As filed with the Securities and Exchange Commission on April 9, 1999.
Registration No.333-70437
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------------------------
CARDINAL AIRLINES, INC.
(Name of registrant as specified in its charter)
Delaware 4512 59-3492127
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
1380 Sarno Road
Suite B
Melbourne, Florida 32935
(407) 757-7388
(Address including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Lawrence A. Watson
1380 Sarno Road
Suite B
Melbourne, Florida 32935
(407) 757-7388
(Name, address, including zip code, and telephone number of agent for service)
-----
Copy to:
Bruce Brashear
Brashear & Associates, P.L.
926 N.W. 13th Street
Gainesville, Florida 32601
(352) 336-0800
--------------------------------------------
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. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
=====================================================================
Title of Each Amount to be Proposed Max Proposed Max Amount of
Class of Registered Offering Aggregate Registration
Securities to Price Per Offering Fee
be Registered Unit (1) Price (1)
Units,
consisting
of 2,000,000 Units $7.50 $15,000,000 $4,305
(a) One Share
Voting
Common
Stock,
par value
$0.01 per
share
("Common
Stock") 2,000,000 Shares
(b) One Warrant
to purchase
one share of
Common Stock
at $11.00 per
share 2,000,000 Warrants
Voting Common Stock
purchasable pursuant
to Warrants 2,000,000 Shares $11.00 $22,000,000 $6,314
=====================================================================
(1)Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
-----------------------------------
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 the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Cardinal Airlines, Inc.
------
CROSS REFERENCE SHEET
Between Items in Part I of Form S-1 and the Prospectus
-------------
Form S-1 Item Nos. and Caption Prospectus Caption
1. Forepart of Registration
Statement and Outside
Front Cover of Prospectus Outside Front Cover Page
2. Inside Front and Outside Inside Front and Outside Back
Back Cover Pages of Prospectus Cover Pages
3. Summary Information, Risk Factors Prospectus Summary; Risk
and Ratio of Earnings to Factors
Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Plan of Distribution
6. Dilution Dilution
7. Selling Security-Holders Principal and Selling Shareholders
8. Plan of Distribution Outside Front Cover Page; Plan of
Distribution
9. Description of Securities Description of Securities
Eligible For Future Sale
10. Interest of Named Experts and
Counsel Not Applicable
Promoters and Control Persons Management
11. Information with Respect to Prospectus Summary; Summary Financial
the Registrant Data; Business; Financial Statements;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Management
Security Ownership of Certain;
Beneficial Owners and Management;
Principal and Selling Shareholders;
Certain Transactions
12. Disclosure of Commission Position Description of Securities
on Indemnification for Securities
Act Liabilities
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
AMENDED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE
STATE SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
Prospectus Subject to Completion Dated April __, 1999
2,000,000 Units
$10.00 per Unit
CARDINAL AIRLINES, INC.
1380 Sarno Road, Suite B,
Melbourne, Florida 32935
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The Company is starting an airline in Melbourne, Florida.
The Offering
Per Share Total
Public Price...........$10.00 $20,000,000 The Company may sell the Units
without using an underwriter.
Underwriting
Discounts.........$ 1.00 $ 2,000,000 This is an initial public
offering of shares of common
stock and warrants. Each share
is sold as a Unit with a
warrant to purchase a second
share for $11.00.
Proceeds to Cardinal...$ 9.00 $17,100,000 Cardinal is selling 1,900,000
Units. Current shareholders
are selling 100,000 Units. The
Company will not receive any
proceeds from the sale of Units
by current shareholders.
Proceeds to Selling
Shareholders......$9.00 $ 900,000 There is currently no public
market for the shares or the
warrants. The offering price
may not reflect the market
price for the shares and
warrants after the offering.
The Company has applied to have its shares and warrants listed on the NASDAQ
Small Cap Market under the symbol CAAL. The transfer agent, registrar for the
common stock and warrant agent is First Union National Bank of North Carolina.
This Investment Involves a High Degree of Risk. You Should Purchase Shares Only
If You Can Afford a Complete Loss. See "RISK FACTORS" Beginning on Page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if the
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This Prospectus is available at http:\\www.flycardinal.com. The Company will
also give you a free paper copy of the Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
Available Information 28
Summary 3
Risk Factors 5
Use of Proceeds 11
Dilution Dividend 14
Policy Capitalization 16
Special Note Regarding Forward-Looking Statements 17
Management's Discussion and Analysis
of Financial Conditions and Results of Operations 17
Business 19
Management 28
Certain Transactions 34
Principal and Selling Shareholders 35
Description of Securities 37
Securities Eligible for Future Sale 40
Plan of Distribution 41
Legal Matters 42
Experts 42
Unit Purchase Agreement 43
Financial Statements F-1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements.
The Company
Cardinal Airlines Inc. (The "Company" or "Cardinal") is a new development
stage Company planning to provide scheduled airline service to primary markets
in the Eastern United States from Melbourne, Florida. Cardinal Airlines'
strategy is to provide excellent service by seating all passengers in large
"first class" seats and offering superb meals. Cardinal plans to offer full fare
"one price per destination" tickets that will approximate the advanced
restricted "coach" fares of major airlines. Cardinal plans to commence flight
operations with 2 MD-80 series aircraft providing service between Melbourne
Florida and the Baltimore / Washington D.C. markets. The Company plans to
eventually add additional MD-80 series aircraft and expand service to other
prominent markets. Cardinal has not had any flights and has operated at a loss.
It has assets of $45,302. The Company has not yet received its FAA
certifications and has not purchased any aircraft.
The Company's executive officers and key employees have substantial
experience in the airline industry. Management has chosen the Eastern United
States as the Company's initial geographic market due to the concentration of
high yield destinations from the Melbourne / Orlando area.
The Company's principle offices are located at Melbourne International
Airport and 1380 Sarno Road, Suite B, Melbourne, Florida 32935, (407) 757-7388.
The Offering
Securities Offered by the Company...................1,900,000 Units, each
Unit consisting of one share of
common stock and one warrant
to purchase one share of
common stock for a price of
$11.00 a share until five
years from the effective
date of this offering.
Securities Offered by the Selling Stockholders......100,000 Units, each Unit
consisting of one share of
common stock and one warrant
to purchase one share of
common stock for a price of
$11.00 a share until five
years from the effective
date of this offering.
Total Common Stock Offered......................2,000,000 shares
Common Stock Outstanding After the Offering.........3,931,200 shares
Use of Proceeds.....................................Costs of the offering will
be paid first. After which
funds will be used for
working capital and general
corporate purposes,
including obtaining a FAA
121 air carrier operating
certificate, acquisition
of aircraft and equipment,
and developing maintenance
and technical programs.
No Minimum..........................................The money received from the
first Units sold may be used
by the Company. The first
proceeds will be used to pay
the cost of the offering.
If the Company does not sell
enough Units to commence
operations (approximately
600,000 Units), the Company
will use the money received
to obtain additional
financing to pay operating
expenses and to acquire FAA
and DOT certifications.
Risk Factors........................................For a description of
certain risk inherent in an
investment in Units , see
RISK FACTORS.
Page 3
<PAGE>
------------------------------
Selected Financial Data
The Selected Financial Data presented below are derived from the
Consolidated Financial Statements of the Company and are qualified in their
entirety by, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
Income Statement Data:
------------------------------------------
Six Months Fiscal Year February 10, 1997
Ended December Ended June 30, (Inception) to
31, 1998 1998 June 30, 1998
----------------- ------------------- -------------------------
REVENUES $ - $ - $ -
----------------- ------------------- -------------------------
NET (LOSS) $ (83,448) $ (20,561) $ (23,729)
Net income
(loss) per
common share $ (.05) $ (.01) $ (.01)
================= =================== =========================
Balance Sheet Data:
------------------------------------------
Six Months Fiscal Year February 10, 1997
Ended December Ended June 30, (Inception) to
31, 1998 1998 June 30, 1998
----------------- ------------------- -------------------------
Total Assets $ 45,302 $ 24,000 $ 24,000
================= =================== -------------------------
Total
Liabilities
Stockholders
Equity $ 45,302 $ 24,000 $ 24,000
================== =================== -------------------------
Page 4
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this Prospectus before deciding to invest in the shares.
Risks Related to the Company
No Operating History. We have not begun airline operations. There is no
assurance the Company will be able to successfully obtain an FAA 121 air carrier
certificate and begin flight operations. There is no assurance the Company will
be able to achieve sufficient revenues to make it viable or profitable. The
Company may be vulnerable to fare discounts, changes in industry conditions,
competitive reactions by existing or new competitors.
Although many of the Company's key personnel have substantial airline
industry experience, there is no assurance that they will be able to
successfully carry out the Company's business plan. The Company has conducted no
independent market studies and is relying on management's evaluation of
available market information and studies to estimate the market potential. See
MANAGEMENT. See "EXHIBITS".
No Independent Feasibility Study. The Company's business plan for the
continuing implementation of its business strategy is based on the
experience, judgement and certain assumptions of management, and upon certain
available market information. The Company has not obtained a third party,
independent feasibility study relating to its plans to conduct this Offering or
to enter into the commercial airline business, nor does it plan to commission
such a study.
Competition and Competitive Reaction. The Airline Deregulation Act of
1978 (the "Deregulation Act") made the airline industry highly competitive.
The Deregulation Act substantially reduced government regulation of domestic
routes and fares, and increased the airlines ability to compete with respect to
fares, destinations, and flight frequencies. Although Cardinal would be
the only airline providing non-stop or direct service from Melbourne
International Airport to Baltimore Washington International Airport , it
will compete with Delta Air Lines, Inc. (Delta), Spirit Airlines (Spirit), and
other airlines that currently provide service from the Orlando
International Airport to these markets. Cardinal may also compete with new
airlines providing service to these markets and existing airlines
increasing service and/or lowering fares. Competition could prevent
Cardinal from selling tickets for more than 60% of its available seats, which
Cardinal anticipates, or even selling tickets for 42% of its available seats,
which must be sold in order for the Company to break even. The average load
factor, or the number of seats that need to be sold to cover the Company's
costs on a flight is 47 seats.
Page 5
<PAGE>
Practices of Unfair, Exclusionary Competition. While the Department of
Transportation is proposing rules to eliminate such exclusionary conduct engaged
in by some air carriers. Major air carriers have attempted to exclude new
entrant air carriers through a number of tactics including drastic price cuts
and flooding the market with new low-fare capacity. There can be no assurance
that these proposed rules will be adopted and that a large air carrier will not
exercise these predatory actions to unfairly compete against the Company. This
could adversely affect the Company's business plan
The Company's strategy not to offer any frequent flyer programs or
participate in any of the established computerized reservation systems (CRS),
used extensively by other airlines and travel agents could become a competitive
disadvantage. See "BUSINESS" - Competition and Industry Considerations.
Other airlines may offer fares equal to those offered by the Company or
introduce new non-stop service between cities served by the Company's flights to
prevent the Company from attaining a share of the passenger traffic necessary to
maintain profitable operations. The Company's ability to meet price competition
depends on its ability to operate at costs equal to or lower than its
competitors or potential competitors. In addition, competitors with greater
financial resources than the Company may attempt to price their fares below the
Company's fares and/or increase their service, which could adversely affect the
Company's profitability. See "BUSINESS" - Competition and Industry
Considerations.
Melbourne International Airport and Market Dominance. While Delta has
announced it may reduce daily flights from Melbourne International Airport (MLB)
to Atlanta, a Delta hub, the Melbourne market is currently dominated by Delta
and other airlines operating out of the Orlando International Airport.
Dependence on Executive Officers. The Company is dependent on the active
participation of Lawrence A. Watson (President), Lawrence H. Mason, (VP
Finance), Vincent T. Paris (Director), and Ted A. Walker (Director). The loss of
their services could materially and adversely affect the business of the
Company. The Company has employment agreements with each of these officers, all
of which are terminable at any time by either party, subject to existing
restrictive covenant agreements with the Company. The Company plans to maintain
key man life insurance on certain officers and key members of the management
team upon completion of this offering. See "MANAGEMENT".
Control by Management Group. After the completion of the sale of all the
Units offered herein, the Company's Executive Officers and Directors, a group of
four individuals, by virtue of their holdings of both Common Stock and Series A
Preferred Shares hold approximately 79% of all votes that could then be cast,
without taking into account the exercise of any warrants to purchase Common
Stock. As a result, the investors in this offering will not be able to exercise
any control over the management of the Company. See "PRINCIPAL AND SELLING
STOCKHOLDERS".
Automation. Cardinal does not plan to use an existing reservations systems
company such as SABRE, System 1, or Galileo. This could adversely affect our
ability to market and sell tickets. We have entered into a preliminary licensing
agreement with EQUALS International LTD. to use their airline computer software
system. We plan to use the EQUALS system which covers all airline operations
including ticketing, reservations, and baggage tracking. The approximate cost is
between $400,000 and $500,000.
Page 6
<PAGE>
Aircraft Availability. Cardinal plans to initially lease or lease/purchase
2 MD-80 series aircraft. We have identified sources and availability of MD-80
series aircraft and the terms on which they can be leased or lease/purchased.
The purchase price for this aircraft is approximately 13.5 million dollars.
Terms usually approximate a down payment of 4% to 5% of the purchase price and a
monthly payment equal to 1%. Currently there are several MD-80 series aircraft
available for lease or sale. However, there can be no assurance that such
aircraft will be available at the time they are required. As of March 1999, we
are aware of two airlines that are retiring planes that meet our requirements.
If aircraft are not available when required this would have a material adverse
affect on our operational plans and an aircraft lease would be needed.
Employee Relations. Based on Management's previous experience we believe
Cardinal can develop a productive, loyal workforce, and operate with lower
personnel costs. We may not be able to achieve and maintain this advantage. Many
airline industry employees are represented by labor unions and if Cardinal
Airlines is unable to maintain a union free workforce, our costs could
significantly increase.
Dependence on Service Contractors. Cardinal will enter into agreements with
contractors to provide certain equipment, facilities and services required for
support operations. These will include baggage and ground handling services,
certain aircraft maintenance, and specialized personnel training. It is standard
industry practice for small airlines to contract these services. Typically,
large airlines perform these services and use contractors on a supplemental
basis. Because this is standard industry practice, such contractual services are
available. However, dependence on others to provide essential services in a
timely and reliable manner, could adversely affect our operations.
Limited Number of Aircraft. Cardinal plans to begin operations with two (2)
MD-80 series aircraft. Our ability to maintain revenues is dependent on the
availability of the aircraft. Commercial aircraft are extremely complex machines
and are subject to continued maintenance and testing. If any of our aircraft are
out of service for an extended period of time or lost, Cardinal Airlines'
operations would be adversely affected until the aircraft was replaced. In the
event that one aircraft is out of service, the Company will attempt to
temporarily lease or charter a suitable replacement. However, there can be no
assurance that a suitable aircraft can be located in a timely manner.
Effect of Aircraft Financing. The purchase price of the aircraft which the
Company intends to use is $13.5 million. The Company intends to lease or make an
installment purchase for such aircraft under terms of a down payment of
approximately 4% to 5% of the purchase price and monthly payment equal to 1% of
the aircraft. Among the first use of proceeds will be to obtain such aircraft.
As a result, in the event few units are sold in this offering, the Company could
find itself in the position of having spent a significant portion of its
proceeds (approximately $540,000 per airplane), but have insufficient remaining
proceeds to pay lease payments of $135,000 per month, thereby forfeiting its
entire interest.
Airport Access. Melbourne International Airport currently has all necessary
facilities including 2 gates available. Vacant gates are assigned to carriers
through negotiations based on airport use and the anticipated volume of an
airline's use. Baltimore Washington International Airport has indicated that
facilities are available, but that gates would have to be shared until gates
currently under lease become available, or additional gates are constructed. If
we are delayed or unable to secure access to any of these airports, it would
adversely effect our operations.
Page 7
<PAGE>
Risks Related to the Airline Industry Generally
Low Margin Business. The airline industry, historically has low gross
profit margins, with high fixed costs in comparison to revenues. The Company
believes it will be very cost effective and have lower fixed costs than other
airlines. However, if the Company is unable to operate at costs less than its
competitors and lower costs cannot be achieved, it could adversely affect the
Company's viability.
Cyclical Nature of Airline Industry. The airline industry has a cyclical
nature and is sensitive to overall economic conditions. Historically, downturns
in the economy have caused a reduction in leisure and business airline
passengers, any prolonged reduction in passenger traffic may adversely affect
the Company.
Fuel Cost and Availability. Typically fuel costs are the highest operating
expense for companies providing airline service. Fuel costs and availability can
be affected by political and economic conditions throughout the world, any
changes in the availability or cost of fuel could adversely affect the Company.
See "BUSINESS" - Fuel.
Federal Regulations. Cardinal Airlines must obtain the necessary
authority from several government agencies to commence flight operations,
including a Certificate of Public Convenience and Necessity from the Department
of Transportation (DOT) and an operating certificate from the Federal Aviation
Administration (FAA). Such authority is subject to compliance with applicable
statutes, rules and regulations pertaining to the airline industry, including
any new rules and regulations that may be adopted in the future. Cardinal
Airlines will be required to file a "progress report" with the DOT after the
first year of operations, at which time the FAA & DOT will determine if we are
still fit to operate an airline. The FAA will maintain increased surveillance
and scrutiny of Cardinal Airlines' operations for up to five years. There is no
assurance that Cardinal Airlines will be able to comply with all present and
future rules and regulations with respect to the cost of compliance and its
effect on our profitability.
Cardinal Airlines started discussions with the FAA in December of 1998.
After meeting with the FAA District office, we were issued a Certification
Control Number and assigned a Certification Team. The Certification Control
Number puts Cardinal Airlines in a position to begin the Certification Process.
The Certification Team is assigned to oversee Cardinal Airlines through the
certification process, and thereafter, on an on-going basis. We have engaged
counsel, Allan W. Markam, PC, in Washington, D.C., to prepare our formal DOT
application. The DOT initial application should be filed by April 30, 1999. Our
best estimate is that we expect to be certified by both DOT and FAA in the
fourth quarter of 1999 at which time we will commence flight operations. See
Risk Factor Business Government Regulations.
Page 8
<PAGE>
Risks Related to this Offering
No Assurance of Maintenance of Public Trading Market: No NASDAQ Trading.
Prior to this offering, there has been no public trading market for the
Company's securities. Following the completion of this offering, the Common
Stock may be included for trading on NASDAQ. There is, however, no assurance of
either the development or continuance of any trading market in the Company's
securities.
No Committed Sources of Additional Financing. There can be no assurance
that even if all the Units offered for sale herein are sold that we will be able
to successfully consummate our business plan. We have no commitments, from any
source, for additional funding. There can be no assurance that additional
funding could be obtained.
Direct Public Offering: No Underwriter. The Units offered herein are
offered directly by Cardinal Airlines. We have not retained any underwriters,
brokers, dealers or placement agents in connection with this offering. However,
we plan to engage broker/dealers to assist in the sale and distribution of the
Units. None of the Directors or Officers of Cardinal Airlines has any experience
in making a direct public stock offering. The absence of an underwriter could
adversely affect the Company's ability to sell the Units. Cardinal Airlines
retains the right to use broker-dealers to sell and distribute the Units in this
offering. If Cardinal Airlines exercises this right, commissions paid to such
broker-dealers may materially affect the amount of proceeds received by Cardinal
Airlines from the offering.
Current Prospectus and State Blue Sky Laws Registration Required to
Exercise Warrants. Purchasers of Units will have the right to exercise the
Warrants included therein only if a current prospectus relating to the shares
underlying the warrants is then in effect and only if such shares are qualified
for sale under applicable securities laws of the states in which the various
holders of the Warrants reside. There is no assurance that the Company will be
able to maintain a current prospectus covering such shares or be able to
register or qualify such shares in the states where such warrant holders reside.
The Warrants will be derived of any value if a current prospectus covering such
shares issuable in exercise thereof is not kept effective or if such shares are
not registered in the states in which holders of the Warrants reside. (See
"Description of Securities -- Warrants."
No Dividends. The Company has never paid cash dividends on its stock
and has no plans to do so in the foreseeable future. The Company intends
to retain earnings, if any, for business use.
Immediate and Substantial Dilution. This Offering involves an immediate and
substantial dilution between the initial public offering price of $10.00 per
Unit and the pro forma net tangible book value per share of Common Stock after
the Offering. Such dilution will amount to $5.62 if all Units are sold; $6.15 if
1,500,000 Units are sold; $6.99 if 1,000,000 Units are sold; $7.90 if 600,000
Units are sold; and $8.18 if 500,000 Units are sold. See "DILUTION".
Page 9
<PAGE>
Risks of Low-Priced Stocks. If the trading price, if any, of the Common
Stock were to fall below $5.00 per share, trading in the Common Stock would also
be subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a "penny stock" (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally defined as an investor with a net worth in excess of
$1,000,000 or annual income exceeding $200,000, $300,000 together with a
spouse). For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. The broker-dealer also must
disclose the commissions payable to the broker-dealer, current bid and offer
quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing prior to effecting the transaction and in writing
before or with the customer confirmation. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements may discourage them from
effecting transactions in the Common Stock, which could severely limit the
liquidity of the Common Stock and the ability of purchasers in this offering to
sell the Common Stock in the secondary market.
Determination of Offering Price. The Company has unilaterally and
arbitrarily determined the offering price of the Units. Among the factors
considered in determining such price were the prices of airline common stock,
the Company's capital requirements, the percentage of ownership to be held by
investors following the Offering, and the prospects for the Company's business.
The offering price does not necessarily bear any relationship to the Company's
assets, book value, earnings history, or other investment criteria and should
not be considered an indication of the actual value of the Company's securities.
See "PLAN OF DISTRIBUTION".
Possible Adverse Impact of Shares Available for Future Sale. Sales of
substantial amounts of Common Stock in the public market, if any, after this
Offering or the prospect of such sales could adversely affect any market price
of the Common Stock and may have a material adverse effect on the Company's
ability to raise any necessary capital to fund its future operations. Upon
completion of this Offering, assuming all Units are sold, the Company will have
3,931,200 shares of Common Stock outstanding. The 2,000,000 shares included in
the Units offered hereby will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), except for any shares held by "affiliates" of the Company within the
meaning of the Securities Act which will be subject to the resale limitations of
Rule 144 promulgated under the Securities Act ("Rule 144"). The remaining
1,931,200 shares are "restricted" securities that may be sold only if registered
under the Securities Act, or sold in accordance with an applicable exemption
from registration, such as Rule 144. The officers and directors, who together
will hold 1,387,740 shares of Common Stock (assuming all Units offered herein
are sold). During 1999, 782,160 shares of Common Stock will be eligible for sale
in the public market, if any, subject to compliance with Rule 144 If such
holders cause a large number of shares to be sold in the public market, if any,
such sales or the perception that such sales could occur, could have a material
adverse effect on the market price of the Common Stock and the Company's ability
to raise additional capital.
Page 10
<PAGE>
No Minimum Amount for This Offering. Because there is no minimum amount of
Units required to be sold in the Offering, all the cash received will go
directly to the Company to be used as described in "Use of Proceeds." While
$80,000 of the total offering cost of $130,000 has previously been paid by the
Company and will not be reimbursed to the Company from the proceeds of this
Offering, $50,000 of the costs of this offering will be paid from the proceeds.
If only 5,000 or fewer Units are sold, the result would be that all the proceeds
will be used to pay the remaining expenses of the Offering. The sale of fewer
than 600,000 Units would materially and adversely effect the Company in that the
Company would be required to significantly limit its operational expenses, by
curtailing significantly or deferring the Company's planned airline services.
See "USE OF PROCEEDS".
Management's Broad Discretion in Application of Proceeds. The Company
intends to use the proceeds of the Offering to pay the costs of the Offering and
the balance will be added to the Company's working capital where it will be
available for general corporate purposes. As of the date of this Prospectus, the
Company cannot specify with certainty the particular uses for the net proceeds
to be added to its working capital. Accordingly, management of the Company will
have broad discretion as to the application of the net proceeds of the Offering.
See "USE OF PROCEEDS".
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units, after deduction
of estimated offering expenses (estimated to be approximately $130,000, of which
$50,000 will be paid from the proceeds of this offering) and the Company's
anticipated use of proceeds is set forth below. There is no minimum number of
Units that must be sold in the Offering, and all funds will be paid directly to
the Company. Since there are no minimum proceeds we may not be able to do
anything discussed in this section.
In the event all Units offered herein are sold, the Company would receive
$17,050,000 of net proceeds from this offering after deduction of possible fees
paid to qualified broker-dealers and expenses of this offering. The net proceeds
of this offering will be used for: (i) expenditures for deposits and down
payments on aircraft, and equipment and inventory; (ii) development of
maintenance and technical programs designed to comply with federal regulatory
requirements; (iii) Federal Certification expenses (iv) identification, hiring
and training of necessary labor force; and (v) working capital and general
corporate purposes. The amounts and timing of expenditures for each purpose is
subject to the broad discretion of the management and will depend on factors
such as the amount of net proceeds available to the Company and the effects of
competition, many of which are beyond the Company's control. If only 5,000 or
fewer Units are sold, the result would be that all the proceeds will be used to
pay the expenses of the Offering.
Page 11
<PAGE>
Because the Company has no minimum proceeds in this Offering, it is
possible that the Company will receive no funds or insufficient funds to enable
it to effectuate its planned use of proceeds set forth above.
<TABLE>
<CAPTION>
Unit Sales 1,900,000 Units 1,500,000 Units 1,000,000 Units 600,000 Units(1) 500,000 Units (2)
<S> <C> <C> <C> <C> <C>
Gross Proceeds from
Offering 19,000,000 15,000,000 10,000,000 6,000,000 5,000,000
Less Remaining Offering
Expenses 50,000 50,000 50,000 50,000 50,000
Maximum (possible)
commissions 1,900,000 1,500,000 1,000,000 600,000 500,000
----------------- ----------------- ------------------ -------------- -----------------
Net Proceeds from
Offering 17,050,000 13,450,000 8,950,000 5,350,000 4,450,000
Use of Net Proceeds
Flight Operations (3) 2,260,000 2,260,000 2,260,000 2,260,000 1,360,000
Fuel (4) 860,000 860,000 860,000 450,000
Maintenance (5) 813,000 813,000 813,000 542,000
Passenger Services and
Station Operations (6) 1,650,000 1,650,000 1,650,000 1,650,000 1,343,000
Marketing, Sales,
Advertising (7) 883,000 883,000 883,000 623,000
Key Man Life Insurance 28,000 28,000 28,000 28,000 28,000
FAA DOT Certification 350,000 350,000 350,000 350,000 350,000
Computer System Lease 50,000 50,000 50,000 50,000 50,000
Initial Promotions 400,000 400,000 400,000 250,000
Working Capital 9,756,000 6,156,000 1,656,000 354,000 4,022,000
----------------- ----------------- ------------------ -------------- -----------------
Proceeds Used 17,050,000 13,450,000 8,950,000 5,350,000 4,450,000
</TABLE>
Page 12
<PAGE>
(1) Number unit sales necessary to obtain DOT certification. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION." and "GOVERNMENT REGULATIONS"
under Business.
(2) Insufficient to obtain DOT certification and commence Company operations.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION".
(3) Flight Operations Expense Includes
o Flight Crew Cost of Labor
o Flight Crew Training
o Flight Support Personnel Cost of Labor
o Aircraft Lease Expense
o Aircraft Hull Insurance
(4) Fuel Expense Includes
o Cost of Fuel
o Cost of Fuel Transportation and Storage
(5) Maintenance Expense Includes
o Maintenance Personnel Cost of Labor
o Cost of Maintenance Personnel Training
o Ground Equipment Lease Expense
o Maintenance Equipment Lease Expense
o Maintenance Data Base Fees and Publications
(6) Passenger Services and Station Operations Expense Includes
o Flight Attendant Cost of Labor
o Flight Attendant Training Expense
o Passenger Food Service Expense
o Station Ramp Services Expenses
o Terminal facilities Lease Expenses
(7) Marketing, Sales and Advertising Expense Includes
o Reservation and Ticket Agent Personnel Expense
o Staff Training Expenses
o Advertising
o Communications Systems Equipment Lease Expense
o Web Site and Data Base Expenses
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments, and other investment-grade quality
instruments.
The Company will not receive any of the proceeds from the sale of shares
of Common Stock by the Selling Stockholders.
Page 13
<PAGE>
DILUTION
"Dilution" represents the difference between the initial public offering
per share of Common Stock and the pro forma net tangible book value per share of
Common Stock immediately after the completion of this Offering. "Pro forma net
tangible book value" is the amount that results from subtracting the total
liabilities of the Company from its total tangible assets after giving effect to
Common Stock sold in a private placement subsequent to December 31, 1998.
Dilution arises mainly from an arbitrary decision by the Company with respect to
the Offering price per share of Common Stock. In this Offering, the level of
dilution will be increased as a result of the Company's low net tangible book
value prior to this Offering.
The net tangible book value of the Company prior to this Offering based on
the December 31, 1998, financial statements was $45,302 or $.02 per share of
Common Stock (based on 2,031,200 Common Shares outstanding).
Between June 10, 1998, and March 23, 1999, the Company sold 746,200
common shares for $.50 per share to 34 purchasers, some of whom are officers
and directors of the Company in a private placement. The Company received a
total of $373,100 in the private placement. No further shares will be sold in
the private placement.
If the maximum shares offered herein are sold, the Company will have
3,931,200 shares issued and outstanding upon completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered hereby by the
Company and the receipt and application of the estimated proceeds therefrom, net
of estimated commissions and Offering expenses of the Offering, the post
Offering pro forma net tangible book value of the Company will be $17,212,700 or
$4.35 per share or 44% from the Offering price of $10.00 per share. Net tangible
book value per share would increase to the benefit of present shareholders from
$.08 prior to the Offering to $4.38 after the Offering, or an increase of $4.30
per share attributable to the purchase of the Shares by investors in this
Offering.
The following table illustrates the estimated net tangible book value
per share after the Offering and the dilution to persons purchasing Shares based
on the foregoing Maximum Offering assumption:
Page 14
<PAGE>
<TABLE>
<CAPTION>
1,900.000 Units 1,500,000 Units 1,000,000 Units 600,000 Units 500,000 Units
<S> <C> <C> <C> <C> <C>
Offering Price of Common 10.00 10.00 10.00 10.00 10.00
Stock (per share)
Net tangible book value .08 .08 .08 .08 .08
per share before the
Offering
Increase per share 4.30 3.77 2.93 2.02 1.74
attributable to
payments by new
investors
Pro forma net tangible 4.38 3.85 3.01 2.10 1.82
book value per share
after the Offering
Dilution per share to new 5.62 6.15 6.99 7.90 8.18
investors
</TABLE>
The following table set forth as of December 31, 1998, after giving effectto the
Offering, the number of shares of Common Stock purchased from theCompany, the
total consideration paid and the average price per share paid by
existing shareholders and by new investors on an as adjusted basis:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price Per
Number Percentage Amount Percentage Shares (1)
---------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Investors in this Offering ...... 2,000,000 50.88% $20,000,000 98.11% $10.00
Current Stockholders (2) ........ 1,931,200 49.12% 385,950 1.89% $ 0.20
------------ ----------- ----------- ------------ -----------
Totals ........................... 3,931,200 100% $20,385,950 100% $5.19
</TABLE>
Page 15
<PAGE>
----------------------------
(1) The average price per share is calculated by dividing the total
consideration paid by the total number of shares purchased. (2) Sales by the
Selling Stockholders in this offering would cause the number of shares currently
held by existing stockholders (2,031,200), to be reduced to 1,931,200, or 49.12%
of the total number of shares of Common Stock to be outstanding after this
offering.
DIVIDEND POLICY
Since inception, the Company has not declared or paid any cash dividends
on its capital stock. The Company currently intends to retain any future
earnings for funding growth and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company giving effect to the private placement of $152,479 as of December 31,
1998; (ii) the capitalization of the Company giving effect to the private
placement of $373,100 which concluded on March 23, 1999; and (iii) the
capitalization of the Company, as adjusted to reflect the issuance and sale of
the Common Stock offered hereby at an assumed offering price of $10.00 per
share. This table should be read in conjunction with the financial statements
and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
Audit through After Private 1,900,000 1,500,000 1,000,000 600,000 500,000
December 31, 1998 Placement Units Sold Units Sold Units Sold Units Sold Units Sold
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Long term debt
Shareholder's Equity
Common Stock $.01
par value, 50,000,000
shares authorized,
1,712,400 shares
issued
and outstanding $ 13,279 $ 16,462 $ 35,462 $ 31,462 $ 26,462 $ 22,462 $ 21,462
Preferred Shares
1,000,000 authorized
100,000 Series A issued,
900,000 unissued
and undesignated as
to series $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Additional Paid-In
Capital $138,200 $260,117 $ 17,291 $13,695,117 $9,200,1173 $5,604,117 $4,705,117
Retained Earnings ($107,177) ($107,177) ($107,177) ($107,177) ($107,177) ($107,177) ($107,177)
Total Shareholder's Equity $45,302 $170,402 $17,220,402 $13,620,402 $9,120,402 $5,520,402 $4,620,402
Total Capitalization $45,302 $170,402 $17,220,402 $13,620,402 $9,120,402 $5,520,402 $4,620,402
</TABLE>
Page 16
<PAGE>
-------------------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the dates on which the Company anticipates
commencing operations. With respect to such dates, the Company's management team
has made certain assumptions regarding, among other things, the successful and
timely completion of the Offering, the approval of its FAA certification, the
availability of adequate funding, the absence of delays in acquiring necessary
equipment, and the availability of airport space available in an appropriate
destination. The Company's ability to commence operations on the dates
anticipated is subject to certain risks, including the risks discussed under
"Risk Factors.". Actual airline activities may vary significantly from the
current plans depending on numerous factors including changes in the costs of
such activities from current estimates, the timing of regulatory submissions,
the status of competitive services and the status of the economy in general.
All of the above estimates are based on the current expectations of the
Company's management team, which may change in the future due to a large number
of potential events, including unanticipated future developments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and the related Notes thereto included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. Our actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors" and in "Special Note Regarding Forward-Looking Statements."
Results of Operations
Cardinal Airlines is a development stage, airline company. Cardinal
Airlines is considered to be in the development stage because we have devoted
substantially all of our efforts to establishing the business plan,
organization, and raising capital.
Liquidity and Capital Resources
Since inception in February 1997 our efforts have principally been devoted
to organization, development and raising capital. Cardinal Airlines has not
received any revenues from flight services, and does not expect any of its
flights to be commercially available until 600,000 Units are sold. From
inception through December 31, 1998, we have sustained cumulative losses of
$107,177 of which $48,600 was consulting fees, $22,569 in professional fees,
$19,345 rent, $3,981 in supplies, $6,472 for utilities, $4,416 in depreciation,
$5,616 miscellaneous expenses, and $50 in taxes. These losses have resulted
primarily from expenditures incurred in connection with general and
administrative activities, organization and development, trademark registration
and offering costs.
Page 17
<PAGE>
A quarterly comparative analysis for results of operations provides no
additional information. Since inception we have been a development stage company
and there have been no significant developments which would allow for a
comparative analysis of the interim financial statements.
We expect to incur substantial costs in the future resulting from the
acquisition of aircraft, equipment, agreements with airport service providers
such as baggage handling, and fuel service. Additional expenses will include
airport facilities, maintenance costs, and marketing. There can be no assurance
that Cardinal Airlines will ever achieve profitable operations.
To date, Cardinal Airlines has not marketed or generated revenues from
the commercialization of any service. Our current planned flights will not
begin until at least one month after 600,000 units of this offering are sold.
During this period following the sale of 600,000 units, we expect to hire
additional personnel. Depending on how rapidly units are sold, we may also be
finalizing arrangements for aircraft which could increase the time in which
scheduled operations would begin.
Cardinal Airlines has only a limited operating history upon which an
evaluation of its prospects can be based. The risks, expenses and difficulties
encountered by companies at an early stage of development must be considered
when evaluating Cardinal Airlines prospects. To address these risks, the Company
must, among other things, successfully develop and commercialize its services,
secure all necessary proprietary rights, respond to competitive developments and
continued government regulation, and continue to attract, retain and motivate
qualified persons. There can be no assurance that we will be successful in
addressing these risks. See "RISK FACTORS".
Our operating expenses will depend on several factors, including the level
of aircraft maintenance and repair expenses. Development of Cardinal Airlines
planned flights will depend upon economic factors which we cannot predict.
Management may, in some cases, be able to control the timing of developmental
expenses, in part, by controlling growth. As a result of these factors, we
believe that period-to-period comparisons are not necessarily meaningful and
should not be relied upon as an indicator of future performance. Due to all of
the foregoing factors, it is possible that our operating results will be below
the expectations of market analysts, if any, and investors. In such event, the
prevailing market price, if any, of the Common Stock would likely be materially
adversely affected. See "RISK FACTORS".
Cardinal Airlines has incurred negative cash flows from operations since
its inception. We have expended and expect to continue to expend in the future,
substantial funds to complete our planned service development efforts. Our
future capital requirements and the adequacy of available funds will depend on
numerous factors including the successful commercialization of planned flights,
obtaining sufficient funding to acquire aircraft and equipment, fuel, hiring
qualified personnel, keeping pace with government regulation, obtaining adequate
insurance and the development of contractual agreements with airports, and
airport service providers. We believe that our existing capital resources would
be sufficient to meet operating requirements at existing operating levels
through December, 1999. However, Cardinal Airlines requires the proceeds of this
Offering and interest thereon to meet its planned operating requirements (which
will significantly increase when compared to historical operating levels)
through that date. In the event our plans change or our assumptions change or
prove to be inaccurate or the proceeds of this Offering prove to be insufficient
to fund operations (due to unanticipated expenses, delays, problems or
otherwise), we could be required to seek additional financing. The terms and
prices of any additional financing may be significantly more favorable than
those of the Units sold in this offering. Cardinal Airlines does not have any
material committed sources of additional financing, and there can be no
assurance that additional funding, if necessary, will be available on acceptable
terms, if at all. If adequate funds are not available, we may be required to
delay, scale back, or eliminate certain aspects of our operations. If adequate
additional funds are not available, Cardinal Airlines' business, financial
condition, and results of operations will be materially and adversely affected.
Page 18
<PAGE>
Cardinal Airlines may receive additional funding under the provisions
pertaining to the exercise of the warrants which are part of the Units offered
herein. See - "WARRANTS".
Currently, we have no plans to sell or issue any additional preferred
stock.
The net proceeds from the sale of 600,000 Units in this offering is
estimated to be the minimum amount necessary to begin operations. If less than
600,000 Units are sold, then we would use the proceeds to pay the offering
expenses and commissions. Any remaining proceeds would be used to secure
additional funding. See "USE OF PROCEEDS".
BUSINESS
History
The Company was organized as a Delaware corporation in February 1997. To
date, all activities have been organizational and developmental in nature. The
Company was formed to provide non-stop air service between Melbourne
International Airport and certain key high yield destinations. Initial service
is planned between Melbourne International Airport and Baltimore Washington
International Airport, providing four peak departures and arrivals from each
city daily. By carefully selecting its markets, offering high levels of customer
service, controlling growth, and efficiently using its resources, the Company
believes it can profitably offer airline services from Melbourne, Florida.
Industry Conditions and Competition
The airline industry has experienced unprecedented growth and profits
over the last few years. Two basic reasons for this growth and profits are fuel
costs and an upturn in the economy. The cost of fuel greatly affects operating
costs. Demand for air service increases in a healthy economy.
Cardinal Airlines business plan primarily focuses on the business
passenger who does not have the luxury of booking flights well in advance to get
a low fare and desires a higher level of service. While business travel, as a
rule, is not discretionary, it generally diminishes during unfavorable economic
times as businesses tend to tighten cost controls. We anticipate, based on our
experience and DOT reports, that the weakest travel periods for business will
generally be during the months of January, May, and September. Leisure travel is
highly discretionary and may be subject to seasonal variations. Non-business
pleasure travel generally increases during the summer months and at holiday
periods.
The Airline Deregulation Act of 1978 (the "Deregulation Act") made the
airline industry highly competitive. It substantially reduced government
regulation of domestic routes and fares, and increased the airlines ability to
compete with respect to fares, destinations, and flight frequency's.
Page 19
<PAGE>
Most major airlines today have complex hub systems, with several different
type and sizes of aircraft and partner with commuter airlines to feed passengers
to their hubs and code share ticketing to the final destinations. The major
airlines smaller jet aircraft usually serve secondary cities with commuter
aircraft (usually nineteen passenger) serving the smaller cities and towns.
Flights between the hub and small towns, small cities and secondary cities are
usually operated on higher frequencies to coordinate service with connecting
flights to and from the hub to other destinations and hubs. This system allows
airlines to serve more destinations, (some of which would not otherwise have air
service) capture a greater share of the passenger market, and produce greater
revenues. Most major hub cities are dominated by a single large carrier, such as
Delta Air Lines in Atlanta.
Hub systems are complex and inherently require flights that are not
profitable to meet scheduling requirements. These flights may be scheduled for
inconvenient times, or use an aircraft which has a greater capacity than
required for the flight. These flights increase operating costs which must be
offset by the flights with high load factors and profits. In an attempt to
increase load factors on these flights, airlines operating hub systems have
contrived restrictive, conditional and complicated fares. Low fare tickets
encourage airline use for flights with low load factors. Additionally, having
multiple classes of service, such as First Class, Business Class, and Coach
creates a complex reservations system that can be very frustrating to
passengers.
Airlines that do not operate a hub system such as Southwest Airlines have
various operating strategies, most operate a "direct flight" system with usually
one class of minimal service, no frills, and aircraft configured with high
density seating. These airlines usually avoid highly serviced routes and
generally choose routes that fill a niche market.
To operate a profitable low fare airline, high load factors and low
operating costs must be maintained. Marketing substantially lower fares,
direct and consistent service can be very effective in maintaining high load
factors. Most low fare carriers, large and small, are very cost effective by
focusing on managing the airline, and outsourcing or contracting a majority of
operations and services.
Melbourne International Airport is presently serviced by two airlines,
Delta Air Lines, a major air carrier that operates a hub system and Spirit
Airlines, a small low fare air carrier. Delta Air Lines provides several daily
flights to Atlanta their major hub and flights from Atlanta to Cardinal's
planned destinations. Spirit provides two Daily non-stop flights to New York's
LaGuardia airport. Initially the Company does not plan to provide service to the
New York LaGuardia Airport, but does plan to provide non-stop service to one of
New York's key airports. There can be no assurance Delta, Spirit, or other
airlines will not provide additional service to Melbourne International Airport.
Page 20
<PAGE>
Company Strategy
The Company's strategy is to focus on the business traveler who usually
does not have the luxury to book flights well in advance or to comply with the
highly restrictive conditions of low priced tickets. Because of this, business
travelers are usually forced to purchase a high priced full fare coach ticket
which offers a low level of service, or an extremely high priced first class
ticket that offers excellent service. Some airlines on some flights offer a
limited number of "Business Class" seats that provide more comfortable seating
and a higher level of service than coach. This is a desirable choice for the
business traveler, but often unavailable.
Cardinal Airlines believes by developing a low cost highly efficient
airline it will be able to offer its passengers excellent service at a
reasonable price, while producing substantial profits. We plan to have a simple,
straight forward relationship with our customers offering full fare "one price
per destination" tickets that will approximate the cost of advanced (14 days
prior) restricted "coach" fares of major airlines. The "Passengers Bill of
Rights" which is before congress at this time, outlines airlines shortcomings in
their relationship with passengers. Cardinal Airlines wants to be recognized as
an airline dedicated to safety, that provides a high level of service and has an
excellent relationship with it's customers.
We believe that by offering the highest levels of safety and customer
service, as well as non-stop flights to key destinations load factors would be
maximized. The Company will offer only one class of service which will be
equivalent to First Class service offered by other airlines. The Company will
configure its aircraft with large "First class seats" and specialized galleys to
facilitate serving excellent meals with complimentary champagne and wine. The
Company will offer a full fare ticket (one price per destination) that will
approximate the advanced restricted "coach" fares of major airlines.
Cardinal Airlines intends to support its flights by attracting customers
now being served by other airlines as well as other airports. Melbourne
International Airport's air service area includes 7 Florida counties with an air
service market of approximately 800,000 passengers. In a July 1997 study
conducted by SH&E Air Transport Consultancy for the Melbourne International
Airport, 3 of the top proposals SH&E made were:
o Improve Washington D.C. service to Non-Stop
o Expand service to the New York market
o Aggressively pursue having an airline headquarter in Melbourne
Page 21
<PAGE>
The same SH&E study estimates that 70% of Melbourne passengers are diverted
to Orlando every year. Further, a July 1997 survey of businesses in the
Melbourne air service market, conducted by the Melbourne - Palm Bay Chamber of
Commerce, showed that 76.3% of the businesses surveyed would commit 100% of
their travel resources to the Melbourne International Airport provided timing
and rates were comparable with other airports. We believe that the Company can
not only meet but exceed our anticipated break even load factor of 42%.
We will place special importance on the selection of new employees. The
Company believes, by hiring qualified employees, with a structured employment
program that allows for career advancement and job security; and providing
proper training, necessary resources, and a safe pleasant work environment, that
it will be able to develop and maintain a highly productive workforce. We intend
to develop a "cafeteria style" employee benefits program, that would add
significant valuable benefits to the employees, and meet individual needs
without hindering the Company's ability to maintain profit levels. This may
include programs such as excellent employee child care, insurance, retirement
benefits, stock options, and company sponsored clubs and organizations. The
Company believes such employee programs will promote loyalty and productivity.
The Company believes that a simplified corporate structure with limited
tier levels will promote excellent communications and interaction throughout the
entire workforce, allowing the Company to benefit from its employees'
experience.
Cardinal Airlines has not established an employee benefits plan at this
time. We plan to implement comprehensive employee benefit programs when airline
operations commence.
Cardinal Airlines has selected EQUALS, a mature, fully integrated, year
2000 compliant, automated, "turn key" airline software system used by several
small airlines and the Colombian Air Force, which provides for complete airline
capabilities and functions. This is a unified system that operates on readily
available "generic" IBM compatible computers, is designed to provide for growth
and expansion, and is simple to learn and operate. The EQUALS system covers the
entire spectrum of airline operations including customer services, flight
operations, ground operations, maintenance, inventory control, and
communications. As an example, it provides for automated reservations and
ticketing, with connectivity to Travel Agents and remote operating sites. Travel
Agents will not be required to obtain additional software to interface with our
system. We believe that our ability to begin operations using a simple,
reliable, unified system will provide significant cost savings and a competitive
edge over other airlines using more complicated systems which have evolved over
a period of years. Cardinal Airlines will "outsource" services where it is more
cost effective or productive.
Geographic Market. The Company, based in Melbourne Florida, will initially
provide service to large key markets in the Eastern United States. Service
between these prominent markets and central Florida historically provides some
of the highest passenger and fare yields. We believe that Melbourne
International Airport is strategically located to capitalize on the significant
business markets of Central Florida, with an additional advantage of the close
proximity to many notable tourist attractions, such as Kennedy Space Center,
Port Canaveral, Beaches, and major Orlando Theme Parks.
Page 22
<PAGE>
Fares, Route System, and Scheduling
The Company will offer a simple full fare, one class open ticket without
restrictive conditions (such as advance booking and Saturday night stay over)
and a single price per destination. Initially, all flights will be non-stop. The
Company plans to commence flight operations with non-stop service between
Melbourne International Airport and Baltimore Washington International Airport,
then add service to the New York market. The Company has begun negotiations with
Baltimore's Washington International Airport and believes that gate and
maintenance areas can be leased on favorable terms. One of the most common
mistakes by new carriers is uncontrolled growth. Maintaining a steady,
controlled growth, the Company would add additional service to other prominent
markets throughout the Eastern United States. Flights will be scheduled to
provide significant and convenient service to these markets.
Marketing
The Company plans to add additional safety equipment to its aircraft which
exceeds the mandated requirements of the FAA, such as fire and smoke detection
in all cargo and baggage compartments, and equipment designed for the flight
crew to deal with smoke in the aircraft's cockpit. Flight crews will be trained
in the proper use of certain emergency medical equipment that will be on all
Company aircraft. We believe the Company's planned configuration of the aircraft
with fewer, more comfortable seats, is also inherently safer.
The Company plans to maximize the effectiveness of its marketing by:
concentrating on passenger potential areas surrounding destinations served by
the Company. The Company will use local cost effective media such as newspaper
advertisements, radio advertisements during the morning and afternoon commuter
rush hours, and billboards on prominent highways in Melbourne, Florida.
Additionally, by direct contact and promotions to area businesses, clubs, and
governmental agencies, the Company will nurture a "preferred airline
relationship."
We believe, visibility and recognition are extremely important in
marketing, especially for a new airline. The Company believes by painting
its aircraft a vivid Cardinal red color they will be highly visible parked at
the gate, taxiing, and in flight. The Company's bright red aircraft will
actually act as a logo, and be identified even from a distance.
The ease of making reservations and ticketing is a crucial part of
capturing the largest possible market share. The Company believes an efficient
and reliable automated reservations system (such as the software selected by the
Company), with connectivity to travel agents and the Internet will increase
initial and repeat use of the Company's airline services. All reservations,
counter, and gate positions will be adequately staffed with competent, friendly,
and courteous personnel, programs will be developed with travel agents that
provides incentives to book customers with Cardinal Airlines. Management
believes customers should have as many viable means of booking a flight as
possible such as a National toll free number, the Internet and travel agents.
The Company will attempt to make purchasing a ticket as convenient and customer
friendly as possible as this is an important part of the travel experience.
Complete customer satisfaction will be a company objective. The Company believes
this can equate to the most effective advertising, "word of mouth."
Page 23
<PAGE>
Aircraft Acquisition
We believe, to be cost effective, Cardinal Airlines should only operate one
type of aircraft. Operating one type of aircraft should significantly lower
maintenance and crew training costs. Cardinal Airlines has identified sources,
general availability, and average cost to lease, lease/purchase used MD-80
series aircraft. We believe that 2 MD-80 series aircraft with approximately
32,000 flight hours, can be located, acquired, and configured to our
specifications to commence flight operations. The frequency of scheduled
maintenance on these aircraft should be the same as on a new aircraft, the
amount of maintenance performed on a scheduled maintenance visit may be slightly
higher.
Maintenance and Repairs
The Company plans to operate MD-80 series aircraft which are modern
commercial airliners used extensively in the airline industry, with more than
1100 currently in service.
The Company will have maintenance operations managed and staffed by
seasoned airline personnel that will perform routine daily and turn-around
maintenance. Overhauls and heavy maintenance that require extensive maintenance
facilities will be outsourced to reputable, FAA approved companies certified to
perform maintenance on MD-80 series aircraft and engines. The Company will
maintain a presence of Quality Assurance personnel on site to insure all work
performed meets the requirements of Cardinal Airline's Maintenance Program. The
Company has not made any agreements with maintenance organizations that are
certified to perform maintenance on MD-80 series aircraft and engines.
The Company plans to maintain an inventory of spare parts to support its
maintenance operations and will also rely on FAA approved vendors and
manufactures for additional parts requirements. We believe replacement parts are
available in sufficient quantities. There can be no assurance that these
industry conditions will continue.
Fuel
Aircraft fuel is expected to be the Company's largest operating expense.
Jet fuel costs and availability, being subject to world economic and
political conditions, cannot be predicted with any degree of certainty. The
Company will attempt to enter into agreements with fuel suppliers to stabilize
fuel costs. An increase in fuel prices or a diminished supply could have a
material adverse effect on the Company's operations.
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Insurance
The Company plans to maintain insurance policies of type customary in the
industry in amounts adequate to meet DOT requirements and to protect the Company
against loss of property and life. The policies will provide coverage for public
liability, passenger liability, baggage and cargo liability, property damage,
including coverage for loss and damage to its flight equipment, and worker's
compensation insurance. There is no assurance, however, that the amount of
insurance carried by the Company will be sufficient to protect it from material
loss.
Government Regulations
Under United States Federal Statute, any one who wants to provide air
transportation service as an air carrier must first obtain two separate
authorizations from the Department of Transportation. The "safety" authority, in
the form of an Air Carrier Certificate and Operations Specifications from the
Federal Aviation Administration (FAA). The "economic" authority, from the Office
of the Secretary of Transportation (the Department), in the form of a
certificate for interstate passenger and/or cargo authority issued under the
Federal Statute. A certificate authorizing interstate air transportation may be
issued after a finding by the department that the applicant is "fit", willing,
and able" to perform the proposed service. (Certificate of Public Convenience
and Necessity).
"Air Transportation," as defined by Federal Statute, means the
transportation of passengers or property by aircraft as a common carrier for
compensation, or the transportation of mail by aircraft, in interstate air
transportation.
"Interstate air transportation," as defined by Federal Statute, means
operations between place in a state, territory, or possession of the
United States and another state, territory, or possession of the United States.
The Company plans to only provide air transportation services within the United
States, its territories or possessions.
Federal Statute defines a "citizen of the United States" as: (1) an
individual who is a citizen of the United States; (2) a partnership each of
whose partners is an individual who is a citizen of the United States; or (3) a
corporation or association organized under the laws of the United States or a
state, the District of Columbia, or a territory or possession of the United
States, of which the president and at least two-thirds of the board of directors
and other managing officers are citizens of the United States, and in which at
least 75 percent of the voting interest is owned or controlled by persons that
are citizens of the United States. The Company's President and Board of
Directors are U.S. citizens and we anticipate that a majority of the public
investors will be U.S. citizens.
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The Company will be required to provide information to the Department to
assess the financial position and its understanding of the costs of starting its
operations. Prior to being granted an effective certificate, the Company must
provide independent, third-party verification, that it has available to it,
resources sufficient to cover all of its pre-operating costs. Plus, the
operating expenses that are reasonably projected for three months of "normal"
operations. In calculating available resources, projected revenues cannot be
included.
Once the Company has been found fit initially, it becomes subject to the
requirements of Federal Statute which require that the Company must remain fit
in order to continue to hold its authority to provide air transportation
services. The Department will require the Company to provide a "progress report"
twelve (12) months after it commences operations. This report would include
information on the Company's then current operations, a summary of how its
operations have changed during the year, a discussion of any changes it
anticipates during its second year of operations, its second year current
financial statements, and information on whether the Company had undergone any
changes in ownership or management.
Cardinal Airlines will submit application to the proper authorities for the
necessary certification to operate a domestic airline. We believe we will be
able to obtain and maintain the proper certifications. If we are delayed or
unable to meet these requirements we would not be able to operate as an airline
under our own certificate.
According to the DOT informational packet, How to Become a Certificated Air
Carrier, dated September, 1998, "Before being granted an effective Certificate,
an applicant must provide independent, third-party verification that it has
available to it resources (e.g., cash, lines-of-credit, bank loans) sufficient
to cover all of its pre-operating costs plus the operating expenses that are
reasonably projected to be incurred by the applicant during three months of
"normal" operations." We estimate that the funds necessary to meet this DOT
certification requirement and therefore to begin operations are approximately
$5,350,000 (the net proceeds for the sale of 600,000 units). See "USE OF
PROCEEDS".
Year 2000
The Company has entered into a letter of intent for its ticketing system
and has received written assurance that this system is year 2000 compliant.
Defective date programming in computer hardware and software might cause
problems in the year 2000. Date errors may impact computer applications and also
production resources, and the procedures of outside suppliers and independent
contractors. Importantly, it is not always known where such date information is
used.
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Melbourne International Airport, Baltimore International Airport and First
Union Bank have also stated that they are Year 2000 compliant. The MD-80 series
aircraft and the EQUALS Airline Computer Software system which Cardinal Airlines
has selected, are year 2000 compliant. The FAA has adopted the U.S. Government
Accounting Office's recommended five-phase repair process to address the Year
2000 issue, the final phase is scheduled to be complete on June 30, 1999. Not
only will the Company continue to request written assurances of year 2000
compliance with all software, hardware and information technology systems it
purchases, but also, the Company plans to conduct regular back-ups of ticket
sales throughout the year and immediately prior to the year change to preserve
previously received reservations. We will not make significant changes in
operations, such as adding destinations or flights, during the period
immediately before and after December 31, 1999. As a contingency we will
prepare to adjust flight schedules, for example: the FAA has stated it would
reduce air traffic capacity before compromising the safety of the National
Airspace System.
Miscellaneous
All air carriers are also subject to certain provisions of the
Communications Act of 1934, as amended, because of their extensive use of
radio and other communication facilities, and are required to obtain an
aeronautical radio license from the Federal Communications Commission ("FCC").
To the extent the Company is subject to FCC requirements, it will take all
necessary steps to comply with those requirements.
The Company operations may become subject to additional federal
requirements in the future under certain circumstances. For example, The
Company's labor relations are covered under Title II of the Railway Labor Act of
1926, as amended, and are subject to the jurisdiction of the National Mediation
Board. During a period of past fuel scarcity, air carrier access to jet fuel was
subject to allocation regulations promulgated by the Department of Energy. The
Company is also subject to state and local laws and regulations at locations
where it will operate and the regulations of various local authorities that
operate airports it serves.
Properties
The Company leases approximately 2,200 square feet of office space at its
principal address for general corporate and operational use at a current monthly
rent of approximately $1,250.00 under a lease which expires July of 1999. The
Company is presently negotiating leases for counter, office, gate, maintenance
and hangar facilities at Melbourne, and Baltimore Washington, International
Airports. Some facilities may be subleased from other airlines. The Company
believes that sufficient and adequate facilities exist at most airports
currently under consideration which can be leased on favorable terms.
Service Marks
The Company has filed "intent to use" service mark applications for
"Cardair," "Dedicated to Safety and Service" and "The Little Airline with the
Big Seats." There is no assurance that these service marks will be approved by
the U.S. Patent Office.
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Legal Proceedings
There are no legal proceedings pending in which the Company is a party or
of which any of its property is the subject of any legal proceeding.
Further Information
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto,
certain portions having been omitted as permitted by the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby reference is made to the Registration Statement,
including the exhibits and financial statement schedules thereto, which may be
inspected without charge at the public reference facility maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the prescribed
rates. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
MANAGEMENT
The following table contains the name, age and position with the Company
of each executive officer and director of the Company as of the date
of this Prospectus. Their respective backgrounds are described following the
table.
Age Position
Lawrence A. Watson 52 Chairman of the Board, President, CEO
H. Lawrence Mason 46 Chief Financial Officer, Vice-President Finance,
Secretary, Treasurer
Vincent T. Paris 51 Vice-President Logistics Support, Director
Ted A. Walker 55 Vice-President Properties and Facilities, Director
Tom Vandervelde 63 Vice-President Safety & Regulatory Compliance
David A. Linsley 61 Vice-President Flight Operations
John J. Pertschi 52 Vice-President of Maintenance
Jack H. Freeman 68 Vice-President of Quality
Ronald J. Newbold 37 Vice-President Investor Relations
Dennis M. Cunningham 51 Chief Pilot
Karen Glover 35 Director of In-Flight Services
John Ryff 38 Director of Stores
Lawrence A. Watson has been Chairman of the Board and Chief Executive
Officer of the Company since its inception in February 1997, and President since
March of 1997. He is a multi-engine, instrument rated commercial pilot with
extensive experience in the aviation industry. Mr. Watson in 1990 was one of the
Founders of Allied Aviation Inc., a commercial aircraft parts company, where as
Vice President of Corporate Development he organized the management team,
directed two private placements, and researched and developed new business. He
has been a member of Allied's Board of Directors since 1990. Mr. Watson was a
F.A.A. Air Traffic Controller at the Miami Air Route Control Center from 1970 to
1976.
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Dr. H. Lawrence Mason has been Secretary Treasurer, Director and
Chief Financial Officer of the Company since March of 1997. Dr. Mason has held
a wide variety of research, engineering, administrative, and executive level
positions in various corporate settings. He was Vice President of Finance
from 1990 to 1996 for Allied Aviation, Inc. and currently holds a position on
the Board of Directors. Dr. Mason was President and C.E.O. of Florida Design
Build Systems, Inc. from 1985 to 1992. He was President and C.E.O. of
F.D.C.S.I. from 1984 to 1989. Dr. Mason attended the University of Kentucky,
the University of South Florida, University of Louisville Graduate School and
School of Medicine/Dentistry.
Vincent T. Paris has been a member of the Company's Board of
Directors since March of 1997. Mr. Paris has been involved in the
development as a consultant since March of 1998 and will become the Vice
President of Logistic Support after the completion of this offering. Mr.
Paris began his aviation career in 1964 with the United States Navy. Mr. Paris
held numerous managerial and executive positions in the throughout his career.
Mr. Paris was employed by Allied Aviation, Inc. from 1992 to 1998 he was the
Vice President of Operations from 1994 to 1998, and was also a member of the
Board of Directors. From 1990 to 1992 he served as Director of Quality Assurance
for Pan American Airways Surplus Parts Subsidiary "Allmat International."
Mr. Paris was involved with several start up established operations in the past.
He has a Bachelor of Science degree in Technology from Florida International
University.
Ted A. Walker has been a member of the Company's Board of Directors since
March of 1997 and will become the Vice-President of Properties and Facilities
after the completion of this offering. Mr. Walker graduated from South
Florida Junior College with an Associate of Arts degree in Business in 1968.
He was a Staff Sergeant in the United States Army and after leaving the
Army became an FAA Air Traffic Controller from 1970 to 1981. Since 1981, Mr.
Walker has been President and C.E.O. of Add Fire Inc., which he founded in
that year. He is also very active in many trade organizations and
Community projects.
Thomas L. Vandervelde is currently a consultant for the Company, assisting
the Company to obtain the 121 Air Carrier Certificate from the Federal Aviation
Administration (F.A.A.) and the Economic Authority from the Secretary of
Transportation (D.O.T.). After the Company obtains its Certifications Mr.
Vandervelde will become the Vice President of Regulatory Compliance & Safety.
Mr. Vandervelde was with the Federal Aviation Administration for 35 years, and
held various positions in the Flight Standards District Offices. Since his
retirement in 1991 from the Federal Aviation Administration, Mr. Vandervelde has
held various top level management positions with Tech.Ops. International,
Michael Goldfarb and Associates, and InterFlight Services. Mr. Vandervelde has
assisted in the Part 121 Certification process of several start-up airlines. He
has developed interactive database maintenance programs for commercial
aircraft, and has conducted numerous safety compliance audits and provided
recommendations to several large commercial aviation operators.
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David A. Linsley will become the Vice-President of Flight Operations
after the completion of this offering. Mr. Linsley has over 40 years of
flying experience, including a distinguished career as military pilot
in the United States Marine Corp. from 1958 to 1967 where he flew more
than 120 combat missions over Vietnam. His career as a Commercial Airline
Pilot began in 1967 with United Airlines. He retired as a Senior Captain
in 1997 after 30 years of service. Mr. Linsley has over 18,000 hours of
accident and incident free flying with over 5300 hours as Pilot in Command. Mr.
Linsley Graduated from San Diego State University with a B.A. in English.
Mr. Linsley is the Founder and President of the Pegasus Fear of Flying
Foundation. He is also Editor and publisher of Pegasus Magazine, a travel
and entertainment magazine for airline employees worldwide.
John J. Pertschi will become the Vice-President of Maintenance after the
completion of this offering. Mr. Pertschi has more than 35 years of
experience in the aviation maintenance business. Mr. Pertschi was a jet
mechanic in the United States Air Force from 1963 to 1967. Mr. Pertschi has
held several key managerial positions with a major airline, start up airlines
and maintenance facilities. From 1968 to 1983 Mr. Pertschi worked for
Continental Airlines and was the Line Maintenance Supervisor from 1981 to
1983. Mr. Pertschi left Continental to take a position as Manager of
Technical Services for a new start up airline; Frontier Horizon, Inc. Mr.
Pertschi was also a manager of aircraft maintenance for Evergreen Air
Center, Inc., Director of Maintenance for Jetborne Aircraft Leasing, Inc. from
1986 to 1989, and Director of Maintenance for Carnival Airlines from 1989
to 1992. From 1993 to 1999, he was Assistant Director of Maintenance
and Production Control Operations Manager for Commodore Aviation.
Jack H. Freeman will become the Vice-President of Quality after the
completion of this offering. Mr. Freeman has more than 39 years of experience
in airline maintenance operations. Mr. Freeman began his career in 1948 as an
aircraft mechanic in the United States Navy. His career in commercial airline
operations began in 1957 with Delta Airlines and he was with Delta until in
1994. Mr. Freeman was an aircraft mechanic until 1970, at which time he was
assigned to the inspection department. While in the inspection department he
inspected all fleet aircraft for airworthiness, including identifying any
aircraft engine and systems malfunctions and instituted corrections. Delta's
fleet included Boeing 727, 737, 747, 757,767, Douglas DC-8, DC-9, DC-10 MD-80,
and Lockheed L-1011 aircraft. Mr. Freeman had assignments as Quality Control
Representative for Delta at the Douglas and Lockheed Aircraft Factories, where
he was responsible for aircraft inspection during their construction.
Additionally, he was an inspector for Delta at the Boeing Aircraft Company.
Since his retirement from Delta in 1994, Mr. Freeman has been engaged as a
consultant and inspector for several aviation companies.
Ronald J. Newbold has worked as a consultant for the Company since October
1998, and was appointed Vice President of Investor Relations on December 1st
1998. Mr. Newbold has an extensive background in sales, marketing and business
management and has held numerous management positions. He has developed
programs for streamlining operational procedures. Mr. Newbold has designed
several database and network systems to track aircraft, inventory's, as well as
sales and marketing of products. He has also developed markets and accounts
for new and existing product lines. Mr. Newbold graduated from Wichita State
University with a Bachelor of Business Administration in Marketing. From
September 1992 through March 1995, Mr. Newbold was employed at Dallas
Aerospace engaging in commercial aircraft parts and engine sales. Following
that, Mr. Newbold worked for thirteen months at AmTec as a Sales Manager. From
April 1996 until April 1997, he was engaged in the same position for Kellstrom,
Inc. He then worked for Allied Aviation, Inc. as Marketing Manger for
commercial aircraft parts.
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Dennis M. Cunningham will become the Chief Pilot after the completion
of this offering. Mr. Cunningham has over 28 years of experience in airline
operations and flight training, with a total of over 15,000 flight hours and
10,884 hours as Pilot in Command. Mr. Cunningham began his commercial airline
career in 1970 with Air New England until 1980. Mr. Cunningham is experienced
with all aspects of Airline Certification, Simulator Training, Proficiency
Checks, Instructor Pilot. Responsible for training pilots during Initial
Operating Experience and Flight Training. Mr. Cunningham has extensive
experience on both Domestic and International Routes. He also has endorsements
by the FAA as an Instructor Pilot/Check Airman on the DC9/MD80 and Simulator
Instructor on both DC-9 and L-1011. Mr. Cunningham has previously assisted in
establishing a training department and participated in developing Operational
Manuals, Training Syllabuses and Crew Instructions. From 1990 to 1995 Mr.
Cunningham served as Captain/Instructor Pilot for Saudi Arabian Airlines, from
1995 to 1996 was Captain for Caribjet, from 1996 to 1997 Project Manager/Check
Airman for Nations Air, From 1997 to 1998 Captain for Gemini Air Cargo and is
currently flying for TradeWinds Airlines.
Karen D. Glover will become the Director of In-Flight Services after the
completion date of this offering. Ms. Glover began her career as a Flight
Attendant with Ansett Australian Airlines in 1985 and was employed there until
1991. From 1991 to 1993 she was employed by Eva Airways as an Instructor. She is
qualified as a flight attendant on 7 aircraft types. While with Ansett, she was
a member of the Cabin Safety Committee. Ms Glover has held several positions in
all aspects of In-Flight Services, from assisting in developing an In-Flight
Department, Crew Scheduling, Training, Safety and Standards Compliance. She has
developed, written, and revised Flight Attendant Manuals, Training manuals, in
addition to developing Standards Programs.
John J. Ryff has worked as a consultant for the Company and will
become Director of Materiel after the completion of this offering. Mr.
Ryff served for 13 years in the United States Marine Corps. and achieved the
rank of Sergeant. The last position he held was Maintenance Control Chief
where his duty was overseeing the units Material Support and Supply Division.
Upon leaving the Marine Corps in 1993. In December 1993, Mr. Ryff was
employed by Allied Aviation, a supplier of commercial aircraft parts. Mr.
Ryff was initially employed as the Inventory Control Manager, then appointed to
the company's sales department and later promoted to Sales Manager until June of
1998.
Summary of Cash and Certain Other Compensation
Long-Term
Annual Compensation Compensation Awards
Restricted Securities
Deferred Cash Other Annual Stock Underlying
Bonus LTIP Payouts Other Compensation
Name Year Salary Salary Compensation Awards Options/SARs
Lawrence A Watson 1997 --- --- ---- ---- ----
1998 --- --- ---- ---- ----
H. Lawrence Mason 1997 --- --- ---- ---- ----
1998 --- --- ---- ---- ----
David A. Linsley 1998 --- --- ---- ---- ----
Tom Vandervelde 1998 --- --- ---- ---- ----
Vincent T. Paris 1997 --- --- ---- ---- ----
1998 --- $27,600 ---- ---- ----
Ted A. Walker 1997 --- --- ---- ---- ----
1998 --- --- ---- ---- ----
Ronald J. Newbold 1998 --- $ 8,000 ---- ---- ----
John J. Ryff 1998 --- $11,600 ---- ---- ----
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On July 1, 1998, the Company entered into a five-year employment agreement
with Mr. Watson, providing for an annual salary of $110,000 per year to be
increased to $130,000 per year "upon the Company reaching break-even load factor
and maintaining that level for 30 consecutive days." The term of the employment
agreement will commence on the earlier of the date agreed to by employee and the
Company or as cash flow permits. The agreement may be terminated for cause upon
Mr. Watson's disability for nine consecutive months or nine months out of a
12-month period. The agreement may be terminated without cause on 60 days'
notice upon one-half of Mr. Watson's base salary for the remaining term of the
contract. Mr. Watson's employment agreement is renewable annually for five-year
terms unless either party gives written notice of termination at least 60 days
before the then current term.
On July 1, 1998, the Company entered into a three-year employment agreement
with Mr. Mason, providing for an annual salary of $100,000 per year to be
increased to $110,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Mason's disability for nine consecutive months or
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Mason will receive one-half
of his base salary for the remaining term of the contract. Mr. Mason's
employment agreement is renewable annually for three-year terms unless either
party gives written notice of termination at least 60 days before the then
current term.
On July 1, 1998, the Company entered into a three-year employment
agreement with Mr. Paris, providing for an annual salary of $90,000 per year to
be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Paris's disability for nine consecutive months or
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Paris will receive one-half
of his base salary for the remaining term of the contract. Mr. Paris's
employment agreement is renewable annually for three-year terms unless either
party gives written notice of termination at least 60 days before the then
current term.
On July 1, 1998, the Company entered into a three-year employment
agreement with Mr. Walker, providing for an annual salary of $90,000 per year to
be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Walker's disability for nine consecutive months or
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Walker will receive one-
half of his base salary for the remaining term of the contract. Mr. Walker's
employment agreement is renewable annually for three-year terms unless either
party gives written notice of termination at least 60 days before the then
current term.
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On November 5, 1998 the Company entered into a one-year employment
agreement with Mr. Vandervelde, providing for an annual salary of $90,000 per
year to be increased to $100,000 per year "upon the Company reaching break-even
load factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the date the Company receives it's 121 Air
Carrier certificate from the FAA and Economic authority from the office of the
Secretary of Transportation. The agreement may be terminated for cause upon Mr.
Vandervelde's disability for nine consecutive months or nine months out of a
12-month period. The agreement may be terminated without cause on 60 days'
notice. Upon such termination, Mr. Vandervelde will receive one-half of his base
salary for the remaining term of the contract. Mr. Vandervelde's employment
agreement is renewable annually for one-year terms unless either party gives
written notice of termination at least 60 days before the then current term.
On November 5, 1998, the Company entered into a one-year employment
agreement with Mr. Linsley, providing for an annual salary of $90,000 per year
to be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Linsley's disability for nine consecutive months
or nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Linsley will receive
one-half of his base salary for the remaining term of the contract. Mr.
Linsley's employment agreement is renewable annually for one-year terms unless
either party gives written notice of termination at least 60 days before the
then current term.
On December 10, 1998, the Company entered into a one-year employment
agreement with Mr. Pertschi, providing for an annual salary of $90,000 per year
to be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The
agreement may be terminated for cause upon Mr. Pertschi's disability for nine
consecutive months or nine months out of a 12-month period. The agreement may be
terminated without cause on 60 days' notice. Upon such termination, Mr. Pertschi
will receive one-half of his base salary for the remaining term of the contract.
Mr. Pertschi's employment agreement is renewable annually for one-year terms
unless either party gives written notice of termination at least 60 days before
the then current term.
On January 11, 1999, the Company entered into a one-year employment
agreement with Mr. Freeman, providing for an annual salary of $90,000 per year
to be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Freeman's disability for nine consecutive months
or nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Freeman will receive
one-half of his base salary for the remaining term of the contract. Mr.
Freeman's employment agreement is renewable annually for one-year terms unless
either party gives written notice of termination at least 60 days before the
then current term.
On October 2, 1998, the Company entered into a one-year employment
agreement with Mr. Newbold, providing for an annual salary of $90,000 per year
to be increased to $100,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Newbold's disability for nine consecutive months
or nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Newbold will receive
one-half of his base salary for the remaining term of the contract. Mr.
Newbold's employment agreement is renewable annually for one-year terms unless
either party gives written notice of termination at least 60 days before the
then current term.
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On January 15, 1999, the Company entered into a one-year employment
agreement with Mr. Cunningham, providing for an annual salary of $85,000 per
year to be increased to $95,000 per year "upon the Company reaching break-even
load factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Cunningham's disability for nine consecutive
months or nine months out of a 12-month period. The agreement may be terminated
without cause on 60 days' notice. Upon such termination, Mr. Cunningham will
receive one-half of his base salary for the remaining term of the contract. Mr.
Cunningham's employment agreement is renewable annually for one-year terms
unless either party gives written notice of termination at least 60 days before
the then current term.
On December 10, 1998, the Company entered into a one-year employment
agreement with Ms. Glover, providing for an annual salary of $70,000 per year to
be increased to $80,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Ms. Glover's disability for nine consecutive months or
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Ms. Glover will receive
one-half of her base salary for the remaining term of the contract. Ms. Glover's
employment agreement is renewable annually for one-year terms unless either
party gives written notice of termination at least 60 days before the then
current term.
On October 2, 1998, the Company entered into a one-year employment
agreement with Mr. Ryff, providing for an annual salary of $70,000 per year to
be increased to $80,000 per year "upon the Company reaching break-even load
factor and maintaining that level for 30 consecutive days." The term of the
employment agreement will commence on the earlier of the date agreed to by
employee and the Company or as cash flow permits. The agreement may be
terminated for cause upon Mr. Ryff's disability for nine consecutive months or
nine months out of a 12-month period. The agreement may be terminated without
cause on 60 days' notice. Upon such termination, Mr. Ryff will receive one-half
of his base salary for the remaining term of the contract. Mr. Ryff's employment
agreement is renewable annually for five-year terms unless either party gives
written notice of termination at least 60 days before the then current term.
CERTAIN TRANSACTIONS
The following is a summary of certain transactions among the Company and
related persons.
On March 1, 1997, the Company issued a total of 890,000 shares to its
directors for $.01 per share (230,000 shares were purchased by Mr. Watson;
220,000 shares were purchased by Mr. Mason; 220,000 shares were purchased by Mr.
Paris; and 220,00 shares were purchased by TAWCOT, a trust controlled by Mr.
Walker).
Page 34
<PAGE>
On July 1, 1997, the Company issued a total of 240,000 shares to its
directors for $.50 per share (60,000 shares each were purchased by Mr. Watson,
Mr. Mason, Mr. Paris and the TAWCOT trust, a trust controlled by Mr. Walker).
The purchase price was payable in cash or by the execution of a promissory note
bearing interest at 8% payable in full on or before June 30, 2003. In connection
with these purchases, Mr. Watson executed a promissory note in the original
pre-paid amount of $17,123; Mr. Walker executed a promissory note for $27,971;
Mr. Paris for $26,183; and Mr. Mason executed a promissory note for $25,394.
On October 16, 1998, the Company sold each to Mr. Watson, Mr. Mason, Mr.
Walker and Mr. Paris 25,000 Series A Preferred Shares (totaling 100,000
Series A Preferred Shares) for a purchase price of $.01 per share.
On January 11, 1999, the Company authorized the issuance of a total
of 100,000 Warrants to the Selling Shareholders on the basis of one
Warrant for each share offered. See "SELLING SHAREHOLDERS".
The Company entered into a consulting agreement wtih Maviation, LLC, which
is owned by a key employee, Thomas Vandervelde. Pursuant to the terms of the
contract, Maviation will pursue a Part 121 Certification at a rate of $800.00
per day for the Company.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1998, and
as adjusted to give effect to the sale of the Units offered hereby, by (i)
each person (or group or affiliated persons) known to the Company to be the
beneficial owners of more that 5% of the Company's Common Stock, (ii) each
director of the Company, (iii) each of the Company's executive officers, (iv)
the Selling Stockholders, and (v) all of the Company's directors and officers as
a group.
Page 35
<PAGE>
<TABLE>
<CAPTION> Common Shares
Beneficially Owned (1) Number of Common Shares Beneficially
Prior to Offering Shares Owned After Offering (2)
Stockholder Name Number Percent Offered Number Percent
and Address
==========================================================================================
<S> <C> <C> <C> <C> <C>
Beauchesne, Alfred M. & Maryann 20,000 1.17% 2,000 18,000 1.05%
297 HWY A1A #315, Satellite Beach, FL 32937
Berkley, Thomas S. 30,000 1.75% 3,000 27,000 1.58%
8505 Sheridan Road, Melbourne, FL 32904
Couch, Eugene J. Jr. 5,000 0.29% 500 4,500 0.26%
3561 Sparrow Lane, Melbourne, FL 32935
Ellis, Marie D. 8,000 0.47% 0 8,000 0.47%
325 South Banana River Blvd, Cocoa Beach, FL 32931
Glover, Karen D. 30,000 1.75% 0 30,000 1.75%
2455 Summer Brook St, Melbourne, FL 32940
Greenwood, Bruce D. & Mayra S. 16,000 0.93% 1,600 14,400 0.84%
1321 Mallard Court, Ft. Pierce, FL 34982
INDEGO(trust managed by Litton Walker) 20,000 1.17% 2,000 18,000 1.05%
P.O. Box 352, Avon Park, FL 33825
Kee, Terry L. 15,400 0.90% 1,540 13,860 0.81%
PSC 78 Box 2872 APO AP 96326-2872, APO AP, 96326-2872
Linsley, David A. 40,000 2.34% 0 40,000 2.34%
6483 Fox Run Circle, Jupiter, FL 33458-1875
Mason, H. Lawrence 280,000 16.35% 16,600 263,400 15.38%
432 St.Johns Dr., Satellite Beach, FL 32937
Mason, L. Dianne 20,000 1.17% 2,000 18,000 1.05%
5415 Collins Ave., #602, Miami Beach, FL 33140
Newbold, Darin K. 10,000 0.58% 1,000 9,000 0.53%
4141 Horizon N. Parkway Apt. 1333, Dallas, TX 75287
Newbold, Ronald J. 50,000 2.92% 5,000 45,000 2.63%
600 Dinner St. N.E., Palm Bay, FL 32907
Paris, Vincent T. 280,000 16.35% 14,080 265,920 15.53%
855 Hawser St. N.E., Palm Bay, FL 32907
Pertschi, John J. 40,000 2.34% 0 40,000 2.34%
5280 S.W. 4th Street, Plantation, FL 33317
Rackley, William R. Jr. 50,000 2.92% 5,000 45,000 2.63%
1000 Eastwood Rd. Apt. J7, Hilliard, FL 32046
Riles, Dennis 20,000 1.17% 2,000 18,000 1.05%
1823 Van Pelt Road, Sebring, FL 33870
Ryff, John J. Jr. 50,000 2.92% 5,000 45,000 2.63%
365 Needle Blvd., Merritt Island, FL 32953
Serrao, Michael A. 26,000 1.52% 2,600 23,400 1.37%
218 Nemo Circle N.E., Palm Bay, FL 32907
Shores, Derrick V. & Shores, Faith L. 10,000 0.58% 1,000 9,000 0.53%
1458 Manzanita St. N.W., Palm Bay, FL 32907
Simoncelli, Raymond A. 20,000 1.17% 2,000 18,000 1.05%
25461 Nottingham Ct, Laguna Hill, CA 92653
TAWCOT(trust managed by Ted A. Walker)(3) 280,000 16.35% 15,000 265,000 15.48%
8528 N.W. 66th St., Miami, FL 33166
Vandervelde, Todd & Gregory B. Jonet 10,000 0.58% 0 10,000 0.58%
7501 Woodknoll Drive, Charlotte, NC 28217
Vandervelde, Tom 50,000 2.92% 2,500 47,500 2.77%
128 Albacore Lane, Foster City, CA 94404
Waters, Charles K. 15,000 0.88% 0 15,000 0.88%
1498 Alberni Street N.W., Palm Bay, FL 32907
Waters, Christine A. 17,000 0.99% 1,500 15,500 0.91%
P.O. Box 9022, Reston, VA 20195
Watson, Lawrence A. 290,000 16.94% 14,080 275,920 16.11%
1564 Raymor St. N.W., Palm Bay, FL 32907
Wheeler, James 10,000 0.58% 0 10,000 0.58%
773 Bianca Drive N.E., Palm Bay, FL 32905
1,712,400 100,000 1,612,400
Page 36
<PAGE>
</TABLE>
(1) The information presented in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under the
Exchange Act. All information with respect to the beneficial ownership of any
shareholder and, except as otherwise indicated, each shareholder has sole
voting and investment power with respect shares listed as beneficially owned by
such shareholder. Pursuant to the rules of the Commission, in calculating
percentage ownership, each persons deemed to beneficially own shares subject to
options or warrants exercisable within 60 days of the date of this Prospectus.
(2) Assumes the sale of all of the Units offered herein.
(3) Controlled by Ted A. Walker.
DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 50,000,000 shares of common stock, $0.01 par value per share and
1,000,000 shares of Preferred Stock, par value $.01. As of the date of this
Prospectus, 2,031,200 shares of the Common Stock were outstanding and 100,000
Series A Preferred Shares were outstanding. The description in this Prospectus
of the capital stock of the Company is qualified by and subject to the Delaware
General Corporation Law and the Company's Articles of Incorporation and By-laws,
copies of which Articles and By-laws have been filed as exhibits to the
Registration statement of which this Prospectus is a part and to which reference
is made for the provisions thereof which are summarized below.
Units
Each Unit offered hereby consists of one (1) share of Common Stock and one
Warrant to purchase one share of common stock. Each Unit will be offered for a
price of $10.00. Warrants may be exercised at a price of $11.00 until Five years
from the effective date of this offering. The Warrants hereby are immediately
transferable separately from the Common Stock and issued with the Common Stock
as part of the Units. The Warrants are subject to the terms of a Warrant
resolution by Cardinal Airlines' Board of Directors which defines the terms
under which the Warrants may be exercised, called and transferred.
Common Stock
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders and have no cumulative voting
rights. 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. See "DIVIDEND POLICY". 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. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the shares of Common Stock offered hereby will also
be fully paid and nonassessable.
Page 37
<PAGE>
Warrants
The holder of each warrant is entitled, upon payment of the exercise price
of $11.00 to purchase one (1) share of Common Stock. Unless previously redeemed,
the Warrants are exercisable at any time until five years from the effective
date of this offering, provided that at such time a current prospectus relating
to the underlying Common Stock is in effect and the underlying Common Stock is
qualified for sale or exempt from qualification under applicable state
securities laws. The Warrants included in the Units offered hereby are
immediately transferable separately from the Common Stock and issued with such
Warrants as part of the Units. The Warrants are subject to redemption, as
described below.
Redemption. Commencing on the date of this Prospectus, the Warrants are
subject to redemption by the Company, on not more than sixty (60) nor less than
thirty (30) days' written notice, at a price of $.05 per Warrant, if the average
closing bid price of the Common Stock for any 30 consecutive business days
ending within 15 days of the date on which the notice of redemption is given
exceeds $15.00 per share. In the event the Company elects to redeem the
Warrants, any remaining restrictions on transfer or exercise will expire.
Holders of Warrants will automatically forfeit their rights to purchase the
shares of Common Stock issuable upon exercise of such Warrants unless the
Warrants are exercised before the close of business on the date immediately
prior to the date set for redemption. The notice of redemption shall be made by
first class mail, postage prepaid, not less than 15 days prior to the date of
redemption, and shall specify the redemption price, the date fixed for
redemption, the place where the Warrant certificates shall be delivered and the
redemption price to be paid, and that the right to exercise the Warrants shall
terminate at 5:00 PM EST on the business day immediately preceding the date
fixed for redemption. The Company may without notice to warrant holders extend
the time in which the warrants may be exercised or reduce the exercise price.
The Warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to the earlier of their expiration of the redemption date (as
explained above) at the offices of the Company's warrant agent (the "Warrant
Agent") with the form of "Subscription Agreement" on the reverse side of the
certificate(s) filled out and executed as indicated, accompanied by payment (in
the form of certified or cashier's check payable to the order of the Company) of
the full exercise price for the number of Warrants being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, certain issuance of Common Stock below fair
market value, sale of substantially all of the Company's assets, and for other
extraordinary events in order to enable the holders of the Warrants to obtain
the same or equivalent rights which they would have obtained if the Warrants had
been exercised prior to the event.
Page 38
<PAGE>
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of a Warrant will not possess any
rights as a stockholder of the Company unless and until the person exercises the
Warrant.
Preferred Shares
The Company has issued 100,000 Series A Preferred Shares of the 1,000,000
Preferred Shares authorized. The rights and preferences of preferred shares
issued in the future, if any, will be determined by the Company's Board of
Directors. Holders of Series A preferred Shares have no right to receive
dividends, but shall be entitled to a preference in the amount of $.01 per
share in the event of dissolution of the Company. Holders of Series A
preferred shares are entitled to vote with the holders of common shares on any
matter upon which common share holders are entitled to vote, including without
limitation the election of directors, at a rate of 100 votes for every share
held. As a result, the holders of the 100,000 preferred shares, Mr. Watson, Dr.
Mason, Mr. Paris and Mr. Walker possess 10,000,000 votes and will control the
affairs of the Company. Preferred shares are non-transferable.
Undesignated Preferred Stock
The authorized but unissued Preferred Stock (900,000 shares) may be
issued in series, and shares of each series will have such rights and
preferences as are fixed by the Board of Directors in the resolutions
authorizing the issuance of that particular series. In designating any series of
Preferred Stock, the Board of Directors may, without further action by the
holders of Common Stock, fix the number of shares constituting that series and
fix the dividends rights, dividend rate, conversion rights, voting rights (which
may be greater or lesser than the voting rights of the Common Stock), rights
and terms of redemption (including any sinking fund provisions), and the
liquidation preferences of the series of Undesignated Preferred Stock. The
holders of any series of Preferred Stock, when and if issued, are expected to
have priority claims to dividends and to any distribution upon liquidation of
the Company, and they may have other preferences over the holders of the Common
Stock.
The Board of Directors may issue series of Preferred Stock without action
by the stockholders of the Company. Accordingly, the issuance of Preferred
Stock may adversely affect the rights of the holders of the Common Stock. In
addition, the issuance of Preferred Stock may be used as an "anti-takeover"
device without further action on the part of the stockholders. Issuance of
Preferred Stock may dilute the voting power of holders of Common Stock (such as
by issuing Preferred Stock with super-voting rights) and may render more
difficult the removal of current management, even if such removal may be in the
stockholders' best interest. The Company has no current plans to issue any
additional Preferred Stock.
Page 39
<PAGE>
Transfer Agent - Warrant Agent
The transfer agent, registrar for the common stock and warrant agent is
First Union National Bank of North Carolina.
Limitation of Liability and Indemnification of Directors.
The right of the stockholders to sue any director for misconduct in
conducting the affairs of the Company is limited by the Company's Articles of
Incorporation and Delaware statutory law to cases for damages resulting from
breaches of fiduciary duties involving acts or omissions involving intentional
misconduct, fraud, knowing violations of the law or the unlawful payment of
dividends. Ordinary negligence is not a ground for such a suit. The statute does
not limit the liability of directors or officers for monetary damages under the
Federal Securities laws.
The Company also has the obligation, pursuant to the Company's By-laws, to
indemnify any director or officer of the Company for all expenses incurred by
them in connection with any legal action brought or threatened against such
person for or on account of any action or omission alleged to have been
committed while acting in the course and scope of the person's duties, if the
person acted in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of the Company, and with respect
to criminal actions, had no reasonable cause to believe the person's conduct was
unlawful, provided that such indemnification is made pursuant to then existing
provisions of Delaware General Corporation Law at the time of any such
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
At the completion of this Offering, there will be 3,931,200 shares of
Common Stock outstanding if all Units are sold. There will be 2,000,000 shares
of Common Stock issuable upon the exercise of outstanding warrants. There is no
current market for the Company's securities, and no market may exist at the
conclusion of this Offering. In the event a market for the Company's stock
develops, the Company cannot predict the effect, if any, that market sales of
restricted shares of Common Stock (described below) or the availability of such
shares for sale will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market would likely adversely affect any prevailing market
price for the Common Stock and could impair the Company's ability to raise
capital through the sale of its equity securities.
Page 40
<PAGE>
Sales of Restricted Securities
Assuming all Units offered herein are sold, 1,931,200 shares of Common
Stock outstanding prior to the Offering, were or will be issued and sold by the
Company in private transactions not involving a public offering in reliance upon
exemptions under the Securities Act. These securities are treated as "restricted
securities" and may not be resold except in compliance with the registration
requirements of the Securities Act or pursuant to an exemption therefrom. No
outstanding shares are subject to registration rights.
PLAN OF DISTRIBUTION
Of the 2,000,000 Units of Common Stock offered hereby, 1,900,000 Units are
being sold by the Company and 100,000 Units are being sold by the Selling
Stockholders. Each Unit offered consists of one share of common stock and one
warrant to purchase one share of common stock for a price of $11.00 a share
until Five years from the effective date of this offering. The Company will not
receive any of the proceeds from the sale of Units by the Selling Stockholders.
There is no minimum number of Units to be sold in the Offering, and all funds
received will go immediately to the Company. The Offering will be terminated
upon the earliest of: the sale of all Units, twelve months after the date of
this Prospectus (unless extended), or the date on which the Company decides to
close the Offering. A minimum purchase of 100 Units ($1,000) is required. The
Company reserves the right to reject any Unit Purchase Agreement in full or in
part. Units being offered by Selling Shareholders will only be sold following
the sale of all 1,900,000 Units offered by the Company.
The Company plans to offer and sell the Units directly to investors and has
not retained any underwriters, brokers, dealers, or placement agents in
connection with the Offering. However, the Company reserves the right to use
brokers, dealers, or placement agents and could pay commissions equal to as much
as 10 percent of the gross proceeds. The Company will effect offers and sales
of Units through printed copies of this Prospectus delivered by mail and
electronically, by contacting prospective investors by publicizing the Offering
through a posting on the Company's World Wide Web site www.flycardinal.com,
through newspaper advertisements, and by contacting additional potential
investors by direct e-mail and regular mail solicitation. Any voice or other
communications will be conducted in certain states through the Company's
executive officers, and in other states, where required, through a designated
sales agent, licensed in those states.
Residents of Virginia purchasing Units must have a net worth of at least
$225,000 or a net worth of at least $60,000 and an annual income of at least
$60,000. Net worth in all cases is calculated exclusive of home, furnishings and
automobiles. Virginia residents may not invest more than 10%of their readily
marketable assets in the offering.
Page 41
<PAGE>
LEGAL
Certain legal matters in connection with validity of the Units offered
hereby will be passed upon for the Company by Bruce Brashear, Esq., Gainesville,
Florida.
EXPERTS
The financial statements of the Company for the period from February 10,
1997 (inception) to December 31, 1998, appearing in this Prospectus and
Registration Statement have been audited by Rosenfield & Company, P.A.,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
Page 42
<PAGE>
UNIT PURCHASE AGREEMENT
[To purchase any of the Units, you must be a resident of a state where the sale
of Units is permitted under the state's securities laws.]
To:
Cardinal Airlines, Inc.
1380 Sarno Road, Suite B
Melbourne, FL 32935 USA
Phone:(407) 757-7388
Fax: (407) 757-7390
E-mail: [email protected]
I have received and had an opportunity to read the Prospectus by which the Units
are offered.
Enclosed is payment for____________ Units (minimum 100), at $10.00 per unit,
totaling $____________.
Make check payable to Cardinal Airlines, Inc.
Signature(s)__________________________________ Date_______________
Register the Units in the following name(s) and amount(s):
Name(s)_____________________________________ Number of Units ____________
As (check one):
Individual _______ Joint Tenants _______ Trust _______ IRA _______
Tenants in Common _______ Corporation _______ Keogh _______ Other _______
For the person(s) who will be registered owner(s):
Mailing Address:________________________________________________________________
City, State & Zip Code: ________________________________________________________
Business Phone: (_____)________________ Home Phone: (_____)_________________
Social Security or Taxpayer ID Number: _________________________________________
(Please attach any special mailing instructions other than shown above)
NO UNIT PURCHASE AGREEMENT IS EFFECTIVE UNTIL ACCEPTANCE
(You will be mailed a signed copy of this Agreement to retain for your
records.)
Subscription accepted by Cardinal Airlines, Inc.
- ----------------------------- --------
Lawrence A. Watson, President Date
Page 43
<PAGE>
Cardinal Airlines, Inc.
(A Development Stage Company)
Financial Statements
December 31, 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Cardinal Airlines, Inc.
Melbourne, Florida
We have audited the accompanying balance sheets of Cardinal Airlines, Inc. (a
Delaware corporation in the development stage) as of December 31, 1998 and June
30, 1998, the related statements of operations and cash flows for the six months
ended December 31, 1998 and 1997, from February 10, 1997 (Inception) to December
31, 1998, for the fiscal year ended June 30, 1998, from February 10, 1997
(Inception) to June 30, 1998 as well as February 10, 1997 (Inception) to June
30, 1997 and the statements of stockholders' equity from February 10, 1997
(Inception) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cardinal Airlines, Inc. as of
December 31, 1998 and June 30, 1998 and the results of its operations and its
cash flows for the six months ended December 31, 1998 and 1997, from February
10, 1997 (Inception) to December 31, 1998, for the fiscal year ended June 30,
1998, from February 10, 1997 (Inception) to June 30, 1998 as well as February
10, 1997 (Inception) to June 30, 1997, in conformity with generally accepted
accounting principles.
February 15, 1999
Orlando, Florida
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Financial Statements
Table of Contents
BALANCE SHEETS.................................................................1
STATEMENTS OF OPERATIONS.......................................................2
STATEMENT OF STOCKHOLDERS' EQUITY..............................................3
STATEMENTS OF CASH FLOWS...................................................4 - 5
NOTES TO FINANCIAL STATEMENTS.............................................6 - 10
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Balance Sheets
December 31, 1998 June 30, 1998
----------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 30,351 $ 14,169
Interest Receivable 3,872 -
----------------- -------------
TOTAL CURRENT ASSETS 34,223 14,169
PROPERTY AND EQUIPMENT, net 7,249 8,091
DEPOSITS 3,830 1,740
----------------- -------------
TOTAL ASSETS $ 45,302 $ 24,000
================= =============
COMMITMENTS
STOCKHOLDERS' EQUITY, including
deficit accumulated during the
development stage of $107,177 $ 45,302 $ 24,000
================= =============
The accompanying notes are an integral part of these financial statements.
- 1 -
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
February 10, 1997 Six Months Ended February 10, 1997 February 10, 1997
(Inception) to ---------------- (Inception) to Fiscal Year Ended (Inception) to
December 31, 1998 December 31, 1998 December 31, 1997 June 30, 1998 June 30, 1998 June 30, 1997
------------------- ----------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ - $ -
EXPENSES
Consulting Fees 48,600 48,600 - - - -
Professional Fees 22,569 20,628 504 1,941 756 1,185
Rent 19,345 5,830 7,150 13,515 11,920 1,595
Supplies 3,981 975 815 3,006 2,942 64
Utilities 6,472 3,278 1,503 3,194 2,870 324
Depreciation 4,416 2,393 2,023 2,023
Miscellaneous 5,616 5,616 - - - -
Taxes 50 - - 50 50 -
=============== =================== ================ ================= ================ ===============
111,049 87,320 9,972 23,729 20,561 3,168
Interest Income 3,872 3,872 - - - -
--------------- ------------------- ---------------- ----------------- ---------------- --------------
NET (LOSS) $(107,177) $ (83,448) $ (9,972) (23,729) $ (20,561) $(3,168)
=============== =================== ================ ================= ================ ==============
Net loss per share $ (0.06) $ (0.05) $ (0.01) $ (0.01) $ (0.01) $ (0.01)
=============== =================== =============== ================= ================ ===============
Shares used in
computing net loss per
share 1,712,400 1,712,400 1,712,400 1,712,400 1,712,400 1,712,400
================== =================== =============== ================= ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Statement of Stockholders' Equity
February 10, 1997 (Inception) to December 31, 1998
<TABLE>
<CAPTION>
Number Common Preferred Additional Accumulated Total Stockholders'
of Shares Stock Stock Paid-In Capital Deficit Equity
-------------- ------------- -------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares of
common stock:
March 1, 1997 940,000 $ 9,400 $ - $ - $ - $ 9,400
July 1, 1997 240,000 2,400 - 117,600 - 120,000
June 10, 1998 30,000 300 - 14,700 - 15,000
August 10, 1998 20,000 200 - 9,800 - 10,000
August 20, 1998 10,000 100 - 4,900 - 5,000
August 31, 1998 35,400 354 - 17,346 - 17,700
September 10, 1998 10,000 100 - 4,900 - 5,000
September 30, 1998 16,000 160 - 7,840 - 8,000
October 2, 1998 115,000 1,150 - - - 1,150
October 3, 1998 17,000 170 - 8,330 - 8,500
October 5, 1998 5,000 50 - 2,450 - 2,500
November 5, 1998 90,000 900 - - - 900
November 16, 1998 20,000 200 - 9,800 - 10,000
November 28, 1998 20,000 200 - 9,800 - 10,000
November 30, 1998 46,000 460 - 22,540 - 23,000
December 9, 1998 10,000 100 - 4,900 - 5,000
December 10, 1998 70,000 700 - - - 700
December 28, 1998 8,000 80 - 3,920 - 4,000
December 29, 1998 10,000 100 - 4,900 - 5,000
--------------
Total issuance of shares 1,712,400
of common stock: ==============
Issuance of preferred
stock:
October 16,
1998-Series A 100,000 - 1,000 - - 1,000
==============
Less: Stock Subscriptions (1,510) - (15,190) - (16,700)
Less: Notes Receivable-
Related Parties (2,335) - (90,336) - (92,671)
Net (loss) - - - (107,177) (107,177)
---------------------------------------------------------------------------------------------------------
Balance -
December 31, 1998 $ 13,279 $ 1,000 $138,200 $(107,177) $ 45,302
============== ============== ================ =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Statements of Cash Flow
<TABLE>
<CAPTION>
February 10, 1997 Six Months Ended February 10, 1997 February 10, 1997
(Inception) to ---------------- (Inception) to Fiscal Year Ended (Inception) to
December 31, 1998 December 31, 1998 December 31, 1997 June 30, 1998 June 30, 1998 June 30, 1997
------------------- ----------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Cash paid for
operating expenses $ (106,634) $ (84,928) $ (9,972) $ (21,706) $ (18,538) $ (3,168)
----------------- ------------------ ----------------- ---------------- ---------------- ---------------
NET CASH USED IN
OPERATING ACTIVITIES (106,634) (84,928) - (21,706) (18,538) -
----------------- ----------------- ----------------- ---------------- --------------- ---------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment (11,664) (1,550) - (10,114) (10,114) -
Increase in security
deposits (3,830) (2,090) - (1,740) - -
----------------- ----------------- ----------------- ---------------- --------------- --------------
NET CASH USED IN
INVESTING ACTIVITIES (15,494) (3,640) - (11,854) (10,114) -
------------------ ----------------- ----------------- ---------------- -------------- --------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of common
stock 147,479 99,750 9,972 47,729 42,821 3,168
Issuance of preferred
stock 1,000 1,000 - - - -
Cash received from notes
receivable 4,000 4,000 - - - -
----------------- ----------------- ----------------- ---------------- --------------- ---------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 152,479 104,750 - 47,729 42,821 -
----------------- ----------------- ----------------- ---------------- --------------- ---------------
NET INCREASE IN
CASH 30,351 16,182 - 14,169 14,169
CASH AT BEGINNING OF
PERIOD - 14,169 - - - -
----------------- ----------------- ----------------- ---------------- --------------- ---------------
CASH AT END OF
PERIOD $ 30,351 $ 30,351 $ - $ 14,169 $ 14,169 $ -
================= ================= ================= ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
Cardinal Airlines, Inc.
(A Developmental Stage Company)
Statements of Cash Flow
<TABLE>
<CAPTION>
February 10, 1997 Six Months Ended February 10, 1997 February 10, 1997
(Inception) to ---------------- (Inception) to Fiscal Year Ended (Inception) to
December 31, 1998 December 31, 1998 December 31, 1997 June 30, 1998 June 30, 1998 June 30, 1997
------------------- ----------------- ----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
RECONCILIATION OF
NET LOSS TO NET
CASH USED IN
OPERATING ACTIVITIES:
Net loss $ (107,177) $ (83,448) $ (9,972) $ (23,729) $ (20,561) $ (3,168)
Adjustments to
reconcile net loss
to net cash used
in operating
activities:
Depreciation 4,415 2,392 - 2,023 2,023 -
Increase in
receivables (3,872) (3,872) - - - -
------------------- --------------- ---------------- ---------------- ----------------- -----------
NET CASH USED IN
OPERATING
ACTIVITIES $ (106,634) $ (84,928) $ (9,972) $ (21,706) $ 18,538) $ (3,168)
=================== ================= ================ ================ ================= ===========
SUPPLEMENTAL SCHEDULE
OF NON-CASH FINANCING
ACTIVITIES:
Issuance of common
stock in exchange for
notes receivable $ 96,671 $ - $ - $ 96,671 $ 92,179 $ -
=================== ================= =============== ================ ================= ===========
Increase in notes
receivable - related
parties in exchange
for preferred stock $ 1,000 $ 1,000 $ - $ - $ - $ -
=================== ================= =============== ================ ================= ===========
Issuance of stock
subscriptions $ 16,700 $ 16,700 $ - $ - $ - $ -
=================== ================= =============== ================ ================= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) NATURE OF OPERATIONS
The planned principal business activity of Cardinal
Airlines, Inc. ("Company") is to provide commercial
airline service to and from major airports throughout
the eastern United States with operations based in
Melbourne, Florida.
B) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments
purchased with an original maturity of three months
or less to be cash and/or cash equivalents.
C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Depreciation is computed using the straight-line
method over the assets' expected useful lives.
D) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported assets and liabilities.
Actual results could differ from these estimates.
E) INCOME TAXES
Deferred income taxes arise from the expected tax
consequence of temporary differences between the
carrying amounts and the tax basis of certain assets
and liabilities. The differences result primarily
from different depreciation methods.
F) ORGANIZATION COSTS
Organization costs consist of expenses related to the
start-up of the Company. These costs are expensed as
occurred in accordance with Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5).
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
G) EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share" (SFAS
128) effective February 10, 1997 (Inception). As
such, net loss per share is computed using the
weighted average number of common shares outstanding
during the period. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins and
Staff Policy, such computations include all common
and equivalent shares issued as if they were
outstanding for all periods presented. Common
equivalent shares consist of the incremental common
shares issuable upon the conversion of the
convertible preferred stock (using the if converted
method).
H) NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS
130 establishes standards for the reporting and
presentation of comprehensive income and its
components. SFAS 131 establishes standards for
reporting information about operating segments. The
Company is required to adopt both SFAS 130 and SFAS
131 in fiscal 1999.
In March 1998, the American Institute of Certified
Public Accountants AICPA) issued Statement of
Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" (SOP
98-1), which defines the type of costs related to
such activities that should be capitalized versus
expensed as incurred.
In April 1998, the AICPA issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5), which requires all costs incurred in the
start-up of a new business or business segment to be
expensed as incurred.
In June 1998, the FASB issued Statement of Financial
Accounting Standards 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which
establishes accounting and reporting standards for
derivatives and hedging activities.
The Company is required to adopt SOP 98-1 and SFAS
133 in fiscal 2000. The Company has adopted SOP 98-5
effective February 10, 1997 (inception) through
December 31, 1998.
NOTE 2 - DEVELOPMENT STAGE OPERATIONS
The Company was formed February 10, 1997, and began operations
April 1, 1997. Through December 31, 1998, operations have been
devoted primarily to raising
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
capital, negotiating leasing of airplanes, related equipment,
and related facilities as well as the performance of
general administrative functions. As of December 31, 1998, the
Company has 27 Stockholders.
NOTE 3 - PROPERTY AND EQUIPMENT
Computers and equipment $ 9,955
Furniture and fixtures 160
Leasehold Improvements 1,549
-------------------
11,664
Less accumulated depreciation (4,415)
-------------------
$ 7,249
===================
Depreciation expense was $ 2,392 and $ 4,415 for the six
months ended December 31, 1998 and February 10, 1997
(inception) to December 31, 1998, respectively.
NOTE 4 - RELATED PARTIES
The Company has made loans to four of its stockholders in
exchange for issuance of shares of common stock and preferred
stock (NOTE 7). The loans are unsecured, are due June 30, 2003
and bear interest at 8% annually. Notes receivable due from
related parties were $92,671 as of December 31, 1998. A
summary of notes receivable is as follows:
Common stock issued during the
fiscal year end June 30, 1998 $ 92,179
Common stock issued from April 1,
1997 to June 30, 1997 4,492
Preferred stock issued during the
six months ended December 31, 1998 1,000
Payment of notes receivable during
the six months ended December 31, 1998 (4,000)
-------------------
$ 92,671
===================
The Notes receivable due from related parties are reported as
a reduction in stockholders' equity.
NOTE 5 - COMMITMENTS
The Company leases its facilities from an unrelated third
party under an operating lease expiring July, 1999. Rent
expense was $5,830 and $19,345 for the six months ended
December 31, 1998 and February 10, 1997 (inception) to
December 31, 1998, respectively.
Future minimum lease payments are as follows:
Fiscal year ending June 30,
1999 $ 8,000
2000 1,500
-------------------
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
$ 9,500
===================
NOTE 6 - INCOME TAXES
The Company's effective tax rate differs from the expected
federal income tax rate as follows:
Income tax benefit at statutory rate $ (35,780)
Increase in valuation allowance 35,780
-------------------
Actual income taxes $ -
===================
The components of the deferred tax assets and liabilities
are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 35,780
-------------------
Total deferred tax assets 35,780
Less valuation allowance (35,780)
--------------------
Deferred tax assets, net of
valuation allowance -
Deferred tax liabilities -
-------------------
Net deferred tax asset (liability) $ -
===================
NOTE 6 - INCOME TAXES (Continued)
As of December 31, 1998, the Company is still in
development stage. As such, all income and deductions for tax
purposes are deferred until the Company's planned principal
operations have commenced.
NOTE 7 - STOCKHOLDERS' EQUITY
A summary of issuance of common stock involving noncash
consideration is as follows:
On April 1, 1997, the Company issued 449,200 shares
of stock in consideration for notes receivable due
from related parties (NOTE 4) of $4,492. The shares
were sold at $.01 par value per share.
On July 1, 1997, the Company issued 184,358 shares of
stock in consideration for notes receivable due from
related parties (NOTE 4)
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
of $92,179. The shares were sold at $.01 par value
per share, with $.50 per share consideration.
During the six months ended December 31, 1998, the
Company issued 33,400 shares of stock in
consideration for stock subscriptions of $16,700. The
shares were sold at $.01 par value per share, with
$.50 per share consideration.
As of December 31, 1998, the Company's common stock had a par
value $.01 per share with 50,000,000 shares authorized and
1,712,400 shares issued and outstanding.
A summary of issuance of preferred stock involving noncash
consideration is as follows:
On October 16, 1998, the Company issued 100,000
shares of $.01 par value "Series A" preferred stock
in consideration for notes receivable due from
related parties (NOTE 4) of $1,000.
As of December 31, 1998, the Company's preferred
stock had a par value $.01 per share with 1,000,000
shares authorized. There are 100,000 shares issued
and outstanding as "Series A" preferred stock. The
900,000 unissued shares have not been designated.
NOTE 8 - SUBSEQUENT EVENTS
In January 1999, the Company issued its initial S-1 filing with
the Securities and Exchange Commission.
On January 11, 1999, the Company issued a warrant resolution in
connection with its public filing. One warrant will be issued
for each share of stock issued and can be exchanged for one
share of voting common stock for a purchase price of $11.00 per
share, which is greater than the per share price of the initial
public offering.
In January 1999, the Company authorized the issuance of an
additional 300,000 shares of $.01 par value common stock, at
$.50 per share consideration for the purpose of funding offering
costs.
In January 1999, $16,000 of the stock subscription receivable
(NOTE 7) was collected.
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
======================
No dealer, salesman or any other person has been authorized by the Company to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offering made hereby, and if given or
made, such information or representations may not be relied upon. The Prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
securities other than those specifically offered hereby or an offer to sell, or
a solicitation of an offer to buy, to any person in any jurisdiction in which
such offer or sale would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since any of the
dates as of which information is furnished or since the date of this Prospectus.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION
SUMMARY
RISK FACTORS
USE OF PROCEEDS
DILUTION
DIVIDEND POLICY
CAPITALIZATION
SPWCIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
CERTAIN TRANSACTIONS
PRINCIPAL SHAREHOLDERS
DESCRIPTION OF SECURITIES
SHARES ELIGIBLE FOR FUTURE SALE
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
UNIT PURCHASE AGREEMENT
FINANCIAL STATEMENTS
Until ________, 1999 (90 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.
==================================
2,000,000 Units
CARDINAL AIRLINES, INC.
Common Stock
-------------------------------
PROSPECTUS
-------------------------------
April ____, 1999
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The fees and expenses to be paid by the Company in connection with this
offering are as follows:
SEC filing fee ...................................................$10,619
NASD filing .........................................................4,000
Blue Sky qualification fees and expenses* .........................10,000
Accounting fees and expenses* .....................................30,000
Legal fees and expenses* ..........................................40,000
Transfer Agent and Registrar Fees* .................................5,000
Printing Costs* ...................................................20,000
Miscellaneous* ....................................................10,381
Total ...........................................................$130,000
- ----------------------------
* Estimated
Item 14. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation provide that directors of the
Registrant will not be personally liable for monetary damages to the Registrant
for certain breaches of their fiduciary duty as directors to the fullest extent
allowable by Delaware law. Under current Delaware law, directors would remain
liable for: (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law, and (ii) approval of certain illegal dividends or
redemption's. In appropriate circumstances, equitable remedies or non-monetary
relief, such as an injunction, will remain available to a stockholder seeking
redress from any such violation. In addition, the provision applies only to
claims against a director arising out of his role as a director and not in any
other capacity (such as an officer or employee of the Registrant).
The Registrant also has the obligation, pursuant to the Registrant's
By-laws, to indemnify any director or officer of the Registrant for all expenses
incurred by them in conjunction with any legal action brought or threatened
against such person for or on account of any action or omission alleged to have
been committed while acting in the course and scope of the person's duties, if
the person acted in good faith and in a manner which the person reasonably
believed to be in or not opposed to the best interests of the Registrant, and
with respect to criminal actions, had no reasonable cause to believe the
person's conduct was unlawful, provided that such indemnification is made
pursuant to then existing provisions of Delaware General Corporation Law at the
time of any such indemnification.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Since its inception, the Company has made the following sales of
unregistered securities:
Stockholder Name
Date (Name on Subscription
Type of Stock Purchased Agreement) Shares Owned Consideration
- ------------- ---------- --------------------- ------------ -------------
Common 03/11/99 Aragona, Joseph 10,000 $ 0.50/share
Common 11/16/98 Beauchesne, Alfred M. 20,000 $ 0.50/share
Common 06/10/98 Berkley, Thomas S. 30,000 $ 0.50/share
Common 01/15/99 Braun, Laura 10,000 $ 0.50/share
Common 01/19/99 Cicione, Denise 4,000 $ 0.50/share
Common 01/28/99 Cominsky, Bill 10,000 $ 0.50/share
Common 03/11/99 Cooper, Lan Vo 10,000 $ 0.50/share
Common 10/05/98 Couch, Eugene J. Jr. 5,000 $ 0.50/share
Common 01/15/99 Cunningham, Dennis M. 30,000 $ 0.01/share
Common 03/05/99 Davidson, Philip 40,000 $ 0.50/share
Common 12/28/98 Ellis, Marie D. 8,000 $ 0.50/share
Common 03/17/99 Falvo, Nicholas S. 10,000 $ 0.50/share
Common 01/11/99 Freeman, Jack H. 40,000 $ 0.01/share
Common 12/10/98 Glover, Karen D. 30,000 $ 0.01/share
Common 03/17/99 Gold, Corey B. 10,000 $ 0.50/share
Common 03/11/99 Goodman, Herbert J. 32,000 $ 0.50/share
Common 03/02/99 Greenwood, Bruce D. 14,000 $ 0.50/share
Common 09/30/98 Greenwood, Bruce D. 16,000 $ 0.50/share
Common 01/15/99 Icolari, Vincent 18,000 $ 0.50/share
Common 01/19/99 INDEGO (trust managed 16,000 $ 0.50/share
Common 08/10/98 INDEGO (trust managed 20,000 $ 0.50/share
Common 03/23/99 Jones, Susan 4,000 $ 0.50/share
Common 03/11/99 Judeman, Charles W. 10,000 $ 0.50/share
Common 03/02/99 Kee, Terry L. 4,800 $ 0.50/share
Common 08/31/98 Kee, Terry L. 15,400 $ 0.50/share
Common 03/13/99 Killeen, Alma L. 10,000 $ 0.50/share
Common 01/28/99 Lingsch, Edwin F. 10,000 $ 0.50/share
Common 11/05/98 Linsley, David A. 40,000 $ 0.01/share
Common 03/17/99 Maslanka, Mark R. 10,000 $ 0.50/share
Common 07/01/97 Mason, H. Lawrence 60,000 $ 0.50/share
Common 03/01/97 Mason, H. Lawrence 220,000 $ 0.01/share
Common 11/28/98 Mason, L. Dianne 20,000 $ 0.50/share
Common 01/06/99 Mulholland, Arleen C. 6,000 $ 0.50/share
Common 08/20/98 Newbold, Darin K. 10,000 $ 0.50/share
Common 10/02/98 Newbold, Ronald J. 50,000 $ 0.01/share
Common 07/01/97 Paris, Vincent T. 60,000 $ 0.50/share
Common 03/01/97 Paris, Vincent T. 220,000 $ 0.01/share
Common 12/10/98 Pertschi, John J. 40,000 $ 0.01/share
Common 03/01/97 Rackley, William R. Jr 50,000 $ 0.01/share
Common 08/31/98 Riles, Dennis 20,000 $ 0.50/share
Common 10/02/98 Ryff, John J. Jr. 50,000 $ 0.01/share
Common 11/30/98 Serrao, Michael A. 26,000 $ 0.50/share
Common 03/03/99 Shore, Benjamin D. 4,000 $ 0.50/share
Common 09/10/98 Shores, Derrick V. 10,000 $ 0.50/share
Common 11/30/98 Simoncelli, Raymond A. 20,000 $ 0.50/share
Common 03/01/97 TAWCOT (trust managed 220,000 $ 0.01/share
Common 07/01/97 TAWCOT (trust managed 60,000 $ 0.50/share
Common 12/29/98 Vandervelde, Todd 10,000 $ 0.50/share
Common 11/05/98 Vandervelde, Tom 50,000 $ 0.01/share
Common 03/19/99 Waters, Charles K. 6,000 $ 0.50/share
Common 10/02/98 Waters, Charles K. 15,000 $ 0.01/share
Common 10/03/98 Waters, Christine A. 17,000 $ 0.50/share
Common 07/01/97 Watson, Lawrence A. 60,000 $ 0.50/share
Common 03/01/97 Watson, Lawrence A. 230,000 $ 0.01/share
Common 12/09/98 Wheeler, James 10,000 $ 0.50/share
Series A Pref 10/16/98 Mason, H. Lawrence 25,000 0.01
Series A Pref 10/16/98 Paris, Vincent T. 25,000 0.01
Series A Pref 10/16/98 Walker, Ted A. 25,000 0.01
Series A Pref 10/16/98 Watson, Lawrence A. 25,000 0.01
All issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 as transactions by an issuer not involving public offering. In each
instance, the purchaser was either a founder of the Company or other Company
insider as a result of his relationship with the Company, the offers and sales
were made without any public solicitation, the stock certificates bear
restrictive legends and appropriate stop transfer instructions have been or will
be given to the transfer agent. No underwriter was involved in the transactions
and no commissions were paid.
Exhibit
Number Description
* 3.1 Restated Articles to the Certificate of Incorporation
* 3.2 Bylaws of Registrant, as amended and restated
* 4.1 Form of Registrant's Common Stock Certificate
* 4.2 Form of Warrant to Purchase Common Stock
* 4.3 Warrant Resolution
5.1 Opinion of Bruce Brashear, Esq. regarding legality
*10.1 Employment Agreement dated July 1, 1998, between Registrant and
Lawrence A. Watson.
*10.2 Employment Agreement dated July 1, 1998, between Registrant and H.
Lawrence Mason
*10.3 Employment Agreement dated July 1, 1998, between Registrant and
Vincent T. Paris
*10.4 Employment Agreement dated October 2, 1998, between Registrant and
John Ryff
*10.5 Employment Agreement dated October 2, 1998, between Registrant and
Ronald Newbold
*10.6 Employment Agreement dated July 1, 1998, between Registrant and
Ted A. Walker
*10.7 Employment Agreement dated December 10, 1998, between Registrant and
Karen D. Glover
*10.8 Employment Agreement dated November 5, 1998, between Registrant
and David A. Linsley
*10.9 Employment Agreement dated December 10, 1998, between Registrant and
John J. Pertschi
*10.10 Employment Agreement dated November 5, 1998, between Registrant and
Thomas L. Vandervelde
10.11 Promissory Note dated July 1, 1997 between Registrant and H.
Lawrence Mason
10.12 Promissory Note dated July 1, 1997 between Registrant and Vincent T.
Paris
10.13 Promissory Note dated July 1, 1997 between Registrant and Ted A.
Walker
10.14 Promissory Note dated July 1, 1997 between Registrant and Lawrence A.
Watson
*10.15 Consulting Contract dated December 10, 1998 between Registrant and
Maviation, Inc.
10.16 Employment Agreement dated January 11, 1999, between Registrant
and Jack H. Freeman
10.17 Employment Agreement dated January 15, 1999 between Registrant and
Dennis M. Cunningham
11.1 Statement regarding computation of earnings per share
24.1 Consent of Independent Accountants
24.2 Consent of Bruce Brashear, Esq. (included in Exhibit 5.1)
25. Power of Attorney (included with the signature page to the
registration statement)
27. Financial Data Schedule*
* Previously filed with Form S-1 on January 11, 1999.
** To be filed separately.
Item 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the
Securities Act 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
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter had 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 Securities
Act and will be governed by the final adjudication of such issue.
(b) The Registrant hereby undertakes that for purposes of determining
any liability under the Securities Act, (i) the information omitted from the
form of prospectus filed as part of this 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 this Registration Statement as of the time it was declared effective,
and (ii) 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.
(c) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) (To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
<PAGE>
SIGNATURES
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Form S-1 Amendment No. 1 and authorized
this registration statement to be signed on its behalf by the undersigned,
in the City of Melbourne, State of Florida, on the 6th day of April, 1999.
CARDINAL AIRLINES, INC.
By:___/s/________________________________
Lawrence A. Watson
President
Chief Executive Officer
Chairman of the Board
By:___/s/________________________________
H. Lawrence Mason
Chief Financial Officer
Chief Accounting Officer
Vice President of Finance
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in
the capacities on the 6th day of April, 1999.
SIGNATURE TITLE
____/s/____________________________ President, Chief Executive Officer,
Lawrence A. Watson Chairman of the Board, and Director
___/s/______________________________ Vice President of Finance,
H. Lawrence Mason Secretary, Treasurer, and Director
___/s/_______________________________ Director
Vincent T. Paris
___/s/_______________________________ Director
Ted A. Walker
<PAGE>
[Letterhead]
BRASHEAR & ASSOCIATES, P.L.
April 8, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Amendment No. 1 to Registration Statement on Form S-1
Cardinal Airlines, Inc.
Gentlemen:
This firm has acted as counsel for Cardinal Airlines, Inc. (the "Company")in
connection with the proposed public offering by the Company of one million nine
hundred thousand (1,900,000) Units, and of one hundred thousand (100,000) Units
by certain shareholders, each Unit being comprised of one (1) share of Common
Stock (par value $.01) and one (1) Warrant to purchase one (1) share of Common
Stock (the "Units"). In connection with the proposed public offering and above-
described in Amendment No. 1 to the Registration Statement, we have reviewed the
following:
1. The Certificate of Incorporation and amendments thereto of the Company;
2. The By-Laws and amendments thereto of the Company;
3. The minute books of the Company; and
On the basis of such investigation and the examination of such other records
as we deemed necessary, we are of the opinion that:
a) the Company has been duly incorporated and is validly existing under
the laws of the State of Delaware; and
b) The 2,000,000 Common Shares have been duly authorized and the 2,000,000
underlying Common Shares purchasable pursuant to the Warrants, when issued,
will be legally issued by the Company and will be fully paid and nonassessable.
We consent to the filing of this opinion as an Exhibit for the purpose
of registering all or a portion of the Common Shares described in Amendment No.1
to the Registration Statement on Form S-1 under the relevant state securities
laws.
Sincerely,
BRASHEAR & ASSOCIATES, P.L.
/s/ Bruce Brashear
Bruce Brashear, Esq.
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Cardinal
Airlines, Inc., a Delaware corporation, the sum of Twenty Five Thousand Three
Hundred Ninety Four ($ 25,394.00) Dollars, with interest thereon at the rate of
8 % per annum on the unpaid balance.
This Note shall be fully paid, including principal and all accrued interest, on
or before June 30, 2003.
The undersigned shall have the right to prepay without penalty.
GUARANTY
FOR VALUE RECEIVED, the undersigned do hereby guarantee payment of the above
note and agree to remain fully bound until fully paid. The undersigned
pledges 50,788 shares of the common stock of Cardinal Airlines, Inc. as
collateral for this note.
The date of this Note is June 30, 1998.
For Cardinal Airlines, Inc., Maker
/S/
__________________________________
Debtor and Guarantor
/S/
__________________________________
H. Lawrence Mason
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Cardinal
Airlines, Inc., a Delaware corporation, the sum of Twenty Six Thousand One
Hundred Eighty Three ($ 26,183.00) Dollars, with interest thereon at the rate of
8 % per annum on the unpaid balance.
This Note shall be fully paid, including principal and all accrued interest, on
or before June 30, 2003.
The undersigned shall have the right to prepay without penalty.
GUARANTY
FOR VALUE RECEIVED, the undersigned do hereby guarantee payment of the above
note and agree to remain fully bound until fully paid. The undersigned pledges
52,366 shares of the common stock of Cardinal Airlines, Inc. as collateral for
this note.
The date of this Note is June 30, 1998.
For Cardinal Airlines, Inc., Maker
/S/
__________________________________
Debtor and Guarantor
/S/
__________________________________
Vincent T. Paris
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Cardinal
Airlines, Inc., a Delaware corporation, the sum of Twenty Seven Thousand Nine
Hundred Seventy One ($ 27,971.00) Dollars, with interest thereon at the rate of
8 % per annum on the unpaid balance.
This Note shall be fully paid, including principal and all accrued interest, on
or before June 30, 2003.
The undersigned shall have the right to prepay without penalty.
GUARANTY
FOR VALUE RECEIVED, the undersigned do hereby guarantee payment of the above
note and agree to remain fully bound until fully paid. The undersigned pledges
55,942 shares of the common stock of Cardinal Airlines, Inc. as collateral for
this note.
The date of this Note is June 30, 1998.
For Cardinal Airlines, Inc., Maker
/s/
__________________________________
Debtor and Guarantor
/s/
__________________________________
Ted A. Walker
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Cardinal
Airlines, Inc., a Delaware corporation, the sum of Seventeen Thousand One
Hundred Twenty Three ($ 17,123.00) Dollars, with interest thereon at the rate of
8 % per annum on the unpaid balance.
This Note shall be fully paid, including principal and all accrued interest, on
or before June 30, 2003.
The undersigned shall have the right to prepay without penalty.
GUARANTY
FOR VALUE RECEIVED, the undersigned do hereby guarantee payment of the above
note and agree to remain fully bound until fully paid. The undersigned pledges
34,236 shares of the common stock of Cardinal Airlines, Inc. as collateral for
this note.
The date of this Note is June 30, 1998.
For Cardinal Airlines, Inc., Maker
/S/
__________________________________
Debtor and Guarantor
/S/
__________________________________
Lawrence A Watson
Employer Initial:__________ Employee Initial:__________
Date:__________ Date:__________
CARDINAL AIRLINES, INC.
EMPLOYMENT AGREEMENT
This Agreement made, effective as of January 11, 1999, by and between Cardinal
Airlines, Inc., a corporation duly organized and existing under the laws of the
State of Delaware, having its principal place of business at 1380 Sarno Road
Suite "B", Melbourne, Florida 32935 hereinafter referred to as ("Company"), and
Jack H. Freeman, residing at 1365 Lake Dow Road, McDonough, GA 30252 hereinafter
referred to as ("Employee").
For the reasons in consideration of the mutual promises and agreements set forth
in this agreement, Company and Employee agree as follows:
1. EMPLOYMENT
1.1 Employment and Acceptance. Company hereby employs, engages, and hires
Employee as Vice President of Quality, and Employee hereby accepts and agrees to
such hiring, engagement, and employment
1.2 Description of Employee's Duties. Subject to the supervision and pursuant to
the orders, advice, and direction of employer, employee shall perform such
duties as are customarily performed by one holding such position in other
business or enterprises of the same or similar nature as that engaged in by
employer. Employee shall insure that the highest level of safety is maintained
by the airlines. Employee shall additionally render such other and unrelated
services and duties as may be assigned to him from time to time by employer.
1.3 Best Efforts. Employee shall at all times faithfully, industriously, and to
the best of his ability, experience, and talents, perform all of the duties that
may be required of and from him pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of employer. Such duties shall be
rendered at the above mentioned premises and at such other place or places as
employer shall in good faith require or as the interests, needs, business, and
opportunities of employer shall require or make advisable.
2. TERM OF EMPLOYMENT
2.1 Term of Employment. The term of employment shall be for a period of one (1)
year, beginning on the date Company completes a successful Initial Public Stock
Offering, subject to the provisions set forth in paragraph 2.2 below.
2.2 Date of Employment Effectivity The date of employment shall be used as the
date that Employee is placed on the Company payroll. The date of employment may
occur prior to the completion of the registered Initial Public Stock Offering if
agreed to by both Company and Employee.
2.3 Continuance of Employment. Employment shall be considered continued for
regular periods one (1) year, provided neither party submits a notice of
termination or resignation within
60 days of the expiration date, succeeding expiration dates or by termination as
set forth in this agreement.
3. COMPENSATION OF EMPLOYEE
3.1 Base Salary. During the term of employment and commencing on the date of
employment effectivity, Company shall pay Employee an annual base salary of
$90,000.00. However, Employee base salary will increase to $100,000.00 upon
Company reaching break even load factor and maintaining that level for thirty
(30) consecutive days. The break even load factor will be calculated using the
higher base salary. Employee base salary may be increased at the sole discretion
of the Board of Directors. If circumstances arise whereas Company must decrease
salaries of its employees employee's salary will be decreased.
3.2 Stock. As an essential consideration of this agreement and immediately upon
the execution thereof, the Company agrees to sell and the Employee will be
eligible to purchase 40,000 shares of the Common Stock of the Company at a
purchase price of $.01 per share, the terms and conditions of such purchase
being set forth in the Stockholders Subscription Agreement which shall be
attached to and shall be made an integral part of this agreement.
3.3 Temporary Housing Allotment. Employee will be reimbursed for usual,
reasonable, customary living expenses. The expenses will be for a period of one
(1) year beginning from the date of employment. Expenses may be revoked
immediately by Company due to termination. Employee may elect to discontinue
receiving the expense at his discretion during the expense period.
3.4 Expense Approval. Prior to incurring any additional expenses other than as
described in section3.3 above, Employee is required to obtain authorization from
Company in regard to said expenses. Employee will be required to provide
appropriate vouchers and receipts for such expenses to Company prior to
reimbursement consideration. Company maintains the right to deny reimbursement
of any unauthorized expenses.
3.5 Participation in Employee Benefit Plans. Employee will be eligible to
participate in each group life, hospitalization or disability insurance plan,
health program, pension plan or similar benefit plan and any stock option plan
of Company, which is available to other employees and executives of Company for
which he qualifies. As of the date first written above, Company has no employee
benefit plan or program in effect.
4. TERMINATION
4.1 Termination Due to Discontinuance of Business. In the event that Company
shall discontinue operating its business, then this agreement shall terminate as
of the day in which Company ceases operations with the same force and effect as
if such were originally set as the expiration date of this agreement.
4.2 Termination upon Death. If Employee shall die during the term of this
Agreement, the agreement shall terminate, except that Employee's dependants
shall be entitled to receive Employee's base salary for a period of twelve
months following the month in which his death occurs and, such dependants shall
be entitled to receive the amount of incentive or other bonuses, if any, that
would otherwise have been payable to employee under Section 3. and which have
accrued through the end of the twelve month period in which his death occurs.
4.3 Termination upon Disability. If during the term Employee shall become
physically or mentally disabled, whether totally or partially, so that he is
unable substantially to perform his services hereunder for (i) a period of nine
consecutive months, or (ii) for shorter periods aggregating nine months during
any twelve month period, Company may at any time after the last day of the nine
consecutive months of disability or the day on which the shorter periods of
disability shall have equaled an aggregate of nine months, by written notice to
Employee, terminate the term of Employee's employment hereunder. Notwithstanding
such disability Company shall continue to pay Employee's base salary up to and
including the date of such termination, and receive the amount of incentive or
other bonuses, if any, that would otherwise have been payable to Employee under
section 3 and which have accrued through nine month period in which such
termination occurs.
4.4 Termination by Company for Cause. Company may at any time during the term of
this agreement, by 30 days written notice to Employee, terminate for cause (as
hereafter defined), Employee's employment hereunder, in which event Employee
shall only be entitled to receive his/her Base Salary accrued through the
effective date of such termination. Company may not require Employee to render
any further services to Company, Employee shall have no right to receive any
other compensation or benefit hereunder after the effective date of such
termination; provided, however, that the foregoing shall not affect Employee's
right to receive any compensation or benefit under any other agreement accrued
to the date of such termination in accordance with the terms thereof. As used
herein the term for "Cause" shall be deemed to mean and include with respect to
Employee (i) conduct of Employee, at anytime, which has involved criminal
dishonesty, conviction of Employee of any felony, or of any lesser crime or
offense involving the property of Company or any of its subsidiaries or
affiliates, significant conflicts of interest, serious impropriety, or breach of
corporate duty, misappropriation of any money or other assets or properties of
Company or its Subsidiaries, (ii) willful violation of specific and lawful
directions from the Board of Directors or the Chief Executive Officer of
Company, failure or refusal to perform the services customarily performed by a
senior executive officer (and such failure or refusal continues after a written
direction from the Board of Directors) or expressly required by the terms of
this Agreement, or willful misconduct or gross negligence by Employee in
connection with the performance of his duties hereunder, (iii) chronic
alcoholism or drug addiction and (iv) any other acts or conduct inconsistent
with the standards of loyalty, integrity or care reasonably required by Company
of its Employees.
4.5 Termination by Company Without Cause. Company may terminate this agreement
without cause with 60 days written notice to Employee. If Employee is terminated
(other than upon death, disability, voluntary resignation or by Company for
cause), Company may not require Employee to render any further services to
Company, further Company will pay to Employee the following amounts:
(i) Employees base salary through the 60 day notice and additionally
(ii) an amount equal to one half (1/2) of Employees base
salary for the remainder of the agreement.
This will constitute the total amount of Company's obligations to Employee
under this agreement. This does not limit Employee to other benefits to which he
may be entitled under law.
4.6 Failure to Pay Employee. The failure of Company to pay Employee his salary
as provided in Section 3 may, in Employee's sole discretion be deemed a
breach of this agreement, and unless such breach is cured within sixty (60) days
after written notice to Company, this employment agreement shall terminate.
5. CONFIDENTIAL INFORMATION
5.1 Other Employment. Employee shall devote time, attention, knowledge, and
skills to the business and interest of Company, and Company shall be entitled to
all of the benefits, profits, or other issues arising from or incident to all
work, services, and advice of Employee, and Employee shall not, during the term
of this agreement, be interested directly or indirectly, in any manner, as
partner, officer, director, shareholder, advisor, Employee, or in any other
capacity in any other business similar to Company's business unless express
written consent is obtained from Employer.
5.2 Trade Secrets. Employee shall not at any time or in any manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation, or other entity in any manner whatsoever any information concerning
any matters affecting or relating to the business of Company, including without
limitation, any of its customers, its products, or any other information
concerning the business of Company, its manner of operation, its plans,
processes, or other data without regard to whether all of the above stated
matters will be deemed confidential, material, or important, Company and
Employee specifically and expressly stipulating that as between them, such
matters are important, material, confidential and gravely affect the effective
and successful conduct of the business of Company, and Company's good will, and
that any breach of the terms of this section shall be a breach of this
agreement.
5.3 Employee's Inability to Contract for Company. In spite of anything contained
in this agreement to the contrary, Employee shall not have the right to make
any contracts or commitments for or on behalf of Company without first obtaining
proper authority from the Employer.
6. AGREEMENTS
6.1 Modification of Agreement. Any modification of this agreement or additional
obligation assumed by either party in connection with this agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
6.2 Effect of Partial Invalidity. The invalidity of any portion of this
agreement will not and shall not be deemed to affect the validity of any other
provision, in the event that any provision of this agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provision.
6.3 Entire Agreement. This agreement shall constitute the entire agreement
between the parties and any prior understanding or representation of any kind
preceding the date of this agreement shall not be binding upon either party
except to the extent incorporated in this agreement.
7. GENERAL
7.1 Governing Law. It is agreed that this agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of Florida.
7.2 No Waiver. The failure of either party to this agreement to insist upon the
performance of any of the terms and conditions of this agreement, or the waiver
of any breach of any of the terms and conditions of this agreement, shall not be
construed as thereafter waiving any such terms and conditions, but the same
shall continue and remain in full force and effect as if no such forbearance or
waiver had occurred.
7.3 Attorney Fees. In the event that any action is filed in relation to this
agreement, each party shall be responsible to pay for all his or her own sums
and attorney's fees.
7.4 Notices. Any notice provided for or concerning this agreement shall be in
writing and shall be deemed sufficiently given when sent by certified or
registered mail if sent to the respective address of each party as set forth at
the beginning of) this agreement.
7.5 Assignability; Successors. This Agreement, and Employee's rights and
obligations hereunder, may not be assigned by Employee. Company may assign its
rights, together with its obligations, hereunder in connection with any sale,
transfer or other disposition of all or substantially all of its business or
assets; in any event the obligations of Company hereunder shall be binding on
its successors or assigns, whether by merger, consolidation or acquisition of
all or substantially all of its business or assets.
In witness whereof, each party to this agreement has caused it to be executed at
1380 Sarno Road Suite "B", Melbourne, FL 32935 on the date indicated below.
- ----------------------------- -----------------------------
Lawrence A. Watson Jack H. Freeman
President Employee
Date: _______________ Date: _______________
Witness: __________________________
Employer Initial:__________ Employee Initial:__________
Date:__________ Date:__________
CARDINAL AIRLINES, INC.
EMPLOYMENT AGREEMENT
This Agreement made, effective as of January 15, 1999, by and between Cardinal
Airlines, Inc., a corporation duly organized and existing under the laws of the
State of Delaware, having its principal place of business at 1380 Sarno Road
Suite "B", Melbourne, Florida 32935 hereinafter referred to as ("Company"), and
Dennis M. Cunningham, residing at RR#1 271M County Road North Haverhill, New
Hampshire 03774 hereinafter referred to as ("Employee").
For the reasons in consideration of the mutual promises and agreements set forth
in this agreement, Company and Employee agree as follows:
1. EMPLOYMENT
1.1 Employment and Acceptance. Company hereby employs, engages, and hires
Employee as Chief Pilot, and Employee hereby accepts and agrees to such hiring,
engagement, and employment
1.2 Description of Employee's Duties. Subject to the supervision and pursuant to
the orders, advice, and direction of employer, employee shall perform such
duties as are customarily performed by one holding such position in other
business or enterprises of the same or similar nature as that engaged in by
employer. Employee shall insure that the highest level of safety is maintained
by the airlines. Employee shall additionally render such other and unrelated
services and duties as may be assigned to him from time to time by employer.
1.3 Best Efforts. Employee shall at all times faithfully, industriously, and to
the best of his ability, experience, and talents, perform all of the duties that
may be required of and from him pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of employer. Such duties shall be
rendered at the above mentioned premises and at such other place or places as
employer shall in good faith require or as the interests, needs, business, and
opportunities of employer shall require or make advisable.
2. TERM OF EMPLOYMENT
2.1 Term of Employment. The term of employment shall be for a period of one (1)
year, beginning on the date Company completes a successful Initial Public Stock
Offering, subject to the provisions set forth in paragraph 2.2 below.
2.2 Date of Employment Effectivity The date of employment shall be used as the
date that Employee is placed on the Company payroll. The date of employment may
occur prior to the completion of the registered Initial Public Stock Offering if
agreed to by both Company and Employee.
2.3 Continuance of Employment. Employment shall be considered continued for
regular periods one (1) year, provided neither party submits a notice of
termination or resignation within 60 days of the expiration date, succeeding
expiration dates or by termination as set forth in this agreement.
3. COMPENSATION OF EMPLOYEE
3.1 Base Salary. During the term of employment and commencing on the date of
employment effectivity, Company shall pay Employee an annual base salary of
$85,000.00. However, Employee base salary will increase to $95,000.00 upon
Company reaching break even load factor and maintaining that level for thirty
(30) consecutive days. The break even load factor will be calculated using the
higher base salary. Employee base salary may be increased at the sole discretion
of the Board of Directors. If circumstances arise whereas Company must decrease
salaries of its employees employee's salary will be decreased.
3.2 Stock. As an essential consideration of this agreement and immediately upon
the execution thereof, the Company agrees to sell and the Employee will be
eligible to purchase 30,000 shares of the Common Stock of the Company at a
purchase price of $.01 per share, the terms and conditions of such purchase
being set forth in the Stockholders Subscription Agreement which shall be
attached to and shall be made an integral part of this agreement.
3.3 Temporary Housing Allotment. Employee will be reimbursed for usual,
reasonable, customary living expenses. The expenses will be for a period of one
(1) year beginning from the date of employment. Expenses may be revoked
immediately by Company due to termination. Employee may elect to discontinue
receiving the expense at his discretion during the expense period.
3.4 Expense Approval. Prior to incurring any additional expenses other than as
described in section3.3 above, Employee is required to obtain authorization from
Company in regard to said expenses. Employee will be required to provide
appropriate vouchers and receipts for such expenses to Company prior to
reimbursement consideration. Company maintains the right to deny reimbursement
of any unauthorized expenses.
3.5 Participation in Employee Benefit Plans. Employee will be eligible to
participate in each group life, hospitalization or disability insurance plan,
health program, pension plan or similar benefit plan and any stock option plan
of Company, which is available to other employees and executives of Company for
which he qualifies. As of the date first written above, Company has no employee
benefit plan or program in effect.
4. TERMINATION
4.1 Termination Due to Discontinuance of Business. In the event that Company
shall discontinue operating its business, then this agreement shall terminate as
of the day in which Company ceases operations with the same force and effect as
if such were originally set as the expiration date of this agreement.
4.2 Termination upon Death. If Employee shall die during the term of this
Agreement, the agreement shall terminate, except that Employee's dependants
shall be entitled to receive Employee's base salary for a period of twelve
months following the month in which his death occurs and, such dependants shall
be entitled to receive the amount of incentive or other bonuses, if any, that
would otherwise have been payable to employee under Section 3. and which have
accrued through the end of the twelve month period in which his death occurs.
4.3 Termination upon Disability. If during the term Employee shall become
physically or mentally disabled, whether totally or partially, so that he is
unable substantially to perform his services hereunder for (i) a period of nine
consecutive months, or (ii) for shorter periods aggregating nine months during
any twelve month period, Company may at any time after the last day of the nine
consecutive months of disability or the day on which the shorter periods of
disability shall have equaled an aggregate of nine months, by written notice to
Employee, terminate the term of Employee's employment hereunder. Notwithstanding
such disability Company shall continue to pay Employee's base salary up to and
including the date of such termination, and receive the amount of incentive or
other bonuses, if any, that would otherwise have been payable to Employee under
section 3 and which have accrued through nine month period in which such
termination occurs.
4.4 Termination by Company for Cause. Company may at any time during the term
of this agreement, by 30 days written notice to Employee, terminate for cause
(as hereafter defined), Employee's employment hereunder, in which event Employee
shall only be entitled to receive his/her Base Salary accrued through the
effective date of such termination. Company may not require Employee to render
any further services to Company, Employee shall have no right to receive any
other compensation or benefit hereunder after the effective date of such
termination; provided, however, that the foregoing shall not affect Employee's
right to receive any compensation or benefit under any other agreement accrued
to the date of such termination in accordance with the terms thereof. As used
herein the term for "Cause" shall be deemed to mean and include with respect to
Employee (i) conduct of Employee, at anytime, which has involved criminal
dishonesty, conviction of Employee of any felony, or of any lesser crime or
offense involving the property of Company or any of its subsidiaries or
affiliates, significant conflicts of interest, serious impropriety, or breach of
corporate duty, misappropriation of any money or other assets or properties of
Company or its Subsidiaries, (ii) willful violation of specific and lawful
directions from the Board of Directors or the Chief Executive Officer of
Company, failure or refusal to perform the services customarily performed by a
senior executive officer (and such failure or refusal continues after a written
direction from the Board of Directors) or expressly required by the terms of
this Agreement, or willful misconduct or gross negligence by Employee in
connection with the performance of his duties hereunder, (iii) chronic
alcoholism or drug addiction and (iv) any other acts or conduct inconsistent
with the standards of loyalty, integrity or care reasonably required by Company
of its Employees.
4.5 Termination by Company Without Cause. Company may terminate this agreement
without cause with 60 days written notice to Employee. If Employee is terminated
(other than upon death, disability, voluntary resignation or by Company for
cause), Company may not require Employee to render any further services to
Company, further Company will pay to Employee the following amounts:
(i) Employees base salary through the 60 day notice and additionally
(ii) an amount equal to one half (1/2) of Employees base salary for the
remainder of the agreement.
This will constitute the total amount of Company's obligations to Employee under
this agreement. This does not limit Employee to other benefits to which he may
be entitled under law.
4.6 Failure to Pay Employee. The failure of Company to pay Employee his
salary as provided in Section 3 may, in Employee's sole discretion be deemed a
breach of this agreement, and unless such breach is cured within sixty (60) days
after written notice to Company, this employment agreement shall terminate.
5. CONFIDENTIAL INFORMATION
5.1 Other Employment. Employee shall devote time, attention, knowledge, and
skills to the business and interest of Company, and Company shall be entitled to
all of the benefits, profits, or other issues arising from or incident to all
work, services, and advice of Employee, and Employee shall not, during the term
of this agreement, be interested directly or indirectly, in any manner, as
partner, officer, director, shareholder, advisor, Employee, or in any other
capacity in any other business similar to Company's business unless express
written consent is obtained from Employer.
5.2 Trade Secrets. Employee shall not at any time or in any manner, either
directly or indirectly, divulge, disclose or communicate to any person, firm,
corporation, or other entity in any manner whatsoever any information concerning
any matters affecting or relating to the business of Company, including without
limitation, any of its customers, its products, or any other information
concerning the business of Company, its manner of operation, its plans,
processes, or other data without regard to whether all of the above stated
matters will be deemed confidential, material, or important, Company and
Employee specifically and expressly stipulating that as between them, such
matters are important, material, confidential and gravely affect the effective
and successful conduct of the business of Company, and Company's good will, and
that any breach of the terms of this section shall be a breach of this
agreement.
5.3 Employee's Inability to Contract for Company. In spite of anything
contained in this agreement to the contrary, Employee shall not have the right
to make any contracts or commitments for or on behalf of Company without
first obtaining proper authority from the Employer.
6. AGREEMENTS
6.1 Modification of Agreement. Any modification of this agreement or additional
obligation assumed by either party in connection with this agreement shall be
binding only if evidenced in writing signed by each party or an authorized
representative of each party.
6.2 Effect of Partial Invalidity. The invalidity of any portion of this
agreement will not and shall not be deemed to affect the validity of any other
provision, in the event that any provision of this agreement is held to be
invalid, the parties agree that the remaining provisions shall be deemed to be
in full force and effect as if they had been executed by both parties subsequent
to the expungement of the invalid provision.
6.3 Entire Agreement. This agreement shall constitute the entire agreement
between the parties and any prior understanding or representation of any kind
preceding the date of this agreement shall not be binding upon either party
except to the extent incorporated in this agreement.
7. GENERAL
7.1 Governing Law. It is agreed that this agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of Florida.
7.2 No Waiver. The failure of either party to this agreement to insist upon the
performance of any of the terms and conditions of this agreement, or the waiver
of any breach of any of the terms and conditions of this agreement, shall not be
construed as thereafter waiving any such terms and conditions, but the same
shall continue and remain in full force and effect as if no such forbearance or
waiver had occurred.
7.3 Attorney Fees. In the event that any action is filed in relation to
this agreement, each party shall be responsible to pay for all his or her own
sums and attorney's fees.
7.4 Notices. Any notice provided for or concerning this agreement shall be in
writing and shall be deemed sufficiently given when sent by certified or
registered mail if sent to the respective address of each party as set forth at
the beginning of) this agreement.
7.5 Assignability; Successors. This Agreement, and Employee's rights and
obligations hereunder, may not be assigned by Employee. Company may assign its
rights, together with its obligations, hereunder in connection with any sale,
transfer or other disposition of all or substantially all of its business
or assets; in any event the obligations of Company hereunder shall be binding
on its successors or assigns, whether by merger, consolidation or acquisition of
all or substantially all of its business or assets.
In witness whereof, each party to this agreement has caused it to be
executed at 1380 Sarno Road Suite "B", Melbourne, FL 32935 on the date indicate
below.
- ----------------------------- -----------------------------
Lawrence A. Watson Dennis M. Cunningham
President Employee
Date: _______________ Date: _______________
Witness: __________________________
CONSENT OF ACCOUNTANT
We consent to the use of our Audit of the balance sheet of Cardinal Airlines,
Inc. (A Delaware Company in the Development Stage) as of December 31, 1998 and
June 30, 1998, the related statements of operations and cash flows for the six
months ended December 31, 1998 and 1997, for the fiscal year ended June 30,
1998; from February 10 (inception) to June 30, 1998; as well as February 10,
(inception) to June 30, 1997; and the statements of stockholder's equity from \
February 10 (inception) to December 31, 1998 dated February 15, 1999 to be
included in this registration statement.
/S/Rosenfield & Company, P.A.
- ------------------------------
Rosenfield & Company, P.A.
April 7, 1999
