a lease that expires in 2001, with two five-year renewal options. The
Company's MIA cargo facilities are also leased from Metropolitan Dade County.
The lease for the Company's main cargo facility expires in 1999 and the other
cargo facility is leased on a month-to-month basis. The Company's engine repair
facilities are leased from an unrelated third party under a lease which expires
in May 1998.
The Company maintains regional sales and administrative offices for its
scheduled cargo services operations located at or near airports in four major
U.S. cities and 14 South and Central American and Caribbean cities. See
"Business--Cargo Sales Network and Marketing--Cargo Sales Network." All of such
properties are leased from unrelated third parties.
EMPLOYEES
As of June 1, 1997, the Company had 839 employees, including 114 flight
operations personnel, 425 maintenance, technical and security personnel, 192
cargo handling personnel and 108 executive, administrative, sales and financial
personnel. None of the Company's employees is subject to a collective bargaining
agreement. However, many airline industry employees are represented by labor
unions, and the Company believes that, as it continues to expand, its employees
may be subject to union organizing efforts. The Company considers its relations
with its employees to be satisfactory.
41
<PAGE>
FAA regulations require the Company's pilots to be licensed as commercial
pilots, with specific ratings for the aircraft type to be flown, and to be
medically certified as physically fit to fly aircraft. Licenses and medical
certification are subject to periodic continuation requirements, including
recurrent training and minimum amounts of recent flying experience. Mechanics
and quality control inspectors must also be licensed and qualified for specific
aircraft. Under the Company's supplemental certification status flight
dispatchers do not need to be licensed. The Company routinely performs employee
background checks for a ten-year period prior to employment and conducts more
pre-employment screening than mandated by FAA regulations. In addition, the
Company's management personnel who are directly involved in the supervision of
flight operations, training, maintenance and aircraft inspection must meet
experience standards prescribed by FAA regulations. All of the Company's
employees are subject to pre-employment drug and alcohol testing, and employees
holding certain positions are subject to subsequent random testing.
GOVERNMENT REGULATION
GENERAL. The Company is subject to regulation under U.S. laws and the laws
of the various countries to which it flies its aircraft. The Company is also
subject to various international bilateral air services agreements between the
United States and the countries to which the Company provides scheduled cargo
services and must obtain permission from the applicable foreign government to
provide service to that country.
DOMESTIC REGULATION. The Company is subject to the jurisdiction of the FAA
with respect to aircraft maintenance and operations, including flight
operations, equipment, aircraft noise, ground facilities, dispatch,
communications, training, weather observation, flight time, crew qualifications,
aircraft registration, and other matters affecting air safety. The FAA has the
authority to suspend temporarily or revoke permanently the authority of the
Company or its licensed personnel for failure to comply with regulations
promulgated by the FAA and to assess substantial civil penalties for such
failure. The Company's aircraft, flight personnel and flight and emergency
procedures are subject to periodic inspections and tests by the FAA. The FAA
also conducts safety audits and has the power to impose fines and other
sanctions for violations of airline safety regulations. The FAA also has
jurisdiction over the transportation of hazardous materials. Shippers and air
carriers of hazardous materials generally share responsibility for compliance
with these regulations, and shippers are responsible for proper packaging and
labeling. Substantial monetary penalties can be imposed on both shippers and air
carriers for infractions of these regulations as well as possible criminal
penalties.
The FAA has promulgated certain ("Stage III") noise requirements, pursuant
to which airlines such as the Company must bring their fleets into compliance
with allowable noise levels in phases, with full compliance required by December
31, 1999. The Company currently intends to install hushkits on six of its
aircraft in 1997, six in 1998 and the balance by December 31, 1999 to meet the
Stage III requirements. To date, however, the Company has not installed hushkits
on any of its aircraft, and has met the Stage III requirements applicable to it
through interchange agreements with other airlines. Pursuant to such agreements
and under current rules promulgated by the FAA, the Company has pooled its fleet
with other carriers to satisfy Stage III requirements.
The DOT maintains authority over international aviation and has
jurisdiction over international routes. In order to engage in its air
transportation business, the Company is required to maintain a Certificate of
Public Convenience and Necessity ("CPCN"). Prior to issuing a CPCN, DOT examines
a company's managerial competence, financial resources and plans and compliance
disposition in order to determine whether the carrier is fit, willing and able
to engage in the transportation services it has proposed to undertake. Among
other things, a company holding a CPCN must qualify as a United States citizen,
which requires that it be organized under the laws of the United States or a
State, territory or possession thereof; that its chief executive officer and at
least two-thirds of its Board of Directors and other managing officers be United
States citizens; that not more than 25% of its voting stock be owned or
controlled, directly or indirectly, by foreign nationals; and that it not
otherwise be subject to foreign control. A CPCN confers no proprietary rights on
the holder and DOT may impose
42
<PAGE>
conditions or restrictions on such a CPCN. The DOT has issued the Company (i) a
CPCN to engage in interstate and overseas charter air transportation, (ii) a
CPCN to engage in foreign charter air transportation and (iii) a CPCN to engage
in scheduled air transportation between Miami, Florida and Santo Domingo,
Dominican Republic. By virtue of the CPCNs to engage in interstate, overseas and
foreign charter air transportation of property and mail, the Company is vested
with authority to conduct all-cargo operations worldwide. In addition, the DOT
has granted the Company numerous "exemptions" from its regulations to permit the
Company to engage in scheduled foreign air transportation to 26 cities in 17
countries. Many carriers operate under such exemption authority, which is
granted for up to a period of two years and typically renewed by the DOT. CPCNs
and grants of exemption authority are subject to standard DOT terms, conditions
and limitations and may be conditioned, suspended or withdrawn. The Company is
also required to obtain separate DOT authorization for each long-term (over 60
days) ACMI arrangement.
Several aspects of airline operations are subject to regulation or
oversight by Federal agencies other than the FAA or the DOT. For instance, labor
relations in the air transportation industry are generally regulated under the
Railway Labor Act, which vests in the National Mediation Board certain
regulatory powers with respect to disputes between airlines and labor unions
arising under collective bargaining agreements. In addition, the Company is
subject to the jurisdiction of other governmental entities, including (i) the
FCC regarding its use of radio facilities pursuant to the Federal Communications
Act of 1934, as amended, (ii) the Commerce Department, the Customs Service, the
Immigration and Naturalization Service, and the Animal and Plant Health
Inspection Service of the Department of Agriculture regarding the Company's
international operations, (iii) the EPA regarding shipment of hazardous
materials and compliance with standards for aircraft exhaust emissions and (iv)
the Department of Labor.
FOREIGN REGULATION. To the extent required to do so, the Company obtains
authority to conduct foreign operations from applicable aeronautical and other
governmental authorities. As with the certificates and license obtained from
U.S. authorities, the Company must comply with all applicable rules and
regulations imposed by foreign governmental authorities or be subject to the
suspension, amendment or modification of its operating authorities.
LEGAL PROCEEDINGS
While the Company is from time to time involved in litigation in the
ordinary course of its business, there are no material legal proceedings
currently pending against the Company or to which any of its property is
subject.
43
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The following table sets forth certain information regarding the directors,
executive officers and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- ------ -------------------------------------------------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
J. Frank Fine .................. 73 Chairman of the Board
Barry H. Fine .................. 44 President, Chief Executive Officer and Director
John D. Zappia .................. 45 Chief Operating Officer
Terence T. Sullivan ............ 35 Chief Financial Officer
H. Jack Pfleger, Jr. ............ 62 Director Nominee
Phillip S. Bradley ............ 59 Director Nominee
CERTAIN KEY EMPLOYEES
Hugh P. Nash .................. 56 Vice President, Marketing and Sales
Anthony D. Phillips ............ 56 Vice President, Interline and International Marketing
Hector M. Ponte ............... 56 Vice President, Marketing--Latin America
Charles South .................. 53 Vice President and Director of Operations
</TABLE>
J. FRANK FINE founded the Company's predecessor in 1976 and has served as
the Company's Chairman of the Board since its inception. Mr. Fine also served as
the Company's President and Chief Executive Officer from its inception until
June 1997. Mr. Fine is also the founder of Agro Air, and has served as Agro
Air's Chairman of the Board and President since its inception in 1982. Mr. Fine
also served as Vice President, North America and General Sales Agent of Alas de
Transporte International, S.A., a Dominican all-cargo airline ("Alas"), from
1988 to 1992; Vice President, North America and General Sales Agent of
Interamericana de Aviacion, C.A., a Venezuelan all-cargo airline
("Interamericana"), from 1988 to 1992; Vice President, North America and General
Sales Agent of Aerochago, S.A., a Dominican all-cargo airline ("Aerochago"),
from 1985 to 1988; and President, North America and General Manager of Aeromar
C. por A., a Dominican all-cargo carrier ("Aeromar"), from 1978 to 1985. Mr.
Fine is the father of Barry H. Fine.
BARRY H. FINE has served as the Company's President and Chief Executive
Officer since June 1997 and has served as a director of the Company since its
inception in 1989. Mr. Fine served as Vice President and General Manager of the
Company from its inception until June 1997. Mr. Fine also has served as a Vice
President and director of Agro Air since its inception in 1982. Mr. Fine served
as Vice President, North America, U.S. General Counsel and U.S. General Sales
Agent of Alas from 1988 to 1992; Vice President, North America and U.S. General
Sales Agent of Interamericana from 1988 to 1992; Vice President, North America
and General Counsel of Aerochago from 1985 to 1988; and Vice President, North
America and General Counsel of Aeromar from 1982 to 1985.
JOHN D. ZAPPIA has served as the Company's Chief Operating Officer since
June 1997. Mr. Zappia served as Senior Vice President, Maintenance and
Operations of the Company from November 1992 until June 1997. Since 1991, Mr.
Zappia has been a member of the Miami Maintenance Management Council, an
association of maintenance companies and was its President from 1991 to 1995.
From March 1984 to November 1992, Mr. Zappia served as Vice President of
Maintenance of Agro Air. Prior to joining the Company, Mr. Zappia's experience
in the airline industry includes: Electrical and Avionic Lead Mechanic of Air
Florida (1980-1984); Technical Consultant to Aviation Components and
Accessories, Inc., an FAR 145 repair station (1981-1984); Lead Avionics and
Electrical Mechanic of Airlift International, Inc. (1979-1980); Supervisor, FAA
Accessory Overhaul Shop of Marco Island Airways (1977-1979); and Accessory
Mechanic of Dixie Air Parts Inc. (1972-1979).
TERENCE T. SULLIVAN has served as the Company's Chief Financial Officer
since June 1994. From May 1993 to May 1994, Mr. Sullivan served as Controller of
Aeromar. From September 1991 to May 1993,
44
<PAGE>
Mr. Sullivan served as Controller of Miami Aircraft Support, Inc., a ground
support services company. From August 1988 to August 1991, Mr. Sullivan served
as Controller and was a partner of International Futures Strategists, an
investment brokerage company. From April 1984 to July 1988, Mr. Sullivan was an
accountant with the firm of Samuels & Company.
H. JACK PFLEGER, JR. has been nominated and has agreed to become a director
of the Company upon completion of this offering. Mr. Pfleger has been Chairman
and a principal of Pfleger Financial Group, Inc., an executive benefits company,
since 1968. Mr. Pfleger was Chairman of the Board and Chief Executive Officer of
Life General Security Insurance Company from 1989 to 1993 and a director of
Barnett Bank South Florida from 1978 to 1993.
PHILLIP S. BRADLEY has been nominated and has agreed to become a director
of the Company upon completion of this offering. Since 1990, Mr. Bradley has
served as a director of World Fuel Services Corporation, an aviation and marine
fuel service company ("World Fuel"). Mr. Bradley was a co-founder of Advance
Petroleum, Inc., a wholly-owned subsidiary of World Fuel, and has held various
positions since its organization, most recently as President, since January
1988.
HUGH P. NASH has served as the Company's Vice President, Marketing and
Sales since November 1994, and served as Vice President, Northeast Region of the
Company from November 1993 to November 1994. Mr. Nash's experience in the air
cargo industry includes: Regional Manager, Southwest United States of Stair
Cargo Services/Intertrans Corp., a multinational forwarding company (1984-
1993); President of DCA, an airline general sales agency (1992-1994); Sales
Manager, Cargo of British Caledonian Airways (1980-1982); various positions,
including Agency Administrator, North America and Director, National Accounts,
with MSAS, a multinational air and ocean forwarding company (1971-
1980); and various positions, including International Sales Specialist/Eastern
Region, with Emery Air Freight (1965-1971).
ANTHONY D. PHILLIPS has served as the Company's Vice President, Interline
and International Marketing since October 1994. Mr. Phillips' experience in the
air cargo industry includes: General Manager, North America of Belize Air
International (1988-1994); various positions, including Director, Industry
Affairs and Director, Reservations, with Northeastern International Airways
(1983-1986); various positions, including Director, Caribbean and Director,
European Operations, with Air Florida (1977-1983); Regional Sales Manager of
Olympic Airways and Sabena World Belgian Airlines (1973-
1977); and various positions, including Systems Trainer, with Pan American
Airways.
HECTOR M. PONTE has served as the Company's Vice President, Latin American
Operations since October 1994. Mr. Ponte's experience in the air cargo industry
includes: General Manager of Interamericana (1989-1994); Senior Vice President
of Challenge Air Cargo and Vice President, Latin American of Challenge Air
Transport (1983-1989); Vice President of Traffic of T.A.T. Airfreight
Forwarders, a forwarding company (1982); North America Cargo Manager of
Ecuatoriana Airlines (1978-1982); Station Manager and Sales Representative of
T.A.T. Airfreight Forwarders, a forwarding company (1977-1978); Director of
Services of Cono Sur Cargo Services (1976-1977); Cargo District Sales Manager of
LACSA Airlines (1965-1975); and Cargo Agent Supervisor of Cargo Development,
Inc. (1962-1965).
CHARLES SOUTH has served as the Company's Director of Operations since
September 1993 and as a Vice President of the Company since June 1997. Mr.
South's experience in the airline industry includes: DC-8 Captain for Arrow Air
(1988-1991); various positions, including Vice President of Operations, with
Challenge Air International (1985-1987); and crew member for TACA International
Airlines (1969-1985).
Upon completion of this offering, the Board of Directors will be divided
into three classes, and the directors will serve for staggered three-year terms,
or until their successors have been elected and qualified. Mr. Pfleger will
initially serve as a Class I director until the annual meeting of shareholders
held in 1998, or until his successor is elected and qualified. Mr. Bradley will
initially serve as a Class II
45
<PAGE>
director until the annual meeting of shareholders to be held in 1999, or until
his successor is elected and qualified. Messrs. Frank and Barry Fine will
initially serve as Class III directors until the annual meeting of shareholders
to be held in 2000, or until their respective successors have been elected and
qualified. At each annual meeting of shareholders, a class of directors will be
elected for a three-year term to succeed the director or directors of the same
class whose terms are then expiring. To the extent there is an increase in the
number of directors, additional directorships resulting therefrom will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal numbers of directors.
Officers of the Company serve at the pleasure of the Board of Directors.
Except as noted above, there are no family relationships among any of the
Company's executive officers and directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish, after the completion of this
offering, an Audit Committee which will be composed of non-employee directors.
The Audit Committee will be responsible for reviewing audit functions, including
accounting and financial reporting practices of the Company, the adequacy of the
Company's system of internal accounting control, the quality and integrity of
the Company's financial statements and relations with independent auditors. The
Company also plans to establish, after the completion of this offering a
Compensation Committee, which will be responsible for establishing the
compensation of the Company's directors, officers and employees, including
salaries, bonuses, commission and benefit plans, administering the Company's
stock plans and other matters relating to compensation.
DIRECTOR COMPENSATION
The Company will reimburse its directors for out-of-pocket expenses
incurred in connection with their rendering of services as directors. The
Company currently does not intend to pay cash fees to its directors for
attendance at meetings. Non-employee directors will be eligible to receive
options under the Incentive Plan. See "--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Board of Directors, which consisted of J. Frank
Fine and Barry H. Fine, has made all determinations with respect to executive
officer compensation.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth all compensation
awarded to, earned by or for services rendered to the Company in all capacities
during the year ended December 31, 1996 by the Company's Chairman and Chief
Executive Officer (the "Named Officers"). In 1996, there was no other executive
officer whose salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) COMPENSATION
- ----------------------------------------------- ---------- -------- --------------- ------------
<S> <C> <C> <C> <C>
J. Frank Fine,
Chairman of the Board ..................... $ 85,800 $-- $15,300 $--
Barry H. Fine,
President and Chief Executive Officer ...... 153,500 -- 14,600 --
</TABLE>
- ----------------
(1) Represents amounts related to the Named Officers' personal use of Company
automobiles and a portion of the premiums for health insurance provided to
the Named Officers.
STOCK OPTION GRANTS AND EXERCISES. No stock options were granted to or
exercised by the Named Officers during 1996. Neither of the Named Officers held
any stock options at December 31, 1996.
46
<PAGE>
STOCK PLANS
INCENTIVE PLAN. The Company has adopted, effective upon the commencement of
this offering, the Incentive Plan, which is designed to assist the Company in
attracting, motivating, retaining and rewarding high-quality executives and
other employees, officers, directors and independent contractors (collectively,
the "Participants") by enabling the Participants to acquire or increase a
proprietary interest in the Company, as well as providing the Participants with
annual and long term performance incentives to expend their maximum efforts in
the creation of shareholder value. Pursuant to the Incentive Plan, the Company
may grant Participants stock options, stock appreciation rights, restricted
stock, deferred stock, other stock-related awards and performance or annual
incentive awards that may be settled in cash, stock or other property
(collectively, "Awards"). A committee comprised of at least two non-employee
directors (the "Committee"), or in the absence thereof the Board of Directors,
administers and interprets the Incentive Plan and is authorized to grant Awards
to all eligible Participants.
The total number of shares of Common Stock that may be subject to the
granting of Awards under the Incentive Plan shall be equal to: (i) shares,
plus (ii) the number of shares with respect to Awards previously granted under
the Incentive Plan that terminate without being exercised or expire, are
forfeited or canceled, and the number of shares of Common Stock that are
surrendered in payment of any Awards or any tax withholding requirements. No
Awards have been granted under the Incentive Plan. However, simultaneously with
this offering, the Company will grant to certain officers and other key
employees options to purchase an aggregate of shares of Common Stock,
exercisable at the initial public offering price.
The following is a description of the types of Awards that may be granted
under the Incentive Plan:
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The Committee is authorized to
grant stock options, including incentive and non-qualified stock options, and
stock appreciation rights ("SARs") entitling the Participant to receive the
amount by which the fair market value of a share of Common Stock on the date
of exercise exceeds the grant price of the SAR. The exercise price per share
subject to an option and the grant price of an SAR are determined by the
Committee, but must not be less than the fair market value of a share of
Common Stock on the date of grant. Each option is exercisable after the
period or periods specified in the related option agreement, but no option
may be exercisable after the expiration of ten years from the date of grant.
Options granted to an individual who owns (or is deemed to own) at least 10%
of the total combined voting power of all classes of stock of the Company
must have an exercise price of at least 110% of the fair market value of the
Common Stock on the date of grant and a term of no more than five years.
Options may be exercised by payment of the exercise price in cash, shares of
Common Stock, outstanding Awards or other property having a fair market value
equal to the exercise price, as the Committee may determine from time to
time.
RESTRICTED AND DEFERRED STOCK. The Committee is authorized to grant
restricted stock and deferred stock. Restricted stock is a grant of shares of
Common Stock which may not be sold or disposed of, and which may be forfeited
in the event of certain terminations of employment, prior to the end of a
restricted period specified by the Committee. A Participant granted
restricted stock generally has all the rights of a shareholder of the
Company, unless otherwise determined by the Committee. An Award of deferred
stock confers upon the Participant the right to receive shares of Common
Stock at the end of a specified deferral period, subject to possible
forfeiture of the Award in the event of certain terminations of employment
prior to the end of a specified restricted period. Prior to settlement, an
Award of deferred stock carries no voting or dividend rights. The restricted
or deferral period for restricted stock or deferred stock Awards may not be
less than three years unless the Award is subject to performance conditions,
in which case the period will not be less than one year.
47
<PAGE>
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Committee is
authorized to grant shares of Common Stock as a bonus, free of restrictions,
or to grant shares of Common Stock or other Awards in lieu of cash under the
Incentive Plan, subject to such terms as the Committee may specify.
OTHER STOCK-BASED AWARDS. The Committee is authorized to grant Awards
denominated or payable in, valued by reference to, or otherwise based on or
related to shares of Common Stock. Such Awards might include convertible or
exchangeable debt securities, other rights convertible or exchangeable into
shares of Common Stock, purchase rights for shares of Common Stock, Awards
with value and payment contingent upon performance by the Company or any
other factors designated by the Committee, and Awards valued by reference to
the book value of shares of Common Stock or the value of securities of or the
performance of specified subsidiaries or business units. The Committee
determines the terms and conditions of such Awards.
The right of a Participant to exercise or receive a grant or settlement of
an Award, and the timing thereof, may be subject to such performance conditions
(including subjective individual goals) as may be specified by the Committee. In
addition, the Incentive Plan authorizes specific annual incentive Awards, which
represent a conditional right to receive cash, shares of Common Stock or other
Awards upon achievement of certain pre-established performance goals and
subjective individual goals during a specified fiscal year.
Awards may be settled in the form of cash, shares of Common Stock, other
Awards or other property in the discretion of the Committee. The Committee may
condition any payment relating to an Award on the withholding of taxes and may
provide that a portion of any shares of Common Stock or other property to be
distributed will be withheld (or previously acquired shares of Common Stock or
other property surrendered by the Participant) to satisfy withholding and other
tax obligations. Awards granted under the Incentive Plan generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
Participant's death, except that the Committee may, in its discretion, permit
transfers for estate planning or other purposes subject to any applicable
restrictions.
The Incentive Plan also provides that each non-employee director will
automatically receive (i) on the date of his or her appointment as a director,
an option to purchase shares of Common Stock and (ii) thereafter, on the
date of each annual meeting of shareholders, an option to purchase shares
of Common Stock. Such options have a term of 10 years and become exercisable at
the rate of 25% per year, commencing on the first anniversary of the date of
grant; provided, that the options shall be fully exercisable in the event that,
while serving as a director, the non-employee director dies, or suffers a
"disability" or "retires" (within the meaning of such terms as defined in the
Incentive Plan). The per share exercise price of options granted to non-employee
directors will be equal to the fair market value of a share of Common Stock on
the date such option is granted. Unless otherwise extended in the sole
discretion of the Compensation Committee, the unexercised portion of any formula
option grant will become null and void (i) three months after the date on which
the non-employee director ceases to be a director for any reason other than the
non-employee director's willful misconduct or negligence, disability, death or
retirement, (ii) immediately in the event of the non-employee director's willful
misconduct or negligence, (iii) at the expiration of its original term if the
non-employee ceases to be a director by reason or his or her retirement, or (iv)
one year after the non-employee director ceases to be a director by reason of
his disability or death.
STOCK PURCHASE PLAN. The Company has reserved for issuance shares of
Common Stock under the Stock Purchase Plan, which will become effective upon
commencement of this offering. All eligible employees (as defined therein),
other than holders of stock or options to purchase 5% or more of the Company's
Common Stock, employed by the Company from time to time may elect to participate
in the Stock Purchase Plan. Under the Stock Purchase Plan, participants are
granted a purchase right to acquire shares of Common Stock at semi-annual
intervals, during 12 month offering
48
<PAGE>
periods, the first of which will commence on the date of this Prospectus and end
on June 30, 1998. The purchase price for the shares under the Stock Purchase
Plan will be paid by the employee through periodic payroll deductions and/or
lump sum payments not to exceed 25% of the participant's total annual
compensation. The purchase price per share will be equal to 85% of the lower of
(i) the fair market value of the Common Stock at the beginning of the offering
period (which, in the case of the first offering period, would equal the initial
public offering price of the Common Stock) or, if greater, the fair market value
of the Common Stock on the date the participant enrolls in the Stock Purchase
Plan, or (ii) the fair market value per share of the Common Stock on the
purchase date. In no event may a participant purchase more than $25,000 of
Common Stock pursuant to the Stock Purchase Plan in any calendar year.
CERTAIN TRANSACTIONS
J. Frank Fine, the Company's Chairman, and Barry H. Fine, the Company's
President and Chief Executive Officer (collectively, the "Principal
Shareholders"), each own 50% of the capital stock of the Company and Agro Air.
Immediately prior to this offering, each of the Principal Shareholders will
contribute his interest in Agro Air to the Company, and Agro Air will become a
wholly owned subsidiary of the Company. The Principal Shareholders will receive
no additional consideration for contributing their interests in Agro Air to the
Company.
The S Companies have been subject to taxation under Subchapter S of the
Code and comparable provisions of state income tax laws. As a result, the net
income of the S Companies, for federal and certain state income tax purposes,
was reported by and taxable directly to the S Companies' shareholders during
that time rather than to the S Companies. The S Companies historically have paid
cash dividends to their shareholders in amounts at least sufficient to provide
them funds for tax obligations payable by them on account of the S Companies'
income. During 1994, 1995 and 1996 and the three months ended March 31, 1997,
the S Companies made aggregate cash distributions to their shareholders of
$845,032, $1,248,655, $1,110,091 and $324,137, respectively. In connection with
their conversion from S corporation to C corporation status, which will occur
immediately prior to completion of this offering, the S Companies will effect
the S Corporation Distributions. See "Dividend Policy and Prior S Corporation
Status." The Principal Shareholders each received 50% of the cash distributions
made by the S Companies during 1994, 1995, 1996 and the three months ended March
31, 1997, and will receive the same percentage of the S Corporation
Distributions. In addition, prior to this offering, Agro Air will assign to its
shareholders the right to receive the proceeds of a $2.5 million judgment, plus
interest, entered in the Company's favor in January 1995 in a lawsuit brought
against an insurance company for breach of contract and fraud. The award of
damages and pre- and post-judgment interest is currently being appealed by the
defendant insurance company, and there is no assurance that the Company will
ultimately prevail in the lawsuit.
In connection with the conversion of the S Companies' tax status, each of
the S Companies will enter into a Tax Indemnification Agreement with the
Principal Shareholders. Pursuant to these agreements, the Company will indemnify
the Principal Shareholders for the amount of any additional taxes, interest,
penalties or additions to taxes paid by them as a result of any adjustments to
the S Companies' taxable income prior to the conversion date. The Company will
also indemnify the Principal Shareholders for any taxes incurred by them on
account of the receipt of the foregoing indemnity payments.
In December 1996, the Company purchased a cargo aircraft from a company
owned by J. Frank Fine in exchange for $2,859,000, consisting of $1,700,000 of
overhaul costs performed on the aircraft, forgiveness of loans and advances to
Mr. Fine of $481,000 and forgiveness of loans, interest receivable and accounts
receivable from parties related to Mr. Fine of $678,000.
The Principal Shareholders own 30% of the capital stock of Quiet Nacelle
Corporation ("QNC") and 100% of the capital stock of Quiet Technology, Inc.
("QTI") and Quiet Technology DC-8, Inc.
49
<PAGE>
("QTD"). Quiet Technology Venture, Limited ("QTV, Ltd."), a partnership
engaged in the development of hushkits for DC-8-50 series and DC-8-61 aircraft
(the aircraft used by the Company), in which (i) QTD is the general partner and
has a 1% interest, (ii) QTI is a limited partner and has a priority return on
capital and 94.83% interest and (iii) QNC is a limited partner and has a 4.16%
interest. During 1996 and the three months ended March 31, 1997, the Company
performed approximately $1,886,000 and $300,000 of research and development work
for QTV, Ltd. At December 31, 1996 and March 31, 1997, the Company's accounts
receivable related to these services were approximately $1,886,000 and $734,000,
respectively. Upon QTV, Ltd.'s receipt of a Supplemental Type Certificate for
the hushkit under development, the Company intends to purchase hushkits for its
15 DC-8 aircraft from QTV, Ltd. The purchase price for these hushkits will be
(i) for the first 10 hushkits, QTV, Ltd.'s cost plus $125,000 and (ii) for the
next 5 hushkits, QTV, Ltd.'s cost. The Company has paid QTV, Ltd. a
non-refundable $750,000 deposit. Management estimates that the cost of such
hushkits will be approximately $1.6 million per aircraft, which management
believes will be significantly lower than the cost of other hushkits available
in the market.
The Company purchased $7,927,000, $10,713,000, $18,276,000 and $5,132,000
of fuel from World Fuel in 1994, 1995, 1996 and the three months ended March 31,
1997, respectively. Phillip S. Bradley, a director nominee, is a director of
World Fuel and President of Advance Petroleum, Inc., a wholly-owned subsidiary
of World Fuel. Management believes that the terms of its purchases from World
Fuel have been, and will continue to be, on a market basis.
In the future, any transactions with executive officers, directors and
holders of more than 5% of the Common Stock will be approved by a majority of
the Board of Directors, including a majority of the disinterested members of the
Board of Directors.
50
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information as of the date of this
Prospectus concerning the beneficial ownership of the Common Stock and as
adjusted to give effect to this offering by (i) each person known by the Company
to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
each of the Company's executive officers, directors and director nominees who
owns any Common Stock and (iii) all executive officers and directors of the
Company as a group. All holders listed below have sole voting power and
investment power over the shares beneficially owned by them, except to the
extent such power may be shared with such person's spouse.
<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING(2)
---------------------- SHARES ---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- ----------------------------------------- --------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
J. Frank Fine ........................ 50.0% %
Barry H. Fine ........................
50.0%
%
All executive officers and directors
as a group (4 persons) ...............
100.0%
</TABLE>
- ----------------
(1) The address of each person listed is c/o Fine Air Services, Inc., 2261 N.W.
67th Avenue, Bldg. 700, Miami, Florida 33152.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.01 par value and 10,000,000 shares of preferred stock, $.01
par value. As of the date hereof, there were shares of Common Stock outstanding
and no shares of preferred stock outstanding.
COMMON STOCK
Except as set forth under "--Limitation on Voting by Foreign Owners," the
holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the shareholders. Subject to preferences that may be applicable to
any outstanding preferred stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. Holders of
Common Stock have no preemptive, conversion or other subscription rights. There
are no redemption or sinking fund provisions available to the Common Stock. In
the event of liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
stockholders to issue up to 10,000,000 shares of preferred stock in one or more
series. The Board of Directors is authorized to establish from time to time the
number of shares to be included in and the designation of, any such series, to
determine or alter the rights, preferences, privileges and restrictions thereof
without further action by the shareholders. The Board of Directors of the
Company has not designated any series of preferred stock. Satisfaction of any
dividend preferences of outstanding preferred stock, if any, would reduce the
amount of funds available for the payment of dividends on Common Stock. Also,
the holders of preferred stock, if any, would normally be entitled to receive a
preference payment in the event of any liquidation or other dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. In addition, any outstanding shares of preferred stock having conversion
rights would potentially increase the number of shares of Common Stock
outstanding.
LIMITATION ON VOTING BY FOREIGN OWNERS
The Articles define "Foreign Ownership Restrictions" as "appliable
statutory, regulatory and interpretive restrictions regarding foreign ownership
or control of U.S. air carriers (as amended or modified from time to time)."
Such restrictions currently require that no more than 25% of the voting stock of
the Company be owned or controlled, directly or indirectly, by persons who are
not U.S. citizens ("Foreigners") for purposes of the Foreign Ownership
Restrictions, that the Company's president and at least two-thirds of the
members of its Board of Directors and other managing officers be U.S. citizens
and that the Company not otherwise be subject to foreign control.
The Articles provide that no shares of capital stock may be voted by or at
the direction of Foreigners, unless such shares are registered on a separate
stock record (the "Foreign Stock Record"). The Bylaws further provide that no
shares will be registered on the Foreign Stock Record if the amount so
registered would exceed the Foreign Ownership Restrictions. Registration on the
Foreign Stock Record is made in chronological order based on the date the
Company receives a written request for registration.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW AND THE COMPANY'S
ARTICLES AND BYLAWS
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of such
52
<PAGE>
provisions in its articles of incorporation or bylaws. The Company is subject to
the "affiliated transactions" and "control-share acquisition" provisions of the
Florida Business Corporation Act (the "FBCA"). These provisions require, subject
to certain exceptions, that an "affiliated transaction" be approved by the
holders of two-thirds of the voting shares other than those beneficially owned
by an "interested shareholder" or by a majority of disinterested directors and
that voting rights be conferred on "control shares" acquired in specified
control share acquisitions generally only to the extent conferred by resolution
approval by the shareholders, excluding holders of shares defined as "interested
shares." These provisions could prohibit or delay the accomplishment of mergers
or other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
In addition, certain provisions of the Articles and Bylaws, which will be
in effect upon commencement of this offering and are summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a shareholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by shareholders.
CLASSIFIED BOARD OF DIRECTORS. The Board of Directors will be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
These provisions, when coupled with the provision of the Articles authorizing
only the Board of Directors to fill vacant directorships or increase the size of
the Board, may deter a shareholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS. The Articles provide
that shareholders may not take action by written consent, but only at duly
called annual or special meetings of shareholders. The Articles further provide
that special meetings of shareholders of the Company be called only by the
Chairman of the Board of Directors, a majority of the Board of Directors or the
President of the Company.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting; provided, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
30 calendar days earlier than or 60 calendar days after such anniversary, notice
by the stockholder, to be timely, must be so received not more than 90 days nor
later than the later of (i) 60 days prior to the annual meeting or (ii) the
close of business on the 10th day following the date on which notice of the date
of the meeting is given to stockholders or made public, whichever first occurs.
The Bylaws also specify certain requirements for a shareholder's notice to be in
proper written form. These provisions may preclude shareholders from bringing
matters before the shareholders at an annual meeting or from making nominations
for directors at an annual meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and preferred stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and preferred stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby protect the continuity of the Company's management.
53
<PAGE>
The FBCA provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
articles of incorporation or bylaws, unless a corporation's articles of
incorporation or bylaws, as the case may be, requires a greater percentage.
The Articles requires the affirmative vote of the holders of at least 80%
of the combined voting power of the outstanding shares of capital stock of the
Company entitled to vote for the election of directors to amend or repeal any of
the foregoing Articles provisions. Such 80% shareholder vote is also required to
amend or repeal any of the foregoing Bylaws provisions, although such Bylaws
provisions may also be amended or repealed by a majority vote of the entire
Board of Directors. Such 80% shareholder vote would be in addition to any
separate class vote that might in the future be required pursuant to the terms
of any preferred stock that might be outstanding at the time any such amendments
are submitted to stockholders.
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to act unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's breach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation to procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness or an act
or omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to
the fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification. The Company
has also entered into an agreement with each of its directors and certain of its
officers wherein it has agreed to indemnify each of them to the fullest extent
permitted by law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
shares of Common Stock. All of the shares sold in this offering are freely
tradeable in the public market unless acquired by an affiliate of the Company.
The remaining shares outstanding upon completion of this offering will be
"restricted securities" as that term is defined under Rule 144 ("Rule 144")
promulgated under the Securities Act, and will be eligible for sale in the
public market upon completion of this offering in compliance with Rule 144,
subject to the agreement with the Representatives described below.
All directors and executive officers and the Selling Shareholders have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the closing of this offering (the
"Lockup Period") without the prior written consent of Alex. Brown & Sons
Incorporated. Upon expiration of the Lockup Period, the shares held by such
persons will be eligible for sale in the public market pursuant to Rule 144.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder is entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the Company's Common Stock (approximately
shares immediately after this offering) or the average weekly trading volume of
the Company's Common Stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain manner of sales provisions, notice requirements and
the availability of current public information about the Company. If two years
have elapsed since the later of the date of acquisition of restricted shares
from the Company or from any affiliate of the Company, and the acquiror or
subsequent holder thereof is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person would be entitled
to sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, public information requirements
or notice requirements.
The Company is unable to predict the effect that sales of Common Stock made
under Rule 144, pursuant to future registration statements or otherwise, may
have on any then prevailing market price for shares of the Common Stock.
Nevertheless, sales of a substantial amount of the Common Stock in the public
market, or the perception that such sales could occur, could materially
adversely affect the market price of the Common Stock as well as the Company's
ability to raise additional capital through the sale of its equity securities.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), through their
Representatives, Alex. Brown & Sons Incorporated, Bear, Stearns & Co., Inc. and
Dillon, Read & Co. Inc., have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ---------------------------------------- ------------------
<S> <C>
Alex. Brown & Sons Incorporated ......
Bear, Stearns & Co. Inc. ............
Dillon, Read & Co. Inc. ...............
-----------
Total ..............................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby, if
any of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After commencement of the initial public offering, the offering price
and other selling terms may be changed by the Representatives.
The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable not later than 30 days after the date of this Prospectus,
to purchase up to additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. Of the shares subject to this option, will
be sold by the Company and will be sold by the Selling Shareholders. To
the extent that the Underwriters exercise such option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof that the number of shares of Common Stock to be purchased by it shown in
the above table bears to , and the Company and the Selling Shareholders
will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the shares are being offered.
To facilitate the offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with the offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and
56
<PAGE>
purchase, shares of the Common Stock in the open market. Any of these activities
may maintain the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. The Underwriters are not required to
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The Representatives, on behalf of the syndicate of
Underwriters, also may reclaim selling concessions allowed to an Underwriter or
dealer, if the syndicate repurchases shares distributed by that Underwriter or
dealer.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company has agreed not to sell, contract to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus, except as consideration for business acquisitions or upon exercise
of options granted under the Incentive Plan or the Stock Purchase Plan, without
the prior written consent of Alex. Brown & Sons Incorporated. The Selling
Shareholders and the directors and officers of the Company have agreed not to
sell, contract to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated. See "Shares Eligible for Future
Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiation among the Company, the Selling Shareholders and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami,
Florida. Certain legal matters relating to the offering will be passed upon for
the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The combined balance sheets as of December 31, 1995 and 1996 and the
combined statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996,
included in this Prospectus, have been included herein in reliance on the report
of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (including all amendments,
exhibits and schedules thereto, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration
57
<PAGE>
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any agreement or other
document filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance, reference is made to the copy of such agreement
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part thereof may be obtained from such office upon payment of the
prescribed fees. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission. Information concerning the Company may also available for inspection
at the offices of the Nasdaq National Market, Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Accountants ........................ F-2
Combined Balance Sheets
as of December 31, 1995 and 1996 and March 31, 1997 ...... F-3
Combined Statements of Operations
for the Years Ended December 31, 1994, 1995 and 1996 and
the Three Months Ended March 31, 1996 and 1997 ............ F-4
Combined Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1994, 1995 and 1996 and
the Three Months Ended March 31, 1997 ..................... F-5
Combined Statements of Cash Flows
for the Years Ended December 31, 1994, 1995 and 1996 and
the Three Months Ended March 31, 1996 and 1997 ............ F-6
Notes to Combined Financial Statements ..................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Fine Air Services, Inc.
We have audited the accompanying combined balance sheets of Fine Air Services,
Inc., and combined affiliate as of December 31, 1995 and 1996 and the related
combined statements of operations, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Fine Air
Services, Inc. and combined affiliate as of December 31, 1995 and 1996, and the
combined results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in comformity with generally
accepted accounting principles.
Coopers and Lybrand, L.L.P.
Miami, Florida
February 28, 1997
F-2
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1996
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 441,592 $ 972,058
Restricted cash ............................................. 141,283 181,673
Investment securities ....................................... 288,997 224,668
Accounts receivable, net of allowance for losses of
$1,045,000, $1,309,000 and $1,528,000, respectively ......... 19,699,200 24,403,818
Engines held for sale ....................................... 1,570,642 --
Expendable parts ............................................. 751,738 781,498
Loans receivable, current portion ........................... 217,667 --
Deferred tax asset .......................................... -- --
Prepaid expenses and other current assets .................. 368,586 747,278
------------- -------------
Total current assets .................................... 23,479,705 27,310,993
------------- -------------
Property and equipment:
Flight equipment ............................................. 46,372,150 58,977,975
Other ...................................................... 2,931,327 5,062,243
------------- -------------
49,303,477 64,040,218
Less accumulated depreciation .............................. (16,889,328) (26,230,950)
------------- -------------
Net property and equipment ................................. 32,414,149 37,809,268
------------- -------------
Other assets:
Loans receivable, less current portion ..................... 314,238 --
Deposits and other assets .................................... 817,518 766,057
------------- -------------
Total assets ............................................. $ 57,025,610 $ 65,886,318
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ............................................. $ 600,000 $ 700,000
Current portion of long-term debt ........................... 1,871,545 1,334,369
Distribution payable to S Corporation stockholders ............ -- --
Accounts payable ............................................. 8,658,351 6,634,586
Interest payable ............................................. 934,954 666,775
Accrued expenses ............................................. 1,679,932 2,197,639
------------- -------------
Total current liabilities ................................. 13,744,782 11,533,369
Long-term debt, less current portion ........................ 10,657,140 9,322,770
Deferred income taxes .......................................... -- --
------------- -------------
Total liabilities ....................................... 24,401,922 20,856,139
------------- -------------
Commitments and contingencies (Notes 10, 12 and 13)
Stockholders' equity:
Common stock of Fine Air Services, Inc., $1 par value:
4,000 shares authorized, 1,000 shares issued and
outstanding ................................................ 1,000 1,000
Common stock of Agro Air Associates, Inc., $1 par
value; 4,000 shares authorized, 1,500 shares issued and
outstanding ................................................ 1,500 1,500
Additional paid-in capital .................................... -- --
Retained earnings .......................................... 33,134,016 45,052,196
Net unrealized holding losses on investment securities ...... (31,731) (24,517)
Loans and advances to stockholders ........................... (481,097) --
------------- -------------
Total stockholders' equity .............................. 32,623,688 45,030,179
------------- -------------
Total liabilities and stockholders' equity ............... $ 57,025,610 $ 65,886,318
============= =============
<CAPTION>
MARCH 31, 1997
----------------------------------
ACTUAL PRO FORMA
---------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 4,831,314 $ --
Restricted cash ............................................. 181,673 181,673
Investment securities ....................................... 141,608 141,608
Accounts receivable, net of allowance for losses of
$1,045,000, $1,309,000 and $1,528,000, respectively ......... 19,415,793 19,415,793
Engines held for sale ....................................... -- --
Expendable parts ............................................. 722,623 722,623
Loans receivable, current portion ........................... -- --
Deferred tax asset .......................................... -- 489,000
Prepaid expenses and other current assets .................. 264,808 264,808
------------- -------------
Total current assets .................................... 25,557,819 21,215,505
------------- -------------
Property and equipment:
Flight equipment ............................................. 61,261,441 61,261,441
Other ...................................................... 6,878,101 6,878,101
------------- -------------
68,139,542 68,139,542
Less accumulated depreciation .............................. (29,067,151) (29,067,151)
------------- -------------
Net property and equipment ................................. 39,072,391 39,072,391
------------- -------------
Other assets:
Loans receivable, less current portion ..................... -- --
Deposits and other assets .................................... 711,092 711,092
------------- -------------
Total assets ............................................. $ 65,341,302 $ 60,998,988
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ............................................. $ -- $ --
Current portion of long-term debt ........................... 1,428,494 1,428,494
Distribution payable to S Corporation stockholders ............ -- 19,668,686
Accounts payable ............................................. 4,901,062 4,901,062
Interest payable ............................................. 27,612 27,612
Accrued expenses ............................................. 3,038,600 3,038,600
------------- -------------
Total current liabilities ................................. 9,395,768 29,064,454
Long-term debt, less current portion ........................ 8,152,921 8,152,921
Deferred income taxes .......................................... -- 9,332,000
------------- -------------
Total liabilities ....................................... 17,548,689 46,549,375
------------- -------------
Commitments and contingencies (Notes 10, 12 and 13)
Stockholders' equity:
Common stock of Fine Air Services, Inc., $1 par value:
4,000 shares authorized, 1,000 shares issued and
outstanding ................................................ 1,000 1,000
Common stock of Agro Air Associates, Inc., $1 par
value; 4,000 shares authorized, 1,500 shares issued and
outstanding ................................................ 1,500 1,500
Additional paid-in capital .................................... -- 14,554,690
Retained earnings .......................................... 47,897,690 --
Net unrealized holding losses on investment securities ...... (107,577) (107,577)
Loans and advances to stockholders ........................... -- --
------------- -------------
Total stockholders' equity .............................. 47,792,613 14,449,613
------------- -------------
Total liabilities and stockholders' equity ............... $ 65,341,302 $ 60,998,988
============= =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
--------------- --------------- ----------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Scheduled cargo services ...... $ 19,940,524 $ 40,123,759 $ 54,774,892 $ 11,693,202 $ 16,174,090
ACMI services .................. 44,419,970 35,340,514 35,519,906 5,429,774 9,125,902
Repairs, training and other ... 492,448 885,183 3,953,131 1,796,406 625,906
------------ ------------ -------------- ------------ --------------
Total operating revenues ...... 64,852,942 76,349,456 94,247,929 18,919,382 25,925,898
------------ ------------ -------------- ------------ --------------
Operating expenses:
Flying operations ............... 19,944,329 25,971,028 36,609,604 7,879,340 9,467,104
Aircraft and traffic servicing 4,098,454 7,475,080 7,938,513 1,684,328 2,117,863
Maintenance ..................... 12,723,493 8,340,343 9,894,441 1,682,871 2,888,609
General and administrative ...... 8,746,253 11,481,798 14,110,869 3,506,128 3,994,253
Selling ........................ 3,314,558 4,454,051 3,095,842 694,941 1,262,580
Depreciation and amortization 3,886,679 6,923,711 9,390,396 2,166,299 2,846,571
------------ ------------ -------------- ------------ --------------
Total operating expenses ...... 52,713,766 64,646,011 81,039,665 17,613,907 22,576,980
------------ ------------ -------------- ------------ --------------
Operating income ............... 12,139,176 11,703,445 13,208,264 1,305,475 3,348,918
------------ ------------ -------------- ------------ --------------
Other income (expense):
Interest income ............... 97,438 92,085 94,651 24,952 14,726
Interest expense ............... (1,111,232) (985,201) (966,058) (263,095) (224,658)
Gain on insurance settlement . 2,227,083 -- -- -- --
Other ........................... 845,908 227,293 691,414 397,988 30,645
------------ ------------ -------------- ------------ --------------
Total other, net ............... 2,059,197 (665,823) (179,993) 159,845 (179,287)
------------ ------------ -------------- ------------ --------------
Net income ..................... $ 14,198,373 $ 11,037,622 $ 13,028,271 $ 1,465,320 $ 3,169,631
============ ============ ============== ============ ==============
Pro Forma Data (unaudited)
Note 14:
Net income per above ............ $ 14,198,373 $ 11,037,622 $ 13,028,271 $ 1,465,320 $ 3,169,631
Pro Forma provision for
income taxes ..................... 5,404,000 4,220,000 4,970,000 551,000 1,193,000
------------ ------------ -------------- ------------ --------------
Pro Forma net income ............ $ 8,794,373 $ 6,817,622 $ 8,058,271 $ 914,320 $ 1,976,631
============ ============ ============== ============ ==============
Pro Forma net income per
common share ..................... $ $
============== ==============
Weighted average number of
common shares outstanding ......
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------
EARNINGS
---------------
SHARES AMOUNT
--------- ---------
<S> <C> <C> <C>
Balances at December 31, 1993 ...... 2,500 $2,500 $ 9,991,708
Net income ........................ -- -- 14,198,373
Distributions ..................... -- -- (845,032)
Change in unrealized loss on
investment securities ............ -- -- --
------- ------- ------------
Balances at December 31, 1994 ...... 2,500 2,500 23,345,049
Net income ........................ -- -- 11,037,622
Distributions ..................... -- -- (1,248,655)
Change in unrealized loss on
investment securities ............ -- -- --
------- ------- ------------
Balances at December 31, 1995 ...... 2,500 2,500 33,134,016
Net income ........................ -- -- 13,028,271
Distributions ..................... -- -- (1,110,091)
Reimbursement of advances to
stockholders ..................... -- -- --
Change in unrealized loss on
investment securities ............ -- -- --
------- ------- ------------
Balances at December 31, 1996 ...... 2,500 2,500 45,052,196
Net income (unaudited) ............ -- -- 3,169,631
Distributions (unaudited) ......... -- -- (324,137)
Change in unrealized loss on
investment securities (unaudited) . -- -- --
------- ------- ------------
Balances at March 31, 1997
(unaudited) ........................ 2,500 $2,500 $ 47,897,690
======= ======= ============
<CAPTION>
UNREALIZED HOLDING LOANS AND
GAIN (LOSS) ON ADVANCES TO
INVESTMENT SECURITIES STOCKHOLDERS
------------------------ --------------
TOTALS
---------------
<S> <C> <C> <C>
Balances at December 31, 1993 ...... $ 23,806 $ (481,097) $ 9,536,917
Net income ........................ -- -- 14,198,373
Distributions ..................... -- -- (845,032)
Change in unrealized loss on
investment securities ............ (136,439) -- (136,439)
----------- ----------- ------------
Balances at December 31, 1994 ...... (112,633) (481,097) 22,753,819
Net income ........................ -- -- 11,037,622
Distributions ..................... -- -- (1,248,655)
Change in unrealized loss on
investment securities ............ 80,902 -- 80,902
----------- ----------- ------------
Balances at December 31, 1995 ...... (31,731) (481,097) 32,623,688
Net income ........................ -- -- 13,028,271
Distributions ..................... -- -- (1,110,091)
Reimbursement of advances to
stockholders ..................... -- 481,097 481,097
Change in unrealized loss on
investment securities ............ 7,214 -- 7,214
----------- ----------- ------------
Balances at December 31, 1996 ...... (24,517) -- 45,030,179
Net income (unaudited) ............ -- -- 3,169,631
Distributions (unaudited) ......... -- -- (324,137)
Change in unrealized loss on
investment securities (unaudited) . (83,060) -- (83,060)
----------- ----------- ------------
Balances at March 31, 1997
(unaudited) ........................ $ (107,577) $ -- $ 47,792,613
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 14,198,373 $ 11,037,622 $ 13,028,271
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 3,886,679 6,923,711 9,390,396
Bad debt expense .............................. 585,905 890,573 16,266
Excess of insurance proceeds over net book
value of assets destroyed ........................ (2,227,083) -- --
Loss (gain) on disposal of property and
equipment ....................................... 184,506 -- (668,116)
(Gain) loss on sales of investment securities ... (14,801) -- 76,937
Changes in operating assets and liabilities:
Accounts receivable ........................... (7,369,618) (3,734,503) (4,746,594)
Expendable parts .............................. 398,858 (160,000) (29,760)
Prepaid expenses and other assets ............ (491,540) (349,251) (472,519)
Accounts payable .............................. 4,159,034 2,028,654 (2,023,765)
Interest payable .............................. 422,506 387,901 (268,179)
Accrued expenses .............................. 1,340,200 243,643 517,707
------------- ------------- -------------
Total adjustments .............................. 874,646 6,230,728 1,792,373
------------- ------------- -------------
Net cash provided by operating activities ...... 15,073,019 17,268,350 14,820,644
------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment ............ (14,843,455) (15,164,405) (14,107,612)
Proceeds from sale of property and equipment ... -- -- 2,238,758
Proceeds from insurance settlement ............... 3,900,000 -- --
Increase in restricted cash ..................... (16,951) (124,332) (40,390)
Purchases of investment securities ............... (139,558) -- (146,128)
Proceeds from sales of investment securities ... 100,930 -- 140,734
Decrease (increase) in loans receivable ......... 4,654 (54,253) 25,000
------------- ------------- -------------
Net cash used in investing activities ......... (10,994,380) (15,342,990) (11,889,638)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt ..................... 1,000,000 -- --
Principal payments on long-term debt ............ (4,327,715) (1,417,659) (1,871,546)
Proceeds from (payments on) line of credit ...... -- 600,000 100,000
Distributions to stockholders .................. (845,032) (1,248,655) (1,110,091)
Reimbursement of advances to stockholders ...... -- -- 481,097
------------- ------------- -------------
Net cash used in financing activities ......... (4,172,747) (2,066,314) (2,400,540)
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents (94,108) (140,954) 530,466
Cash and cash equivalents, beginning of period ... 676,654 582,546 441,592
------------- ------------- -------------
Cash and cash equivalents, end of period ......... $ 582,546 $ 441,592 $ 972,058
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ......... $ 688,706 $ 597,300 $ 1,234,237
============= ============= =============
Supplemental disclosures of non-cash investing
activities (also see Note 12):
Increase (decrease) in unrealized holding gain or
(loss) on available for sale investment securities $ 136,439 $ (80,902) $ (7,214)
============= ============= =============
...................................................
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1997
-------------- ---------------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income ....................................... $ 1,465,320 $ 3,169,631
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 2,166,299 2,846,571
Bad debt expense .............................. -- 219,197
Excess of insurance proceeds over net book
value of assets destroyed ........................ -- --
Loss (gain) on disposal of property and
equipment ....................................... (364,988) 47,138
(Gain) loss on sales of investment securities ... -- --
Changes in operating assets and liabilities:
Accounts receivable ........................... 3,945,832 4,768,828
Expendable parts .............................. -- 58,875
Prepaid expenses and other assets ............ 115,550 537,435
Accounts payable .............................. (2,536,736) (1,733,524)
Interest payable .............................. (843,762) (639,163)
Accrued expenses .............................. 234,613 840,961
----------- ------------
Total adjustments .............................. 2,716,808 6,946,318
----------- ------------
Net cash provided by operating activities ...... 4,182,128 10,115,949
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment ............ (3,389,466) (4,156,832)
Proceeds from sale of property and equipment ... 1,935,110 --
Proceeds from insurance settlement ............... -- --
Increase in restricted cash ..................... (4,094) --
Purchases of investment securities ............... -- --
Proceeds from sales of investment securities ... -- --
Decrease (increase) in loans receivable ......... 815 --
----------- ------------
Net cash used in investing activities ......... (1,457,635) (4,156,832)
----------- ------------
Cash flows from financing activities:
Proceeds from long-term debt ..................... -- --
Principal payments on long-term debt ............ (1,630,945) (1,075,724)
Proceeds from (payments on) line of credit ...... (600,000) (700,000)
Distributions to stockholders .................. (302,816) (324,137)
Reimbursement of advances to stockholders ...... -- --
----------- ------------
Net cash used in financing activities ......... (2,533,761) (2,099,861)
----------- ------------
(Decrease) increase in cash and cash equivalents 190,732 3,859,256
Cash and cash equivalents, beginning of period ... 441,592 972,058
----------- ------------
Cash and cash equivalents, end of period ......... $ 632,324 $ 4,831,314
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ......... $ 1,106,857 $ 863,821
=========== ============
Supplemental disclosures of non-cash investing
activities (also see Note 12):
Increase (decrease) in unrealized holding gain or
(loss) on available for sale investment securities $ 17,376 $ 83,060
=========== ============
...................................................
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Fine Air Services, Inc. ("Fine Air") and its combined affiliate, Agro Air
Associates, Inc., ("Agro Air") (collectively the "Company") are under the
control of common stockholders. The Company is primarily engaged in interstate,
overseas and foreign charter and scheduled air transportation of cargo and mail
pursuant to authority granted by the United States Department of Transportation
and operates in the United States, South and Central America, and the Caribbean.
The Company has worldwide charter authority granted by the United States
Department of Transportation and is also engaged in aircraft leasing and repair
and maintenance.
The percentage of revenues derived from each of the Company's primary
business activities was as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Scheduled cargo services ........ 31% 53% 58% 62% 62%
ACMI services...................... 68 46 38 29 35
Repairs, training and other ...... 1 1 4 9 3
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
===== ===== ===== ===== =====
</TABLE>
The assets of the Company consist primarily of aircraft, engines, rotable
parts, ground equipment and furniture and office equipment, substantially all of
which is physically located or based at the Miami International Airport.
The Company operates principally in Latin America (including Puerto Rico
and the U.S. Virgin Islands) and the United States. For the years ended December
31, 1994, 1995 and 1996, Latin America sales accounted for 68%, 88% and 89% of
total revenues, respectively. All foreign sales were conducted in U.S. dollars.
2. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF COMBINATION
The combined accounts include the accounts of Fine Air and Agro Air. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. The Company uses estimates principally with respect to the
allowance for losses on receivables, the economic useful lives of property and
equipment and salvage value on owned aircraft. Actual results could differ from
those estimates.
F-7
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash (both interest bearing and
non-interest bearing) and certificates of deposit and other highly liquid
instruments having maturities of three months or less from the date of purchase.
At times cash and cash equivalents in a depository institution may be in excess
of the FDIC insurance limit.
RESTRICTED CASH
Restricted cash consists of certificates of deposit required by various
letters of credit (Note 13).
INVESTMENT SECURITIES
Debt securities that the Company has both the intent and ability to hold to
maturity are carried at amortized cost. Securities that the Company does not
have the intent or ability to hold to maturity are classified as either
"available-for-sale" or as "trading" and are carried at fair value. Unrealized
gains and losses on available for sale securities are classified as a separate
component of stockholders' equity. Unrealized gains and losses on trading
securities are recognized in current earnings. As of December 31, 1995 and 1996
and March 31, 1997, all securities have been classified as available for sale.
EXPENDABLE PARTS
Flight equipment expendable parts are stated at the lower of average cost
or market value.
PROPERTY AND EQUIPMENT
Owned aircraft are stated at cost. Expenditures for additions,
improvements, flight equipment modifications, engine overhauls and major
maintenance costs are capitalized. Other maintenance and repairs are charged to
expense when incurred. The Company performs a substantial portion of flight
equipment modifications, engine repairs, major maintenance as well as normal
repairs and maintenance. Owned aircraft are depreciated over their estimated
useful lives of 10 years using the straight line method, net of the estimated
salvage value of 10%. Major maintenance and overhaul costs are depreciated over
their estimated useful lives, which range from 3 to 8 years.
At the time assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the related accounts, and the
difference, net of proceeds, if any, is recorded as a gain or loss.
Long-lived assets to be held and used are reviewed for impairment whenever
changes in circumstances indicate that the related carrying amounts may not be
recoverable. When required, impairment losses on assets to be held and used are
recognized based on the fair value of the asset. The Company does not believe
impairment charges are warranted as of December 31, 1995 and 1996 or as of March
31, 1997.
INCOME TAXES
Fine Air and Agro Air have each elected to be taxed as an S-Corporation
under provisions of the Internal Revenue Code. Accordingly, the Company is not
subject to Federal and State income taxes. Instead, the taxable income is
included in the individual income tax returns of the stockholders.
F-8
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
The Company's tax returns for the years ended December 31, 1993 and 1994
are currently under examination by the Internal Revenue Service. The examination
relates specifically to the Company's treatment of certain repairs and
maintenance, including safety checks mandated by the Federal Aviation
Administration, as expenses for tax purposes. Should the Internal Revenue
Service take the position that these costs should have been capitalized and
subsequently depreciated, a substantial assessment could result. Because the
examination is in process, the amount of such an assessment is not presently
determinable. The Company believes that its treatment of such costs as
deductible for tax purposes is proper and is prepared to defend its position
vigorously, if it becomes necessary.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 specifies new standards designed to
improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on an
international basis. Some of the changes made to simplify the EPS computations
include: (a) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS, (b) eliminating the modified treasury
stock method and the three percent materiality provision and (c) revising the
contingent share provisions and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not yet determined
the impact of the implementation of SFAS No. 128.
INTERIM FINANCIAL STATEMENTS
The financial statements for the three-month periods ended March 31, 1996
and 1997, and all related footnote information for these periods, are unaudited,
and reflect all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position,
operating results and cash flows for the interim period. The results of
operation for the three months ended March 31, 1997 are not necessarily
indicative of the results to be achieved for the entire fiscal year ending
December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of investment securities,
borrowings under a bank line of credit and long-term debt agreements. Investment
securities have been classified as available for sale and are recorded at fair
value. The fair values of the line of credit and long-term debt have been
estimated based on interest rates available for similar debt instruments and
approximate their carrying values.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company had one principal customer, which accounted for approximately
28% of total revenues, for the year ended December 31, 1994. During the years
ended December 31, 1995 and 1996, no single customer comprised 10% or more of
total revenues. For the three-month period ended March 31, 1997, the Company had
one customer that accounted for 16% of total revenues. As of
F-9
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
December 31, 1995, three customers accounted for 25%, 21% and 12%, respectively,
of net accounts receivable. At December 31, 1996, the Company had two customers
each accounting for 25% of net accounts receivable. As of March 31, 1997, one
customer accounted for 40% of net accounts receivable.
3. INVESTMENT SECURITIES:
The cost and fair values of investments in equity securities at December
31, 1995 and 1996 and at March 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Equity securities at December 31, 1995 ...... $320,728 $39,625 $ (71,356) $288,997
========== ======== ============ =========
Equity securities at December 31, 1996 ...... $249,185 $43,920 $ (68,437) $224,668
========== ======== ============ =========
Equity securities at March 31, 1997
(unaudited) ................................. $ 249,185 $ 664 $ (108,241) $141,608
========== ======== ============ =========
</TABLE>
Gains and losses resulting from sales of securities are determined using
the specific identification method.
4. ACCOUNTS RECEIVABLE:
Activity in the allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
THREE MONTHS ENDED
1994 1995 1996 MARCH 31, 1997
---------------- -------------- -------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period ...... $ 1,052,304 $ 394,221 $ 1,044,821 $ 1,308,976
Provision ........................ 585,905 890,573 16,226 219,197
Receivables charged off ............ (1,243,988) (239,973) (143,089) --
Recoveries ........................ -- -- 391,018 --
------------- ------------ ------------ ------------
Balance, end of period ............ $ 394,221 $ 1,044,821 $ 1,308,976 $ 1,528,173
============= ============ ============ ============
</TABLE>
F-10
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. LOANS RECEIVABLE:
Loans receivable were as follows at December 31, 1995:
<TABLE>
<S> <C>
Mortgage receivable from related party. Interest at 8%; payable in monthly
installments of principal and interest totaling $2,387 through April 2023.
Collateralized by residential real property. ........................... $317,600
Loans receivable from related parties, due on demand; noncollateralized;
non-interest bearing. ................................................... 59,511
---------
Total notes and loans from related parties .............................. 377,111
Loan receivable from unrelated parties due on demand; noncollateralized;
interest at 10%. ......................................................... 72,436
Loan receivable from unrelated parties due on demand; noncollateralized;
non-interest bearing. ................................................... 57,358
Loan receivable from employee due on demand; noncollateralized;
interest at 10%. ......................................................... 25,000
---------
Total loans receivable ................................................ 531,905
Less current portion ................................................... 217,667
---------
Loans receivable, less current portion ................................. $314,238
=========
</TABLE>
Of the loans receivable outstanding at December 31, 1995, $506,905 were
settled through the purchase of an aircraft acquired from a company owned by one
of the Company's 50% stockholders (see Note 12).
6. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
MARCH 31,
1995 1996 1997
----------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Aircraft, engines and betterments ............... $ 46,372,150 $ 58,977,975 $ 61,261,441
Automobile and trucks ........................... 483,538 493,296 500,980
Leasehold improvements, furniture and fixtures . 805,918 957,279 1,003,412
Machinery and equipment ........................ 1,641,871 3,611,668 5,373,709
-------------- -------------- --------------
49,303,477 64,040,218 68,139,542
Accumulated depreciation and amortization ...... (16,889,328) (26,230,950) (29,067,151)
-------------- -------------- --------------
$ 32,414,149 $ 37,809,268 $ 39,072,391
============== ============== ==============
</TABLE>
7. ENGINES HELD FOR SALE:
During 1995, the Company designated four engines, previously recorded in
property and equipment, as engines held for sale. Such engines were carried at
$1,570,642. In March 1996, the engines were sold to the financial institution
which holds the Company's note payable (original principal of $10,810,725) for
$1,935,110 (the March 1996 installment of principal and interest). The Company
recorded a gain of $365,000 as a result of this transaction.
F-11
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. LINE OF CREDIT:
The Company had a $2,000,000 revolving line of credit with a bank which
matured in May 1997. The Company did not renew the credit facility. Outstanding
borrowings under the facility, which are collateralized by certain assets of the
Company, bear interest, payable monthly, at the prime rate plus 1% (8.5% and
9.25% at December 31, 1995 and 1996, respectively). The outstanding borrowings
under the line of credit as of December 31, 1995 and 1996 were $600,000 and
$700,000, respectively. There were no borrowings outstanding at March 31, 1997.
9. LONG-TERM DEBT:
Long-term debt was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
MARCH 31,
1995 1996 1997
-------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, interest at 8.75%; payable in annual
installments of principal and interest totaling
$1,935,110 through March 2003; collateralized
by aircraft ....................................... $ 10,810,725 $ 9,821,554 $ 8,745,830
Note payable, interest at 7.5%; payable in annual
installments of principal and interest totaling
$321,314 through July 1999; collateralized
by aircraft ....................................... 1,076,186 835,585 835,585
Various notes payable; interest at rates ranging
from 7.5% to 10% ................................. 641,774 -- --
------------ ------------ ------------
Total long-term debt .............................. 12,528,685 10,657,139 9,581,415
Current portion of long-term debt ............... (1,871,545) (1,334,369) (1,428,494)
------------ ------------ ------------
Long-term debt, less current portion ............ $ 10,657,140 $ 9,322,770 $ 8,152,921
============ ============ ============
</TABLE>
Required principal maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ---------------------------
<S> <C>
1997 ............... $ 1,334,369
1998 ............... 1,447,894
1999 ............... 1,571,108
2000 ............... 1,383,530
2001 ............... 1,504,588
Thereafter ......... 3,415,650
-------------
Total ............ $ 10,657,139
=============
</TABLE>
10. LEASE COMMITMENTS:
The Company leases office, hanger and warehouse space at the Miami
International Airport from Metropolitan Dade County. The office and warehouse
facilities lease expires in September 1999. The hanger lease expires in March
2001. The Company also leases a building from an unrelated party for its
F-12
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. LEASE COMMITMENTS:--(CONTINUED)
engine repair operations. The building lease expires in May 1998. All leases
have been classified as operating for financial reporting purposes. Minimum
non-cancellable lease commitments are as follows:
<TABLE>
<S> <C>
1997 ............ $2,266,000
1998 ............ 2,373,000
1999 ............ 2,172,000
2000 ............ 1,659,000
2001 ............ 584,000
Thereafter ...... 0
-----------
Total ......... $9,054,000
===========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995, and 1996 was,
$1,076,000, $1,663,000, and $2,305,000, respectively. Rent expense for the
three-month periods ended March 31, 1996 and 1997 was $370,000 and $768,000,
respectively.
11. GAIN ON INSURANCE SETTLEMENT:
During 1994, an aircraft was declared a total loss by the Company's
insurance underwriters as a result of an accident. The total insurance proceeds
received for the aircraft were $3,900,000. A gain of $2,227,000 was recognized
during 1994, which represented the excess of insurance proceeds over the net
book value of the aircraft.
12. RELATED PARTY TRANSACTIONS:
In December 1996, the Company purchased a cargo aircraft from a company
owned by a stockholder of the Company in exchange for $2,859,000, consisting of
$1,700,000 of overhaul costs performed on the aircraft, loans and advances to
stockholders of $481,000 and loans, interest receivable and receivables from
parties related to the stockholders of $678,000. The maintenance performed in
the amount of $1,700,000 is included in revenues--repairs, training and other.
Also, for the year ended December 31, 1996, the Company recorded revenues
(repairs, training and other) of approximately $1,886,000 relating to work
performed for an entity in which the stockholders of the Company have a
controlling interest. This amount is included in trade accounts receivable at
December 31, 1996. For the three-month period ended March 31, 1997, the Company
recorded an additional $300,000 in revenues relating to such work. The accounts
receivable balance at March 31, 1997 was $734,000.
By December 31, 1999, the Company will be required to install hushkits on
all of its existing fleet of 15 DC-8 aircraft to comply with noise abatement
regulations issued by the Federal Aviation Administration. Management estimates
that the cost of installing the hushkits will approximate $1.6 million per
aircraft. The Company intends to purchase the hushkits from an entity in which
its stockholders have a controlling interest.
In January 1995, the Company obtained a $2.5 million judgment against a
former insurance carrier. The judgment was appealed and is pending final
ajudication. Consequently, the $2.5 million judgment is not recorded in the
financial statements of the Company. Prior to the effective date of the proposed
F-13
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTIONS:--(CONTINUED)
public offering (See Note 14) the Company will assign to its shareholders the
right to receive the proceeds, if any, resulting from the final settlement of
this litigation.
13. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK:
At December 31, 1995 and 1996 and at March 31, 1997, the Company had
outstanding $417,500, $578,000 and $578,000, respectively, of irrevocable
standby letters of credit to guarantee landing fees in certain countries and to
guarantee rent at the Miami International Airport corporate offices and hangar
facilities. Of these letters of credit, $141,300, $181,700 and $181,700 have
been collateralized by restricted cash on deposit at the bank issuing such
letters of credit as of December 31, 1995 and 1996 and March 31, 1997,
respectively.
14. PRO FORMA DISCLOSURES (UNAUDITED):
The Company expects to offer for sale shares of common stock, $
par value, in an initial public offering. Immediately prior to the effective
date of the offering, each of the 50% shareholders will contribute their
respective interests in Agro Air to Fine Air, and Agro Air will become a
wholly-owned subsidiary of Fine Air.
PRO FORMA INCOME TAXES
As described in Note 2, prior to the effective date of the Company's
proposed public offering, the Company had elected to be taxed as an S
Corporation under the provisions of the Internal Revenue Code. Immediately prior
to the completion of the public offering, the Company will terminate their S
Corporation elections and, accordingly, become subject to federal and state
income taxes. Upon termination of the S Corporation elections, deferred income
taxes reflecting the tax effect of temporary differences between the Company's
financial statement and tax bases of certain assets and liabilities will become
a net liability of the Company and will be reflected on the consolidated balance
sheet with a corresponding non-recurring expense in the consolidated statement
of operations in the quarter that the public offering is completed. Deferred
taxes relate primarily to the difference in capitalization methods used for book
and tax purposes and the differences in the methods of accounting for the
provision for bad debts. The amount of such net deferred tax liability computed
using the asset and liability method of accounting for deferred income taxes
approximated $8,843,000 at March 31, 1997 consisting of a current deferred tax
asset of $489,000 relating to the provision for bad debts and a noncurrent
deferred tax liability of $9,332,000 resulting from the difference between book
and tax capitalization methods.
The following unaudited pro forma information reflects the reconciliation
between the statutory provision for income taxes and the actual provision
relating to the incremental income tax expense that the Company would have
incurred if they had been subject to federal and state income taxes:
F-14
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. PRO FORMA DISCLOSURES (UNAUDITED):--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Income tax at federal statutory rate ...... $4,827,000 $3,753,000 $4,430,000 $470,000 $1,073,000
State taxes, net of federal benefit ...... 521,000 407,000 479,000 81,000 120,000
Nondeductible expenses ..................... 56,000 60,000 61,000 -- --
----------- ----------- ----------- --------- -----------
Pro forma provision for income taxes
(S Corporations) ........................ $5,404,000 $4,220,000 $4,970,000 $551,000 $1,193,000
=========== =========== =========== ========= ===========
</TABLE>
The Pro forma provisions for income taxes, as calculated above, assumed
combined Federal and state income tax rates of 37.6%.
Prior to the consummation of the offering, the S Corporations will enter
into S Corporation Tax Indemnification Agreements (the "Tax Agreements") with
their current shareholders relating to their respective income tax liabilities.
As specified in the Tax Agreements, the Company will indemnify the S Corporation
shareholders for the amount of any additional taxes, interest or penalties paid
by them as a result of any adjustments to the S Corporations' taxable income
prior to the conversion date. The Company will also indemnify the S Corporation
shareholders for any taxes incurred by them resulting from receipt of the
aformentioned indemnity payments.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share amounts have been computed based upon the
weighted average number of common shares outstanding during each period and give
effect to the increase in the number of shares which, when multiplied by the
offering price, would have been sufficient to replace the amount of the
distribution to the S Corporation shareholders in excess of pro forma earnings
for the twelve months ended March 31, 1997.
Supplemental pro forma net income per share would have been $ per
share and $ per share for the year ended December 31, 1996 and the three
months ended March 31, 1997, respectively, giving effect to the use of a portion
of the net proceeds of this offering to repay the Company's bank borrowings at
January 1, 1996, and assuming an increase in the number of weighted average
shares outstanding to .
PRO FORMA STOCKHOLDERS' EQUITY
The Company's unaudited pro forma stockholders' equity at March 31, 1997
reflects the effect on historical retained earnings of a planned S Corporation
distribution to the existing shareholders of $24.5 million consisting of
approximately $4.8 million in cash and $19.7 million in short-term notes
payable, and the recording of a net deferred tax liability of $8.8 million as if
the S Corporation elections terminated immediately prior to March 31, 1997. The
unaudited pro forma stockholders' equity does not include any proceeds from the
Company's initial public offering or earnings since March 31, 1997.
F-15
<PAGE>
==============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION 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, THE SELLING SHAREHOLDERS OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH 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 TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary ................................. 3
Risk Factors ....................................... 8
Use of Proceeds .................................... 13
Dividend Policy and Prior S Corporation Status ...... 13
Capitalization ....................................... 14
Dilution ............................................. 15
Selected Financial Data .............................. 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... 17
Industry Overview .................................... 27
Business ............................................. 28
Management .......................................... 44
Certain Transactions ................................. 49
Principal and Selling Shareholders .................. 50
Description of Capital Stock ........................ 51
Shares Eligible for Future Sale ..................... 54
Underwriting ....................................... 55
Legal Matters ....................................... 56
Experts ............................................. 56
Additional Information .............................. 56
Index to Financial Statements ........................ F-1
</TABLE>
--------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
0,000,000 SHARES
[LOGO]
FINE AIR SERVICES, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
DILLON, READ & CO. INC.
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .................................... $ 45,303.03
NASD filing fee ........................................................................ 15,450
Nasdaq National Market listing fee ...................................................... *
Printing and engraving expenses ......................................................... *
Accounting fees and expenses ............................................................ *
Legal fees and expenses ............................................................... *
Fees and expenses (including legal fees) for qualifications under state securities laws *
Registrar and Transfer Agent's fees and expenses ....................................... *
Miscellaneous ........................................................................... *
-----------
Total ................................................................................. $ *
===========
</TABLE>
- ----------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute. The
Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its executive officers and directors to the fullest extent permitted
by law either now or hereafter. In general, Florida law permits a Florida
corporation to indemnify its directors, officers, employees and agents, and
persons serving at the corporation's request in such capacities for another
enterprise against liabilities arising from conduct that such persons reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. The Company has also entered into an
agreement with each of its directors and certain of its officers, in the form
attached to this Registration Statement as Exhibit 10.3, wherein it has agreed
to indemnify each of them to the fullest extent permitted by law.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful, (b)
deriving an improper personal benefit from a transaction, (c) voting for or
assenting to an unlawful distribution, and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the Federal securities laws or
state or Federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant by
any officer or director.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- ----------------------------------------------------------------------------------------------
<S> <C>
1.1 Proposed form of Underwriting Agreement*
3.1 Form of Registrant's Amended and Restated Articles of Incorporation**
3.2 Form of Registrant's Amended and Restated Bylaws**
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of
the Common Stock being registered*
10.1 Registrant's Long-Term Incentive Plan**
10.2 Registrant's Employee Stock Purchase Plan**
10.3 Form of Indemnification Agreement between the Registrant and each of its directors and
certain officers*
10.4 Form of (i) Tax Indemnification Agreement between Fine Air Services, Inc. and J. Frank Fine
and Barry H. Fine, and (ii) Tax Indemnification Agreement between Agro Air Associates,
Inc. and J. Frank Fine and Barry H. Fine*
10.5 Stage III Hush Kit Sales Agreement between the Registrant and Quiet Technology Venture*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.(to be included in its
opinion to be filed as Exhibit 5.1)*
23.2 Consent of Coopers & Lybrand LLP**
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of
Attorney contained therein**
27.1 Financial Data Schedule**
</TABLE>
- ----------------
* To be filed by amendment.
** Filed herewith.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registration of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
II-2
<PAGE>
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on June 5, 1997.
FINE AIR SERVICES, INC.
By: /s/ BARRY H. FINE
----------------------------------------
Barry H. Fine
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints J. Frank Fine and Barry H. Fine, his true
and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------- --------------
<S> <C> <C>
/s/ J. FRANK FINE Chairman of the Board June 5, 1997
- -----------------------------
J. Frank Fine
/s/ BARRY H. FINE President, Chief Executive Officer June 5, 1997
- ----------------------------- and Director
Barry H. Fine (principal executive officer)
/s/ TERENCE T. SULLIVAN Chief Financial Officer June 5, 1997
- ----------------------------- (principal financial and
Terence T. Sullivan chief accounting officer)
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Form of Registrant's Amended and Restated Articles of Incorporation
3.2 Form of Registrant's Amended and Restated Bylaws
10.1 Registrant's Long-Term Incentive Plan
10.2 Registrant's Employee Stock Purchase Plan
23.2 Consent of Coopers & Lybrand LLP
27.1 Financial Data Schedule
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FINE AIR SERVICES, INC.
(ORIGINALLY INCORPORATED ON MARCH 10, 1989)
ARTICLE I
The name of the corporation is FINE AIR SERVICES, INC. (hereinafter called the
"Company"). The address of the principal office and the mailing address of the
Company is 2261 N.W. 67th Avenue, Building 700, Miami, Florida 33122.
ARTICLE II
This Amended and Restated Articles of Incorporation shall be effective at _____
a.m. on __________, 1997.
ARTICLE III
The purpose for which the Company is organized is to engage in the transaction
of any lawful business for which corporations may be incorporated under the laws
of the State of Florida.
ARTICLE IV
The aggregate number of shares of all classes of capital stock which this
Company shall have authority to issue is 60,000,000, consisting of (i)
50,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), and (ii) 10,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock").
The designations and the preferences, limitations and relative rights of the
Preferred Stock and the Common Stock of the Company are as follows:
A. PROVISIONS RELATING TO THE PREFERRED STOCK.
1. The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications,
limitations and restrictions thereof as are stated and expressed
herein and in the resolution or resolutions providing for the issue of
such class or series adopted by the Board of Directors (the "Board")
as hereinafter prescribed.
<PAGE>
2. Authority is hereby expressly granted to and vested in the Board to
authorize the issuance of the Preferred Stock from time to time in one
or more classes or series, to determine and take necessary proceedings
fully to effect the issuance and redemption of any such Preferred
Stock, and, with respect to each class or series of the Preferred
Stock, to fix and state by the resolution or resolutions from time to
time adopted providing for the issuance thereof the following:
(a) whether or not the class or series is to have voting rights,
full or limited, or is to be without voting rights;
(b) the number of shares to constitute the class or series and
the designations thereof;
(c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, with respect to any class or
series;
(d) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and
the time or times at which and the terms and conditions upon
which such shares shall be redeemable and the manner of
redemption;
(e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for
retirement, and if such retirement or sinking fund or funds be
established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable in cash,
stock of the Company, or other property, the conditions upon
which and the times when such dividends are payable, the
preference to or the relation to the payment of the dividends
payable on any other class or classes or series of stock, whether
or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall
accumulate;
(g) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to
receive upon the voluntary or involuntary dissolution of, or upon
any distribution of the assets of, the Company;
(h) whether or not the shares of any class or series shall be
convertible into, or exchangeable for, the shares of any other
class or classes or of any other series of the same or any other
class or classes of stock of the Company and the conversion price
or prices
<PAGE>
or ratio or ratios or the rate or rates at which such conversion
or exchange may be made, with such adjustments, if any, as shall
be stated and expressed or provided for in such resolution or
resolutions; and
(i) such other special rights and protective provisions with
respect to any class or series as the Board may deem advisable.
The shares of each class or series of the Preferred Stock may vary from the
shares of any other series thereof in any or all of the foregoing respects. The
Board may increase the number of shares of the Preferred Stock designated for
any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The Board may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution,
subtracting from such series unissued shares of the Preferred Stock designated
for such class or series, and the shares so subtracted shall become authorized,
unissued and undesignated shares of the Preferred Stock.
B. PROVISIONS RELATING TO THE COMMON STOCK.
1. Except as otherwise required by law or as may be provided by the
resolutions of the Board authorizing the issuance of any class or
series of Preferred Stock, as hereinabove provided, all rights to vote
and all voting power shall be vested exclusively in the holders of the
Common Stock.
2. Subject to the rights of the holders of the Preferred Stock, the
holders of the Common Stock shall be entitled to receive when, as and
if declared by the Board, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they
shall be entitled (if any) or a sum sufficient for such payment in
full shall have been set aside, the remaining net assets of the
Company shall be distributed pro rata to the holders of the Common
Stock in accordance with their respective rights and interests to the
exclusion of the holders of the Preferred Stock.
C. GENERAL PROVISIONS.
1. Except as may be provided by the resolutions of the Board
authorizing the issuance of any class or series of Preferred Stock, as
hereinabove provided, cumulative voting by any shareholder is hereby
expressly denied.
2. No shareholder of the Company shall have, by reason of its holding
<PAGE>
shares of any class or series of stock of the Company, any preemptive
or preferential rights to purchase or subscribe for any other shares
of any class or series of the Company now or hereafter to be
authorized, and any other equity securities, or any notes, debentures,
warrants, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, now or hereafter
to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely
affect the dividend, voting or other rights of such shareholder.
ARTICLE V
At no time shall more than 25% of the voting interest of the Company be owned or
controlled by persons who are not "citizens of the United States" (as such term
is defined in Title 49, United States Code, Section 40102), or as the same may
be from time to time amended) ("Non-citizens"). In the event that Non-citizens
shall own (beneficially or of record) or have voting control over any shares of
common stock of the Company, (i) the voting rights of such persons shall be
subject to automatic suspension to the extent required to ensure that the
Company is in compliance with applicable provisions of law and regulations
relating to ownership and control of a U.S. carrier, and (ii) the Company may,
in its sole discretion, redeem any outstanding shares of stock which are owned
in violation of this Article V. The Bylaws may contain provisions to implement
this Article V, including, without limitation, provisions restricting or
prohibiting transfer of shares of voting stock to Non-citizens, provisions
restricting or removing voting rights as to shares of voting stock owned or
controlled by Non-citizens, and provisions governing redemption of stock owned
or controlled by Non-citizens. Any determination made as to ownership, control
or citizenship made by the Board of Directors shall be conclusive and binding as
between the Company and any shareholder for purposes of this Article V.
ARTICLE VI
At no time shall (i) more than one-third of the Board of Directors be
Non-citizens, (ii) more than one-third of the officers of the Company be
Non-citizens, or (iii) a Non-citizen be permitted to act as President of the
Company.
ARTICLE VII
The Company shall exist perpetually unless sooner dissolved according to law.
ARTICLE VIII
A. NUMBER AND TERM OF DIRECTORS. The Company's Board shall consist of not less
than three directors, with the exact number to be fixed from time to time by
resolution of the Board. The number of directors may be decreased at any time
and from time to time by a majority of the directors then in office, but only to
<PAGE>
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. The Board shall be divided into three classes, Class I, Class II and
Class III. The number of directors elected to each class shall be determined by
the Board and shall be as nearly equal in number as possible. The Board shall
apportion any increase or decrease in the number of directorships among the
classes so as to make the number of directors in each class as nearly equal as
possible. Each director in Class I shall be elected to an initial term to expire
at the annual meeting next ensuing, each director in Class II shall be elected
to an initial term to expire one year thereafter, and each director in Class III
shall be elected to an initial term to expire two years thereafter, in each case
and until his or her successor is duly elected and qualified or until his or her
earlier resignation, death or removal from office. Upon the expiration of the
initial terms of office for each class of directors, respectively, the directors
of each class shall be elected for a term of three years to serve until their
successors are duly elected and qualified or until their earlier resignation,
death or removal from office.
B. DIRECTOR VACANCIES; REMOVAL. Whenever any vacancy on the Board shall occur
due to death, resignation, retirement, disqualification, removal, increase in
the number of directors, or otherwise, only a majority of directors in office,
although less than a quorum of the entire Board, may fill the vacancy or
vacancies for the balance of the unexpired term or terms, at which time a
successor or successors shall be duly elected by the Shareholders and qualified.
Shareholders shall not, and shall have no power to, fill any vacancy on the
Board. [Shareholders may remove a director from office prior to the expiration
of his or her term, but only for "cause" by an affirmative vote of at least
eighty percent (80%) of the combined voting power of the outstanding shares of
capital stock of the Company entitled to vote for the election of directors,
voting together as a single class.]
C. SHAREHOLDER NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation. Nominations of persons for election to
the Board at an annual or special meeting of shareholders may be made by or at
the direction of the Board by any nominating committee or person appointed by
the Board or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Article VIII; Paragraph C, provided, however, that nominations of
persons for election to the Board at a special meeting may be made only if the
election of directors is one of the purposes described in the special meeting
notice required by Section 607.0705 of the Florida Business Corporation Act.
Nominations of persons for election at annual meetings, other than nominations
made by or at the direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company, not less than one hundred twenty
(120) days nor more than one hundred fifty (150) days prior to the first
anniversary of the date of the Company's notice of
<PAGE>
annual meeting provided with respect to the previous year's annual meeting;
provided, however, that if no annual meeting was held in the previous year or
the date of the annual meeting has been changed to be more than thirty (30)
calendar days earlier than or sixty (60) calendar days after such anniversary,
such notice by the stockholder to be timely must be so received not more than
ninety (90) days nor later than the later of (i) sixty (60) days prior to the
annual meeting or (ii) the close of business on the tenth (10th) day following
the date on which notice of the date of the annual meeting is given to
shareholders or made public, whichever first occurs. Such stockholder's notice
to the Secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the proposed nominee, (ii) the
principal occupation or employment of the proposed nominee, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by the proposed nominee, and (iv) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice, (i) the name
and record address of stockholder, and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
D. AMENDMENT ALTERATION OR REPEAL. Notwithstanding anything contained in these
Amended and Restated Articles of Incorporation to the contrary, the affirmative
vote of at least eighty percent (80%) of the combined voting power of the
outstanding shares of capital stock of the Company entitled to vote for the
election of directors, voting together as a single class, shall be required to
amend, alter or repeal, or adopt any provision inconsistent with, this Article
VIII.
ARTICLE IX
A. ACTION BY SHAREHOLDERS WITHOUT MEETING. Any action required or permitted to
be taken by the Shareholders of the Company must be effected at a duly called
annual or special meeting of Shareholders of the Company and may not be effected
by any consent in writing by such Shareholders.
B. CALL OF SPECIAL SHAREHOLDERS MEETING. Except as otherwise required by law,
<PAGE>
special meetings of shareholders of the Company may be called only by the
Chairman of the Board or the Chief Executive Officer of the Company or by the
Board pursuant to a resolution approved by a majority of the entire Board. Only
business within the purpose or purposes described in the special meeting notice
required by Section 607.0705 of the Florida Business Corporation Act may be
conducted at a special shareholders' meeting.
C. ADVANCE NOTICE OF SHAREHOLDER-PROPOSED BUSINESS FOR ANNUAL MEETING. At an
annual meeting of the shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board,
(b) otherwise properly brought before the meeting by or at the direction of the
Board, or (c) otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Company, not less than one hundred twenty
(120) days nor more than one hundred fifty (150) days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting; provided, however, that if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed to be more than thirty (30) calendar days earlier than or sixty
(60) calendar days after such anniversary, such notice by the stockholder to be
timely must be so received not more than ninety (90) days nor later than the
later of (i) sixty (60) days prior to the annual meeting or (ii) the close of
business on the tenth (10th) day following the date on which notice of the date
of the annual meeting is given to shareholders or made public, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of capital stock of the Company which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business. The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the requirements of this Article IX,
Paragraph C, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article IX, paragraph C; provided, however, that
nothing in this Article IX, Paragraph C shall be deemed to preclude discussion
by any stockholder of any business properly brought before the annual meeting in
accordance with said procedure.
<PAGE>
D. AMENDMENT ALTERATION OR REPEAL. Notwithstanding anything contained in these
Amended and Restated Articles of Incorporation to the contrary, the affirmative
vote of at least eighty percent (80%) of the combined voting power of the
outstanding shares of capital stock of the Company entitled to vote for the
election of directors, voting together as a single class, shall be required to
amend, alter or repeal, or adopt any provision inconsistent with, this Article
IX.
ARTICLE X
The Company shall indemnify and shall advance expenses on behalf of its officers
and directors to the fullest extent permitted by law in existence either now or
hereafter.
ARTICLE XI
The Directors of the Company shall have the power to adopt, amend or repeal the
bylaws of the Company.
ARTICLE XII
The street address of the Company's registered office in the State of Florida is
2261 N.W. 67th Avenue, Building 700, Miami, Florida 33122, and the name of its
registered agent at such office is Barry H. Fine.
IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated
Articles of Incorporation this ___ day of _________, 1997.
FINE AIR SERVICES, INC.
By:
Barry H. Fine, President
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
FINE AIR SERVICES, INC.
(A FLORIDA CORPORATION)
OPERATOR. GENERATE TABLE OF CONTENTS AS TABLE ENTRY FIELDS - NOT STYLES.
INDEX
ARTICLE ONE - OFFICES
Section 1. Registered Office
Section 2. Other Offices
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
Section 1. Place
Section 2. Time of Annual Meeting
Section 3. Call of Special Meetings
Section 4. Conduct of Meetings
Section 5. Notice and Waiver of Notice
Section 6. Business and Nominations for Annual and Special Meetings
Section 7. Quorum
Section 8. Voting Per Share
Section 9. Voting of Shares
Section 10. Proxies
Section 11. Shareholder List
Section 12. Action Without Meeting
Section 13. Fixing Record Date
Section 14. Inspectors and Judges
Section 15. Voting for Directors
Section 16. Advance Notice of Shareholder Proposed Business at Annual
Meeting
ARTICLE THREE - DIRECTORS
Section 1. Number; Election and Term; Removal
Section 2. Vacancies
Section 3. Powers
Section 4. Place of Meetings
Section 5. Annual Meeting
Section 6. Regular Meetings
Section 7. Special Meetings and Notice
Section 8. Quorum; Required Vote; Presumption of Assent
<PAGE>
Section 9. Action Without Meeting
Section 10. Conference Telephone or Similar Communications Equipment
Meetings
Section 11. Committees
Section 12. Compensation of Directors
Section 13. Chairman of the Board
Section 14. Shareholder Nominations of Director Candidates
ARTICLE FOUR - OFFICERS
Section 1. Positions
Section 2. Election of Specified Officers by Board
Section 3. Election or Appointment of Other Officers
Section 4. Salaries
Section 5. Term; Resignation
Section 6. President
Section 7. Vice Presidents
Section 8. Secretary
Section 9. Other Officers; Employees and Agents
ARTICLE FIVE - CERTIFICATES FOR SHARES
Section 1. Issue of Certificates
Section 2. Legends for Preferences and Restrictions on Transfer
Section 3. Facsimile Signatures
Section 4. Lost Certificates
Section 5. Transfer of Shares
Section 6. Registered Shareholders
Section 7. Redemption of Control Shares
ARTICLE SIX - LIMITATIONS OF OWNERSHIP BY NON-CITIZENS
Section 1. Definitions
Section 2. Policy
Section 3. Foreign Stock Record
Section 4. Suspension of Voting Rights
Section 5. Redemption of Shares
Section 6. Beneficial Ownership Inquiry
ARTICLE SEVEN - GENERAL PROVISIONS
Section 1. Dividends
Section 2. Reserves
Section 3. Checks
Section 4. Fiscal Year
Section 5. Seal
Section 6. Gender
ARTICLE EIGHT - AMENDMENT OF BYLAWS
FINE AIR SERVICES, INC.
AMENDED AND RESTATED BYLAWS
OFFICES
<PAGE>
(a) REGISTERED OFFICE. The registered office of FINE AIR SERVICES, INC, a
Florida corporation (the "Corporation"), shall be located in the City of
Miami, State of Florida, unless otherwise designated by the Board of
Directors.
(b) OTHER OFFICES. The Corporation may also have offices at such other
places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to
time determine or as the business of the Corporation may require.
MEETINGS OF SHAREHOLDERS
(a) PLACE. All annual meetings of shareholders shall be held at such place,
within or without the State of Florida, as may be designated by the Board
of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at
such place, within or without the State of Florida, and at such time as
shall be stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
(b) TIME OF ANNUAL MEETING. Annual meetings of shareholders shall be held
on such date and at such time fixed, from time to time, by the Board of
Directors, provided that there shall be an annual meeting held every year
at which the shareholders shall elect a Board of Directors (or the
appropriate class of the Board of Directors if the Board of Directors is
divided into two or more classes) and transact such other business as may
properly be brought before the meeting.
(c) CALL OF SPECIAL MEETINGS. Special meetings of the shareholders shall be
held if called in accordance with the procedures set forth in the
Corporation's Articles of Incorporation (the "Articles of Incorporation")
for the call of a special meeting of shareholders.
(d) CONDUCT OF MEETINGS. The Chairman of the Board (or in his absence,
the President or such other designee of the Chairman of the Board) shall
preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing the rules and procedures to be
followed in conducting the meetings, except as otherwise provided by law,
the Articles of Incorporation or in these Bylaws.
(e) NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by law,
written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (1O) nor more
than sixty (60) days before the day of the meeting, either personally or by
first-class mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at such meeting. If the notice is mailed at least thirty
(30) days before the date of the meeting, it may be done by a class of
United States mail other than first class. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed
to the shareholder at his address as it appears an the stock transfer books
of the Corporation, with postage thereon prepaid. If a meeting is adjourned
to another time and/or place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the Board of Directors, after
adjournment, fixes a new record date for the adjourned meeting.
<PAGE>
Whenever any notice is required to be given to any shareholder, a waiver
thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting
stated therein, and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, shall be equivalent to the
giving of such notice. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the shareholders need be
specified in any written waiver of notice. Attendance of a person at a
meeting shall constitute a waiver of (a) lack of or defective notice of
such meeting, unless the person objects at the beginning to the holding of
the meeting or the transacting of any business at the meeting, or (b) lack
of defective notice of a particular matter at a meeting that is not within
the purpose or purposes described in the meeting notice, unless the person
objects to considering such matter when it is presented.
(f) BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS. Business
transacted at any special meeting shall be confined to the purposes stated
in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation. Only such persons who are nominated for election
as directors of the Corporation in accordance with the requirements and
procedures set forth in the Articles of Incorporation shall be eligible for
election as directors of the Corporation.
(g) QUORUM. Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles
of Incorporation or by law, a majority of the shares entitled to vote on
the matter by each voting group, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders, but in no event shall a
quorum consist of less than one-third (1/3) of the shares of each voting
group entitled to vote. if less than a majority of outstanding shares
entitled to vote are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further
notice, After a quorum has been established at any shareholders' meeting,
the subsequent withdrawal of shareholders, so as to reduce the number of
shares entitled to vote at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or
any adjournment thereof. Once a share is represented for any purpose at a
meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is
or must be set for that adjourned meeting.
(h) VOTING PER SHARE. Except as otherwise provided in the Articles of
Incorporation or by law, each shareholder is entitled to one (1) vote for
each outstanding share held by him on each matter voted at a shareholders'
meeting.
(i) VOTING OF SHARES. A shareholder may vote at any meeting of shareholders
of the Corporation, either in person or by proxy. Shares standing in the
name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate
shareholder or, in the absence of any applicable bylaw, by such person or
persons as the board of directors of the corporate shareholder may
designate. In the absence of any such designation, or, in case of
convicting designation by the corporate shareholder, the chairman of the
board, the president, any vice president, the secretary and the treasurer
of the
<PAGE>
corporate shareholder, in that order, shall be presumed to be fully
authorized to vote such shares. Shares held by an administrator, executor,
guardian, personal representative, or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either
in person or by proxy, but no trustee shall be entitled to vote shares held
by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be
voted by such person without the transfer thereof into his name. If shares
stand of record in the names of two or more persons, whether fiduciaries,
members of a partnership, joint tenants, tenants in common, tenants by the
entirety or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary of the
Corporation is given notice to the contrary and is furnished with a copy of
the instrument or order appointing them or creating the relationship
wherein it is so provided, then acts with respect to voting shall have the
following effect: (a) if only one votes, in person or by proxy, his act
binds all; (b) if more than one vote, in person or by proxy, the act of
the majority so voting binds all; (c) if more than one vote, in person or
by proxy, but the vote is evenly split on any particular matter, each
faction is entitled to vote the share or shares in question proportionally;
or (d) if the instrument or order so filed shows that any such tenancy is
held in unequal interest, a majority or a vote evenly split for purposes
hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution
of proxies, waivers, consents, or objections and for the purpose of
ascertaining the presence of a quorum.
(j) PROXIES. Any shareholder of the Corporation, other person entitled to
vote on behalf of a shareholder pursuant to law, or attorney-in-fact for
such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act
for him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient
appointment form. An appointment of a proxy is effective when received by
the Secretary of the Corporation or such other officer or agent which is
authorized to tabulate votes, and shall be valid for up to 11 months,
unless a longer period is expressly provided in the appointment form. The
death or incapacity of the shareholder appointing a proxy does not affect
the right of the Corporation to accept the proxy's authority unless notice
of the death or incapacity is received by the secretary or other officer or
agent authorized to tabulate votes before the proxy exercises his authority
under the appointment. An appointment of a proxy is revocable by the
shareholder unless the appointment is coupled with an interest.
(k) SHAREHOLDER LIST. After fixing a record date for a meeting of
shareholders, the Corporation shall prepare an alphabetical list of the
names of all its shareholders who are entitled to notice of the meeting,
arranged by voting group with the address of, and the number and class and
series, if any, of shares held by each. The shareholders' list must be
available for inspection by any shareholder for
<PAGE>
a period of ten (10) days prior to the meeting or such shorter time as
exists between the record date and the meeting and continuing through the
meeting at the Corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office
of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to
inspect the shareholders' list (subject to the requirements of law), during
regular business hours and at his expense, during the period it is
available for inspection. The Corporation shall make the shareholders' list
available at the meeting of shareholders, and any shareholder or his agent
or attorney is entitled to inspect the list at any time during the meeting
or any adjournment.
(1) ACTION WITHOUT MEETING. Any action required or permitted to be taken
by the shareholders of the Company must be effected at a duly called annual
or special meeting of shareholders of the Company and may not be effected
by any consent in writing by such shareholders.
(a) FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper
purposes, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to
be not more than seventy (70) days, and, in case of a meeting of
shareholders, not less than ten (1O) days, prior to the date on which the
particular action requiring such determination of shareholders is to be
taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which
the notice of the meeting is mailed or the date on which the resolutions of
the Board of Directors declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such
determination shall apply to any adjournment thereof, except where the
Board of Directors fixes a new record date for the adjourned meeting or as
required by law.
(b) INSPECTORS AND JUDGES. The Board of Directors in advance of any meeting
may, but need not, appoint one or more inspectors of election or judges of
the vote, as the case may be, to act at the meeting or any adjournment(s)
thereof. If any inspector or inspectors, or judge or judges, are not
appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed
as an inspector or judge fails to appear or act, the vacancy may be filled
by the Board of Directors in advance of the meeting, or at the meeting by
the person presiding thereat. The inspectors or judges, if any, shall
determine the number of shares of stock outstanding and the voting power of
each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes,
ballots and consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate votes,
ballots and consents, determine the result, and do such acts as are proper
to conduct the election or vote with
<PAGE>
fairness to all shareholders. On request of the person presiding at the
meeting the inspector or inspectors or judge or judges, if any, shall make
a report in writing of any challenge, question or matter determined by him
or them, and execute a certificate of any fact found by him or them.
(c) VOTING FOR DIRECTORS. Unless otherwise provided in the Articles of
Incorporation, directors shall be elected by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a
quorum is present.
(d) ADVANCE NOTICE OF SHAREHOLDER PROPOSED BUSINESS AT ANNUAL MEETING.
At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board, (b) otherwise properly brought before the
meeting by or at the direction of the Board, or (c) otherwise properly
brought before the meeting by a stockholder. In addition to any other
applicable requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company, not less than one hundred
twenty (120) days nor more than one hundred fifty (150) days prior to the
first anniversary of the date of the Company's notice of annual meeting
provided with respect to the previous year's annual meeting; provided,
however, that if no annual meeting was held in the previous year or the
date of the annual meeting has been changed to be more than thirty (30)
calendar days earlier than or sixty (60) calendar days after such
anniversary, such notice by the stockholder to be timely must be so
received not more than ninety (90) days nor later than the later of (i)
sixty (60) days prior to the annual meeting or (ii) the close of business
on the tenth (l0th) day following the date on which notice of the date of
the annual meeting is given to shareholders or made public, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of capital stock of the
Company which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business. The Chairman of an
annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in
accordance with the requirements of this Article Two, Section 16, and if
he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures
set forth in this Article Two, Section 16; provided, however, that nothing
in this Article Two, Section 16 shall be deemed to preclude discussion by
any stockholder of any business properly brought before the annual meeting
in accordance with said procedure.
<PAGE>
DIRECTORS
(a) NUMBER; ELECTION AND TERM; REMOVAL. The number of directors of the
Corporation shall be fixed from time to time, within the limits specified
by the Articles of Incorporation, by resolution of the Board of Directors;
provided, however, that no director's term shall be shortened by reason of
a resolution reducing the number of directors. The directors (or the
appropriate class of the Board of Directors if the Board of Directors is
divided into two or more classes) shall be elected at the annual meeting of
the shareholders, except as provided in Section 2 of this Article, and each
director elected shall hold office for the term for which he is elected and
until his successor is elected and qualified or until his earlier
resignation, removal from office or death. Directors must be natural
persons who are 18 years of age or older but need not be residents of the
State of Florida or shareholders of the Corporation. At no time shall more
than one-third of the directors be persons who are not "citizens of the
United States" (as such term is defined in Title 49, United States Code,
Section 40102) ("Non-citizens"). Shareholders shall have the right to
remove directors only as provided in the Articles of Incorporation.
(b) VACANCIES. A director may resign at any time by giving written notice
to the Corporation, the Board of Directors or the Chairman of the Board.
Such resignation shall take effect when the notice is delivered unless the
notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they
provide that the successor does not take office until the effective date.
Any vacancy occurring in the Board of Directors and any directorship to be
filled by reason of an increase in the size of the Board of Directors shall
be filled only by the affirmative vote of a majority of the current
directors though less than a quorum of the Board of Directors. Shareholders
shall not, and shall have no power to, fill any vacancy on the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, or until the next election of
one or more directors by shareholders if the vacancy is caused by an
increase in the number of directors. Shareholders may remove a director
from office prior to the expiration of his or her term, but only for
"cause" by an affirmative vote of at least eighty percent (80%) of the
combined voting power of the outstanding shares of capital stock of the
Company entitled to vote for the election of directors, voting together as
a single class.
(c) POWERS. Except as provided in the Articles of Incorporation and by law,
all corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.
(d) PLACE OF MEETINGS. Meetings of the Board of Directors, regular or
special, may be held either within or without the State of Florida.
(e) ANNUAL MEETING. The first meeting of each newly elected Board of
Directors shall be held, without call or notice, immediately following each
annual meeting of shareholders.
(f) REGULAR MEETINGS. Regular meetings of the Board of Directors may also
be
<PAGE>
held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
(g) SPECIAL MEETINGS AND NOTICE. Special meetings of the Board of Directors
may be called by the Chairman of the Board or by the President and shall be
called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given
to each director at least forty-eight (48) hours before the meeting. Except
as required by statute, neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need
be specified in the notice or waiver of notice of such meeting. Notices
to directors shall be in writing and delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation.
Notice by mail shall be deemed to be given at the time when the same shall
be received. Notice to directors may also be given by telegram, teletype or
other form of electronic communication. Notice of a meeting of the Board of
Directors need not be given to any director who signs a written waiver of
notice before, during or after the meeting. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting and a waiver of
any and all objections to the place of the meeting, the time of the meeting
and the manner in which it has been called or convened, except when a
director states, at the beginning of the meeting or promptly upon arrival
at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
(h) QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority of the number
of directors fixed by, or in the manner provided in, the Articles of
Incorporation and these Bylaws shall constitute a quorum for the
transaction of business; provided, however, that whenever, for any reason,
a vacancy occurs in the Board of Directors, a quorum shall consist of a
majority of the remaining directors until the vacancy has been filled
except that in no event may a quorum consist of fewer than one-third of the
number of directors so fixed. The act of a majority of the directors
present at a meeting at which a quorum is present when the vote is taken
shall be the act of the Board of Directors. A director of the Corporation
who is present at a meeting of the Board of Directors or a committee of
the Board of Directors when corporate action is taken shall be presumed to
have assented to the action taken, unless he objects at the beginning of
the meeting, or promptly upon his arrival, to holding the meeting or
transacting specific business at the meeting, or he votes against or
abstains from the action taken.
(i) ACTION WITHOUT MEETING. Any action required or permitted to be taken
at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action
taken, is signed by all of the members of the Board of Directors or the
committee, as the case may be, and such consent shall have the same force
and effect as a unanimous vote at a meeting. Action taken under this
section is effective when the last director signs the consent, unless the
consent specifies a different effective date. A consent signed under this
Section 9 shall have the effect of a meeting vote and may be described as
such in any document.
(j) CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT MEETINGS.
Members of the Board of Directors may participate in a meeting of the Board
by
<PAGE>
means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting
for the express purpose of objecting to the transaction of any business on
the ground the meeting is not lawfully called or convened.
(k) COMMITTEES. The Board of Directors, by resolution adopted by a majority
of the full Board of Directors, may designate from among its members one or
more other committees, each of which, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board
of Directors in the business and affairs of the Corporation except where
the action of the full Board of Directors is required by statute. Each
committee must have two or more members who serve at the pleasure of the
Board of Directors. The Board of Directors, by resolution adopted in
accordance with this Article Three, may designate one or more directors as
alternate members of any committee, who may act in the place and stead of
any absent member or members at any meeting of such committee. Vacancies in
the membership of a committee shall be filled by the Board of Directors at
a regular or special meeting of the Board of Directors. Each committee
shall keep minutes and other appropriate records of its proceedings and
report the same to the Board of Directors when required. The designation of
any such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
(1) COMPENSATION OF DIRECTORS. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings, Directors may
receive such other compensation as may be approved by the Board of
Directors.
(m) CHAIRMAN OF THE BOARD. The Board of Directors may, in its discretion,
choose a Chairman of the Board who shall preside at meetings of the
shareholders and of the directors. The Chairman of the Board shall
have such other powers and shall perform such other duties as shall be
designated by the Board of Directors. The Chairman of the Board shall be a
member of the Board of Directors but no other officers of the Corporation
need be a director. The Chairman of the Board shall serve until his
successor is chosen and qualified, but he may be removed at any time by the
affirmative vote of a majority of the Board of Directors.
(n) SHAREHOLDER NOMINATIONS OF DIRECTOR CANDIDATES. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation. Nominations of persons for
election to the Board at an annual or special meeting of shareholders may
be made by or at the direction of the Board by any nominating committee or
person appointed by the Board or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies
with the notice procedures set forth in this Article Three, Section 14;
provided, however, that nominations of persons for
<PAGE>
election to the Board at a special meeting may be made only if the election
of directors is one of the purposes described in the special meeting notice
required by Section 607.0705 of the Florida Business Corporation Act.
Nominations of persons for election at annual meetings, other than
nominations made by or at the direction of the Board, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company, not less than
one hundred twenty (120) days nor more than one hundred fifty (150) days
prior to the first anniversary of the date of the Company's notice of
annual meeting provided with respect to the previous year's annual meeting;
provided, however, that if no annual meeting was held in the previous year
or the date of the annual meeting has been changed to be more than thirty
(30) calendar days earlier than or sixty (60) calendar days after such
anniversary, such notice by the stockholder to be timely must be so
received not more than ninety (90) days nor later than the later of (i)
sixty (60) days prior to the annual meeting or (ii) the close of business
on the tenth (10th) day following the date on which notice of the date of
the annual meeting is given to shareholders or made public, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
re-electioin as a director, (i) the name, age, business address and
residence address of the proposed nominee, (ii) the principal occupation or
employment of the proposed nominee, (iii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
proposed nominee, and (iv) any other information relating to the person
that is required to be disclosed in solicitations for proxies for election
of directors pursuant to Rule 14a under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice, (i) the
name and record address of stockholder, and (ii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by
the stockholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve
as director ofthe Corporation. No person shall be eligible for election as
a director of the Corporation unless nominated in accordance with the
procedures set forth herein. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
OFFICERS
(a) POSITIONS. The officers of the Corporation shall consist of a
President, one or more Vice Presidents and a Secretary, and, if elected by
the Board of Directors by resolution, a Chairman of the Board. Any two or
more offices may be held by the same person. At no time shall more than
one-third of the Officers of the Corporation be Non-citizens.
(b) ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of Directors at its
first meeting after each annual meeting of shareholders shall elect a
President, one or
<PAGE>
more Vice Presidents and a Secretary.
(c) ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other officers and
assistant officers and agents as may be deemed necessary may be elected or
appointed by the Board of Directors, or, unless otherwise specified herein,
appointed by the President of the Corporation. The Board of Directors shall
be advised of appointments by the President at or before the next scheduled
Board of Directors meeting.
(d) SALARIES. The salaries of all officers of the Corporation to be elected
by the Board of Directors pursuant to Article Four, Section 2 hereof shall
be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the
Corporation or pursuant to his direction.
(e) TERM; RESIGNATION. The officers of the Corporation shall hold office
until their successors are chosen and qualified. Any officer or agent
elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of
Directors. Any officers or agents appointed by the President of the
Corporation pursuant to Section 3 of this Article Four may also be removed
from such officer positions by the President, with or without cause. Any
vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors, or, in the
case of an officer appointed by the President of the Corporation, by the
President or the Board of Directors. Any officer of the Corporation may
resign from his respective office or position by delivering notice to the
Corporation. Such resignation is effective when delivered unless the notice
specifies a later effective date. If a resignation is made effective at a
later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the
Board provides that the successor does not take office until the effective
date.
(f) PRESIDENT. The President shall be the Chief Executive Officer of the
Corporation, shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board
of Directors are carried into effect. In the absence of the Chairman of the
Board or in the event the Board of Directors shall not have designated a
Chairman of the Board, the President shall preside at meetings of the
shareholders and the Board of Directors. At no time shall a Non-citizen be
permitted to act as President of the Corporation.
(g) VICE PRESIDENTS. The Vice Presidents in the order of their seniority,
unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President
may from time to time delegate.
(h) SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of
Directors in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. He shall give, or cause
to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as
may be prescribed by the Board of Directors or President,
<PAGE>
under whose supervision he shall be. He shall keep in safe custody the seal
of the Corporation and, when authorized by the Board of Directors, affix
the same to any instrument requiring it.
(i) OTHER OFFICERS, EMPLOYEES, AND AGENTS. Each and every other officer,
employee and agent of the Corporation shall possess, and may exercise, such
power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so
appointing him and such officer or officers who may from time to time be
designated by the Board of Directors to exercise such supervisory
authority.
CERTIFICATES FOR SHARES
(a) ISSUE OF CERTIFICATES. The Corporation shall deliver certificates
representing all shares to which shareholders are entitled; and such
certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a
facsimile thereof.
(b) LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The designations,
relative rights, preferences and limitations applicable to each class of
shares and the variations in rights, preferences and limitations determined
for each series within a class (and the authority of the Board of Directors
to determine variations for future series) shall be summarized on the front
or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without
charge. Every certificate representing shares that are restricted as to the
sale, disposition, or transfer of such shares shall also indicate that such
shares are restricted as to transfer and there shall be set forth or fairly
summarized upon the certificate, or the certificate shall indicate that the
Corporation will furnish to any shareholder upon request and without
charge, a full statement of such restrictions. If the Corporation issues
any shares that are not registered under the Securities Act of 1933, as
amended, or registered or qualified under applicable state securities laws,
the transfer of any such shares shall be restricted substantially in
accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT
(1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE LAW, OR (2) AT HOLDERS EXPENSE, AN OPINION
(SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY
TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED."
(a) FACSIMLE SIGNATURES. The signatures of the Chairman of the Board, the
President or a Vice President and the Secretary or Assistant Secretary upon
a
<PAGE>
certificate may be facsimiles, if the certificate is manually signed by a
transfer agent, or registered by a registrar, other than the Corporation
itself or an employee of the Corporation. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer at the date of the issuance.
(b) LOST CERTIFICATES. The Board of Directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost or destroyed. When authorizing
such issue of a new certificate or certificates, the Board of Directors
may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have
been lost or destroyed.
(c) TRANSFER OF SHARES. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
(d) REGISTERED SHAREHOLDERS. The Corporation shall be entitled to recognize
the exclusive rights of a person registered on its books as the owner of
shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the
laws of the State of Florida.
(e) REDEMPTION OF CONTROL SHARES. As provided by the Florida Business
Corporation Act, if a person acquiring control shares of the Corporation
does not file an acquiring person statement with the Corporation, the
Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day
period after the last acquisition of such control shares. if a person
acquiring control shares of the Corporation files an acquiring person
statement with the Corporation, the control shares may be redeemed by the
Corporation, at the discretion of the Board of Directors, only if such
shares are not accorded full voting rights by the shareholders as provided
by law.
LIMITATIONS OF OWNERSHIP BY NON-CITIZENS
(a) DEFINITIONS
(i)"Act" shall mean Subtitle VII of Title 49 of the United States Code, as
amended, or as the same may be amended from time to time amended.
(ii)"Beneficial Ownership," "Beneficially Owned," or "Owned Beneficially"
refers to beneficial membership as defined in rule 13d-3 (without regard to
the 60-day provision in paragraph (d)(1)(i) thereof) under the Securities
Exchange Act of
<PAGE>
1934, as amended.
(iii)"Foreign Stock Record" shall have the meaning set forth in Section 49.
(iv)"Non-citizens" shall mean any person or entity who is not a "citizen of the
United States" (as defined in Section 40102 of the Act), including any
agent, trustee or representative of a Non-citizen.
(v)"Own or Control" or "Owned or Controlled" shall mean (i) ownership of
record, (ii) beneficial ownership or (iii) the power to direct, by
agreement, agency or in any other manner, the voting of Stock. Any
determination by the Board of Directors as to whether Stock is owned or
controlled by a Non-citizen shall be final,
(vi)"Permitted Percentage" shall mean 25% of the voting power of the Stock,
(vii)"Stock" shall mean the outstanding capital stock of the Corporation
entitled to vote; provided, however, that for the purpose of determining
the voting power of Stock that shall at any time constitute the Permitted
Percentage, the voting power of Stock outstanding shall not be adjusted
downward solely because shares of Stock may not be entitled to vote by
reason of any provision of this Article Six,
(b) POLICY. It is the policy of the corporation that, consistent with the
requirements of the Act, Non-citizens shall not Own or Control more than
the Permitted Percentage and, if Non-citizens nonetheless at any time Own
or Control more than the Permitted Percentage, the voting rights of the
Stock in excess of the Permitted Percentage shall be automatically
suspended in accordance with Sections 3 and 4 of this Article Six below
and/or the corporation may redeem sufficient Stock to ensure that
Non-citizens own or control no more than the Permitted Percentage.
(c) FOREIGN STOCK RECORD. The corporation or any transfer agent designated
by it shall maintain a separate stock record (the "Foreign Stock Record")
in which shall be registered Stock known to the corporation to be Owned or
Controlled by Non-citizens. The Foreign Stock Record shall include (i) the
name and nationality of each such Non-citizen, (ii) the number of shares of
Stock Owned or Controlled by such Non-citizen and (iii) the date of
registration of such shares in the Foreign Stock Record. In no event shall
shares in excess of the Permitted Percentage be entered on the Foreign
Stock Record. In the event that the Corporation shall determine that Stock
registered on the Foreign Stock Record exceeds the Permitted Percentage,
sufficient shares shall be removed from the foreign Stock Record so that
the number of shares entered therein does not exceed the Permitted
Percentage, Stock shall be removed from the Foreign Stock Record in reverse
chronological order based upon the date of registration therein.
(d) SUSPENSION OF VOTING RIGHT. If at any time the number of shares of
Stock known to the Corporation to be Owned or Controlled by Non-citizens
exceeds the Permitted Percentage, the voting rights of Stock Owned or
Controlled by Non-citizens and not registered on the Foreign Stock Record
at the time of any vote or action of the shareholders of the Corporation
shall, without further action by the Corporation, be suspended. Such
suspension of voting rights shall automatically terminate upon the earlier
of (i) transfer of such shares to a person or entity who is not a
Non-citizen, or (ii) registration of such shares on the Foreign Stock
Record, subject to the last two sentences of Section 3.
(e) REDEMTION OF SHARES. If at any time the number of shares of Stock
known to the Corporation to be Owned or Controlled by Non-citizens exceeds
the
<PAGE>
Permitted Percentage, the Corporation may take any and all actions
necessary to redeem sufficient shares to ensure that the number of shares
of Stock Owned or Controlled by Non-citizens is not greater than the
Permitted Percentage. Shares redeemed by the Corporation under this Article
Six shall be redeemed for cash or property or rights, at the fair market
value at the time of redemption. Stock shall be redeemed in reverse
chronological order based upon the date of registration on the Foreign
Stock Record.
(f) BENEFICIAL OWNERSHIP INQUIRY. (a) The corporation may be notice in
writing (which may be included in the form of proxy or ballot distributed
to shareholders with the annual meeting or any special meeting of the
shareholders of the Corporation, or otherwise) require a person that is a
holder of record of Stock or that the Corporation knows to have, or has
reasonable cause to believe has, Beneficial Ownership of Stock to certify
in such manner as the corporation shall deem appropriate (including by way
of execution of any form of proxy or ballot of such person) that, to the
knowledge or such person:
(i) all Stock as to which such person has record ownership or
Beneficial Ownership is Owned and controlled only by Citizens of
the United States; or
(ii) the number and class or series of Stock owned of record or
Beneficially Owned by such person that is Owned or Controlled by
Non-citizens is as set forth in such certificate.
(b) With respect to any stock identified in response to clause (a)(ii)
above, the corporation may require such person to provide such further
information as the corporation may reasonably require in order to
implement the provisions of this Article.
(c) For purposes of applying the provisions of this Article with respect to
any Stock, in the event of the failure of any person to provide the
certificate of other information to which the corporation is entitled
pursuant to this Section 6, the corporation shall presume that the Stock in
question is Owned or Controlled by Non-citizens.
GENERAL PROVISIONS
(a) DIVIDENDS. The Board of Directors may from time to time declare, and
the Corporation may pay, dividends on its outstanding shares in cash,
property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
(b) RESERVES. The Board of Directors may by resolution create a reserve or
reserves out of earned surplus for any proper purpose or purposes, and may
abolish any such reserve in the same manner,
(c) CHECKS. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons
as the Board of Directors may from time to time designate.
(d) FISCAL YEAR. The fiscal year of the Corporation shall end on December
3lst of each year, unless otherwise fixed by resolution of the Board of
Directors.
(e) SEAL. The corporate seal shall have inscribed thereon the name and
state of incorporation of the Corporation. The seal may be used by causing
it or a
<PAGE>
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
(f) GENDER. All words used in these Bylaws in the masculine gender shall
extend to and shall include the feminine and neuter genders.
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted at any meeting of the Board of Directors at which a quorum is
present, by the affirmative vote of a majority of the directors present at
such meeting; provided, however, that the affirmative vote of either (i) at
least eighty percent (80%) of the combined voting power of the outstanding
shares of capital stock of the Company entitled to vote for the election of
directors, voting together as a single class, or (ii) the majority of the
entire Board of Directors, shall be required to alter, amend or repeal, or
adopt any provision inconsistent with, Sections 3, 6, 12 or 16 of Article
Two, Sections 1, 2 or 14 of Article Three or this Article Eight.
EXHIBIT 10.1
FINE AIR SERVICES, INC.
INCENTIVE COMPENSATION PLAN
<PAGE>
FINE AIR SERVICES, INC.
INCENTIVE COMPENSATION PLAN
1. Purpose....................................................................1
2. Definitions................................................................1
3. Administration.............................................................4
(a) Authority of the Committee.............................................4
(b) Manner of Exercise of Committee Authority..............................4
(c) Limitation of Liability................................................5
4. Stock Subject to Plan......................................................5
(a) Limitation on Overall Number of Shares Subject to Awards...............5
(b) Application of Limitations.............................................5
5. Eligibility; Per-Person Award Limitations..................................6
6. Specific Terms of Awards...................................................6
(a) General................................................................6
(b) Options................................................................6
(c) Stock Appreciation Rights..............................................8
(d) Restricted Stock.......................................................8
(e) Deferred Stock.........................................................9
(f) Bonus Stock and Awards in Lieu of Obligations.........................11
(g) Dividend Equivalents..................................................11
(h) Other Stock-Based Awards..............................................11
7. Certain Provisions Applicable to Awards...................................11
(a) Stand-Alone, Additional, Tandem, and Substitute Awards................11
(b) Term of Awards........................................................11
(c) Form and Timing of Payment Under Awards; Deferrals....................12
(d) Exemptions from Section 16(b) Liability...............................12
8. Performance and Annual Incentive Awards...................................12
(a) Performance Conditions................................................12
(b) Performance Awards Granted to Designated Covered Employees............12
(c) Annual Incentive Awards Granted to Designated Covered Employees.......14
(d) Written Determinations................................................15
(e) Status of Section 8(b) and Section 8(c) Awards Under Code
Section 162(m)........................................................15
9. Change in Control.........................................................16
(a) Effect of "Change in Control."........................................16
(b) Definition of "Change in Control......................................16
(c) Definition of "Change in Control Price."..............................17
10.General Provisions........................................................17
(A) Compliance With Legal and Other Requirements..........................17
(b) Limits on Transferability; Beneficiaries..............................17
(c) Adjustments...........................................................18
(d) Taxes.................................................................19
(e) Changes to the Plan and Awards........................................19
(f) Limitation on Rights Conferred Under Plan.............................19
(i)
<PAGE>
(g) Unfunded Status of Awards; Creation of Trusts.........................20
(h) Nonexclusivity of the Plan............................................20
(i) Payments in the Event of Forfeitures; Fractional Shares...............20
(j) Governing Law.........................................................20
(k) Plan Effective Date and Stockholder Approval; Termination of Plan.....20
(ii)
<PAGE>
FINE AIR SERVICES, INC.
INCENTIVE COMPENSATION PLAN
1. PURPOSE. The purpose of this Incentive Compensation Plan (the
"Plan") is to assist Fine Air Services, Inc. (the "Company") and its
subsidiaries in attracting, motivating, retaining and rewarding high-quality
executives and other employees, officers, Directors and independent contractors
enabling such persons to acquire or increase a proprietary interest in the
Company in order to strengthen the mutuality of interests between such persons
and the Company's stockholders, and providing such persons with annual and long
term performance incentives to expend their maximum efforts in the creation of
shareholder value. The Plan is also intended to qualify certain compensation
awarded under the Plan for tax deductibility under Section 162(m) of the Code
(as hereafter defined) to the extent deemed appropriate by the Committee (or any
successor committee) of the Board of Directors of the Company.
2. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof.
(a) "Annual Meeting Date" shall mean the date of the annual
meeting of the Company's stockholders at which the Directors are elected.
(b) "Annual Incentive Award" means a conditional right granted to
a Participant under Section 8(c) hereof to receive a cash payment, Stock or
other Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.
(c) "Award" means any Option, SAR (including Limited SAR),
Restricted Stock, Deferred Stock, Stock granted as a bonus or in lieu of another
award, Dividend Equivalent, Other Stock-Based Award, Performance Award or Annual
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
(d) "Beneficiary" means the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b)
hereof. If, upon a Participant's death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(e) "Beneficial Owner", "Beneficially Owning" and "Beneficial
Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 under
the Exchange Act and any successor to such Rule.
(f) "Board" means the Company's Board of Directors.
(g) "Change in Control" means Change in Control as defined with
related terms in Section 9 of the Plan.
<PAGE>
(h) "Change in Control Price" means the amount calculated in
accordance with Section 9(c) of the Plan.
(i) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, including regulations thereunder and successor provisions and
regulations thereto.
(j) "Committee" means a committee designated by the Board to
administer the Plan; provided, however, that the Committee shall consist solely
of at least two directors, each of whom shall be (i) a "non-employee director"
within the meaning of Rule 16b-3 under the Exchange Act, unless administration
of the Plan by "non-employee directors" is not then required in order for
exemptions under Rule 16b-3 to apply to transactions under the Plan, and (ii) an
"outside director" within the meaning of Section 162(m) of the Code, unless
administration of the Plan by "outside directors" is not then required in order
to qualify for tax deductibility under Section 162(m) of the Code.
(k) "Corporate Transaction" means a Corporate Transaction as
defined in Section 9(b)(i) of the Plan.
(l) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 8(e) of the Plan.
(m) "Deferred Stock" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the end
of a specified deferral period.
(n) "Director" means a member of the Board.
(o) "Disability" means a permanent and total disability (within
the meaning of Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee.
(p) "Dividend Equivalent" means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Stock, other Awards or other
property equal in value to dividends paid with respect to a specified number of
shares of Stock, or other periodic payments.
(q) "Effective Date" means the effective date of the Plan, which
shall be _______________
(r) "Eligible Person" means each Executive Officer of the Company
(as defined under the Exchange Act) and other officers, Directors and employees
of the Company or of any Subsidiary, and independent contractors with the
Company or any Subsidiary. The foregoing notwithstanding, (i) only employees of
the Company or any Subsidiary shall be an Eligible Persons for purposes of
receiving any Incentive Stock Options and (ii) no independent contractor shall
be an Eligible Person for purposes of receiving any Awards other than Options
under Section 6(b) of the Plan. An employee on leave of absence may be
considered as still in the employ of the Company or a Subsidiary for purposes of
eligibility for participation in the Plan.
(s) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor provisions
and rules thereto.
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(t) "Executive Officer" means an executive officer of the Company
as defined under the Exchange Act.
(u) "Fair Market Value" means the fair market value of Stock,
Awards or other property as determined by the Committee or the Board, or under
procedures established by the Committee or the Board. Unless otherwise
determined by the Committee or the Board, the Fair Market Value of Stock as of
any given date shall be the closing sale price per share reported on a
consolidated basis for stock listed on the principal stock exchange or market on
which Stock is traded on the date as of which such value is being determined or,
if there is no sale on that date, then on the last previous day on which a sale
was reported.
(v) "Formula Grants" means the Formula Grant Options granted to
Non-Employee Directors pursuant to Section 6(b)(iv) of the Plan.
(w) "Incentive Stock Option" or "ISO" means any Option intended to
be designated as an incentive stock option within the meaning of Section 422 of
the Code or any successor provision thereto.
(x) "Incumbent Board" means the Incumbent Board as defined in
Section 9(b)(ii) of the Plan.
(y) "Initial Grant Date" means the date on which a Non-Employee
Director is first elected or appointed as a Director.
(z) "Limited SAR" means a right granted to a Participant under
Section 6(c) hereof.
(aa) "Non-Employee Director" shall mean a member of the Board who
is not an employee of the Company or any subsidiary.
(bb) "Option" means a right granted to a Participant under Section
6(b) hereof, to purchase Stock or other Awards at a specified price during
specified time periods.
(cc) "Other Stock-Based Awards" means Awards granted to a
Participant under Section 6(h) hereof.
(dd) "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company, if each
of the corporations in the chain (other than the Company) owns stock possessing
50% or more of the combined voting power of all classes of stock in one of the
other corporations in the chain.
(ee) "Participant" means a person who has been granted an Award
under the Plan which remains outstanding, including a person who is no longer an
Eligible Person.
(ff) "Performance Award" means a right, granted to a Eligible
Person under Section 8 hereof, to receive Awards based upon performance criteria
specified by the Committee or the Board.
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(gg) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, and shall include a "group" as defined in Section 13(d) thereof.
(hh) "Restricted Stock" means Stock granted to a Participant under
Section 6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.
(ii) "Retire" or "Retirement" means termination of service as a
Director after having attained at least age 62 and having served as a Director
for at least 5 years, other than by reason of death, Disability or the
Director's wilful misconduct or negligence.
(jj) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule
16a-1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act
(kk) "Stock" means the Company's Common Stock, and such other
securities as may be substituted (or resubstituted) for Stock pursuant to
Section 10(c) hereof.
(ll) "Stock Appreciation Rights" or "SAR" means a right granted to
a Participant under Section 6(c) hereof.
(mm) "Subsidiary" means any corporation or other entity in which
the Company has a direct or indirect ownership interest of 50% or more of the
total combined voting power of the then outstanding securities or interests of
such corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% or more of the assets on liquidation or
dissolution.
3. ADMINISTRATION.
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by
the Committee; provided, however, that except as otherwise expressly provided in
this Plan or in order to comply with Code Section 162(m) or Rule 16b-3 under the
Exchange Act, the Board may exercise any power or authority granted to the
Committee under this Plan. The Committee or the Board shall have full and final
authority, in each case subject to and consistent with the provisions of the
Plan, to select Eligible Persons to become Participants, grant Awards, determine
the type, number and other terms and conditions of, and all other matters
relating to, Awards, prescribe Award agreements (which need not be identical for
each Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee or the Board may deem necessary or advisable
for the administration of the Plan. In exercising any discretion granted to the
Committee or the Board under the Plan or pursuant to any Award, the Committee or
the Board shall not be required to follow past practices, act in a manner
consistent with past practices, or treat any Eligible Person in a manner
consistent with the treatment of other Eligible Persons.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee, and
not the Board, shall exercise sole and exclusive discretion on any matter
relating to a Participant then subject to Section 16 of the Exchange Act with
respect to the Company to the extent necessary in
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order that transactions by such Participant shall be exempt under Rule 16b-3
under the Exchange Act. Any action of the Committee or the Board shall be final,
conclusive and binding on all persons, including the Company, its subsidiaries,
Participants, Beneficiaries, transferees under Section 10(b) hereof or other
persons claiming rights from or through a Participant, and stockholders. The
express grant of any specific power to the Committee or the Board, and the
taking of any action by the Committee or the Board, shall not be construed as
limiting any power or authority of the Committee or the Board. The Committee or
the Board may delegate to officers or managers of the Company or any subsidiary,
or committees thereof, the authority, subject to such terms as the Committee or
the Board shall determine, (i) to perform administrative functions, (ii) with
respect to Participants not subject to Section 16 of the Exchange Act, to
perform such other functions as the Committee or the Board may determine, and
(iii) with respect to Participants subject to Section 16, to perform such other
functions of the Committee or the Board as the Committee or the Board may
determine to the extent performance of such functions will not result in the
loss of an exemption under Rule 16b-3 otherwise available for transactions by
such persons, in each case to the extent permitted under applicable law and
subject to the requirements set forth in Section 8(d). The Committee or the
Board may appoint agents to assist it in administering the Plan.
(c) LIMITATION OF LIABILITY. The Committee and the Board, and each
member thereof, shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any executive officer, other
officer or employee of the Company or a Subsidiary, the Company's independent
auditors, consultants or any other agents assisting in the administration of the
Plan. Members of the Committee and the Board, and any officer or employee of the
Company or a subsidiary acting at the direction or on behalf of the Committee or
the Board, shall not be personally liable for any action or determination taken
or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified and protected by the Company with respect
to any such action or determination.
4. STOCK SUBJECT TO PLAN.
(a) LIMITATION ON OVERALL NUMBER OF SHARES SUBJECT TO AWARDS.
Subject to adjustment as provided in Section 10(c) hereof, the total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan shall be the sum of (i) ___________, plus (ii) the number of
shares with respect to Awards previously granted under the Plan that terminate
without being exercised, expire, are forfeited or canceled, and the number of
shares of Stock that are surrendered in payment of any Awards or any tax
withholding with regard thereto. Any shares of Stock delivered under the Plan
may consist, in whole or in part, of authorized and unissued shares or treasury
shares. Subject to adjustment as provided in Section 10(c) hereof, in no event
shall the aggregate number of shares of Stock which may be issued pursuant to
ISOs exceed ________________shares.
(b) APPLICATION OF LIMITATIONS. The limitation contained in
Section 4(a) shall apply not only to Awards that are settleable by the delivery
of shares of Stock but also to Awards relating to shares of Stock but settleable
only in cash (such as cash-only SARs). The Committee or the Board may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
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adjustments if the number of shares of Stock actually delivered differs from the
number of shares previously counted in connection with an Award.
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS. Awards may be granted
under the Plan only to Eligible Persons. In each fiscal year during any part of
which the Plan is in effect, an Eligible Person may not be granted Awards
relating to more than __________shares of Stock, subject to adjustment as
provided in Section 10(c), under each of Sections 6(b), 6(c), 6(d), 6(e), 6(f),
6(g), 6(h), 8(b) and 8(c). In addition, the maximum amount that may be earned as
an Annual Incentive Award or other cash Award in any fiscal year by any one
Participant shall be $2,000,000, and the maximum amount that may be earned as a
Performance Award or other cash Award in respect of a performance period by any
one Participant shall be $5,000,000.
6. SPECIFIC TERMS OF AWARDS.
(a) GENERAL. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee or the Board may impose on
any Award or the exercise thereof, at the date of grant or thereafter (subject
to Section 10(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee or the Board shall determine,
including terms requiring forfeiture of Awards in the event of termination of
employment by the Participant and terms permitting a Participant to make
elections relating to his or her Award. The Committee or the Board shall retain
full power and discretion to accelerate, waive or modify, at any time, any term
or condition of an Award that is not mandatory under the Plan. Except in cases
in which the Committee or the Board is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration must
be paid to satisfy the requirements of __________ law, no consideration other
than services may be required for the grant (but not the exercise) of any Award.
(b) OPTIONS. The Committee and the Board each is authorized to
grant Options to Participants on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee
or the Board, provided that such exercise price shall not, in the
case of Incentive Stock Options, be less than 100% of the Fair
Market Value of the Stock on the date of grant of the Option and
shall not, in any event, be less than the par value of a share of
Stock on the date of grant of such Option. If an employee owns or
is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent
Corporation and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option (to the
extent required by the Code at the time of grant) shall be no less
than 110% of the Fair Market Value of the Stock on the date such
Incentive Stock Option is granted.
(ii) TIME AND METHOD OF EXERCISE. The Committee or the Board
shall determine the time or times at which or the circumstances
under which an Option may be exercised in whole or in part
(including based on achievement of performance goals and/or future
service requirements), the time or times at which
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Options shall cease to be or become exercisable following
termination of employment or upon other conditions, the methods by
which such exercise price may be paid or deemed to be paid
(including in the discretion of the Committee or the Board a
cashless exercise procedure), the form of such payment, including,
without limitation, cash, Stock, other Awards or awards granted
under other plans of the Company or any subsidiary, or other
property (including notes or other contractual obligations of
Participants to make payment on a deferred basis), and the methods
by or forms in which Stock will be delivered or deemed to be
delivered to Participants.
(iii) ISOS. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the
Code. Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to ISOs (including any SAR in tandem
therewith) shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as
to disqualify either the Plan or any ISO under Section 422 of the
Code, unless the Participant has first requested the change that
will result in such disqualification. Thus, if and to the extent
required to comply with Section 422 of the Code, Options granted
as Incentive Stock Options shall be subject to the following
special terms and conditions:
(A) the Option shall not be exercisable more than ten years
after the date such Incentive Stock Option is granted;
provided, however, that if a Participant owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of
the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation and
the Incentive Stock Option is granted to such Participant, the
term of the Incentive Stock Option shall be (to the extent
required by the Code at the time of the grant) for no more
than five years from the date of grant; and
(B) The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of
stock with respect to which Incentive Stock Options granted
under the Plan and all other option plans of the Company or
its Parent Corporation during any calendar year exercisable
for the first time by the Participant during any calendar year
shall not (to the extent required by the Code at the time of
the grant) exceed $100,000.
(iv) FORMULA GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS. Each
Non-Employee Director shall receive on such Non-Employee
Director's Initial Grant Date an Option to purchase _________
shares of Stock. In addition, each Non-Employee Director shall
receive on each Annual Meeting Date thereafter, an Option to
purchase ________ shares of Stock. Options granted to Non-Employee
Directors pursuant to this Section shall be for a term of 10 years
and shall become exercisable at the rate of 25% per year
commencing on the first anniversary of the date on which the
Option is granted; provided, however, that the Options shall be
fully exercisable in the event that, while serving as a Director,
the Non-Employee Director dies, suffers a Disability, or Retires.
The per share exercise price of all Options granted to
Non-Employee
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Directors pursuant to this paragraph (iv) shall be equal to
the Fair Market Value of a share of Stock on the date such
Option is granted. Unless otherwise extended in the sole
discretion of the Committee, the unexercised portion of any
Option granted pursuant to this paragraph (iv) shall become
null and void (V) three months after the date on which such
Non-Employee Director ceases to be a Director of the Company
for any reason other than the Non-Employee Director's wilful
misconduct or negligence, Disability, death or Retirement, (W)
immediately in the event of the Non-Employee Director's wilful
misconduct or negligence, (X) one year after the Non-Employee
Director ceases to be a Director by reason of his Disability,
(Y) at the expiration of its original term, if the
Non-Employee Director ceases to be a Director by reason of his
Retirement, and (Z) twelve months after the date of the
Non-Employee Director's death in the event that such death
occurs prior to the time the Option otherwise would become
null and void pursuant to this sentence.
(c) STOCK APPRECIATION RIGHTS. The Committee and the Board
each is authorized to grant SAR's to Participants on the following terms and
conditions:
(i) RIGHT TO PAYMENT. A SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of stock on the
date of exercise (or, in the case of a "Limited SAR" that may be
exercised only in the event of a Change in Control, the Fair
Market Value determined by reference to the Change in Control
Price, as defined under Section 9(c) hereof), over (B) the grant
price of the SAR as determined by the Committee or the Board. The
grant price of an SAR shall not be less than the Fair Market Value
of a share of Stock on the date of grant except as provided under
Section 7(a) hereof.
(ii) OTHER TERMS. The Committee or the Board shall determine
at the date of grant or thereafter, the time or times at which and
the circumstances under which a SAR may be exercised in whole or
in part (including based on achievement of performance goals
and/or future service requirements), the time or times at which
SARs shall cease to be or become exercisable following termination
of employment or upon other conditions, the method of exercise,
method of settlement, form of consideration payable in settlement,
method by or forms in which Stock will be delivered or deemed to
be delivered to Participants, whether or not a SAR shall be in
tandem or in combination with any other Award, and any other terms
and conditions of any SAR. Limited SARs that may only be exercised
in connection with a Change in Control or other event as specified
by the Committee or the Board, may be granted on such terms, not
inconsistent with this Section 6(c), as the Committee or the Board
may determine. SARs and Limited SARs may be either freestanding or
in tandem with other Awards.
(d) RESTRICTED STOCK. The Committee and the Board each is
authorized to grant Restricted Stock to Participants on the following terms and
conditions:
(i) GRANT AND RESTRICTIONS. Restricted Stock shall be subject
to such restrictions on transferability, risk of forfeiture and
other restrictions, if any, as the
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Committee or the Board may impose, which restrictions may lapse
separately or in combination at such times, under such
circumstances (including based on achievement of performance goals
and/or future service requirements), in such installments or
otherwise, as the Committee or the Board may determine at the date
of grant or thereafter. Except to the extent restricted under the
terms of the Plan and any Award agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall
have all of the rights of a stockholder, including the right to
vote the Restricted Stock and the right to receive dividends
thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee or the Board). During the
restricted period applicable to the Restricted Stock, subject to
Section 10(b) below, the Restricted Stock may not be sold,
transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.
(ii) FORFEITURE. Except as otherwise determined by the
Committee or the Board at the time of the Award, upon termination
of a Participant's employment during the applicable restriction
period, the Participant's Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by the
Company; provided that the Committee or the Board may provide, by
rule or regulation or in any Award agreement, or may determine in
any individual case, that restrictions or forfeiture conditions
relating to Restricted Stock shall be waived in whole or in part
in the event of terminations resulting from specified causes, and
the Committee or the Board may in other cases waive in whole or in
part the forfeiture of Restricted Stock.
(iii) CERTIFICATES FOR STOCK. Restricted Stock granted under
the Plan may be evidenced in such manner as the Committee or the
Board shall determine. If certificates representing Restricted
Stock are registered in the name of the Participant, the Committee
or the Board may require that such certificates bear an
appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in
blank, relating to the Restricted Stock.
(iv) DIVIDENDS AND SPLITS. As a condition to the grant of an
Award of Restricted Stock, the Committee or the Board may require
that any cash dividends paid on a share of Restricted Stock be
automatically reinvested in additional shares of Restricted Stock
or applied to the purchase of additional Awards under the Plan.
Unless otherwise determined by the Committee or the Board, Stock
distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) DEFERRED STOCK(e)DeferredStock""2". The Committee and the
Board each is authorized to grant Deferred Stock to Participants,
which are rights to receive Stock, cash, or a combination thereof
at the end of a specified deferral period, subject to the
following terms and conditions:
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(i) AWARD AND RESTRICTIONS. Satisfaction of an Award of
Deferred Stock shall occur upon expiration of the deferral period
specified for such Deferred Stock by the Committee or the Board
(or, if permitted by the Committee or the Board, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions (which may include a risk of forfeiture) as the
Committee or the Board may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier
specified times (including based on achievement of performance
goals and/or future service requirements), separately or in
combination, in installments or otherwise, as the Committee or the
Board may determine. Deferred Stock may be satisfied by delivery
of Stock, cash equal to the Fair Market Value of the specified
number of shares of Stock covered by the Deferred Stock, or a
combination thereof, as determined by the Committee or the Board
at the date of grant or thereafter. Prior to satisfaction of an
Award of Deferred Stock, an Award of Deferred Stock carries no
voting or dividend or other rights associated with share
ownership.
(ii) FORFEITURE. Except as otherwise determined by the
Committee or the Board, upon termination of a Participant's
employment during the applicable deferral period thereof to which
forfeiture conditions apply (as provided in the Award agreement
evidencing the Deferred Stock), the Participant's Deferred Stock
that is at that time subject to deferral (other than a deferral at
the election of the Participant) shall be forfeited; provided that
the Committee or the Board may provide, by rule or regulation or
in any Award agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Deferred
Stock shall be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee or
the Board may in other cases waive in whole or in part the
forfeiture of Deferred Stock.
(iii) DIVIDEND EQUIVALENTS. Unless otherwise determined by the
Committee or the Board at date of grant, Dividend Equivalents on
the specified number of shares of Stock covered by an Award of
Deferred Stock shall be either (A) paid with respect to such
Deferred Stock at the dividend payment date in cash or in shares
of unrestricted Stock having a Fair Market Value equal to the
amount of such dividends, or (B) deferred with respect to such
Deferred Stock and the amount or value thereof automatically
deemed reinvested in additional Deferred Stock, other Awards or
other investment vehicles, as the Committee or the Board shall
determine or permit the Participant to elect.
(f) BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The
Committee and the Board each is authorized to grant Stock as a bonus, or to
grant Stock or other Awards in lieu of Company obligations to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, provided that, in the case of Participants subject to Section 16
of the Exchange Act, the amount of such grants remains within the discretion of
the Committee to the extent necessary to ensure that acquisitions of Stock or
other Awards are exempt from liability under Section 16(b) of the Exchange Act.
Stock or Awards granted hereunder shall be subject to such other terms as shall
be determined by the Committee or the Board.
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(g) DIVIDEND EQUIVALENTS. The Committee and the Board each is
authorized to grant Dividend Equivalents to a Participant entitling the
Participant to receive cash, Stock, other Awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Stock,
or other periodic payments. Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee or the
Board may provide that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in additional Stock, Awards,
or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee or the Board may
specify.
(h) OTHER STOCK-BASED AWARDS. The Committee and the Board each
is authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related to, Stock,
as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee or the Board, and
Awards valued by reference to the book value of Stock or the value of securities
of or the performance of specified subsidiaries or business units. The Committee
or the Board shall determine the terms and conditions of such Awards. Stock
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6(h) shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Stock, other Awards or other property, as the Committee or the Board shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(h).
7. CERTAIN PROVISIONS APPLICABLE TO AWARDS.
(a) STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS.
Awards granted under the Plan may, in the discretion of the Committee or the
Board, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another
plan of the Company, any subsidiary, or any business entity to be acquired by
the Company or a subsidiary, or any other right of a Participant to receive
payment from the Company or any subsidiary. Such additional, tandem, and
substitute or exchange Awards may be granted at any time. If an Award is granted
in substitution or exchange for another Award or award, the Committee or the
Board shall require the surrender of such other Award or award in consideration
for the grant of the new Award. In addition, Awards may be granted in lieu of
cash compensation, including in lieu of cash amounts payable under other plans
of the Company or any subsidiary, in which the value of Stock subject to the
Award is equivalent in value to the cash compensation (for example, Deferred
Stock or Restricted Stock), or in which the exercise price, grant price or
purchase price of the Award in the nature of a right that may be exercised is
equal to the Fair Market Value of the underlying Stock minus the value of the
cash compensation surrendered (for example, Options granted with an exercise
price "discounted" by the amount of the cash compensation surrendered).
(b)TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee or the Board; provided that in no
event shall the term of any
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Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under Section 422 of the Code).
(c )FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS.
Subject to the terms of the Plan and any applicable Award agreement, payments to
be made by the Company or a subsidiary upon the exercise of an Option or other
Award or settlement of an Award may be made in such forms as the Committee or
the Board shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Committee or the Board or upon occurrence of one or
more specified events (in addition to a Change in Control). Installment or
deferred payments may be required by the Committee or the Board (subject to
Section 10(e) of the Plan) or permitted at the election of the Participant on
terms and conditions established by the Committee or the Board. Payments may
include, without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the grant or
crediting of Dividend Equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
(d) EXEMPTIONS FROM SECTION 16(B) LIABILITY. It is the intent
of the Company that this Plan comply in all respects with applicable provisions
of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither
the grant of any Awards to nor other transaction by a Participant who is subject
to Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by
such Participant). Accordingly, if any provision of this Plan or any Award
agreement does not comply with the requirements of Rule 16b-3 or Rule
16a-1(c)(3) as then applicable to any such transaction, such provision will be
construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall
avoid liability under Section 16(b). In addition, the purchase price of any
Award conferring a right to purchase Stock shall be not less than any specified
percentage of the Fair Market Value of Stock at the date of grant of the Award
then required in order to comply with Rule 16b-3.
8. PERFORMANCE AND ANNUAL INCENTIVE AWARDS.
(a) PERFORMANCE CONDITIONS. The right of a Participant to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions as may be specified by the
Committee or the Board. The Committee or the Board may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce the amounts payable under any Award subject to performance conditions,
except as limited under Sections 8(b) and 8(c) hereof in the case of a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m). If and to the extent required under Code Section 162(m), any
power or authority relating to a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m), shall be exercised by the
Committee and not the Board.
(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. If and to the extent that the Committee determines that a Performance
Award to be granted to an Eligible Person who is designated by the Committee as
likely to be a Covered Employee should
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qualify as "performance-based compensation" for purposes of Code Section 162(m),
the grant, exercise and/or settlement of such Performance Award shall be
contingent upon achievement of preestablished performance goals and other terms
set forth in this Section 8(b).
(i) PERFORMANCE GOALS GENERALLY. The performance goals for
such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee
consistent with this Section 8(b). Performance goals shall be
objective and shall otherwise meet the requirements of Code
Section 162(m) and regulations thereunder including the
requirement that the level or levels of performance targeted by
the Committee result in the achievement of performance goals
being "substantially uncertain." The Committee may determine that
such Performance Awards shall be granted, exercised and/or
settled upon achievement of any one performance goal or that two
or more of the performance goals must be achieved as a condition
to grant, exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) BUSINESS CRITERIA. One or more of the following business
criteria for the Company, on a consolidated basis, and/or
specified subsidiaries or business units of the Company (except
with respect to the total stockholder return and earnings per
share criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance Awards: (1)
total stockholder return; (2) such total stockholder return as
compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Standard &
Poor's 500 Stock Index or the Nasdaq Composite Index; (3) net
income; (4) pretax earnings; (5) earnings before interest
expense, taxes, depreciation and amortization; (6) pretax
operating earnings after interest expense and before bonuses,
service fees, and extraordinary or special items; (7) operating
margin; (8) earnings per share; (9) return on equity; (10) return
on capital; (11) return on investment; (12) operating earnings;
(13) working capital or inventory; and (14) ratio of debt to
stockholders' equity. One or more of the foregoing business
criteria shall also be exclusively used in establishing
performance goals for Annual Incentive Awards granted to a
Covered Employee under Section 8(c) hereof that are intended to
qualify as "performance-based compensation" under Code Section
162(m).
(ii) PERFORMANCE PERIOD; TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such
Performance Awards shall be measured over a performance period of
up to ten years, as specified by the Committee. Performance goals
shall be established not later than 90 days after the beginning
of any performance period applicable to such Performance Awards,
or at such other date as may be required or permitted for
"performance-based compensation" under Code Section 162(m).
(iv) PERFORMANCE AWARD POOL. The Committee may establish a
Performance Award pool, which shall be an unfunded pool, for
purposes of
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measuring Company performance in connection with Performance
Awards. The amount of such Performance Award pool shall be based
upon the achievement of a performance goal or goals based on one
or more of the business criteria set forth in Section 8(b)(ii)
hereof during the given performance period, as specified by the
Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Performance Award pool as
a percentage of any of such business criteria, a percentage
thereof in excess of a threshold amount, or as another amount
which need not bear a strictly mathematical relationship to such
business criteria.
(v) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. Settlement
of such Performance Awards shall be in cash, Stock, other Awards
or other property, in the discretion of the Committee. The
Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such
Performance Awards. The Committee shall specify the circumstances
in which such Performance Awards shall be paid or forfeited in
the event of termination of employment by the Participant prior
to the end of a performance period or settlement of Performance
Awards.
(c) ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. If and to the extent that the Committee determines that an Annual
Incentive Award to be granted to an Eligible Person who is designated by the
Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Annual Incentive Award shall be contingent
upon achievement of preestablished performance goals and other terms set forth
in this Section 8(c).
(i) ANNUAL INCENTIVE AWARD POOL. The Committee may establish
an Annual Incentive Award pool, which shall be an unfunded pool,
for purposes of measuring Company performance in connection with
Annual Incentive Awards. The amount of such Annual Incentive
Award pool shall be based upon the achievement of a performance
goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof during the given performance
period, as specified by the Committee in accordance with Section
8(b)(iii) hereof. The Committee may specify the amount of the
Annual Incentive Award pool as a percentage of any such business
criteria, a percentage thereof in excess of a threshold amount,
or as another amount which need not bear a strictly mathematical
relationship to such business criteria.
(ii) POTENTIAL ANNUAL INCENTIVE AWARDS. Not later than the end
of the 90th day of each fiscal year, or at such other date as may
be required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will
potentially receive Annual Incentive Awards, and the amounts
potentially payable thereunder, for that fiscal year, either out
of an Annual Incentive Award pool established by such date under
Section 8(c)(i) hereof or as individual Annual Incentive Awards.
In the case of individual Annual Incentive Awards intended to
qualify under Code Section 162(m), the amount potentially payable
shall be based
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upon the achievement of a performance goal or goals based on
one or more of the business criteria set forth in Section
8(b)(ii) hereof in the given performance year, as specified by
the Committee; in other cases, such amount shall be based on such
criteria as shall be established by the Committee. In all cases,
the maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5 hereof.
(iii) PAYOUT OF ANNUAL INCENTIVE AWARDS. After the end of each
fiscal year, the Committee shall determine the amount, if any, of
(A) the Annual Incentive Award pool, and the maximum amount of
potential Annual Incentive Award payable to each Participant in
the Annual Incentive Award pool, or (B) the amount of potential
Annual Incentive Award otherwise payable to each Participant. The
Committee may, in its discretion, determine that the amount
payable to any Participant as a final Annual Incentive Award
shall be reduced from the amount of his or her potential Annual
Incentive Award, including a determination to make no final Award
whatsoever. The Committee shall specify the circumstances in
which an Annual Incentive Award shall be paid or forfeited in the
event of termination of employment by the Participant prior to
the end of a fiscal year or settlement of such Annual Incentive
Award.
(d) WRITTEN DETERMINATIONS. All determinations by the Committee
as to the establishment of performance goals, the amount of any Performance
Award pool or potential individual Performance Awards and as to the achievement
of performance goals relating to Performance Awards under Section 8(b), and the
amount of any Annual Incentive Award pool or potential individual Annual
Incentive Awards and the amount of final Annual Incentive Awards under Section
8(c), shall be made in writing in the case of any Award intended to qualify
under Code Section 162(m). The Committee may not delegate any responsibility
relating to such Performance Awards or Annual Incentive Awards if and to the
extent required to comply with Code Section 162(m).
(e) STATUS OF SECTION 8(B) AND SECTION 8(C) AWARDS UNDER CODE
SECTION 162(m). It is the intent of the Company that Performance Awards and
Annual Incentive Awards under Section 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of Sections 8(b), (c), (d) and (e), including
the definitions of Covered Employee and other terms used therein, shall be
interpreted in a manner consistent with Code Section 162(m) and regulations
thereunder. The foregoing notwithstanding, because the Committee cannot
determine with certainty whether a given Participant will be a Covered Employee
with respect to a fiscal year that has not yet been completed, the term Covered
Employee as used herein shall mean only a person designated by the Committee, at
the time of grant of Performance Awards or an Annual Incentive Award, as likely
to be a Covered Employee with respect to that fiscal year. If any provision of
the Plan or any agreement relating to such Performance Awards or Annual
Incentive Awards does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.
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9. CHANGE IN CONTROL.
(a) EFFECT OF "CHANGE IN CONTROL." If and to the extent provided
in the Award, in the event of a "Change in Control," as defined in Section 9(b),
the following provisions shall apply:
(i) Any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable
and vested as of the time of the Change in Control, subject only
to applicable restrictions set forth in Section 10(a) hereof;
(ii) Limited SARs (and other SARs if so provided by their
terms) shall become exercisable for amounts, in cash, determined
by reference to the Change in Control Price;
(iii) The restrictions, deferral of settlement, and forfeiture
conditions applicable to any other Award granted under the Plan
shall lapse and such Awards shall be deemed fully vested as of
the time of the Change in Control, except to the extent of any
waiver by the Participant and subject to applicable restrictions
set forth in Section 10(a) hereof; and
(iv) With respect to any such outstanding Award subject to
achievement of performance goals and conditions under the Plan,
such performance goals and other conditions will be deemed to be
met if and to the extent so provided by the Committee in the
Award agreement relating to such Award.
(b) DEFINITION OF "CHANGE IN CONTROL". A "Change in Control"
shall be deemed to have occurred upon:
(i) An acquisition by any Person of Beneficial Ownership of
the shares of Common Stock of the Company then outstanding (the "Company Common
Stock Outstanding") or the voting securities of the Company then outstanding
entitled to vote generally in the election of directors (the "Company Voting
Securities Outstanding") if such acquisition of Beneficial Ownership results in
the Person's Beneficially Owning 25% or more of the Company Common Stock
outstanding or 25% or more of the combined voting power of the Company Voting
Securities Outstanding; or
(ii) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company's then outstanding
voting securities, or a liquidation or dissolution of the Company or the sale of
all or substantially all of the assets of the Company (unless such
reorganization, merger, consolidation or other corporate transaction,
liquidation, dissolution or sale (any such event being referred to as a
"Corporate Transaction") is subsequently abandoned); or
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(iii) A change in the composition of the Board such that
individuals who, as of the date hereof, constitute the Board (as of the date
hereof the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Securities Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board.
Notwithstanding the provisions set forth in subparagraphs (i) and (ii)
of this Section 9(b), any acquisition or consummation of a Corporate Transaction
unanimously approved by the Incumbent Board shall not constitute a Change in
Control for purposes of the Plan.
(c) DEFINITION OF "CHANGE IN CONTROL PRICE." The "Change in
Control Price" means an amount in cash equal to the higher of (i) the amount of
cash and fair market value of property that is the highest price per share paid
(including extraordinary dividends) in any Corporate Transaction triggering the
Change in Control under Section 9(b)(i) hereof or any liquidation of shares
following a sale of substantially all of the assets of the Company, or (ii) the
highest Fair Market Value per share at any time during the 60-day period
preceding and the 60-day period following the Change in Control.
10. GENERAL PROVISIONS
(a) COMPLIANCE WITH LEGAL AND OTHER REQUIREMENTS. The Company
may, to the extent deemed necessary or advisable by the Committee or the Board,
postpone the issuance or delivery of Stock or payment of other benefits under
any Award until completion of such registration or qualification of such Stock
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to any stock exchange or automated
quotation system upon which the Stock or other Company securities are listed or
quoted, or compliance with any other obligation of the Company, as the Committee
or the Board, may consider appropriate, and may require any Participant to make
such representations, furnish such information and comply with or be subject to
such other conditions as it may consider appropriate in connection with the
issuance or delivery of Stock or payment of other benefits in compliance with
applicable laws, rules, and regulations, listing requirements, or other
obligations. The foregoing notwithstanding, in connection with a Change in
Control, the Company shall take or cause to be taken no action, and shall
undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of Stock or payment
of benefits under any Award or the imposition of any other conditions on such
issuance, delivery or payment, to the extent that such postponement or other
condition would represent a greater burden on a Participant than existed on the
90th day preceding the Change in Control.
(b) LIMITS ON TRANSFERABILITY; BENEFICIARIES. No Award or
other right or interest of a Participant under the Plan, including any Award or
right which constitutes a derivative security as generally defined in Rule
16a-1(c) under the Exchange Act, shall be
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pledged, hypothecated or otherwise encumbered or subject to any lien, obligation
or liability of such Participant to any party (other than the Company or a
Subsidiary), or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution or to a Beneficiary upon the death
of a Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her guardian or legal representative, except that Awards and other rights
(other than ISOs and SARs in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers and exercises are permitted by the
Committee or the Board pursuant to the express terms of an Award agreement
(subject to any terms and conditions which the Committee or the Board may impose
thereon, and further subject to any prohibitions or restrictions on such
transfers pursuant to Rule 16b-3). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the Committee
or the Board, and to any additional terms and conditions deemed necessary or
appropriate by the Committee or the Board.
(c) ADJUSTMENTS. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Stock
such that a substitution or adjustment is determined by the Committee or the
Board to be appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee or the Board shall, in
such manner as it may deem equitable, substitute or adjust any or all of (i) the
number and kind of shares of Stock which may be delivered in connection with
Awards granted thereafter, (ii) the number and kind of shares of Stock by which
annual per-person Award limitations are measured under Section 5 hereof, (iii)
the number and kind of shares of Stock subject to or deliverable in respect of
outstanding Awards and (iv) the exercise price, grant price or purchase price
relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award. In addition, the Committee (and
the Board if and only to the extent such authority is not required to be
exercised by the Committee to comply with Code Section 162(m)) is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards (including Performance Awards and performance goals, and Annual Incentive
Awards and any Annual Incentive Award pool or performance goals relating
thereto) in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company, any Subsidiary
or any business unit, or the financial statements of the Company or any
Subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
Subsidiary or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or the making of
such adjustment would cause Options, SARs, Performance Awards granted under
Section 8(b) hereof or Annual Incentive Awards granted under Section 8(c) hereof
to Participants designated by the Committee as Covered Employees and intended to
qualify as "performance-based
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compensation" under Code Section 162(m) and the regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code Section
162(m) and regulations thereunder.
(d) TAXES. The Company and any Subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Stock, or any payroll or other payment to
a Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee or the Board may deem advisable to enable the Company
and Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.
(e) CHANGES TO THE PLAN AND AWARDS. The Board may amend,
alter, suspend, discontinue or terminate the Plan, or the Committee's authority
to grant Awards under the Plan without the consent of stockholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Company's stockholders not later than the annual
meeting next following such Board action if such stockholder approval is
required by any federal or state law or regulation (including, without
limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to stockholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee or the Board may waive
any conditions or rights under, or amend, alter, suspend, discontinue or
terminate any Award theretofore granted and any Award agreement relating
thereto, except as otherwise provided in the Plan; provided that, without the
consent of an affected Participant, no such Committee or the Board action may
materially and adversely affect the rights of such Participant under such Award.
Notwithstanding anything in the Plan to the contrary, if any right under this
Plan would cause a transaction to be ineligible for pooling of interest
accounting that would, but for the right hereunder, be eligible for such
accounting treatment, the Committee or the Board may modify or adjust the right
so that pooling of interest accounting shall be available, including the
substitution of Stock having a Fair Market Value equal to the cash otherwise
payable hereunder for the right which caused the transaction to be ineligible
for pooling of interest accounting. Notwithstanding anything herein to the
contrary, the provisions of Section 6(b)(iv) of this Plan which govern formula
grants of Options to Non-Employee Directors, shall not be amended more than once
every six months other than to comport with changes to the Code or the rules
promulgated thereunder or the Employee Retirement Income Security Act of 1974,
as amended, or the rules promulgated thereunder, or with rules promulgated by
the Securities and Exchange Commission, unless such limit on amendments is not
required under Rule 16b-3 or other applicable law.
(f) LIMITATION ON RIGHTS CONFERRED UNDER PLAN. Neither the
Plan nor any action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible Person or
Participant or in the employ of the Company or a Subsidiary; (ii) interfering in
any way with the right of the Company or a Subsidiary to terminate any Eligible
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Person's or Participant's employment at any time, (iii) giving an Eligible
Person or Participant any claim to be granted any Award under the Plan or to be
treated uniformly with other Participants and employees, or (iv) conferring on a
Participant any of the rights of a stockholder of the Company unless and until
the Participant is duly issued or transferred shares of Stock in accordance with
the terms of an Award.
(g) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant or
obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than
those of a general creditor of the Company; provided that the Committee may
authorize the creation of trusts and deposit therein cash, Stock, other Awards
or other property, or make other arrangements to meet the Company's obligations
under the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee or the Board
may specify and in accordance with applicable law.
(h) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the
Plan by the Board nor its submission to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive arrangements as it
may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).
(i) PAYMENTS IN THE EVENT OF FORFEITURES; FRACTIONAL SHARES.
Unless otherwise determined by the Committee or the Board, in the event of a
forfeiture of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such cash or other
consideration. No fractional shares of Stock shall be issued or delivered
pursuant to the Plan or any Award. The Committee or the Board shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) GOVERNING LAW. The validity, construction and effect of
the Plan, any rules and regulations under the Plan, and any Award agreement
shall be determined in accordance with the laws of the State of ________ without
giving effect to principles of conflicts of laws, and applicable federal law.
(k) PLAN EFFECTIVE DATE AND STOCKHOLDER APPROVAL; TERMINATION
OF PLAN. The Plan shall become effective on the Effective Date, subject to
subsequent approval within 12 months of its adoption by the Board by
stockholders of the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Code Sections 162(m) and 422, Rule
16b-3 under the Exchange Act, applicable stock exchange requirements, and other
laws, regulations, and obligations of the Company applicable to the Plan. Awards
may be granted subject to stockholder approval, but may not be exercised or
otherwise settled in the event stockholder approval is not obtained. The Plan
shall terminate at such time as no shares of
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Common Stock remain available for issuance under the Plan and the Company has no
further rights or obligations with respect to outstanding Awards under the Plan.
21
EXHIBIT 10.2
FINE AIR SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide incentive
for present and future employees of the Company and any Designated Subsidiary to
acquire a proprietary interest (or increase an existing proprietary interest) in
the Company through the purchase of Common Stock. It is the Company's intention
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Code. Accordingly, the provisions of the Plan shall be administered,
interpreted and construed in a manner consistent with the requirements of that
section of the Code.
2. DEFINITIONS.
(a) "APPLICABLE PERCENTAGE" means the percentage specified
in Section 8, subject to adjustment by the Committee as provided in Section 8.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended, and any successor thereto.
(d) "COMMITTEE" means the committee appointed by the Board
to administer the Plan as described in Section 13 of the Plan or, if no such
Committee is appointed, the Board.
(e) "COMMON STOCK" means the Company's common stock, par
value $_____ per share.
(f) "COMPANY" means Fine Air Services, Inc., a Florida
corporation.
(g) "COMPENSATION" means, with respect to each Participant
for each pay period, the full base salary, overtime and other wages paid to such
Participant by the Company or a Designated Subsidiary. Except as otherwise
determined by the Committee, "Compensation" does not include: (i) commissions or
bonuses; (ii) any amounts contributed by the Company or a Designated Subsidiary
to any pension plan; (iii) any automobile or relocation allowances (or
reimbursement for any such expenses); (iv) any amounts paid as a starting bonus
or finder's fee; (v) any amounts realized from the exercise of any stock options
or incentive awards; (vi) any amounts paid by the Company or a Designated
Subsidiary for other fringe benefits, such as health and welfare,
hospitalization and group life insurance benefits, or perquisites, or paid in
lieu of such benefits; or (vii) other similar forms of extraordinary
compensation.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company or the Designated Subsidiary that
employs the Employee, provided that such leave is for a period of not more than
90 days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
<PAGE>
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries that
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(j) "EMPLOYEE" means any person, including an Officer,
whose customary employment with the Company or one of its Designated
Subsidiaries is at least twenty (20) hours per week and more than five (5)
months in any calendar year.
(k) "ENTRY DATE" means the first day of each Exercise
Period.
(l) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(m) "EXERCISE DATE" means the last business day ending on
or before December 31, 1997, and the last business day ending on or before each
June 30 and December 31 thereafter.
(n) "EXERCISE PERIOD" means, for any Offering Period, each
period commencing on the Offering Date and on the day after each Exercise Date,
and terminating on the immediately following Exercise Date.
(o) "EXERCISE PRICE" means the price per share of Common
Stock offered in a given Offering Period determined as provided in Section 8.
(p) "FAIR MARKET VALUE" means, with respect to a share of
Common Stock, the Fair Market Value as determined under Section 7(b).
(q) "FIRST OFFERING DATE" means the commencement date of
the initial public offering contemplated by the Registration Statement on Form
S-1 filed by the Company with the Securities and Exchange Commission.
(r) "OFFERING DATE" means the first business day of each
Offering Period; provided, that in the case of an individual who becomes
eligible to become a Participant under Section 3 after the first business day of
an Offering Period, the term "Offering Date" shall mean the first business day
of the Exercise Period coinciding with or next succeeding the day on which that
individual becomes eligible to become a Participant. Options granted after the
first day of an Offering Period will be subject to the same terms as the options
granted on the first business day of such Offering Period except that they will
have a different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first
business day of such Offering Period, a shorter term.
(s) "OFFERING PERIOD" means (i) with respect to the first
Offering Period, the period beginning on the First Offering Date and ending on
June 30, 1998, and (ii) with respect to each Offering Period thereafter, and
subject to adjustment as provided in Section 4, the 12 month period beginning on
the business day immediately succeeding the end of the preceding Offering
Period.
(t) "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 under the Exchange Act and the rules
and regulations promulgated thereunder.
2
<PAGE>
(u) "PARTICIPANT" means an Employee who has elected to
participate in the Plan by filing an enrollment agreement with the Company as
provided in Section 5 of the Plan.
(v) "PLAN" shall mean this Employee Stock Purchase Plan.
(w) "PLAN CONTRIBUTIONS" means, with respect to each
Participant, the payroll deductions withheld from the Compensation of the
Participant and contributed to the Plan for the Participant as provided in
Section 6 of the Plan and any other amounts contributed to the Plan for the
Participant in accordance with the terms of the Plan.
(x) "SUBSIDIARY" shall mean any corporation, domestic or
foreign, of which the Company owns, directly or indirectly, 50% or more of the
total combined voting power of all classes of stock, and that otherwise
qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of
the Code.
3. ELIGIBILITY.
(a) Any Employee who is employed by the Company as of the
Offering Date of a given Offering Period shall be eligible to become a
Participant as of any Entry Date within that Offering Period under the Plan,
subject to the requirements of Section 5(a) and the limitations imposed by
Section 423(b) of the Code.
(b) Notwithstanding any provision of the Plan to the
contrary, no Participant shall be granted an option under the Plan (i) if,
immediately after the grant, such Participant (or any other person whose stock
would be attributed to such Participant pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing 5%
or more of the total combined voting power or value of all classes of stock of
the Company or of any Subsidiary of the Company, or (ii) which permits such
Participant's rights to purchase stock under all employee stock purchase plans
of the Company and its Subsidiaries intended to qualify under Section 423 of the
Code to accrue at a rate which exceeds $25,000 of fair market value of stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by a series
of consecutive Offering Periods. The first Offering Period shall commence on the
First Offering Date, the second Offering Period shall commence on July 1, 1998,
and succeeding Offering Periods shall commence on or about the July 1 that
occurs every 12 months thereafter (or at such other time or times as may be
determined by the Committee). The Committee shall have the power to change the
duration and/or the frequency of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected.
3
<PAGE>
5. ELECTION TO PARTICIPATE.
(a) An eligible Employee may elect to participate in the
Plan commencing on any Entry Date by completing an enrollment agreement on the
form provided by the Company and filing the enrollment agreement with the
Company on or prior to such Entry Date, unless a later time for filing the
enrollment agreement is set by the Committee for all eligible Employees with
respect to a given offering. The enrollment agreement shall set forth the
percentage of the Participant's Compensation that is to be withheld by payroll
deduction pursuant to the Plan.
(b) Except as otherwise determined by the Committee under
rules applicable to all Participants, payroll deductions for a Participant shall
commence on the first payroll following the Entry Date on which the Participant
elects to participate in accordance with Section 5(a) and shall end on the last
payroll in the Offering Period, unless sooner terminated by the Participant as
provided in Section 11.
(c) Unless a Participant elects otherwise prior to the last
Exercise Date of an Offering Period, such Participant shall be deemed (i) to
have elected to participate in the immediately succeeding Offering Period (and,
for purposes of such Offering Period such Participant's "Entry Date" shall be
deemed to be the first day of such Offering Period) and (ii) to have authorized
the same payroll deduction for such immediately succeeding Offering Period as
was in effect for such Participant immediately prior to the commencement of such
succeeding Offering Period.
6. PARTICIPANT CONTRIBUTIONS.
(a) Except as otherwise authorized by the Committee
pursuant to Section 6(d) below, all Participant contributions to the Plan shall
be made only by payroll deductions. At the time a Participant files the
enrollment agreement with respect to an Offering Period, the Participant may
authorize payroll deductions to be made on each payroll date during the portion
of the Offering Period that he or she is a Participant in an amount not less
than 1% and not more than 25% of the Participant's Compensation on each payroll
date during the portion of the Offering Period that he or she is a Participant
(or subsequent Offering Periods as provided in Section 5(c)). The amount of
payroll deductions shall be a whole percentage (i.e., 1%, 2%, 3%, etc.) of the
Participant's Compensation.
(b) A Participant may discontinue his or her participation
in the Plan as provided in Section 11, or may decrease or increase the rate or
amount of his or her payroll deductions during such Offering Period (within the
limitations of Section 6(a) above) by completing and filing with the Company a
new enrollment agreement authorizing a change in the rate or amount of payroll
deductions; PROVIDED, that a Participant may not change the rate or amount of
his or her payroll deductions more than once in any Exercise Period. The change
in rate or amount shall be effective with the first full payroll period
following ten (10) business days after the Company's receipt of the new
enrollment agreement.
(c) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
Participant's payroll deductions may be decreased to
4
<PAGE>
0% at such time during any Exercise Period which is scheduled to end during the
current calendar year that the aggregate of all payroll deductions accumulated
with respect to such Exercise Period and any other Exercise Period ending within
the same calendar year equal to the product of $25,000 multiplied by the
Applicable Percentage for the calendar year. Payroll deductions shall recommence
at the rate provided in the Participant's enrollment agreement at the beginning
of the following Exercise Period which is scheduled to end in the following
calendar year, unless terminated by the Participant as provided in Section 11.
(d) Notwithstanding anything to the contrary in the
foregoing, but subject to the limitations set forth in Section 3(b), the
Committee may permit Participants to make additional contributions to the Plan
subject to such terms and conditions as the Committee may in its discretion
determine. All such additional contributions shall be made in a manner
consistent with the provisions of Section 423 of the Code or any successor
thereto, and shall be held in Participants' accounts and applied to the purchase
of shares of Common Stock pursuant to options granted under this Plan in the
same manner as payroll deductions contributed to the Plan as provided above.
(e) All Plan Contributions made for a Participant shall be
deposited in the Company's general corporate account and shall be credited the
Participant's account under the Plan. No interest shall accrue or be credited
with respect to a Participant's Plan Contributions. All Plan Contributions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate or otherwise set
apart such Plan Contributions from any other corporate funds.
7. GRANT OF OPTION.
(a) On a Participant's Entry Date, subject to the
limitations set forth in Sections 3(b) and 12(a), the Participant shall be
granted an option to purchase on each subsequent Exercise Date during the
Offering Period in which such Entry Date occurs (at the Exercise Price
determined as provided in Section 8 below) a number of shares of Common Stock
determined by dividing such Participant's Plan Contributions accumulated prior
to such Exercise Date and retained in the Participant's account as of such
Exercise Date by the lower of (i) the Applicable Percentage of the greater of
(A) the Fair Market Value of a share of Common Stock on the Offering Date or (B)
the Fair Market Value of a share of Common Stock on the Entry Date on which the
Employee elects to become a Participant within the Offering Period, or (ii) the
Applicable Percentage of the Fair Market Value of a share of Common Stock on
such Exercise Date; PROVIDED, that the maximum number of shares an Employee may
purchase during any Exercise Period shall be ______ shares. The Fair Market
Value of a share of Common Stock shall be determined as provided in Section
7(b).
(b) The Fair Market Value of a share of Common Stock on a
given date shall be determined by the Committee in its discretion; PROVIDED,
that if there is a public market for the Common Stock, the Fair Market Value per
share shall be either (i) the closing price of the Common Stock on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market System, (ii) if
such price is not reported, the average of the bid and asked prices for the
Common Stock on such date (or, in the event that the Common
5
<PAGE>
Stock is not traded on such date, on the immediately preceding trading date), as
reported by Nasdaq, (iii) in the event the Common Stock is listed on a stock
exchange, the closing price of the Common Stock on such exchange on such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in The Wall Street Journal, or
(iv) if no such quotations are available for a date within a reasonable time
prior to the valuation date, the value of the Common Stock as determined by the
Committee using any reasonable means. For purposes of the First Offering Date,
the Fair Market Value of a share of Common Stock shall be the Price to Public as
set forth in the final prospectus filed by the Company with the Securities and
Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as
amended.
8. EXERCISE PRICE. The Exercise Price per share of Common
Stock offered to each Participant in a given Offering Period shall be the lower
of: (i) the Applicable Percentage of the greater of (A) the Fair Market Value of
a share of Common Stock on the Offering Date or (B) the Fair Market Value of a
share of Common Stock on the Entry Date on which the Employee elects to become a
Participant within the Offering Period or (ii) the Applicable Percentage of the
Fair Market Value of a share of Common Stock on the Exercise Date. The
Applicable Percentage with respect to each Offering Period shall be 85%, unless
and until such Applicable Percentage is increased by the Committee, in its sole
discretion, provided that any such increase in the Applicable Percentage with
respect to a given Offering Period must be established not less than fifteen
(15) days prior to the Offering Date thereof.
9. EXERCISE OF OPTIONS. Unless the Participant withdraws from
the Plan as provided in Section 11, the Participant's option for the purchase of
shares will be exercised automatically on each Exercise Date, and the maximum
number of full shares subject to such option shall be purchased for the
Participant at the applicable Exercise Price with the accumulated Plan
Contributions then credited the Participant's account under the Plan. During a
Participant's lifetime, a Participant's option to purchase shares hereunder is
exercisable only by the Participant.
10. DELIVERY. As promptly as practicable after each Exercise
Date, the Company shall arrange for the delivery to each Participant (or the
Participant's beneficiary), as appropriate, of a certificate representing the
shares purchased upon exercise of such Participant's option. Any amount
remaining to the credit of a Participant's account after the purchase of shares
by such Participant on an Exercise Date, or which is insufficient to purchase a
full share of Common Stock, shall be carried over to the next Exercise Period if
the Participant continues to participate in the Plan or, if the Participant does
not continue to participate, shall be returned to the Participant.
11. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw from the Plan at any time by
giving written notice to the Company. All of the Plan Contributions credited to
the Participant's account and not yet invested in Common Stock will be paid to
the Participant as soon as administratively practicable after receipt of the
Participant's notice of withdrawal, the Participant's option to purchase shares
pursuant to the Plan automatically will be terminated, and no further payroll
deductions for the purchase of shares will be made for the Participant's
account. Payroll deductions will not resume on behalf of a Participant who
6
<PAGE>
has withdrawn from the Plan (a "Former Participant") unless the Former
Participant enrolls in a subsequent Offering Period in accordance with Section
5(a).
(b) Upon termination of the Participant's Continuous Status
as an Employee prior to any Exercise Date for any reason, including retirement
or death, the Plan Contributions credited to the Participant's account and not
yet invested in Common Stock will be returned to the Participant or, in the case
of death, to the Participant's beneficiary as determined pursuant to Section 14,
and the Participant's option to purchase shares under the Plan will
automatically terminate.
(c) A Participant's withdrawal from an Offering Period will
not have any effect upon the Participant's eligibility to participate in
succeeding Offering Periods or in any similar plan which may hereafter be
adopted by the Company.
12. STOCK.
(a) The maximum number of shares of Common Stock that shall
be made available for sale under the Plan shall be ____________________ Thousand
(____________) shares, subject to adjustment as provided in Section 17. Shares
of Common Stock subject to the Plan may be newly issued shares or shares
reacquired in private transactions or open market purchases. If and to the
extent that any right to purchase reserved shares shall not be exercised by any
Participant for any reason or if such right to purchase shall terminate as
provided herein, shares that have not been so purchased hereunder shall again
become available for the purpose of the Plan unless the Plan shall have been
terminated, but all shares sold under the Plan, regardless of source, shall be
counted against the limitation set forth above.
(b) A Participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a Participant under the Plan
will be registered in the name of the Participant or in the name of the
Participant and his or her spouse, as requested by the Participant.
13. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The
Committee shall have the authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
administration, interpretation, or application of the Plan by the Committee
shall be final, conclusive and binding upon all persons.
(b) Notwithstanding the provisions of Subsection (a) of
this Section 13, in the event that Rule 16b-3 promulgated under the Exchange Act
or any successor provision thereto ("Rule 16b-3") provides specific requirements
for the administrators of plans of this type, the Plan shall only be
administered by such body and in such a manner as shall comply with the
applicable requirements
7
<PAGE>
of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion concerning
decisions regarding the Plan shall be afforded to any person that is not
"disinterested" as that term is used in Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of the Participant's death
subsequent to an Exercise Date on which the Participant's option hereunder is
exercised but prior to delivery to the Participant of such shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of the Participant's death prior to the exercise of the option.
(b) A Participant's beneficiary designation may be changed
by the Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. TRANSFERABILITY. Neither Plan Contributions credited to a
Participant's account nor any rights to exercise any option or receive shares of
Common Stock under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will or the laws of descent and
distribution, or as provided in Section 14). Any attempted assignment, transfer,
pledge or other distribution shall be without effect, except that the Company
may treat such act as an election to withdraw funds in accordance with Section
11.
16. PARTICIPANT ACCOUNTS. Individual accounts will be
maintained for each Participant in the Plan to account for the balance of his
Plan Contributions and options issued and shares purchased under the Plan.
Statements of account will be given to Participants semi-annually in due course
following each Exercise Date, which statements will set forth the amounts of
payroll deductions, the per share purchase price, the number of shares purchased
and the remaining cash balance, if any.
17. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) If the outstanding shares of Common Stock are increased
or decreased, or are changed into or are exchanged for a different number of
kind of shares, as a result of one or more reorganizations, restructurings,
recapitalizations, reclassifications, stock splits, reverse stock splits, stock
dividends or the like, upon authorization of the Committee, appropriate
adjustments shall be made in the number and/or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any
Participant upon exercise of options granted under the Plan.
(b) In the event of the proposed dissolution or liquidation
of the Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless
8
<PAGE>
otherwise provided by the Committee. In the event of a proposed sale of all or
substantially all of the Company's assets, or the merger of the Company with or
into another corporation (each, a "Sale Transaction"), each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Committee determines, in the exercise of its sole discretion and in
lieu of such assumption or substitution, to shorten the Exercise Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the
Committee shortens the Exercise Period then in progress in lieu of assumption or
substitution in the event of a Sale Transaction, the Committee shall notify each
Participant in writing, at least ten (10) days prior to the New Exercise Date,
that the exercise date for such Participant's option has been changed to the New
Exercise Date and that such Participant's option will be exercised automatically
on the New Exercise Date, unless prior to such date the Participant has
withdrawn from the Plan as provided in Section 11. For purposes of this Section
17(b), an option granted under the Plan shall be deemed to have been assumed if,
following the Sale Transaction, the option confers the right to purchase, for
each share of option stock subject to the option immediately prior to the Sale
Transaction, the consideration (whether stock, cash or other securities or
property) received in the Sale Transaction by holders of Common Stock for each
share of Common Stock held on the effective date of the Sale Transaction (and if
such holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common Stock);
PROVIDED, that if the consideration received in the Sale Transaction was not
solely common stock of the successor corporation or its parent (as defined in
Section 424(e) of the Code), the Committee may, with the consent of the
successor corporation and the Participant, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by the holders of Common Stock in the Sale Transaction.
(c) In all cases, the Committee shall have sole discretion
to exercise any of the powers and authority provided under this Section 17, and
the Committee's actions hereunder shall be final and binding on all
Participants. No fractional shares of stock shall be issued under the Plan
pursuant to any adjustment authorized under the provisions of this Section 17.
18. AMENDMENT OF THE PLAN. The Board or the Committee may at
any time, or from time to time, amend the Plan in any respect; PROVIDED, that
(i) no such amendment may make any change in any option theretofore granted
which adversely affects the rights of any Participant and (ii) the Plan may not
be amended in any way that will cause rights issued under the Plan to fail to
meet the requirements for employee stock purchase plans as defined in Section
423 of the Code or any successor thereto. To the extent necessary to comply with
Rule 16b-3 under the Exchange Act, Section 423 of the Code, or any other
applicable law or regulation), the Company shall obtain shareholder approval of
any such amendment.
9
<PAGE>
19. TERMINATION OF THE PLAN.
The Plan and all rights of Employees hereunder shall terminate on the
earliest of:
(a) the Exercise Date that Participants become entitled to
purchase a number of shares greater than the number of reserved shares remaining
available for purchase under the Plan;
(b) such date as is determined by the Board in its
discretion; or
(c) the last Exercise Date immediately preceding the tenth
(10th) anniversary of the Plan's effective date.
In the event that the Plan terminates under circumstances described in
Section 19(a) above, reserved shares remaining as of the termination date shall
be sold to Participants on a PRO RATA basis.
20. NOTICES. All notices or other communications by a
Participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. EFFECTIVE DATE. Subject to adoption of the Plan by the
Board, the Plan shall become effective on the First Exercise Date. The Board
shall submit the Plan to the shareholders of the Company for approval within
twelve months after the date the Plan is adopted by the Board. If such
shareholder approval is not obtained, the Plan and all rights of Participants
under the Plan shall be null and void and shall have no effect.
22. CONDITIONS UPON ISSUANCE OF SHARES.
(a) The Plan, the grant and exercise of options to purchase
shares under the Plan, and the Company's obligation to sell and deliver shares
upon the exercise of options to purchase shares shall be subject to compliance
with all applicable federal, state and foreign laws, rules and regulations and
the requirements of any stock exchange on which the shares may then be listed.
(b) The Company may make such provisions as it deems
appropriate for withholding by the Company pursuant to federal or state tax laws
of such amounts as the Company determines it is required to withhold in
connection with the purchase or sale by a Participant of any Common Stock
acquired pursuant to the Plan. The Company may require a Participant to satisfy
any relevant tax requirements before authorizing any issuance of Common Stock to
such Participant.
23. EXPENSES OF THE PLAN. All cost and expenses incurred in
administering the Plan shall be paid by the Company, except that any stamp
duties or transfer taxes applicable to participation in the Plan may be charged
to the account of such Participant by the Company.
10
<PAGE>
24. NO EMPLOYMENT RIGHTS. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
25. APPLICABLE LAW. The laws of the State of
____________ shall govern all matters relating to this Plan except to the extent
(if any) superseded by the laws of the United States.
26. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and
conditions of options granted hereunder to, and the purchase of shares by,
persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
11
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 28, 1997, on our audits of the financial statements
of Fine Air Services, Inc. We also consent to the reference to our firm under
the caption "Experts."
Miami, Florida
June 5, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,153,731
<SECURITIES> 224,668
<RECEIVABLES> 25,712,818
<ALLOWANCES> 1,309,000
<INVENTORY> 781,498
<CURRENT-ASSETS> 27,310,993
<PP&E> 64,040,218
<DEPRECIATION> 26,230,950
<TOTAL-ASSETS> 65,886,318
<CURRENT-LIABILITIES> 11,533,369
<BONDS> 9,322,770
0
0
<COMMON> 2,500
<OTHER-SE> 45,027,679
<TOTAL-LIABILITY-AND-EQUITY> 65,886,318
<SALES> 0
<TOTAL-REVENUES> 94,247,929
<CGS> 0
<TOTAL-COSTS> 81,039,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16,226
<INTEREST-EXPENSE> 966,058
<INCOME-PRETAX> 13,028,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,028,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,028,271
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
