AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1997
REGISTRATION STATEMENT NO. 333-28569
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
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. [ ]
---------------
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
JULY 10, 1997
8,500,000 SHARES
[GRAPHIC OMITTED]
FINE AIR SERVICES, INC.
COMMON STOCK
------------
Of the 8,500,000 shares of Common Stock being offered hereby 7,400,000
shares are being offered by Fine Air Services, Inc. (the "Company") and
1,100,000 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 $13.00 and $15.00 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 "BIGF."
------------
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.
===============================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
- --------------------------------------------------------------------------------
Per Share ...... $ $ $ $
- --------------------------------------------------------------------------------
Total(2) ...... $ $ $ $
===============================================================================
(1) Before deducting expenses payable by the Company, estimated at $800,000.
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,275,000 additional shares of Common Stock solely to cover
over-allotments, if any. 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>
GRAPHIC OMITTED -- [Pilots in the cockpit of one of the Company's aircraft]
GRAPHIC OMITTED -- [Crew performing engine repair, maintenance and service
on one of the Company's engines]
GRAPHIC OMITTED -- [Company logo]
GRAPHIC OMITTED -- [Cargo being transported by one of the Company's forklifts]
GRAPHIC OMITTED -- [Crew performing engine repair, maintenance and service on
an aircraft engine]
GRAPHIC OMITTED -- [The front of one of the Company's aircraft]
----------------
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>
GRAPHIC OMITTED -- [World Wide Cargo Network]
GRAPHIC OMITTED -- [Company Logo]
GRAPHIC OMITTED -- [Map of the world depicting with (i) green lines, the
Company's international sales network including Beijing,
Seoul, Shanghai, Tokyo, Guanzzlou, Hong Kong, Taipei,
Bangkok, Ho Chi Minh City, Singapore, Djakarta, Sydney,
Melbourne, Helsinki, Manchester, Dublin, London, Amsterdam,
Frankfurt, Luxembourg, Vienna, Paris, Milan, Barcelona,
Madrid, Rome, Tel Aviv, Casablanca, Cairo, Johannesburg,
Capetown, Los Angeles, San Francisco, Seattle, Calgary, Salt
Lake City, Phoenix, Houston, Dallas, Minneapolis, Chicago,
Atlanta, Pittsburgh, Detroit, Toronto, Montreal, Boston, New
York and Miami, (ii) blue lines, the Company's scheduled
cargo service, including Guatemala, El Salvador, San Jose,
Managua, Panama, San Jose, Kingstown, Turk Cacos,
Santo Domingo, Puerto Rico, Virgin Islands, Netherlands
Antilles, Aruba, Curacao, Barbados, Trinidad, Caracas,
Medellin, Bogota, Georgetown, Paramaribo, Manaus, Quito,
Guayaquil, Lima, La Paz, Brasilia, Rio de Janeiro, Sao
Paulo, Buenos Aires, Santiago and Miami, (iii) yellow
lines, the Company's North American trucking network,
including Los Angeles, San Francisco, Seattle, Calgary,
Salt Lake City, Phoenix, Houston, Dallas, Minneapolis,
Chicago, Atlanta, Pittsburgh, Detroit, Toronto, Montreal,
Boston, New York and Miami]
<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%. Principally as a result of increased revenues
from scheduled cargo services, the Company's revenues increased 23.5% from 1995
to 1996 and 17.6% from 1994 to 1995.
According to MergeGlobal, a freight transportation research and consulting
firm, 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 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 eight 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, which includes an L-1011 aircraft the Company began leasing in June
1997, and as many as three additional DC-8s by the end of 1998.
3
<PAGE>
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.
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
4
<PAGE>
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. See "Industry Overview."
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. In June 1997, the Company began leasing an L-1011 aircraft which the
Company has an option to acquire at any time prior to December 1997.
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 owns 15 DC-8 aircraft that are leased primarily to
the Company and provides airframe and engine maintenance, repair and overhaul
services to the Company and third parties. Agro Air 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 ........................ 7,400,000 shares
Common Stock offered by the Selling Shareholders ......... 1,100,000 shares
Common Stock to be outstanding after the offering(1) ...... 21,410,714 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 ..................... BIGF
</TABLE>
- ----------------
(1) Includes 10,714 shares of Common Stock to be issued to an executive officer
of the Company simultaneously with this offering pursuant to the Company's
Incentive Compensation Plan (the "Incentive Plan"), assuming an initial
public offering price of $14.00 per share. Excludes (i) an additional
1,239,286 shares of Common Stock reserved for issuance pursuant to the
Incentive Plan and (ii) 250,000 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 intends to
grant to certain officers and other key employees options to purchase an
aggregate of 475,000 shares of Common Stock, exercisable at the initial
public offering price. See "Management--Employment Agreements" and
"--Stock Plans."
6
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ------------ ---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Scheduled cargo services ............... $ -- $ -- $ 19,941 $ 40,124 $ 54,775
ACMI services ........................... 22,266 29,025 44,420 35,340 35,520
Repairs, training and other ............ -- -- 492 885 3,953
Total revenues ........................ 22,266 29,025 64,853 76,349 94,248
Operating income ........................ 3,596 3,889 12,139 11,703 13,208
Net income ................................. 5,473 3,128 14,198(2) 11,038 13,028
Pro forma net income(3) .................. 3,414 1,951 8,794 6,818 8,058
Pro forma net income per share(3) ......... $ 0.16 $0.09 $ 0.41 $0.32 $ 0.36
Pro forma weighted average
shares outstanding ........................ 21,411 21,411 21,411 21,411 22,509(4)
OPERATING DATA:
Destinations served (end of period) ...... -- -- 9 21 27
Tons of freight transported--
scheduled cargo services ............... -- -- 32,072 64,906 75,923
ACMI block hours flown .................. 9,566 12,943 15,280 12,068 12,289
Aircraft in service (end of period) ...... 8 13 13 14 15
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1996 1997
---------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Scheduled cargo services ............... $ 11,693 $ 16,174
ACMI services ........................... 5,430 9,126
Repairs, training and other ............ 1,796 626
Total revenues ........................ 18,919 25,926
Operating income ........................ 1,305 3,349
Net income ................................. 1,465 3,170
Pro forma net income(3) .................. 914 1,977
Pro forma net income per share(3) ......... $ 0.04 $ 0.09
Pro forma weighted average
shares outstanding ........................ 21,411 22,509(4)
OPERATING DATA:
Destinations served (end of period) ...... 27 29
Tons of freight transported--
scheduled cargo services ............... 18,360 19,404
ACMI block hours flown .................. 2,146 3,050
Aircraft in service (end of period) ...... 14 15
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (5) AS ADJUSTED (6)
--------- --------------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 4,831 $ -- $ 85,967
Working capital ............... 16,162 (7,849) 79,546
Total assets .................. 65,341 60,999 149,966
Total debt ..................... 9,581 29,250 19,669
Stockholders' equity ......... 47,793 14,450 109,998
</TABLE>
- ----------------
(1) Presents the combined financial and operating data of the Company and Agro
Air, each of which are under the control of common shareholders (Frank and
Barry Fine). See Note 1 of Notes to the Company's Combined Financial
Statements.
(2) 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."
(3) 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."
(4) Includes that number of shares of Common Stock which, had they been issued
(at an assumed initial public offering price of $14.00 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.
(5) 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."
(6) Pro forma as adjusted to give effect to the sale of the 7,400,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $14.00 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. The
Company intends to purchase hushkits for this purpose from QTV, Ltd., a related
party, which received a Supplemental Type Certificate for its hushkits on June
30, 1997. See "Certain Transactions". 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
9
<PAGE>
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 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
10
<PAGE>
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.
CONTROL BY PRINCIPAL SHAREHOLDERS. J. Frank Fine and Barry H. Fine (the
"Principal Shareholders") will each beneficially own approximately 60.3% of the
Company's outstanding Common Stock after completion of this offering
(approximately 56.9% 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. 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 Amended and Restated Articles of Incorporation (the
"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. The Company's Bylaws
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. 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 21,410,714 shares of Common Stock. All of the
8,500,000 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 12,910,714 shares of Common Stock
outstanding will be "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
11
<PAGE>
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 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 $8.86 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 7,400,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $95.5 million ($112.1 million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$14.00 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 7,400,000 shares of Common Stock offered by
the Company hereby at an assumed offering price of $14.00 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 $ -- $ 85,967
======= ======= ========
Current portion of long-term debt ................................. $ 1,428 $ 1,428 $ --
======= ======= ========
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 and pro forma; $0.01 par
value, 50,000,000 shares authorized, 21,410,714 shares issued and
outstanding pro forma as adjusted (2) ........................ 3 3 214
Additional paid-in capital .................................... -- 14,555 109,892
Retained earnings ............................................. 47,898 -- --
Net unrealized holding loss on investment securities ............ (108) (108) (108)
------- ------- --------
Total stockholders' equity .................................... 47,793 14,450 109,998
------- ------- --------
Total capitalization ....................................... $55,946 $22,603 $109,998
======= ======= ========
</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) Includes 10,714 shares of Common Stock to be issued to an executive officer
of the Company simultaneously with this offering pursuant to the Incentive
Plan assuming an initial public offering price of $14.00 per share.
Excludes (i) an additional 1,239,286 shares of Common Stock reserved for
issuance pursuant to the Incentive Plan and (ii) 250,000 shares of Common
Stock reserved for purchase under the Stock Purchase Plan. Simultaneously
with this offering, the Company intends to grant to certain officers and
other key employees options to purchase an aggregate of 475,000 shares of
Common Stock, exercisable at the initial public offering price. See
"Management--Employment Agreements" and "--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 $1.04 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 7,400,000 shares of Common Stock offered by the Company hereby at
an assumed offering price of $14.00 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 $110.0 million, or $5.14 per share.
This represents an immediate increase in the pro forma net tangible book value
to existing shareholders of $4.10 per share and an immediate dilution to new
investors of $8.86 per share. The following table illustrates such per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price .................. $14.00
Pro forma net tangible book value before offering ...... 1.04
Increase attributable to new investors .................. 4.10
------
Pro forma net tangible book value after offering ......... 5.14
---------
Dilution to new investors ................................. $8.86
=========
</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 $14.00 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 ...... 12,900,000 60.3% $ 14,557,190 10.9% $ 1.13
New investors ............... 8,500,000 39.7% 119,000,000 89.1% $14.00
----------- ------ ------------- ------
Total ..................... 21,400,000 100.0% $133,557,190 100.0%
=========== ====== ============= ======
</TABLE>
The foregoing tables do not reflect (i) the issuance simultaneously with
this offering of 10,714 shares of Common Stock to an executive officer of the
Company (assuming an initial public offering price of $14.00 per share), (ii)
the possible exercise of options to purchase up to 1,239,286 shares of Common
Stock granted or which may be granted after completion of this offering under
the Incentive Plan, of which the Company intends to grant options to purchase
475,000 shares at the initial public offering price upon completion of this
offering, or (iii) the issuance of up to 250,000 shares of Common Stock under
the Stock Purchase Plan. See "Management--Employment Agreements" and "--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:(1)
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(2)
======== =========== ============
Pro forma net income (3) .................................... $ 3,414 $1,951 $ 8,794
======== =========== ============
Pro forma net income per share (3) ........................ $ 0.16 $0.09 $ 0.41
======== =========== ============
Pro forma weighted average shares outstanding ............... 21,411 21,411 21,411
OPERATING DATA(1):
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)(1):
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
ENDED MARCH 31,
---------------------------
1995 1996 1996 1997
------------ ----------------- --------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
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 (3) .................................... $ 6,818 $ 8,058 $ 914 $ 1,977
========== ============== ======== ==============
Pro forma net income per share (3) ........................ $ 0.32 $ 0.36 $ 0.04 $ 0.09
========== ============== ======== ==============
Pro forma weighted average shares outstanding ............... 21,411 22,509(4) 21,411 22,509(4)
OPERATING DATA(1):
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)(1):
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) Presents the combined financial and operating data of the Company and Agro
Air, each of which are under the control of common shareholders (Frank and
Barry Fine). See Note 1 of Notes to the Company's Combined Financial
Statements.
(2) 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."
(3) 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."
(4) Includes that number of shares of Common Stock which, had they been issued
(at an assumed initial public offering price of $14.00 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. 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. Over the next three years the Company
will be required to install hushkits on its existing DC-8 aircraft
25
<PAGE>
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
QTV, Ltd., a related party, which received a Supplemental Type Certificate for
its hushkits on June 30, 1997. 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, a freight transportation research and consulting
firm, 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%. Principally
as a result of increased revenues from scheduled cargo services, the Company's
revenues increased 23.5% from 1995 to 1996 and 17.6% from 1994 to 1995.
The Company markets its scheduled cargo services through a sales network
consisting of eight 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, which includes an L-1011 aircraft the Company began leasing in June
1997, 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. In June 1997, the Company began leasing an L-1011 aircraft which the
Company has an option to acquire at any time prior to December 1997. 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, seven regional sales offices in major U.S. cities
(four of which are Company operated and three 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
Buffalo, NY U.S. Virgin Islands(1) 3rd Qtr. 1995
Newark, NJ
Norfolk, VA
Philadelphia, PA LONDON, ENGLAND(1) 4th Qtr. 1995
Pittsburgh, PA Amsterdam, Holland
Richmond, VA Brussels, Belgium
Washington, D.C. Dublin, Ireland
Frankfurt, Germany
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 TORONTO, ONTARIO(1) 1st Qtr. 1997
Indianapolis, IN Calgary
Kansas City, MO Regina
Lincoln, NE Vancouver
Milwaukee, WI Winnipeg
Minneapolis/St. Paul, MN
Omaha, NE MONTREAL, QUEBEC(1) 1st Qtr. 1997
St. Louis, MO Ottawa
Quebec City
LOS ANGELES, CA(1) 1st Qtr. 1995
Las Vegas, NV HONG KONG AND BEIJING(1) 2nd Qtr. 1997
Phoenix, AZ Bangkok, Thailand
San Diego, CA Djakarta, Indonesia
Guangzhou, Peoples Republic of China
ATLANTA, GA 1st Qtr. 1996 Ho Chi Minh City, Vietnam
Birmingham, AL Kuala Lumpur, Malaysia
Charlotte, NC Osaka, Japan
Columbia, SC Seoul, South Korea
Greensboro, SC Shanghai, Peoples Republic of China
Jackson, MS Singapore
Knoxville, TN Taipei, Taiwan
Nashville, TN Tokyo, Japan
BOSTON, MA(1) 2nd Qtr. 1997
Hartford, CT
</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 B.W.I.A. Korean Air Pan Am
Aeromar Cargolux LACSA Polar Air Cargo
Aero Transcolombiana Carnival Airlines Laker Airways Qantas Airways Limited
Air Canada Challenge Lan Chile Airlines South African Airways
Air France China Airlines Lauda Air Surinam Airways
Air Haiti Continental Airlines Laparkan Taca International Airlines
Air Jamaica Copa Airlines L.T.U. Int'l Airways Tampa Airlines S.A.
Air U.K. Delta Airlines Lufthansa Airlines Tolair
Alitalia El Al Malev Tower Air
ALM Antillean Airlines Fast Air MAS Air TransWorld Airlines
Amerijet Faucett Martin Air Turks Air
Austrian Airlines Finnair Midas Airlines United Airlines
Avensa/Servivensa Four Star Cargo Midwest Express Airlines U.S. Airways
Aviateca Iberia NICA Varig Brazilian Airlines
British Airways Interamericana Northwest Orient Virgin Atlantic Airways
</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 Company's fleet includes three
"stretch" DC-8s, which have a longer fuselage and more cargo volume
36
<PAGE>
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, which includes an L-1011 aircraft the Company began leasing
in June 1997, 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.
As it has in the past, the Company expects to acquire its aircraft from a
variety of sources, including airlines, aircraft leasing companies, banks and
other financial institutions and individual aircraft owners. 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
37
<PAGE>
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. On June 30, 1997, the Company entered into a lease
agreement with an aircraft leasing company, pursuant to which the Company will
lease an L-1011 aircraft until December 19, 1997. At any time prior to the
expiration date of the lease agreement, the Company has the right to acquire
the aircraft for a purchase price equal to $13 million less certain amounts
paid by the Company during the term of the agreement. The Company expects to
place this L-1011 in service in the fourth quarter of 1997. The Company expects
to purchase this aircraft with a portion of the proceeds from this offering.
See "Use of Proceeds."
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.
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
38
<PAGE>
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 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
39
<PAGE>
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.
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
40
<PAGE>
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.
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
41
<PAGE>
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.
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
42
<PAGE>
six of its aircraft in 1997, six in 1998 and the balance by December 31, 1999
to meet the Stage III requirements. The Company intends to purchase hushkits
for this purpose from QTV, Ltd., a related party, which received a Supplemental
Type Certificate for its hushkits in June 1997. See "Certain Transactions." The
Company estimates that the cost to hushkit its existing DC-8 fleet to comply
with Stage III requirements will be $1.6 million per aircraft, or $24 million
in the aggregate. 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 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 the
FCC regarding its use of radio facilities pursuant to the Federal
Communications Act of 1934, as amended; the Commerce Department regarding the
Company's interstate transportation of cargo; the Customs Service regarding
inspection of cargo imported from the Company's international destinations; the
Immigration and Naturalization Service regarding the citizenship of the
Company's employees; the Animal and Plant Health Inspection Service of the
Department of Agriculture regarding the inspection of animals, plants and
produce imported from the Company's international destinations regarding the
Company's international operations; the Environmental Protection Agency
regarding shipment of hazardous materials and compliance with standards for
aircraft exhaust and noise emissions; and the Department of Labor regarding the
Company's employees. The Company believes that it is in material compliance
with all applicable laws and regulations of such governmental entities.
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.
43
<PAGE>
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.
44
<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
Orlando M. Machado ............... 38 Chief Financial Officer
H. Jack Pfleger, Jr. ............ 62 Director Nominee
Phillip S. Bradley ............ 59 Director Nominee
Eugene P. Conese, Jr. ............ 37 Director Nominee
CERTAIN KEY EMPLOYEES
Celeste A. Lipworth ............ 34 General Counsel
Terence T. Sullivan ............ 35 Vice President, Director of Finance
Nanci Adels ..................... 40 Vice President, Director of Sales
Hugh P. Nash .................. 56 Vice President, Marketing and Sales
Anthony D. Phillips ............ 52 Vice President, Interline and International Marketing
Hector M. Ponte ............... 56 Vice President, Latin America
Charles South .................. 53 Vice President and Director of Operations
Daniel L. Stemen ............... 29 Director of ACMI Services
</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
45
<PAGE>
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).
ORLANDO M. MACHADO has served as the Company's Chief Financial Officer
since July 7, 1997. From December 1987 to June 1997, Mr. Machado held various
positions at Greenwich Air Services, Inc., a diversified independent gas
turbine engine repair and overhaul company ("Greenwich"), and most recently
served as Vice President of Finance. Prior to joining Greenwich, Mr. Machado,
who is a certifed public accountant, was employed by Coopers & Lybrand, L.L.P.,
as an audit manager.
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.
EUGENE P. CONESE, JR. has been nominated and has agreed to become a
director of the Company upon completion of this offering. Since November 1990,
Mr. Conese, Jr. has served as President and Chief Operating Officer of
Greenwich. Mr. Conese, Jr. served as Vice President of Greenwich from March
1989 to November 1990. Mr. Conese, Jr. has also served as a director of
Greenwich since 1987.
CELESTE A. LIPWORTH has served as the Company's General Counsel since
November 1996. From 1993 to 1996, Ms. Lipworth was an associate at the law firm
of Popham, Haik, Schnobrich & Kaufman, Ltd. From 1991 to 1992, Ms. Lipworth was
an associate at the law firm of Crowell & Moring.
TERENCE T. SULLIVAN has served as the Company's Vice President, Director
of Finance since July 1997. From June 1994 to July 1997, Mr. Sullivan served as
Controller of the Company. From May 1993 to May 1994, Mr. Sullivan served as
Controller of Aeromar. From September 1991 to May 1993, 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
NANCI ADELS has served as the Company's Vice President, Director of Sales
since July 1996. From 1991 to 1996, Ms. Adels served as Regional Manager for
the Company's S.W. Region in Houston, Texas.
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);
46
<PAGE>
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 America
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).
DANIEL L. STEMEN has served as the Company's Director of ACMI Services
since May 1997 and as Assistant Director of Operations since January 1995. From
October 1992 until January 1995, Mr. Stemen served as the Manager of Flight
Operations of the Company. Since 1993, Mr. Stemen has also been licensed as a
DC-8 First Officer. From 1986 to 1992, Mr. Stemen served as a technical adviser
and FAA Liaison for several small airlines operating out of MIA and from 1988
to 1992 he served as Vice President of Operations for Trans International Crew
Leasing.
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.
Messrs. Bradley and Conese, Jr. will initially serve as a Class II 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.
47
<PAGE>
DIRECTOR COMPENSATION
The Company will reimburse its directors for out-of-pocket expenses
incurred in connection with their rendering of services as directors.
Non-employee directors will receive an annual director's fee of $10,000 and
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(1) BONUS COMPENSATION(2) 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) Does not include cash dividends paid by the S companies to the Named
Officers. See "Dividend Policy and Prior S Corporation Status" and
"Certain Transaction." Following this offering, Messrs. Frank and Barry
Fine will each receive an annual salary of $250,000.
(2) 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.
EMPLOYMENT AGREEMENTS
Effective July 7, 1997, the Company entered into a three-year employment
agreement with Orlando M. Machado, pursuant to which he will serve as Chief
Financial Officer. Mr. Machado will receive an annual base salary of $150,000
and such bonuses as may be awarded from time to time in the discretion of the
Board or any compensation committee thereof. In addition, simultaneously with
this offering, the Company will grant to Mr. Machado pursuant to the Incentive
Plan (i) an award of that number of shares of Common Stock equal to $150,000
divided by the initial public offering price per share and (ii) options to
purchase 75,000 shares of Common Stock, which options will vest over a
three-year period and be exerciseable at the initial public offering price. If
the agreement is terminated prior to the expiration of the term other than by
reason of death, Disability (as defined) or Cause (as defined), or by him for
Good Reason (generally defined as the diminution of his duties or other breach
by the Company of the agreement), Mr. Machado (or his estate or beneficiaries)
will receive, in addition to accrued salary and other benefits to which he may
be entitled, his base salary for a period of two years following such
termination. The agreement prohibits Mr. Machado from competing with the
Company during the term of the agreement and for a period of one year after
termination of his employment, other than a termination by him for Good Reason
or a termination by the Company without Cause.
48
<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) 1,250,000
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 intends grant to certain
officers and other key employees options to purchase an aggregate of 475,000
shares of Common Stock, exercisable at the initial public offering price. In
addition, simultaneously with this offering the Company will issue 10,714
shares of Common Stock to an executive officer (assuming an initial public
offering price of $14.00 per share). See "--Employment Agreements."
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
49
<PAGE>
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.
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 10,000 shares of Common Stock and (ii) thereafter, on the
date of each annual meeting of shareholders, an option to purchase 2,000 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 250,000 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
50
<PAGE>
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 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 Frank Fine
Company, a corporation owned by J. Frank Fine. The purchase price was
$2,859,000 consisting of (i) forgiveness of accounts receivable from Frank
Fine Company, related to an overhaul performed on the aircraft, in the
51
<PAGE>
amount of $1,700,000, (ii) forgiveness of loans and advances to Mr. Fine of
$481,000 and (iii) 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. ("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 services for QTV, Ltd. The Company's services
consisted of supplying parts and labor to build and test prototype hushkit
components in support of QTV, Ltd.'s research and development efforts. At
December 31, 1996 and March 31, 1997, the balances of Company's accounts
receivable due from QTV, Ltd. were approximately $1,886,000 and $734,000,
respectively. QTV, Ltd.'s hushkit received a Supplemental Type Certificate for
its hushkits on June 30, 1997 and 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.
The Company purchased $152,930, $44,733, $56,934 and $16,711 of engine
parts from Greenwich in 1994, 1995, 1996 and for the three months ended March
31, 1997, respectively. Eugene P. Conese, Jr., a director nominee, is the
President, Chief Operating Officer and a director of Greenwich. Management
believes that the terms of its purchases from Greenwich have been, and will
continue to be, on a market basis.
Management believes that the terms of the Company's transactions with
Frank Fine Company, QTV Ltd., World Fuel and Greenwich were at least as
favorable to the Company as those that could have been obtained from
unaffiliated third parties. 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.
52
<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 BENEFICIALLY SHARES TO BE BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING(2)
------------------------ SHARES -------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- ------------ --------- ----------- -------------------- --------
<S> <C> <C> <C> <C> <C>
J. Frank Fine ........................ 7,000,000 50.0% 550,000 6,450,000 30.1%
Barry H. Fine ........................ 7,000,000 50.0% 550,000 6,450,000 30.1%
All executive officers and directors
as a group (7 persons) ............... 14,000,000 100.0% 1,100,000 12,910,714(3) 60.3%
</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.
(3) Includes 10,714 shares of Common Stock to be issued to an executive officer
of the Company simultaneously with this offering (assuming an initial
public offering price of $14.00 per share). See "Management--Employment
Agreements."
53
<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 14,000,000 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 provide that at no time shall more than 25% of the voting
interest of the Company (the "Permitted Percentage") be owned or controlled by
persons who are not citizens of the United States ("Non-citizens"). In the
event that Non-citizens shall own 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 the Articles. In addition, the Company's president and at least
two-thirds of the members of its Board of Directors and other managing officers
shall be U.S. citizens.
The Company's Bylaws 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 Permitted Percentage. The shares shall be
registered on the Foreign Stock Record on the date such shares are registered.
In the event the Company determines that the shares registered on its Foreign
Stock Record exceeds the Permitted Percentage, shares shall be removed in
reverse chronological order until the number of shares on its Foreign Stock
Record no longer exceed the Permitted Percentage.
54
<PAGE>
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 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
55
<PAGE>
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.
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 Continental Stock
Transfer & Trust Company.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
21,410,714 shares of Common Stock. All of the 8,500,000 shares sold in this
offering are freely tradeable in the public market unless acquired by an
affiliate of the Company. The remaining 12,910,714 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
214,000 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.
57
<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 .............................. 8,500,000
=========
</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 has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to
1,275,000 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. 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 8,500,000, and
the Company 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 8,500,000 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 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
58
<PAGE>
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 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
59
<PAGE>
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.
60
<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 & 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
-----------------------------------
PRO FORMA
ACTUAL (NOTE 14)
----------------- -----------------
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 ..................... $ 0.36 $ 0.09
============== ==============
Weighted average number of
common shares outstanding ......... 22,509,244 22,509,244
============== ==============
</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 UNREALIZED HOLDING LOANS AND
----------------- RETAINED GAIN (LOSS) ON ADVANCES TO
SHARES AMOUNT EARNINGS INVESTMENT SECURITIES STOCKHOLDERS TOTALS
-------- -------- --------------- ----------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ...... 2,500 $2,500 $ 9,991,708 $ 23,806 $ (481,097) $ 9,536,917
Net income ........................ -- -- 14,198,373 -- -- 14,198,373
Distributions ..................... -- -- (845,032) -- -- (845,032)
Change in unrealized loss on
investment securities ............ -- -- -- (136,439) -- (136,439)
------ ------- ------------ ---------- ----------- ------------
Balances at December 31, 1994 ...... 2,500 2,500 23,345,049 (112,633) (481,097) 22,753,819
Net income ........................ -- -- 11,037,622 -- -- 11,037,622
Distributions ..................... -- -- (1,248,655) -- -- (1,248,655)
Change in unrealized loss on
investment securities ............ -- -- -- 80,902 -- 80,902
------ ------- ------------ ---------- ----------- ------------
Balances at December 31, 1995 ...... 2,500 2,500 33,134,016 (31,731) (481,097) 32,623,688
Net income ........................ -- -- 13,028,271 -- -- 13,028,271
Distributions ..................... -- -- (1,110,091) -- -- (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 ...... 2,500 2,500 45,052,196 (24,517) -- 45,030,179
Net income (unaudited) ............ -- -- 3,169,631 -- -- 3,169,631
Distributions (unaudited) ......... -- -- (324,137) -- -- (324,137)
Change in unrealized loss on
investment securities (unaudited) . -- -- -- (83,060) -- (83,060)
------ ------- ------------ ---------- ----------- ------------
Balances at March 31, 1997
(unaudited) ........................ 2,500 $2,500 $ 47,897,690 $ (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.
REVENUE RECOGNITION
Aircraft, crew, maintenance and insurance ("ACMI") services revenue is
generally recognized on a flight by flight basis, although revenue derived from
certain long term ACMI contracts is recognized on a pro rata basis according to
block hour usage specified in such contracts. Revenue from scheduled cargo
services is recognized when the related cargo reaches its point of destination.
Revenue from repairs, training and other is recognized as services are
performed.
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
F-7
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
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.
F-8
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
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.
F-9
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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 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
transferred to one of the 50% stockholders of the Company as part of the
purchase of an aircraft acquired from a company owned by that stockholder (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 7,400,000 shares of common stock,
$0.01 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.
On the effective date of the proposed initial public offering (the
"Offering"), the Company will increase the number of authorized shares of
Common Stock from 8,000 shares to 50,000,000 shares and will reduce the par
value per share of Common Stock from $1 to $0.01. The Company will also
authorize 10,000,000 shares of preferred stock, par value of $0.01. Also on the
effective date, the Company will effect a 5,600-for-1 stock split to increase
the number of shares of Common Stock outstanding from 2,500 shares to
14,000,000 shares. Stockholder's equity will be restated to give retroactive
recognition to the stock split in prior periods by reclassifying from retained
earnings to Common Stock the par value of the additional shares that will arise
from the split. All applicable share and per share data will be adjusted for
the stock split
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 $0.37 per
share and $0.09 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 23,517,591.
PRO FORMA BALANCE SHEET
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.
15. SUBSEQUENT EVENTS (UNAUDITED):
STOCK OPTION PLAN
In June 1997, the Company adopted the 1997 Incentive Compensation Plan
(the "Plan"), whereby officers, key employees, directors and nonemployee
consultants may be granted stock options, stock appreciation rights ("SARs"),
restricted stock, deferred stock and other stock-related awards.
F-15
<PAGE>
FINE AIR SERVICES, INC. AND COMBINED AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED):--(CONTINUED)
Prior to the establishment of a Compensation Committee (the "Committee")
of the Board of Directors (the "Board"), the Plan will be administered by the
Board. The Committee or the Board will have the authority to determine, among
other things, the selection of individuals eligible to become participants, the
timing and number of options and other awards to be granted, the vesting
periods and the exercise prices.
The exercise prices and vesting periods of options granted will be
determined by the Committee or the Board, provided that the exercise price of
options granted will not be less than the fair market value of the Company's
Common Stock on the date of the grant, except that options granted to any 10%
shareholder will have an exercise price of at least 10% above the fair market
value of the Company's Common Stock on the date of the grant. Options will have
a maximum exercise period of ten years from the date of grant, except that the
maximum exercise period for 10% shareholders will be five years.
No options will be granted under the Plan prior to the Offering. Upon
consummation of the Offering, the Company intends to grant options to purchase
475,000 and 30,000 shares to employees and non-employee directors,
respectively. These options will have an exercise price equal to the Offering
price and will vest ratably over a three year period. The Company has reserved
1,250,000 shares of Common Stock for issuance under the Plan.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." Under the provisions of SFAS No. 123, companies can elect to
recognize stock-based compensation expense using a fair-value based method or
can adopt disclosure only provisions under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees." As permitted by
SFAS No. 123, the Company has elected to account for stock based compensation
under the provisions of APB No. 25. Accordingly, the Company's financial
position, results of operations and liquidity will not be affected by the
granting of incentive stock options.
EMPLOYEE STOCK PURCHASE PLAN
In June 1997, the Company adopted the Employee Stock Purchase Plan (the
"Stock Purchase Plan"), which will become effective on the consummation date of
the Offering. All eligible employees, other than holders of Common Stock or
options to purchase 5% or more of the Company's Common Stock may participate in
the Stock Purchase Plan. Under the Stock Purchase Plan, participants have the
right to purchase on an annual basis shares of Common Stock not to exceed 25%
of the participant's total annual compensation. The purchase price per share
will be the lesser of 85% of (a) the initial offering price of the Company's
Common Stock, or (b) the fair market value per share on the purchase date, to a
maximum of $25,000 of Common Stock in any calendar year. The Company has
reserved 250,000 common shares for issuance under the Stock Purchase Plan.
F-16
<PAGE>
GRAPHIC OMITTED -- [Company Logo]
GRAPHIC OMITTED -- [Two of the Company's aircraft and one of the Company's
trucks located at the Company's hanger]
<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 .......................................... 45
Certain Transactions ................................. 51
Principal and Selling Shareholders .................. 53
Description of Capital Stock ........................ 54
Shares Eligible for Future Sale ..................... 57
Underwriting .......................................... 58
Legal Matters ....................................... 59
Experts ............................................. 59
Additional Information .............................. 59
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.
===============================================================================
===============================================================================
8,500,000 SHARES
[GRAPHIC OMITTED]
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
NASD filing fee ........................................................................ 15,450
Nasdaq National Market listing fee ................................................... 50,000
Printing and engraving expenses ...................................................... 85,000
Accounting fees and expenses ......................................................... 225,000
Legal fees and expenses ............................................................... 350,000
Fees and expenses (including legal fees) for qualifications under state securities laws 500
Transfer Agent's fees and expenses ................................................... 10,000
Miscellaneous ........................................................................ 18,747
---------
Total .............................................................................. $800,000
=========
</TABLE>
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*
10.6 Employment Agreement between the Registrant and Orlando M. Machado*
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>
- ----------------
* Filed herewith.
** Previously filed.
(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
II-2
<PAGE>
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to 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 July 10, 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 July 10, 1997
- ----------------------------
J. Frank Fine
/s/ BARRY H. FINE President, Chief Executive Officer July 10, 1997
- ---------------------------- and Director
Barry H. Fine (principal executive officer)
/s/ ORLANDO M. MACHADO Chief Financial Officer July 10, 1997
- ---------------------------- (principal financial and
Orlando M. Machado chief accounting officer)
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------- -------------
<S> <C> <C>
1.1 Proposed form of Underwriting Agreement
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to
the validity of the Common Stock being registered
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
10.6 Employment Agreement between the Registrant and Orlando M. Machado
23.2 Consent of Coopers & Lybrand LLP
</TABLE>
_______________ Shares
FINE AIR SERVICES, INC.
Common Stock
($_____ Par Value)
UNDERWRITING AGREEMENT
_______________, 1997
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
Dillon, Read & Co. Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
One South Street
Baltimore, Maryland 21202
Gentlemen:
Fine Air Services, Inc., a Florida corporation (the "Company"), and the
shareholders of the Company (the "Selling Shareholders") propose to sell to the
several underwriters (the "Underwriters") named in Schedule I hereto for whom
you are acting as representatives (the "Representatives") an aggregate of
__________ shares of the Company's Common Stock, $_____ par value (the "Firm
Shares"), of which ___ shares will be sold by the Company and ___ shares will be
sold by the Selling Shareholders. The respective amounts of the Firm Shares to
be so purchased by the several Underwriters are set forth opposite their names
in Schedule I hereto, and the respective amounts to be sold by the Selling
Shareholders are set forth opposite their names in Schedule II hereto. The
Company and the Selling Shareholders are sometimes referred to herein
collectively as the "Sellers." The Company and the Selling Shareholders also
propose to sell at the Underwriters' option an aggregate of up to __________
additional shares of the Company's Common Stock (the "Option Shares") as set
forth below.
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING SHAREHOLDERS
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-28569) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means
<PAGE>
(a) the form of prospectus first filed with the Commission pursuant to Rule
424(b) or (b) the last preliminary prospectus included in the Registration
Statement filed prior to the time it becomes effective or filed pursuant to Rule
424(a) under the Act that is delivered by the Company to the Underwriters for
delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7)
under the Act. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Florida, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. Agro Air Associates, Inc.,
which will become a subsidiary of the Company on the effective date of the
Registration Statement (the "Subsidiary") has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Florida, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The Subsidiary
is the only subsidiary, direct or indirect, of the Company. The Company and the
Subsidiary are duly qualified to transact business in all jurisdictions in which
the conduct of their business requires such qualification. The outstanding
shares of capital stock of the Subsidiary have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the Company free and
clear of all liens, encumbrances and equities and claims; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Subsidiary are outstanding.
(iii) The outstanding shares of Common Stock of the Company, including
all shares to be sold by the Selling Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with respect to
any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the State of Florida.
(v) To the best of the Company's knowledge, the Commission has not
issued an order preventing or suspending the use of any Prospectus relating to
the proposed offering of the Shares nor instituted proceedings for that purpose.
The Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all material information which is required to
be included therein by, and will conform in all material respects to the
requirements of, the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The combined financial statements of the Company and the
Subsidiary, together with related notes and schedules as set forth in the
Registration Statement, present fairly the combined financial position and the
combined results of operations and cash flows of the Company and the Subsidiary,
at the indicated dates and for the indicated periods. Such combined financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary financial
and statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis consistent
with the financial statements presented therein and the books and records of the
Company and the Subsidiary.
-2-
<PAGE>
The pro forma financial information included in the Registration Statement and
the Prospectus presents fairly the information shown therein, has been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Coopers & Lybrand L.L.P., who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or the Subsidiary
before any court or administrative agency or otherwise which if determined
adversely to the Company or the Subsidiary might result in any material adverse
change in the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiary taken as a whole or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company and the Subsidiary have good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company and the Subsidiary occupy their
leased properties under valid and binding leases.
(x) The Company and the Subsidiary have filed all Federal, State, local
and foreign income tax returns which have been required to be filed and have
paid all taxes indicated by said returns and all assessments received by them or
any of them to the extent that such taxes have become due and are not being
contested in good faith. All known tax liabilities have been adequately provided
for in the financial statements of the Company.
(xi) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development that is likely to result in any
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), or
prospects of the Company and the Subsidiary taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or the Subsidiary that would be required to
be disclosed in the Registration Statement but has not been so disclosed, other
than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented. The Company and the Subsidiary have no material contingent
obligations which are not disclosed in the Company's financial statements which
are included in the Registration Statement.
(xii) Neither the Company nor the Subsidiary is or with the giving of
notice or lapse of time or both, will be, in violation of or in default under
its respective Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its respective properties, is bound and which default is of
material significance in respect of the condition, financial or otherwise of the
Company and the Subsidiary taken as a whole or the business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiary taken as a whole. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any material indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or the Subsidiary is a party, or of the Charter
or By-Laws of the Company or any order, rule or regulation applicable to the
Company or the Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and the Subsidiary hold all material licenses,
certificates and permits from governmental authorities which are necessary to
the conduct of their businesses; and neither the Company nor the Subsidiary has
infringed any patents,
-3-
<PAGE>
patent rights, trade names, trademarks or copyrights, which infringement is
material to the business of the Company and the Subsidiary taken as a whole. The
Company knows of no material infringement by others of patents, patent rights,
trade names, trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) Neither the Company nor the Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations of the Commission
thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and the Subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is deemed adequate by the
Company's management for the conduct of their respective businesses and the
value of their respective properties and as is customary for companies engaged
in similar business.
(xix) To the best of the Company's knowledge, the Company is in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "Code");
and each "pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(xx) To the best of the Company's knowledge, the Company confirms as of
the date hereof that it is in compliance with all provisions of Section 1 of
Laws of Florida, Chapter 92-198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS
WITH CUBA, and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate located in
Cuba after the date the Registration Statement becomes effective with the
Commission or if the information reported in the Prospectus, if any, concerning
the Company's business with Cuba or with any person or affiliate located in Cuba
changes in any material way, the Company will provide the Florida Department of
Banking and Finance notice of such business or change, as appropriate, in a form
acceptable to it.
(b) Each of the Selling Shareholders named in Schedule II hereto severally
represents and warrants to each of the Underwriters as follows:
(i) Such Selling Shareholder now has and at the Closing Date and the
Option Closing Date, as the case may be, (as such dates are hereinafter defined)
will have good and marketable title to the Firm Shares [and the Option Shares]
to be sold by such Selling Shareholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares [and Option Shares]; and upon the
delivery of, against payment for, such Firm Shares [and Option Shares] pursuant
to this Agreement, the Underwriters will acquire good and marketable title
thereto, free and clear of any liens, encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and authority to
execute and deliver this Agreement and the Custodian Agreement referred to below
and to perform his obligations under such Agreements. The execution and delivery
of this Agreement and the consummation by such Selling Shareholder of the
transactions herein contemplated and the fulfillment by such Selling Shareholder
of the terms hereof will not require any consent, approval, authorization, or
other order of any court, regulatory body, administrative agency or other
governmental body (except as may be required under the Act, state securities
laws or Blue Sky laws) and will not result in a breach of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which such Selling Shareholder
-4-
<PAGE>
is a party, or of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(iii) Such Selling Shareholder will not take, directly or indirectly,
any action designed to, or which has constituted, or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price of
the Common Stock of the Company and, other than as permitted by the Act, the
Selling Shareholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Shareholder has no reason to believe that the representations and
warranties of the Company contained in this Section 1 are not true and correct
in all material respects, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information required to be
disclosed in the Registration Statement which has not been disclosed in the
Registration Statement which has materially adversely affected or is likely to
affect adversely the business of the Company and the Subsidiary taken as a
whole; and the sale of the Firm Shares [and the Option Shares] by such Selling
Shareholder pursuant hereto is not prompted by any information concerning the
Company or the Subsidiary which is not set forth in the Registration Statement.
The information pertaining to such Selling Shareholder under the caption
"Principal and Selling Shareholders" in the Prospectus is complete and accurate
in all material respects.
(v) Such Selling Shareholder has executed and delivered this Agreement
and the Custodian Agreement, and in connection herewith, such Selling
Shareholder further represents, warrants and agrees that such Selling
Shareholder has deposited with the Company, pursuant to the Custodian Agreement,
the certificates in registrable form representing the shares to be sold by such
Selling Shareholder for the purpose of further delivery pursuant to this
Agreement; and the form of the Custodian Agreement has been previously delivered
to you.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to be
purchased by each Underwriter from each Seller shall be as nearly as practicable
in the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter bears to
the total number of Firm Shares to be sold hereunder. The obligations of the
Company and of each of the Selling Shareholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares to
be sold hereunder by the Selling Shareholders have been placed in custody with
the Company as custodian (the "Custodian") pursuant to the Custodian Agreement
executed by each Selling Shareholder for delivery of all Firm Shares [and any
Option Shares] to be sold hereunder by the Selling Shareholders. Each of the
Selling Shareholders specifically agrees that the Firm Shares [and any Option
Shares] represented by the certificates held in custody for the Selling
Shareholders under the Custodian Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Shareholders
for such custody are to that extent irrevocable, and that the obligations of the
Selling Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the death of a Selling Shareholder) or by the occurrence of any other event or
events, except as set forth in the Custodian Agreement. If any such event should
occur prior to the delivery to the Underwriters of the Firm Shares [or the
Option Shares] hereunder, certificates for the Firm Shares [or the Option
Shares, as the case may be,] shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge receipt of the
proceeds of sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be made in same
day funds via wire transfer to the order of the Company for the shares to be
sold by it and to the order of the Company, as Custodian, for the shares to be
sold by the Selling Shareholders, in each case against delivery of certificates
therefor to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made at the offices of Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland, at 10:00 a.m., Baltimore
time, on the third business day after the date of this Agreement or at
-5-
<PAGE>
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and are not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(d) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
[and the Selling Shareholders] [listed on Schedule III hereto] hereby grant[s]
an option to the several Underwriters to purchase the Option Shares at the price
per share as set forth in the first paragraph of this Section 2. [The maximum
number of Option Shares to be sold by the Company and the Selling Shareholders
is set forth opposite their respective names on Schedule III hereto.] The option
granted hereby may be exercised in whole or in part by giving written notice (i)
at any time before the Closing Date and (ii) only once thereafter within 30 days
after the date of this Agreement, by you, as Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. [If the option granted
hereby is exercised in part, the respective number of Option Shares to be sold
by the Company and each of the Selling Shareholders listed in Schedule III
hereto shall be determined on a pro rata basis in accordance with the
percentages set forth opposite their names on Schedule II hereto, adjusted by
you in such manner as to avoid functional shares.] The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to __________, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised only
to cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option at
any time prior to its expiration by giving written notice of such cancellation
to the Company. To the extent, if any, that the option is exercised, payment for
the Option Shares shall be made on the Option Closing Date in same day funds via
wire transfer to the order of the Company [for the Option Shares to be sold by
it and to the order of the Company, as Custodian, for the Option Shares to be
sold by the Selling Shareholders] against delivery of certificates therefor at
the offices of Alex. Brown & Sons Incorporated, 1 South Street, Baltimore,
Maryland.
(e) If on the Closing Date [or Option Closing Date, as the case may be,]
any Selling Shareholder fails to sell the Firm Shares [or Option Shares] which
such Selling Shareholder has agreed to sell on such date as set forth in
Schedule II hereto [or Schedule III hereto, as the case may be], the Company
agrees that it will sell or arrange for the sale of that number of shares of
Common Stock to the Underwriters which represents Firm Shares [or the Option
Shares] which such Selling Shareholder has failed to so sell, as set forth in
Schedule II hereto[or Schedule III hereto, as the case may be], or such lesser
number as may be requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
-6-
<PAGE>
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the Registration
Statement to become effective or, if the procedure in Rule 430A of the Rules and
Regulations is followed, to prepare and timely file with the Commission under
Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as may be
reasonably required for that purpose, provided the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and Regulations,
and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and
regulations of the Commission thereunder, so as to permit the completion of the
distribution of the Shares as contemplated in this Agreement and the Prospectus.
If during the period in which a prospectus is required by law to be delivered by
an Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(vi) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the Closing Date
(provided the Company continues to be subject to the informational requirements
of the Exchange Act), deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities
-7-
<PAGE>
exchange pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Exchange Act.
(viii) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder, under the Company's Incentive Plan and Stock Purchase Plan described
in the Prospectus or with the prior written consent of Alex. Brown & Sons
Incorporated.
(ix) The Company will use its best efforts to cause the Shares to be
approved for quotation on the Nasdaq Stock Market (National Market).
(x) The Company has caused each officer, director and shareholder of the
Company to furnish to you, on or prior to the date of this Agreement, a letter
or letters, in form and substance satisfactory to the Underwriters, pursuant to
which each such person shall agree not, except for the transactions contemplated
under this Agreement, to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company, or
any other securities convertible, exchangeable or exercisable for Common Stock
or derivative of Common Stock owned by such person or request the registration
for the offer or sale of any of the foregoing (or as to which such person has
the right to direct the disposition of) for a period of 180 days after the date
of this Agreement, directly or indirectly, except with the prior written consent
of Alex. Brown & Sons Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Shares and the application of the proceeds
therefrom as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use, the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or the Subsidiary to register as an investment company under
the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with the several
Underwriters that:
(i) No offering, sale, short sale or other disposition of any shares of
Common Stock of the Company or other securities convertible into or exchangeable
or exercisable for Common Stock or derivative of Common Stock (or agreement for
such) owned by such Selling Shareholder or request for the registration of the
offer or sale of any of the foregoing (or as to which such Selling Shareholder
has the right to direct the disposition of) will be made for a period of 180
days after the date of this Agreement, directly or indirectly, by such Selling
Shareholder otherwise than hereunder or with the prior written consent of Alex.
Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(iii) Such Selling Shareholder will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Sellers; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, and the Underwriters' Invitation Letter; the filing fees of the
Commission; the filing fee of the NASD; and the Listing Fee of the Nasdaq Stock
Market (National Market). The Sellers shall not, however, be required to pay for
any of the Underwriters' expenses (other than those related to qualification
under NASD regulations) except that, if this Agreement shall not be consummated
because the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant
-8-
<PAGE>
to Section 11 hereof, or by reason of any failure, refusal or inability on the
part of the Sellers to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be performed,
unless such failure to satisfy said condition or to comply with said terms is
due to the default or omission of any Underwriter, then the Sellers shall
reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Sellers shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company and
the Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Shareholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Greenberg Traurig
Hoffman Lipoff Rosen & Quentel, P.A., counsel for the Company and the Selling
Shareholders, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Florida, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Subsidiary has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of Florida, with corporate power and authority to own or
lease its properties and conduct its business as described in the Registration
Statement; the Company and the Subsidiary are duly qualified to transact
business in all jurisdictions within the United States in which the conduct of
their business requires such qualification, except where the failure to qualify
would have a materially adverse effect upon the business of the Company and the
Subsidiary taken as a whole; and based principally on its review of the stock
records provided by the Company, the outstanding shares of capital stock of the
Subsidiary been duly authorized and validly issued and are fully paid and
non-assessable and are owned by the Company.
(ii) Based principally on its review of the stock records provided by
the Company, the Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus as of the dates set
forth therein; the authorized shares of the Company's Common Stock have been
duly authorized; the outstanding shares of the Company's Common Stock, including
the Shares to be sold by the Selling Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; all of the Shares conform
in all material respects to the description thereof contained in the Prospectus;
the certificates for the Shares, assuming they are in the form filed with the
Commission, comply in all material respects with the requirements of Florida
law; the shares of Common Stock, including the Option Shares, if any, to be sold
by the Company pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and no preemptive rights of stockholders exist
with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into
-9-
<PAGE>
or evidencing the right to purchase or subscribe for any shares of such stock;
and except as described in the Prospectus, to the knowledge of such counsel, no
holder of any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or to permit them to
underwrite the sale of, any of the Shares or the right to have any Common Shares
or other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has become effective under the Act and,
to the knowledge of such counsel, no stop order proceedings with respect thereto
have been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to any financial data
included therein, including the financial statements and related schedules
therein and any financial data derivable therefrom).
(vi) The statements under the captions "Risk Factors-Government
Regulation," "-Possible Anti-Takeover Effects of Florida Law, Charter Provisions
and Preferred Stock," "Business-Government Regulation," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale" in the
Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, fairly summarize in all material respects
the information called for with respect to such documents and matters by the
Act.
(vii) Such counsel does not know of any contracts or documents required
to be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus pursuant to the Act which are not so
filed or described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly summarized
in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or the Subsidiary except
as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, the Charter or By-Laws of the Company, or any material agreement or
instrument known to such counsel to which the Company or the Subsidiary is a
party or by which the Company or the Subsidiary may be bound.
(x) This Agreement has been duly authorized, executed and delivered by
the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by state securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, solely as a result of the
consummation of the transactions contemplated by this Agreement and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and delivered
by the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right, power and
authority, and any approval required by law (other than as required by state
securities and Blue Sky laws as to which such counsel need express no opinion),
to sell, assign, transfer and deliver the portion of the Shares to be sold by
such Selling Shareholder.
(xv) The Custodian Agreement executed and delivered by each Selling
Shareholder is valid and binding.
(xvi) The Underwriters (assuming that they are bona fide purchasers
within the meaning of the Uniform Commercial Code) have acquired good and
marketable title to the Shares being sold by each Selling Shareholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In rendering such opinion Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A. may rely as to matters governed by the laws of states other than
Florida or Federal laws on local counsel in such jurisdictions, provided that in
each case Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. shall state
that they believe that they and the Underwriters are justified in relying on
such other counsel. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the
-10-
<PAGE>
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no opinion as to any financial data included therein, including the financial
statements and related schedules therein and any financial data derivable
therefrom). With respect to such statement, Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A. may state that their belief is based upon the procedures
set forth therein, but is without independent check and verification.
(c) The Representatives shall have received from Piper & Marbury L.L.P.,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv) and (x) of Paragraph (b) of this Section 6, and
that the Company is a duly organized and validly existing corporation under the
laws of the State of Florida. In rendering such opinion, Piper & Marbury L.L.P.
may rely as to all matters governed other than by the laws of the State of
Florida or Federal laws on the opinion of counsel referred to in Paragraph (b)
of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(d) You shall have received, on each of the dates hereof, the Closing Date
and the Option Closing Date, as the case may be, a letter dated the date hereof,
the Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Coopers & Lybrand L.L.P. confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the Act and to
his knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct in all material respects as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules 424 or
430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
-11-
<PAGE>
(v) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, there has not been any material adverse
change or any development likely to result in a material adverse change in or
affecting the condition, financial or otherwise, of the Company and the
Subsidiary taken as a whole or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiary taken as a whole, whether or not arising in the
ordinary course of business.
(f) On or before the Closing Date, the Selling Shareholders shall have
contributed their respective ownership interests in the Subsidiary to the
Company.
(g) The Company and the Selling Shareholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq Stock Market (National
Market).
(i) The Lockup Agreements described in Section 4(a)(x) are in full force
and effect.
The opinions, certificates and other documentation mentioned in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects satisfactory to the Representatives and to
Piper & Marbury L.L.P., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company, the Selling Shareholders and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholders, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and will
reimburse each Underwriter and each such controlling person upon demand for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a subpoena
or governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and the Selling Shareholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof; and provided, further, that indemnity provided for in this
Section with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the
-12-
<PAGE>
Rules and Regulations, unless such failure is the result of noncompliance by the
Company within Section 4(a)(iv) hereof.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and the Selling Shareholders and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, Selling Shareholder or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
Selling Shareholder or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding whether
or not the Company or such person is a party to any action or proceeding;
provided, however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a) or (b) shall
be available to any party who shall fail to give notice as provided in this
Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially prejudiced
by the failure to give such notice, but the failure to give such notice shall
not relieve the indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of the provisions of Section 8(a) or (b). In case any such proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the reasonable
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and employ
counsel acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company and the Selling Shareholders in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
of which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
-13-
<PAGE>
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Sellers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, any persons controlling
the Company, or any Selling Shareholder, (ii) acceptance of any Shares and
payment therefor hereunder, or (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, any
person controlling the Company, or any Selling Shareholder, shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or a Selling Shareholder),
you, as Representatives of the Underwriters, shall use
-14-
<PAGE>
your reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Shareholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Shareholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 1 South Street, Baltimore, Maryland 21202, Attention: Robert P.
Irwin, Principal, with a copy to Alex. Brown & Sons Incorporated, 1 South
Street, Baltimore, Maryland 21202, Attention: General Counsel; and if to the
Company or the Selling Shareholders, to Fine Air Services, Inc., 2261 N.W. 67th
Avenue - Building 700, Miami, Florida 33152, Attention: President, with a copy
to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 1221 Brickell
Avenue, Miami, Florida 33131, Attention: Kenneth C. Hoffman, Esquire.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on
the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development likely to result in material adverse change in or affecting the
condition, financial or otherwise, of the Company and the Subsidiary taken as a
whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiary taken as a whole, whether or not arising in the ordinary course
of business; (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares; (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange; (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company;
(v) declaration of a banking moratorium by United States or New York State
authorities; (vi) any downgrading in the rating of the Company's debt securities
by any "nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading
of the Company's Common Stock by the Commission on the Nasdaq Stock Market
(National Market); or (viii) the taking of any action by any governmental body
or
-15-
<PAGE>
agency in respect of its monetary or fiscal affairs which in your reasonable
opinion has a material adverse effect on the securities markets in the United
States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Sellers and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus; and the Representatives of the
Underwriters hereby represent and warrant to the Company and the Selling
Shareholders that such information does not include an untrue statement of a
material fact or omit to state a material fact.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers or a Selling Shareholder or (c) delivery of and
payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
-16-
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
FINE AIR SERVICES, INC.
By: ______________________________________
Barry H. Fine
President and Chief Executive Officer
SELLING SHAREHOLDERS:
------------------------------------------
J. Frank Fine
------------------------------------------
Barry H. Fine
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
ALEX. BROWN & SONS INCORPORATED
BEAR, STEARNS & CO. INC.
DILLON, READ & CO. INC.
As Representatives of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:____________________________
Authorized Officer
-17-
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ----------- ---------------------
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
Dillon, Read & Co. Inc.
__________
Total __________
-18-
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
- ------------------- ---------------------
J. Frank Fine
Barry H. Fine
__________
Total __________
-19-
<PAGE>
SCHEDULE III
SCHEDULE OF OPTION SHARES
MAXIMUM NUMBER PERCENTAGE OF
OF OPTION SHARES TOTAL NUMBER OF
NAME OF SELLER TO BE SOLD OPTION SHARES
- -------------- ---------------- ---------------
______ ____
Total ______ 100%
---
-20-
EXHIBIT 5.1
July 10, 1997
Barry H. Fine
President and Chief Executive Officer
Fine Airlines, Inc.
2261 N.W. 67th Avenue, Bldg. 700
Miami, Florida 33122
RE: Initial Public Offering
Gentlemen:
On June 5, 1997, Fine Airlines, Inc., a Florida corporation whose name
will be changed to Fine Air Services, Inc. upon filing of the Articles referred
to below (the "Company") filed with the Securities and Exchange Commission a
Registration Statement on Form S-1, as amended (No. 333-28569) (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"). The Registration Statement relates to: (i) the sale by the Company of up
to 8,675,000 shares (the "Company Shares") of the Company's common stock, par
value $0.01 per share (the "Common Stock"), and (ii) the sale by J. Frank Fine
and Barry H. Fine of 1,100,000 shares of Common Stock (the "Selling Shareholder
Shares"). We have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement.
We have examined copies of (i) the Company's Amended and Restated
Articles of Incorporation, which will be filed on the effective date of the
Registration Statement (the "Articles") and Bylaws; (ii) resolutions of the
Company's Board of Directors authorizing the offering and the issuance of the
Company Shares and the Selling Shareholder Shares and related matters; (iii) the
Registration Statement and exhibits thereto; and (iv) such other documents and
instruments as we have deemed necessary for the expression of opinions herein
contained. In making the foregoing examinations, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, we have relied, to the extent we deemed appropriate,
upon representations or certificates of officers or directors of the Company and
upon documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such documents, records and instruments.
Based upon the foregoing examination, we are of the opinion that:
<PAGE>
Barry H. Fine
July 10, 1997
Page 2
1. Upon filing of the Articles, the Company Shares will be duly and
validly authorized and, when issued and delivered in accordance with the terms
of the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement, will be validly issued, fully paid and nonassessable.
2. Upon filing of the Articles, the Selling Shareholder Shares will be
duly authorized and, when issued and delivered in accordance with the terms of
the Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Sincerely,
By: /S/ GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL, P.A.
---------------------------------
GREENBERG TRAURIG HOFFMAN
LIPOFF ROSEN & QUENTEL, P.A.
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of the ____ day of
___________, 1997 (the "Agreement"), between FINE AIRLINES, INC., a Florida
corporation (the "Company"), and _________________, a resident of the State of
____________________ (the "Indemnitee").
RECITALS
A. The Company desires to retain the services of the Indemnitee a
____________ of the Company.
B. As a condition to the Indemnitee's agreement to serve the Company,
the Indemnitee requires that he be indemnified from liability to the fullest
extent permitted by law.
C. The Company is willing to indemnify the Indemnitee to the fullest
extent permitted by law in order to retain the services of the Indemnitee.
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants contained herein, the Company and the Indemnitee agree as follows:
SECTION 1. MANDATORY INDEMNIFICATION IN PROCEEDINGS OTHER THAN THOSE BY
OR IN THE RIGHT OF THE COMPANY. Subject to Section 4 hereof, the Company shall
indemnify and hold harmless the Indemnitee from and against any and all claims,
damages, expenses (including attorneys' fees), judgments, penalties, fines
(including excise taxes assessed with respect to an employee benefit plan),
amounts paid in settlement, and all other liabilities actually and reasonably
incurred or paid by him in connection with the investigation, defense,
prosecution, settlement or appeal of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise (other than an action by or in the right of the
Company) and to which the Indemnitee was or is a party or is threatened to be
made a party by reason of the fact that the Indemnitee is or was an officer,
director, shareholder, employee or agent of the Company, or is or was serving at
the request of the Company as an officer, director, partner, trustee, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, provided that the Indemnitee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
SECTION 2. MANDATORY INDEMNIFICATION IN PROCEEDINGS BY OR IN THE RIGHT
OF THE COMPANY. Subject to Section 4 hereof, the Company shall indemnify and
hold harmless the Indemnitee from and against any and all expenses (including
attorneys' fees) and amounts actually and reasonably incurred or paid by him in
connection with the investigation, defense, prosecution, amounts paid in
settlement or appeal of any threatened, pending or completed action, suit or
proceeding by or in the right of the Company to procure a
<PAGE>
judgment in its favor, whether civil, criminal, administrative or investigative,
and to which the Indemnitee was or is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an officer, director,
shareholder, employee or agent of the Company, or is or was serving at the
request of the Company as an officer, director, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities, provided that (i) the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and (ii) no indemnification
shall be made in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable for misconduct in the
performance of his duty to the Company unless, and only to the extent that, the
court in which such proceeding was brought (or any other court of competent
jurisdiction) shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
SECTION 3. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF
NEGLIGENCE. The Company shall reimburse the Indemnitee for any expenses
(including attorney's fees) and amounts actually and reasonably incurred or paid
by him in connection with the investigation, defense, settlement or appeal of
any action or suit described in Section 2 hereof that results in an adjudication
that the Indemnitee was liable for negligence, gross negligence or recklessness
(but not willful misconduct) in the performance of his duty to the Company;
provided, however, that the Indemnitee acted in good faith and in a manner he
believed to be in the best interests of the Company.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 1 and 2 hereof (unless ordered by a court) and any reimbursement made
under Section 3 hereof SHALL be made by the Company only as authorized in the
specific case upon a determination (the "Determination") that indemnification or
reimbursement of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct set forth in Section 1, 2
or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7, 5.8 and 8 of this
Agreement, the Determination shall be made in the following order of preference:
(a) first, by the Company's Board of Directors (the "Board")
by majority vote or consent of a quorum consisting of directors ("Disinterested
Directors") who are not, at the time of the Determination, named parties to such
action, suit or proceeding; or
(b) next, if such a quorum of Disinterested Directors cannot
be obtained, by majority vote or consent of a committee duly designated by the
Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors; or
(c) next, if such a committee cannot be designated, by any
independent legal counsel (who may be any outside counsel regularly employed by
the Company) in a written opinion; or
2
<PAGE>
(d) next, if such legal counsel determination cannot be
obtained, by vote or consent of the holders of a majority of the Company's
common stock that are represented in person or by proxy and entitled to vote at
a meeting called for such purpose.
4.1. NO PRESUMPTIONS. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the Company, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
4.2. BENEFIT PLAN CONDUCT. The Indemnitee's conduct with respect to an
employee benefit plan for a purpose he reasonably believed to be in the
interests of the participants in and beneficiaries of the plan shall be deemed
to be conduct that the Indemnitee reasonably believed to be not opposed to the
best interests of the Company.
4.3. RELIANCE AS SAFE HARBOR. For purposes of any Determination
hereunder, the Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (i) the records or books of account of the Company or another enterprise,
including financial statements, (ii) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (iii) the
advice of legal counsel for the Company or another enterprise, or (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 4.3 shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the request of the
Company as an officer, director, partner, trustee, employee or agent. The
provisions of this Section 4.3 shall not be deemed to be exclusive or to limit
in any way the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof,
as the case may be.
4.4. SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described in Section 1 or 2 hereof, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal thereof. For purposes of this
Section 4.4, the term "successful on the merits or otherwise" shall include, but
not be limited to, (i) any termination, withdrawal, or dismissal (with or
without prejudice) of any claim, action, suit or proceeding against the
Indemnitee without any express finding of liability or guilt against him, (ii)
the expiration of 120 days after the making of any claim or threat of an action,
suit or proceeding without the institution of the same and without any promise
or payment made to induce a settlement, or (iii) the settlement of any action,
3
<PAGE>
suit or proceeding under Section 1, 2 or 3 hereof pursuant to which the
Indemnitee pays less than $25,000.
4.5. PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If the Indemnitee is
entitled under any provision of this Agreement to indemnification and/or
reimbursement by the Company for some or a portion of the claims, damages,
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action specified in Section 1, 2 or 3 hereof, but
not, however, for the total amount thereof, the Company shall nevertheless
indemnify and/or reimburse the Indemnitee for the portion thereof to which the
Indemnitee is entitled. The party or parties making the Determination shall
determine the portion (if less than all) of such claims, damages, expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement for
which the Indemnitee is entitled to indemnification and/or reimbursement under
this Agreement.
4.6 LIMITATIONS ON INDEMNIFICATION. No indemnification pursuant to
Sections 1 or 2 hereof shall be paid by the Company if a judgment (after
exhaustion of all appeals) or other final adjudication determines that the
Indemnitee's actions, or omissions to act, were material to the cause of action
so adjudicated and constitute:
(a) a violation of criminal law, unless the Indemnitee had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful;
(b) a transaction from which the Indemnitee derived an
improper personal benefit within the meaning of Section 607.0850(7) of the
Florida Business Corporation Act;
(c) in the event that the Indemnitee is a director of the
Company, a circumstance under which the liability provisions of Section 607.0834
of the Florida Business Corporation Act are applicable; or
(d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right of a
shareholder of the Company.
SECTION 5.PROCEDURES FOR DETERMINATION OF WHETHER STANDARDS HAVE BEEN
SATISFIED.
5.1. COSTS. All costs of making the Determination required by Section 4
hereof shall be borne solely by the Company, including, but not limited to, the
costs of legal counsel, proxy solicitations and judicial determinations. The
Company shall also be solely responsible for paying (i) all reasonable expenses
incurred by the Indemnitee to enforce this Agreement, including, but not limited
to, the costs incurred by the Indemnitee to obtain court-ordered indemnification
pursuant to Section 8 hereof, regardless of the outcome of any such application
or
4
<PAGE>
proceeding, and (ii) all costs of defending any suits or proceedings challenging
payments to the Indemnitee under this Agreement.
5.2. TIMING OF THE DETERMINATION. The Company shall use its best
efforts to make the Determination contemplated by Section 4 hereof promptly. In
addition, the Company agrees:
(a) if the Determination is to be made by the Board or a
committee thereof, such Determination shall be made not later than 15 days after
a written request for a Determination (a "Request") is delivered to the Company
by the Indemnitee;
(b) if the Determination is to be made by independent legal
counsel, such Determination shall be made not later than 30 days after a Request
is delivered to the Company by the Indemnitee; and
(c) if the Determination is to be made by the shareholders of
the Company, such Determination shall be made not later than 90 days after a
Request is delivered to the Company by the Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination approving full indemnification or reimbursement of
the Indemnitee. Notwithstanding anything herein to the contrary, a Determination
may be made in advance of (i) the Indemnitee's payment (or incurring) of
expenses with respect to which indemnification or reimbursement is sought,
and/or (ii) final disposition of the action, suit or proceeding with respect to
which indemnification or reimbursement is sought.
5.3. REASONABLENESS OF EXPENSES. The evaluation and finding as to the
reasonableness of expenses incurred by the Indemnitee for purposes of this
Agreement shall be made (in the following order of preference) within 15 days of
the Indemnitee's delivery to the Company of a Request that includes a reasonable
accounting of expenses incurred:
(a) first, by the Board by a majority vote or consent of a
quorum consisting of Disinterested Directors; or
(b) next, if a quorum cannot be obtained under subdivision
(a), by majority vote or consent of a committee duly designated by the Board (in
which designation all directors, whether or not Disinterested Directors, may
participate), consisting solely of two or more Disinterested Directors; or
(c) next, if such a committee cannot be designated, by any
independent legal counsel (who may be any outside counsel regularly employed by
the Company);
provided, however, that if a determination as to reasonableness of expenses is
not made under any of the foregoing subsections (a), (b) and (c), such
determination shall be made, not later than 90 days after the Indemnitee's
delivery of such Request, by vote or consent of the holders of a majority of
5
<PAGE>
the Company's Common Stock that are represented in person or by proxy at a
meeting called for such purpose.
All expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 5.3 is not made within the prescribed
time. The finding required by this Section 5.3 may be made in advance of the
payment (or incurring) of the expenses for which indemnification or
reimbursement is sought.
5.4. PAYMENT OF INDEMNIFIED AMOUNT. Immediately following a
Determination that the Indemnitee has met the applicable standard of conduct set
forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of
reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of
time prescribed for making such determination(s), the Company shall pay to the
Indemnitee in cash the amount to which the Indemnitee is entitled to be
indemnified and/or reimbursed, as the case may be, without further authorization
or action by the Board; provided, however, that the expenses for which
indemnification or reimbursement is sought have actually been incurred by the
Indemnitee.
5.5. SHAREHOLDER VOTE ON DETERMINATION. Notwithstanding the provisions
of Section 607.0850 of the Florida Business Corporation Act, the Indemnitee and
any other shareholder who is a party to the proceeding for which indemnification
or reimbursement is sought shall be entitled to vote on any Determination to be
made by the Company's shareholders, including a Determination made pursuant to
Section 5.7 hereof. In addition, in connection with each meeting at which a
shareholder Determination will be made, the Company shall solicit proxies that
expressly include a proposal to indemnify or reimburse the Indemnitee. Any
Company proxy statement relating to the proposal to indemnify or reimburse the
Indemnitee shall not include a recommendation against indemnification or
reimbursement.
5.6. SELECTION OF INDEPENDENT LEGAL COUNSEL. If the Determination
required under Section 4 is to be made by independent legal counsel, such
counsel shall be selected by the Indemnitee with the approval of the Board,
which approval shall not be unreasonably withheld. The fees and expenses
incurred by counsel in making any Determination (including Determinations
pursuant to Section 5.8 hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel, the Company
shall give such counsel an appropriate written agreement with respect to the
payment of their fees and expenses and such other matters as may be reasonably
requested by counsel.
5.7. RIGHT OF INDEMNITEE TO APPEAL AN ADVERSE DETERMINATION BY BOARD.
If a Determination is made by the Board or a committee thereof that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1, 2 or 3 hereof, upon the written request of the Indemnitee and the
Indemnitee's delivery of $500 to the Company, the Company shall cause a new
Determination to be made by the Company's shareholders at the next regular or
special meeting of shareholders. Subject to Section 8 hereof, such Determination
by the Company's shareholders shall be binding and conclusive for all purposes
of this Agreement.
6
<PAGE>
5.8. RIGHT OF INDEMNITEE TO SELECT FORUM FOR DETERMINATION. If, at any
time subsequent to the date of this Agreement, "Continuing Directors" do not
constitute a majority of the members of the Board, or there is otherwise a
change in control of the Company (as contemplated by Item 403(c) of Regulation
S-K), then upon the request of the Indemnitee, the Company shall cause the
Determination required by Section 4 hereof to be made by independent legal
counsel selected by the Indemnitee and approved by the Board (which approval
shall not be unreasonably withheld), which counsel shall be deemed to satisfy
the requirements of clause (3) of Section 4 hereof. If none of the legal counsel
selected by the Indemnitee are willing and/or able to make the Determination,
then the Company shall cause the Determination to be made by a majority vote or
consent of a Board committee consisting solely of Continuing Directors. For
purposes of this Agreement, a "Continuing Director" means either a member of the
Board at the date of this Agreement or a person nominated to serve as a member
of the Board by a majority of the then Continuing Directors.
5.9. ACCESS BY INDEMNITEE TO DETERMINATION. The Company shall afford to
the Indemnitee and his representatives ample opportunity to present evidence of
the facts upon which the Indemnitee relies for indemnification or reimbursement,
together with other information relating to any requested Determination. The
Company shall also afford the Indemnitee the reasonable opportunity to include
such evidence and information in any Company proxy statement relating to a
shareholder Determination.
5.10. JUDICIAL DETERMINATIONS IN DERIVATIVE SUITS. In each action or
suit described in Section 2 hereof, the Company shall cause its counsel to use
its best efforts to obtain from the Court in which such action or suit was
brought (i) an express adjudication whether the Indemnitee is liable for
negligence or misconduct in the performance of his duty to the Company, and, if
the Indemnitee is so liable, (ii) a determination whether and to what extent,
despite the adjudication of liability but in view of all the circumstances of
the case (including this Agreement), the Indemnitee is fairly and reasonably
entitled to indemnification.
SECTION 6. SCOPE OF INDEMNITY. The actions, suits and proceedings
described in Sections 1 and 2 hereof shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of the
Indemnitee both in his official capacities as a Company director or officer and
actions taken in another capacity while serving as director or officer,
including, but not limited to, actions or proceedings involving (i) compensation
paid to the Indemnitee by the Company, (ii) activities by the Indemnitee on
behalf of the Company, including actions in which the Indemnitee is plaintiff,
(iii) actions alleging a misappropriation of a "corporate opportunity," (iv)
responses to a takeover attempt or threatened takeover attempt of the Company,
(v) transactions by the Indemnitee in Company securities, and (vi) the
Indemnitee's preparation for and appearance (or potential appearance) as a
witness in any proceeding relating, directly or indirectly, to the Company. In
addition, the Company agrees that, for purposes of this Agreement, all services
performed by the Indemnitee on behalf of, in connection with or related to any
subsidiary of the Company, any employee benefit plan established for the benefit
of employees of the Company or any subsidiary, any corporation or partnership or
other entity in
7
<PAGE>
which the Company or any subsidiary has a 5% ownership interest, or any other
affiliate of the Company shall be deemed to be at the request of the Company.
SECTION 7. ADVANCE FOR EXPENSES.
7.1 MANDATORY ADVANCE. Expenses (including attorneys' fees, court
costs, judgments, fines, amounts paid in settlement and other payments) incurred
by the Indemnitee in investigating, defending, settling or appealing any action,
suit or proceeding described in Section 1 or 2 hereof shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding.
The Company shall promptly pay the amount of such expenses to the Indemnitee,
but in no event later than 10 days following the Indemnitee's delivery to the
Company of a written request for an advance pursuant to this Section 7, together
with a reasonable accounting of such expenses.
7.2 UNDERTAKING TO REPAY. The Indemnitee hereby undertakes and agrees
to repay to the Company any advances made pursuant to this Section 7 if and to
the extent that it shall ultimately be found that the Indemnitee is not entitled
to be indemnified by the Company for such amounts.
7.3 MISCELLANEOUS. The Company shall make the advances contemplated by
this Section 7 regardless of the Indemnitee's financial ability to make
repayment, and regardless whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 7 shall be unsecured and interest-free.
SECTION 8. COURT-ORDERED INDEMNIFICATION. Regardless whether the
Indemnitee has met the standard of conduct set forth in Sections 1, 2 or 3
hereof, as the case may be, and notwithstanding the presence or absence of any
Determination whether such standards have been satisfied, the Indemnitee may
apply for indemnification (and/or reimbursement pursuant to Section 3 or 12
hereof) to the court conducting any proceeding to which the Indemnitee is a
party or to any other court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification (and/or reimbursement) if it determines the Indemnitee
is fairly and reasonably entitled to indemnification (and/or reimbursement) in
view of all the relevant circumstances (including this Agreement).
SECTION 9. NONDISCLOSURE OF PAYMENTS. Except as expressly required by
Federal securities laws, neither party shall disclose any payments under this
Agreement unless prior approval of the other party is obtained. Any payments to
the Indemnitee that must be disclosed shall, unless otherwise required by law,
be described only in Company proxy or information statements relating to special
and/or annual meetings of the Company's shareholders, and the Company shall
afford the Indemnitee the reasonable opportunity to review all such disclosures
and, if requested, to explain in such statement any mitigating circumstances
regarding the events reported.
8
<PAGE>
SECTION 10. COVENANT NOT TO SUE, LIMITATION OF ACTIONS AND RELEASE OF
CLAIMS. No legal action shall be brought and no cause of action shall be
asserted by or on behalf of the Company (or any of its subsidiaries) against the
Indemnitee, his spouse, heirs, executors, personal representatives or
administrators after the expiration of 2 years from the date the Indemnitee
ceases (for any reason) to serve as either an officer or a director of the
Company, and any claim or cause of action of the Company (or any of its
subsidiaries) shall be extinguished and deemed released unless asserted by
filing of a legal action within such 2-year period.
SECTION 11. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Notwithstanding any
other provision of this Agreement, and regardless whether indemnification of the
Indemnitee would be permitted and/or required under this Agreement, if the
Indemnitee is deceased, the Company shall indemnify and hold harmless the
Indemnitee's estate, spouse, heirs, administrators, personal representatives and
executors (collectively the "Indemnitee's Estate") against, and the Company
shall assume, any and all claims, damages, expenses (including attorneys' fees),
penalties, judgments, fines and amounts paid in settlement actually incurred by
the Indemnitee or the Indemnitee's Estate in connection with the investigation,
defense, settlement or appeal of any action described in Section 1 or 2 hereof.
Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be
mandatory and not require a Determination or any other finding that the
Indemnitee's conduct satisfied a particular standard of conduct.
SECTION 12. REIMBURSEMENT OF ALL LEGAL EXPENSES. Notwithstanding any
other provision of this Agreement, and regardless of the presence or absence of
any Determination, the Company promptly (but not later than 30 days following
the Indemnitee's submission of a reasonable accounting) shall reimburse the
Indemnitee for all attorneys' fees and related court costs and other expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any action described in Section 1 or 2 hereof
(including, but not limited to, the matters specified in Section 6 hereof).
SECTION 13. MISCELLANEOUS.
13.1. NOTICE PROVISION. Any notice, payment, demand or communication
required or permitted to be delivered or given by the provisions of this
Agreement shall be deemed to have been effectively delivered or given and
received on the date personally delivered to the respective party to whom it is
directed, or when deposited by registered or certified mail, with postage and
charges prepaid and addressed to the parties at the addresses set forth below
opposite their signatures to this Agreement.
13.2. ENTIRE AGREEMENT. Except for the Company's Articles of
Incorporation, this Agreement constitutes the entire understanding of the
parties and supersedes all prior understandings, whether written or oral,
between the parties with respect to the subject matter of this Agreement.
13.3. SEVERABILITY OF PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this
9
<PAGE>
Agreement, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Agreement; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance from
this Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid, and enforceable.
13.4. APPLICABLE LAW. This Agreement shall be governed by and construed
under the laws of the State of Florida.
13.5. EXECUTION IN COUNTERPARTS. This Agreement and any amendment may
be executed simultaneously or in two or more counterparts, each of which
together shall constitute one and the same instrument.
13.6. COOPERATION AND INTENT. The Company shall cooperate in good faith
with the Indemnitee and use its best efforts to ensure that the Indemnitee is
indemnified and/or reimbursed for liabilities described herein to the fullest
extent permitted by law.
13.7. AMENDMENT. No amendment, modification or alteration of the terms
of this Agreement shall be binding unless in writing, dated subsequent to the
date of this Agreement, and executed by the parties.
13.8. BINDING EFFECT. The obligations of the Company to the Indemnitee
hereunder shall survive and continue as to the Indemnitee even if the Indemnitee
ceases to be a director, officer, employee and/or agent of the Company. Each and
all of the covenants, terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the successors to the Company and, upon the
death of the Indemnitee, to the benefit of the estate, heirs, executors,
administrators and personal representatives of the Indemnitee.
13.9 GENDER AND NUMBER. Wherever the context shall so require, all
words herein in the male gender shall be deemed to include the female or neuter
gender, all singular words shall include the plural and all plural words shall
include the singular.
13.10 NONEXCLUSIVITY. The rights of indemnification and reimbursement
provided in this Agreement shall be in addition to any rights to which the
Indemnitee may otherwise be entitled by statute, bylaw, agreement, vote of
shareholders or otherwise.
13.11 EFFECTIVE DATE. The provisions of this Agreement shall cover
claims, actions, suits and proceedings whether now pending or hereafter
commenced and shall be retroactive to cover acts or omissions or alleged acts or
omissions which heretofore have taken place.
(Signatures on the Following Page)
10
<PAGE>
In witness whereof, the undersigned have executed this Agreement as of
the date first above written.
ADDRESS: THE COMPANY:
2261 N.W. 67th Avenue FINE AIR SERVICES, INC.
Miami, Florida 33152
Attention: President
By:
-----------------------
Title:
--------------------
ADDRESS: THE INDEMNITEE:
- ---------------------------------
- ---------------------------------
- --------------------------------- --------------------------
Name:
FINE AIR SERVICES, INC.
TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
THIS FINE AIR SERVICES, INC. TAX ALLOCATION AND INDEMNIFICATION AGREEMENT is
entered into as of this ___day June, 1997 between J. FRANK FINE and BARRY HOLMES
FINE ("Stockholders"), and FINE AIR SERVICES, INC., a Florida corporation (the
"Company").
WITNESSETH:
WHEREAS, Stockholders own _______ shares each of the sole class of stock in
the Company, constituting one hundred percent (100%) of the total outstanding
shares of stock in the Company;
WHEREAS, pursuant to a proposed contribution of 100% of the Agro Air
Associates, Inc. stock to the Company and offering of the Company's stock to the
public, the Company's subchapter S Corporation status will be terminated;
WHEREAS, such termination, under Section 1362(e) of the Internal Revenue
Code of 1986, as amended (the "Code") will result in the Company's 1997 calendar
tax year being divided in two (2) separate tax years, the first of which begins
on January 1, 1997 and ends on the day immediately preceding the day such
termination is effective and ends on December 31, 1997 (the "1997 C Short
Year"); and
WHEREAS, the Company will make distributions (the "Distributions") payable
to Stockholders in amounts intended to equal the amount of the Company's
"accumulated adjustments account" (the "AAA Amount"), as that term is defined in
Code Section 1368(e)(1), calculated taking into account all items of income,
gain, deduction, loss and credit through the last day of the Company's 1997 S
Short Year (as that amount otherwise would be shown on the Company's Form 1120S
immediately prior to any such final Distributions); and
WHEREAS, the Company and Stockholders have determined it to be in their
mutual best interests to set forth in this Agreement certain provisions designed
to clarify which adjustments to the AAA Amount shall be taken into account in
order to achieve the intended results of the Distributions totaling the amount
of Stockholders' respective shares of the Company's AAA Amount through the end
of its 1997 S Short Year; and
WHEREAS, in consideration for the past services of the Stockholders to the
Company which have not been fully compensated heretofore, the Company wishes to
indemnify the Stockholders for any additional tax liabilities that (1) arise
from subsequent Audit adjustments of the Company by any applicable taxing
authority and (2) which tax liabilities are not (a)
<PAGE>
attributable to the AAA Amount originally determined by the Company (upon the
filing of its 1997 S Short Year tax return, and (b) the subject of the
Distributions contemplated hereunder, PROVIDED, HOWEVER, that the Stockholders
also waive any claim to additional Distributions with respect to any such
increases in the AAA Amount pursuant to such Audit adjustments;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Stockholders and the Company hereby agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement:
1.1 "Additional Amounts" means any interest, penalties or additions to tax
imposed or assessed by the Internal Revenue Service (the "Service") or any other
taxing authority, as a result of any liability for Taxes and/or Additional
Taxes, as defined herein.
1.2 "Additional Taxes" means, for any Pre-Closing Date Period, as that term
is defined herein, the excess of (i) the product of (A) forty percent (40%) and
(B) the amount of income of the Company taxable to Stockholders under Code
Section 1366 as reported for federal income tax purposes on the Company's Forms
1120S for the 1997 S Short Year or any other tax year in the Pre-Closing Date
Period, as the case may be, calculated after taking into account any adjustments
by the Service or any other taxing authority to such reported amounts (including
any Company adjustment not taken into account in determining the net Stockholder
Adjustment, but excluding any such net Stockholder Adjustment) constituting a
"determination" within the meaning of Code Section 1313 or comparable provision
of state or city law over (ii) an amount equal to the product of (x) forty
percent (40%) and (y) the amount of income of the Company taxable to the
Stockholders as originally reported on the Company's Forms 1120S for the 1997 S
Short Year or any other tax year in the Pre-Closing Date Period, as the case may
be.
1.3 "Audit" means any audit, investigation or exam by the Service or any
other taxing authority (including, but not limited to, the current Service Audit
of the Company's 1993, 1994 and 1995 tax years).
1.4 "Company Adjustment" means any adjustment by the Service or any other
taxing authority of income, gain, deduction, loss, credit or other allowance (i)
that causes any item of net income of the Company that was taken into account
and reported by the Company on its Forms 1120S for federal income tax purposes
for the 1995 tax year or its 1996 S Short Year to be included in taxable income
in a Post-Closing Date Period and not to be included in taxable income in a
Pre-Closing Date period, (ii) that causes any deduction, loss, credit or other
allowance of the Company, which deduction, credit or other allowance has the
effect of reducing taxable income that was taken into account and reported by
the Company on its Form 1120 for federal income tax purposes in a Post-Closing
Date Period, to be taken into account in a Pre-Closing Date Period and not to
be taken into account in a Post-Closing Date Period, and/or (ii) which results
in Taxes and/or Additional Amounts in respect thereof being imposed on Company
as a result of the Company not qualifying as an S corporation for any period
prior to the end of the 1997 S Short Year.
2
<PAGE>
1.5 "Indemnitees" means the Stockholders, PROVIDED, HOWEVER, that all rights
of the Indemnitees under SECTION 2 hereof may be exercised only by the
Stockholders Representative.
1.6 "Indemnitor" means the Company.
1.7 "Post-Closing Date Period" means any taxable year of the Company ending
after the first day of the 1997 C short tax year.
1.8 "Pre-Closing Date Period" means any taxable year of the Company ending
before the first day of the 1997 C Short tax year.
1.9 "Stockholders Adjustment" means any adjustment by the Service or any
other taxing authority of income, gain, deduction, loss, credit or other
allowance (i) that causes any item of net income of the Company that originally
was taken into account and reported by the Company on its Forms 1120 for federal
income tax purposes for any tax year in the Post-Closing Date Period to be
included in taxable income in any tax year in the Pre-Closing Date Period and
not to be included in taxable income in a Post-Closing Date period or (ii) that
causes any deduction, loss, credit or other allowance of the Company, which
deduction, credit or other allowance has the effect of reducing taxable income
that was taken into account and reported by the Company on its Form 1120S for
federal income tax purposes in any tax year in the Pre-Closing Date Period, to
be taken into account in any tax year in the Post-Closing Date Period and not to
be taken into account in a tax year in the Pre-Closing Date Period.
1.10 "Stockholder Representative" means BARRY H. FINE, or such other
shareholder of the Company which all of the shareholders listed on Schedule A
designate to the Company as the Shareholder Representative.
1.11 "Tax Claim" means any written or oral claim or notice by the Service or
any other taxing authority for Taxes, Additional Taxes and/or Additional Amounts
including, without limitation, an assessment for Taxes.
1.12 "Taxes" means U.S. federal income tax and state and local income taxes
and other state and local taxes based on or measured by net income including
franchise taxes.
SECTION 2. COMPANY INDEMNIFICATION OF STOCKHOLDER.
2.1 Company agrees to promptly indemnify Stockholder, as provided for by
this SECTION 2, for the amount of (i) any Taxes and Additional Amounts paid by
Stockholders as a result of any Stockholders Adjustment (and this SECTION 2
shall apply to each successive Stockholders Adjustment), plus (ii) any
Additional Taxes and any related Additional Amounts paid by Stockholders as a
result of any adjustment by the Service or any other taxing authority which is
not the result of a Stockholders Adjustment; PROVIDED, HOWEVER, that, as part of
the consideration for this indemnity, the Stockholders agree to waive any claims
to Distributions that
3
<PAGE>
otherwise might be deemed payable with respect to the deemed increase in the AAA
Amount arising from any such underlying Audit adjustments.
2.2 The amount payable by the Company to Stockholders pursuant to SECTION
2.1 shall be "grossed up" so as to provide Stockholders with an amount that, on
current after-tax basis and reflecting the tax consequences to the Stockholders,
equals the amount of Taxes, Additional Taxes and Additional Amounts for which
the Company is obligated to indemnify the Stockholders pursuant to this
Agreement. [For example, if the Taxes, Additional Taxes and Additional Amounts
payable by the Stockholders was $1.2 million, the amount payable to the
Stockholders under this SECTION 2 would be approximately $1,986,755, assuming no
state income tax or social security taxes are applicable (I.E., $1,986,755 x
39.6% = $786,755 current tax, for $1,200,000 "after-tax" amount available to pay
the Taxes, Additional Taxes and Additional Amounts of the Stockholders].
SECTION 3. CONSENT PROVISIONS.
3.1 Stockholders shall not initiate, effect or permit any Stockholders
Adjustment (through an amended tax return or otherwise) without the written
consent of the Company. Company shall not initiate, effect or settle upon any
Company Adjustment (through an amended tax return or otherwise) without the
written consent of the Stockholders Representative.
3.2 If an Audit is commenced or a Tax Claim is made against the Stockholders
with respect to any amount of income, gain, deduction, loss or credit of the
Company included by the Stockholders under Code Section 1366, Stockholders shall
promptly notify the Company in writing of that Audit or Tax Claim. If an Audit
is commenced or a Tax Claim is made with respect to the Company, the Company
shall promptly notify the Stockholders in writing of that Audit or Tax Claim.
The person against whom the Audit is commenced or Tax Claim is made shall
promptly provide all correspondence to the other person under this Agreement,
with respect to such Audit or Tax Claim. [The parties acknowledge that the
Company currently is the subject of a Service Audit for its 1993, 1994 and 1995
tax years.]
3.3 Indemnitor shall have the right at its option upon timely notice to
Indemnitees to assume control of the proceedings in connection with any Audit or
the defense of any suit, action or proceeding with respect to any Tax Claim at
its own expense and with its own counsel, PROVIDED its counsel is reasonable
satisfactory to Indemnitees.
3.4 Notwithstanding anything herein to the contrary, if Indemnitor exercises
the option of SECTION 3.3, (i) Indemnitor shall not agree to any settlement with
respect to any Taxes or Additional Amounts without Indemnitees' consent if the
effect of the settlement would be an increase in the liability of Indemnitees
for any Taxes or Additional Amounts and if the Indemnitor would not be liable
under this Agreement to pay Indemnitees the full amount of that increase in
liability for Taxes and any related Additional Amounts, (ii) Indemnitor shall
keep Indemnitees informed of all material developments of all material
developments and events relating to such Audit or Tax
4
<PAGE>
Claim, and (iii) Indemnitees shall have the right to participate in, but not to
control, the defense of any Audit or Tax Claim.
3.5 Indemnitor shall not agree to any settlement without Indemnitees'
express prior written consent which shall not be unreasonably withheld.
Indemnitor and Indemnitees shall fully cooperate with each other in their
efforts to litigate, defend or otherwise attempt to resolve any proceeding.
SECTION 4. PAYMENT DATES.
4.1 Any payment due pursuant to SECTION 2 of this Agreement shall be made no
later than thirty (30) days after receipt by the Company of written notice from
Stockholders stating that any Taxes, Additional Taxes and Additional Amounts,
for or with respect to which Stockholders are entitled to indemnification
hereunder, are payable by the Stockholders (regardless of whether the
Stockholders intend to pursue a refund of any such payments).
4.2 Any notice under this SECTION 4 with respect to a required
indemnification payment shall include an accurate and reasonable detailed
description, including correspondence, work papers, ETC., of the adjustment by
the subject taxing authority to taxable income, gain, deduction loss, or credit
of Indemnitees. Any indemnification payment required to be made hereunder that
is not made by the Indemnitor to the Indemnitiees when due shall bear interest
until paid at the prime rate published by Citibank, N.A.
4.3 The amount of any Taxes, Additional Taxes or Additional Amounts, as the
case may be, with respect to which Indemnitees have received a payment from
Indemnitor pursuant to this Agreement which are subsequently refunded or
credited to Indemnitees by the subject taxing authority (the "Refunded Amount")
shall be reimbursed to Indemnitor by Indemnitees within thirty (30) days of
Indemnitees receiving such credit or refund. The amount of any Refunded Amount
not paid by Indemnitees to Indemnitor within the time period prescribed by this
SECTION 4.3 shall bear interest until paid at the prime rate published by
Citibank, N.A.
4.4 The obligation of the Company to make a payment under this Agreement
shall be subject to the Indemnitees providing Indemnitor with evidence
reasonable satisfactory to Indemnitor of the amount of the indemnification so
claimed.
SECTION 5. TRANSFER OF ASSETS: TERM.
Company's obligations under this Agreement shall continue and survive
notwithstanding any agreement of merger, acquisition, consolidation, asset
transfer or similar reorganization. Stockholders and the Company intend that the
rights and obligations of each party to this Agreement shall be in force until
all statutes of limitation for any tax adjustment which may give rise to
indemnification under this Agreement shall have expired.
SECTION 6. NOTICES.
5
<PAGE>
Any notice, demand, claim or other communication under this Agreement shall
be in writing and shall be deemed to have been given upon the delivery or
mailing thereof, as the case may be, if delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the other party at
the following address (or at another address a party may specify by notice to
the other party):
If to Stockholders, to: J. FRANK FINE
BARRY HOLMES FINE
P.O. Box 524236
Miami, FL 33152
If to the Company, to: FINE AIR SERVICES, INC.
P.O. Box 524236
Miami, FL 33152
SECTION 7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida.
SECTION 8. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be seemed to be an original, but all of which together shall constitute
one and the same instrument.
SECTION 9. ASSIGNMENTS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
SECTION 10. AMENDMENT AND MODIFICATION.
This Agreement may be amended, modified or supplimented only be a written
agreement executed by the parties hereto.
6
<PAGE>
SECTION 11. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
representations, promises, warranties, convenants or undertakings other than
those expressly set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to the
subject matter contained herein.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the day and year first above written.
FINE AIR SERVICES, INC.
By:____________________
Name:__________________
Title:_________________
STOCKHOLDERS:
_______________________
J. FRANK FINE
_______________________
BARRY HOLMES FINE
8
<PAGE>
SCHEDULE A
SHAREHOLDERS OF FINE AIR SERVICES, INC.
NUMBER OF SHARES
SHAREHOLDER OF COMMON STOCK
J. Frank Fine _______
Barry Holmes Fine _______
<PAGE>
AGRO AIR ASSOCIATES, INC.
TAX ALLOCATION AND
INDEMNIFICATION AGREEMENT
THIS AGRO AIR ASSOCIATES, INC. TAX ALLOCATION AND INDEMNIFICATION AGREEMENT
is entered into as of this _____ day of June, 1997 between J. FRANK FINE and
BARRY HOLMES FINE ("Stockholders"), and AGRO AIR ASSOCIATES, INC., a Florida
corporation (the "Company").
WITNESSETH:
WHEREAS, Stockholders own _____ shares each of the sole class of stock in
the Company, constituting one hundred percent (100%) of the total outstanding
shares of stock in the Company;
WHEREAS, pursuant to a proposed contribution of all of the Company's stock
to Fine Air Services, Inc. (the "Parent Company") and offering of the Parent
Company's stock to the public, the Company's subchapter S corporation status wil
be terminated;
WHEREAS, such termination, under Section 1362(e) of the Internal Revenue
Code of 1986, as amended (the "Code"), will result in the Company's 1997
calendar tax year being divided in two (2) separate tax years, the first of
which begins on January 1, 1997 and ends on the day immediately preceding the
day such termination is effective (the "1997 S Short Year") and the second of
which begins on the day such termination is effective and ends on December 31,
1997 (the "1997 C Short Year"); and
WHEREAS, the Company will make distributions (the "Distributions") payable
to Stockholders in amounts intended to equal the amount of the Company's
"accumulated adjustments account" (the "AAA Amount"), as that term is defined in
Code Section 1368(e)(1), calculated taking into account all items of income,
gain, deduction, loss and credit through the last day of the Company's 1997 S
Short Year (as that amount otherwise would be shown on the Company's Form 1120S
immediately prior to any such final Distributions); and
WHEREAS, the Company and Stockholders have determined it to be in their
mutual best interests to set forth in this Agreement certain provisions designed
to clarify which adjustments to the AAa Amount shall be taken into account in
order to achieve the intended results of the Distributions totaling the amount
of Stockholders' respective shares of the Company's AAA Amount through the end
of its 1997 S Short Year; and
WHEREAS, in consideration for the past services of the Stockholders to the
Company which have not been fully compensated heretofore, the Company wishes to
indemnify the Stockholders for any additional tax liabiities that (1) arise from
subsequent Audit adjustments of the Company by any applicable taxing authority
and (2) which tax liabilities are not (a)
<PAGE>
attributable to the AAA Amount originally determined by the Company (upon
the filing of its 1997 S Short Year tax return) and (b) the subject of the
Distributions contemplated hereunder, PROVIDED, HOWEVER, that the Stockholders
also waive any claim to additional Distributions with respect to any such
increases in the AAA Amount pursuant to such Audit adjustments;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Stockholders and the Company hereby agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement:
1.1 "Additional Amounts" means any interest, penalties or additions to tax
imposed or assessed by the Internal Revenue Service (the "Service") or any other
taxing authority, as a result of any liability for Taxes and/or Additional
Taxes, as defined herein.
1.2 "Additional Taxes" means, for any Pre-Closing Date Period, as that term
is defined herein, the excess of (i) the product of (A) forty percent (40%) and
(B) the amount of income of the Company taxable to Stockholders under Code
Section 1366 as reported for federal income tax purposes on the Company's Forms
1120S for the 1997 S Short Year or any other tax year in the Pre-Closing Date
Period, as the case may be, calculated after taking into account any adjustment
by the Service or any other taxing authority to such reported amounts (including
any Company Adjustment not taken into account in determining the net Stockholder
Adjustment, but excluding any such net Stockholder Adjustment) constituting a
"determination" within the meaning of Code Section 1313 or comparable provision
of state or city law over (ii) an amount equal to the product of (x) forty
percent (40%) and (y) the amount of income of the Company taxable to the
Stockholders as originally reported on the Company's Forms 1120S for the 1997 S
Short Year or any other tax year in the Pre-Closing Date Period, as the case may
be.
1.3 "Audit" means any audit, investigation or exam by the Service or any
other taxing authority (including, but not limited to, the current Service Audit
of the Company's 1993, 1994 and 1995 tax years).
1.4 "Company Adjustment" means any adjustment by the Service or any other
taxing authority of income, gain, deduction, loss, credit or other allowance (i)
that causes any item of net income of the Company that was taken into account
and reported by the Company on its Forms 1120S for federal income tax purposes
for the 1995 tax year or its 1996 S Short Year to be included in taxable income
in a Post-Closing Date Period and not to be included in taxable income in a
Pre-Closing Date period, (ii) that causes any deduction, loss, credit or other
allowance of the Company, which deduction, credit or other allowance has the
effect of reducing taxable income that was taken into account and reported by
the Company on its Form 1120 for federal income tax purposes in a Post-Closing
Date Period, to be taken into account in a Pre-Closing Date Period and not to be
taken into account in a Post-Closing Date Period, and/or (iii) which results in
Taxes and/or Additional Amounts in respect thereof being imposed on Company as a
result of the Company not qualifying as an S corporation for any period prior to
the end of the 1997 S Short Year.
2
<PAGE>
1.5 "Indemnitees" means the Stockholders, PROVIDED, HOWEVER, that all
rights of the Indemnitees under SECTION 2 hereof may be exercised only by the
Stockholders Representative.
1.6 "Indemnitor" means the Company.
1.7 "Post-Closing Date Period" means any taxable year of the Company ending
after the first day of the 1997 C short tax year.
1.8 "Pre-Closing Date Period" means any taxable year of the Company ending
before the first dayof the 1997 C short tax year.
1.9 "Stockholders Adjustment" means any adjustment by the Service or any
other taxing authority of income, gain, deduction, loss, credit or other
allowance (i) that causes any item of net income of the Company that originally
was taken into account and reported by the Company on its Forms 1120 for federal
income tax purposes for any tax year in the Post-Closing Date Period to be
included in taxable income in any tax year in the Pre-Closing Date Period and
not to be included in taxable income in a Post-Closing Date period or (ii) that
causes any deduction, loss, credit or other allowance of the Company, which
deduction, credit or other allowance has the effect of reducing taxable income
that was taken into account and reported by the Company on its Form 1120S for
federal income tax purposes in any tax year in the Pre-Closing Date Period, to
be taken into account in any tax year in the Post-Closing Date Period and not to
be taken into account in a tax year in the Pre-Closing Date Period.
1.10 "Stockholders Representative" means BARRY H. FINE, or such other
shareholder of the Company which all of the shareholders listed on Schedule A
designate to the Company as the Shareholder Representative.
1.11 "Tax Claim" means any written or oral claim or notice by the Serivce
or any other taxing authority for Taxes, Additional Taxes and/or Additional
Amounts including, without limitation, an assessment for Taxes.
1.12 "Taxes" means U.S. federal income tax and state and local income taxes
and other state and local taxes based on or measured by net income, including
franchise taxes.
SECTION 2. COMPANY INDEMNIFICATION OF STOCKHOLDERS.
2.1 Company agrees to promptly indemnify Stockholders, as provided for by
this SECTION 2, for the amount of (i) any Taxes and Additional Amounts paid by
Stockholders as a result of any Stockholders Adjustment (and this SECTION 2
shall apply to each successive Stockholders Adjustment), plus (ii) any
Additional Taxes and any related Additional Amounts paid by Stockholders as a
result of any adjustment by the Service or any other taxing authority which is
not the result of a Stockholders Adjustment; PROVIDED, HOWEVER, that, as part of
the consideration for this indemnity, the Stockholders agree to waive any claims
to Distributions that
3
<PAGE>
otherwise might be deemed payable with respect to the deemed increase in
the AAA Amount arising from any such underlying Audit adjustments.
2.2 The amount payable by the Company to Stockholders pursuant to SECTION
2.1 shall be "grossed up" so as to provide Stockholders with an amount that, on
current after-tax basis and reflecting the tax consequences to the Stockholders,
equals the amount of Taxes, Additional Taxes and Additional Amounts for which
the Company is obligated to indemnify the Stockholders pursuant to this
Agreement. [For example, if the Taxes, Additional Taxes and Additional Amounts
payable by the Stockholders was $1.2 million, the amount payable to the
Stockholders under this SECTION 2 would be approximately $1,986,755, assuming no
state income tax or social security taxes are applicable (I.E., $1,986,755 x
39.6% = $786,755 current tax, for $1,200,000 "after-tax" amount available to pay
the Taxes, Additional Taxes and Additional Amounts of the Stockholders.]
SECTION 3. CONSENT PROVISIONS.
3.1 Stockholders shall not initiate, effect or permit any Stockholders
Adjustment (through an amended tax return or otherwise) without the written
consent of the Company. Company shall not initiate, effect or settle upon any
Company Adjustment (through an amended tax return or otherwise) without the
written consent of the Stockholders Representative.
3.2 If an Audit is commenced or a Tax Claim is made against the
Stockholders with respect to any amount of income, gain, deduction, loss or
credit of the Company included by the Stockholders under Code Section 1366,
Stockholders shall promptly notify the Company in writing of that Audit or Tax
Claim. If an Audit is commenced or a Tax Claim is made with respect to the
Company, the Company shall promptly notify Stockholders in writing of that Audit
or Tax Claim. The person against whom the Audit is commenced or Tax Claim is
made shall promptly provide all correspondence to the other person under this
Agreement, with respect to such Audit or Tax Claim. [The parties acknowledge
that the Company currently is the subject of a Service Audit for its 1993, 1994
and 1995 tax years.]
3.3 Indemnitor shall have the right at its option upon timely notice to
Indemnitees to assume control of the proceedings in connection with any Audit or
the defense of any suit, action or proceeding with respect to any Tax Claim at
its own expense and with its own counsel, PROVIDED its counsel is reasonably
satisfactory to Indemnitees.
3.4 Notwithstanding anything herein to the contrary, if Indeminitor
exercises the option of SECTION 3.3, (i) Indemnitor shall not agree to any
settlement with respect to any Taxes or Additional Amounts without Indemnitees'
consent if the effect of the settlement would be an increase in the liability of
Indemnitees for any Taxes or Additional Amounts and if the Indemnitor would not
be liable under this Agreement to pay Indemnitees the full amount of that
increase in liability for Taxes and any related Additional Amounts, (ii)
Indemnitor shall keep Indemnitees informed of all material developments and
events relating to such Audit or Tax
4
<PAGE>
Claim, and (iii) Indemnitees shall have the right to participate in, but
not to control, the defense of any Audit or Tax Claim.
3.5 Indemnitor shall not agree to any settlement without Indemnitees'
express prior written consent which shall not be unreasonably withheld.
Indemnitor and Indemnitees shall fully cooperate with each other in their
efforts to litigate, defend or otherwise attempt to resolve any proceeding.
SECTION 4. PAYMENT DATES.
4.1 Any payment due pursuant to SECTION 2 of this Agreement shall be made
not later than thirty (30) days after receipt by the Company of written notice
from Stockholders stating that any Taxes, Additional Taxes and Additional
Amounts, for or with respect to which Stockholders are entitled to
indemnification hereunder, are payable by the Stockholders (regardless of
whether the Stockholders intend to pursue a refund of any such payments).
4.2 Any notice under this SECTION 4 with respect to a required
indemnification payment shall include an accurate and reasonably detailed
description, including correspondence, work papers, ETC., of the adjustment by
the subject taxing authority to taxable income, gain, deduction loss, or credit
of Indemnitees. Any indemnification payment required to be made hereunder that
is not made by the Indemnitor to the Indemnitees when due shall bear interest
until paid at the prime rate published by Citibank, N.A.
4.3 The amount of any Taxes, Additional Taxes or Additional Amounts, as the
case may be, with respect to which Indemnitees have received a payment from
Indemnitor pursuant to this Agreement which are subsequently refunded or
credited to Indemnitees by the subject taxing authority (the "Refunded Amount")
shall be reimbursed to Indemnitor by Indemnitees within thirty (30) days of
Indemnitees receiving such credit or refund. The amount of any Refunded Amount
not paid by Indemnitees to Indemnitor within the time period prescribed by this
SECTION 4.3 shall bear interest until paid at the prime rate published by
Citibank, N.A.
4.4 The obligation of the Company to make a payment under this Agreement
shall be subject to the Indemnitees providing Indemnitor with evidence
reasonably satisfactory to Indemnitor of the amount of the indemnification so
claimed.
SECTION 5. TRANSFER OF ASSETS: TERM.
Company's obligations under this Agreement shall continue and survive
notwithstanding any agreement of merger, acquisition, consolidation, asset
transfer or similar reorganization. Stockholders and the Company intend that the
rights and obligations of each party to this Agreement shall be in force until
all statutes of limitation for any tax adjustment which may give rise to
indemnification under this Agreement shall have expired.
5
<PAGE>
SECTION 6. NOTICES.
Any notice, demand, claim or other communication under this Agreement shall
be in writing and shall be deemed to have been given upon the delivery or
mailing thereof, as the case may be, if delivered personally or sent by
certified mail, return receipt requested, postage prepaid, to the other party at
the following address (or at another address a party may specify by notice to
the other party):
If to Stockholders, to: J. FRANK FINE
BARRY HOLMES FINE
P.O. Box 524236
Miami, FL 33152
If to the Company, to: AGRO AIR ASSOCIATES, INC.
P.O. Box 524236
Miami, FL 33152
SECTION 7. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida.
SECTION 8. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
SECTION 9. ASSIGNMENTS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, including, without
limitation, the Parent Company with respect to all rights and obligations of the
Company hereunder following the contribution of all of the Company's stock to
the Parent Company.
SECTION 10. AMENDMENT AND MODIFICATION.
This Agreement may be amended, modified or supplemented only by a written
agreement executed by the parties hereto.
SECTION 11. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
representations, promises, warranties, covenants or undertakings other than
those expressly set forth or referred to herein.
6
<PAGE>
This Agreement supersedes all prior agreements and understandings between
the parties with respect to the subject matter contained herein.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective
as of the day and year first above written.
AGRO AIR ASSOCIATES, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
STOCKHOLDERS:
--------------------------------------
J. FRANK FINE
--------------------------------------
BARRY HOLMES FINE
8
<PAGE>
SCHEDULE A
SHAREHOLDERS OF AGRO AIR ASSOCIATES, INC.
NUMBER OF SHARES
SHAREHOLDER OF COMMON STOCK
- ----------- ----------------
J. Frank Fine ______________
Barry Holmes Fine ______________
STAGE III HUSH KIT SALES AGREEMENT
THIS STAGE III HUSH KIT SALES AGREEMENT ("Agreement") is made this 18th
day of May, 1993, by and between QUIET TECHNOLOGY VENTURE, a Florida General
Partnership at 8000 N.W. 56th Street, Miami, Florida 33166 (hereinafter called
"QTV") and FINE AIRLINES, INC., a Florida Corporation at 1640 N.W. 62nd Avenue,
Miami, Florida 33122 (hereinafter called the "Purchaser").
WITNESSETH
WHEREAS, QTV is a joint venture formed for the primary purpose of
designing, developing, testing, certifying, manufacturing and otherwise
preparing for market certain turbo jet engine nacelle noise attenuation
modification technology for McDonnell Douglas DC-8-50/61 Series Aircraft to
comply with US FAA FAR Part 36 Stage III requirements (the "Hush Kits"); and
WHEREAS, QTV shall provide all technical expertise in designing,
developing, testing, certifying and manufacturing or causing to be manufactured
the Hush Kits; and
WHEREAS, the Purchaser desires to purchase said Hush Kits from QTV for
Purchaser's fleet of ten (10) DC-8-50/61 aircraft as more particularly defined
in Schedule 1 of this Agreement and hereinafter referred to as the "Aircraft".
NOW THEREFORE in consideration of their mutual promises hereinafter set
forth IT IS AGREED AND DECLARED AS FOLLOWS:
CLAUSE 1. SCOPE OF AGREEMENT, PRICE AND PAYMENT TERMS
1.1 Price and terms of payment are as agreed in Schedule 2 of this
Agreement. QTV acknowledges receipt of a total of U.S. $750,000.00 as a non-
refundable deposit subject to Clause 20 for Purchaser's fleet of ten (10)
Aircraft.
1.2 The parties hereto agree that the terms and conditions set forth
herein represent the sole and entire Agreement between the parties relating to
the supply by QTV to the Purchaser of Hush Kits for the Aircraft. The parties
further agree that neither party places any reliance whatsoever on any such
prior representations, agreements, statements and understandings except to the
extent expressly incorporated in this Agreement.
1.3 The parties further agree that the terms and conditions of this
Agreement shall apply to the exclusion of any set standard terms and conditions
or their equivalent on or attached to or otherwise forming part of any order
form issued by the Purchaser or
<PAGE>
acknowledgement of QTV or any other administrative document issued by either
party in the course of or in support of their performance of this Agreement.
CLAUSE 2. DELIVERY OF AIRCRAFT
2.1 The Purchaser shall deliver the Aircraft to be modified to the QTV
facility at Opa-locka Airport, Opa-locka, FL at a date to be determined later
related to the production line delivery position.
2.2 The Purchaser warrants that upon such delivery the Aircraft shall be
in a fully airworthy condition and the Purchaser shall exhibit to QTV a current
Certificate of Airworthiness for the Aircraft.
2.3 Prior to the acceptance of the Aircraft for modification, QTV will
determine whether the Aircraft is in satisfactory condition to enable it to
accept installation of the Stage III Hush Kit.
2.4 The Aircraft shall be deemed accepted by QTV at such time as QTV
issues the Aircraft Acceptance Certificate in the form as annexed as Schedule 3
to this Agreement.
CLAUSE 3. MODIFICATION AND DELIVERY
3.1 Purchaser desires and QTV agrees to perform the installation of the
Hush Kits at QTV's facility at Opa-locka, FL. However, Purchaser may elect to
have QTV install the Stage III Hush Kits at the Purchaser's facility at Miami
International Airport, Miami, FL.
3.2 Provided that the Aircraft is delivered to QTV as soon as reasonably
possible after the issuance of the Aircraft Acceptance Certificate, QTV shall
install the Stage III Hush Kit and shall tender the Aircraft as so modified for
redelivery to the Purchaser at Opa-locka, FL no later than a fixed date to be
determined when production line delivery can be established. The Purchaser
and/or its designated agent shall have reasonable access to and the right to
reasonably inspect the Aircraft and the Stage III Hush Kit for the period that
the Aircraft is being modified. QTV shall, on completion of installation of the
Stage III Hush Kit execute and deliver to Purchaser an FAA Form 337 for such
installation and certification that the Aircraft so modified conforms with
Federal Aviation Regulations, 14 C.F.R. Part 36 requirement for Stage III
Aircraft. QTV shall further deliver to Purchaser an Airplane Flight Manual
Supplement for the serial numbered Aircraft with the FAA approved operating
limitations in accordance with QTV Supplemental Type Certificate. The Aircraft
shall be delivered to the Purchaser upon issuance by the Purchaser of the
Aircraft Redelivery Certificate in the form set forth in Schedule 4 to this
Agreement. Should the Purchaser fail within such period to inspect the Aircraft,
then QTV shall be entitled to carry out such inspection on behalf of the
Purchaser and this Agreement shall constitute authority for QTV to execute such
Aircraft Redelivery Certificate as the agent of the Purchaser.
-2-
<PAGE>
3.3 It is agreed between the parties that the Purchaser shall receive
production Stage III Hush Kit delivery positions 1, 3, 5, 7, 9, 11, 13, 15, 17
and 19 unless QTV, at its option, chooses to deliver the Stage III Hush Kit
positions on an accelerated basis. The actual dates of this delivery schedule
shall be provided to Purchaser as soon as known by QTV.
CLAUSE 4. INSURANCE
During the time that the Hush Kits are at QTV's installation facility,
QTV shall ensure that a policy of hangarkeeper's insurance is maintained in full
force and effect covering the Hush Kits and naming the Purchaser as additional
insured. Such policy shall be available for inspection by the Purchaser upon
giving of reasonable notice. Purchaser shall insure or cause to be insured the
Aircraft and Hush Kit with ground and flight hull insurance and third party
liability insurance with QTV named as additional insured as its interest may
appear while the Hush Kit is being installed on the Aircraft and during the test
flight. Purchaser will provide QTV with an endorsement, satisfactory to QTV,
from the insurer as evidence of such coverage.
CLAUSE 5. DEFECTIVE WORKMANSHIP
In the event that it should be shown to the reasonable satisfaction of
QTV that a defect has arisen in the Stage III Hush Kit within 2,500 hours or one
year from the date of the Aircraft Redelivery Certificate due to the use by QTV
of defective material or workmanship, then provided that within 30 days of such
defect becoming apparent, the Purchaser, at its own expense, will deliver the
Aircraft to QTV's installation facility or to such other place as QTV may
reasonably designate. QTV shall, without charge to the Purchaser, rectify such
defect by repair or replacement as QTV may, in its sole discretion, decide, and
such repair or replacement shall represent the limit of QTV's liability in
respect of any such defect.
CLAUSE 6. DESIGN WARRANTY
QTV warrants that the application of its Stage III Hush Kit will:
6.1 Bring the Aircraft into compliance with the noise levels prescribed in
Section C Stage III of Appendix C of Part 36 of the Federal Aviation
Regulations, 14 C.F.R. Part 36 as published and promulgated by the Federal
Aviation Administration on the date of execution of this Agreement.
6.2 Not be such as, upon redelivery of the Aircraft, to invalidate the
Certificate of Airworthiness for the Aircraft.
CLAUSE 7. PRICE AND PAYMENT
7.1 Price and payment terms are contained in Schedule 2 of this
Agreement. QTV acknowledges receipt of a total of U.S. $750,000.00 as a
non-refundable deposit for ten (10) Stage III Hush Kits for Purchaser's fleet
of ten (10) Aircraft subject to Clause 20 of this
-3-
<PAGE>
Agreement.
7.2 The Purchaser shall ensure that QTV receives the full amount of any
payments due hereunder without any deductions or withholdings whatsoever and the
Purchaser shall be responsible for any and all taxes, duties, imposts, levies,
surcharges and other like charges of the same or any kind which may be levied,
charged or imposed upon any payments by any government agency which fall due
under this Agreement or arise otherwise in connection with the performance of
this Agreement.
CLAUSE 8. EXCLUSIONS OF LIABILITY
The warranties of QTV set forth in Clause 6 above and the express remedies
provided to the Purchaser pursuant to Clauses 5 and 7 above are accepted by the
Purchaser IN LIEU OF AND IN SUBSTITUTION FOR ALL OTHER CONDITIONS AND WARRANTIES
EXPRESSED OR IMPLIED WHETHER STATUTORY OR OTHERWISE INCLUDING, WITHOUT
LIMITATION WARRANTIES OR MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
AND ALL OTHER OBLIGATIONS AND LIABILITIES WHATSOEVER OF QTV WHETHER IN CONTRACT
OR IN TORT OR OTHERWISE HOWSOEVER. The Purchaser accepts that QTV shall not be
liable for any incidental or consequential damages or expenses howsoever arising
and shall not by reason of any breach or breaches of any of the warranties set
forth in Clause 6 above or otherwise howsoever become liable for any amount or
amounts which in the aggregate exceed the amounts paid by the Purchaser to QTV
under this Agreement.
The foregoing provisions of this Clause have been the subject of full
discussion and are clearly understood by the parties and the total price payable
to QTV hereunder has been established, inter alia, in reliance upon the
Purchaser's acceptance of the scope of the warranties contained in Clause 6, the
remedies provided under Clauses 5 above and the Purchaser's waiver of all the
other remedies and agreement to such total limitation of liability of the
amounts paid by the Purchaser to QTV under this Agreement.
CLAUSE 9. FORCE MAJEURE
QTV shall not be liable for any delay or interruption in performance or
failure to perform hereunder or for any consequences arising out of the delay or
interruption of its performance or failure to perform hereunder by reason of any
strikes, lockout, or other labor disputes which delay the work, or arising out
of fires, floods, or acts of God, nor for any other reason whatsoever that is
reasonably beyond QTV's control, including failure to deliver or delay in
delivery of materials. QTV shall promptly notify Purchaser of delays
attributable to the foregoing causes and shall use its best efforts to minimize
such unavoidable delays.
CLAUSE 10. CONFIDENTIALITY
The parties agree that the purchase price and terms of payment are
confidential.
-4-
<PAGE>
Neither party shall reveal such terms to a third party without the written
express consent of the other party. Purchaser recognizes that the Stage III Hush
Kit technology is the sole and exclusive property of QTV, and undertakes to
maintain the confidentiality of the technology now and for the future. Purchaser
represents and warrants that it has entered into this Agreement for the sole
purpose of obtaining Aircraft in compliance with the Federal Aviation
Administration Noise Regulations, that the Aircraft are to be used on its own
account, and that it will not attempt to sell, copy, imitate or in any way deal
in the nacelle quieting technology furnished by QTV.
CLAUSE 11. AMENDMENT
This Agreement may not be amended otherwise than by an instrument in
writing signed by the authorized representatives of the parties made subsequent
to the signature of this Agreement and which is expressly stated to be an
amendment to this Agreement.
CLAUSE 12. NOTICES
Any notices required to be given pursuant to this Agreement shall be
given in writing by certified mail return receipt requested or equivalent
procedure as follows:
If to QTV:
QUIET TECHNOLOGY VENTURE
8000 NW 56th Street
Miami, Florida 33166
If to Purchaser:
FINE AIRLINES, INC.
P.O. Box 523726
Miami, Florida 33152
CLAUSE 13. HEADINGS
Clause headings do not form part of this Agreement nor shall they govern
the interpretation of this Agreement.
CLAUSE 14. SURVIVAL
The provisions of Clause 11 above shall survive and have effect after the
expiration or earlier termination or discharge by performance of this Agreement.
CLAUSE 15. WAIVER
Failure by either party at any time to enforce any of the provisions of the
Agreement shall not be construed as a waiver by such party of such provisions or
in any way
-5-
<PAGE>
affect the validity of this Agreement.
CLAUSE 16. ASSIGNABILITY OF RIGHTS
Purchaser may freely assign all its rights under this Agreement,
provided that any Aircraft to be modified under this Agreement shall meet the
technical requirements of the Supplemental Type Certificate. In the event that
the owner of the Aircraft should transfer the Stage III Hush Kit to another
Aircraft, QTV agrees to issue or cause to be issued at a nominal charge a Flight
Manual Supplement for the receiving Aircraft, provided that the receiving
Aircraft complies with the technical requirements of the Supplemental Type
Certificate.
CLAUSE 18. LAW
This Agreement shall be subject to and interpreted in accordance with
the Laws of the State of Florida. Purchaser unconditionally and irrevocably
submits itself to the jurisdiction of the Courts of Dade County in the State of
Florida. Purchaser unconditionally and irrevocably submits itself to the
jurisdiction of the Courts of Dade County in the State of Florida. Should legal
action be required to enforce any provisions of this Agreement, the prevailing
party shall be entitled to recover reasonable attorney's fees and costs.
CLAUSE 19. AMENDMENTS TO SUPPLEMENTAL TYPE CERTIFICATE
In the event that QTV shall obtain an amendment to the Supplemental Type
Certificate from the Federal Aviation Administration which will increase
performance of the DC-8-50/61 series Aircraft, such amendment shall be deemed
subject to this Agreement and QTV agrees to perform such further modification to
the Hush Kit at an additional cost to Purchaser or Purchaser's assignee and
shall furnish Purchaser or assignee the FAA certified Airplane Flight Manual
Supplement for the improved performance.
CLAUSE 20. DEFAULT
In the event that QTV is unable to complete the Stage III Hush Kit and
redelivery of the Aircraft within the schedule set forth in Clause 3.3 for any
reason other than the action of the Purchaser, or force majeure as defined in
Clause 10, QTV shall promptly refund the deposit of U.S. $75,000.00 per Hush
Kit or total of U.S. $750,000.00 to Purchaser.
CLAUSE 21. ASSIGNMENT OF WARRANTIES
QTV hereby assigns to Purchaser and to Purchaser's assigns any
warranties it may have from third parties pertaining to materials or component
parts, to the extent that such warranties exist and are assignable. QTV hereby
consents to the assignment of all warranties and remedies in this Agreement to
any subsequent Purchaser of the Aircraft and Stage III Hush Kit.
CLAUSE 22. ENGINEERING AND SPARES SUPPORT
-6-
<PAGE>
22.1 Notwithstanding the expressed warranties of QTV herein, QTV agrees to
provide on-going engineering support for the Stage III Hush Kit and to maintain
a reasonable and adequate stock of spare components available for loan to
Purchaser or assigns in event repairs to any of the modified components on
Purchaser's aircraft shall require return to QTV facilities or to authorized
repair agencies of QTV. Such loans and repairs beyond the scope of QTV's
warranties shall be chargeable at no more than industry standards for similar
loans and repairs. QTV shall furnish a repair manual to Purchaser and make
available parts or kits as necessary for such repairs as may be effected in
customary shop procedures.
22.2 Engineering support by QTV shall include, but not limited to, any
repairs or alterations which may be required by FAA Airworthiness Directives and
QTV shall issue service bulletins as necessary for the maintenance of the Stage
III Hush Kit components.
CLAUSE 23. PRODUCT LIABILITY INSURANCE
QTV warrants that it has and will maintain One Hundred Million Dollars
Product Liability insurance, which shall be in effect for 2,500 hours or one
year from the date of the Aircraft Redelivery Certificate issued for the last
aircraft to be fitted with the QTV Stage III Hush Kit, whichever is the shorter
period.
IN WITNESS WHEREOF, the parties have caused this Stage III Hush Kit Sales
Agreement to be executed on their behalf by the hand of a duly authorized
representative this 18th day of May, 1993, at Miami, Dade County, Florida.
QUIET TECHNOLOGY VENTURE FINE AIRLINES, INC.
BY: /s/ M.C. ACOSTA BY: /s/ BARRY H. FINE
------------------------- ------------------------
M.C. ACOSTA BARRY H. FINE
TITLE: General Partner TITLE: General Manager
-7-
<PAGE>
SCHEDULE 1
THE AIRCRAFT REG. NO. S.N. DATE OF DELIVERY PLACE OF
(Make & Model) TO QTV DELIVERY
DC-8-55 N55FB 45678 _______________ Opa-locka, FL
DC-8-54 N54FA 45637 _______________ Opa-locka, FL
DC-8-54 N426FB 45667 _______________ Opa-locka, FL
DC-8-54 N427FB 45684 _______________ Opa-locka, FL
DC-8-54 N57FB 45669 _______________ Opa-locka, FL
DC-8-54 N44UA 45800 _______________ Opa-locka, FL
DC-8-61 N27UA 45942 _______________ Opa-locka, FL
DC-8-61 N29UA 46159 _______________ Opa-locka, FL
DC-8-61 N30UA 45888 _______________ Opa-locka, FL
DC-8-51 N507DC 45855 _______________ Opa-locka, FL
-8-
<PAGE>
SCHEDULE 2
PRICE AND PAYMENT TERMS
Purchaser shall pay QTV the actual recurring production cost price (less
the non-refundable deposit amount) of each of the ten (10) Stage III Hush Kits
plus U.S. One Hundred Twenty Five Thousand Dollars ($125,000.00) for each Stage
III Hush Kit to Quiet Nacelle Corporation for the use of its technology. Payment
in full at time of installation of each Hush Kit and execution of Aircraft
Redelivery Certificate.
-9-
<PAGE>
SCHEDULE 3
AIRCRAFT ACCEPTANCE CERTIFICATE
To the Purchaser:
This is to certify that QTV accepts McDonnell Douglas DC-8-____ series Aircraft,
Serial Number _____________ as being in satisfactory condition to accept
installation of the QTV Stage III Hush Kit.
DATE:______________ QUIET TECHNOLOGY VENTURE
BY:______________________
TITLE:___________________
-10-
<PAGE>
SCHEDULE 4
AIRCRAFT REDELIVERY CERTIFICATE
Dear QTV:
This is to certify acceptance by FINE AIRLINES, INC. that the QTV Stage III
Hush Kit has been correctly installed in McDonnell Douglas DC-8-_______
series Aircraft, Serial Number _________, that title to the said Hush Kit is
hereby accepted by FINE AIRLINES, INC. and that the said Aircraft is in
satisfactory condition and has today been redelivered to FINE AIRLINES, INC.
PURCHASER: FINE AIRLINES, INC.
BY:______________________
TITLE:___________________
DATE:____________________
-11-
<PAGE>
ADDENDUM
This Addendum, dated 21st of January, 1995 modifies the Stage III Hush Kit
Sales Agreement, dated 18th day of May, 1993 by and between QUIET TECHNOLOGY
VENTURE, a Florida General Partnership at 8000 N.W. 56th Street, Miami, Florida
33166 and FINE AIRLINES, INC., a Florida Corporation at 1640 N.W. 62nd Avenue,
Miami, Florida 33122.
Whereas QUIET TECHNOLOGY VENTURE has been converted to QUIET TECHNOLOGY VENTURE,
LIMITED, this Addendum allows, authorizes, and grants QUIET TECHNOLOGY VENTURE,
LIMITED to assume all the rights and responsibilities of QUIET TECHNOLOGY
VENTURE in the Stage III Hush Kit Sales Agreement specified above.
Further, QUIET TECHNOLOGY VENTURE, LIMITED agrees to sell to FINE AIRLINES, INC.
five (5) Stage III Hush Kits in addition to the ten (10) Stage III Hush Kits
already agreed upon in the above specified Stage III Hush Kit Sales Agreement.
FINE AIRLINES, INC. shall pay QUIET TECHNOLOGY VENTURE, LIMITED the actual
recurring production cost price less the non-refundable deposit amount of each
of these additional five (5) Stage III Hush Kits. Payment shall be made in full
at time of installation of each Hush Kit and execution of Aircraft Redelivery
Certificate.
QUIET TECHNOLOGY VENTURE, LTD., FINE AIRLINES, INC.,
a FLorida limited partnership a Florida corporation
By: /s/ BARRY H. FINE By: /s/ J. FRANK FINE
------------------------------ ---------------------------
Barry H. Fine, Vice President J. Frank Fine, President
LIMITED PARTNERS CONSENT
QUIET NACELLE CORPORATION as a limited partner of QUIET TECHNOLOGY VENTURE,
LIMITED does hereby consent to the foregoing Agreement.
By: /s/ FERNANDO BIRBRAGHER
------------------------------
Fernando Birbragher, President
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), entered into as of the 7th day
of July 1997 (the "Effective Date") by and between FINE AIRLINES, INC., a
Florida corporation having its principal offices at 2261 N.W. 67th Avenue,
Building 700, Miami, Florida 33122 (the "Company"), and ORLANDO M. MACHADO, an
individual residing at 19886 N.W. 62nd Avenue, Miami, Florida 33015 (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Executive has been employed as a senior financial officer
with Greenwich Air Services, Inc., a company engaged in the overhaul, repair,
maintenance and servicing of gas turbine aircraft and aeroderivative engines;
WHEREAS, the Company desires to obtain the personal services of the
Executive as Senior Vice President of Finance and Chief Financial Officer of the
Company from and after the Effective Date;
WHEREAS, the Executive is willing and able to render services to the
Company on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound thereby, the
parties hereby agree as follows:
1. NATURE OF EMPLOYMENT.
1.1 Subject to the terms and conditions of this Agreement, the Company
shall, throughout the term of this Agreement, retain the Executive, and the
Executive shall render services to the Company, in the capacity and with the
title of Chief Financial Officer.
1.2 In such capacity, the Executive shall have and exercise
responsibility for overseeing and actively participating in all aspects of the
Company's financial affairs, including, without limitation (a) the establishment
and implementation of financial policy, (b) the supervision of the activities of
the Treasurer's, Controller's and credit and collection departments, (c)
responsibility for the negotiation of the terms of debt and equity financings
for the Company, (d) the supervision of the Company's auditors, (e) directing
the preparation of financial forecasts and SEC financial reports on Form 10-K,
Form 10-Q and other periodic reports, (f) participating in discussions, meetings
and other communications with security analysts, investment bankers, lenders and
other members of the financial community, and (g) such other similar or related
duties customarily performed by a chief financial officer as may be assigned to
the Executive from time to time by the Chairman of the Board, President or Chief
Executive Officer of the Company or the Board of Directors of the Company (the
"Board").
<PAGE>
1.3 Throughout the period of his employment hereunder, the Executive
shall: (a) devote his full business and professional time, attention, knowledge
and skills, faithfully, diligently and to the best of his ability, to the active
performance of his duties and responsibilities hereunder on behalf of the
Company; (b) observe and carry out such rules, regulations, policies, directions
and restrictions as may be established from time to time by the Board, including
but not limited to the standard policies and procedures of the Company as in
effect from time to time; and (c) do such traveling at the Company's expense as
may reasonably be required in connection with the performance of such duties and
responsibilities; PROVIDED, HOWEVER, that the Executive shall not be assigned to
regular duties that would reasonably require him to relocate his permanent
residence from that first set forth above.
1.4 Subject to compliance with his covenants and agreements set forth
in Section 1.3 above and his fiduciary duties to the Company as an executive
officer thereof, the Executive may engage (a) in other professional activities,
and (b) in charitable, educational, religious, civic and similar types of
activities (all of which shall be deemed to benefit the Company), speaking
engagements, membership on the board of directors of other organizations, and
similar activities; PROVIDED, that the foregoing business and other activities
do not inhibit or prohibit the performance of his duties hereunder or inhibit or
conflict in any way with the businesses of the Company.
2. TERM OF EMPLOYMENT; TERMINATION.
2.1 TERM. Subject to the terms and conditions hereof, the term of the
Executive's employment pursuant to this Agreement (the "Term") shall commence on
the Effective Date and shall continue for a period of three (3) years after the
Effective Date. The Term may be renewed by mutual written agreement of the
Executive and the Company.
2.2 TERMINATION. The Executive's employment under this Agreement may be
terminated upon mutual written agreement of the Company and the Executive, or
under the following circumstances:
(a) DEATH. The Executive's employment under this Agreement shall
terminate automatically upon his death.
(b) DISABILITY. If, as a result of the Executive's incapacity due
to physical or mental illness, disability or impairment the Executive shall have
failed to perform all of his duties under this Agreement for a period in excess
of four (4) consecutive months, or in excess of one hundred eighty
non-consecutive days within any period of three hundred sixty five (365) days,
the Company may terminate the Executive's employment under this Agreement for
"Disability." If the Company and the Executive do not agree on whether there
exists a condition constituting a Disability, the determination of a Disability
shall be made by a qualified physician selected and paid for by the Company (and
reasonably acceptable to the Executive), whose determination shall be conclusive
and binding on the Company and the Executive.
2
<PAGE>
(c) CAUSE. The Company may terminate the Executive's employment
under this Agreement for Cause. For purposes of this Agreement, the term "Cause"
shall mean (i) the willful failure by the Executive to perform his duties under
this Agreement (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness, disability or impairment), after a
demand for performance is delivered to the Executive by the Company specifically
identifying the manner in which the Company believes the Executive has not
performed his duties, and the Executive shall have failed to resume performance
of such duties within thirty (30) days of receiving such demand, (ii) a breach
by the Executive of any of the material covenants and agreements of the
Executive contained in this Agreement, including those provided in Sections 5
and 6 below, which, in any case, is not corrected in all material respects (if
so correctable) within thirty (30) days after written notice of same from the
Company to the Executive; (iii) any breach by the Executive of his fiduciary
duties and obligations to the Company which is not corrected in all material
respects (if so correctable within thirty (30) days after written notice of same
from the Company to the Executive; (iv) conduct constituting fraud or
embezzlement or gross dishonesty by Executive in connection with the performance
of his duties under this Agreement, or a formal charge or indictment of
Executive for or conviction of Executive of a felony or, if it shall adversely
damage or bring into disrepute the business, reputation or goodwill of the
Company, or impair the Executive's ability to perform his duties with the
Company any crime involving moral turpitude.
(d) TERMINATION BY THE EXECUTIVE. The Executive may terminate his
employment under this Agreement for Good Reason. For purposes of this Agreement
the term "Good Reason" shall mean, without the Executive's express written
consent, the occurrence of any one or more of the following: (i) the failure by
the Company to make any payment to the Executive required to be made during the
Term within thirty (30) days after payment is due, or (ii) a breach by the
Company of any other material covenant or agreement to be performed by it
hereunder (including the failure to re-appoint the Executive to the offices
described in Section 1.1 of this Agreement or any material diminution in the
duties of the Executive which reduces the scope or importance of such position)
and shall fail to cure or remedy the same within thirty (30) days after written
notice thereof to the Company.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to Section 2.2(a), above) shall be communicated by written Notice of Termination
to the other party hereto given in accordance with Section 8. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if
the Executive's employment is terminated as a result of death, the date of his
death, (ii) if the Executive's employment is terminated for Disability, the date
the Notice of Termination is given, (iii) if the Executive's employment is
terminated by the Company for Cause or by the Executive for Good Reason, the
date specified in the Notice of Termination after the expiration of any
applicable cure periods, and (iv) if
3
<PAGE>
the Executive's employment is terminated by the Company or the Executive for any
other reason, the date on which a Notice of Termination is given.
3. COMPENSATION AND BENEFITS.
3.1 BASE SALARY. As compensation for his services to be rendered
hereunder, the Company shall pay to the Executive, throughout the Term of this
Agreement, a base salary of One Hundred Fifty Thousand ($150,000) Dollars per
annum (the "Base Salary"), payable in periodic installments in accordance with
the standard payroll practices of the Company in effect from time to time, but
not less than twice each month. Notwithstanding the foregoing, the Base Salary
may, by action and in the discretion of the Board or any compensation committee
thereof, be increased at any time or from time to time.
3.2 BONUSES. In addition to the Base Salary, the Executive shall be
entitled to receive from time to time such annual bonus payments as the Board or
any compensation committee thereof may determine in its discretion.
3.3 FRINGE BENEFITS. The Company shall also make available to the
Executive, throughout the period of his employment hereunder, such benefits and
perquisites as are generally provided by the Company to its other senior
management employees, including but not limited to eligibility for participation
in any group life, medical, health, dental, disability or accident insurance,
pension plan, 401(k) savings and investment plan, profit-sharing plan, employee
stock purchase plan, incentive compensation plan or other such benefit plan or
policy, if any, which may presently be in effect or which may hereafter be
adopted by the Company for the benefit of its employees generally, in each case
subject to and on a basis consistent with the terms, conditions and overall
administration of such plan or arrangement. The Company shall proovide the
Executive such coverage under any directors and officers liability policies it
maintains as is provided to its other senior management employees and shall
enter into an indemnification agreement with the Executive on terms and
conditions as similar agreements entered into with other senior management
employees.
3.4 EXPENSES. During the Term, the Company shall reimburse the
Executive, reasonably promptly after presentment by the Executive to the Company
of appropriate receipts and vouchers therefor and related information in such
form and detail as the Company may reasonably request, for any reasonable
out-of-pocket business expenses incurred by the Executive in connection with the
performance of his duties and responsibilities hereunder in accordance with the
policies and procedures of the Company and its subsidiaries for the
reimbursement of business expenses. The Company shall also provide the Executive
with a $500.00 per month car allowance. In addition, the Company shall reimburse
the Executive for the cost of maintaining his C.P.A. license, including any
required professional education courses and fees for memberships in professional
associations.
3.5 VACATION. The Executive shall be entitled to take, from time to
time, normal and reasonable vacations with pay, consistent with the Company's
standard policies and procedures in effect from time to time, at such times as
shall be mutually convenient to the Executive and the Company, and so as not to
interfere unduly with the conduct of the business of the Company.
4
<PAGE>
3.6 STOCK AWARD AND STOCK OPTIONS.
(a) STOCK AWARD. On the date that the Company's Registration
Statement No. 333-28569 in respect of its initial public offering of shares of
Company Common Stock, $.01 par value per share (the "Common Stock"), shall be
declared effective by the Securities and Exchange Commission (the "IPO Effective
Date"), the Company shall issue to the Executive as an award under the Company's
Long-Term Incentive Plan (the "Incentive Plan"), that number of whole shares of
Common Stock (the "Bonus Stock"), as shall be determined by dividing (i)
$150,000 by (ii) the initial public offering price per share of the Common Stock
set forth in the final prospectus forming a part of such Registration Statement
(the "IPO Price") and rounding such sum to the nearest whole number. In the
event that, for any reason, the IPO Effective Date does not occur prior to
December 31, 1997, in lieu of the Bonus Stock, the Company shall pay to the
Executive on or before January 31, 1998, the sum of One Hundred Fifty Thousand
($150,000) Dollars in cash. The Company agrees that if the aggregate Market
Value (as hereinafter defined) of the Bonus Stock is less than One Hundered
Fifty Thousand ($150,000) on the earlier to occur of (i) the effective date of
any registration statement under the Securitites Act of 1933, as amended,
covering the resale by the Executive (or his spouse, beneficiaries or estate, if
applicable) of the Bonus Stock, or (ii) one year after the IPO Effective Date,
then the Executive shall have the option, exercisable by written notice to the
Company during the fifteen (15) day period immediately following the earlier of
such dates, to require the Company to repurchase the Bonus Stock at price per
share equal to the IPO Price. For purpose of this Section 3.5(a), the term
"Market Value" means the average of the closing sales prices per share of the
Common Stock, as reported by Nasdaq, during the ten trading day period
immediately preceding the date of determination.
(b) STOCK OPTIONS. On the IPO Effective Date, the Company shall
grant to the Executive pursuant to the Incentive Plan options to purchase (the
"Options") a maximum aggregate of Seventy Five Thousand (75,000) shares of
Common Stock (as such number may thereafter be adjusted in accordance with the
provisions of the Incentive Plan)(the "Option Shares") at an exercise price per
share equal to the IPO Price (the "Exercise Price"). The Options shall be
granted subject to all of the terms and conditions of the Incentive Plan and the
following terms and conditions: (i) the Options shall have a term expiring on
December 31, 2002 (the "Option Expiration Date"); (ii) subject to termination of
the Options prior to vesting as provided in clause (iii) below, the Options
shall vest and become exercisable (A) to the extent of the first 33-1/3% of the
Option Shares, one year after the Effective Date, (B) to the extent of an
additional 33-1/3% of the Option Shares, two years after the Effective Date, and
(C) with respect to the balance of the Option Shares, three years after the
Effective Date, provided, that all unvested Options shall vest immediately upon
termination of the Executive's empoyment hereunder by the Executive for Good
Reason or by the Company for any reason other than death, Disability or Cause;
and (iii) to the extent not previously vested and exercised pursuant to their
terms, the Options shall terminate upon the earlier to occur of: (A) one year
after the Date of Termination of the Executive's employment by reason of his
death, (B) six months after the Date of Termination of the Executive's
employment by the Company without Cause or for Disability or by the Executive
for Good Reason, (C) on the Date of Termination of the
5
<PAGE>
Executive's employment by the Company for Cause or by the Executive other than
for a Good Reason, and (D) the Option Expiration Date.
4. COMPENSATION UPON TERMINATION.
4.1 DEATH. If the Executive's employment is terminated by reason of his
death, the Company shall pay to such person as the Executive shall have
designated in a notice filed with the Company, or, if no such person shall have
been designated, to his estate, any unpaid amounts of his Base Salary accrued
prior to the date of his death. Upon making such payment, the Company shall have
no further liability hereunder; provided, that the Executive's spouse,
beneficiaries or estate, as the case may be, shall be entitled to receive any
amounts then payable pursuant to any pension or employee benefit plan, life
insurance policy or other plan, program or policy then maintained or provided by
the Company to the Executive in accordance with the terms thereof.
4.2 CAUSE; DISABILITY; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated by the Company for Cause or Disability or by the
Executive for any reason other than a Good Reason, the Company shall pay the
Executive any unpaid amounts of his Base Salary accrued prior to the Date of
Termination. Upon making such payment, the Company shall have no further
liability hereunder; provided, that the Executive shall be entitled to receive
any amounts then payable pursuant to any pension or employee benefit plan, life
insurance policy or other plan, program or policy then maintained or provided by
the Company to the Executive in accordance with the terms thereof.
4.3 GOOD REASON; OTHER THAN CAUSE OR DISABILITY. If the Company shall
terminate the Executive's employment other than as a result of his death or for
Cause or Disability, or the Executive shall terminate his employment for Good
Reason, then the Company shall pay the Executive, (A) any unpaid amounts of his
Base Salary accrued prior to the Date of Termination, (B) in lieu of any further
salary or bonus payments to the Executive for periods subsequent to the Date of
Termination, and as a severance benefit to the Executive, a lump sum payment
equal to two times his Base Salary in effect at the time Notice of Termination
is given (or the Date of Termination where no Notice of Termination is required
hereunder), and (C) any amounts then payable pursuant to any pension or employee
benefit plan, life insurance policy or other plan, program or policy then
maintained or provided by the Company to the Executive in accordance with the
terms thereof.
5. RESTRICTIVE COVENANTS.
5.1 The Executive hereby acknowledges and agrees that (i) the business
contacts, customers, suppliers, technology, product designs and specifications,
know-how, trade secrets, marketing techniques, promotional methods and other
aspects of the business of the Company have been of value to the Company and
will be of value to the Company, and have provided the Company and will
hereafter provide the Company with substantial competitive advantage in the
operation of its business, and (ii) the Executive has and will continue to have
detailed knowledge and possesses and will possess confidential information
concerning the business and operations of the Company.
6
<PAGE>
5.2 Unless otherwise approved in writing by Company or its Chairman of
the Board after full disclosure by the Executive to Company's Board of Directors
of all relevant facts and circumstances, the Executive shall not, directly or
indirectly, for the Executive or through or on behalf of any other person or
entity, at any time during the "Restrictive Period" (as defined in clause (b)
below):
(a) divulge, transmit or otherwise disclose or cause to be
divulged, transmitted or otherwise disclosed, any clients or customer lists,
technology, know-how, trade secrets, marketing techniques, contracts or other
confidential or proprietary information of the Company of whatever nature,
whether now existing or hereafter created or developed (provided, however, that
for purposes hereof, information shall not be considered to be confidential or
proprietary if (i) the information, and its relevance in the applicable
instance, is a matter of common knowledge or public record, (ii) the
information, and its relevance in the applicable instance, is generally known in
the industry, or (iii) the information is disclosed to Executive after
termination of his employment by another person not prohibited from making such
disclosure, (iv) the information is required to be disclosed by law pursuant to
court order or subpoena, or (v) the Executive can demonstrate that such
information, and its relevance in the particular instance, was already known to
the recipient thereof other than by reason of any breach of any obligation under
this Agreement or any other confidentiality or non-disclosure agreement); and/or
(b) at any time during the period commencing on the date hereof
through and including the date which shall be one (1) year following the last
day of the Term, unless the Executive's employment with the Company shall be
terminated by the Company without Cause or by the Executive for Good Reason (the
"Restrictive Period"), invest, carry on, engage or become involved, either as an
employee, agent, advisor, officer, director, stockholder (excluding ownership of
not more than 5% of the outstanding shares of a publicly held corporation if
such ownership does not involve managerial or operational responsibility),
manager, partner, joint venturer, participant or consultant in any business
enterprise (other than the Company or any of their respective Subsidiaries,
affiliates, successors or assigns) which derives 10% or more of its consolidated
revenues from providing air freight transportation services (the "Company
Business").
5.3 It is recognized and hereby acknowledged by the Company and the
Executive that a breach by the Executive of any of the agreements contained in
this Section 5 may cause irreparable harm or damage to the Company, or its
subsidiaries, the monetary amount of which may be virtually impossible to
ascertain. As a result, the Executive and the Company agree that the Company and
any of its subsidiaries shall be entitled to seek and obtain injunctive and/or
other equitable relief to require specific performance of or prevent, restrain
and/or enjoin a breach of the provisions of this Section 5 by the Executive or
his associates, affiliates, partners or agents, in any such case without the
necessity of proving actual damages or posting bond, and that such right to an
injunction shall be cumulative and in addition to whatever other remedies the
Company may possess.
5.4 Upon the termination of the Executive's employment with the
Company, the Executive shall immediately surrender and deliver to the Company
all notes, drawings, diagrams, models,
7
<PAGE>
prototypes, lists, books, records, documents and data of every kind or
description, in whatever written or other media (including, without limitation,
electronic, tape, or other form of storage) relating to or connected with the
business contacts, client or customer lists, technology, know-how, trade
secrets, marketing techniques, contracts or other confidential or proprietary
information of the Company, its business, its properties, or its customers
referred to in Section 5.2(b) above.
6. INVENTIONS; INTELLECTUAL PROPERTY.
6.1 The Executive shall promptly communicate to the Company and
disclose to the Company in such form as the Company requests from time to time,
all drawings, sketches, models, records, information, details and data (in
whatever media the same may be created or recorded including, without
limitation, print, tape, electronic, or otherwise) pertaining to all ideas,
processes, trademarks, inventions, improvements, discoveries and improvements,
product designs and specifications, and other intellectual property, whether
patented or unpatented, and copyrightable or uncopyrightable, made, conceived,
developed, acquired or implemented by the Executive, solely or jointly, during
the term of this Agreement (the "Development Term"), whether or not conceived
during regular working hours through the use of Company time, material or
facilities or otherwise (each of the foregoing hereinafter referred to,
individually and collectively, as a "Development"). The Executive hereby
assigns, transfers, conveys and sells to the Company all right, title and
interest in and to all Developments, whether now existing or hereafter existing
during the Development Term, and acknowledges that the same, whether now
existing or hereafter existing during the Development Term, are the sole and
exclusive property of the Company for which the Executive is being adequately
compensated hereunder. At any time and from time to time, upon the request of
the Company and at its expense, the Executive will execute and deliver to the
Company any and all applications, assignments, instruments, documents and
papers, give evidence and do any and all other acts which, in the opinion of the
Company, are or may be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark or tradename registrations,
copyrights or other rights under United States, foreign, state or local law with
respect to any such Developments or to obtain any extension, validation,
reissue, continuance, division or renewal of any of the same, in whole or in
part, and otherwise to establish, protect and enforce the Company's rights in
and to such intellectual property.
6.2 Notwithstanding anything to the contrary contained in this
Agreement, the foregoing Section 6.1 shall only apply and be effective to the
extent permitted under applicable law. In this regard, the provisions of Section
6.1 of this Agreement which provide that the Executive shall assign or offer to
assign any of the Executive's rights in an invention to the Company shall not
apply to any invention for which no equipment, supplies, facility, or trade
secret information of the Company was used and which was developed entirely on
the Executive's own time, unless (a) the invention relates (i) directly to the
business of the Company, or (ii) to the Company's actual or demonstrably
anticipated research or development, or (b) the invention results from any work
performed by the Executive for the Company.
8
<PAGE>
7. ASSIGNMENT.
7.1 This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement and all
rights of the Executive hereunder shall inure to the benefit of and be enforce
able by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devises and legatees. If the
Executive should die while any amounts would still be payable to him hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's personal or legal
representatives or, if there be no such persons, the Executive's estate.
7.2 This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. The Company will require any
successor (by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Executive, to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company and any
successor to its business and/or assets as aforesaid which executes and delivers
an assumption and agreement provided for in this Section 7.2 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law, or otherwise.
8. NOTICES.
Any notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been given when delivered personally, one (1) day after being sent by recognized
overnight courier service will all charges prepaid or charged to the sender's
account, or three (3) days after being mailed by certified mail, return receipt
requested, addressed to the party being notified at the address of such party
first set forth above, or at such other address as such party may hereafter have
designated by notice; PROVIDED, HOWEVER, that any notice of change of address
shall not be effective until its receipt by the party to be charged therewith.
9. GENERAL.
9.1 Neither this Agreement nor any of the terms or conditions
hereof may be waived, amended or modified except by means of a written
instrument duly executed by the party to be charged therewith. Any waiver or
amendment shall only be applicable in the specific instance, and shall not
constitute or be construed as a waiver or amendment in any other or subsequent
instance. No failure or delay on the part of either party in respect of any
enforcement of obligations hereunder shall in any manner affect such party's
right to seek or effect enforcement at any other time or in respect of any other
required performance.
9
<PAGE>
9.2 The captions and Section headings used in this Agreement are
for convenience of reference only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions hereof.
9.3 This Agreement, and all matters or disputes relating to the
validity, construction, performance or enforcement hereof, shall be governed,
construed and controlled by and under the laws of the State of Florida
applicable to contracts entered into and performed wholly within Florida.
9.4 The Company may withhold from any amounts payable under this
Agreement all Federal, State or other taxes as legally shall be required.
9.5 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original hereof, but all of which
together shall constitute one and the same instrument.
9.6 This Agreement constitutes the sole and entire agreement and
understanding between the parties hereto as to the subject matter hereof, and
supersedes all prior discussions, agreements and understandings of every kind
and nature between them as to such subject matter.
9.7 If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed modified only
to the extent necessary to render same valid, or not applicable to given
circumstances, or excised from this Agreement, as the situation may require; and
this Agreement shall be construed and enforced as if such provision had been
included herein as so modified in scope or application, or had not been included
herein, as the case may be.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the date first set forth above.
FINE AIRLINES, INC.
By:
------------------------------------
Title:
---------------------------------------
ORLANDO M. MACHADO
10
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-28569) of our report dated February 28, 1997, on our audits of the
combined financial statements of Fine Air Services, Inc. We also consent to the
reference to our firm under the caption "Experts."
Miami, Florida
July 10, 1997
