AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996.
Registration No. 333-4350
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
FROST HANNA MERGERS GROUP, INC.
----------------
(Exact name of registrant as specified in its charter)
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FLORIDA 6770 65-0450311
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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7700 WEST CAMINO REAL, SUITE 222
BOCA RATON, FL 33431
(407) 367-1085
--------------------------
(Address, including Zip Code, and telephone number, including area
code, of registrant's principal executive offices)
MARK J. HANNA
7700 WEST CAMINO REAL, SUITE 222
BOCA RATON, FL 33431
(407) 367-1085
--------------
(Name, address, including Zip Code,
and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
TEDDY D. KLINGHOFFER, ESQ.
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
150 WEST FLAGLER STREET, SUITE 2200
MIAMI, FLORIDA 33130
(305) 789-3200
FERNANDO C. ALONSO, ESQ.
GREENBERG, TRAURIG, HOFFMAN, LIPOFF,
ROSEN & QUENTEL, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 579-0500
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 being
offered in connection with the formation of a holding compnay and there is
compliance with General Instruction G, check the following box [ ].
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--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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FROST HANNA MERGERS GROUP, INC.
CROSS REFERENCE SHEET PURSUANT TO REGULATION S-K, ITEM 501(B)
ITEM LOCATION IN
NO. PROXY STATEMENT-PROSPECTUS
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A. Information About The Transaction
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................................... Facing Page; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus............................ Inside Front Cover Page; Table of
Contents; Additional Information; Outside
Back Cover Page
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information.......................................... Summary; Risk Factors; Description of
Pan Am; Description of FH; Financial
Statements of FH; Financial Statements of
Pan Am; Pro Forma Financial Statements
4. Terms of the Transaction............................. Summary; Introduction; The Special
Meetings; The Proposed Merger; The
Merger Agreement; Comparison of
Rights of FH Shareholders and Pan Am
Shareholders
5. Pro Forma Financial Information...................... Summary; Pro Forma Combined
Financial Information
6. Material Contracts with the
Company Being Acquired............................... Summary; The Proposed Merger; Description
of Pan Am; Management of Pan Am
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Underwriters.................... *
8. Interests of Named Experts
and Counsel.......................................... The Proposed Merger; Experts; Legal
Matters
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities...................................... *
B. Information About The Registrant
10. Information with Respect to S-3
Registrants.......................................... *
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ITEM LOCATION IN
NO. PROXY STATEMENT-PROSPECTUS
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11. Incorporation of Certain
Information by Reference............................. *
12. Information with Respect to S-2 or
S-3 Registrants...................................... *
13. Incorporation of Certain
Information by Reference............................. *
14. Information with Respect to
Registrants Other than S-3 or S-2
Registrants.......................................... Description of FH; Principal Shareholders
of FH; Management of FH; Price Ranges
of FH's Securities; Selected Historical
Financial Data of FH; Financial
Statements of FH; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of
FH; Description of FH's Securities
C. Information About The Company Being Acquired
15. Information With Respect to
S-3 Companies........................................ *
16. Information With Respect to S-2
or S-3 Companies..................................... *
17. Information With Respect to Companies
Other than S-3 or S-2 Companies...................... Description of Pan Am; Principal
Shareholders of Pan Am; Management of
Pan Am; Selected Historical Financial
Data of Pan Am; Financial Statements of
Pan Am; Management's Discussion and
Analysis of Financial Condition and
Results of Operations of Pan Am;
Description of Pan Am's Securities
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations are to be
Solicited............................................ Summary; The Special Meetings; The
Proposed Merger; The Merger Agreement
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange Offer.................... *
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* Omitted since the answer is negative or the Item is not applicable.
<PAGE>
FROST HANNA MERGERS GROUP, INC.
7700 WEST CAMINO REAL, SUITE 222
BOCA RATON, FLORIDA 33431
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Frost Hanna Mergers Group, Inc., a Florida corporation
("FH"), will be held on July 31, 1996, commencing at 10:00 A.M., local time, at
[The Westin Hotel, Cypress Creek, 400 Corporate Drive, Fort Lauderdale, Florida
33334,] for the following purposes:
1. THE MERGER. To consider and vote upon the following
interrelated matters (collectively, the "Merger") as a single proposal:
(i) to approve a certain Acquisition Agreement, dated
March 13, 1996 (the "Merger Agreement"), among FH, PA Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of FH
("FH Sub"), and Pan American World Airways, Inc., a Florida
corporation ("Pan Am"), providing for, among other things, the
merger of FH Sub with and into Pan Am; and
(ii) to approve an amendment to FH's Articles of
Incorporation to change FH's name to "Pan Am Corporation."
As a result of the Merger: (i) FH's name will be changed to "Pan Am
Corporation;" (ii) Pan Am will become a wholly-owned subsidiary corporation of
FH; (iii) FH will issue an aggregate of 7,561,191 shares of FH Common Stock to
the owners of all of the issued and outstanding shares of capital stock of Pan
Am, which will then constitute approximately 69% of the then outstanding shares
of Common Stock of FH, without giving effect to the issuance of 1,757,739 shares
of FH Common Stock issuable, subsequent to the Merger, upon the exercise of
certain warrants and options held by (a) the underwriter of FH's initial public
offering of equity securities (170,000 shares) and (b) by existing Pan Am
investors (1,587,739 shares). Assuming full exercise of all such warrants and
options, the current owners of Pan Am securities will own approximately 72% of
the outstanding shares of FH Common Stock subsequent to the Merger. None of the
shares of FH Common Stock currently outstanding will be converted or otherwise
modified in the Merger and all of such shares will continue to be outstanding
capital stock of FH after the Merger.
SHAREHOLDER APPROVAL AND ADOPTION OF THE MERGER WILL RESULT IN A
CHANGE OF THE MAJORITY EQUITY OWNERSHIP, THE BUSINESS AND MANAGEMENT OF FH.
2. AUTHORIZATION TO ISSUE PREFERRED STOCK. To consider and
vote upon a proposal to amend and restate FH's Articles of Incorporation to
provide for an authorized class of Preferred Stock consisting of 100,000,000
shares, par value $.0001 per share, with rights, preferences and designations of
such shares to be determined by the Board of Directors;
3. OTHER BUSINESS. To transact any other business that may
properly come before the Special Meeting or any adjournment or postponement
thereof.
A copy of the Merger Agreement is attached as Appendix A to the
accompanying Joint Proxy Statement-Prospectus and is incorporated herein by
reference.
The Board of Directors of FH has fixed June 18, 1996 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Special Meeting. The affirmative vote of the holders of a majority of the
shares of FH Common Stock present and entitled to vote at the Special Meeting is
necessary to approve and adopt the Merger and the Preferred Stock Amendment
Proposal. In the event, however, that holders of 30% or more of the shares of FH
Common Stock held by non-affiliated shareholders are voted against approval of
the Merger, FH will not consummate the Merger. The Preferred Stock Amendment
Proposal is contingent upon approval of the Merger. HOLDERS OF FH COMMON STOCK
ARE NOT ENTITLED TO APPRAISAL RIGHTS UNDER FLORIDA LAW IN CONNECTION WITH THE
MERGER BUT WILL BE ENTITLED TO CERTAIN REDEMPTION RIGHTS. See the section of the
accompanying Joint Proxy Statement-Prospectus entitled "The Proposed Merger --
Redemption Rights."
Whether or not you plan to attend the Special Meeting, please complete, date
and sign the accompanying proxy card and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
Donald H. Baxter
Secretary
Boca Raton, Florida
_____________, 1996
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PAN AMERICAN WORLD AIRWAYS, INC.
9300 N.W. 36TH STREET
MIAMI, FLORIDA 33178
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1996
TO THE SHAREHOLDERS OF PAN AMERICAN WORLD AIRWAYS, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders
(the "Special Meeting") of Pan American World Airways, Inc., a Florida
corporation ("Pan Am"), will be held on July 31, 1996, commencing at 11:00 A.M.,
local time, at Pan Am's corporate headquarters at 9300 N.W. 36th Street, Miami,
Florida, 33178, for the following purposes:
1. To consider and act upon a proposal to
approve an Acquisition Agreement, dated March 13, 1996 (the "Merger
Agreement"), by and among Pan Am, Frost Hanna Mergers Group, Inc., a
Florida corporation ("FH"), and PA Acquisition Corporation, a
Florida corporation and wholly-owned subsidiary of FH ("FH Sub"),
pursuant to which, among other things, (a) FH Sub would be merged
with and into Pan Am (the "Merger") and Pan Am would become a
wholly-owned subsidiary of FH; (b) each outstanding share of common
stock, par value $.0001 per share, of Pan Am (the "Pan Am Common
Stock") will be converted into the right to receive one share of
common stock, par value $.0001 per share, of FH (the "FH Common
Stock"), and (c) each outstanding option, warrant or other right to
purchase Pan Am Common Stock will be converted into a right to
acquire shares of FH Common Stock, with the terms and conditions of
vesting, the number of shares of FH Common Stock subject thereto and
the exercise price thereof remaining the same;
2. To consider and vote upon a proposal to
approve the Pan American World Airways, Inc. 1996 Stock Option Plan;
and
3. To transact such other business as may
properly come before the Special Meeting or any adjournments or
postponements thereof.
Only those shareholders of record at the close of business on June
18, 1996, will be entitled to notice of and to vote at the Special Meeting or
any adjournment thereof. IF THE MERGER IS CONSUMMATED, HOLDERS OF PAN AM COMMON
STOCK WHO ARE OPPOSED TO THE MERGER AND WHO COMPLY WITH THE REQUIREMENTS OF
SECTION 607.1320 OF THE FLORIDA BUSINESS CORPORATION ACT WILL HAVE THE RIGHT TO
SEEK APPRAISAL RIGHTS OF THEIR SHARES. See the section of the accompanying Joint
Proxy Statement-Prospectus entitled "The Proposed Merger -- Appraisal Rights."
Due to the benefits to be received by certain officers and directors
of Pan Am in connection with the Merger, the interests of such officers and
directors may be different from the interests of other Pan Am shareholders. Pan
Am shareholders should consider such officers' and directors' interests in the
Merger in connection with the Board of Directors' recommendation of the Merger,
as more particularly described in the accompanying Joint Proxy
Statement/Prospectus. See "The Proposed Merger --Interests of Certain Persons in
the Merger."
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE
SPECIAL MEETING. Proxies are revocable at any time prior to the time they
are voted, and shareholders who are present at the meeting may withdraw their
proxies and vote in person if they so desire.
By Order of the Board of Directors
----------------------------------
John J. Ogilby, Jr., Secretary
Miami, Florida
_______________, 1996
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JOINT PROXY STATEMENT OF
------------
FROST HANNA MERGERS GROUP, INC. PAN AMERICAN WORLD AIRWAYS, INC.
SPECIAL MEETINGS OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 31, 1996 TO BE HELD ON JULY 31, 1996
------------
PROSPECTUS
FOR UP TO 8,100,000 SHARES OF
COMMON STOCK OF
FROST HANNA MERGERS GROUP, INC.
------------
This Joint Proxy Statement-Prospectus is being furnished (i) to the
shareholders of Frost Hanna Mergers Group, Inc., a Florida corporation ("FH"),
in connection with the solicitation of proxies by the Board of Directors of FH
from holders of issued and outstanding shares of common stock of FH, par value
$.0001 per share ("FH Common Stock"), for use at a Special Meeting of
Shareholders of FH and at any adjournments or postponements thereof (the "FH
Special Meeting"), and (ii) to shareholders of Pan American World Airways, Inc.,
a Florida corporation ("Pan Am"), in connection with the solicitation of proxies
by the Board of Directors of Pan Am from holders of issued and outstanding
shares of common stock of Pan Am, par value $.0001 per share ("Pan Am Common
Stock"), for use at a Special Meeting of Shareholders of Pan Am and at any
adjournments or postponements thereof (the "Pan Am Special Meeting"). Pan Am is
not a successor to nor should Pan Am be confused with Pan American World
Airways, Inc., a New York corporation, which ceased airline operations in 1991.
FH has filed a Registration Statement on Form S-4 (the "Registration
Statement"), with the Securities and Exchange Commission (the "SEC") pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), covering the
shares of FH Common Stock to be issued in connection with the merger (the
"Merger") of PA Acquisition Corporation, a Florida corporation and a
wholly-owned subsidiary of FH ("FH Sub"), with and into Pan Am, pursuant to the
terms of an Acquisition Agreement, dated March 13, 1996 (the "Merger
Agreement"), by and among FH, FH Sub and Pan Am.
If the Merger Agreement is approved by the requisite vote of the
respective shareholders of FH and Pan Am at the Special Meetings, and if the
other conditions specified in the Merger Agreement are satisfied or waived, (i)
FH Sub will merge with and into Pan Am and Pan Am will become a wholly-owned
subsidiary of FH, (ii) each outstanding share of Pan Am Common Stock will be
converted into the right to receive one share of FH Common Stock, and as a
result FH will issue an aggregate of 7,561,191 shares of FH Common Stock to the
owners of all of the issued and outstanding shares of capital stock of Pan Am,
which will constitute approximately 69% of the then outstanding shares of FH
Common Stock, without giving effect to the issuance of 1,757,739 shares of FH
Common Stock issuable, subsequent to the Merger, upon the exercise of certain
warrants and options held by (a) the underwriter of FH's initial public offering
(170,000 shares) and (b) by existing Pan Am investors (1,587,739 shares), (iii)
each outstanding option, warrant, or other right to purchase Pan Am Common Stock
will be converted into a right to acquire shares of FH Common Stock with the
terms and conditions of vesting, the number of shares of common stock subject
thereto and the exercise price thereof remaining the same, and (iv) the name of
FH will be changed to "Pan Am Corporation." A copy of the Merger Agreement is
attached as Appendix A hereto.
This Joint Proxy Statement-Prospectus also relates to a proposal to
(i) amend and restate FH's Articles of Incorporation to provide for an
authorized class of Preferred Stock consisting of 100,000,000 shares, par value
$.0001 per share (the "Preferred Stock"), with rights, preferences and
designations of such shares to be determined by the Board of Directors (the
"Preferred Stock Amendment") and (ii) ratify and approve the Pan American World
Airways, Inc. 1996 Stock Option Plan (the "Stock Option Plan Proposal"). See
"Proposal to Amend and Restate FH's Articles of Incorporation" and "Proposal to
Authorize the Pan American World Airways, Inc. 1996 Stock Option Plan."
THE MERGER WILL RESULT IN A CHANGE-IN-CONTROL OF FH, WHEREBY, AMONG
OTHER THINGS, THE EXISTING SHAREHOLDERS OF PAN AM WILL BECOME THE CONTROLLING
SHAREHOLDERS OF FH SUBSEQUENT TO THE CONSUMMATION OF THE MERGER. IN ADDITION, IT
IS EXPECTED THAT SUBSEQUENT TO THE MERGER, THE DIRECTORS AND PRINCIPAL EXECUTIVE
OFFICERS OF PAN AM WILL BECOME DIRECTORS AND THE PRINCIPAL EXECUTIVE OFFICERS OF
FH.
Certain non-affiliated shareholders of FH will have the right until
not less than 20 days after the mailing of this Joint Proxy Statement-Prospectus
to offer his or her shares of FH Common Stock to FH for redemption at a defined
price, which as of March 31, 1996 was $5.19 per share. For a full description of
the procedures that an FH Shareholder must follow to redeem his or her shares
and the calculation of such redemption value, see "Summary - The Proposed Merger
- - Appraisal Rights; Redemption Rights" and "The Proposed Merger - Redemption
Rights." Shareholders of Pan Am are entitled to dissenters' rights, with respect
to the Merger in accordance with the Florida Business Corporation Act ("FBCA").
For a description of such rights see "Summary - Appraisal Rights; Redemption
Rights" and "The Proposed Merger - Appraisal Rights."
This Joint Proxy Statement-Prospectus and the enclosed form of proxy
are first being mailed to shareholders of FH and Pan Am on or about
_________________, 1996.
No person is authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement-Prospectus, and if given or made, such information or representations
should not be relied upon as having been authorized. This Joint Proxy
Statement-Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Joint Proxy
Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction in
which, or to or from any person to whom or from whom it is unlawful to make such
offer, solicitation of an offer or proxy solicitation. Neither the delivery of
this Joint Proxy Statement-Prospectus nor any distribution of securities
pursuant to this Joint Proxy Statement-Prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of FH or Pan Am since the date
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of this Joint Proxy Statement-Prospectus. However, if any material change occurs
during the period that this Joint Proxy Statement-Prospectus is required to be
delivered, this Joint Proxy Statement-Prospectus will be amended and
supplemented accordingly.
FH Common Stock is listed for trading on the OTC Bulletin Board
under the symbol "FHMG". On ___________, 1996, the last reported closing bid
price of FH Common Stock was $____________.
All information regarding FH in this Joint Proxy
Statement-Prospectus has been supplied by FH, and all information regarding Pan
Am has been supplied by Pan Am.
SEE "RISK FACTORS" ON PAGES _______ FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED WHEN EVALUATING THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Joint Proxy Statement-Prospectus is _________, 1996.
-----------
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TABLE OF CONTENTS
PAGE
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ADDITIONAL INFORMATION............................................................................-iv-
SUMMARY ....................................................................................... 1
The Proposed Merger................................................................................ 1
The Merger ........................................................................... 1
Special Meetings....................................................................... 1
The Parties ........................................................................... 2
Required Vote.......................................................................... 3
Exchange of Stock Certificates......................................................... 3
Appraisal Rights; Redemption Rights.................................................... 3
Recommendations of the Boards of Directors and Reasons for the Merger.................. 4
Opinion of FH's Financial Advisor...................................................... 4
Interests of Certain Persons in the Merger............................................. 4
Operations After the Merger............................................................ 5
Effective Time......................................................................... 5
Conditions to the Merger............................................................... 5
Termination; Termination Fee........................................................... 5
Comparison of Rights of FH Shareholders and Pan Am Shareholders........................ 5
Certain Federal Tax Consequences of the Merger......................................... 5
Accounting Treatment................................................................... 6
Resales of FH Common Stock............................................................. 6
Risk Factors........................................................................... 6
Market Prices; Comparative Per Share Data.......................................................... 6
Summary Historical Financial Information........................................................... 8
INTRODUCTION....................................................................................... 12
RISK FACTORS....................................................................................... 13
Risks Relating to Pan Am............................................................... 13
Risks Relating to the Airline Industry Generally....................................... 17
Risks Relating to FH Generally......................................................... 17
Inherent Uncertainties with Respect to the Fairness Opinion............................ 18
THE SPECIAL MEETINGS............................................................................... 19
Purposes of Meetings................................................................... 19
Date, Time and Place; Record Date...................................................... 20
Vote Required.......................................................................... 20
Proxies ........................................................................... 21
Solicitation........................................................................... 21
THE PROPOSED MERGER................................................................................ 22
General ........................................................................... 22
Consideration.......................................................................... 22
Closing; Effective Time................................................................ 22
Exchange of Stock Certificates......................................................... 22
Background of the Merger............................................................... 23
Recommendations of the Boards of Directors
and Reasons for the Merger........................................................... 25
Opinions of FH's Financial Advisor..................................................... 27
Interests of Certain Persons in the Merger............................................. 28
Certain Tax Consequences of the Merger................................................. 29
Accounting Treatment................................................................... 30
Operations After the Merger............................................................ 30
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PAGE
Resale of FH Common Stock issued as
a Result of the Merger.............................................................. 30
Appraisal Rights...................................................................... 31
Redemption Rights..................................................................... 33
THE MERGER AGREEMENT.............................................................................. 33
General .......................................................................... 34
Effective Time and Effective Date..................................................... 34
No Fractional Shares.................................................................. 34
Representations and Warranties........................................................ 34
Certain Covenants of Pan Am and FH.................................................... 34
Conditions to Consummation of the Merger.............................................. 35
Termination .......................................................................... 36
Termination Fee; Expenses............................................................. 36
PROPOSAL TO AMEND AND RESTATE FH'S ARTICLES OF INCORPORATION...................................... 36
PROPOSAL TO AUTHORIZE THE PAN AMERICAN WORLD AIRWAYS, INC.
1996 STOCK OPTION PLAN.......................................................................... 38
Description of the 1996 Option Plan................................................... 38
Federal Income Tax Consequences....................................................... 39
Options Granted and Shares Eligible Under the 1996 Option Plan........................ 40
PRICE RANGES OF FH'S SECURITIES................................................................... 41
SELECTED HISTORICAL FINANCIAL DATA OF PAN AM...................................................... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PAN AM................................................................. 43
Liquidity and Capital Resources....................................................... 43
SELECTED HISTORICAL FINANCIAL DATA OF FH.......................................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FH................................................................. 45
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION................................................ 46
DESCRIPTION OF PAN AM............................................................................. 50
General .......................................................................... 50
Business Strategy..................................................................... 50
Trademarks .......................................................................... 51
Competition .......................................................................... 51
Properties .......................................................................... 51
Employees .......................................................................... 51
Legal Matters......................................................................... 51
MANAGEMENT OF PAN AM.............................................................................. 51
Executive Officers and Directors...................................................... 51
Compensation of Directors............................................................. 54
Employment Arrangements............................................................... 54
Certain Transactions with Management.................................................. 54
Organizational Transactions........................................................... 54
PRINCIPAL SHAREHOLDERS OF PAN AM.................................................................. 56
DESCRIPTION OF PAN AM'S SECURITIES................................................................ 57
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PAGE
DESCRIPTION OF FH.................................................................................. 58
MANAGEMENT OF FH................................................................................... 58
Executive Officers and Directors....................................................... 58
Compensation of Directors.............................................................. 60
Executive Compensation................................................................. 60
Employment Agreements.................................................................. 60
Certain Transactions with Management................................................... 60
PRINCIPAL SHAREHOLDERS OF FH....................................................................... 61
DESCRIPTION OF FH'S SECURITIES..................................................................... 62
COMPARISON OF RIGHTS OF FH SHAREHOLDERS AND PAN AM SHAREHOLDERS.................................... 63
Anti-Takeover Law Governance........................................................... 63
Special Meetings....................................................................... 64
Indemnification........................................................................ 64
Inspection of Records of Shareholders.................................................. 64
EXPERTS ....................................................................................... 64
LEGAL MATTERS...................................................................................... 64
FINANCIAL STATEMENTS............................................................................. F-1
ACQUISITION AGREEMENT..............................................................................A-1
PROPOSED RESTATED ARTICLES OF INCORPORATION
OF FROST HANNA MERGERS GROUP, INC................................................................B-1
PAN AMERICAN WORLD AIRWAYS, INC. 1996 STOCK OPTION PLAN............................................C-1
FH FAIRNESS OPINION OF MR. HARRIS HERMAN...........................................................D-1
FLORIDA BUSINESS CORPORATION ACT, Sections 607.1301, 607.1302 and 607.1320.........................E-1
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ADDITIONAL INFORMATION
FH is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy and information statements and other
information with the SEC pursuant to the Exchange Act relating to its business,
financial statements and other matters. Such reports, proxy and information
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
FH has filed with the SEC the Registration Statement under the
Securities Act covering the shares of FH Common Stock to be issued in connection
with the Merger. This Joint Proxy Statement-Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. The Registration Statement and any amendments thereto,
including exhibits filed as a part thereof, are available for inspection and
copying as set forth above. Statements contained in this Joint Proxy
Statement-Prospectus or in any document incorporated in this Joint Proxy
Statement-Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
-iv-
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN OF THE INFORMATION CONTAINED
IN THIS JOINT PROXY STATEMENT-PROSPECTUS. THIS SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED IN ITS
ENTIRETY BY, THE FULL TEXT OF THIS JOINT PROXY STATEMENT-PROSPECTUS AND THE
APPENDICES HERETO.
SHAREHOLDERS ARE URGED TO READ AND CONSIDER CAREFULLY ALL THE INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT-PROSPECTUS AND THE APPENDICES HERETO.
THE PROPOSED MERGER
THE MERGER
Subject to the approval of the Merger Agreement by the shareholders
of both FH and Pan Am and certain other conditions, at the time the Merger
becomes effective (the "Effective Time") (i) FH Sub will merge with and into Pan
Am and Pan Am will become a wholly-owned subsidiary of FH; (ii) each outstanding
share of Pan Am Common Stock will be converted into the right to receive one
share of FH Common Stock; (iii) each outstanding option, warrant, or other right
to purchase Pan Am Common Stock will be converted into a right to acquire shares
of FH Common Stock with the terms and conditions of vesting, the number of
shares of common stock subject thereto and the exercise price thereof remaining
the same; (iv) the name of FH will be changed to "Pan Am Corporation;" and (v)
the FH Board of Directors will be increased in size to seven members, five of
whom will be the current directors of Pan Am and two of whom will be current
directors of FH.
SPECIAL MEETINGS
FH. At the FH Special Meeting, the shareholders of FH (the "FH
Shareholders") will be asked to consider and vote upon the proposal to approve
and adopt the Merger Agreement. FH Shareholders will also be asked to consider
and vote upon a proposal to approve the Preferred Stock Amendment, as discussed
elsewhere herein, and such other business as may properly come before the FH
Special Meeting. The Preferred Stock Amendment is contingent upon approval of
the Merger. Approval and adoption of the Merger Agreement by the FH Shareholders
also will constitute (i) the approval of the assumption by FH of the Pan
American World Airways, Inc. 1996 Stock Option Plan (the "Pan Am 1996 Option
Plan") and (ii) the approval and ratification of the amendments to the Pan Am
1996 Option Plan necessary to reflect such assumption and to certain outstanding
Pan Am executive option agreements and warrant agreements so that all existing
Pan Am stock options and warrants will, after the Effective Time, be exercisable
for shares of FH Common Stock. See "The Proposed Merger -- Interests of Certain
Persons in the Merger -- Stock Options and Warrants of Pan Am." The FH Special
Meeting is scheduled to be held at 10:00 A.M. local time, on July 31, 1996, at
[The Westin Hotel, Cypress Creek, 400 Corporate Drive, Fort Lauderdale, Florida
33334.] The Board of Directors of FH (the "FH Board") has fixed the close of
business on June 18, 1996, as the record date (the "FH Record Date") for the
determination of holders of FH Common Stock entitled to notice of and to vote at
the FH Special Meeting. As of the FH Record Date, there were 3,344,000 shares of
FH Common Stock outstanding which were held by [73] holders of record. See "The
Special Meetings."
THE FH BOARD WITHOUT DISSENT OR ABSTENTION HAS APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT THE FH SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT. THE FH BOARD HAS ALSO UNANIMOUSLY
APPROVED THE PREFERRED STOCK AMENDMENT AND RECOMMENDS THAT THE FH SHAREHOLDERS
VOTE "FOR" SUCH PROPOSAL AS WELL. SEE "THE PROPOSED MERGER -- RECOMMENDATIONS OF
THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER -- FH" AND "PROPOSAL TO AMEND
AND RESTATE FH'S ARTICLES OF INCORPORATION."
PAN AM. The Pan Am Special Meeting will be held at 11:00 a.m., local
time, on July 31, 1996, at Pan Am's corporate headquarters, at 9300 N.W. 36th
Street, Miami, Florida, 33178.
At the Pan Am Special Meeting, shareholders of Pan Am (the "Pan Am
Shareholders") will be asked to consider and vote upon (i) a proposal to approve
the Merger Agreement and the transactions contemplated thereby; (ii) a proposal
to ratify and approve the Pan Am 1996 Option Plan; and (iii) such other business
as may properly come before the Pan Am Special Meeting. A copy of the Merger
Agreement and the Pan Am 1996 Option Plan are attached to this Joint Proxy
Statement-Prospectus as Appendix A and C, respectively.
1
<PAGE>
All shares of Pan Am Common Stock represented by properly executed
proxies will be voted at the Pan Am Special Meeting in accordance with the
directions on the proxies, unless such proxies have been previously revoked. If
no direction is indicated, the shares will be voted FOR approval of (i) the
Merger Agreement and the transactions contemplated thereby and (ii) the Stock
Option Plan Proposal. Any Pan Am Shareholder giving a proxy may revoke his or
her proxy at any time before its exercise at the Pan Am Special Meeting by (i)
giving written notice of such revocation to the Secretary of Pan Am, or (ii)
signing and delivering to such Secretary a proxy bearing a later date. However,
the mere presence at the Pan Am Special Meeting of a Pan Am Shareholder who has
delivered a valid proxy will not of itself revoke that proxy. See "The Special
Meetings -- Proxies -- Pan Am."
The record date for shareholders of Pan Am entitled to vote at the
Special Meeting is June 18, 1996 (the "Pan Am Record Date"). As of the Pan Am
Record Date, there were 7,561,191 shares of Pan Am Common Stock outstanding
which were held by 116 holders of record.
Based upon the number of outstanding shares of the FH Common Stock
and Pan Am Common Stock as of April 22, 1996, and assuming the exercise of all
options, warrants and other rights to purchase shares of such Common Stock,
approximately 12,662,930 shares of the FH Common Stock would be outstanding upon
consummation of the Merger, of which (i) approximately 3,514,000 shares,
representing approximately 28% of the total, will be held by the FH
Shareholders, and (ii) approximately 9,148,930 shares, representing
approximately 72% of the total, will be held by former Pan Am shareholders.
The consummation of the Merger is subject to a number of conditions
which, if not fulfilled or waived, permit termination of the Merger Agreement.
If the shareholders of either the FH and Pan Am fail to approve the Merger, the
Merger will not be consummated. The Merger Agreement may also be terminated at
any time prior to the consummation of the Merger by mutual consent or by either
FH or Pan Am if the Merger has not been consummated on or before August 30,
1996. See "The Merger Agreement -- Conditions to the Consummation of the Merger
Agreement" and "-- Termination."
Approval and adoption of the Merger Agreement by the Pan Am
Shareholders also will constitute (i) the approval of the assumption of FH of
the Pan Am 1996 Option Plan and (ii) the approval and ratification of the
amendments to the Pan Am 1996 Option Plan necessary to reflect such assumption
and to certain outstanding executive option agreements and warrant agreements so
that all Pan Am stock options and warrants will after the Effective Time, be
exercisable for shares of FH Common Stock. See "The Proposed Merger -- Interests
of Certain Persons in the Merger-Stock Options and Warrants of Pan Am."
THE PAN AM BOARD WITHOUT DISSENT OR ABSTENTION HAS APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE PAN AM SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT. THE PAN AM BOARD HAS ALSO
UNANIMOUSLY APPROVED THE STOCK OPTION PLAN PROPOSAL AND RECOMMENDS THAT THE PAN
AM SHAREHOLDERS VOTE "FOR" SUCH PROPOSAL AS WELL. SEE "THE PROPOSED MERGER --
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER -- PAN AM"
AND "PROPOSAL TO AUTHORIZE THE PAN AMERICAN WORLD AIRWAYS, INC. 1996 STOCK
OPTION PLAN."
THE PARTIES
FH. FH was formed in October 1993 to serve as a vehicle to effect a
merger, exchange of capital stock, asset acquisition or other similar business
combination (a "Business Combination") with an operating business (an "Acquired
Business"). In March 1994, FH consummated an initial public offering of its
equity securities (the "IPO") from which it derived net proceeds of
approximately $10,142,000 (the "Net Proceeds"). As per the terms of its
Prospectus, $8,889,298, representing approximately 80% of the Net Proceeds
(inclusive of interest earned thereon) was held in escrow at March 31, 1996
pending the consummation of a Business Combination and will be released to FH
upon consummation of the Merger. The balance of the Net Proceeds, less net
operating expenses to date, is currently held by FH. FH's executive offices are
located at 7700 West Camino Real, Suite 222, Boca Raton, FL 33431; its telephone
number is (407) 367-1042. See "Description of FH."
PAN AM. Pan Am was formed in January 1996 to operate a low fare,
full service airline under the "Pan Am" name, which is initially anticipated to
serve selected long-haul routes between major United States cities. Pan Am's
executive offices are located at 9300 N.W. 36th Street, Miami, Florida, 33178;
its telephone number is (305) 873-5338. See "Description of Pan Am."
2
<PAGE>
REQUIRED VOTE
FH. The presence, either in person or by proxy, of the holders of a
majority of the issued and outstanding shares of FH Common Stock is necessary to
constitute a quorum at the FH Special Meeting. The affirmative vote of the
holders of a majority of the shares of FH Common Stock present and entitled to
vote at the FH Special Meeting is necessary to approve and adopt the Merger. In
the event, however, that holders of 30% or more of the shares of FH Common Stock
initially purchased in the IPO (each, a "non-affiliated FH Shareholder"), vote
against approval of the Merger, FH will not consummate the Merger. The proposal
to adopt the Preferred Stock Amendment requires the affirmative vote of a
majority of the shares of FH Common Stock present and entitled to vote at the FH
Special Meeting.
FH's directors and executive officers, collectively holding an
aggregate of approximately 35.9% of the outstanding shares of FH Common Stock
before giving effect to the Merger, have agreed, with respect to the Merger
Agreement and the Preferred Stock Amendment, to vote their respective shares of
FH Common Stock in accordance with the vote of the majority in interest of all
non-affiliated FH Shareholders. Consequently, if a majority of outstanding FH
Common Stock held and voted by non-affiliated FH Shareholders is voted in favor
of the Merger and the other proposal, the current directors and executive
officers of FH will vote their shares of FH Common Stock in favor of the Merger
and the other proposal. If the Merger and the other proposal are not approved by
the majority of the holders of the outstanding FH Common Stock entitled to vote
at the FH Special Meeting, the Merger Agreement will be terminated, the proposed
Merger abandoned and the other proposal presented at the FH Special Meeting will
not be adopted. See "The Special Meetings -- Vote Required -- FH."
PAN AM. The Acquisition Agreement and the FBCA require approval of
the Merger Agreement by holders of a majority of the outstanding shares of Pan
Am Common Stock. The proposal to ratify and approve the Pan Am 1996 Option Plan
requires the affirmative vote of a majority of the shares of Pan Am Common Stock
present and entitled to vote at the Pan Am Special Meeting. Abstentions will
have the same effect as a vote against the Merger Agreement and the Stock Option
Plan Proposal. If the shareholders of Pan Am or FH fail to approve the Merger
Agreement and the transactions contemplated thereby, as required, the Merger
will not be consummated. See "The Special Meetings -- Vote Required -- Pan Am."
EXCHANGE OF STOCK CERTIFICATES
Promptly after the consummation of the Merger, FH's exchange agent
with respect to the Merger (the "Exchange Agent"), will mail written transmittal
materials concerning exchange of stock certificates to each record holder of
outstanding shares of Pan Am Common Stock. The transmittal materials will
contain instructions with respect to the proper method of surrender of
certificates formerly representing shares of Pan Am Common Stock in exchange for
certificates representing shares of the FH Common Stock. Upon surrender to the
Exchange Agent by a shareholder of certificates formerly representing shares of
Pan Am Common Stock for cancellation, together with properly completed
transmittal materials, such shareholder will be entitled to receive a
certificate representing the number of whole shares of FH Common Stock into
which the shareholder's shares of Pan Am Common Stock have been converted. See
"The Proposed Merger -- Exchange of Stock Certificates."
APPRAISAL RIGHTS; REDEMPTION RIGHTS
FH. FH Shareholders are not entitled to appraisal rights under
Florida law in connection with the Merger but will be entitled to certain
Redemption Rights as discussed below. Each non-affiliated FH Shareholder as of
the FH Record Date will have the right until not less than 20 days after the
mailing of this Joint Proxy Statement-Prospectus to offer his or her shares of
FH Common Stock to FH for redemption (the "Redemption") at a price equal to FH's
book value divided by the number of shares of FH Common Stock held by all
non-affiliated FH Shareholders (1,955,000 shares as of the FH Record Date), as
determined by FH and audited by its independent public accountants, calculated
as of the FH Record Date (the "Redemption Value"). The Redemption Value as of
March 31, 1996 was $5.19 per share. If less than 30% of the shares of FH Common
Stock held by non-affiliated FH Shareholders vote against approval of the Merger
and if the Merger is consummated, FH will, utilizing funds held in escrow,
redeem shares of FH Common Stock at the Redemption Value from those
non-affiliated FH Shareholders who actually voted against approval of the Merger
and requested such redemption. If 30% or more in interest of FH Common Stock
held by non-affiliated FH Shareholders vote against approval of the Merger, the
Merger Agreement will be terminated, the proposed Merger abandoned and FH will
not redeem any shares. For a full description of the procedures that an FH
Shareholder must follow to redeem his or her shares, see "The Proposed Merger --
Redemption Rights."
3
<PAGE>
PAN AM. Pan Am Shareholders are entitled to dissenters' rights
with respect to the Merger in accordance with the FBCA. See "The Proposed
Merger -- Appraisal Rights."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
The FH Board and the Pan Am Board believe that the Merger is fair
to, and in the best interests of, their respective companies and shareholders.
The FH Board and Pan Am Board have approved the Merger and the Merger Agreement
and recommend that their respective shareholders vote "FOR" approval and
adoption of the Merger and the Merger Agreement. For a discussion of the factors
considered by the FH Board and the Pan Am Boards in making their
recommendations, see "The Proposed Merger -- Recommendations of the Boards of
Directors and Reasons for the Merger."
OPINION OF FH'S FINANCIAL ADVISOR
On May 7, 1996, Mr. Harris Herman, FH's financial advisor in
connection with the Merger, delivered his opinion to the FH Board to the effect
that the Exchange Ratio is fair to FH and its shareholders from a financial
point of view. A copy of Mr. Herman's fairness opinion, which sets forth, among
other things, the assumptions made, matters considered, the scope and
limitations of review undertaken and the procedures followed by Mr. Herman in
connection with such opinion is attached as Appendix D to this Joint Proxy
Statement-Prospectus and should be read carefully in its entirety by FH
Shareholders. For information about Mr. Herman and his relationship with Pan Am,
see "The Proposed Merger -- Opinion of FH's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Upon consummation of the Merger, Pan Am will be a wholly-owned
subsidiary of FH. The directors of Pan Am immediately prior to the Effective
Time will continue to be the directors of Pan Am. Additionally, and pursuant to
the terms of the Merger Agreement, following the Effective Time, FH and Pan Am
have agreed to cause the five current members of the Pan Am Board and Richard B.
Frost and Mark J. Hanna, each currently a director of FH, to be nominated to the
Board of Directors of FH and to use reasonable efforts consistent with no less
than those efforts that are taken with respect to all other nominees to the FH
Board to have such persons elected to the FH Board for each of the next three
years. The Pan Am Board currently consists of the following individuals: Charles
E. Cobb, Jr., Martin R. Shugrue, Jr., John J. Sicilian, Phillip Frost, M.D., and
Richard C. Pfenniger, Jr. such individuals, together with Messrs. Frost and
Hanna, following the Merger, will own an aggregate of 4,804,565 shares of FH
Common Stock (assuming the exercise of outstanding stock options to purchase
1,089,555 shares of FH Common Stock held by such individuals), representing in
the aggregate approximately 41% of the total shares of FH Common Stock to be
outstanding following consummation of the Merger (assuming the exercise of all
outstanding options, warrants and other rights to purchase shares of FH Common
Stock following the Merger). Additionally, the executive officers of Pan Am
immediately prior to the Effective Time will be the initial executive officers
of each of FH and Pan Am subsequent to the Merger. See "The Proposed Merger --
Interests of Certain Persons in the Merger-Pan Am Directors and Officers" and
"Management of Pan Am."
Pursuant to the terms of the Merger Agreement, Pan Am and FH have
agreed to indemnify the current directors and officers of FH in respect of
actions or omissions occurring at or prior to the Effective Time arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of FH (including, without limitation, the transactions contemplated
by the Merger Agreement) to the full extent provided under the Articles of
Incorporation and Bylaws of FH as in effect on the date of the Merger Agreement
or permitted by the FBCA. The parties have further agreed to cause FH for a
period of six years after the Effective Time to (a) keep in effect provisions of
the Articles of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of such persons and (b) cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by FH. See "The Proposed Merger -- Interests of Certain
Persons in the Merger -- Indemnification of Officers and Directors."
As provided in the Merger Agreement, at the Effective Time, each
unexpired and unexercised warrant and option (collectively, the "Pan Am
Options") to acquire Pan Am Common Stock outstanding at the Effective Time, will
be assumed by FH and converted into and become a right to acquire FH Common
Stock. Each Pan Am Option assumed by FH will be exercisable upon the same terms
and conditions (including exercise price) as under the agreements pursuant to
which such Pan Am Options were issued as in effect immediately prior to the
Effective Time, except that each such Pan Am Option shall be exercisable for an
equal number of shares of FH Common Stock covered by such Pan Am Option
immediately prior to the Effective Time. See "The Proposed Merger -- Interests
of Certain Persons in the Merger -- Stock Options and Warrants of Pan Am."
4
<PAGE>
OPERATIONS AFTER THE MERGER
As a result of the Merger, Pan Am will be a wholly-owned subsidiary
corporation of FH. FH's Articles of Incorporation will be amended at the
Effective Time to change FH's name to "Pan Am Corporation." In accordance with
the terms of the Merger Agreement, all of FH's executive officers will resign
effective at the Effective Time, to be replaced by Pan Am's current executive
officers. See "The Proposed Merger --Operations After the Merger" and
"Management of Pan Am."
EFFECTIVE TIME
After all the conditions set forth in the Merger Agreement have been
satisfied or waived, the Merger will become effective at such time as Articles
of Merger are accepted for filing by the Secretary of State of the State of
Florida. Such filing will be made simultaneously with or as soon as practicable
after the closing of the transactions contemplated by the Merger Agreement. See
"The Proposed Merger -- Closing; Effective Time."
CONDITIONS TO THE MERGER
The consummation of the Merger is subject to the satisfaction of a
number of conditions, including: (i) the Merger shall have been approved and
adopted by the shareholders of FH and Pan Am, and no more than 30% of the shares
of FH Common Stock held by non-affiliated FH Shareholders shall have voted
against the Merger; (ii) Pan Am shall be in material compliance with all
material business plans, budgets or projections submitted in connection with any
applications made to the United States Federal Aviation Administration (the
"FAA") and the United States Department of Transportation (the "DOT"); and (iii)
all licenses required to be procured from, among other persons and entities, the
FAA and the DOT, in order for Pan Am to commence operations as an air carrier in
a manner substantially in accordance with the applications made to the FAA and
the DOT, shall have been procured without imposition of unduly burdensome
conditions or restrictions. See "The Merger Agreement -- Conditions to
Consummation of the Merger."
TERMINATION; TERMINATION FEE; EXPENSES
The Merger Agreement may be terminated (i) at any time by the mutual
consent of the parties; (ii) unilaterally by either FH or Pan Am if the Merger
has not been consummated prior to August 30, 1996; or (iii) by FH or Pan Am upon
written notice, if there has been a material misrepresentation by the other
party or a material breach of any of the other party's warranties or covenants
set forth in the Merger Agreement. FH and Pan Am have agreed to bear their own
expenses incurred in connection with the Merger. In the event the Merger is not
consummated then Pan Am shall pay FH, under certain circumstances, a termination
fee equal to the sum of One Million Dollars ($1,000,000) plus all costs and
expenses incurred by FH in connection with the Merger. See "The Merger Agreement
- -- Termination" and "-- Termination Fee; Expenses."
COMPARISON OF RIGHTS OF FH SHAREHOLDERS AND PAN AM SHAREHOLDERS
If the Merger Agreement is consummated, the Pan Am Shareholders will
become FH Shareholders. Accordingly, their rights will thereafter be governed by
FH's Articles of Incorporation and Bylaws rather than Pan Am's Articles of
Incorporation and Bylaws. See "Comparison of Rights of FH Shareholders and Pan
Am Shareholders."
CERTAIN FEDERAL TAX CONSEQUENCES OF THE MERGER
The Merger will not be a taxable event for Federal income tax
purposes for an FH Shareholder who does not exercise his right of redemption
but will be a taxable event for one who does.
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. has
issued its opinion to Pan Am that the Merger will be treated as a reorganization
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that, accordingly, a Pan Am Shareholder will not
recognize gain or loss on the exchange of a share of Pan Am Common Stock for a
share of FH Common Stock pursuant to the Merger, and FH, FH Sub and Pan Am will
not recognize gain or loss as a result of the Merger.
No ruling will be obtained from the Internal Revenue Service with
respect to the Federal income tax consequences of the Merger. See "The Proposed
Merger--Certain Tax Consequences of the Merger" for a general discussion of
certain Federal income tax consequences of the Merger. Pan Am Shareholders and
FH Shareholders are urged to consult their tax advisers regarding the particular
tax consequences of the Merger to them under Federal, state, local or other
applicable law.
5
<PAGE>
ACCOUNTING TREATMENT
The Merger is intended to be treated, for accounting purposes, as a
capital transaction equivalent to the issuance of stock by Pan Am for FH's net
monetary assets (FH's net monetary assets were approximately $10,136,000, as of
March 31, 1996), accompanied by a recapitalization of Pan Am. See "The Proposed
Merger -- Accounting Treatment."
RESALES OF FH COMMON STOCK
The shares of FH Common Stock to be issued to Pan Am Shareholders in
connection with the Merger have been registered under the Securities Act. All
shares of FH Common Stock received by Pan Am Shareholders upon consummation of
the Merger will be freely transferable by the Pan Am Shareholders not deemed to
be "Affiliates" of Pan Am. "Affiliates" are generally defined as persons who
control, are controlled by, or are under common control with, Pan Am at the time
of the Pan Am Special Meeting (generally, certain executive officers, directors
and principal shareholders). See "The Proposed Merger -- Resale of FH Common
Stock Issued as a Result of the Merger."
RISK FACTORS
FH and Pan Am are subject to a number of risk factors which may
affect their future results. In considering whether to approve the proposals
concerning the Merger described in this Joint Proxy Statement- Prospectus, FH
Shareholders and Pan Am Shareholders should consider these risk factors. See
"Risk Factors."
MARKET PRICES; COMPARATIVE PER SHARE DATA
The FH Common Stock is listed for trading on the OTC Bulletin Board.
There is no established trading market for the shares of FH Common Stock and, to
the extent there has been any trading in the shares of FH Common Stock, it has
been thin and sporadic. There can be no assurances that an established trading
market for the shares of FH Common Stock will develop. Pan Am Common Stock is
owned of record by 116 shareholders and there is no established public trading
market therefor.
On March 12, 1996 (the last trading day prior to the public
announcement of the execution of the Merger Agreement), the last reported
closing bid price of the FH Common Stock was $5.125.
On _________, 1996 (the last trading day prior to the date of this
Joint Proxy Statement-Prospectus), such bid price was $_________. See "Price
Ranges of FH's Securities."
6
<PAGE>
The following table presents selected comparative unaudited per
share data (i) for each of FH and Pan Am on an historical basis, (ii) for the
combined company on a pro forma basis assuming the Merger had been effective for
the periods indicated in the table and was accounted for as a purchase, and
(iii) for Pan Am on a pro forma equivalent basis. Neither FH nor Pan Am has paid
any cash dividends on its common stock. The data presented should be read in
conjunction with the historical financial statements and the related notes
thereto included elsewhere herein, and the pro forma financial statements
included elsewhere in this Joint Proxy Statement-Prospectus.
AS OF
BOOK VALUE PER SHARE: MARCH 31, 1996
- -------------------- --------------
FH historical....................... $ 2.12
Pan Am historical................... 2.06
Pro forma combined company (1)...... 2.58
FOR THE YEAR ENDED FOR THE THREE MONTHS
NET INCOME (LOSS) PER SHARE: DECEMBER 31, 1995 ENDED MARCH 31, 1996
- --------------------------- ----------------- --------------------
FH historical....................... $ .03 $ (.02)
Pan Am historical................... (318.79) (.36)
Pro forma combined company (1)...... (.02) (.16)
(1) Book value per share and net loss per share on a pro forma
equivalent basis is the same as pro forma combined company as a
result of the one-for-one stock exchange ratio.
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following tables set forth certain historical financial
information of Pan Am and FH. This summary has been derived in part from, and
should be read in conjunction with, the development stage financial statements
and related notes thereto beginning on page F-1 of this Joint Proxy
Statement-Prospectus. The historical financial information of Pan Am for the
three months ended March 31, 1995; as of December 31, 1995, 1994 and 1993 and
for each of the years then ended; and for the cumulative period from Inception
to December 31, 1995 reflects the historical financial information of Pan
American World Airways, Inc., a Delaware corporation and Pan Am Corporation, a
Florida corporation (collectively, the "Predecessor Company"). Results of
interim periods are not necessarily indicative of results to be expected for the
year. This information, which does not give effect to the Merger, should be read
in conjunction with the separate historical financial statements of Pan Am and
FH and the unaudited pro forma combined financial information reflecting the
consummation of the Merger, which appear elsewhere in this Joint Proxy
Statement-Prospectus. See "Selected Historical Financial Data -- Pan Am", "--
FH," "Pro Forma Combined Financial Information" and the "Financial Statements."
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR COMPANY
COMPANY CUMULATIVE ------------------------------------------------------
THREE MONTHS THREE MONTHS PERIOD FROM CUMULATIVE
PAN AM ENDED ENDED INCEPTION TO YEAR ENDED YEAR ENDED PERIOD FROM
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, YEAR ENDED INCEPTION TO
1996 1995 1996 1995 1994 DECEMBER 31, DECEMBER 31,
------------ ------------ ------------ ------------ ------------- ------------ ------------
1993 1995
---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF DEVELOPMENT
STAGE OPERATIONS DATA:
REVENUE .................... $ -- $-- $ -- $ 2 $ 1 $-- $ 3
LOSS FROM OPERATIONS ....... (917) (65) (917) (239) (135) (1) (496)
NET LOSS ................... (1027) (65) (1,027) (239) (135) (1) (496)
NET LOSS PER SHARE ......... (0.36) (87.06) (.36) (318.79) (179.38) (1.18) (1,674.49)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING .............. 2,848,068 750 2,848,068 750 750 750 296
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------------------------------------
MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL
(DEFICIT)........................ $ 3,017 ($ 4) ($ 20) ($ 41)
TOTAL ASSETS..................... 8,887 1,614 1,577 1,455
TOTAL LIABILITIES................ 3,032 4 24 41
TOTAL STOCKHOLDERS'
EQUITY......................... 5,855 1,610 1,553 1,414
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD
FROM INCEPTION
THREE MONTHS THREE MONTHS (OCTOBER 4, CUMULATIVE
FH ENDED ENDED 1993) TO YEAR ENDED YEAR ENDED PERIOD FROM
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, YEAR ENDED INCEPTION TO
1996 1995 1996 1995 1994 DECEMBER 31, DECEMBER 31,
-------------- -------------- -------------- ---------------- --------------- ------------ ------------
1993 1995
---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF DEVELOPMENT
STAGE OPERATIONS DATA:
REVENUE......................$ -- $ -- $ -- $ -- $ -- $ -- $ --
LOSS FROM OPERATIONS......... (249) (94) (1,025) (378) (344) (53) (775)
NET INCOME (LOSS)............ (77) 42 (37) 116 (24) (53) 40
NET INCOME (LOSS) PER SHARE.. (.02) .01 (.01) .03 (.01) (.04) .01
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING................3,344,000 3,344,000 2,961,593 3,344,000 2,870,061 1,389,000 2,919,104
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL.......... $10,138 $10,215 $10,100 $(172)
TOTAL ASSETS............. 10,211 10,306 10,134 187
TOTAL LIABILITIES........ 68 86 30 202
REDEEMABLE
COMMON STOCK............. 3,042 3,065 3,030 0
TOTAL STOCKHOLDERS'
EQUITY................. 7,101 7,155 7,074 (15)
</TABLE>
9
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined balance sheet data as of
March 31, 1996 and the unaudited pro forma combined statements of development
stage operations data for the three months ended March 31, 1996 and the year
ended December 31, 1995 give effect to the Merger of Pan Am and FH. The
historical financial information of Pan Am for the year ended December 31, 1995
reflects the historical financial information of Pan American World Airways,
Inc., a Delaware corporation and Pan Am Corporation, a Florida corporation
(collectively, the "Predecessor Company"). This information should be read in
conjunction with the historical financial statements and notes thereto, which
are included elsewhere in this Joint Proxy Statement-Prospectus. The pro forma
financial data are provided for comparative purposes only and do not purport to
be indicative of the results which actually would have been obtained if the
Merger had been effected on the date indicated or of those results which may be
obtained in the future.
The Merger has been accounted for as a capital transaction
equivalent to the issuance of stock by Pan Am for FH's net monetary assets,
accompanied by a recapitalization of Pan Am.
The pro forma adjustments are described in the accompanying notes to
unaudited pro forma combined financial data. The unaudited pro forma combined
financial data assume the Merger had occurred (i) January 1, 1995 for the
purposes of pro forma combined statements of development stage operations data
for the three months ended March 31, 1996 and the year ended December 31, 1995
and (ii) as of March 31, 1996 for the purposes of the pro forma combined balance
sheet data. See "Summary-Selected Historical Financial Data," "-Comparative Per
Share Data," and "Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
PRO FORMA REFLECTING
FH AFTER GIVING EFFECT
TO THE MERGER
-----------------------------------------------
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
COMBINED STATEMENT OF DEVELOPMENT STAGE
OPERATIONS DATA: (d)
Revenues............................................. $ -- $ 2
Net Loss............................................. (993)(c) (58)(c)
Net loss per common share............................ (.16)(c) (.02)(c)
Weighted average number
of common shares outstanding....................... 6,192,068 3,344,750
Combined Balance Sheet Data:(d)(e) MARCH 31, 1996
--------------
Working capital...................................... $ 13,155
Total assets.......................................... 19,098
Total liabilities.................................... 3,100
Shareholders' equity ................................ 15,998(a)
Book value per common share.......................... 2.58(b)
</TABLE>
See notes on the following page
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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
Pro forma adjustments were made:
(a) To reflect the redeemable common stock as if each of the non-affiliated FH
Shareholders approved the Merger. If less than 30% of non-affiliated FH
Shareholders vote against approval of the Merger and if the Merger is
consummated, FH will utilize funds held in escrow and redeem such shares at
their Redemption Value. The Redemption Value as of March 31, 1996 was $5.19
per share.
(b) The pro forma combined book value per common share is computed by dividing
the sum of historical stockholders' equity of Pan Am and FH as adjusted for
note (a) by the sum of the historical number of common shares outstanding of
Pan Am and FH.
(c) To eliminate income tax expense since on a pro forma combined basis there is
a net tax loss.
(d) Pro forma combined financial data does not reflect the difference between
the fair value and the $1 exercise price of options granted (276,821 shares)
which are exercisable upon consummation of the Merger. Such difference will
be recorded as an expense upon consummation of the Merger based upon the
fair value on that date.
(e) Pro forma combined balance sheet at March 31, 1996 does not include
approximately $16,300,000 of cash received and 4,713,123 shares of common
stock issued as part of Pan Am's private offerings.
11
<PAGE>
FROST HANNA MERGERS GROUP, INC.
AND
PAN AMERICAN WORLD AIRWAYS, INC.
=============
JOINT PROXY STATEMENT-PROSPECTUS
INTRODUCTION
This Joint Proxy Statement-Prospectus is being furnished to the
shareholders of Frost Hanna Mergers Group, Inc., a Florida corporation ("FH"),
in connection with the solicitation of proxies by the Board of Directors of FH
from holders of issued and outstanding shares of common stock of FH, par value
$.0001 per share (the "FH Common Stock"), for use at a Special Meeting of
Shareholders of FH and any adjournments or postponements thereof (the "FH
Special Meeting"), and to shareholders of Pan American World Airways, Inc., a
Florida corporation ("Pan Am"), in connection with the solicitation of proxies
by the Board of Directors of Pan Am from holders of issued and outstanding
shares of common stock of Pan Am, par value $.0001 per share (the "Pan Am Common
Stock"), for use at a Special Meeting of Shareholders of Pan Am and any
adjournments or postponements thereof (the "Pan Am Special Meeting"). This Joint
Proxy Statement-Prospectus of FH and Pan Am also constitutes the prospectus of
FH for the issuance of FH Common Stock in connection with the Merger.
The FH Special Meeting and the Pan Am Special Meeting will be held
on the date, at the time and in the location, and will be held to consider the
matters set forth under the section entitled "The Special Meetings." At the FH
Special Meeting and the Pan Am Special Meeting, the shareholders of FH Common
Stock (the "FH Shareholders") and Pan Am Common Stock (the "Pan Am
Shareholders"), respectively, will be asked to consider and vote upon, among
other things, a proposal to approve an Acquisition Agreement, dated March 13,
1996 (the "Merger Agreement"), by and among FH, PA Acquisition Corporation, a
Florida corporation and a wholly-owned subsidiary of FH ("FH Sub"), and Pan Am,
pursuant to which, among other things, FH Sub will merge with and into Pan Am
(the "Merger").
As a result of the Merger, and the transactions contemplated
thereby, as more fully set forth in the Merger Agreement, (i) FH's name will be
changed to "Pan Am Corporation"; (ii) Pan Am will become a wholly-owned
subsidiary corporation of FH; (iii) each share of Pan Am Common Stock will be
converted into and become exchangeable for one share of FH Common Stock (the
"Exchange Ratio") and, as a result, FH will issue 7,561,191 shares of FH Common
Stock, to the owners of all of the issued and outstanding shares of capital
stock of Pan Am, which will constitute approximately 69% of the then outstanding
shares of FH Common Stock, without giving effect to the issuance of 1,757,739
shares of FH Common Stock issuable, subsequent to the Merger, upon exercise of
certain warrants and options held by (a) the Underwriter of FH's initial public
offering (170,000 shares) and (b) by existing Pan Am Shareholders (1,587,739
shares); and (iv) the executive officers of Pan Am, immediately prior to the
consummation of the Merger will, following the Merger, be the executive officers
of FH, and the directors of Pan Am along with certain current directors of FH,
will, following the Merger, be the directors of FH.
Approval of the Merger Agreement by the FH Shareholders and Pan Am
Shareholders also will constitute their (i) approval of the assumption by FH of
the Pan American World Airways, Inc. 1996 Stock Option Plan (the "Pan Am 1996
Option Plan") and (ii) approval and ratification of the amendments to the Pan Am
1996 Option Plan necessary to reflect such assumption and to each unexpired and
unexercised option and warrant (collectively, together with options granted and
available for grant under the Pan Am 1996 Option Plan, the "Pan Am Options") to
acquire Pan Am Common Stock so that such Pan Am Options will, following
consummation of the Merger, be exercisable for shares of FH Common Stock. See
"The Proposed Merger --Interests of Certain Persons in the Merger -- Stock
Options and Warrants of Pan Am" and "Proposal to Authorize the Pan American
World Airways, Inc. 1996 Stock Option Plan"
The Boards of Directors of FH and Pan Am, respectively, have
approved the Merger Agreement and the transactions contemplated thereby and
recommend that their respective shareholders vote for the proposals concerning
the Merger described in this Joint Proxy Statement-Prospectus. For a discussion
of the factors considered by FH's and Pan Am's respective Boards of Directors in
approving the Merger, the Merger Agreement and the transactions contemplated
thereby, see "The Proposed Merger -- Recommendations of the Boards of Directors
and Reasons for the Merger" and "-- Opinion of FH's Financial Advisor." The
Boards of Directors of FH and Pan Am, respectively, know of no business that
will be presented for consideration at the FH Special Meeting or the Pan Am
Special Meeting, other than the matters described in this Joint Proxy
Statement-Prospectus. If any other matters are properly presented at either of
such meetings, proxies will be voted in the discretion of the proxy holders.
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<PAGE>
RISK FACTORS
THE BUSINESS TO BE CONDUCTED BY FH SUBSEQUENT TO THE CONSUMMATION
OF THE MERGER INVOLVES CERTAIN ELEMENTS OF RISK, INCLUDING, BUT NOT LIMITED TO,
THE FACTORS DISCUSSED BELOW.
In addition to the other information contained in this Joint Proxy
Statement-Prospectus, FH Shareholders and Pan Am Shareholders should review
carefully the following considerations in deciding whether to vote in favor of
approval of the Merger.
RISKS RELATING TO PAN AM
DEVELOPMENT STAGE ENTERPRISE; UNCERTAINTY AS TO COMMENCEMENT OF
AIRLINE OPERATIONS. Pan Am is a development stage enterprise that has devoted
substantially all its efforts since inception to establishing its business. Pan
Am has not commenced operations and will be unable to do so unless and until it
obtains requisite governmental approvals and licenses. Pan Am has not, entered
into arrangements for facilities or interline agreements with other airlines or
hired a substantial number of the operating personnel necessary to commence
airline operations as planned or at all. Prior to commencement of airline
operations, Pan Am also must develop and implement systems, standards and
procedures for its contemplated operations. There can be no assurance that Pan
Am will be able to complete all of these matters in a timely manner, or at all,
in order to allow Pan Am to commence airline operations. Pan Am will not
generate any operating revenues until the commencement of airline operations,
but will nevertheless continue to incur expenses until then. However, it should
be noted that the consummation of the Merger is subject to the satisfaction, of
a number of conditions, including but not limited to, the requirement that all
licenses required to be procured from, among other persons and entities, the DOT
and the FAA, in order for Pan Am to commence operations as an air carrier in a
manner substantially in accordance with the applications made to the FAA and the
DOT, shall have been procured without unduly burdensome conditions or
restrictions. Nevertheless, the FH Board has the discretion to waive these
conditions. Pan Am is not a successor to nor should Pan Am be confused with Pan
American World Airways, Inc., a New York corporation ("Former Pan Am"), which
ceased operations in 1991. As discussed elsewhere herein, Pan Am is a newly
formed closely held Florida corporation, entirely distinct from the
publicly-held Former Pan Am. The rights and obligations of the Former Pan Am
were discharged in bankruptcy. As part of the bankruptcy proceedings, Pan Am
indirectly purchased the various "Pan Am" tradenames, trademarks and other
intellectual property rights previously owned by the Former Pan Am. In addition,
certain of Pan Am's employees, including Mr. Martin Shugrue, President and Chief
Executive Officer of Pan Am, were once employed by the Former Pan Am. However,
Pan Am has no other association with the Former Pan Am.
NEED FOR ADDITIONAL FINANCING. Pan Am's business is capital
intensive and Pan Am's capital requirements are expected to increase
significantly in connection with the commencement of its operations. Pan Am
intends to use a substantial portion of the proceeds to be received pursuant to
the Merger to cover working capital expenses during the commencement of airline
operations. Pan Am anticipates, based on currently proposed plans and
assumptions relating to its operations, that its current working capital, the
proceeds from the Merger, and the proceeds from certain advances relating to
future ticket sales and projected cash flow from operations will be sufficient
to satisfy its contemplated cash requirements for at least 12 months following
the consummation of the Merger. In the event Pan Am's plans change or its
assumptions change or prove to be inaccurate, or if the proceeds from the
Merger, such advances or projected cash flow prove to be insufficient, Pan Am
may be required to seek additional financing or curtail its growth activities.
To the extent Pan Am incurs indebtedness, Pan Am will be subject to risks
associated with incurring substantial indebtedness, including the risks that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. Pan Am has no current arrangements with
respect to, or sources of, additional financing and it is not anticipated that
existing shareholders will provide any portion of Pan Am's future financing
requirements. There can be no assurance that additional financing will be
available to Pan Am on acceptable terms, or at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Pan Am."
OPERATING PLAN. Pan Am's success will depend primarily on the
extent to which its assumptions as to future revenues and costs prove to be
correct. Those assumptions are based on the management of Pan Am's knowledge and
experience and on historical industry data available from government sources. No
independent market studies have been conducted concerning the extent to which
travelers would use Pan Am's proposed airline services, nor are any such studies
planned. Although many of Pan Am's managerial and supervisory personnel have had
substantial airline industry experience and some have worked together in the
past, Pan Am has no operating history. Pan Am's operating plan also is based on
existing market conditions for airline service to the routes it initially
intends to service. Pan Am's routes could become uneconomical if the
13
<PAGE>
economies of its market area or other parts of the United States deteriorate.
Accordingly, there is no firm basis, other than the management of Pan Am's
judgment, on which to estimate the volume of passenger traffic or the amount of
revenues Pan Am's planned operations will generate.
REGULATION. Pan Am will be an air carrier subject to the
jurisdiction of and regulation by the DOT and the FAA under the Aviation Act.
The DOT is primarily responsible for regulating economic aspects of air
transportation including, but not limited to, air carrier certification and
fitness, insurance, leasing arrangements, allocation of route rights,
authorization of proposed scheduled and charter operations, tariffs, consumer
protection, unfair methods of competition, unjust discrimination, and deceptive
practices. The DOT is authorized to prescribe forms of account, to require
reports from air carriers, to review and approve/disapprove contracts between
carriers for cooperative purposes, and to inspect a carrier's books, records,
and property. The DOT also has authority to investigate and institute
proceedings for the enforcement of the Aviation Act and its economic
regulations, and may in certain circumstances assess civil penalties, revoke a
carrier's operating authority, and/or seek criminal sanctions.
In authorizing air carrier services, the DOT must determine whether
a carrier is fit, willing, and able to engage in the air transportation services
it has proposed and to comply with the requirements of the Aviation Act and
related regulations, and that the air transportation services proposed are
consistent with the public convenience and necessity. In determining an air
carrier's fitness, the DOT primarily examines managerial competence, operating
and financial plans and compliance disposition. Certificates issued by the DOT
(a "DOT Certificate") confer no proprietary rights on the certificate holder.
The DOT may impose conditions or restrictions on the certificates it issues; the
DOT may also modify, amend, or revoke such certificates. Certificates may be
revoked for various reasons including the willful failure to comply with the
certificate's terms, statutory provisions, or the orders, rules or regulations
of the DOT.
Pan Am must obtain a DOT Certificate and has applied for a DOT
Certificate in March 1996 in order to commence airline operations in July 1996.
Although Pan Am expects to satisfy all DOT requirements, there can be no
assurance that Pan Am will be able to obtain a DOT Certificate in a timely
manner, if at all. Pan Am management believes that it will be able to obtain
coverage, but there is no assurance in that regard. In addition, although Pan Am
is not a successor to Former Pan Am, an association of family members of certain
victims of the 1988 terrorist bombing of a Former Pan Am 747 over Lockerbie,
Scotland have indicated that they intend to oppose Pan Am's DOT Certificate
application, which may delay the DOT approval process. As of April 26, 1996, the
deadline for submissions of responses to Pan Am's application for a DOT
Certificate, two individuals had filed objections.
Pan Am is also subject to the jurisdiction of and regulation by the
FAA primarily with respect to aircraft maintenance and operations generally,
including flight operations, equipment maintenance, aircraft noise, ground
facilities and equipment, flight dispatch, communications, training and
licensing of flight crews, maintenance and flight dispatch personnel, flight
time, aircraft registration and inspection and other matters relating to air
safety. The FAA requires each air carrier to obtain and maintain an operating
certificate and certificates of airworthiness for all of its aircraft. The FAA
has the authority to suspend temporarily or revoke permanently the operating
authority and certificates of Pan Am or its licensed personnel for failure to
comply with FAA regulations and to assess civil penalties for such failures. Pan
Am applied for an FAA certificate in March 1996. Pan Am's flight personnel,
flight and emergency procedures, aircraft and maintenance facilities will be
subject to periodic inspections and tests by the FAA. Pan Am believes that the
FAA often applies strict scrutiny to the operations of small, newer airlines to
ensure proper compliance with FAA regulations making them susceptible to
regulatory demands that can negatively impact their operations. Pan Am applied
for an FAA Certificate in March 1996 and management believes that it will be
able to secure the necessary authorization; however, delays in doing so will
require the postponement of the commencement of Pan Am's airline operations.
The DOT and FAA also have authority under the Aviation Safety and
Noise Abatement Act of 1979, as amended, under the Airport Noise and Capacity
Act of 1990 and, along with the Environmental Protection Agency, under the Clean
Air Act, as amended, to monitor and regulate aircraft engine noise and exhaust
emissions. 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
that Pan Am is subject to FCC requirements, it will need to comply with those
requirements.
Pan Am will also be subject to the state and local laws and
regulations at locations where it intends to operate and the regulations of
various local authorities operating the airports it will serve. For example,
local governments and authorities in certain markets have adopted regulations
governing various aspects of aircraft
14
<PAGE>
operations, including noise abatement, curfews, and use of airport facilities.
Pan Am's operations will be, and may become, subject to additional regulatory
requirements. From time to time, legislation is proposed in Congress, state
legislatures, and local governments, and regulations are proposed by the DOT,
FAA, and other government agencies, which could materially impact Pan Am's
operations and financial condition.
Given the recent ValuJet crash and the current concern for airline
safety, Pan Am and other new entrant airlines will likely come under increased
scrutiny from various governmental agencies, including without limitation, the
DOT and the FAA. It appears that companies that outsource maintenance operations
may receive particular hightened attention. Additionally, as a result of such
crash, it has been suggested that the FAA will be substantially restructured. It
is impossible for Pan Am to predict the impact of such increased scrutiny or
restructuring on its ability to timely procure all required licenses from
governmental agencies or upon its future operations.
COMPETITION. Pan Am faces significant and varying competition from
a large number of airlines. Pan Am's competitors include many airlines which are
larger and have greater financial resources than Pan Am. Pan Am also faces
competition from other carriers pursuing low-cost/low-fare strategies similar to
that of Pan Am. Carriers compete for travel customers in a variety of ways,
including wholesaling discounted seats to tour operators, promoting to travel
agents prepackaged tours for sale to retail customers, and selling discounted,
excursion airfare products to the public. As a result, Pan Am generally must
compete for customers against the lowest revenue-generating seats of other
airlines. Other airlines may meet or price their fares below Pan Am's fares or
introduce new non-stop service between cities served by Pan Am and prevent Pan
Am from attaining load factors necessary to maintain profitable operations. Pan
Am's ability to compete successfully on the basis of price 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 Pan
Am may have the financial capacity to price their fares below Pan Am's fares or
increase their service on routes served by Pan Am, which could adversely affect
Pan Am's profitability. In this regard, competitors are more likely to react to
competition on long-haul routes such as the ones Pan Am intends to service as
such routes tend to be the most profitable. Apart from the need for certain
government licenses and the need for and the availability of financing, there
are few barriers to entry into the airline business in the United States. Since
1990, the DOT has received in excess of 45 new applications for approval to
operate a scheduled airline and in excess of 38 new applications for approval to
operate as a charter or cargo carrier. A number of small airlines with
low-cost/low-fare strategies have commenced operations in recent years. Pan Am
may face competition from existing and new start-up airlines in selected markets
from time to time.
RISKS ASSOCIATED WITH GROWTH. Once in operation, Pan Am intends to
expand its operations as it adds aircraft to its fleet and enters new markets.
Pan Am's growth may also take the form of acquisitions or mergers with other
airline operations. The resulting growth in Pan Am's operations may strain Pan
Am's management and operational resources. Pan Am's future success will depend
in large part upon its ability to expand and manage its organization as its
operations expand. Pan Am's failure to manage growth effectively could have a
materially adverse effect on Pan Am's results of operations and financial
condition and on its ability to execute its expansion plans.
LIMITED NUMBER OF AIRCRAFT AND ROUTES. Pan Am intends to commence
operations by leasing three A-300-B4 aircraft and leasing additional A-300-B4
aircraft, if market or other conditions justify leasing additional aircraft.
Because of its small fleet size and limited number of routes, Pan Am may be at a
competitive disadvantage compared to other airlines who can spread their
operating costs across more equipment and routes and retain connecting traffic
(and revenue) within their much more extensive route networks. Pan Am will only
have a limited capability to place spare aircraft into service if necessary. In
the event of breakdown or other unscheduled maintenance on Pan Am's aircraft at
locations on Pan Am's route system where Pan Am does not have maintenance
employees, Pan Am expects to enter into agreements with contractors to perform
maintenance at such locations. The contractors will have FAA certified mechanics
who are qualified to perform emergency maintenance and repairs. If the breakdown
were to require special parts not stocked by the contractor, an additional delay
could be incurred while necessary parts were delivered to the site. Since
reliable service is important to Pan Am's business, any interruption of service
as a result of maintenance requirements or equipment problems could materially
and adversely affect Pan Am's service and reputation.
TRADEMARK MATTERS. Pan Am believes that one of its principal assets
are the various "Pan Am" trade names, trademarks and other intellectual property
rights (collectively, the "Pan Am Intellectual Property") acquired in December
1993 indirectly from Former Pan Am. There can be no assurance that Pan Am will
have the financial and other resources necessary to enforce the Pan Am
Intellectual Property from infringement by others. In addition, while Pan Am has
recorded all registered trademarks included in the Pan Am Intellectual Property
with the United States Patent and Trademark Office, it has until recently been
unable to effect certain foreign registrations because of the failure of Eclipse
Holdings, Inc. ("Eclipse") to execute and deliver certain
15
<PAGE>
assignments. Eclipse had initially submitted the winning bid in bankruptcy court
to purchase the Pan Am Intellectual Property, but was unable to secure financing
for its bid and subsequently assigned its rights to purchase the Pan Am
Intellectual Property to Pan Am. Pan Am has an action against Eclipse seeking to
compel Eclipse to execute and deliver the required assignment documentation.
Pursuant to such action, Eclipse was compelled to execute such assignment
documentation. Eclipse has appealed such order. Additionally, Eclipse has filed
an action against Pan Am challenging Pan Am's ownership to the Pan Am
Intellectual Property. Pan Am management believes that this action will be
resolved in Pan Am's favor and that the likelihood of an unfavorable outcome for
Pan Am in this matter is remote. However, in the unlikely event that Pan Am does
not prevail in that action, the loss of Pan Am's rights to the Pan Am
Intellectual Property would have a material adverse effect on Pan Am. See
"Description of Pan Am -- Trademarks" and "-- Legal Matters." In addition,
although Pan Am is not a successor to Former Pan Am, certain foreign creditors
of Former Pan Am might seek within their foreign jurisdictions to recover debts
of Former Pan Am from Pan Am and Pan Am's property (including the Pan Am
Intellectual Property) might be subject to attachment or seizure on a "successor
liability" theory if Pan Am were to commence operations in certain foreign
countries. Pan Am management does not have any plans to commence operations in
any foreign countries where this may be a problem and does not believe that any
such claims are meritorious.
DEPENDENCE ON KEY PERSONNEL. Pan Am is dependent on the active
participation of its principal executive officers. Pan Am has entered into an
employment agreement with Mr. Martin Shugrue, President and Chief Executive
Officer of Pan Am, and intends to obtain a key person life insurance policy on
Mr. Shugrue. However, the loss of services of Mr. Shugrue or any other of Pan
Am's principal executive officers could materially and adversely affect the
business of Pan Am and its future prospects. In addition, Pan Am's ability to
successfully commence operations will be dependent upon its ability to attract
and retain additional qualified management personnel. Competition for qualified
management personnel in the airline industry is intense, and there can be no
assurance that Pan Am will be able to attract and retain such personnel.
AIRPORT AND GATE ACCESS. Pan Am plans to establish a limited number
of routes to provide non-stop service from JFK to Los Angeles, San Francisco,
Miami and Chicago. Presently, operations at a number of airports, including JFK
and Chicago-O'Hare, which Pan Am intends to service are regulated by
governmental authorities through "slot" allocations. Each slot represents
governmental authorization to take off or land at the particular airport during
a specified time period. Slots may be purchased or leased from their current
owners and leasees. There can be no assurance that Pan Am will be able to obtain
slots at JFK and Chicago-O'Hare at acceptable prices. Moreover, any other
condition such as operating curfews, that would deny or limit Pan Am's access to
the airports that Pan Am intends to utilize or that diminishes the desire or
ability of potential customers to travel between any of those cities may have a
materially adverse effect on Pan Am's business. In addition, Pan Am will be
required to acquire gate access at each airport. Gates may be limited in some
airports, which would adversely affect Pan Am's operations.
AVAILABILITY OF AIRCRAFT. Pan Am has entered into definitive lease
agreements to lease the initial three A-300-B4 aircraft required to commence
airline operations. Although management believes there is currently an adequate
supply of A-300-B4 aircraft available for lease at favorable prices and terms,
Pan Am cannot predict how long these conditions will continue, and additional
aircraft may not be available on satisfactory terms or at the time needed for
additional growth. Such potential unavailability of additional aircraft for
lease at favorable prices and terms could adversely impact Pan Am's ability to
expand its operation.
EMPLOYEE RELATIONS. Pan Am's operating plan is based in part on the
premise that it will operate initially with lower personnel costs than many
established airlines principally due significantly to lower base salaries of
personnel. There can be no assurance that Pan Am will be able to attract and
retain qualified personnel at these lower base salaries or if realized that, any
such advantages would exist for any extended period of time. Pan Am's employees
initially will not be represented by a labor union. If unionization of Pan Am's
employees occurs, Pan Am's costs could materially increase.
RELIANCE ON OTHERS. Pan Am will enter into agreements with
contractors, which may include other airlines, to provide certain facilities and
services required for its operations, including among others, ground facilities,
aircraft maintenance, ticketing, baggage handling and other ground services. Not
all outsourcing agreements have been entered into, and there is no assurance
that Pan Am will be able to contract for all of the facilities and services it
may require. Even if entered into, these agreements may be subject to
termination. The efficiency, timeliness and quality of contract services is
beyond Pan Am's direct control. If the cost to Pan Am of contract services
increases substantially, Pan Am's operating results would be adversely affected.
ACQUISITIONS AND OTHER CORPORATE TRANSACTIONS. Pan Am intends to
expand its operations through internal growth as well as the acquisition of or
merger with other airline operators, and is currently engaging
16
<PAGE>
and may continue to engage in preliminary discussions with certain companies
with respect to various acquisitions which could result in material changes in
Pan Am's financial condition and operating results. As consideration for any
future acquisition, Pan Am may pay cash, incur indebtedness or issue debt or
equity securities. Pan Am does not intend to seek shareholder approval for any
such acquisitions unless required by law or the rules of the securities exchange
upon which FH Common Stock is traded.
RISKS RELATING TO THE AIRLINE INDUSTRY GENERALLY
EFFECT OF GENERAL ECONOMIC CONDITIONS. The airline industry is
significantly affected by general economic conditions. Because a substantial
portion of business and personal airline travel is discretionary, the industry
tends to experience severe adverse financial results during general economic
downturns. During the last recession, most airlines reduced fares in an effort
to increase traffic. Economic and competitive conditions since deregulation of
the airline industry in 1978 have contributed to a number of bankruptcies and
liquidations among airlines. A worsening of current economic conditions, or an
extended period of recession nationally or regionally, could have a materially
adverse effect on Pan Am's operations.
SEASONALITY OF BUSINESS. The airline business is significantly
affected by seasonal factors. As a result, Pan Am may experience reduced demand
during the second and fourth quarters, which are typically slower periods for
the airline industry. Pan Am's business would also be adversely affected by
unusual weather conditions that interrupt flight service.
LOW MARGIN AND FIXED COST BUSINESS. The airline industry is
characterized by low gross profit margins, with fixed costs that are high in
relation to revenues. Accordingly, a significant shortfall from expected revenue
levels could have a material adverse effect on Pan Am's profitability.
FUEL. Fuel is a major component of operating expense for all
airlines. Both the cost and availability of fuel are subject to many economic
and political factors and events occurring throughout the world. Pan Am
estimates its fuel costs at between 20% and 25% of total expenses, although
these estimates are dependent upon global energy prices. Aviation fuel costs are
quite volatile and reached over 30% of industry-wide costs in the early 1980s.
Pan Am has no agreement with any fuel suppliers assuring the availability and
price stability of fuel. In addition, a 4.3 cents-per-gallon increase in the
federal tax on aircraft fuel became effective as of October 1, 1995. As a result
of the foregoing, the future cost and availability of fuel to Pan Am cannot be
predicted, and substantial price increases or the unavailability of adequate
fuel supplies could have a material adverse effect on Pan Am's operations and
profitability. In addition, larger airlines may have a competitive advantage
because they pay lower prices for higher quantities of fuel. Pan Am intends
generally to follow industry trends by raising fares in response to significant
fuel price increases. However, Pan Am's ability to pass on increased fuel costs
through fare increases may be limited by economic and competitive conditions.
RISKS RELATING TO FH GENERALLY
BENEFITS TO FH'S OFFICERS AND DIRECTORS. Subsequent to the
consummation of the Merger, the shares of FH Common Stock owned by the officers
and directors of FH and currently held in escrow (i.e., 300,000, shares owned
each of by Messrs. Richard Frost, Mark Hanna, Donald Baxter and Dr. Marshal
Rosenberg respectively) by American Stock Transfer & Trust Company will be
delivered to such respective officers and directors thereby affording the
officers and directors the opportunity to, subject to certain legal restrictions
on resale, sell their shares of FH Common Stock. Subsequent to the consummation
of the Merger, Messrs. Frost, Hanna, Baxter and Dr. Rosenberg shall each own
approximately 3% of FH without giving effect to the issuance of 1,757,739 shares
of FH Common Stock upon the exercise of the certain outstanding options and
warrants.
DILUTION. Assuming 29.99% of the holders of shares of FH Common
Stock initially purchased in FH's initial public offering of equity securities
(each, a "non-affiliated FH shareholder") elect to redeem their shares, the
dilution in the net tangible book value of FH would be $.03 per share (not
giving effect to approximately 16,300,000 in cash received and 4,713,123 shares
of Pan Am Common Stock issued as part of Pan Am's private offerings completed in
April 1996). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Pan Am."
CONTROL BY CERTAIN SHAREHOLDERS. Following the consummation of the
Merger, the existing Pan Am Shareholders, by virtue of their direct ownership,
will collectively own approximately 69% of the outstanding FH Common Stock,
without giving effect to the issuance of 1,757,739 shares of FH Common Stock
upon the exercise of certain outstanding options and warrants. Accordingly,
following the consummation of the Merger, the existing Pan Am Shareholders will
be able to control the election of the FH Board and thereby direct the policies
of FH. Additionally, pursuant to the terms of the Merger Agreement, FH has
agreed to cause seven
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persons to be elected as directors of FH as follows: the five current members of
the Pan Am Board and two current members of the FH Board, such election to
become effective upon consummation of the Merger. Further, the executive
officers of Pan Am immediately prior to the Effective Time, will, following the
Merger, be the officers of FH.
INHERENT UNCERTAINTIES WITH RESPECT TO THE FAIRNESS OPINION. Mr.
Harris K. Herman rendered an opinion to FH that, as of the date the opinion was
rendered (May 7, 1996), the Exchange Ratio was fair, from a financial point of
view, to the shareholders of FH. See "Opinions of FH's Financial Advisor." In
rendering his opinion, Mr. Harris assumed and relied upon the completeness and
accuracy of all financial and other information reviewed by him that was
publicly available, furnished or otherwise communicated to him by or on behalf
of the officers, directors, employees, attorneys and counsel of FH or of Pan Am,
without an independent investigation of such information. Mr. Herman did not
make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Pan Am, nor was he furnished with any such
evaluation or appraisal. Similarly, Mr. Herman assumed that the Pan Am financial
forecasts which he examined were reasonably prepared on bases reflecting the
best currently available estimates of the management of Pan Am as to the future
financial performance of Pan Am. Additionally, in his analyses, Mr. Herman made
numerous assumptions with respect to industry performance, general business,
regulatory and economic conditions and other matters, many of which are beyond
the control of FH and Pan Am. The methods and assumptions used by Mr. Herman in
his analyses and the methods, assumptions and estimates used by management of
Pan Am in its projections were those that each of them concluded were
appropriate. There can be no assurance that such assumptions, methods and
estimates will prove correct or that other or different assumptions, methods or
estimates might not have been more appropriate. Further, even if such methods,
assumptions and estimates were correct and reasonable as of the date of the
rendering of Mr. Herman's opinion, many of them are beyond the control of FH and
Pan Am and, accordingly, are not necessarily indicative of future results or
actual values, which may vary materially and adversely from estimates. Finally,
Mr. Herman has no obligation to update his opinion. Accordingly, certain factors
may change from the date he rendered his opinion through the date of the Merger,
which could have materially and adversely impacted his opinion or even his
ability to render such opinion.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Merger,
10,905,191 shares of FH Common Stock are expected to be outstanding, in addition
to options and warrants to purchase an additional 1,757,739 shares of FH Common
Stock. All of the approximately 1,955,000 shares of FH Common Stock held by
non-affiliated FH Shareholders are freely transferrable without registration
under the Securities Act of 1933, as amended (the "Securities Act"), and the
remaining 1,389,000 shares of FH Common Stock held by FH Shareholders are
eligible for sale under Rule 144, promulgated under the Securities Act. The FH
Common Stock to be received by the Pan Am Shareholders upon consummation of the
Merger has been registered under the Securities Act and accordingly will be
freely transferable by the shareholders of Pan Am not deemed to be "Affiliates"
of Pan Am.
VOLATILITY OF STOCK PRICE. Prior to the Merger, there has been no
public market for the equity securities of Pan Am and there can be no assurances
that an active trading market for the FH Common Stock will develop or be
sustained subsequent to the Merger. The market price of the FH Common Stock
could be subject to significant fluctuations in response to FH's operating
results and other factors. In addition, the stock market in recent years has
experienced extreme price and volume fluctuations that either have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the FH Common Stock.
NO DIVIDENDS. FH has never paid cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. FH intends to reinvest any funds that might otherwise be available for
the payment of dividends in further development of its business following the
Merger. See "The Proposed Merger -- Operations after the Merger -- Dividends"
and "Description of FH's Securities."
OTC BULLETIN BOARD. The FH Common Stock is currently quoted on the
OTC Bulletin Board under the symbol "FHMG." There is currently no established
trading market for the shares of FH Common Stock and there can be no assurances
that an established trading market will develop.
CERTAIN PROVISIONS OF FH'S ARTICLES OF INCORPORATION. FH's Articles
of Incorporation provide, among other things, that (i) officers and directors of
FH will be indemnified to the fullest extent permitted under Florida law; and
(ii) FH shall not be governed by Sections 607.0901 and 607.0902 of the Florida
Business Corporation Act (the "FBCA") and other laws relating thereto (the
"Anti-Takeover Sections").
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As a result of FH's election not to be governed by the
Anti-Takeover Sections, FH will not be subject to the provisions of Florida law
which require that certain transactions between a Florida corporation and an
"interested shareholder" or any affiliate of the "interested shareholder" be
approved by two-thirds of such corporation's outstanding shares. An "interested
shareholder" as defined in Section 607.0901 of the FBCA is any person who is the
beneficial owner of more than 10% of the outstanding shares of a corporation who
is entitled to vote generally in the election of directors. Since neither Pan Am
nor any of its shareholders own 10% or more of the outstanding FH Common Stock,
these provisions of the Anti-Takeover Sections would, nevertheless, not impact
the Merger or the required vote thereon. In addition, because of FH's election
not to be governed by the Anti-Takeover Sections, FH will not be subject to the
provisions of Florida law which provide that a person who acquires shares in an
issuing public corporation in excess of certain specified thresholds will
generally not have any voting rights with respect to such shares unless the
voting rights are approved by a majority of the shares entitled to vote,
excluding interested shares.
AUTHORIZATION OF PREFERRED STOCK. The FH shareholders are being
asked to consider and vote upon a proposal to amend and restate FH's Articles of
Incorporation to provide for an authorized class of Preferred Stock consisting
of 100,000,000 shares, par value $.0001 per share (the "Preferred Stock"), with
rights, preferences and designations of such shares to be determined by the
Board of Directors (the "Preferred Stock Amendment"). Accordingly, if FH becomes
authorized to issue the Preferred Stock, the FH Board will be empowered, without
shareholder approval, to issue the Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of FH Common Stock. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging and delaying or preventing a change of control of FH. Although FH
has no present intention to issue any shares of Preferred Stock, there can be no
assurances that FH will not do so in the future. See "Proposal to Amend and
Restate FH Articles of Incorporation."
THE SPECIAL MEETINGS
PURPOSES OF MEETINGS
FH. At the FH Special Meeting, the FH Shareholders eligible to vote
there at will be asked to consider and vote upon a proposal to (i) approve the
Merger Agreement, including approval of the Merger and an amendment to FH's
Articles of Incorporation to change FH's name to "Pan Am Corporation;" (ii)
approve the Preferred Stock Amendment; and (iii) such other business that may
properly come before the FH Special Meeting or any adjournment or postponement
thereof. Approval and adoption of the Merger Agreement by the FH Shareholders
also will constitute (i) the approval of the assumption by FH of the Pan Am 1996
Option Plan and (ii) the approval and ratification of the amendments to the Pan
Am 1996 Option Plan necessary to reflect such assumption and to certain
outstanding Pan Am executive option agreements and warrant agreements so that
all existing Pan Am stock options and warrants will, after the Effective Time,
be exercisable for shares of FH Common Stock. See "The Proposed Merger --
Interests of Certain Persons in the Merger -- Stock Options and Warrants of Pan
Am." Copies of the Merger Agreement and the Form of Restated Articles of
Incorporation of FH are attached as Appendices A and B, respectively, to this
Joint Proxy Statement-Prospectus and are incorporated herein by reference.
THE FH BOARD OF DIRECTORS WITHOUT DISSENT OR ABSTENTION HAS
APPROVED THE MERGER AND THE PREFERRED STOCK AMENDMENT AND RECOMMENDS THAT THE FH
SHAREHOLDERS VOTE "FOR" THE PROPOSALS TO APPROVE AND ADOPT THE MERGER AND THE
PREFERRED STOCK AMENDMENT. FOR A DISCUSSION OF THE FACTORS CONSIDERED BY THE FH
BOARD OF DIRECTORS IN APPROVING THE PROPOSAL TO APPROVE THE MERGER, SEE "THE
PROPOSED MERGER -- RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND REASONS FOR THE
MERGER -- FH."
PAN AM. At the Pan Am Special Meeting, the Pan Am Shareholders will
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, which include, among other things,
(a) FH Sub being merged with and into Pan Am and (b) all of the issued and
outstanding shares of Pan Am Common Stock being converted into shares of FH
Common Stock; (ii) a proposal to ratify and adopt the Pan Am 1996 Option Plan;
and (iii) such other business as may properly come before the Pan Am Special
Meeting or any postponement or adjournment thereof. Approval and adoption of the
Merger Agreement by the Pan Am Shareholders also will constitute (i) the
approval of the assumption of FH of the Pan Am 1996 Option Plan and (ii) the
approval and ratification of the amendments to the Pan Am 1996 Option Plan
necessary to reflect such assumption and to certain outstanding executive option
agreements and warrant agreements so that all Pan Am stock options and warrants
will after the Effective Time, be exercisable for shares of FH Common Stock. See
"The Proposed Merger -- Interests of Certain Persons in the Merger Stock Options
and Warrants of Pan Am," "Proposal to Authorize the Pan American World Airways,
Inc. 1996
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Stock Option Plan." Copies of the Merger Agreement and the Pan Am 1996 Option
Plan are attached as Appendices A and C, respectively, to this Joint Proxy
Statement-Prospectus and are incorporated herein by reference.
Pan Am is not presently aware of any other business to be brought
before the Pan Am Special Meeting. If any matters come before the Pan Am Special
Meeting which are not directly referred to in this Joint Proxy
Statement-Prospectus or the enclosed proxy, including matters incident to the
conduct of the Pan Am Special Meeting, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of Pan Am
management.
THE PAN AM BOARD OF DIRECTORS WITHOUT DISSENT OR ABSTENTION HAS
APPROVED THE MERGER AND THE STOCK OPTION PLAN PROPOSAL. FOR A DISCUSSION OF THE
FACTORS CONSIDERED BY THE PAN AM BOARD OF DIRECTORS IN APPROVING THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT, SEE "THE PROPOSED MERGER --RECOMMENDATIONS OF THE
BOARD OF DIRECTORS AND REASONS FOR THE MERGER -- PAN AM."
DATE, TIME AND PLACE; RECORD DATE
FH. The FH Special Meeting is scheduled to be held at 10:00 A.M.,
local time, on July 31, 1996, at [The Westin Hotel, Cypress Creek, 400 Corporate
Drive, Fort Lauderdale, Florida 33334]. The FH Board of Directors has fixed the
close of business on June 18, 1996 as the record date (the "FH Record Date") for
the determination of holders of FH Common Stock entitled to notice of and to
vote at the FH Special Meeting. As of the date of this Joint Proxy
Statement-Prospectus, there were 3,344,000 shares of FH Common Stock (held by
[73] persons of record) outstanding and entitled to vote. Each share of FH
Common Stock is entitled to one vote.
PAN AM. The Pan Am Special Meeting will be held at 11:00 A.M.,
local time, on July 31, 1996, at Pan Am's corporate headquarters located at 9300
N.W. 36th Street, Miami, Florida, 33178. Only holders of record of Pan Am Common
Stock at the close of business on June 18, 1996 are entitled to receive notice
of, and to vote at, the Pan Am Special Meeting. At such Record Date, there were
7,561,191 shares of Pan Am Common Stock outstanding and entitled to vote, with
each such share entitled to one vote, and 116 holders of record thereof. As of
the Record Date, the directors and executive officers of Pan Am, together with
their affiliates, held an aggregate of 2,450,658 shares of Pan Am Common Stock
(exclusive of options, warrants or other rights to purchase Pan Am Common
Stock), representing approximately 22% of the outstanding shares of Pan Am
Common Stock.
VOTE REQUIRED
FH. Holders of FH Common Stock on the FH Record Date are entitled
to one vote for each share of FH Common Stock held by them on any matter that
may properly come before the FH Special Meeting. Although applicable Florida law
does not require that FH Shareholders approve the Merger, in accordance with the
terms of the Prospectus utilized in connection with FH's initial public offering
of its equity securities in March 1994 (the "IPO"), and the terms of the Merger
Agreement, approval by the FH Shareholders is required to effectuate the Merger
or any other exchange of capital stock, asset acquisition or similar business
combination (a "Business Combination") involving FH. The presence, either in
person or by proxy, of the holders of a majority of the issued and outstanding
shares of FH Common Stock is necessary to constitute a quorum at the Special
Meeting. The vote of a plurality of the holders of a majority of the shares of
FH Common Stock present and entitled to vote at the FH Special Meeting is
required to approve and adopt the Merger; provided, further, that the Merger
Agreement also requires that less than 30% of the outstanding FH Common Stock
held by non-affiliated FH Shareholders must not vote against approval of the
Merger. See "The Merger Agreement-Conditions to the Consummation of the Merger."
The proposal to adopt the Preferred Stock Amendment also requires the vote of a
plurality of the shares of FH Common Stock present and entitled to vote at the
FH Special Meeting. Any abstentions and any broker non-votes will have no effect
on the proposals to adopt and approve the Merger or the Preferred Stock
Amendment.
FH's directors and executive officers and their respective
affiliates, collectively holding an aggregate of approximately 35.9% of the
outstanding shares of FH Common Stock before giving effect to the Merger, have
agreed, with respect to the proposal to approve the Merger, to vote their
respective shares of FH Common Stock in accordance with the vote of the majority
of all non-affiliated FH Shareholders. Consequently, if a majority of
outstanding FH Common Stock held and voted by non-affiliated persons is voted in
favor of the Merger, the current directors and executive officers of FH will
vote their shares of FH Common Stock in favor of the Merger, the Preferred Stock
Amendment and the Stock Option Plan.
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If the Merger is not approved by the affirmative vote of the
holders of at least a majority of FH Common Stock present and entitled to vote
at the FH Special Meeting, or if so approved, but 30% or more in interest of all
non-affiliated FH Shareholders actually vote against approval of the Merger, the
Merger Agreement will be terminated and the proposed Merger abandoned. See "The
Merger Agreement -- Redemption Rights."
PAN AM. Under the FBCA, the holders of a majority of the
outstanding shares of Pan Am Common Stock must approve the Merger Agreement.
Abstentions will have the same effect as a vote against the Merger Agreement. If
the Merger is consummated, holders of Pan Am Common Stock who comply with the
requirements of Section 607.1320 of the FBCA will have the right to seek
appraisal of their shares. The proposal to adopt the Pan Am 1996 Option Plan
requires the affirmative vote of a majority of shares of Pan Am Common Stock
present and entitled to vote at the Pan Am Special Meeting. Similarly,
abstentions will have the same effect as a vote against the Merger Agreement.
See "The Proposed Merger -- Appraisal Rights."
PROXIES
FH. If an FH Shareholder attends the FH Special Meeting, he or she
may vote by ballot. However, many of the FH Shareholders may be unable to attend
the FH Special Meeting. Therefore, the FH Board is soliciting proxies so that
each holder of FH Common Stock on the FH Record Date has the opportunity to vote
on the proposals to be considered at the FH Special Meeting. When a proxy card
is returned properly signed and dated, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If an FH
Shareholder does not return a signed proxy card, his or her shares will not be
voted. FH Shareholders are urged to mark the box on the proxy card to indicate
how their shares are to be voted. If an FH Shareholder (other than a broker
which holds shares in street name for its customers) returns a signed proxy
card, but does not indicate how his or her shares are to be voted, the shares
represented by the proxy card will be voted FOR approval and adoption of the
Merger and the Preferred Stock Amendment. If a signed proxy card is returned by
an FH Shareholder and expressly reflects an abstention upon any proposal, the
shares evidenced thereby will be counted towards the quorum necessary to convene
the FH Special Meeting, but will not be counted towards the requisite
affirmative vote upon such proposal mandated by applicable Florida law or this
Joint Proxy Statement-Prospectus, as applicable. If a signed proxy card is
returned by a broker with no indication of how shares are to be voted, the
shares evidenced thereby will not be counted towards a quorum and will have no
effect on the vote for such proposals. The proxy card also confers discretionary
authority on the individual appointed by the FH Board and named on the proxy
card to vote the shares represented thereby on any other matter that is properly
presented for action at the FH Special Meeting.
Any FH Shareholder who executes and returns a proxy card may revoke
such proxy at any time before it is voted by (i) notifying in writing the
Secretary of FH, at 7700 West Camino Real, Suite 222, Boca Raton, Florida 33431;
(ii) granting a subsequent proxy; or (iii) appearing in person and voting at the
FH Special Meeting. Attendance at the FH Special Meeting will not in and of
itself constitute revocation of a proxy.
PAN AM. When a Pan Am proxy is properly executed and returned, the
shares of Pan Am Common Stock it represents will be voted in accordance with the
directions indicated on the proxy, or if no directions are indicated, the shares
will be voted FOR the approval of the Merger Agreement and the Stock Option Plan
Proposal. Any Pan Am shareholder giving a proxy may revoke his or her proxy at
any time before its exercise at the Special Meeting by (i) giving written notice
of such revocation to Secretary, Pan American World Airways, Inc., 9300 N.W.
36th Street, Miami, Florida 33178, or (ii) signing and delivering to the
Secretary a proxy bearing a later date. However, the mere presence at the Pan Am
Special Meeting of a Pan Am shareholder who has delivered a valid proxy will not
of itself revoke that proxy.
PAN AM SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO PAN AM IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE SPECIAL MEETING.
SOLICITATION
FH and Pan Am will each bear the costs of the solicitation of
proxies from their respective shareholders. In addition to soliciting proxies by
mail, proxies may be solicited by directors, executive officers or regular
employees of FH and Pan Am, without such person receiving additional
compensation, in person, by letter or by telephone, telegram or telefax.
Arrangements have also been made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of FH Common Stock. FH will reimburse the persons with whom these
arrangements have been made for reasonable out-of-pocket expenses incurred by
them in connection with this solicitation in accordance with applicable rules.
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Further, FH has retained American Stock Transfer & Trust Company, FH's transfer
agent, to assist it in the solicitation of proxies. FH shall reimburse such firm
for its reasonable out-of-pocket expenses incurred by it in connection with this
solicitation.
THE PROPOSED MERGER
GENERAL
The following is a summary of the material aspects of the Merger. A
copy of the Merger Agreement is attached to this Joint Proxy
Statement-Prospectus as Appendix A and is incorporated herein by reference.
At such time as the Merger becomes effective (the "Effective
Time"), FH Sub will be merged with and into Pan Am. The Articles of
Incorporation of FH will be amended at the Effective Time to change, among other
things, FH's name to "Pan Am Corporation." After the Merger is consummated, FH
will cause seven persons to be elected to the FH Board, consisting of the five
current members of the Pan Am Board, and two current members of the FH Board.
CONSIDERATION
At the Effective Time, each share of Pan Am Common Stock will be
converted into one share of FH Common Stock. In the aggregate, all of the
holders of Pan Am Common Stock, will receive 7,561,191 shares of FH Common Stock
in the Merger. See "Description of FH's Securities -- Common Stock."
Additionally, each Pan Am Option outstanding at the Effective Time will be
assumed by FH and converted into and become a warrant or option, as the case may
be, to acquire FH Common Stock. Pan Am Options assumed by FH will be exercisable
for an aggregate of 1,587,739 shares of FH Common Stock upon substantially the
same terms and conditions (including exercise price) as under the agreements
pursuant to which such Pan Am Options were issued as in effect immediately prior
to the Effective Time.
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger
Agreement (the "Closing") will take place no later than the fifth business day
immediately following the date on which the last of the conditions set forth in
the Merger Agreement is satisfied or waived, or at such other time as FH and Pan
Am agree (the "Closing Date"). The Merger will become effective at such time as
Articles of Merger shall be accepted for filing by the Secretary of State of the
State of Florida. The filing will be made simultaneously with or as soon as
practicable after the Closing.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, FH's exchange
agent with respect to the Merger (the "Exchange Agent") will mail to each holder
of record of a certificate which, immediately prior to the Effective Time,
represented outstanding shares of Pan Am Common Stock (the "Pan Am
Certificate"), a transmittal letter with instructions for use in effecting the
surrender of the Pan Am Certificates in exchange for certificates representing
shares of FH Common Stock. Upon delivery of a Pan Am Certificate for exchange to
the Exchange Agent, together with such transmittal letter duly executed, the
holder of such Pan Am Certificate will be entitled to receive in exchange a
certificate or certificates representing an equal number of shares of FH Common
Stock. ALL PAN AM CERTIFICATES SO SURRENDERED WILL BE CANCELLED. PAN AM
CERTIFICATES SHOULD NOT BE MAILED TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF
THE TRANSMITTAL LETTER AND SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY.
If any certificate representing shares of FH Common Stock is to be
issued in a name other than that in which the Pan Am Certificate surrendered in
exchange therefor is registered, it is a condition of the issuance thereof that
the Pan Am Certificate so surrendered be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange pay to the Exchange Agent any
transfer or other taxes required by law as a result of the issuance of a
certificate representing shares of FH Common Stock registered in any name other
than that of the registered holder of the Pan Am Certificate surrendered, or
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable. After the Effective Time, there will be no transfers on the
stock transfer books of Pan Am of shares of Pan Am Common Stock which were
outstanding immediately prior to the Effective Time.
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After the Effective Time, each Pan Am Certificate will, until
surrendered, represent for all purposes only the right to receive an equal
number of shares of FH Common Stock which the shares of Pan Am Common Stock
represented by such Pan Am Certificate have been converted pursuant to the
Merger. Holders of Pan Am Certificates will not be entitled to receive any
dividends or other distributions payable to holders of record of FH Common Stock
until surrender of such Pan Am Certificates to the Exchange Agent. Upon
surrender of such Pan Am Certificates, holders will be entitled to receive the
amount of dividends and other distributions (without interest) which have become
payable by FH to its shareholders of record as of a record date subsequent to
the Effective Time with respect to the full shares of FH Common Stock into which
the Pan Am Common Stock previously represented by such Pan Am Certificate have
been converted.
FH SHAREHOLDERS WILL NOT BE REQUIRED TO SURRENDER CERTIFICATES
EVIDENCING SHARES OF FH COMMON STOCK FOLLOWING THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE SUBSEQUENT IMPLEMENTATION OF THE MERGER.
BACKGROUND OF THE MERGER
As discussed under "Description of FH" elsewhere herein, FH was
formed in October, 1993, to serve as a vehicle to effect a Business Combination
with an operating business (an "Acquired Business"). FH's business objective has
been to seek to effect a Business Combination with an Acquired Business which FH
believes has growth potential.
In March, 1994, FH consummated its IPO from which FH derived net
proceeds of approximately $10,142,000 (the "Net Proceeds"). Approximately 80% of
such Net Proceeds were placed in escrow immediately following the IPO, to be
released therefrom either upon consummation of a Business Combination or if
required to facilitate a Business Combination, as applicable. The balance of the
Net Proceeds, less net operating expenses to date, is currently held by FH.
Messrs. Richard B. Frost and Mark J. Hanna and Dr. Marshal E.
Rosenberg, executive officers and directors of FH, were also officers and
directors of Frost Hanna Halpryn Capital Group, Inc. ("Frost Hanna Halpryn"), a
"blank check" company whose initial public offering of securities closed in
February 1993 and such gentlemen, together with Mr. Donald H. Baxter, were also
officers and directors of Frost Hanna Acquisition Group, Inc. ("Frost Hanna
Acquisition"), a "blank check" company whose initial public offering of
securities closed in September 1993. The business objective of each of Frost
Hanna Halpryn and Frost Hanna Acquisition was also to seek to effect a Business
Combination with an Acquired Business. To minimize any potential conflicts of
interest which may have arisen as a result of Messrs. Frost and Hanna's and Dr.
Rosenberg's affiliation with Frost Hanna Halpryn, Frost Hanna Acquisition and FH
and Messrs. Frost, Hanna and Baxter and Dr. Rosenberg's affiliation with Frost
Hanna Acquisition and FH, the officers and directors of Frost Hanna Acquisition
and FH were prohibited from analyzing or considering any possible Business
Combination opportunities until Frost Hanna Halpryn became a party to a letter
of intent to consummate a Business Combination. Frost Hanna Halpryn consummated
a business combination with Sterling Healthcare Group, Inc. ("Sterling") on May
31, 1994. The principal business activity of Sterling is providing physician
contract management services for hospital emergency departments. Similarly,
following the Sterling transaction, the offices and directors of FH were
prohibited from analyzing or considering any possible Business Combination
opportunities until Frost Hanna Acquisition became a party to a letter of intent
to consummate a Business Combination. Frost Hanna Acquisition entered into a
letter of intent in December, 1994, with Medicis Pharmaceutical Corporation, a
Delaware corporation ("Medicis"), which expired by its terms in January 1995.
Thereafter, Frost Hanna Acquisition entered into a letter of intent in May, 1995
with LFS Acquisition Corp., a Delaware corporation ("LFS"), and on January 3,
1996 consummated a business combination with LFS. The principal business
activity of LFS, now known as Kids Mart, Inc., is operating approximately 300
children's apparel stores in 21 states under the names Little Folks (14 stores)
and Kids Mart (286 stores).
During the period from December 7, 1994, the date of the Medicis
letter of intent, through January 31, 1995, the expiration date of the Medicis
letter of intent, and for the period May 3, 1995, the date of the letter of
intent concerning Frost Hanna Acquisition's business combination with LFS,
through January 29, 1996, the date of the letter of intent with Pan Am, FH's
executive officers conducted a search for a prospective Acquired Business.
During such period, FH's officers met with and conducted analysis of nine
prospective Acquired Businesses engaged in the following industries: accounting,
catering, communications, pet products, medical products, nuclear medicine
imaging, healthcare, management, transportation and cosmetic manufacturing.
In evaluating each prospective Acquired Business, FH's executive
officers considered, among other factors, all or a majority of the following:
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\bullet\ costs associated with effecting the Business
Combination;
\bullet\ equity interest in and opportunity for control of the
Acquired Business;
\bullet\ growth potential of the Acquired Business and the
industry in which it operates;
\bullet\ experience and skill of management and availability
of additional necessary personnel of the Acquired
Business;
\bullet\ capital requirements of the Acquired Business;
\bullet\ competitive position of the Acquired Business;
\bullet\ stage of development of the product, process or
service of the Acquired Business;
\bullet\ degree of current or potential market acceptance of
the product, process or service of the Acquired
Business;
\bullet\ proprietary features and degree of intellectual
property or other protection of the product,
process or service of the Acquired Business; and
\bullet\ regulatory environment of the industry in which the
Acquired Business operates.
Each of the prospective Acquired Businesses was rejected either for
failure of the Acquired Business to satisfy FH with respect to one or more of
the factors listed above or the failure of the parties to reach an agreement in
principle.
In December, 1995, FH was introduced to Messrs. Charles Cobb and
Martin Shugrue (the "Pan Am Principals") by Dr. Phillip Frost, the uncle of Mr.
Richard B. Frost, the Chairman of the Board of FH. The Pan Am Principals were at
that time trying to use their airline experience and business contacts to start
a new airline under the "Pan Am" name and were seeking equity partners to assist
them in establishing a new airline. At this initial meeting, Mr. Cobb received a
copy of FH's initial public offering prospectus from Mr. Richard B. Frost and
following the initial meeting believed that FH could provide not only a
significant portion of the initial capital necessary but also could provide
opportunities for Pan Am in the future by virtue of the fact that it was a
publicly traded company.
On December 23, 1995, the Pan Am Principals, together with Mr. John
Sicilian, met with Dr. Phillip Frost, Mr. Richard C. Pfenniger, Jr., Mr. Richard
B. Frost, Mr. Mark J. Hanna and certain of FH's attorneys in Miami, Florida. At
the meeting, the Pan Am Principals discussed the possible formation of Pan Am,
including the valuation of certain of the assets that were offered to be
contributed to the to-be-formed Pan Am and a subsequent possible business
combination between the to-be-formed Pan Am and FH. The individuals discussed
the advantages and potential benefits that could result from a combination
between the to-be-formed Pan Am and FH. No discussion of any particular terms of
a business combination were discussed at that meeting. It was agreed that each
of the parties involved would commence preliminary due diligence on the others
and would provide general public background information to everyone regarding
their respective assets and businesses.
On December 30, 1995, another meeting was held in Miami among the
Pan Am Principals, Mr. Sicilian, Dr. Frost, Mr. Pfenniger, Mr. Frost and Mr.
Hanna. At the meeting, further discussions were held concerning the valuation
and identity of the assets proposed to be contributed to Pan Am. Additionally,
discussions ensued as to the possible terms of a business combination between
the to-be-formed Pan Am and FH.
Over the next several days, the Pan Am Principals discussed various
proposals as to the nature of the assets to be contributed to the new venture
and the respective valuations to be attributed to them. The Pan Am Principals
also contacted other investors and entities about making a potential investment
in the venture. Mr. Mark J. Hanna and Mr. Richard B. Frost reviewed such
proposals and discussed in general terms the potential of this airline venture
with the other directors of FH, Mr. Donald Baxter and Dr. Marshal Rosenberg.
Such conversations encompassed the proposed operations of Pan Am, the background
of the Pan Am Principals and the valuation of the assets to be contributed to
Pan Am.
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The proposed operations of Pan Am were also discussed. The proposed
operations encompassed implementation of a domestic airline, providing non-stop
Airbus A-300 wide body service between New York, Los Angeles, San Francisco,
Chicago and Miami, with San Juan and other destinations to be added in later
phases. Pan Am's strategic plans included a goal of dominating its market with
low costs and low fares. See "Description of Pan Am" for a more detailed
discussion of the business and marketing strategies of Pan Am.
Simultaneously with FH's internal discussion concerning a possible
business combination with Pan Am, the Pan Am Principals were discussing the
terms of Pan Am's initial organization.
The operating principals of Pan Am on a going forward basis were
to include Mr. Martin R. Shugrue, as President, Chief Executive Officer and a
director. Mr. Shugrue's aviation experience spans 28 years and he has most
notably held senior executive positions at several major domestic and
international airlines. Mr. Shugrue planned to assemble the remaining members of
a management team from several of his close contacts from such airline
experience.
Over the next couple of weeks, Messrs. Hanna and Frost met with the
Pan Am Principals in Miami and discussed benefits of a merger to each company,
as described under "Recommendations of the Board of Directors and Reasons for
the Merger," the related risks relating to Pan Am as described under "Risk
Factors" and the background and qualifications of personnel contemplated for the
future of Pan Am. In addition, the exact nature of the total assets to be
contributed by the Pan Am Principals and the valuations to be attributed to such
assets were more fully explored. Also in attendance at the discussions were
Messrs. Sicilian, Baxter and Pfenniger. On January 3, 1996, a conference call
between Messrs. Frost, Hanna and the Pan Am Principals was held to discuss the
structure of the proposed business combination and the preparation of a letter
of intent.
Further discussions and numerous meetings were conducted at the
offices of FH among the directors of FH on the fundamental terms of the merger.
On January 29, 1996, (i) the Pan Am Principals, together with certain other
entities, signed a letter of intent with respect to the organization of Pan Am
and (ii) Pan Am signed a letter of intent with respect to a business combination
with FH. On January 30, 1996, a press conference was held in New York,
announcing the signing of both letters of intent. Subsequent to the execution of
the letters of intent, FH's counsel continued its due diligence review and
commenced the preparation and negotiation of the Merger Agreement.
On March 8, 1996, certain affiliated entities of the Pan Am
Principals together with certain other entities formed Pan Am by executing a
certain Contribution Agreement. For a further discussion of the Contribution
Agreement and each particular contribution, see "Description of Pan Am --
Organizational Transactions."
On March 13, 1996, the Pan Am Principals and Messrs. Frost and
Hanna conducted final negotiations concerning various terms of the Merger
Agreement. On the evening of March 13, 1996, each of FH, Pan Am and FH Sub
entered into the Merger Agreement and issued a press release concerning the
transaction.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
AND REASONS FOR THE MERGER
FH. The FH Board has determined that the Merger is in the best
interests of FH and the FH Shareholders. The FH Board without dissent or
abstention approved and adopted the Merger Agreement and the transactions
contemplated thereby and recommends that the FH Shareholders vote for approval
and adoption of the Merger Agreement and the transactions contemplated thereby.
In considering whether to approve and recommend the Merger to the
FH Shareholders, the FH Board consulted with its legal counsel and its financial
advisor, and considered a number of factors, including, without limitation, the
following:
(i) Information with respect to the financial condition, business,
operations and prospects of FH and Pan Am, including information reflecting the
two companies on a pro forma combined basis. See "Pro Forma Combined Financial
Statements."
(ii) The business experience and background of the Pan Am
Principals and the Pan Am executive officers as described under "Management of
Pan Am - Executive Officers and Directors."
(iii) The opinion of Mr. Harris Herman to the effect that, as of
May 7, 1996, the Exchange Ratio in the Merger was fair, from a financial point
of view, to FH and the FH Shareholders. See "The Proposed Merger -- Opinions of
FH's Financial Advisor -- FH."
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(iv) The perceived strength and widespread recognition of the name
"Pan Am."
(v) The business plan and operating strategies of Pan Am as
described under the caption "Description of Pan Am."
(vi) The FH Board also noted that based upon the approximately
7,500,000 shares to be issued in the Merger, that FH current shareholders would
acquire approximately 28% of the new combined company after the Merger for an
aggregate equity investment equal to approximately $10 million.
(vii) The fact that (a) the Merger Agreement requires the approval
of the FH Shareholders, (b) the vote of the executive officers and directors of
FH in the Merger is effectively neutralized by their agreement to vote
consistent with the vote of a majority of the non-affiliated FH Shareholders and
(c) that each non-affiliated FH Shareholder will have certain redemption rights
with respect to the Merger. See "The Special Meetings -- Vote Required" and "The
Proposed Merger -- Redemption Rights."
The Board of Directors did not assign relative weights to the
factors or determine that any factor was of particular importance. Rather, the
Board of Directors viewed its determination and recommendation as being based on
the totality of the information presented to it and considered by it.
PAN AM. The Board of Directors of Pan Am believes that the Merger
is fair to and in the best interests of Pan Am and its shareholders, and has
approved the Merger Agreement and the transactions contemplated thereby. The Pan
Am Board recommends that Pan Am Shareholders vote in favor of the proposal to
adopt the Merger Agreement and the transactions contemplated thereby.
At a meeting held on March 8, 1996, the Pan Am Board, with the
assistance of Pan Am's outside legal advisors, considered the terms and
structure of the legal, financial and other ramifications of the Merger and the
related transactions.
In reaching its decision to enter into and to recommend the
adoption of the Merger Agreement and the Merger, the Pan Am Board considered a
number of factors, including, without limitation, the following:
1. The Merger will immediately provide Pan Am with
approximately $10 million of additional capital at an average cost of $3.00 per
share. Pan Am requires substantial additional financing in order to obtain the
DOT certificate and commence airline operations. The infusion of $10 million
provides a significant amount of the financing Pan Am requires in this respect.
2. The Merger will facilitate Pan Am's access to the
capital markets since FH is a public company. Traditionally, public companies
are able to access the capital markets faster and more efficiently than private
companies. Further, investors tend to prefer companies which have a larger
"public float" of capital stock because of less volatility of price,
accessibility as to effecting purchases and sales and improved research
coverage.
3. The Merger will increase the shareholder base of Pan
Am. A larger shareholder base will serve to increase the liquidity of Pan Am's
capital stock and generate better public relations opportunities for Pan Am's
business.
4. The terms of the Merger Agreement and the structure
of the Merger generally.
In view of the variety of factors considered by the Board of
Directors of Pan Am in connection with the evaluation of the Merger, the Pan Am
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to such factors.
The Pan Am Board concluded, in light of these factors, that the
Merger is fair to and in the interests of Pan Am and its shareholders. THE BOARD
OF DIRECTORS OF PAN AM RECOMMENDS THAT THE SHAREHOLDERS OF PAN AM APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINIONS OF FH'S FINANCIAL ADVISOR
FH retained Mr. Harris K. Herman to render an opinion to the FH
Board as to whether the Exchange Ratio is fair, from a financial point of view,
to the shareholders of FH.
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On May 7, 1996, Mr. Harris K. Herman, FH's financial advisor in
connection with the Merger, delivered his opinion to the FH Board to the effect
that the Exchange Ratio is fair to FH and its shareholders, from a financial
point of view. A copy of Mr. Herman's fairness opinion, which sets forth, among
other things, the assumptions made, matters considered, the scope and
limitations of review undertaken and the procedures followed by Mr. Herman in
connection with such opinion is attached as Appendix D to this Joint Proxy
Statement-Prospectus and should be read carefully in its entirety by FH
Shareholders.
In rendering his opinion, Mr. Herman relied upon the completeness
and accuracy of all financial and other information reviewed by Mr. Herman that
was publicly available, furnished or otherwise communicated to him by or on
behalf of the officers, directors, employees, accountants and counsel of FH or
of Pan Am without an independent verification of such information and data. Mr.
Herman assumed that the Pan Am Financial Forecasts (as defined below) which he
examined were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the management of Pan Am as to
the future financial performance of Pan Am. Mr. Herman's opinion is based on
economic, monetary, regulatory and market conditions existing on the date of
such opinion. The Exchange Ratio was determined by FH and Pan Am in arm's length
negotiations. FH did not place any limitation upon Mr. Herman with respect to
the procedures followed or factors considered by Mr. Herman in rendering his
opinion.
In connection with his opinion, Mr. Herman reviewed, among other
things: (i) the Merger Agreement and the financial terms of the Merger set forth
therein; (ii) publicly available financial and operating information with
respect to FH; (iii) financial and operating information with respect to the
business, operations and prospects of Pan Am furnished to Mr. Herman by FH and
Pan Am; (iv) drafts of the Joint Proxy Statement-Prospectus of FH and Pan Am;
(v) certain internal analyses and calculations regarding prospective revenue,
cost and use of capital assumptions provided by Simat, Hellieson & Eichner
("SH&E") who, along with Martin R. Shugrue and Associates, developed the
financial forecasts for Pan Am for the fiscal years ending 1996 to 1999 included
in Pan Am's proposed business plan (the "Pan Am Financial Forecasts"); (vi)
publicly available industry data; (vii) certain other startup airline business
plans previously analyzed; and (viii) a Department of Transportation list of
startup airlines since 1989 and certain publicly available information regarding
the historical operating performance of such airlines.
In addition, Mr. Herman met with Mr. Martin R. Shugrue, President
and CEO of Pan Am, to discuss Pan Am's current plans and strategies with regard
to the planned July startup and the subsequent growth of the airline. As part of
his analysis, Mr. Herman also met with SH&E representatives to discuss issues
regarding projected revenue, expense and capital requirements of Pan Am. The
methods and assumptions used in preparing such projected financial information
involved significant elements of subjective judgment which may or may not prove
to be correct. With respect to the Pan Am Financial Forecasts, Pan Am management
assumed, among other things, that the major carriers (such as American Airlines
or United Airlines) would likely match Pan Am's proposed fares only in a
capacity controlled fashion. Management also assumed that the major carriers
would pursue this strategy as long as Pan Am did not make inroads into their
passenger base. While the events may in fact prove to be as assumed, it is also
possible that these carriers will be more aggressive with fare actions and sales
and promotional offerings. With high planned load factors and modest post
startup marketing/advertising budgets, Pan Am may not have the resources to
compete effectively or on a sustained basis. Additionally, there can be no
assurance that management's estimates as to costs and expenses associated with
commencement of operations will not be higher than projected, that the load
factors can be achieved or that required capital items may not be available for
lease and would have to be purchased. Increases in estimated startup costs and
expenses and increased competition from the major carriers or other startup
airlines could have a material adverse impact on Pan Am's revenues and gross
profits. See "Risk Factors."
Mr. Herman's calculations indicated a potential fully diluted
internal rate of return (IRR) over four years for the FH shareholders of 32% to
46% based on the Pan Am Financial Forecasts using a 4.0x to 6.0x EBITDA
valuation. The range of returns would climb to 48% to 64% if the upside
potential that Mr. Herman identified was realized. These valuations assumed that
FH would require no additional debt or equity financing over the four year
valuation horizon. Mr. Herman determined that the range of potential IRR's were
at an acceptable level for high risk ventures of this general type. Mr. Herman
also examined the potential fully diluted IRR's for the other investor
constituencies in this transaction and believed that they also were within the
range of reasonableness. Mr. Herman's estimate of an equally likely potential
outcome with lower revenues and higher costs yielded an IRR in the range of 10%
to 21%. The downside potential outcome did not yield any return at all.
Mr. Herman believes that his analyses must be considered as a
whole and that selecting portions of his analyses and of the factors considered
by him, without considering all factors and analyses, could create a
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misleading view of the process underlying his opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. In his analyses, Mr. Herman made
numerous assumptions with respect to industry performance, general business,
regulatory and economic conditions and other matters, many of which are beyond
the control of FH and Pan Am. Any estimates contained therein are not
necessarily indicative of future results of actual values, which may be
significantly more or less favorable than such estimates. Because such estimates
are inherently subject to uncertainty, none of FH, Pan Am, Mr. Herman or any
other person assumes responsibility for their accuracy.
Mr. Herman has worked in the airline industry for thirty years. He
has held senior management positions in Finance and Customer Service at American
Airlines and New York Air and was President and Chief Operating Officer of the
Pan Am Shuttle from 1988 and 1991. Since leaving the Shuttle, Mr. Herman has
been an independent management consultant. Mr. Herman has, from time to time,
provided various services to SH&E as an independent contractor and utilizes
certain office and administrative services provided by SH&E in connection with
work for SH&E as an independent contractor and also in connection with other
projects. The Pan Am Financial Forecasts and business plan utilized by Pan Am
and reviewed by Mr. Herman in connection with his opinion were prepared by SH&E.
The FH Board selected Mr. Herman because of his extensive experience in the
airline industry and, in particular, his expertise with respect to analyzing the
feasibility of a startup airline, his reputation and his familiarity with Pan Am
and Pan Am's existing management team.
Pursuant to the terms of an engagement letter, FH has paid Mr.
Herman $65,000 for rendering his opinion. FH also has agreed to reimburse Mr.
Herman for his out-of-pocket expenses, including reasonable fees and expenses of
its legal counsel, and to indemnify Mr. Herman and certain related parties
against certain liabilities, including liabilities under the federal securities
laws, arising out of or in connection with the services rendered by Mr. Herman
under the engagement letter. The terms of the fee arrangement with Mr. Herman
were negotiated at arm's length between FH's management and Mr. Herman.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
PAN AM DIRECTORS AND OFFICERS. Pan Am will be the surviving
corporation of the Merger with FH Sub and will be a wholly-owned subsidiary of
FH upon consummation of the Merger. The directors and executive officers of Pan
Am immediately prior to the Effective Time will be the initial directors and
executive officers of the surviving corporation at the Effective Time.
Additionally, the executive officers of Pan Am immediately prior to the
Effective Time will also become the executive officers of FH following the
Effective Time, until their successors are duly elected or appointed or
qualified. Such executive officers consist of the following individuals: Charles
E. Cobb, Jr., Chairman of the Board, Phillip Frost, M.D., Vice-chairman of the
Board, Martin R. Shugrue, President and Chief Executive Officer, James W. Arpey,
Vice President-Operations, Richard F. Blake, Vice President-Marketing and
Planning, John J. Ogilby, Jr., General Counsel and Chief Financial Officer,
Karen Averill, Vice President-Personnel, Training and In-Flight Services,
William Elio, Vice-President-Passenger Services and Cargo, and Donal McSullivan,
Vice-President-Sales. Further, as contemplated by the Merger Agreement, FH has
agreed to cause the following persons to be elected to the Board of Directors of
FH, such election to become effective at the Effective Time: Charles E. Cobb,
Jr. (Chairman), Phillip Frost, M.D. (Vice-Chairman), Martin R. Shugrue, Jr.,
John J. Sicilian, and Richard C. Pfenniger, Jr. as designees of Pan Am and
Richard B Frost and Mark J. Hanna, as designees of FH. See "Management of Pan
Am" and "Management of FH." FH has agreed to use reasonable efforts consistent
with and no less than those efforts that are taken with respect to all other
nominees to the FH Board to have such persons elected to the FH Board for each
of the next three years. Additionally, it is contemplated that after the
Effective Time, FH will seek to expand the Board of Directors to include
additional directors so that the Board shall consist of nine to eleven members.
Following the Merger, such executive officers and directors of Pan Am who will
become officers and directors of FH, together with the two FH director
designees, will own an aggregate of 3,935,735 shares of FH Common Stock and
options to purchase 1,397,739 shares of FH Common Stock, representing
approximately 38% and 45% (assuming full exercise of such options),
respectively, of the total shares of FH Common Stock to be outstanding following
consummation of the Merger.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement
provides indemnification to the current officers and directors of FH and FH Sub
in respect to actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement) to the full extent provided under the Articles of Incorporation and
Bylaws of FH in effect on the date of the Merger Agreement or as permitted by
the Florida Business Corporation Act. FH has further agreed to cause FH for a
period of six years after the Effective Time to (a) keep in effect provisions of
the Articles of Incorporation and Bylaws providing for exculpation of director
and officer liability and indemnification of such persons and (b) cause the
current policies of directors and officers' liability insurance maintained by
FH.
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STOCK OPTIONS AND WARRANTS OF PAN AM. The Merger Agreement provides
that, at the Effective Time, Pan Am's obligations with respect to each Pan Am
Option shall be assumed by FH and that each Pan Am Option shall be converted
into an option or a warrant, as the case may be, to purchase a number of shares
of FH Common Stock equal to the number of shares of Pan Am Common Stock issuable
upon the exercise of each such option or warrant. Except as described in the
immediately preceding sentence, all such options and warrants assumed by FH
shall remain subject to the same terms and conditions pursuant to which each was
originally issued, and the rights of the holders thereof shall otherwise remain
unchanged. The Merger Agreement further provides that FH will execute and
deliver to each of the Pan Am Option holders an Assumption Agreement to effect
the foregoing as soon as practicable after the Effective Time. The date of grant
of each such assumed option or warrant shall remain the date on which each was
originally issued to the respective holder thereof. FH will reserve for issuance
the number of shares of FH Common Stock that will become issuable upon the
exercise of such options and warrants.
CERTAIN TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes certain federal income tax
consequences of the Merger to holders of Pan Am Common Stock. This discussion
does not address all aspects of federal income taxation that may be relevant to
a particular Pan Am Shareholder and may not apply to a Pan Am Shareholder with
respect to Pan Am Common Stock acquired pursuant to the exercise or termination
of employee stock options or otherwise as compensation, nor does the discussion
address the effect of any applicable foreign, state, local or other tax laws.
EACH PAN AM SHAREHOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
In the opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A. tax counsel to Pan Am, under current law the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Pan Am, FH and FH Sub each
will be a party to the reorganization within the meaning of Section 368(b) of
the Code. In rendering this opinion, counsel has relied upon written
representations of FH, Pan Am and certain of the Pan Am shareholders. No ruling
has been sought from the Internal Revenue Service regarding the federal income
tax consequences of the Merger, and the opinion of counsel if not binding on the
Internal Revenue Service or any court.
As a reorganization, the Merger will have the following federal
income tax consequences:
1. A Pan Am Shareholder will not recognize gain or loss
on the exchange of a share of Pan Am Common Stock for a share of FH Common Stock
pursuant to the Merger.
2. The basis of a Pan Am Shareholder in a share of FH
Common Stock received pursuant to the Merger will be equal to his basis in the
share of Pan Am Common Stock surrendered in exchange therefor.
3. The holding period of a Pan Am Shareholder in a share
of FH Common Stock received pursuant to the Merger will include his holding
period for the share of Pan Am Common Stock surrendered in exchange therefor,
provided he held that share of Pan Am Common Stock as a capital asset at the
Effective Time.
4. FH, FH Sub and Pan Am will not recognize gain or loss
as a result of the Merger.
The Merger will not be a taxable event for federal income tax
purposes for an FH Shareholder who does not exercise his right of redemption.
The receipt of cash in exchange for a share of FH Common Stock pursuant to the
exercise of the right of redemption generally should give rise to capital gain
or loss, although in certain circumstances the cash could be treated as a
dividend taxable as ordinary income. An FH Shareholder who exercises his right
of redemption should consult his tax advisor regarding the Federal income tax
consequences of that action.
ACCOUNTING TREATMENT
FH and Pan Am believe that for accounting purposes the Merger will
be treated as a capital transaction equivalent to the issuance of stock by Pan
Am for FH's net monetary assets (FH's net monetary assets were approximately
$10,136,000 as of March 31, 1996, accompanied by a recapitalization of Pan Am.
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OPERATIONS AFTER THE MERGER
GENERAL. As a result of the Merger, Pan Am will become a
wholly-owned subsidiary corporation of FH. The Articles of Incorporation of FH
will be amended at the Effective Time to, among other things, change FH's name
to "Pan Am Corporation."
DIRECTORS AND EXECUTIVE OFFICERS. In accordance with the terms of
the Merger Agreement, all members of the FH Board will, immediately prior to the
Effective Time, resign from the FH Board, other than Messrs. Frost and Hanna,
and the remaining members will, following the Merger, elect five new members of
the FH Board, consisting of the current Pan Am Board: Charles E. Cobb, Jr. (as
Chairman), Phillip Frost, M.D., (as Vice-Chairman), Martin R. Shugrue, Jr., John
J. Sicilian, and Richard C. Pfenniger, Jr. In addition, all of FH's executive
officers will resign effective at the Effective Time, to be replaced by Pan Am's
current executive officers. See "Management of Pan Am -- Executive Officers and
Directors" for information as to the executive officers and directors of Pan Am
expected to replace the FH executive officers and directors.
DIVIDENDS. FH does not presently intend to pay any cash dividends
for the foreseeable future, as all available cash will be utilized to further
the growth of FH's business subsequent to the Effective Time and for the
proximate future thereafter. FH intends to reinvest any funds that might
otherwise be available for the payment of dividends in further development of
its business following the Merger. See "Description of FH's Securities --
Dividends."
RESALE OF FH COMMON STOCK ISSUED AS
A RESULT OF THE MERGER
The FH Common Stock to be issued to shareholders of Pan Am in
connection with the Merger has been registered under the Securities Act. All
shares of FH Common Stock received by holders of Pan Am Common Stock upon
consummation of the Merger will be freely transferable under the Securities Act,
except such shares of FH Common Stock received by persons who are deemed to be
"Affiliates" of Pan Am for purposes of Rule 145 under the Securities Act at the
time of the Pan Am Special Meeting. "Affiliates" are generally defined as
persons who control, are controlled by, or are under common control with, Pan Am
(generally, certain executive officers, directors and principal shareholders).
Shares of FH Common Stock acquired by Affiliates in connection with
the Merger may be resold by such Affiliates only pursuant to transactions
permitted under Rule 145 or as otherwise permitted under the Securities Act. In
general, under Rule 145, for two years following the Effective Date an Affiliate
(together with certain related persons) would be entitled to sell shares of FH
Common Stock acquired in connection with the Merger only through unsolicited
"broker transactions" or in transactions directly with a "market maker," as such
terms are defined in Rule 144 under the Securities Act. Additionally, the number
of shares to be sold by an Affiliate (together with certain related persons and
certain persons acting in concert) within any three-month period for purposes of
Rule 145 may not exceed the greater of 1% of the outstanding shares of FH Common
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would only remain available,
however, to Affiliates if FH remained current with its informational filings
with the SEC under the Exchange Act. Two years after the Effective Date, an
Affiliate would be able to sell such FH Common Stock without such manner of sale
or volume limitations provided FH was current with its Exchange Act
informational filings and such Affiliate was not then an affiliate of FH. Three
years after the Effective Date, an Affiliate would be able to sell such shares
of FH Common Stock without any restrictions so long as such Affiliate had not
been an affiliate of FH for at least three months prior thereto.
Pan Am has agreed in the Merger Agreement to use its best efforts
to deliver or cause to be delivered to FH a letter executed by each person
identified as an Affiliate of Pan Am and each other person, as identified in the
Merger Agreement, from whom a letter is necessary or desirable to ensure that
shares of FH Common Stock are sold in accordance with the applicable
restrictions under the Securities Act. FH will place a legend on the
certificates representing shares of FH Common Stock received by such person in
the Merger (or thereafter in connection with the exercise of any Pan Am Option
assumed by FH in the Merger), regardless of whether such person has executed and
delivered a letter to FH to the effect that such shares may be sold, transferred
or conveyed, only in accordance with Rule 145(d) or pursuant to an effective
registration statement under the Securities Act, or an exemption from
registration under the Securities Act and FH shall also be entitled to issue
stop transfer instructions to its transfer agent in accordance with the
restrictions set forth on such legends. Such restrictions will apply to all
purported sales, transfers or conveyances of shares of FH Common Stock received
in exchange for Pan Am Common Stock in the Merger (or thereafter in connection
with the exercise of any Pan Am Option assumed by FH in the Merger) by such
persons.
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APPRAISAL RIGHTS
FH. Florida law does not afford appraisal rights to the FH
Shareholders with respect to the Merger. However, see "Redemption Rights" below.
PAN AM. Pursuant to Section 607.1320 of the FBCA, a Pan Am
Shareholder who does not wish to accept the shares of FH Common Stock to be
received pursuant to the terms of the Merger Agreement may dissent and elect to
receive the fair value of his shares as of the day prior to the date the Merger
was approved by the Pan Am Shareholders, without including the incremental value
or the diminution in value, if any, arising from the Merger, judicially
determined and paid to him. In order to perfect his appraisal rights, a
dissenting shareholder (a "Dissenting Shareholders") must fully comply with the
statutory procedures of Sections 607.1320, 607.1301 and 607.1302 of the FBCA
summarized below. Such Sections are attached hereto as Appendix E. Pan Am
Shareholders are urged to read such Sections in their entirety and to consult
with their legal advisors. Each Pan Am Shareholder who may desire to assert
appraisal rights is cautioned that failure on his or her part to adhere strictly
to the requirements of Florida law in any regard may cause a forfeiture of any
appraisal rights.
To exercise appraisal rights, a Dissenting Shareholder must satisfy
the following conditions:
1. Each Pan Am Shareholder who desires to receive an
appraisal value for his or her shares must file with Pan Am, prior to the taking
of the vote on the Merger, a written notice of his intent to demand payment for
his shares if the Merger is effectuated. A proxy or vote against the Merger will
not alone be deemed to be the written notice of intent to demand payment. In
order to dissent, the shareholder need not vote against the Merger, but cannot
vote for the Merger.
2. Within ten days after the vote is taken, Pan Am shall
give written notice of the authorization of the Merger, if obtained, to each Pan
Am Shareholder who filed notice of intent to demand payment for his shares. The
shareholder must make written demand on Pan Am for the payment of the fair value
of his shares.
3. Within twenty days after the giving of the foregoing
notice by Pan Am, each Dissenting Shareholder who elects to dissent shall file
with Pan Am a notice of such election, stating his name and address, the number
of classes and series of shares as to which he dissents and a demand for payment
of the fair value of his shares. Any Dissenting Shareholder failing to file such
election to dissent within the period set forth shall be bound by the terms of
the Merger Agreement. Any Pan Am Shareholder filing an election to dissent shall
deposit the certificate(s) representing his shares with Pan Am simultaneously
with the filing of the election. Pan Am may restrict the transfer of such shares
from the date the election to dissent is filed.
4. Upon filing a notice of election to dissent, the
Dissenting Shareholder shall thereafter be entitled only to payment pursuant to
the procedure set forth herein and shall not be entitled to vote or to exercise
any other rights of a shareholder. A notice of election may be withdrawn in
writing by the Dissenting Shareholder at any time before an offer is made by Pan
Am, as provided in subsection 5. below, to pay for his shares. However, the
right of the Dissenting Shareholder to be paid the fair value of his shares
shall cease, and he shall be reinstated to have all his rights as a shareholder
as of the filing of his notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of Pan Am, the fair value thereof in cash as determined by the Pan Am
Board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided;
(b) The Merger is abandoned or rescinded or
the Pan Am Shareholders revoke the authority to effect the Merger;
(c) No demand or petition for the determination
of fair value by a court has been made or filed within the required time; or
(d) A court of competent jurisdiction
determines that such Dissenting Shareholder is not entitled to the relief
provided by this section.
5. Within ten days after the expiration of the period in
which a Pan Am Shareholder may file their notices of election to dissent, or
within ten days after the Effective Date whichever is later (but in no event
later than ninety days after the Merger is approved), Pan Am shall make a
written offer to each Dissenting
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Shareholder who has made demand as herein provided, and will make a written
offer to each such Pan Am Shareholder to pay for such shares at a specified
price deemed by Pan Am to be the fair value thereof. If the Merger has not been
consummated within the ninety days after the approval thereof, the offer may be
conditioned upon such consummation. Such offer is to be accompanied by (i) a
balance sheet of Pan Am as of the latest available date (not more than twelve
months prior to the making of an offer), and (ii) a profit and loss statement of
Pan Am for the twelve month period ended on the date of such balance sheet.
6. If, within thirty days after the making of such
offer, the Dissenting Shareholder accepts the same, payment for the shares of
that Dissenting Shareholder is to be made within ninety days after the making of
such offer or the date of the Merger, whichever is later. Upon payment of the
agreed value, the Dissenting Shareholder shall cease to have any interest in
such shares.
7. The court shall also determine whether each such
Dissenting Shareholder is entitled to receive payment for his shares. If Pan Am
fails to make such an offer, or if it makes such an offer and any Dissenting
Shareholder fails to accept the offer within the thirty day period thereafter,
then Pan Am, within thirty days after receipt of written demand from any
Dissenting Shareholder given within sixty days after the date of the Merger
shall, or, at its election within such sixty day period may, file an action in
any court of competent jurisdiction in Dade County, Florida, requesting that the
fair value of such shares be found and determined. The court's jurisdiction
shall be plenary and exclusive. If Pan Am fails to institute such proceeding
within the above-prescribed period, any Dissenting Shareholder may do so in the
name of Pan Am. All Dissenting Shareholders, wherever residing, will be made
parties to the proceedings as an action against their shares. A copy of the
initial pleading will be served on each Dissenting Shareholder. All Dissenting
Shareholders who are proper parties to the proceeding are entitled to judgment
against Pan Am for the amount of the fair value of their shares, as well as at
the discretion of the court, an allowance for interest at such rate as the court
may find fair and equitable. Pan Am shall pay each Dissenting Shareholder the
amount found to be due to him within ten days after final determination of the
proceedings.
8. The court may, if it elects, appoint one or more
appraisers to receive evidence and recommend a decision on the question of fair
value.
9. The judgment of the court is payable only upon and
concurrently with the surrender to Pan Am of the certificate(s) representing the
shares. Upon payment of the judgment, the Dissenting Shareholder ceases to have
any interest in such shares.
10. The costs and expenses of the proceeding are
determined by the court and assessed against Pan Am, except that all or any part
of such costs and expenses may be apportioned and assessed against any or all of
the Dissenting Shareholders who are parties to the proceeding and to whom Pan Am
has made an offer to pay for their shares, if the court finds their refusal to
accept such offer to have been arbitrary, vexatious or not in good faith.
Expenses include reasonable compensation for, and expenses of, appraisers, but
shall exclude the fees and expenses of counsel for, and experts employed by, any
party. If the value of shares, as determined by the court, materially exceeds
the amount that Pan Am offered to pay for the shares then the court may, in its
discretion, award to any Dissenting Shareholder who is a party to the
proceedings, such sum as the court may determine to be reasonable compensation
to any expert(s) employed by the Dissenting Shareholder in the proceeding.
11. Successful assertion by Pan Am Shareholders of their
dissenters' appraisal rights is dependent upon compliance with the requirements
described above. Non-compliance with any provision may result in failure to
perfect those rights and the loss of an opportunity to receive payment for
shares pursuant to an appraisal.
12. As the consideration being paid pursuant to the
Merger consists of shares of FH Common Stock, references in this section to Pan
Am may include FH in appropriate circumstances.
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE FLORIDA LAW
RELATING TO DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING
DISSENTING FROM THE MERGER ARE URGED TO CONSULT THEIR OWN LEGAL ADVISERS.
REDEMPTION RIGHTS
FH. Each non-affiliated FH Shareholder as of the FH Record Date
will have the right until _________, 1996 to offer his or her shares of FH
Common Stock for redemption at a price equal to FH's book value divided by the
number of shares of FH Common Stock held by all non-affiliated FH Shareholders
(1,955,000
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shares as of March 31, 1996), as determined by FH and audited by its independent
public accountants, calculated as of the FH Record Date (the "Redemption
Value"). The Redemption Value as of March 31, 1996 was $5.19 per share. If less
than 30% of the shares of FH Common Stock held by non-affiliated FH Shareholders
vote against approval of the Merger, and if the Merger is consummated, FH will
redeem shares of FH Common Stock at the Redemption Value from those
non-affiliated FH Shareholders who affirmatively requested such redemption and
who actually voted against approval of the Merger. If 30% or more of the shares
of FH Common Stock held by non-affiliated FH Shareholders actually vote against
approval of the Merger, the Merger Agreement will be terminated, FH will not
proceed with the Merger and will not redeem any shares. If the Merger is not
consummated for any reason no shares will be redeemed.
A non-affiliated FH Shareholder wishing to exercise his or her
redemption rights (i) must deliver to FH, prior to or at the FH Special Meeting
but before the vote is taken on the Merger, a written objection to the Merger
(the "Notice of Election"), which shall include a notice of his or her election
to redeem his or her FH Common Stock, his or her name and residence address, the
number of shares of FH Common Stock which he or she owns and demand for payment
of the Redemption Value of his or her shares of FH Common Stock (which Notice of
Election must be in addition to and separate from any proxy or vote against the
Merger); and (ii) must vote against the Merger. A proxy directing such vote for
an abstention with respect to the proposal to approve the Merger, even if
accompanied by a Notice of Election, will not meet the requirements for exercise
of the redemption rights. A non-affiliated FH Shareholder, who elects to redeem
his or her shares of FH Common Stock, may not redeem less than all of the shares
of FH Common Stock beneficially owned by such FH Shareholder as of the FH Record
Date. FH Shareholders, who timely file a Notice of Election and who vote their
FH Common Stock against the Merger, are hereinafter referred to as "Redeeming
Shareholders."
ALL NOTICES OF ELECTION SHOULD BE ADDRESSED TO FROST HANNA MERGERS
GROUP, INC., 7700 WEST CAMINO REAL, SUITE 222, BOCA RATON, FLORIDA 33431,
ATTENTION: MARK J. HANNA.
At the Effective Time, each Redeeming Shareholder will cease to
have any of the rights of an FH Shareholder, except the right to be paid the
Redemption Value for his or her shares of FH Common Stock. To maintain his or
her position as a Redeeming Shareholder, each FH Shareholder must submit the
certificate representing his or her shares of FH Common Stock to FH or its
transfer agent as noted below. A Notice of Election may be withdrawn by an FH
Shareholder, with the written consent of FH, prior to 20 days following the
Effective Time.
Within 10 days after the date on which the FH Shareholders approve
the Merger, FH will send written notice of such approval ("Notice of Approval of
Merger"), including the per share Redemption Value, by certified or registered
mail to each shareholder of FH who filed a Notice of Election and who voted his
shares against adoption of the Merger. Within 20 days following the date of
mailing of the Notice of Approval of Merger, Redeeming Shareholders must submit
certificates representing their shares of FH Common Stock to FH or its transfer
agent. Within 30 days following the date of mailing of the Notice of Approval of
Merger, FH will pay each Redeeming Shareholder who has submitted the
certificates representing his or her shares of FH Common Stock to FH or its
transfer agent, the Redemption Value for such shares. ANY REDEEMING SHAREHOLDER
WHO FAILS TO SUBMIT HIS OR HER CERTIFICATES REPRESENTING FH COMMON STOCK WITHIN
20 DAYS FOLLOWING THE DATE OF MAILING OF THE NOTICE OF APPROVAL OF MERGER SHALL
LOSE HIS OR HER REDEMPTION RIGHTS.
PAN AM. Pan Am Shareholders do not have any rights to redemption
of their shares of Pan Am Common Stock.
THE MERGER AGREEMENT
Set forth below is a description of the material provisions of the
Merger Agreement. The full text of the Merger Agreement is attached as Appendix
A to this Joint Proxy Statement-Prospectus and is incorporated herein by
reference. As discussed below, the Merger will be effected by the merger of FH
Sub with and into Pan Am. To effect the Merger, FH formed FH Sub as a
wholly-owned subsidiary.
GENERAL
Pursuant to the Merger Agreement, at the Effective Time, each share
of Pan Am Common Stock outstanding immediately prior to the Effective Time will
be converted into and become exchangeable for one share of FH Common Stock. The
Articles of Incorporation of FH will be amended at the Effective Time to change
FH's name to "Pan Am Corporation" and, if the Preferred Stock Amendment is
approved, to revise FH's authorized capital stock to include the Preferred
Stock.
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Upon consummation of the Merger, the existing shareholders of Pan
Am will own approximately 69% of the then outstanding shares of FH Common Stock.
Assuming exercise of all of the Pan Am Options and 170,000 warrants to purchase
shares of FH Common Stock held by the underwriter of FH's initial public
offering of equity securities, the existing shareholders, option holders and
warrant holders of Pan Am would collectively own approximately 72% of the then
outstanding FH Common Stock. Giving effect to the exercise of the outstanding
options and warrants, an aggregate of 12,662,930 shares of FH Common Stock will
be outstanding upon consummation of the Merger. None of the shares of FH Common
Stock currently outstanding will be converted or otherwise modified in the
Merger and all of such shares will continue to be outstanding capital stock of
FH after the Effective Time.
EFFECTIVE TIME AND EFFECTIVE DATE
The Merger Agreement provides that the Merger will become effective
upon filing of the Articles of Merger with the Secretary of State of the State
of Florida (the time and date of such filing is referred to herein as the
"Effective Time" and "Effective Date," respectively). This filing will be made
as soon as practicable after the adoption and approval of the Merger Agreement
by FH and Pan Am Shareholders and the satisfaction or waiver of all other
conditions set forth in the Merger Agreement. Each of FH and Pan Am is entitled,
however, to terminate the Merger Agreement under certain circumstances. See "The
Merger Agreement --Termination."
NO FRACTIONAL SHARES
No fractional shares of FH Common Stock will be issued in
connection with the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and
warranties of FH and Pan Am relating to, among other things: (i) each of FH's
and Pan Am's organization and similar corporate matters; (ii) each of FH's and
Pan Am's capital structure; (iii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related
documentation; (iv) the absence of any governmental or regulatory authorization,
consent or approval required to consummate the Merger; (v) the documents and
reports filed by FH with the SEC; (vi) the absence of certain liabilities; (vii)
the absence of certain material events or changes; (viii) litigation; (ix) the
accuracy of the information provided by Pan Am and FH with respect to this Joint
Proxy Statement-Prospectus; (x) compliance with laws, licenses and material
agreements; (xi) tax matters; (xii) employee benefit plans; (xiii) environmental
matters; (xiv) certain accounting matters; (xv) title to real and personal
property and the condition of certain assets; (xvi) proprietary rights and
(xvii) the absence of certain labor controversies and business practices.
CERTAIN COVENANTS OF PAN AM AND FH
CONDUCT OF BUSINESS OF PAN AM PRIOR TO THE EFFECTIVE DATE. Pursuant
to the Merger Agreement, Pan Am has agreed that, during the period from the date
of the Merger Agreement until the Effective Date (the "Interim Period"), except
as permitted by the Merger Agreement (including those provisions set forth or
described in this Joint Proxy Statement-Prospectus) or as consented to in
writing by FH, Pan Am will, and will cause each of its subsidiaries to, among
other things: (i) preserve intact its business organization and goodwill; (ii)
maintain and continue the approval process for certain licenses, including those
required by the FAA or the DOT; (iii) maintain its material relationships with
customers, suppliers and others with whom Pan Am has business relationships and
comply in all material respects with all of its obligations under its material
agreements; (iv) not amend or otherwise change its Articles of Incorporation or
Bylaws; (v) not issue, sell or authorize for issuance or sale, shares of any
class of its securities or any subscriptions, options, warrant rights,
convertible securities or other agreements or commitments of any character
obligating it to issue such securities; (vi) not redeem or otherwise acquire any
shares of its capital stock except as permitted by the terms of such securities;
and (vii) not declare any dividend or other distribution.
Additionally, Pan Am has agreed that, during such Interim Period,
except as permitted by the Merger Agreement or as consented to in writing by FH,
Pan Am will not, and will cause each of its subsidiaries not to: (i) enter into
any commitment, agreement or transaction other than in the ordinary course of
business for a start-up airline, or acquire the stock, merge, or otherwise
acquire the business or a substantial portion of the business or significant
assets of any other person or entity or amend or modify in any material and
adverse respect or terminate any material agreement or contract; (ii) pay,
discharge or satisfy claims, liabilities or obligations (absolute, accrued,
contingent or otherwise) which involve payments or commitments to make payments
which exceed normal business operating requirements consistent with a start-up
airline; (iii) cancel
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any material debts or waive any material claims or rights; (iv) make any loans,
advances or capital contributions to any person or entity, except routine
advances for non-material expenses to employees in the ordinary course of
business; (v) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person or entity except in the ordinary course of business of a
start-up airline; (vi) enter into any employment agreement or grant any
severance or termination pay with or to any officer, director or employee of Pan
Am or its subsidiaries except in the ordinary course of business of a start-up
airline; (vii) alter in any material respect the manner of keeping its books,
accounts or records or the accounting practices therein reflected except
consistent with a start-up airline; (viii) dispose of or permit to lapse any
rights to any of Pan Am's trademarks in the United States or its other material
intangible property; (ix) enter into any licensing or royalty agreement with
respect to any of Pan Am or its subsidiaries' products or services or any
products or services of any third party except in the ordinary course of
business of a start-up airline; or (x) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of any affiliate of Pan Am or its
subsidiaries (or any of Pan Am's or its subsidiaries' officers, shareholders or
directors) or to the prepayment of any such amounts, except for the payment of
salaries to any such persons who are employees of Pan Am or its subsidiaries as
of the date of the Merger Agreement.
CONDUCT OF BUSINESS OF FH PRIOR TO THE EFFECTIVE DATE. Pursuant to
the Merger Agreement, FH has agreed that, during the Interim Period, except as
permitted by the Merger Agreement or consented to in writing by Pan Am, FH will
conduct only such business that is necessary to comply with applicable laws and
regulations or which is in connection with the negotiation and consummation of
the Merger Agreement and the transactions contemplated thereby. Additionally,
during the Interim Period, FH will not (i) amend or otherwise change its
Articles of Incorporation or Bylaws; (ii) issue, sell or authorize for issuance
or sale, shares of any class of its securities (including, but not limited to,
by way of stock split or dividend) or any subscriptions, options, warrants,
rights, convertible securities or other agreements or commitments of any
character obligating it to issue such securities, other than issuances of FH
Common Stock in connection with the exercise of any underwriters' options; (iii)
declare, set aside, make or pay any dividend or other distribution (whether in
cash, stock or property) with respect to its capital stock; (iv) redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock
other than redemptions of shares of FH Common Stock from non-affiliated FH
shareholders (an "FH Redemption"); (v) enter into any commitment or transaction
or make any capital expenditure other than those relating to the transactions
contemplated by the Merger Agreement; (vi) create, incur, assume, maintain or
permit to exist any long-term indebtedness or short-term indebtedness; (vii)
waive any claims or rights; (viii) make any loans, advances or capital
contributions to any person or entity; (ix) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person; (x) enter into any
employment agreement or grant any severance or termination pay with or to any
employee (who is not an officer or director) of FH in excess of $20,000; (xi)
enter into any material contract or agreement other than the Merger Agreement or
other contracts or agreements related hereto; (xii) do any act, or omit to do
any act, or permit any act or omission to act which would cause a violation or
breach of any of the representations, warranties or covenants of FH set forth in
the Merger Agreement; or (xiii) expend funds other than (a) in the ordinary
course of business consistent with past practice, (b) in connection with fees
and costs associated with and related to the Merger Agreement or (c) as
otherwise contemplated in the Merger Agreement.
ACQUISITION PROPOSALS. Except as permitted by the Merger Agreement,
and unless and until it is terminated, Pan Am and its officers, directors,
representatives, agents and affiliates will not solicit, encourage, initiate or
participate in any negotiations or discussions with respect to any proposal or
offer to acquire all or any substantial part of the business or capital stock of
Pan Am or any of its subsidiaries from any person other than FH.
CONDITIONS TO CONSUMMATION OF THE MERGER
Under the terms of the Merger Agreement, the obligations of FH to
consummate the Merger are subject to the satisfaction or, where legally
permissible, waiver of a number of conditions, including: (i) each of the
representations and warranties of Pan Am contained in the Merger Agreement or
any other document executed and delivered in connection therewith shall be true
and correct in all material respects at and as of the Effective Date; (ii) Pan
Am shall have performed and complied in all material respects with the covenants
set forth in the Merger Agreement; (iii) there shall not have occurred any event
or condition which has materially adversely affected the condition (financial or
otherwise) of Pan Am or its subsidiaries or their respective assets,
liabilities, earnings, business, operations or prospects; (iv) no litigation or
other legal or administrative proceeding shall have commenced or shall be
pending before any court or tribunal, and no law shall have been enacted after
the date of the Merger Agreement, and no judicial or administrative decision
shall have been rendered which enjoins or prohibits, or seeks to enjoin or
prohibit, the Merger; (v) Pan Am shall have received all material third party
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consents and approvals necessary to consummate the Merger; (vi) FH shall have
received an opinion letter from counsel to Pan Am as to certain matters; (vii)
the approval of the proposal to approve the Merger Agreement by the FH
Shareholders, and no more than 30% of the shares of the FH Common Stock held by
the non-affiliated FH Shareholders shall have been actually voted against such
proposal; (viii) Pan Am and its subsidiaries shall be in material compliance
with all material business plans, budgets or projections submitted to the FAA or
the DOT, and Pan Am shall have procured from the FAA, the DOT or otherwise, all
licenses required to commence operations as contemplated by the Merger
Agreement; (ix) the receipt of certain letters from the auditors and affiliates
of Pan Am addressing certain matters; and (x) all consents, orders and approvals
legally required shall have been obtained by Pan Am and be in effect at the
Effective Time.
The obligation of Pan Am to consummate the Merger is subject to the
satisfaction or waiver of a number of conditions, including the following: (i)
each of the representations and warranties of FH contained in the Merger
Agreement or any other document executed and delivered in connection therewith
shall be true and correct at and as of the Effective Date; (ii) FH shall have
performed and complied in all material respects with its respective covenants
set forth in the Merger Agreement; (iii) there shall not have occurred any event
or condition which has materially adversely affected the condition (financial or
otherwise) of FH or its assets, liabilities, earnings, business, operations or
prospects, not including an FH Redemption; (iv) Pan Am shall have received an
opinion letter from counsel to FH as to certain matters; (v) the Merger
Agreement shall have been approved by the Pan Am Shareholders; and (vi) all
consents, orders and approvals legally required shall have been obtained by FH
and be in effect at the Effective Time.
TERMINATION
The Merger Agreement may be terminated and the Merger may be
abandoned prior to the Closing Date, either before or after approval by the FH
or Pan Am Shareholders: (i) at any time by the mutual consent of FH and of Pan
Am; (ii) by either Pan Am or FH after August 30, 1996, if the conditions
precedent applicable to the other party have not been satisfied or waived on or
before such date; or (iii) at any time, by either Pan Am or FH, provided there
has been a material misrepresentation or a material breach of any of the
warranties or covenants of the other party.
In the event of termination of the Merger Agreement by either Pan
Am or FH as provided above, the Merger Agreement shall become void and there
shall be no further liability or obligation on the part of Pan Am or FH, other
than as provided in the Merger Agreement. If the Merger is not consummated
because of the failure of any party to fulfill its obligations under the Merger
Agreement or as a result of a breach of the representations and warranties of
such party, then the non-defaulting party shall have available to it all legal
and equitable rights and remedies.
TERMINATION FEE; EXPENSES
The Merger Agreement further provides that all expenses incurred in
connection with such agreement shall be borne by the party incurring such
expenses. The Merger Agreement further provides that, in the event that the
Merger is not consummated, Pan Am will, under certain circumstances, pay to FH a
termination fee equal to the sum of $1,000,000 plus all costs and expenses
incurred by FH in connection with the transaction contemplated by the Merger
Agreement.
PROPOSAL TO AMEND AND RESTATE FH'S ARTICLES OF INCORPORATION
The FH Shareholders are being asked to consider and vote upon a
proposal to amend and restate FH's Articles of Incorporation (the "Restated
Articles") to provide for (i) an authorized class of Preferred Stock, consisting
of 100,000,000 shares, par value $.0001 per share (the "Preferred Stock"), with
rights, preferences and designations to be determined by the FH Board (the
"Preferred Stock Amendment"); and (ii) a change in the corporate name from Frost
Hanna Mergers Group, Inc. to "Pan Am Corporation." A copy of the Restated
Articles is attached as Appendix B to this Joint Proxy Statement-Prospectus and
is incorporated herein by reference.
Under Florida law and under the terms of the proposed Restated
Articles of FH, preferred stock may be issued in series established from time to
time by the Board of Directors. In this connection, the Board of Directors has
broad discretion to set the terms of the Preferred Stock, and, if it decided to,
may fix for each series, without further shareholder approval (i) the rate of
dividend; (ii) the price at and the terms and conditions on which shares may be
redeemed; (iii) the amount payable upon shares in the event of voluntary or
involuntary liquidation; (iv) sinking fund provisions, if any, for the
redemption or purchase of shares; (v) the terms and
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conditions on which shares may be converted, if the shares of any series are
issued with the privilege of conversion; and (vi) voting rights, if any.
The FH Board may fix the number of votes to which each share of
Preferred Stock is entitled, or deny voting rights to the shares of any series,
except to the extent voting rights are expressly granted by applicable law.
Depending upon the terms of voting rights granted to any series of Preferred
Stock, issuance thereof could result in a reduction in the voting power of the
holders of FH Common Stock or other Preferred Stock.
It is not possible to state the actual effect of the authorization
of the Preferred Stock or other classes of stock upon the rights of holders of
FH Common Stock until the FH Board determines the respective rights of the
holders of one or more series of the Preferred Stock. However, such effects
might include, without limitation: (a) restrictions on dividends on FH Common
stock if Preferred Stock is issued with a preferential (and possibly cumulative)
dividend right and dividends on the Preferred Stock are in arrears; (b)
substantial dilution of the voting power of the FH Common Stock to the extent
that the Preferred Stock has voting rights or to the extent that any Preferred
Stock is given conversion rights into FH Common Stock; and (c) the holders of FH
Common Stock not being entitled to share in FH's assets upon liquidation or
dissolution until satisfaction of any liquidation preference granted to the
Preferred Stock, which the FH Board may set at its discretion. The FH Board
could also authorize holders of the Preferred Stock to vote, either separately
as a class or with the holders of FH Common Stock, on any merger, sale or
exchange of assets by FH or other extraordinary corporate transaction. Shares of
Preferred Stock could even be privately placed with purchasers who might ally
themselves with the FH Board in opposing a hostile takeover bid, diluting the
stock ownership or voting power of persons seeking to obtain control of FH. The
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of FH, thereby having
an anti-takeover effect. The ability to issue Preferred Stock could be
beneficial to management in a hostile tender offer while it may have an adverse
impact on shareholders who may want to participate in such a tender offer.
In addition, FH may be affected to the extent that Preferred Stock
is issued which is, by its terms, redeemable, either at the option of FH or the
holders of Preferred Stock, in accordance with such terms and conditions as may
be designated by the Board of Directors in creating such series. The amount
payable by FH upon redemption of the Preferred Stock will be the redemption
price fixed for the shares of each series by the Board of Directors and may also
include payment of all accumulated and unpaid dividends.
Although FH does not presently intend to issue any of the
additional shares of Preferred Stock to be authorized, this approval is being
sought in order to allow the FH Board to authorize the issuance of such shares
when opportunities arise without delay.
In approving the proposed Restated Articles of FH, shareholders
will also be authorizing the FH Board to take all such actions and execute and
to file all such documents as the Board deems necessary or appropriate to
effectuate the purposes of the proposed Restated Articles, including, without
limitation, the making of any technical or non-material changes to the Restated
Articles. Furthermore, the FH Board of Directors reserves the right,
notwithstanding approval of the proposed Restated Articles by the FH
Shareholders, at any time prior to the filing of the Restated Articles, with the
Secretary of State of Florida, to terminate all or any part of the provisions
made a part of the Restated Articles and all transactions contemplated by or
incident thereto.
THE PROPOSED RESTATED ARTICLES REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE SHARES OF FH COMMON STOCK PRESENT IN PERSON OR BY
PROXY AT THE FH SPECIAL MEETING. THE FH BOARD OF DIRECTORS BELIEVES THAT THE
APPROVAL OF THE RESTATED ARTICLES IS IN THE BEST INTERESTS OF FH AND THE FH
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL.
37
<PAGE>
PROPOSAL TO AUTHORIZE THE
PAN AMERICAN WORLD AIRWAYS, INC. 1996 STOCK OPTION PLAN
On April 24, 1996, the Pan Am Compensation and Stock Option
Committee established and the Pan Am Board adopted, subject to shareholder
approval, the Pan American World Airways, Inc. 1996 Stock Option Plan (the "1996
Option Plan"). The purpose of the 1996 Option Plan is to provide Pan Am with an
effective means to attract and retain highly qualified personnel as well as to
provide additional incentive to employees and others who provide services to Pan
Am and who can contribute significantly to Pan Am's success. The Pan Am Board
believes that the 1996 Option Plan is necessary for Pan Am to remain competitive
in the recruitment, motivation and retention of employees and other key persons,
and recommends that the Pan Am Shareholders approve the 1996 Option Plan.
DESCRIPTION OF THE 1996 OPTION PLAN
The following is a summary of the material provisions of the 1996
Option Plan. The complete text of the 1996 Option Plan is attached as Appendix C
to this Joint Proxy Statement-Prospectus and is incorporated herein by
reference. In the event that the Merger is consummated, FH will assume the
obligations of Pan Am under the 1996 Option Plan, if approved, and FH Common
Stock will thereafter be issuable in lieu of Pan Am Common Stock required to be
issued under the 1996 Option Plan on the same terms and conditions prescribed
under the 1996 Option Plan.
The 1996 Option Plan is designed to comply with the requirements of
Section 16(b) of the Exchange Act and Pan Am intends that options granted under
the 1996 Option Plan qualify for an exception to the disallowance rule of
Section 162(m) of the Code. An aggregate of 600,000 shares of Pan Am Common
Stock are available for issuance under the 1996 Option Plan. No employee may
receive stock options under the 1996 Option Plan in any given year to purchase a
number of shares greater than one percent of the number of shares of Pan Am
Common Stock outstanding as of the date the 1996 Option Plan was adopted. If a
stock option expires, terminates or becomes unexercisable for any reason without
being exercised in full, the unpurchased shares which were subject to such stock
option shall be available for further grant under the 1996 Option Plan.
No options may be granted under the 1996 Option Plan after April 24, 2006.
The 1996 Option Plan is administered by the Compensation and Stock
Option Committee of the Pan Am Board (the "Committee"), which, under the terms
of the 1996 Option Plan, must consist of at least two directors who are
"disinterested persons" within the meaning of Rule 16b-3 promulgated under the
Exchange Act and who are "outside directors" as defined for purposes of Section
162(m) of the Code. The Committee has the authority to interpret the provisions
of the 1996 Option Plan and to make all determinations deemed necessary or
advisable for its administration.
The 1996 Option Plan provides for the issuance of options intended
to be incentive stock options within the meaning of Section 422 of the Code and
non-qualified stock options not intended to meet the requirements of Section 422
of the Code. Incentive stock options may be granted only to employees of Pan Am
and its subsidiaries, and non-qualified options may be granted to employees,
directors, independent contractors and agents of Pan Am and its subsidiaries.
Subject to the provisions of the 1996 Option Plan, the Committee determines the
persons to whom grants are made and the vesting, timing, amounts and other terms
of such grants. Incentive stock options which first become exercisable in any
calendar year for shares with a fair market value on the date of grant in excess
of $100,000 are treated as non-qualified stock options to the extent of such
excess.
The exercise price of options may not be less than the fair market
value of the Pan Am Common Stock on the date of grant, except with respect to
substitute options issued in connection with certain corporate transactions and
except that the exercise price of any incentive stock option granted to the
holder of more than 10% of the outstanding Pan Am Common Stock may not be less
than 110% of the fair market value of the Pan Am Common Stock on the date of
grant. The term of each option may not exceed ten years, except the term of any
incentive stock option granted to a holder of more than 10% of the outstanding
Pan Am Common Stock may not exceed five years. The option price may be paid in
cash or by check or such other consideration as the Committee shall determine.
In general, all outstanding options granted to an employee terminate 6 months
after the optionee ceases to be an employee, except that such options terminate
(i) immediately (unless otherwise determined by the Committee) if the optionee's
employment is terminated for deliberate, willful or gross misconduct and (ii) 36
months after retirement. Options granted under the 1996 Option Plan are not
assignable or transferable other than by will or by the laws of descent and
distribution, or, in the case of non-qualified stock options, pursuant to a
qualified domestic relations order, and, during the optionee's lifetime, the
options may be exercised only by the optionee.
38
<PAGE>
The 1996 Option Plan provides for an automatic grant of
non-qualified stock options to acquire 20,000 shares of Pan Am Common Stock to
non-employee directors of Pan Am upon acceptance of a directorship. The exercise
price of such options is equal to the fair market value of the Pan Am Common
Stock on the date of the grant, and such options have a term of ten years and
vest ratably over three years (regardless of whether such director serves for
such three-year period). After a non-employee director has served in such
capacity for six months, then he or she shall receive options to acquire 10,000
shares of Pan Am Common Stock on the day following any annual meeting of
shareholders and an additional 5,000 shares if they serve as the chair of any
committee of the Board of Directors. The exercise price of such options is equal
to the fair market value of the Pan Am Common Stock on the date of the grant,
and such options have a term of ten years and will be fully vested upon grant.
The number of shares of Pan Am Common Stock covered by outstanding
options, the number of shares of Pan Am Common Stock available for issuance
under the 1996 Option Plan, the number of shares of Pan Am Common Stock to be
granted to non-employee directors, the maximum number of shares of Pan Am Common
Stock with respect to which options may be granted to any employee in any given
year, and the exercise price per share of outstanding options, are
proportionately adjusted for any increase or decrease in the number of issued
shares of Pan Am Common Stock resulting from a stock split or stock dividend. In
the event of a dissolution or liquidation, outstanding options will terminate
prior to such transaction, unless otherwise provided by the Committee. Upon the
occurrence of certain specified events resulting in a change in control of Pan
Am, the vesting of all outstanding options under the 1996 Option Plan will be
automatically accelerated.
The Committee may amend or terminate the 1996 Option Plan, except
that shareholder approval is required to increase the number of shares of Pan Am
Common Stock subject to the 1996 Option Plan, to change the class of persons
eligible to participate in the 1996 Option Plan, to materially increase the
benefits accruing to participants under the 1996 Option Plan, or to increase the
maximum number of shares of Pan Am Common Stock with respect to which options
may be granted to any employee in any year. No amendment or termination of the
1996 Option Plan will affect previously granted awards without the optionee's
consent unless the Committee determines that such amendment is in the best
interest of the shareholders or optionees.
The 1996 Option Plan is subject to approval by the affirmative vote
of a majority of the shares of Pan Am Common Stock voting in person or by proxy
at the Pan Am Special Meeting. If the 1996 Option Plan is so approved, it will
become effective as of the date of its adoption by the Pan Am Board. The 1996
Option Plan and any options granted thereunder will terminate and become null
and void if the 1996 Option Plan is not approved by the Pan Am Shareholders
within 12 months after the date of its adoption by the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. The grant of an incentive stock option has
no immediate federal income tax consequences to the optionee or to Pan Am. The
exercise of an incentive stock option while the optionee is an employee or
within three months after termination of employment generally has no immediate
tax consequences to Pan Am or to the optionee. If the optionee is subject to the
alternative minimum tax, however, the exercise of an incentive stock option
would result in an increase in the optionee's alternative minimum taxable income
equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price. If an optionee holds the shares acquired
pursuant to the exercise of an incentive stock option for the required holding
period, the optionee generally recognizes long-term capital gain or loss upon a
subsequent sale of the shares in the amount of the difference between the amount
realized upon the sale and the exercise price of the shares. In such a case, Pan
Am is not entitled to a deduction in connection with the grant or exercise of
the incentive stock or the sale of shares acquired pursuant to such exercise.
If, however, an optionee exercises an incentive stock option more than three
months after termination of employment or disposes of the shares prior to the
expiration of the required holding period, the optionee generally recognizes
ordinary income equal to the excess of the fair market value of the shares on
the date of exercise (or the proceeds of disposition, if less) over the exercise
price, and Pan Am is entitled to a corresponding deduction if the compensation
constitutes an ordinary and necessary business expense, the limitations of
Section 162(m) of the Code do not apply, and applicable withholding requirements
are satisfied. If the amount realized upon such a disposition exceeds the fair
market value of the shares on the date of exercise, the excess generally would
be treated as long-term or short-term capital gain. The required holding period
is the longer of two years from the date the option was granted and one year
after the date of issuance of the shares upon exercise of the option.
NON-QUALIFIED STOCK OPTIONS. The grant of a non-qualified stock
option has no immediate federal income tax consequences to the optionee or Pan
Am. Upon the exercise of a non-qualified stock option, the optionee recognizes
ordinary income (subject to wage withholding and employment taxes) in an amount
equal to the excess of the fair market value of the shares on the date of
exercise over the exercise price, and Pan Am is
39
<PAGE>
entitled to a corresponding deduction if the compensation constitutes an
ordinary and necessary business expense, the limitations of Section 162(m) of
the Code do not apply, and applicable withholding requirements are satisfied.
The optionee's tax basis in the shares is the exercise price plus the amount of
ordinary income recognized by the optionee, and the optionee's holding period
will commence on the date the shares are received. Upon a subsequent sale of the
shares, any difference between the optionee's tax basis in the shares and the
amount realized on the sale generally is treated as long-term or short-term
capital gain or loss.
CHANGE IN CONTROL. Under the 1996 Option Plan, upon the occurrence
of certain "change in control" transactions (not including the Merger), all
options then outstanding under the plan become immediately exercisable. Under
certain circumstances, compensation payments attributable to such options may be
treated as "parachute payments" under the Code, in which case a portion of such
payments may be nondeductible to Pan Am and the recipient may be subject to a
20% excise tax.
OPTIONS GRANTED AND SHARES ELIGIBLE UNDER THE 1996 OPTION PLAN
On April 24, 1996, the Committee approved the grant of options to
purchase 360,000 shares of Pan Am Common Stock, subject to approval of the 1996
Option Plan by the Pan Am Shareholders. 100,000 of such options were granted to
the five members of the Pan Am Board (20,000 each) pursuant to the terms of the
1996 Option Plan and 150,000 of such options were granted to Pan Am executive
officers, and the remaining options were granted to employees (including
officers who are not executive officers) of Pan Am. All options granted on April
24, 1996 have terms of 10 years and vest in equal portions over three years. The
exercise price of all such options is $5.00. As of April 24, 1996, 240,000
shares of Pan Am Common Stock remained eligible for grant under the 1996 Option
Plan. Except as described above and below and the automatic grants to
non-employee directors of Pan Am, it is not possible to identify the persons who
will be granted options under the 1996 Option Plan, the number of shares subject
to any option, or the terms and conditions of any option because these matters
will be determined by the Committee in the future. As of April 24, 1996, 5
directors, approximately 29 employees, and an indeterminate number of
independent contractors and agents were eligible to receive stock options under
the 1996 Option Plan.
The following chart describes the number of stock options granted
to directors and executive officers of Pan Am on April 24, 1996.
<TABLE>
<CAPTION>
TOTAL WARRANTS AND
NAME AND POSITION OPTIONS GRANTED WARRANTS OUTSTANDING
- ----------------- --------------- --------------------
<S> <C> <C>
Charles E. Cobb, Jr., Director 20,000 20,000
Phillip Frost, M.D., Director 20,000 296,821*
Martin R. Shugrue, Jr., Director 20,000 652,734*
John J. Sicilian, Director 20,000 100,000*
Richard C. Pfenniger, Jr., Director 20,000 20,000
James W. Arpey, V.P. - Chief Operations Officer 25,000 25,000
Karen T. Averill, V.P. - Personnel/Training/Inflight 25,000 25,000
Richard F. Blake, V.P. - Marketing 25,000 104,092*
William Elio, V.P. - Passenger Services & Cargo 25,000 25,000
Donal F. McSullivan, V.P. - Sales 25,000 25,000
John J. Ogilby, General Counsel & Chief
Financial Officer 25,000 104,092*
All current executive officers, as a group 210,000 1,080,918*
All current directors who are not executive
officers, as a group 40,000 316,821*
All employees, other than executive officers,
as a group 150,000 150,000
<FN>
* Includes options and/or warrants to purchase shares of
Pan Am Common Stock that were granted in connection with the
organization of Pan Am. Such options and warrants were not granted
under the 1996 Option Plan. For a description of the terms of such
options and warrants, see "Management of Pan Am -- Certain
Transactions with Management -- Organizational Transaction" and
"Principal Shareholders of Pan Am."
</FN>
</TABLE>
40
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Pan Am Board believes that the best interests of Pan Am will be
served by Pan Am implementing the 1996 Option Plan. The Pan Am Board believes
that awards made under the 1996 Option Plan will enable Pan Am to better compete
for qualified personnel, to retain such personnel in the employ of Pan Am, and
to motivate such personnel and align their long-term interests with those of the
Pan Am Shareholders. To remain competitive in attracting and retaining qualified
employees and to continue to provide such employees proper motivation and
incentives, the Pan Am Board believes that the 1996 Option Plan Proposal should
be approved.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF
PAN AM COMMON STOCK PRESENT IN PERSON OR BY PROXY AT THE PAN AM SPECIAL MEETING
IS REQUIRED TO ADOPT THE 1996 OPTION PLAN. THE BOARD OF DIRECTORS RECOMMENDS
THAT THE PAN AM SHAREHOLDERS VOTE FOR THE 1996 OPTION PLAN PROPOSAL.
PRICE RANGES OF FH'S SECURITIES
FH. FH's Common Stock, par value $.0001 per share, is traded in the
over-the-counter market under the symbol "FHMG." The FH Common Stock commenced
trading on April __. 1994. The following table shows the reported low bid and
high bid quotations for the FH Common Stock for the periods indicated below. The
high and low bid prices for the periods indicated are inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. These quotations have been obtained from the OTC
Bulletin Board.
LOW BID HIGH BID
(PER SHARE) (PER SHARE)
----------- -------------
April 1, 1994 - June 30, 1994 $5.75 $6.25
July 1, 1994 - September 30, 1994 4.75 5.75
October 1, 1994 - December 31, 1994 3.75 5.375
January 1, 1995 - March 31, 1995 3.25 4.25
April 1, 1995 - June 30, 1995 3.75 5.625
July 1, 1995 - September 30, 1995 3.875 5.5
October 1, 1995 - December 31, 1995 2.5 4.625
January 1, 1996 - March 31, 1996 3.125 8.125
April 1, 1996 - ______________, 1996 ____.____ ____.____
On January 29, 1996 (the last trading day prior to the public
announcement relating to the Merger), the last reported closing bid price of the
FH Common Stock was $3.625.
On March 12, 1996 (the last trading day prior to the public
announcement of the execution of the Merger Agreement), such bid price was
$5.125.
On March 31, 1996 the last reported bid price for FH Common Stock
was $8.00 per share. On that date, there were [73] record holders of FH Common
Stock, inclusive of those brokerage firms and/or clearing houses holding shares
of FH Common Stock for their clientele (with each such brokerage house and/or
clearing house being considered as one holder).
FH has not paid or declared any dividends upon its Common Stock
since its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PAN AM
The following selected historical financial information for the
years ended December 31, 1995 and 1994 and for the period from Inception to
December 31, 1995 have been derived in part from the Combined Financial
Statements of Pan American World Airways, Inc., a Delaware corporation, and
Affiliate (the "Predecessor Company") audited by Deloitte & Touche LLP,
independent auditors, whose report thereon appears elsewhere in this Joint Proxy
Statement-Prospectus. The historical financial information for the year ended
December 31, 1993 are derived from unaudited combined financial statements of
the Predecessor Company not included in this Joint Proxy Statement-Prospectus.
Financial data as of March 31, 1996 and for the three month periods ended March
31, 1995 and 1996 and for the period from Inception to March 31, 1996, is
unaudited but, in the opinion of management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data. The results for such three-month period are not
necessarily indicative of the results which may be expected for the full year.
This information should be read in conjunction with and is qualified by
reference to the Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Pan Am" included elsewhere
in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
PREDECESSOR COMPANY
PREDECESSOR ------------------------------------------------------
COMPANY CUMULATIVE CUMULATIVE
THREE MONTHS THREE MONTHS PERIOD FROM PERIOD FROM
ENDED ENDED INCEPTION TO YEAR ENDED YEAR ENDED YEAR ENDED INCEPTION TO
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- -------------- -------------- ------------ ------------ ------------ ------------
1995 1994 1993 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF DEVELOPMENT
STAGE OPERATIONS DATA:
REVENUE....................... $ -- $ -- $ -- $ 2 $ 1 $ -- $ 3
LOSS FROM OPERATIONS.......... (917) (65) (917) (239) (135) (1) (496)
NET LOSS...................... (1,027) (65) (1,027) (239) (135) (1) (496)
NET LOSS PER SHARE............ (0.36) (87.06) (0.36) (318.79) (179.38) (1.18) (1,674.49)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING................. 2,848,068 750 2,848,068 750 750 750 296
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------------------------------------
MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL
(DEFICIT).................. $ 3,017 ($ 4) ($ 20) ($ 41)
TOTAL ASSETS............... 8,887 1,614 1,577 1,455
TOTAL LIABILITIES.......... 3,032 4 24 41
TOTAL STOCKHOLDERS'
EQUITY................... 5,855 1,610 1,553 1,414
</TABLE>
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PAN AM
Pan Am, a development stage company, was formed on January 11,
1996, to operate a low fare, full service airline, which will serve selected
long-haul routes between major United States cities. Since its inception, Pan
Am's operations have been limited to effecting the necessary preparations in
order to commence airline operations by July, 1996. Accordingly, Pan Am has not
yet engaged in any airline operations, nor does it presently have the requisite
personnel, facilities, government permits or finances to do so.
LIQUIDITY AND CAPITAL RESOURCES
To date, Pan Am has financed its operations primarily through
private placements of its equity securities which has raised approximately
$18,600,000 in net proceeds through April 29, 1996. Pan Am also obtained
$3,500,000 in cash and $6,420,635 in assets from the initial capital
contributions of its principal shareholders. See "Management of Pan Am --
Certain Transactions with Management -- Organizational Transactions."
On April 12, 1996, Pan Am completed a private offering (the
"Initial Offering") pursuant to which it sold 2,991,623 shares of Common Stock
at $3.53 per share. Pan Am has received $10,560,429 in proceeds from the Initial
Offering and intends to use the proceeds thereof for working capital expenses
incurred prior to the commencement of airline operations.
On April 29, 1996, Pan Am completed a second private offering (the
"Second Offering") pursuant to which it sold 1,721,500 shares of Pan Am Common
Stock at $5.00 per share. Pan Am received $8,107,500 in cash proceeds and
$500,000 in other assets from the Second Offering. The release of a portion of
the funds raised in the Second Offering to Pan Am is conditioned solely upon the
consummation of the Merger, and, such funds, amounting to $7,000,000, have been
placed in a special interest bearing account pending such consummation. Pan Am
will use the proceeds of the Second Offering for working capital expenses.
Pan Am also intends to raise additional capital from certain
advances for the future purchase of airline seats from two general sales agents.
Pan Am entered into agreements (collectively, the "GSA Agreements") with two
general sales agents (collectively, the "GSA Representatives"). Pursuant to the
terms of the GSA Agreements, the GSA Representatives have agreed to be the
exclusive representatives of the Company in Europe and Central/South America,
respectively. Subject to the terms and conditions of the GSA Agreements, the GSA
Representatives have agreed to make certain cash advances to the Company ($10.0
million in the case of the European GSA and up to $10.0 million in the case of
the Central/South American GSA), which shall be credited toward the future
purchase of seats on the Company's aircraft (the "GSA Advances").
As of April 29, 1996, Pan Am had cash resources of $14,500,000
available to it and had net working capital of approximately $13,800,000.
Pan Am's short term capital needs are based on the following. In
order to secure the DOT Certificate, Pan Am must demonstrate that it has the
financial ability to incur 100% of its pre-certification operating costs which
is expected to be $7,895,000 and one-quarter of the first twelve months of
anticipated operating expenses without the benefit of any operating revenue
which is expected to be $19,743,000. Pan Am believes that the aggregate amount
necessary to meet this requirement of the DOT is $27,638,000. Pan Am does not
anticipate any significant capital expenditures during the next twelve months.
It has entered into definitive lease agreements with respect to three initial
aircrafts it will require to commence operations.
Pan Am anticipates that the amount necessary to meet this
requirement will be met from the proceeds available from the cash contribution
of its initial shareholders of $3,500,000, which amount increases by $1,500,550
due to a contribution by Eastern upon execution of a definitive lease for Pan
Am's first two aircraft, $10,560,429 from the Initial Offering, $8,107,500 from
the Second Offering, the GSA Advances and $10,000,000 from the merger with FH.
43
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF FH
The following selected historical financial data have been derived
from the historical financial statements of FH and the notes thereto appearing
elsewhere in this Joint Proxy Statement-Prospectus and should be read in
conjunction with those statements. The selected financial data of FH as of
December 31, 1995, 1994 and 1993 for the years ended December 31, 1995 and 1994
and the period from inception (October 4, 1993) to December 31, 1993 have been
derived from FH's financial statements, which statements have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report included elsewhere herein.
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
THREE MONTHS THREE MONTHS (OCTOBER 4, (OCTOBER 4,
ENDED ENDED YEAR ENDED YEAR ENDED 1993) TO 1993) TO
MARCH 31, 1996 MARCH 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 MARCH 31, 1996
-------------- -------------- ----------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
REVENUE...................... $ -- $ -- $ -- $ -- $ -- $ --
LOSS FROM OPERATIONS......... (249,466) (94,309) (377,906) (344,499) (52,761) (1,024,632)
NET INCOME (LOSS)............ (76,603) 42,191 116,108 (23,559) (52,701) (36,755)
NET INCOME (LOSS) PER SHARE.. (.02) .01 .03 (.01) (.04) (.01)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING................ 3,344,000 3,344,000 3,344,000 2,870,061 1,389,000 2,961,593
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL.............. $ 10,138,362 $ 10,214,665 $ 10,099,821 $ (171,821)
TOTAL ASSETS................. 10,210,917 10,306,154 10,133,719 186,896
TOTAL LIABILITIES............ 67,575 86,209 29,882 201,677
REDEEMABLE COMMON STOCK...... 3,041,988 3,064,962 3,030,141 0
TOTAL STOCKHOLDERS'
EQUITY..................... 7,101,354 7,154,983 7,073,696 (14,781)
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FH
FH was formed in October, 1993 to seek to effect a Business
Combination with an Acquired Business. In connection with its initial
capitalization, FH issued 1,389,000 shares of its Common Stock to its officers,
directors, and other shareholders for an aggregate sum of $37,920. On March 21,
1994, FH's Registration Statement on Form SB-2 (the "Registration Statement")
was declared effective by the Securities and Exchange Commission (the "SEC").
Pursuant to the Registration Statement, FH, in its initial public offering of
securities, offered and sold 1,955,000 shares of Common Stock, par value $.0001
per share, at a purchase price of $6.00 per share (the "Offering") and received
net proceeds of approximately $10,142,177, after the payment of all expenses of
the Offering (the "Net Proceeds"). In addition, FH issued Underwriter Options to
purchase 170,000 shares of Common Stock. The Offering was a "blank check"
offering.
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION
As of March 31, 1996, December 31, 1995 and December 31, 1994,
respectively, FH had cash and cash equivalents of $1,283,481, $1,509,428 and
$1,758,800, restricted short-term investments of $8,889,298, $8,789,268 and
$8,360,580, income taxes receivable of $30,980, $0 and $0, property and
equipment of $4,980, $5,280 and $4,016 and prepaid expenses of $2,178, $2,178
and $10,323. As of March 31, 1996, December 31, 1995 and December 31, 1994,
respectively, FH had total liabilities of $67,575, $86,209 and $29,882, and
total shareholders' equity of $7,101,354, $7,154,983 and $7,073,696. Of the Net
Proceeds, 80% ($8,113,741.60) (the "Escrow Fund") were delivered to Fiduciary
Trust International of the South, as Escrow Agent, to be held in escrow by such
firm, until the earlier of (i) written notification by FH of its need for all or
substantially all of the Escrow Fund for the purpose of facilitating a Business
Combination; or (ii) the exercise by certain shareholders of redemption rights
which are required to be offered (the "Redemption Offer") at the time FH seeks
shareholder approval of any potential Business Combination. As of March 31,
1996, there was $8,889,298 in the Escrow Fund. The Escrow Fund is currently
invested in United States government-backed short-term securities.
Other than the Escrow Fund, FH, as of March 31, 1996, December 31,
1995, and December 31, 1994, respectively, had $1,283,481, $1,509,428 and
$1,758,800 in cash and cash equivalents, all of which was received from the
Offering (other than interest income earned thereon) ( the "Operating Funds").
FH believes the Operating Funds will be sufficient for its cash requirements for
at least the next 12 months.
The expenses required to consummate the Merger cannot be presently
ascertained with any degree of certainty. For the years ended December 31, 1995
and December 31, 1994, FH incurred $377,906 and $344,499 of operating expenses,
which primarily consisted of professional fees and salaries. During the three
months ended March 31, 1996, FH incurred $249,466 of operating expenses
primarily as a result of increased efforts to consummate a Business Combination.
Pursuant to employment agreements, FH currently pays to each of Messrs. Frost
and Hanna $8,000 monthly for salary plus $1,000 monthly as a non-accountable
expense allowance.
45
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet
as of March 31, 1996 and the unaudited pro forma combined condensed statements
of development stage operations for the three months ended March 31, 1996 and
the year ended December 31, 1995 give effect to the Merger of Pan Am and FH. The
unaudited pro forma combined condensed financial statements are based on the
estimates and assumption in the notes to such statements. This information
should be read in conjunction with the historical financial statements and notes
thereto, which are included elsewhere in this Joint Proxy Statement-Prospectus.
The pro forma financial data are provided for comparative purposes only and do
not purport to be indicative of the results which actually would have been
obtained if the Merger had been effected on the date indicated or of those
results which may be obtained in the future.
The Merger has been accounted for as a capital transaction
equivalent to the issuance of stock by Pan Am for FH's net monetary assets,
accompanied by a recapitalization of Pan Am.
The pro forma adjustments are described in the accompanying notes
to unaudited pro forma combined financial statements. The unaudited pro forma
combined condensed financial statements assume the Merger had occurred (i)
January 1, 1995 for the purposes of pro forma combined condensed statements of
development stage operations for the three months ended March 31, 1996 and the
year ended December 31, 1995 and (ii) as of March 31, 1996 for the purposes of
the pro forma combined condensed balance sheet.
46
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
FROST PRO FORMA
PAN AM HANNA ADJUSTMENTS COMBINED(c)(d)
-------- ------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $5,514 1,284 $6,798
Interest receivable 2 2
Expendable aircraft parts 262 262
Prepaid expenses 271 2 273
Restricted short-term investments 8,889 8,889
Income taxes 31 31
------- ------- -------
Total current assets 6,049 10,206 16,255
PROPERTY, NET 1,035 5 1,040
OTHER ASSETS:
Service marks, net 1,591 1,591
Organizational costs, net 61 61
Aircraft lease deposit 150 150
Investment in affiliate 1 1
------- -------
TOTAL $8,887 $10,211 $19,098
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $611 $68 $679
Deferred income taxes 155 155
Stock subscription deposits 2,266 2,266
------ ------- -------
Total current liabilities 3,032 68 3,100
REDEEMABLE COMMON STOCK 3,042 $(3,042)(a)
STOCKHOLDERS' EQUITY(d):
Common stock
Capital surplus 10,517 7,138 3,042(a) 20,697
Deficit (1,027) (37) (1,064)
Deferred compensation (1,834) (1,834)
Receivables from stockholder (1,801) (1,801)
------- ------- ----------- -------
Total stockholders' equity 5,855 7,101 3,042 15,998
------- ------- ----------- -------
TOTAL $8,887 $10,211 $ -- $19,098
======= ======= =========== =======
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF DEVELOPMENT STAGE OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
FROST
PAN AM HANNA ADJUSTMENTS PRO FORMA
------- ------- ------------ ----------
<S> <C> <C> <C> <C>
COMBINED(c)
REVENUE: $ -- $ -- $ --
EXPENSES:
Compensation 279 54 333
General and administrative 638 195 833
-------- --------- ---------
LOSS FROM OPERATIONS (917) (249) (1,166)
OTHER INCOME (EXPENSE):
Interest Income 10 128 138
Litigation settlement 35 35
--------- ---------- ---------
LOSS BEFORE PROVISION
FOR INCOME TAXES (872) (121) (993)
PROVISION (BENEFIT) FOR INCOME TAXES 155 (45) (110)(b) --
--------- ---------- ------- ---------
NET INCOME (LOSS) $(1,027) $(76) $110 $(993)
========= ========== ======= =========
NET LOSS PER COMMON SHARE $(.36) $(0.02) $(0.16)
========= ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,848,068 3,344,000 6,192,068
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF DEVELOPMENT STAGE OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT SHARE DATA)
FROST
PAN AM HANNA ADJUSTMENTS PRO FORMA
--------- -------- ------------- ----------
<S> <C> <C> <C> <C>
COMBINED(c)
REVENUE: $ 2 $ -- $ 2
EXPENSES:
Compensation 115 216 331
General and administrative 126 162 288
--------- --------- ---------
LOSS FROM OPERATIONS (239) (378) (617)
OTHER INCOME (EXPENSE):
Interest Income 559 559
--------- ---------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (239) 181 (58)
PROVISION FOR INCOME TAXES 65 (65)(b)
-------- --------- ---- ---------
NET INCOME (LOSS) $(239) $116 $65 $(58)
======== ========= ==== =========
NET INCOME (LOSS) PER
COMMON SHARE $(318.79) $0.03 $(0.02)
======== ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 750 3,344,000 3,344,750
======== ========= =========
</TABLE>
48
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
The pro forma adjustments were made:
(a) To reflect the redeemable common stock as if each of the non-affiliated FH
Shareholders approved the Merger. If less than 30% of non-affiliated FH
Shareholders vote against approval of the Merger and if the Merger is
consummated, FH will utilize funds held in escrow and redeem such shares at
their Redemption Value. The Redemption Value as of March 31, 1996 was $5.19
per share.
(b) To eliminate income tax expense since on a pro forma combined basis there is
a net tax loss.
(c) Pro forma combined condensed financial information for the periods presented
does not reflect the difference between the fair value and the $1 exercise
price of options granted (276,821 shares) which are exercisable upon
consummation of the Merger. Such difference will be recorded as an expense
upon consummation of the Merger based upon the fair value on that date.
(d) Pro forma combined balance sheet at March 31, 1996 does not include
approximately $16,300,000 of cash received and 4,713,123 shares of common
stock issued as part of Pan Am's private offerings.
49
<PAGE>
DESCRIPTION OF PAN AM
GENERAL. Pan Am, incorporated in the State of Florida in January 1996,
was formed to operate as a low fare, full service airline under the "Pan Am"
name, which will serve selected long-haul routes between major United States
cities. Pan Am intends to commence airline operations during the summer of 1996
by offering service between New York's John F. Kennedy International Airport
("JFK") and Los Angeles, San Francisco and Miami. Initially, Pan Am intends to
utilize at least three leased A-300-B4 widebody aircraft (24 first class and 230
coach seats) to offer one daily roundtrip on the transcontinental routes and two
daily round trips between JFK and Miami. Depending on market conditions and
other factors, Pan Am currently plans to lease additional A-300-B4 aircraft to
expand service on these routes and to add additional long distance routes,
including JFK to Chicago.
Pan Am anticipates an efficient airline operation with a low cost
structure. Pan Am intends to minimize operating costs by (i) offering long-haul
service, which is typically more cost-efficient to operate than short and
medium-haul flights because of greater aircraft utilization; (ii) utilizing a
single type of aircraft, the high capacity, cost efficient, A-300-B4 twin-aisle
widebody, which complies with all Stage III noise regulations promulgated by the
FAA; (iii) operating a point-to-point route system, which avoids the
infrastructure cost of a hub and permits greater aircraft utilization by
eliminating the need for aircraft to wait for connecting passengers; and (iv)
outsourcing most facilities and services required for its operations, including
among others, ground facilities, aircraft maintenance, ticketing, baggage
handling and other ground services.
Pan Am has not yet engaged in any airline operations and is presently in
the process of obtaining the requisite personnel, facilities and government
permits in order to do so. Before commencing airline operations, Pan Am must
obtain a DOT Certificate and a FAA Certificate. Pan Am applied in March 1996 for
the DOT Certificate and the FAA Certificate and anticipates receiving them in
July 1996.
Pan Am also owns a 30% interest in Chalk's International Airlines
("Chalk's"). Chalk's is a historical seaplane airline which has been in
operation for over 70 years. Chalk's currently owns and operates five Grunman
Mallard turbo prop seaplanes flying scheduled service to Bimini, Paradise
Island, Key West and the Dry Tortugas from Ft. Lauderdale and Watson Island
(Miami), Florida. Chalk's has entered into a license agreement with Pan Am
pursuant to which Chalk's will operate under the name of "Pan Am Air Bridge".
Pan Am is not a successor to nor should Pan Am be confused with Former
Pan Am, which ceased airline operations in 1991. As discussed elsewhere herein,
Pan Am is a newly formed closely held Florida corporation, entirely distinct
from the publicly-held Former Pan Am. As part of Former Pan Am's bankruptcy
proceedings, Pan Am indirectly purchased the various "Pan Am" tradenames,
trademarks and other intellectual property rights previously owned by the Former
Pan Am. In addition, certain of Pan Am's employees, including Mr. Martin
Shugrue, President and Chief Executive Officer of Pan Am, were once employed by
the Former Pan Am. However, Pan Am has no other association with the Former Pan
Am.
BUSINESS STRATEGY. Pan Am's strategy will be to offer first class
service at fares lower than or comparable to full fare coach prices charged by
major carriers, as well as discounted coach service. Pan Am believes that its
first class fare structure will attract business flyers who otherwise would fly
coach on other airlines and its coach prices will stimulate additional demand
for air travel for those who may travel more frequently if motivated to do so by
low fares, as well as create demand by those who would use other means of
transportation or not travel at all. Moreover, Pan Am will seek to capitalize on
recognition of the "Pan Am" name to offer low fare, "brand name" airline
service, which is lacking on most transcontinental and other long-haul routes.
Pan Am will also be a full service airline, offering amenities such as meal and
beverage service, as well as a frequent flyer program.
In addition to attracting domestic passengers, Pan Am plans to generate
additional traffic by carrying passengers arriving on international carriers at
gateway airports such as JFK and Miami to their final United States
destinations. Currently, most international carriers must either transfer their
passengers to a major United States carrier, who in many instances may be a
competitor, or to a low fare, limited service airline, to complete their
journey. In this regard, Pan Am intends to be the United States domestic partner
for a number of international airlines who do not presently have marketing or
frequent flyer relationships with major United States carriers. As the United
States domestic partner of these international airlines, Pan Am will carry their
passengers on Pan Am's routes to and from gateway airports and enable these
international carriers to provide Pan Am with pre-committed seats for such
passengers. In order to provide convenient connections, Pan Am will seek to
coordinate its schedules with those of the international carriers and will seek
to enter into interline and code sharing agreements to provide additional
customer services such as joint ticketing and baggage
50
<PAGE>
transfers. Pan Am intends to formalize these international carrier partnerships
by the creation of the "Pan Am Alliance," a consortium of airlines that will
also share a common frequent flyer program and jointly operate airport lounges.
Pan Am's long-term operating strategy includes future expansion beyond
its initial markets. Pan Am plans to select additional long-haul routes on which
there exists a large volume of United States domestic traffic and international
carrier connecting opportunities, but which only have limited competition or
which lack a low fare, full service "brand name" competitor.
TRADEMARKS. Pan Am acquired the various "Pan Am" trade names, trademarks
and other intellectual property rights (collectively, the "Pan Am Intellectual
Property") in December 1993 from Former Pan Am in a transaction approved by the
United States Bankruptcy Court. Pan Am has registered its trademarks with the
United States Patent and Trademark Office and believes its trademark position is
adequately protected in all markets in which Pan Am will do business. Pan Am is
presently involved in litigation in the United States District Court, Southern
District of New York, with Eclipse Holdings, Inc. ("Eclipse"). Such litigation
commenced on April 20, 1995 and is captioned: PAN AMERICAN WORLD AIRWAYS, INC.
V. ECLIPSE HOLDINGS, INC., DAVID LOCKWOOD, DAVID SCOTT AND RICHARD BORTEL, 95
Civ. 2763 (LMM). Eclipse had initially submitted the winning bid in bankruptcy
court to purchase the Pan Am Intellectual Property, but was unable to secure
financing for its bid and subsequently assigned its rights to purchase the Pan
Am Intellectual Property to Pan Am. Pan Am has an action against Eclipse seeking
to compel Eclipse to execute and deliver the assignment documentation in order
to register the Pan Am Intellectual Property in certain foreign countries.
Pursuant to such action, Eclipse was compelled to execute such assignment
documentation. Eclipse has appealed such order. Additionally, Eclipse has filed
an action against Pan Am challenging Pan Am's ownership to the Pan Am
Intellectual Property. Management believes the suit will be resolved in Pan Am's
favor. However, the loss by Pan Am of the Pan Am Intellectual Property would
have a material adverse effect on Pan Am.
COMPETITION. The airline industry is highly competitive and includes a
large number of airlines which are larger and have greater financial resources
than Pan Am. Management believes that its competition will generally be a
function of price. Pan Am's ability to compete on the basis of price depends on
its ability to operate at costs equal to or lower than its competitors or
potential competitors. Management believes that its operating strategy of (i)
operating a single type of aircraft, the high capacity, cost efficient, A-300-B4
widebody, (ii) offering long-haul service, which typically provides greater
aircraft utilization than short and medium-haul flights, and (iii) operating a
point-to-point system instead of operating from a more costly hub will allow Pan
Am to operate at costs lower than those of its competitors. This operating
structure will allow Pan Am to offer prices to customers at or below those of
its competitors. See "Risk Factors-Competition."
PROPERTIES. Pan Am does not currently own any properties. Pan Am was
granted the use of office space through the end of September 1996 by Eastern at
Eastern Air Line's Doral Technology Center in Miami, Florida, valued at
$300,110, in exchange for 85,017 shares of Pan Am Common Stock. Pan Am has
temporarily established its offices at this location and considers it to be
adequate for its initial operations. Pan Am is in the process of determining the
location of its permanent headquarters and is negotiating incentive packages
with several major cities, including New York and Miami.
EMPLOYEES. As of April 19, 1996, Pan Am had approximately 29 full time
employees, of whom 26 were employed in management and 3 in general
administrative positions. Management considers its employee relations to be
good. None of Pan Am's employees are subject to collective bargaining
agreements.
LEGAL MATTERS. Pan Am is not presently a party to any other litigation,
the outcome of which would have a material adverse effect on its business
operations. See "Description of Pan Am -- Trademarks."
51
<PAGE>
MANAGEMENT OF PAN AM
EXECUTIVE OFFICERS AND DIRECTORS
The current and contemplated position (subsequent to the consummation of
the Merger) of each executive officer and director of Pan Am is listed below.
<TABLE>
<CAPTION>
CONTEMPLATED POSITION WITH
NAME AGE CURRENT POSITION FH AFTER MERGER
---- --- ---------------- --------------------------
<S> <C> <C> <C>
Charles E. Cobb, Jr. Chairman of the Board Chairman of the Board
Phillip Frost, M.D. Vice Chairman of the Board Vice Chairman of the Board
Martin R. Shugrue, Jr. President, Chief Executive President, Chief Executive
Officer, Director Officer, Director
John J. Sicilian Director Director
Richard C. Pfenniger, Jr. Director Director
James W. Arpey Vice President-Operations Vice President-Operations
Richard F. Blake Vice President-Marketing and Vice President-Marketing and
Planning Planning
John J. Ogilby, Jr. General Counsel and Chief General Counsel, Chief
Financial Officer Financial Officer and Secretary
Karen Averill Vice President-Personnel, Vice President-Personnel,
Training and In-Flight Training and In-Flight
Services Services
William Elio Vice President-Passenger Vice President-Passenger
Services and Cargo Services and Cargo
Donal McSullivan Vice President-Sales Vice President-Sales
</TABLE>
Charles E. Cobb, Jr., appointed as Chairman of the Pan Am Board on March
8, 1996. Since 1992, Mr. Cobb has served as the Chairman and Chief Executive
Officer of Cobb Partners, Inc., an investment firm with interests in real
estate, international trade and tourism-related businesses. Mr. Cobb was also
Chairman and CEO of Arvida/Disney Corporation from 1984 to 1987 and was a member
of The Walt Disney Company Board of Directors and Executive Committee from 1984
to 1987. Prior to that, Mr. Cobb served from 1972 to 1983 as Senior Executive
Vice President, Chief Operating Officer, Group President, Subsidiary President
(Arvida Corporation) and member of the Board of Directors of the Penn Central
Corporation, a $3 billion multi-industry company with more than 40,000
employees. Mr. Cobb served as United States Ambassador to Iceland during the
Bush Administration from 1989 to 1992 and from 1987 to 1989 served as Under
Secretary and Assistant Secretary of the United States Department of Commerce
during the Reagan Administration with responsibilities for the nation's trade
development, export promotion, and international travel and tourism
administration. Mr. Cobb was educated at Stanford University, where he received
a B.A. and an M.B.A.
Phillip Frost, M.D., appointed as Vice Chairman of the Board on April
16, 1996. Since 1987, Dr. Frost has served as Chairman of the Board of Directors
and Chief Executive Officer of IVAX Corporation, a Florida corporation ("IVAX"),
the world's largest generic pharmaceutical manufacturer. He served as IVAX's
President from July 1991 until January 1995. He was the Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceutical, Inc. from 1972 to 1986. He is Vice Chairman of
the Board of Directors of North American Vaccine, Inc. ("NAV"), and a Director
of American Exploration Company, which is engaged in oil and gas exploration and
production, NaPro BioTherapeutics, Inc., a biopharmaceutical research and
development firm ("NaPro"), Whitman Education Group, which is engaged in
proprietary education ("Whitman") and Northrup Grumman. He is a trustee of the
University of Miami and a member of the Board of Governors of the American Stock
Exchange. Dr. Frost is the uncle of Richard Frost, an executive officer and
director of FH.
Martin R. Shugrue, Jr. appointed as President, Chief Executive Officer
and a Director on March 8, 1996. Mr. Shugrue's aviation career spans 28 years,
and he has most notably held senior executive positions at several major
domestic and international airlines. In 1968 he began his aviation career as a
Boeing 707 flight officer. Over the course of his 20 year career at Former Pan
Am he served as Managing Director of the UK and Western Europe, the East Central
United States, Vice President of Personnel and Industrial Relations, Senior Vice
President of Administration, and as Senior Vice President of Marketing. In 1984,
until his departure in 1988, he served as Chief Operating Officer and Vice
Chairman. Concurrently, he served on the Board of Directors for Pan Am Express,
the Pan Am Shuttle, and Pan American Corporation. In 1988, Mr. Shugrue served as
President of Continental Airlines and Chief Executive Officer of
Continental/Eastern Express. During his tenure he also served on the Board of
Directors for Continental/Eastern Sales Inc. and System One Corporation. In
1990, Mr. Shugrue was appointed by the United States Trustee, and confirmed by
the Chief Bankruptcy Judge, Southern District, New York to serve as the Trustee
of Eastern Air Lines, Inc. ("Eastern Air Lines"). He served in this capacity
until 1994. In 1994, Mr. Shugrue formed and has since headed an international
consulting firm, Martin R. Shugrue and Associates, specializing in strategic
business, marketing, financial and operational planning services to clients in
the travel, tourism, and the transportation business.
John J. Sicilian, appointed as Director on March 8, 1996. Since 1995,
Mr. Sicilian has served as Chairman, President and Liquidating Agent of Eastern
Air Lines. In that capacity, he has had complete
52
<PAGE>
responsibility to maximize the value of the remaining assets and make
distributions to remaining stakeholders of Eastern Air Lines. From 1990 through
1994, Mr. Sicilian served as Executive Vice President and General Counsel of
Eastern Air Lines, functioning as primary advisor to Mr. Shugrue, the
court-appointed Trustee. Prior to his employment with Eastern Air Lines, Mr.
Sicilian was an attorney with Verner, Liipfert, Bernhard, McPherson and Hand in
Washington, D.C., and with Ford & Marrison in Atlanta. He specialized in matters
involving antitrust, labor, general litigation and general corporate issues,
with particular emphasis in representing airline clients and aviation
associations. Mr. Sicilian is a Director of ARINC, Inc., a diversified
corporation with $250.0 million in annual revenues that provides a full array of
communications, information systems and systems engineering for the global
transportation industry as well as for government and commercial customers.
Richard C. Pfenniger, Jr., appointed as Director on March 8, 1996. Mr.
Pfenniger has served as the Chief Operating Officer of IVAX since May 1994. He
served as Senior Vice President-Legal Affairs and General Counsel of IVAX from
1989 to May 1994 and as Secretary from 1990 to 1994. Prior to joining IVAX, Mr.
Pfenniger was engaged in private law practice, most recently as a member of the
law firm of Greer, Homer & Bonner, P.A. in Miami, Florida. Mr. Pfenniger is a
Director of NAV, NaPro and Whitman.
James W. Arpey, appointed as Vice President-Operations on March 8, 1996.
Mr. Arpey is a 32 year veteran of the airline industry, and has held senior
executive positions with several major airlines, including TransWorld Airways,
Continental Airlines and Frontier Airlines. Mr. Arpey was employed from 1972 to
1990 by Continental Airlines and its affiliates, most recently as Senior Vice
President of Aircraft Acquisition and Disposition from 1986 to 1990. In such
capacity, he was responsible for extensive negotiations with aircraft and jet
engine manufacturers. During his tenure at Continental Airlines, Mr. Arpey's
various other executive responsibilities have included the following areas:
flight operations, inflight, quality control, purchasing, material services,
aircraft maintenance and engineering, scheduling and regulatory compliance.
Since 1991, Mr. Arpey has served as the executive consultant to the Eastern Air
Lines bankruptcy estate, specializing in the sale of Eastern Air Line's
aircraft, spare engines and spare parts.
Richard F. Blake, appointed as Vice President-Marketing and Planning on
March 8, 1996. Mr. Blake is a 31-year executive of the travel and leisure
industry, specializing in international airline and cruise line transport. His
expertise is in the areas of marketing, sales and tactical planning and
development, direct marketing, advertising and public relations. Additionally,
his broad based understanding of all phases of operations, business practices
and legal and financial disciplines is highly respected in the passenger
transport business. Since 1996, Mr. Blake has been Senior Vice President of
Marketing for Pan Am. From 1992 to 1995, Mr. Blake served in an executive
capacity at Renaissance Cruises, Inc. and from 1991 to 1992 he was Vice
President of Product Development at Northwest Airlines where he was responsible
for the modernization of Northwest's aircraft fleet. Mr. Blake currently serves
on the Board of the Airlines Agent Reporting Plan of Puerto Rico and Vance IDS.
He has previously served on the Executive Committee and the Board of the
Airlines Reporting Corporation, Bar Harbor Airways, the Caribbean Tourism
Organization and continues to serve as a guest lecturer at the Royal
Aeronautical Society, Oxford England.
John J. Ogilby, Jr., appointed as General Counsel, Chief Financial
Officer and Secretary on March 8, 1996. From May 1991 to December 1995, Mr.
Ogilby practiced law with his own firm which specializes in aviation and
transactional matters. Since February 1994, he has been General Counsel to
Aeroflot Russian International Airlines-U.S. Southeastern Division. From August
of 1986 to May of 1991, Mr. Ogilby served as in-house counsel to Eastern Air
Lines where he was responsible for corporate and transactional matters,
including the liquidation of a substantial portion of the assets of the Eastern
Air Lines estate. From 1984 to 1986, Mr. Ogilby was a corporate and tax attorney
with the law firm of Icard, Merrill, Cullis, Timm & Furren in Sarasota, Florida.
Mr. Ogilby holds a Juris Doctorate, Masters in Taxation and BSBA in Accounting
from the University of Florida and is a former Certified Public Accountant.
Karen T. Averill, Vice-President-Personnel, Training and Inflight
Services since March 1, 1996. Ms. Averill is an airline executive with 26 years
of progressive operation and staff responsibilities in all phases of the
industry. She has held executive positions with several major airlines. Since
1991, she has served as Vice President and Managing Director for the bankruptcy
estate of Eastern Express (a subsidiary of Eastern Air Lines) where she was
responsible for the orderly shutdown and liquidation of the airline.
Concurrently, she was responsible for the daily operations and subsequent sale
of Gulf Coast Aviation, an FAA approved repair station owned by Eastern Express.
From 1986 to 1990, Ms. Averill served as Manager of System Employment for
Eastern Air Lines. Other career responsibilities have included: Recruitment,
Human Resources, Finance, Crew Scheduling, Training, Inflight Services and
Stations Systems and Operations. Additionally, Ms Averill served as the Director
of Inflight Training for Air Florida. She formerly was the principal of an
airline consulting firm, V-1, Inc., which provide consulting services to
start-up carriers, as well as on-going
53
<PAGE>
consultations for established airlines. Ms. Averill has authored a variety of
inflight manuals, training programs, supplements, and participated in accident
and incident investigations. Ms. Averill has successfully conducted a number of
FAR 121 evacuations and proving runs.
Donal F. McSullivan, Vice President-Sales since March 1, 1996. Mr.
McSullivan is an internationally recognized executive in marketing, tourism and
travel, with over 25 years of experience. He has extensive experience in sales
planning development and implementation, including the comprehensive travel
agency and corporate incentive programs. From 1976 to 1986, he was Executive
Chairman of the Irish Tourist Board in North America. During his appointed term
of office he more than doubled the number of travelers into Ireland.
Concurrently, he served as the Chairman of the North American Committee of the
European Travel Commission as well as sitting on several committees for the
American Society of Travel Agents. Mr. McSullivan is a recognized speaker and
has addressed the United States Senate and House Sub-Committees, on several
occasions, as an expert witness on issues related to tourism and travel. Since
1987, McSullivan and Associates has provided marketing, operational, and
financial expertise to a number of clients, both domestically and
internationally.
William T. Elio, Vice President Passenger Services & Cargo since April
1, 1996. Mr. Elio is an airline executive with over 27 years of expertise in
stations operations, passenger services, air freight, sales and marketing. His
varied background includes recruitment, training, ticketing, and negotiations
and contract administration for operational vendors. Mr. Elio has held executive
positions at the Former Pan Am and Continental Airlines. From April 1991 to May
1993, he was Vice President of Continental's Latin American Division and was
responsible for the design and implementation of marketing strategies, station
security, as well as passenger and cargo services for 27 cities. Mr. Elio is 23
year veteran of the Former Pan Am, having worked there from April 1966 to March
1991. His career at Former Pan Am culminated in the position of Managing
Director of Field Sales with full responsibility of stations operations for more
than 127 stations in 52 countries. From March 1994 to March 1996, Mr. Elio
served as the Vice President of Administration and Operations for Kendall
Marketing, a firm specializing in travel awards programs.
COMPENSATION OF DIRECTORS
Directors of Pan Am receive no compensation for their services as
directors, other than reimbursement for out-of-pocket expenses incurred;
however, they will be entitled to receive stock options under the 1996 Option
Plan and may receive monetary compensation in the future. See "Proposal to
Authorize the Pan American World Airways, Inc.1996 Stock Option Plan."
EMPLOYMENT ARRANGEMENTS
Pan Am and Mr. Shugrue have entered into an employment agreement (the
"Shugrue Employment Agreement"). The term of the Shugrue Employment Agreement is
for a period of three years. Mr. Shugrue will receive a yearly base salary of
$150,000. In the event Mr. Shugrue terminates the Shugrue Employment Agreement
prior to expiration of its term, he will be required to pay Pan Am the sum of
(i) $1.0 million in the event the Shugrue Employment Agreement is terminated
prior to receipt by Pan Am of all government approvals necessary to commence
operations as a commercial airline, (ii) $750,000 if terminated before February
15, 1997 and (iii) $500,000 if terminated before February 15, 1998. Mr. Shugrue
shall be entitled to terminate the Shugrue Employment Agreement without
liability upon the occurrence of certain events, including upon a "change in
control" of Pan Am.
CERTAIN TRANSACTIONS WITH MANAGEMENT
ORGANIZATIONAL TRANSACTIONS. Shortly following incorporation of Pan Am
on January 11, 1996, Pan Am agreed to issue 141,695 shares of Common Stock to
MRS&A Limited Partnership, a Florida limited partnership ("MRS&A"), in exchange
for a capital contribution in the amount of $500,000. In addition, on March 1,
1996, Pan Am issued to Martin R. Shugrue, Jr. ("Shugrue"), John J. Ogilby, Jr.
("Ogilby") and Richard F. Blake ("Blake"), options to purchase 632,734, 79,092
and 79,092 shares, respectively, of Pan Am Common Stock (the "Shugrue Options").
The Shugrue Options are exercisable at a price of $1.00 per share during the
nine-year period commencing March 1, 1997. The Shugrue Options contain standard
anti-dilution provisions.
On March 8, 1996 an agreement (the "Contribution Agreement") was entered
into by and among Pan Am, PANF, Inc., a Florida corporation ("PANF"), Pan Am
World Services, Inc., a Florida corporation ("World Services"), Pan Am Alliance,
Inc., a Florida Corporation ("Alliance", and together with World Services,
collectively the "Cobb Investors"), Frost Pan Investment Corp., a Florida
corporation ("Frost Pan"), and EAL Asset Holding, Inc., a Florida corporation
("Eastern"). The Cobb Investors, Frost Pan, MRS&A and Eastern
54
<PAGE>
are referred to herein individually as an "Investor" and collectively as the
"Investors". PANF, which subsequently changed its name to "Pan American Airways,
Inc.," will function as the operating airline subsidiary of Pan Am.
Pursuant to the Contribution Agreement, World Services and Alliance
(both wholly-owned by Charles E. Cobb, Jr.) jointly delivered to Pan Am, in
exchange for 212,542 and 765,153 shares of Pan Am's Common Stock, respectively,
(i) the sum of $1.0 million in cash and (ii) all of the issued and outstanding
capital stock of Pan American World Airways, Inc., a Delaware corporation
("PA"), and Pan Am Corporation, a Florida corporation ("PAC"), both of which
were wholly-owned subsidiaries of World Services and Alliance. PA is the owner
of certain intellectual property rights, including the trade names "Pan Am" and
"Pan Am - with globe design", along with various registered trademarks and
service marks related thereto. PAC owns a 30% interest in Chalk's. PAC also has
the right to obtain a 30% interest in an entity to be created that will acquire
from Chalk's the right to use air terminal facilities and landing ramps located
on Watson Island (Miami), Florida.
Pursuant to the Contribution Agreement, Frost Pan delivered to Pan Am,
in exchange for 566,780 shares of Pan Am Common Stock and options to purchase an
additional 276,821 shares of Pan Am Common Stock (the "Frost Pan Options"), the
sum of $2.0 million in cash. The Frost Pan Options are exercisable at a price of
$1.00 per share during the nine-year period commencing on the effective date of
the Merger, provided the Merger is completed. In the event the Merger is not
consummated, the Frost Pan Options shall be cancelled and shall be deemed null
and void. The Frost Pan Options contain certain standard anti-dilution
provisions.
Pursuant to the Contribution Agreement, Eastern transferred, assigned
and delivered to Pan Am, in exchange for 1,161,898 shares of Pan Am Common
Stock, (i) all of the issued and outstanding capital stock of EAL Asset Company
No. 1, Inc., a Florida corporation, which owns certain A-300-B4 spare parts,
certain intellectual property and marketing assets, including Eastern Air Lines
maintenance, flight operations and training program manuals, customer lists and
proprietary rights in Pan Am's business plan and a certain Facility Rent Credit
relating to Pan Am's use of office space located at Eastern Air Lines Doral
Technology Center (the "Facility Rent Credit")); (ii) the sum of $1.5 million in
cash, conditioned as described below; (iii) any and all of Eastern Air Lines
interests in the approximately $1.35 million outstanding balance due on a
certain promissory note executed by the LIFECO travel agency in favor of Eastern
(the "LIFECO Interest"), conditioned as described below; and (iv) its right in
and to, subject to obtaining all necessary government approvals, Eastern's
dormant route authority to serve Havana, Cuba from Fort Lauderdale and West Palm
Beach, Florida (the "Havana Route Authority"), conditioned as described below.
The payment by Eastern of the $1.5 million is conditioned upon the execution and
delivery by Pan Am and ING Lease (Nederland) B.V. ("ING") of an aircraft lease
relating to two certain A-300-B4 aircraft (Mfr. Serial Nos. 216 and 220). In the
event Eastern fails to contribute to Pan Am the $1.5 million due to Pan Am's
inability to successfully enter into the aircraft lease with ING or otherwise,
Pan Am will be entitled to redeem 425,085 of its shares from Eastern for no
consideration. The transfer of the LIFECO Interest and the Havana Route
Authority shall be conveyed to Pan Am at any time upon Pan Am's request.
Additionally, the granting by Eastern of its rights in the Havana Route
Authority does not by any means insure that Pan Am will in fact be granted such
route; it is merely one indication of many that the FAA will look to in awarding
such route.
In addition, the LIFECO Interest was valued at $300,000 and, as a
result, Eastern was issued 85,017 shares of Pan Am Common Stock in exchange for
the LIFECO Interest. If the Pan Am Board later determines that the actual value
of the LIFECO Interest is less than $300,000, Pan Am shall be entitled to redeem
from Eastern at no consideration a number of shares having a value equal to the
difference between the actual value of the LIFECO Interest and $300,000. If,
however, the Pan Am Board determines that the actual value of the LIFECO
Interest exceeds $300,000, Eastern shall be entitled to receive from Pan Am, at
Eastern's option: (i) the amount of such excess in cash, or (ii) additional
shares of Pan Am Common Stock having a value equal to such excess (based on a
price of approximately $3.53 per share). The Facility Rent Credit was valued at
$300,000 based on at least eight months use, and in exchange therefor Eastern
was issued 85,017 shares of Pan Am Common Stock. If the Pan Am Board later
determines that Pan Am did not derive such value from the use of the Facility
Rent Credit, Eastern shall deliver to Pan Am for no consideration, at Eastern's
option subject to the approval of Pan Am's Board, either (i) the number of
shares of Pan Am's Common Stock having a value equal to the shortfall (based on
a price of approximately $3.53 per share), (ii) other assets having a value, as
determined by the Pan Am Board, equal to the shortfall, or (iii) substitute
office space equivalent in square footage and acceptable to Pan Am in all
respects.
Eastern also received warrants to purchase an additional 80,000 shares
of Pan Am Common Stock (the "Eastern Warrants"). The terms of the Eastern
Warrants provide for an exercise price of (i) $5.00 per share during the eight
month period commencing upon the earlier of receipt by Pan Am of the DOT
Certificate or
55
<PAGE>
consummation of the Merger and (ii) $8.10 per share during the three years
thereafter. The Eastern Warrants also contain standard anti-dilution provisions.
ING LEASES. Pan Am has entered into a definitive agreement with ING to
lease three A-300-B4 aircraft. Two of such aircraft (the "Former Eastern Air
Lines Aircraft") are subject to safe harbor leases pursuant to which Eastern Air
Lines has certain tax indemnity obligations. In order to avoid triggering such
indemnities, the Former Eastern Air Lines Aircraft must be operated in a
qualifying manner which essentially requires that the Former Eastern Air Lines
Aircraft be flown in United States domestic service. Accordingly, if Pan Am
leases the Former Eastern Air Lines Aircraft and utilizes them in its proposed
airline operations, Eastern Air Lines will avoid incurring the adverse
consequences of these tax indemnity obligations. Management believes that the
ING leases are on terms no less favorable than that available from other
available lessors.
PRINCIPAL SHAREHOLDERS OF PAN AM
The following table sets forth information as of the date of this
Joint Proxy Statement-Prospectus, with respect to the beneficial ownership of
shares of Pan Am Common Stock, in the aggregate, and upon consummation of the
Merger, the number of shares of FH Common Stock expected to be held by (i) each
person known by Pan Am to be the owner of more than 5% of the outstanding shares
of Pan Am Common Stock; (ii) each current director; and (iii) all executive
officers and directors as a group:
<TABLE>
<CAPTION>
AMOUNT, NATURE AND PERCENTAGE AMOUNT, NATURE AND
NAME AND ADDRESS OF OF BENEFICIAL OWNERSHIP OF PAN AM PERCENTAGE OF OWNERSHIP OF
BENEFICIAL OWNER (1)(2) CAPITAL STOCK BEFORE THE MERGER COMPANY COMMON STOCK AFTER THE MERGER
- ------------------------------------------ ------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Pan Am Alliance, Inc. 765,153 10% 765,153 7%
Frost Pan Investment Corp. (3) 1,126,887 14% 1,126,887 10%
Eastern Air Lines, Inc. (4)(8) 1,241,898 16% 1,241,898 11%
Charles E. Cobb, Jr. (5) 1,023,695 13% 1,027,695 9%
Phillip Frost, M.D. (6) 1,126,887 14% 1,126,887 10%
Martin R. Shugrue, Jr. (7) 113,356 2% 113,356 1%
John J. Sicilian (4)(8) 1,241,898 16% 1,241,898 11%
Richard C. Pfenniger, Jr. 12,000 * 12,000 *
All directors and executive officers as a 2,450,658 22% 2,450,658 17%
group (9)
<FN>
- -------------------------
(*) Less than 1%.
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(2) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o Pan American World Airways, Inc., 9300 N.W. 36th
Street, Miami, Florida 33178.
(3) Include options to purchase 276,281 shares of Pan Am Common Stock.
(4) The address of the beneficial owner is c/o Eastern Air Lines, 9300 N.W.
36th Street, Miami, Florida, 33178. Includes warrants to purchase
80,000 shares of Pan Am Common Stock.
(5) Mr. Cobb is the sole shareholder of Pan Am Alliance, Inc. and Pan Am
World Services, Inc. and as a result is the beneficial owner of 765,153
shares and 212,542 shares held respectively by each. Includes 50,000
shares of Pan Am Common Stock owned by the Cobb Family Foundation.
Such Foundation is set up for the benefit of various charitable
organizations. Mr. Cobb is a director of the Foundation but not a
beneficiary. Mr. Cobb disclaims beneficial ownership of the shares held
by the Foundation.
(6) Dr. Frost is the sole shareholder of Frost Pan Investment Corp. and as
a result is the beneficial owner of the 850,066 shares held by Frost
Pan Investment Corp. (including options to purchase 276,281 shares of
Pan Am Common Stock).
(7) Mr. Shugrue is the 80% beneficial owner of MRS&A Limited Partnership
which owns 141,695 shares of Pan Am Common Stock. Does not include
options to purchase 632,734 shares of Pan Am Common Stock held by Mr.
Shugrue.
56
<PAGE>
(8) Mr. Sicilian is the Chairman, President and Liquidation Agent of Eastern
Air Lines. In such capacity, Mr. Sicilian has sole dispositive power and
sole voting power with respect to such shares. However, as liquidating
agent, Mr. Sicilian is required to manage the affairs of Eastern Air
Lines in good faith so as to maximize the value of Eastern Airlines'
property through the orderly liquidation of such property in a
commercially reasonable manner. While Mr. Sicilian may do so without
supervision or approval of the bankruptcy court, he is required to act
for the benefit of the Eastern Air Line creditors. Mr. Sicilian
disclaims beneficial ownership of all the shares of Pan Am Common Stock
owned by Eastern Air Lines. See note (4).
(9) This number is comprised of the shares beneficially owned by Mr. Cobb
(5), Mr. Shugrue (7), Dr. Frost (6), Mr. Pfenniger, the 30,669 shares
owned by Richard F. Blake, the 70,935 shares owned by John J. Ogilby,
Jr., the 100,000 shares owned by James Arpey, the 7,500 shares owned
by Karen Averill, the 4,250 shares owned by William Elio and the 7,366
shares owned by Donal McSullivan.
</FN>
</TABLE>
DESCRIPTION OF PAN AM'S SECURITIES
Pan Am's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.0001 per share. As of April 30, 1996, 7,561,191 shares
of Pan Am Common Stock are outstanding. The following brief description of the
material aspects of Pan Am's capital stock. A copy of Pan Am's Articles of
Incorporation and Bylaws have been filed as Exhibits to the Registration
Statement.
PAN AM COMMON STOCK
Each share of Pan Am Common Stock entitles the holder to one vote
on all matters submitted to a vote of the shareholders. The holders of Pan Am
Common Stock are entitled to receive dividends, when, as and if declared by the
Pan Am Board, in its discretion, from funds legally available therefor. Pan Am
does not currently intend to declare or pay cash dividends on the Pan Am Common
Stock in the foreseeable future, but rather intends to retain any future
earnings to finance the expansion of its businesses. Upon liquidation or
dissolution of Pan Am, the holders of Pan Am Common Stock are entitled to share
ratably in the assets of Pan Am, if any, legally available for distribution to
shareholders after the payment of all debts and liabilities of Pan Am.
The Pan Am Common Stock has no preemptive rights and no
subscription, redemption or conversion privileges and are not subject to further
calls or assessments by Pan Am. The Pan Am Common Stock does not have cumulative
voting rights, which means that the holders of a majority of the outstanding
shares of Pan Am Common Stock voting for the election of directors can elect all
members of the Pan Am Board. A majority vote is also sufficient for other
actions that require the vote or concurrence of shareholders. All of the
outstanding shares of Pan Am Common Stock are, and the shares to be sold in this
offering will be, when issued and paid for, fully paid and nonassessable.
OPTIONS
On March 1, 1996, Pan Am issued the Shugrue Options which entitle
Martin R. Shugrue, Jr., John J. Ogilby, Jr. and Richard F. Blake, options to
purchase 632,734, 79,092 and 79,092, shares respectively, of Pan Am Common
Stock. The Shugrue Options are exercisable at a price of $1.00 per share during
the nine-year period commencing March 1, 1997. The per share exercise price and
the number of shares of Pan Am Common Stock covered by the Shugrue Options are
subject to adjustment to protect the holder thereof against dilution in certain
events. The Shugrue Options also provide for reciprocal indemnification by Pan
Am and the holder against certain liabilities under the Securities Act.
Pursuant to the Contribution Agreement, Pan Am issued the Frost Pan
Options to Frost-Pan which entitle Frost Pan to purchase 276,821 shares of Pan
Am Common Stock at an exercise price of $1.00 per share during the nine-year
period commencing on the effective date of the Merger. The per share exercise
price and the number of shares of Pan Am Common Stock covered by the Frost-Pan
Options are subject to adjustment to protect the holder thereof against dilution
in certain events. The Frost-Pan Options also provide for reciprocal
indemnification by Pan Am and the holder against certain liabilities under the
Securities Act.
On April 24, 1996, Pan Am granted options to purchase 360,000
shares of Pan Am Common Stock under the Pan Am 1996 Option Plan. See "Proposal
to Authorize the Pan American World Airways, Inc. 1996 Stock Option Plan."
WARRANTS
Pursuant to the Contribution Agreement, Pan Am issued the Eastern
Warrants which entitle Eastern to purchase 80,000 shares of Pan Am Common Stock
at an exercise price of (i) $5.00 per share during the eight-
57
<PAGE>
month period commencing upon the earlier of receipt by Pan Am of the DOT
Certificate or the consummation of the Merger and (ii) $8.10 per share during
the three years thereafter. The per share exercise price and the number of
shares of Pan Am Common Stock covered by the Eastern Warrants are subject to
adjustment to protect the holder thereof against dilution in certain events. The
Eastern Warrants provide for reciprocal indemnification by Pan Am and the holder
against certain liabilities under the Securities Act.
Pursuant to the GSA Agreements, Pan Am has agreed to issue warrants
to purchase up to an aggregate of 300,000 shares of Pan Am Common Stock to each
of the GSA Representatives. The GSA Warrants are conditioned upon the receipt by
Pan Am of a $10.0 million GSA Advance from the respective GSA Representative. In
connection with the Central/South America GSA Agreement, to the extent such GSA
Representative advance to Pan Am less than $10.0 million, the number of GSA
Warrants issuable to such GSA Representative will be reduced proportionately;
provided, however, such GSA Representative will not be entitled to GSA Warrants
if its advance is less than $5.0 million. The GSA Warrants will be exercisable
for a period of 44 months from issuance at an exercise of (i) $5.00 per share
during the first eight months and (ii) $8.10 per share during the three years
thereafter. The per share exercise price and the number of shares of Pan Am
Common Stock covered by the GSA Warrants are subject to adjustment to protect
the holder thereof against dilution in certain events. The GSA Warrants provide
for reciprocal indemnification by Pan Am and the holder against certain
liabilities under the Securities Act.
Pan Am has issued warrants to certain registered broker dealers to
purchase an aggregate of 80,000 shares of Pan Am Common Stock (the "B/D
Warrants"). The B/D Warrants are exercisable for a period of 44 months from
issuance at an exercise price of (i) $5.00 per share during the eight-month
period commencing upon the earlier of receipt by Pan Am of the DOT Certificate
or the consummation of the Merger and (ii) $8.10 per share during the three
years thereafter. The per share exercise price and the number of shares of Pan
Am Common Stock covered by the B/D Warrants are subject to adjustment to protect
the holder thereof against dilution in certain events. The B/D Warrants provide
for reciprocal indemnification by Pan Am and the holder against certain
liabilities under the Securities Act.
CERTAIN FLORIDA LEGISLATION
Pan Am is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of the corporation's disinterested shareholders, and
(ii) the Florida Fair Price Act, which generally requires supermajority approval
by disinterested shareholders or majority approval by disinterested directors of
certain specified transactions between a corporation and holders of more than
10% of the outstanding shares of the corporation (or their affiliates).
DESCRIPTION OF FH
FH was formed in October 1993 to serve as a vehicle to effect a
Business Combination with an Acquired Business which FH believes has growth
potential. In March 1994, FH successfully consummated its IPO from which it
derived Net Proceeds of approximately $10,142,000. Approximately 80% of the Net
Proceeds (inclusive of interest earned thereon, less operating expenses to date)
is presently held in escrow pending the consummation of a Business Combination
and will be released to FH upon consummation of the Merger. The balance of the
Net Proceeds is currently held by FH, less operating expenses to date. FH's
executive offices are located at 7700 West Camino Real, Suite 222, Boca Raton,
FL 33431; its telephone number is (407) 367-1042.
FH is not presently a party to any material litigation nor to the
knowledge of management of FH is any such litigation presently threatened.
58
<PAGE>
MANAGEMENT OF FH
EXECUTIVE OFFICERS AND DIRECTORS
The current executive officers and directors of FH are as follows:
NAME AGE POSITION
- ---- --- --------
Richard B. Frost (2) 47 Chief Executive Officer,
Chairman of the Board of Directors
Mark J. Hanna (2) 47 President, Director
Donald H. Baxter (1) 52 Vice President, Secretary, Director
Marshal E. Rosenberg, Ph.D.(1) 58 Vice-President, Treasurer, Director
(1) These persons shall resign their positions as officers and directors of FH
upon the Effective Time.
(2) These persons will resign their positions as officers upon the Effective
Time and will continue to be directors of FH following such time.
Richard B. Frost has been the Chief Executive Officer and Chairman
of the Board of Directors of FH since its inception. Mr. Frost was the Chief
Executive Officer and Chairman of the Board of Directors of Frost Hanna
Acquisition from April 1993 until January 1996, at which time LFS merged with
and into a wholly-owned subsidiary of Frost Hanna Acquisition (the "LFS
Merger"), Frost Hanna Acquisition changed its name to "Little Folks Shops" and
Mr. Frost resigned from the Frost Hanna Acquisition Board. From June 1992 to May
1994, Mr. Frost held similar positions at Frost Hanna Halpryn until the merger
of Sterling Healthcare, Inc. and Sterling Health Care Group, Inc. with and into
a wholly-owned subsidiary of Frost Hanna Halpryn, whereby Frost Hanna Halpryn
changed its name to Sterling Healthcare, Inc. (the "Sterling Merger"). From
February, 1992 through May, 1992, Mr. Frost was Regional Director of GKN
Securities Corp., a broker-dealer ("GKN") where his responsibilities included
the recruitment and training of GKN brokerage personnel located or to be located
in Florida. From May, 1982 through February, 1992, Mr. Frost was a Vice
President and Branch Manager of Dean Witter Reynolds, a broker-dealer, where his
responsibilities included the management and day-to-day operations of the West
Boca Raton and Lighthouse Point, Florida, branch offices of such brokerage firm.
Mark J. Hanna has been the President and a member of the Board of
Directors of FH since its inception. Mr. Hanna was the President and a member of
the Board of Directors of Frost Hanna Acquisition from April 1993 until January
1996, whereupon Mr. Hanna resigned from the Frost Hanna Acquisition Board
following the LFS Merger. Mr. Hanna held similar positions at Frost Hanna
Halpryn from June 1992 until the Sterling Merger in May 1994. From February,
1992 through May, 1992, Mr. Hanna was a registered representative with GKN. From
January, 1992 through February, 1992, Mr. Hanna was a registered representative
with Barron Chase Securities, Inc. From September 1990, through January, 1992,
Mr. Hanna was a registered representative with Prudential Bache Securities, Inc.
From August, 1982 through June, 1985, Mr. Hanna was First Vice President,
Investments, at the Fort Lauderdale office of Drexel Burnham Lambert
Incorporated. From July, 1985 through September, 1990, Mr. Hanna was Chief
Executive Officer and principal shareholder of GGH Consulting, Inc., a firm
engaged in providing financial consulting services. From September, 1985 through
December, 1988, Mr. Hanna was a director of Biocontrol, Technology, Inc. (f/k/a
Coratomic, Inc.), a public company engaged at that time in the manufacture and
sale of cardiac pacemakers and heart valves ("Biocontrol"). From September, 1986
through March, 1987, Mr. Hanna was the Chief Operating Officer of Biocontrol.
Donald H. Baxter has been Vice-President, Secretary and a member of
the Board of Directors of FH since its inception. Mr. Baxter was the
Vice-President, Secretary and a member of the Board of Directors of Frost Hanna
Acquisition from April 1993 until the LFS Merger in January 1996. During the
past five years, Mr. Baxter has been the President of Baxter Financial
Corporation, an investment advisory firm, and President and Chairman of the
Board of Directors of the Philadelphia Fund and Eagle Growth, mutual funds which
are registered under the Investment Company Act of 1940.
Marshal E. Rosenberg, Ph.D. has been a member of the Board of
Directors of FH since its inception. Dr. Rosenberg was the Vice President,
Treasurer and a member of the Board of Directors of Frost Hanna Acquisition from
April 1993 until the LFS Merger in January 1996. Dr. Rosenberg was a director of
Frost Hanna Halpryn from June 1992 until December 1994. During the past five
years, Dr. Rosenberg has been the President, Chairman and sole shareholder of
The Marshal E. Rosenberg Organization, Inc., Coral Gables, Florida, a firm
engaged in the sale of life, health and disability insurance. Dr. Rosenberg is
an investor in numerous private enterprises, engaged in, among other things,
real estate development and retail sales. He served as a member of the Board of
Directors and member of the Executive Committee of the former Intercontinental
Bank, Miami, Florida. In addition, Dr. Rosenberg is a member of the faculty at
the University of Miami School of Business.
59
<PAGE>
COMPENSATION OF DIRECTORS
Directors of FH receive no compensation for serving as directors
other than reimbursement of reasonable expenses incurred in attending meetings.
EXECUTIVE COMPENSATION
Officers of FH are appointed by the FH Board and serve at the
discretion of the FH Board.
The following summary compensation table sets forth information
concerning compensation for services in all capacities awarded to, earned by or
paid to Richard B. Frost, the Chief Executive Officer and Chairman of the Board
of Directors, and Mark J. Hanna, President of FH. No other person employed by FH
earned in excess of $100,000 during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
===========================================================================================================================
LONG-TERM COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSA AWARDS PAYOUTS
- ---------------------------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL RESTRICTED STOCK OPTIONS/SAR LTIP ALL OTHER
PRINCIPAL POSITION ($) ($) COMPENSATION AWARD(S) S(#) PAYOUTS COMPENSATION
($) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Richard Frost, 1995 96,000 0 12,000(1) 0 0 0 0
CEO 1994 96,000 0 12,000(1) 0 0 0 0
1993(2) 27,000
- ---------------------------------------------------------------------------------------------------------------------------
Mark J. Hanna, 1995 96,000 0 12,000(1) 0 0 0 0
President 1994 96,000 0 12,000(1) 0 0 0 0
1993(2) 27,000
===========================================================================================================================
<FN>
(1) Represents $1,000 per month paid to each of Messrs. Frost and Hanna as a
non-accountable expense allowance.
(2) FH was incorporated in October 1993.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
In October 1993, FH entered into employment agreements with Messrs.
Frost and Hanna pursuant to which each receive $8,000 monthly for salary and
$1,000 monthly for non-accountable expense allowance. Further, all officers and
directors of FH receive accountable reimbursement of any reasonable business
expenses incurred in connection with activities on behalf of FH. The "Escrow
Fund," which is comprised of 80% of the net proceeds (including any interest
earned thereon) from the IPO, may not be used to pay salaries or benefits to Mr.
Frost or Mr. Hanna or reimburse FH's officers and directors for expenses
incurred by such persons on behalf of FH. No funds will be disbursed from the
Escrow Fund for reimbursement of expenses. Other than the foregoing, there is no
limit on the amount of such reimbursable expenses, and there will be no review
of the reasonableness of such expenses by anyone other than the FH Board, all of
the members of which are officers. In the event FH requires in excess of 20% of
the Net Proceeds for operations, Messrs. Frost and Hanna have undertaken to
waive their salaries until the consummation of a Business Combination. Other
than pursuant to the above employment agreements, none of such persons will
receive any other payments or assets, tangible or intangible, unless received by
all other shareholders on a proportionate basis.
CERTAIN TRANSACTIONS WITH MANAGEMENT
FH maintains $1,000,000 "key man" policies insuring each of the
lives of Messrs. Frost, Hanna, Baxter and Rosenberg. Such policies were
purchased by FH from The Marshal E. Rosenberg Organization, Inc. (the "Rosenberg
Organization"), a firm in which Dr. Rosenberg is an officer, director and sole
shareholder. In connection with the purchase by FH of such policies, the
Rosenberg Organization received a commission of approximately $2,600. No further
commissions are contemplated to be earned in connection with the purchase of
such key man life insurance policies. Upon the closing of the Merger, the "key
man" policies are presently intended to be terminated.
FH currently maintains its executive offices in approximately 582
square feet of office space located at 7700 West Camino Real, Suite 222, Boca
Raton, Florida 33431 (the "Lease"). FH leases this space from
60
<PAGE>
an unaffiliated third party for a monthly rental of approximately $591.00. Upon
consummation of the Merger, FH intends to assign the Lease to Frost Hanna
Investments Group, Inc., a Florida corporation ("FH Investments"), and FH
Investments has agreed to assume, FH's obligations under the Lease.
PRINCIPAL SHAREHOLDERS OF FH
The following table sets forth information as of the date of this
Joint Proxy Statement-Prospectus, and as of such date, giving effect to the
Merger, based on information obtained from the persons named below, with respect
to the beneficial ownership of shares of FH Common Stock by (i) each person
known by FH to be the owner of more than 5% of its outstanding shares of Common
Stock, (ii) each director and (iii) all executive officers and directors as a
group:
<TABLE>
<CAPTION>
AMOUNT, NATURE AND AMOUNT, NATURE AND
PERCENTAGE OF PERCENTAGE OF
NAME OF BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BENEFICIAL OWNER (1) PRIOR TO THE MERGER (2) SUBSEQUENT TO THE MERGER (2)
- -------------------- ----------------------- ----------------------------
<S> <C> <C> <C> <C>
Richard B. Frost (3) 300,000 9.0% 300,000 3%
7700 West Camino Real
Suite 222
Boca Raton, Florida 33431
Mark J. Hanna 300,000 9.0% 300,000 3%
7700 West Camino Real
Suite 222
Boca Raton, Florida 33431
Donald H. Baxter 300,000 9.0% 300,000 3%
7700 West Camino Real
Suite 222
Boca Raton, Florida 33431
Marshal E. Rosenberg, Ph.D. (4) 300,000 9.0% 300,000 3%
7700 West Camino Real
Suite 222
Boca Raton, Florida 33431
All Directors and Officers 1,200,000 35.9% 1,200,000 11%
as a group (4 persons)
<FN>
(1) Unless otherwise noted, all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them. No persons named in the table are acting as nominees for any
persons or are otherwise under the control of any person or group of
persons.
(2) Assumes no exercise of any outstanding options and warrants. For information
concerning the nature of the outstanding options and warrants, and the
ownership of such securities, see "Description of Pan Am's Securities" and
"Description of FH's Securities."
(3) Does not include 10,000 shares of Common Stock, owned by each of Denise
Goldman and Manuel Frost, respectively, Richard Frost's adult daughter and
father, of which Mr. Frost disclaims beneficial ownerships.
(4) Does not include 15,000 shares of Common Stock owned by Donald Rosenberg,
Dr. Rosenberg's brother, of which Dr. Rosenberg disclaims beneficial
ownership.
</FN>
</TABLE>
The shares of FH Common Stock owned by all of the executive officers
and Directors of FH have been placed in escrow with American Stock Transfer &
Trust Company, as escrow agent, until the occurrence of a Business Combination.
During such escrow period, such executive officers and Directors are not able to
sell,
61
<PAGE>
or otherwise transfer, their respective shares of Common Stock, but will retain
all other rights as shareholders of FH, including, without limitation, the right
to vote such shares of FH Common Stock.
Messrs. Frost, Hanna, Baxter and Rosenberg may be deemed to be
"promoters" and "parents" of FH, as such terms are defined under Federal
securities laws.
DESCRIPTION OF FH'S SECURITIES
GENERAL
FH is authorized to issue 100,000,000 shares of Common Stock, par
value $.0001 per share. As of the date hereof, 3,344,000 shares of FH Common
Stock are outstanding, held of record by [73] persons, inclusive of those
brokerage firms and/or clearing houses holding shares of FH Common Stock for
their clientele (with each such brokerage house and/or clearing house being
considered as one holder). If approved by the FH Shareholders, FH will be
authorized to issue 100,000,000 shares of Preferred Stock, par value $.0001 per
share.
COMMON STOCK
The holders of FH Common stock are entitled to one vote for each
share held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of Directors, with the result
that the holders of more than 50% of the shares voted for the election of
Directors can elect all of the Directors. The holders of FH Common Stock are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of FH, the holders of FH Common stock are entitled to
share ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the FH Common Stock. Holders of shares of
FH Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the FH Common
Stock. All of the outstanding shares of FH Common Stock are, and the shares of
FH Common Stock issuable in the Merger, when delivered in accordance with the
terms of the Merger Agreement, will be, fully paid and nonassessable.
PREFERRED STOCK
FH's proposed Restated Articles authorizes the issuance of
100,000,000 shares of Preferred Stock with such designation, rights and
preferences as may be determined from time to time by the FH Board. Accordingly,
the FH Board is empowered, without shareholder approval, to issue Preferred
Stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of FH Common
Stock. The Preferred Stock could be utilized, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of FH
subsequent to the Effective Time of the Merger. Although FH does not currently
intend to issue any shares of Preferred Stock, there can be no assurance that FH
will not do so subsequent to the consummation of the Merger.
TRANSFER AGENT
The transfer agent for the FH Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
WARRANTS
In connection with FH's IPO, FH sold to Barron Chase Securities,
Inc., for nominal consideration, warrants to purchase up to 170,000 shares of
Common Stock, par value $.0001 per share of FH (the "Underwriter Warrants"). The
Underwriter Warrants are exercisable at $8.10 per share (the "Exercise Price")
for a period of four years commencing on March 21, 1995. The Underwriter
Warrants contain anti-dilution provisions providing for adjustment of the
Exercise Price upon the occurrence of certain events including the issuance of
shares of FH Common Stock or other securities convertible into or exercisable
for shares of FH Common Stock at a price per share less than the Exercise Price,
or in the event of any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction.
FH also agreed at the time of the issuance of the Underwriter
Warrants to use its best efforts to maintain an effective registration statement
with respect to the Underwriter Warrants and the underlying FH Common
62
<PAGE>
Stock. In addition, the Underwriter Warrants granted to the holders thereof
certain "piggyback" and "demand" rights for a period of six years and four
years, respectively, from March 21, 1995 with respect to the registration under
the Securities Act of the securities issuable upon exercise of the Underwriter
Warrants.
COMPARISON OF RIGHTS OF FH SHAREHOLDERS
AND PAN AM SHAREHOLDERS
At the Effective Time, Pan Am Shareholders, other than a Dissenting
Shareholder, automatically will become shareholders of FH, and their rights as
shareholders will be determined by FH's Articles of Incorporation and Bylaws. As
both FH and Pan Am are incorporated under the laws of the State of Florida, each
of FH and Pan Am are governed by the provisions of the FBCA. The following sets
forth the material differences between the rights of a Pan Am Shareholder under
Pan Am's Articles of Incorporation and Bylaws and the rights of an FH
Shareholder under FH's Articles of Incorporation and Bylaws.
ANTI-TAKEOVER LAW GOVERNANCE
Corporations incorporated under the laws of the State of Florida
such as FH and Pan Am are subject to several anti-takeover provisions under
Florida law that apply to public corporations organized under Florida law,
unless that corporation has elected to opt out of those provisions in its
articles of incorporation or bylaws. While FH has acted to opt out of such
provisions, Pan Am has not elected to opt out of such provisions. Therefore, the
following summary of the Florida anti-takeover provisions only apply to Pan Am
Shareholders. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition or unless the acquisition is approved by the corporation's
board of directors. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the election
of directors within each of the following ranges of voting power: (i) one-fifth
or more but less than one-third of such voting power; (ii) one-third or more but
less than a majority of such voting power; and (iii) more than a majority of
such voting power.
The FBCA also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years or (iii) the consideration to
be paid to the corporation's shareholders satisfies certain fair price and form
requirements or (iv) the transaction is approved by the holders of two-thirds of
the corporation's voting shares other than those owned by the interested
shareholder. An interested shareholder is defined as a person who together with
affiliates and associates beneficially owns more than 10% of the corporation's
outstanding voting shares.
Although FH has elected to opt out of the above anti-takeover
provisions of the FBCA, its Articles of Incorporation provide protection against
certain "affiliated transactions." The Articles of Incorporation of FH provide
that no contract or other transaction between FH and one or more of its
directors, or between FH and any other corporation, firm, association or other
entity in which one or more of the FH directors are director or officers, or are
financially interested, shall be either void or voidable because of such
relationship or interest or because such director or directors are present at
the meeting of the FH Board or a committee thereof which authorizes, approves or
ratifies such contract or transaction or because his or her votes are counted
for such purpose, if: (a) the fact of such relationship or interest is disclosed
or known to the FH Board, or a duly empowered committee thereof, which
authorizes, approves or ratifies the contract or transaction by a vote or
consent sufficient for such purpose without counting the vote or votes of such
interested director or directors; or (b) the fact of such relationship or
interest is disclosed or known to the shareholders entitled to vote and they
authorize, approve or ratify such contract or transaction by vote or written
consent; or (c) the contract or transaction is fair and reasonable as to FH at
the time it is authorized by the FH Board, committee or FH Shareholders. A
director of FH may transact business, borrow, lend, or otherwise deal or
contract with FH to the full extent and subject only to the limitations and
provisions of the laws of the State of Florida and the laws of the United
States. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the FH Board or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
63
<PAGE>
SPECIAL MEETINGS
The Bylaws of FH provide that special meetings of FH Shareholders
may be called by the FH Board, or the holders of not less than 10% of all of the
shares entitled to vote at such meeting.
The Articles of Incorporation and Bylaws of Pan Am specify that a
special meeting of Pan Am may be called by the Pan Am Board, the president of
Pan Am, or if the holders of not less than 50% of all votes entitled to be cast
on any issue proposed to be considered at a proposed special meeting sign, date
and deliver to the Secretary one or more written demands for the meeting
describing the purpose or purposes for which it is to be held.
INDEMNIFICATION
Each of FH's and Pan Am's Articles of Incorporation provide that the
respective corporation shall indemnify and advance expenses on behalf of its
respective officers and directors to the fullest extent permitted by law in
existence either now or hereafter.
INSPECTION OF RECORDS OF SHAREHOLDERS
The Bylaws of FH provide that any person who shall have been a
holder of record of one quarter of one percent of shares or of voting trust
certificates therefor at least six months immediately preceding his demand or
shall be the holder of record of, or the holder of record of voting trust
certificates for, at least five percent of the outstanding shares of any class
or series of FH upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable times,
for any proper purpose, its relevant books and records of accounts, minutes and
record of shareholders. Persons so entitled to inspect books and records of
accounts, minutes and records of shareholders of FH, may make extracts therefrom
at their own expense. This right of inspection shall not extend to any person
who has within two years sold or offered for sale any list of shareholders of FH
or any other corporation, has aided or abetted any person in procuring any list
of shareholders or holders of voting trust certificates for any such purpose,
has improperly used any information secured through any prior examination of the
books and records of account, minutes or record of shareholders or of holders of
voting trust certificates for shares of FH or any other corporation, or was not
acting in good faith or for a proper purpose in making his demand.
The Bylaws of Pan Am provide that any shareholder or his or her
agent or attorney is entitled on written demand to inspect the list of
shareholders who are entitled to notice of any shareholder meeting. Neither Pan
Am's Articles of Incorporation nor Bylaws provide Pan Am Shareholders the right
to inspect Pan Am's books and records of accounts, minutes and records.
EXPERTS
The financial statements of Frost Hanna Mergers Group, Inc. as of
December 31, 1995 and 1994 and for the years then ended and the period from
inception (October 4, 1993) to December 31, 1995 included in this Joint Proxy
Statement-Prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.
The combined financial statements of Pan American World Airways,
Inc., and Affiliate as of December 31, 1995 and for each of the two years in the
period ended December 31, 1995 and for the period from Inception to December 31,
1995 and the consolidated balance sheet of Pan American World Airways, Inc. and
Subsidiaries as of March 8, 1996 included in this Joint Proxy
Statement-Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
Registration Statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of FH Common Stock being registered under
the Registration Statement of which this Joint Proxy Statement-Prospectus is a
part will be passed upon for FH by Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. Certain legal matters concerning the Merger will be passed upon
on behalf of Pan Am on by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A.
64
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY):
Report of Independent Certified Public Accountants........................................F-2
Balance Sheets at December 31, 1995 and 1994..............................................F-3
Statements of Operations for the years ended
December 31, 1995 and 1994 and for the period
from inception (October 4, 1993) to December 31, 1995...................................F-4
Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1994 and for the period from
inception (October 4, 1993) to December 31, 1995........................................F-5
Statements of Cash Flows for the years ended
December 31, 1995 and 1994 and for the period
from inception (October 4, 1993) to December 31, 1995...................................F-6
Notes to Financial Statements.............................................................F-8
Condensed Balance Sheet at March 31, 1996 (unaudited).....................................F-14
Condensed Statements of Operations for the three month periods ended March 31,
1996 and 1995 and for the period from inception (October 4, 1993)
to March 31, 1996 (unaudited)...........................................................F-15
Condensed Statements of Cash Flows for the three month periods ended March 31,
1996 and 1995 and for the period from inception (October 4, 1993)
to March 31, 1996 (unaudited)...........................................................F-16
Notes to Condensed Financial Statements (unaudited).......................................F-18
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY):
Independent Auditors' Report..............................................................F-21
Combined Balance Sheet at December 31, 1995...............................................F-22
Combined Statements of Development Stage Operations for the years ended December
31, 1994 and 1995 and for the cumulative period from inception to
December 31, 1995.......................................................................F-23
Combined Statements of Stockholders' Equity for the years ended December 31,
1994 and 1995 and for the cumulative period from inception to
December 31, 1995.......................................................................F-24
F-1
<PAGE>
Combined Statements of Cash Flows for the years ended
December 31, 1994 and 1995 and for the cumulative
period from inception to December 31, 1995................................................F-25
Notes to combined financial statements......................................................F-26
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY):
Independent Auditors' Report................................................................F-30
Consolidated Balance Sheet at March 8, 1996.................................................F-31
Notes to consolidate balance sheet..........................................................F-32
Consolidated Balance Sheet - Unaudited at March 31, 1996....................................F-38
Consolidated Statements of Development Stage Operations -Unaudited for the three
months ended March 31, 1995 and 1996
and for the cumulative period from inception to March 31, 1996............................F-39
Consolidated Statements of Cash Flows - Unaudited for the three months ended
March 31, 1995 and 1996 and for the cumulative
period from inception to March 31, 1996...................................................F-40
Notes to consolidated financial statements - unaudited......................................F-41
</TABLE>
F-1A
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Frost Hanna Mergers Group, Inc.:
We have audited the accompanying balance sheets of Frost Hanna Mergers Group,
Inc. (a Florida corporation in the development stage) as of December 31, 1995
and 1994, and the related statements of operations, stockholders' equity and
cash flows for the years then ended and the period from inception (October 4,
1993) to December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frost Hanna Mergers Group, Inc.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended and for the period from inception (October 4,
1993) to December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
January 29, 1996 (except with respect to the matter discussed in Note 8, as
to which the date is April 30, 1996).
F-2
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including interest-bearing amounts
of $1,505,362 and $1,735,381 in 1995 and 1994, respectively $ 1,509,428 $ 1,758,800
Prepaid expenses 2,178 10,323
Restricted short-term investments 8,789,268 8,360,580
------------- -------------
Total current assets 10,300,874 10,129,703
PROPERTY AND EQUIPMENT, net 5,280 4,016
-------------- -------------
Total assets $ 10,306,154 $ 10,133,719
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 22,200 $ 23,775
Accrued officer payroll - 6,107
Income taxes payable 64,009 -
-------------- -------------
Total current liabilities 86,209 29,882
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 6)
REDEEMABLE COMMON STOCK 3,064,962 3,030,141
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 3,344,000 shares issued and outstanding 335 335
Additional paid-in capital 7,114,800 7,149,621
Retained earnings (deficit) accumulated during
the development stage 39,848 (76,260)
-------------- -------------
Total stockholders' equity 7,154,983 7,073,696
-------------- -------------
Total liabilities and stockholders' equity $ 10,306,154 $ 10,133,719
============== =============
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
from Inception
For the Year Ended For the Year Ended (October 4, 1993) to
December 31, 1995 December 31, 1994 December 31, 1995
------------------ ------------------- --------------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
EXPENSES:
Salaries to officers 216,000 216,000 483,677
General and administrative 161,906 128,499 291,489
------------ ------------- ---------
Loss from operations (377,906) (344,499) (775,166)
INTEREST INCOME 558,731 320,940 879,731
------------ ------------- ---------
Income (loss) before provision
for income taxes 180,825 (23,559) 104,565
PROVISION FOR INCOME TAXES 64,717 - 64,717
------------ -------------- ---------
Net income (loss) $ 116,108 $ (23,559) $ 39,848
============ ============= =========
NET INCOME (LOSS) PER COMMON SHARE $ .03 $ (.01) $ .01
============ ============== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,344,000 2,870,061 2,919,104
============ ============= =========
</TABLE>
The accompanying notes to financial
statements are an integral part of these statements.
F-4
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (OCTOBER 4, 1993) TO
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Retained
Earnings
(Deficit)
Accumulated
Common Stock Additional During the
---------------------- Paid-in Development
Shares Par Value Capital Stage Total
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to founders 1,389,000 $ 139 $ 37,781 $ - $ 37,920
Net loss for the period from inception
(October 4, 1993) to December 31, 1993 - - - (52,701) (52,701)
---------- ------- ----------- --------- ------------
BALANCE, December 31, 1993 1,389,000 139 37,781 (52,701) (14,781)
Initial public offering of common stock 1,955,000 196 7,100,342 - 7,100,538
Change in value of redeemable common stock - - 11,498 - 11,498
Net loss for the year ended December 31, 1994 - - - (23,559) (23,559)
---------- ------- ----------- --------- ------------
BALANCE, December 31, 1994 3,344,000 335 7,149,621 (76,260) 7,073,696
Change in value of redeemable common stock - - (34,821) - (34,821)
Net income for the year ended December 31, 1995 - - - 116,108 116,108
---------- ------- ----------- --------- ------------
BALANCE, December 31, 1995 3,344,000 $ 335 $ 7,114,800 $ 39,848 $ 7,154,983
========== ======= =========== ========= ============
</TABLE>
The accompanying notes to financial
statements are an integral part of these statements.
F-5
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period
from Inception
For the Year Ended For the Year Ended (October 4, 1993) to
December 31, 1995 December 31, 1994 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 116,108 $ (23,559) $ 39,848
Adjustments to reconcile net income (loss) to net
cash used in operating activities-
Depreciation 1,150 100 1,291
Interest on restricted short-term investments (426,888) (247,461) (674,349)
Changes in assets and liabilities-
Prepaid expenses 8,145 (3,278) (2,178)
Accrued expenses (1,575) 23,775 22,200
Accrued officer payroll (6,107) (45,570) -
Income taxes payable 64,009 - 64,009
------------ ------------- ------------
Net cash used in operating activities (245,158) (295,993) (549,179)
------------ ------------- ------------
</TABLE>
(Continued)
F-6
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Period
from Inception
For the Year Ended For the Year Ended (October 4, 1993) to
December 31, 1995 December 31, 1994 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of restricted
short-term investments $ 32,452,233 $ 16,225,537 $ 48,677,770
Purchases of restricted short-term investments (32,454,033) (24,338,656) (56,792,689)
Purchases of property and equipment (2,414) (3,022) (6,571)
-------------- -------------- --------------
Net cash used in investing activities (4,214) (8,116,141) (8,121,490)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred registration costs - 5,946 -
Proceeds from issuance of common stock - 10,142,177 10,180,097
-------------- -------------- --------------
Net cash provided from financing activities - 10,148,123 10,180,097
-------------- -------------- --------------
Net (decrease) increase in cash
and cash equivalents (249,372) 1,735,989 1,509,428
CASH AND CASH EQUIVALENTS, beginning of period 1,758,800 22,811 -
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 1,509,428 $ 1,758,800 $ 1,509,428
============== ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY:
Accrual of deferred registration costs $ - $ 150,000 $ -
============== ============== =============
Change in value of redeemable common stock $ 34,821 $ 11,498 $ 23,323
============== ============== ==============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITY:
Income taxes paid $ 708 - $ 708
============== ============== ===============
</TABLE>
The accompanying notes to financial
statements are an integral part of these statements.
F-7
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL:
Frost Hanna Mergers Group, Inc. (the "Company") was formed in October 1993 to
seek to effect a merger, exchange of capital stock, asset acquisition or similar
business combination (a "Business Combination") with an acquired business. The
Company is currently in the development stage. In connection with its initial
capitalization, the Company issued 1,389,000 shares of its Common Stock to its
officers, directors and other shareholders for an aggregate sum of $37,920. In
March 1994, the Company completed a public offering of 1,955,000 shares of its
common stock (see Note 4). All activity of the Company to date relates to its
formation, fund raising and search for an acquisition target.
The offering was a "blind pool/blank check" offering. Blind pool/blank check
offerings are inherently characterized by an absence of substantive disclosures
related to the use of the net proceeds of the offering. Consequently, although
substantially all of the net proceeds of the offering are intended to be
utilized to effect a Business Combination, the net proceeds are not being
designated for any more specific purpose.
Eighty percent of the net proceeds from the public offering of common stock were
placed in an escrow account (the "Escrow Fund"), subject to release upon the
earlier of (i) written notification by the Company of its need for all or
substantially all of such proceeds for the purpose of implementing, or
facilitating the implementation of, a Business Combination; or (ii) exercise by
certain stockholders of the Redemption Offer, as defined and discussed below.
The Company, prior to the consummation of any Business Combination, will submit
such transaction to the Company's stockholders for their approval, even if the
nature of the acquisition is such as would not ordinarily require stockholder
approval under applicable state law. At the time the Company seeks stockholder
approval of any potential Business Combination, the Company will offer each of
the nonaffiliated stockholders of the Company (the "Public Stockholders") the
right, for a specified period of time of not less than 20 days, to redeem all,
but not a portion of, their shares of common stock at a per share price equal to
the Company's liquidation value on the record date for determination of
stockholders entitled to vote upon the proposal to approve such Business
Combination (the "Record Date") divided by the number of shares held by all of
the Public stockholders. The Company's liquidation value will be equal to the
Company's book value, as determined by the Company, calculated as of the Record
Date. In no event, however, will the Company's liquidation value be less than
the Escrow Fund, inclusive of any net interest income thereon. If less than 30%
of the shares of the Company's common stock held by Public Stockholders elect to
have their shares redeemed, the Company may, but will not be required to,
proceed with such Business Combination. If the Company elects to so proceed, it
will redeem shares, based upon the Company's liquidation value, from those
Public Stockholders who affirmatively requested such redemption and who voted
against the Business Combination. If 30% or more of the shares of the Company's
common stock held by Public Stockholders vote against approval of any potential
Business Combination, the Company will not proceed with such Business
Combination. If the Company determines not to pursue a Business Combination,
even if less than 30% of the shares held by Public Stockholders vote against
approval of the potential Business Combination, no shares will be redeemed. If
F-8
<PAGE>
a shareholder votes against a potential Business Combination and the Company
determines not to pursue such Business Combination, such vote will not
constitute the exercise of the Redemption Offer so as to permit release of the
Escrow Fund. The Escrow Fund will be released to stockholders voting against a
Business Combination only in connection with the consummation of a Business
Combination. Unless otherwise specified by such shareholder, a vote against the
proposed Business Combination will constitute a request by such shareholder for
redemption of his shares. All of the officers and directors of the Company, who
own in the aggregate approximately 36% of the common stock outstanding as of the
date hereof, have agreed to vote their respective shares of common stock in
accordance with the vote of the majority of all nonaffiliated stockholders of
the Company with respect to any such Business Combination (see Note 8).
As a result of its limited resources, the Company will, in all likelihood, have
the ability to effect only a single Business Combination. Accordingly, the
prospects for the Company's success will be entirely dependent upon the future
performance of a single business.
The Company is in the development stage, has had no revenues to date and is
entirely dependent upon the proceeds of the public offering to commence
operations relating to selection of a prospective acquired business. The Company
will not receive any revenues, other than interest income, until, at the
earliest, the consummation of a Business Combination. In the event that the
proceeds of the public offering prove to be insufficient for purposes of
effecting a Business Combination, the Company will be required to seek
additional financing. In the event no Business Combination is identified,
negotiations are incomplete or no Business Combination has been consummated, and
all of the Proceeds other than the Escrow Fund have been expended, the Company
currently has no plans or arrangements with respect to the possible acquisition
of additional financing which may be required to continue the operations of the
Company.
Furthermore, there is no assurance that the Company will be able to successfully
effect a Business Combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING ESTIMATES-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATION OF PRIOR YEAR AMOUNTS-
Certain prior year amounts have been reclassified to conform to the current year
presentation.
CASH AND CASH EQUIVALENTS-
The Company considers all investments with an original maturity of three months
or less as of the date of purchase to be cash equivalents. As of December 31,
1995 and 1994, the balance in the Escrow Fund was $8,789,268 and $8,360,580,
respectively, at amortized cost, which approximated fair value. The Escrow Fund
is currently invested in United States government-backed short-term securities.
The Company intends to hold the securities in the Escrow Fund to maturity.
F-9
<PAGE>
PROPERTY AND EQUIPMENT-
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets ranging from 3 to 5 years.
INCOME TAXES-
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires, among other things, recognition
of future tax benefits measured at enacted rates attributable to deductible
temporary differences between financial statement and income tax bases of assets
and liabilities and to tax net operating loss carryforwards to the extent that
realization of said benefits is more likely than not. Due to the uncertainty of
the Company's ability to generate income in the future, the related deferred tax
asset has been fully reserved.
The provision for Federal and state income taxes for the years ended December
31, 1995 and 1994 in the accompanying statements of operations is comprised of
the following:
1995 1994
----------- ------
Current provision $ 64,717 $ -
Deferred provision - -
----------- ------
$ 64,717 $ -
=========== ======
The components of the deferred federal tax asset (liability) as of December 31,
1995 and 1994 were as follows:
1995 1994
----------- -----------
Depreciation $ (1,000) $ -
Deferred preopening costs 19,000 25,000
----------- -----------
18,000 25,000
Valuation allowance (18,000) (25,000)
----------- -----------
$ - $ -
=========== ===========
(3) INVOLVEMENT OF CERTAIN PRINCIPALS IN
OTHER "BLANK CHECK" COMPANIES:
Richard B. Frost, Mark J. Hanna, Marshal E. Rosenberg, Ph.D. and Donald H.
Baxter, Chief Executive Officer, Chairman of the Board of Directors; President,
Director; Vice President, Treasurer, Director; and Vice President, Secretary,
Director of the Company, respectively, held the same positions and are
shareholders in Frost Hanna Acquisition Group, Inc. ("Frost Hanna Acquisition"),
a "blank check" company whose registration statement covering among other
securities, an initial public offering of 1,265,000 shares of common stock, was
declared effective by the U.S. Securities and Exchange Commission in September
1993. Frost Hanna Acquisition's current business objective was the same as the
Company's business objective: to effect a Business Combination with an acquired
business which has growth potential.
F-10
<PAGE>
To minimize any potential conflicts of interest which may arise as a result of
Messrs. Frost, Hanna, Rosenberg and Baxter's affiliation with Frost Hanna
Acquisition and the Company, the Company agreed not to analyze any possible
Business Combinations until Frost Hanna Acquisition becomes a party to a letter
of intent to consummate a business combination. On May 3, 1995, Frost Hanna
Acquisition entered into a letter of intent (the "LFS Letter of Intent") with
LFS Acquisition Corp., a California corporation ("LFS"). LFS was formed for the
purpose of acquiring the Kids Mart Division of Kinney Shoe Corporation, a
specialty retailer of full price and off price infants' and children's apparel.
On May 31, 1995, Frost Hanna Acquisition entered into a definitive agreement
(the "LFS Agreement") with LFS regarding a business combination of Frost Hanna
Acquisition and LFS. The transaction was approved by the shareholders of Frost
Hanna Acquisition in January 1996.
As a result of Frost Hanna Acquisition entering into the LFS Agreement, the
Company has recommenced analysis and consideration of possible Business
Combinations (see Note 8). In the event the business combination contemplated by
the LFS Agreement is not consummated, unless the Company is then a party to a
letter of intent to consummate a Business Combination, any analysis or
consideration of Business Combination opportunities by the Company shall cease
until Frost Hanna Acquisition becomes a party to a subsequent letter of intent.
(4) PUBLIC OFFERING OF SECURITIES:
On March 21, 1994, the Company's Registration Statement on Form SB-2 (the
"Registration Statement") was declared effective by the U.S. Securities and
Exchange Commission. Pursuant to the Registration Statement, the Company, in its
initial public offering of securities, offered and sold 1,955,000 shares of
Common Stock, par value $.0001 per share, at a purchase price of $6.00 per share
and received net proceeds of $10,142,177, after the payment of all expenses. In
addition, the Company issued its underwriter options to purchase 170,000 shares
of common stock at $8.10 per share exercisable commencing March 21, 1995 for a
period of four years.
(5) RELATED-PARTY TRANSACTIONS:
The Company leases approximately 500 square feet of office space from Frost
Hanna Acquisition in Boca Raton, Florida at a cost of $630 per month. The
Company considers its existing office space adequate for its current operations.
The Company has obtained $1,000,000 "key man" policies insuring each of the
lives of Messrs. Frost, Hanna, Rosenberg and Baxter. In connection with the
purchase of such policies, The Marshal E. Rosenberg Organization, Inc., a firm
affiliated with Dr. Rosenberg, received a commission of approximately $500 and
$2,600 in 1995 and 1994, respectively.
(6) COMMITMENTS AND CONTINGENCIES:
The Company has entered into employment agreements with two
directors/stockholders requiring monthly salaries of $8,000 each plus $1,000
monthly for health insurance benefits, among other things, for three years. All
amounts due to the directors/stockholders for the period from inception (October
4, 1993) to the date of closing of the public offering were deferred and paid
upon the closing. In the event the Company requires in excess of 20% of the net
proceeds of the public offering for operations, the two director/stockholders
have undertaken to waive their salaries until the consummation by the Company of
a Business Combination.
F-11
<PAGE>
(7) REDEEMABLE COMMON STOCK:
The Company may be required to redeem up to 29.99% of the Common Stock held by
the Public Stockholders. Such shares have been classified in the accompanying
balance sheets as "Redeemable Common Stock." Periodic changes in the redemption
price are reflected as increases/decreases to additional paid-in capital.
(8) TRANSACTION BETWEEN THE COMPANY AND
PAN AMERICAN WORLD AIRWAYS, INC.:
On January 29, 1996, the Company entered into a letter of intent with Pan
American World Airways, Inc., a Florida corporation ("Pan Am"), outlining the
basic terms of a proposed transaction between the Company and Pan Am. On March
13, 1996, the Company, Pan Am and PA Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of the Company ("FH Sub"), entered into
a definitive agreement (the "Acquisition Agreement"), providing for, among other
things, the merger of FH Sub with and into Pan Am as outlined in the letter of
intent. Pan Am is a newly organized corporation established to operate a new low
fare, full service airline under the "Pan Am" name, which will serve selected
long-haul routes between major United States cities. Upon consummation of the
merger, each outstanding share of Pan Am common stock will be converted into the
right to receive one share of the Company's common stock. Approximately
7,561,191 shares of Pan Am common stock along with warrants and options to
acquire an additional 1,587,739 shares of Pan Am common stock were outstanding
as of April 30, 1996. Accordingly, assuming the exercise or conversion of all
outstanding Pan Am options and warrants and the exercise of the warrants held by
the underwriter of the Company's initial public offering (170,000 shares), the
shareholders of Pan Am would, upon consummation of the merger own approximately
seventy-two percent (72%) of the shares of the Company's common stock.
The consummation of the merger is subject to the satisfaction of a number of
conditions, including: (i) the merger shall have been approved and adopted by
the shareholders of the Company and Pan Am, and no more than 30% of the shares
of the Company Common Stock held by Public Stockholders shall have voted against
the merger; (ii) Pan Am shall be in material compliance with all material
business plans, budgets or projections submitted in connection with any
applications made to the United States Federal Aviation Administration (the
"FAA") and the United States Department of Transportation (the "DOT"); and (iii)
all licenses required to be procured from, among other persons and entities, the
FAA and the DOT, in order for Pan Am to commence operations as an air carrier in
a manner substantially in accordance with the applications made to the FAA and
the DOT, shall have been procured without imposition of unduly burdensome
conditions or restrictions.
In the event the merger is not consummated because of the failure of the
shareholders of Pan Am to approve the merger and if any of the existing
shareholders or their affiliates do not vote in favor of the merger, then Pan Am
is obligated to pay to the Company a termination fee of $1 million plus all
costs and expenses incurred by the Company in connection with the proposed
merger.
The unaudited consolidated balance sheet of Pan Am as of March 31, 1996,
reflects total assets of approximately $8,887,000 and total equity of
approximately $5,855,000.
F-12
<PAGE>
The foregoing description of the Acquisition Agreement is qualified in its
entirety to the full text of the Agreement, a copy of which is included in
Exhibit 2 to this Annual Report on Form 10-K. The merger is expected to be
consummated during the third quarter of 1996. There can be no assurance,
however, that the merger will be consummated, or, if consummated, that it will
be on the same terms described above and in the Acquisition Agreement.
F-13
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED BALANCE SHEET
(Unaudited)
March 31,
ASSETS 1996
-----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,283,481
Prepaid expenses 2,178
Restricted short-term investments 8,889,298
Income taxes receivable 30,980
-----------
Total current assets 10,205,937
PROPERTY AND EQUIPMENT, net 4,980
-----------
Total assets $10,210,917
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 67,575
------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 3 and 4)
REDEEMABLE COMMON STOCK (Note 3) 3,041,988
------------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000
shares authorized, 3,344,000 shares issued
and outstanding 335
Additional paid-in capital 7,137,774
Deficit accumulated during
the development stage (36,755)
-----------
Total stockholders' equity 7,101,354
-----------
Total liabilities and stockholders' equity $ 10,210,917
============
The accompanying notes to financial statements are an
integral part of this balance sheet.
F-14
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Period
March 31, From Inception
------------------------------------ (October 4, 1993) to
1996 1995 March 31, 1996
------------- ------------- --------------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
EXPENSES:
Salaries to officers 54,000 54,000 537,677
General and administrative 195,466 40,309 486,955
------------- ------------- -------------
Loss from operations (249,466) (94,309) (1,024,632)
INTEREST INCOME 127,874 136,500 1,007,605
------------- ------------- -------------
Income (loss) before provision (benefit)
for income taxes (121,592) 42,191 (17,027)
PROVISION (BENEFIT) FOR INCOME TAXES (44,989) - 19,728
------------- ------------- -------------
Net income (loss) $ (76,603) $ 42,191 $ (36,755)
============= ============= =============
NET INCOME (LOSS) PER COMMON SHARE $ (.02) $ .01 $ (.01)
============= ============= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,344,000 3,344,000 2,961,593
============= ============= =============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
F-15
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Period
March 31, From Inception
------------------------------------- (October 4, 1993) to
1996 1995 March 31, 1996
-------------- -------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (76,603) $ 42,191 $ (36,755)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities-
Depreciation 300 250 1,591
Interest on restricted short-term
investments (101,578) (102,454) (775,927)
Change in certain assets and liabilities-
Prepaid expenses - 2,500 (2,178)
Income taxes receivable (30,980) - (30,980)
Accrued expenses 45,375 (6,487) 67,575
Accrued officer payroll - 2,240 -
Income taxes payable (64,009) - -
-------------- -------------- ---------------
Net cash used in
operating activities (227,495) (61,760) (776,674)
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and maturities of restricted
short-term investments 8,114,919 8,122,719 56,792,689
Purchases of restricted
short-term investments (8,113,371) (8,122,719) (64,906,060)
Purchase of property and equipment - - (6,571)
-------------- -------------- ---------------
Net cash provided by
(used in) investing activities 1,548 - (8,119,942)
-------------- -------------- ---------------
</TABLE>
(Continued)
F-16
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Period
March 31, From Inception
------------------------------------- (October 4, 1993) to
1996 1995 March 31, 1996
-------------- -------------- ---------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ - $ - $ 10,180,097
-------------- -------------- ---------------
Net increase in cash and
cash equivalents (225,947) (61,760) 1,283,481
CASH AND CASH EQUIVALENTS, beginning of period 1,509,428 1,758,800 -
-------------- -------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 1,283,481 $ 1,697,040 $ 1,283,481
============== ============== ===============
SUPPLEMENTAL SCHEDULE OF CASH FLOW ACTIVITY:
Income taxes paid $ 50,000 $ - $ 50,708
============== ============== ===============
</TABLE>
The accompanying notes to condensed financial statements
are an integral part of these statements.
F-17
<PAGE>
FROST HANNA MERGERS GROUP, INC.
(A Development Stage Corporation)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL:
Frost Hanna Mergers Group, Inc. (the "Company") was formed in October 1993 to
seek to effect a merger, exchange of capital stock, asset acquisition or similar
business combination (a "Business Combination") with an acquired business. In
connection with its initial capitalization, the Company issued 1,389,000 shares
of its Common Stock to its officers, directors and other shareholders for an
aggregate sum of $37,920. On March 21, 1994, the Company's registration
statement on Form SB-2 (the "Registration statement") was declared effective by
the U.S. Securities and Exchange Commission. Pursuant to the Registration
statement, the Company, in its initial public offering of securities, offered
and sold 1,955,000 shares of Common Stock, par value $.0001 per share, at a
purchase price of $6.00 per share (the "Offering") and received net proceeds of
approximately $10,142,177, after the payment of all expenses of the Offering
(the "Net Proceeds"). In addition, the Company issued underwriter options to
purchase 170,000 shares of Common Stock. Each underwriter option entitles the
holder thereof to purchase one share of common stock at a purchase price of
$8.10 per share commencing March 21, 1995 and for a period of four years
thereafter. The Offering was a "blank check" offering. The Company's year-end is
December 31.
The Company is in the development stage, has had no revenues to date and is
entirely dependent upon the proceeds of the Offering to commence operations
relating to selection of a prospective acquired business. The Company will not
receive any revenues, other than interest income, until, at the earliest, the
consummation of a Business Combination. In the event that the Net Proceeds of
the Offering prove to be insufficient for purposes of effecting a Business
Combination, the Company will be required to seek additional financing. In the
event no Business Combination is identified, negotiations are incomplete or no
Business Combination has been consummated, and all of the Net Proceeds other
than the Escrow Fund (see Note 2) have been expended, the Company currently has
no plans or arrangements with respect to the possible acquisition of additional
financing which may be required to continue the operations of the Company.
Furthermore, there is no assurance that the Company will be able to successfully
effect a Business Combination.
F-18
<PAGE>
In the opinion of the management of the Company, the accompanying unaudited
condensed financial statements of the Company contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of March 31, 1996, and the results of
its operations for the three months ended March 31, 1996 and 1995 and the
cumulative period from October 4, 1993 (date of inception) to March 31, 1996.
The results of operations and cash flows for the three months ended March 31,
1996 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of 1996.
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-QSB. Pursuant to such rules and regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The accompanying unaudited interim financial statements
should be read in conjunction with the Company's December 31, 1995 financial
statements and the notes included in the Company's Form 10-KSB.
The accounting policies followed for quarterly financial reporting are the same
as those disclosed in the December 31, 1995 Notes to Financial Statements
included in the Company's Form 10-KSB.
(2) RESTRICTED SHORT-TERM INVESTMENTS:
Eighty percent of the Net Proceeds of the Offering were delivered to an escrow
agent and are being held in escrow (the "Escrow Fund") by such firm, until the
earlier of (i) written notification by the Company of its need for all or
substantially all of the Escrow Fund for the purpose of implementing a Business
Combination or (ii) the exercise by certain shareholders of redemption rights
which will be offered at the time the Company seeks shareholder approval of any
potential Business Combination. As of March 31, 1996, there was $8,889,298 in
the Escrow Fund. The Escrow Fund is currently invested in United States
government-backed short-term securities.
(3) REDEEMABLE COMMON STOCK:
The Company may be required to redeem up to 29.99% of the Common Stock held by
certain stockholders. Such shares have been classified in the accompanying
balance sheets as "Redeemable Common Stock." Periodic changes in the redemption
price are reflected as increases/decreases to additional paid-in capital.
F-19
<PAGE>
(4) TRANSACTION BETWEEN THE COMPANY AND
PAN AMERICAN WORLD AIRWAYS, INC.:
On January 29, 1996, the Company entered into a letter of intent with Pan
American World Airways, Inc., a Florida corporation ("Pan Am"), outlining the
basic terms of a proposed transaction between the Company and Pan Am. On March
13, 1996, the Company, Pan Am and PA Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of the Company ("FH Sub"), entered into
a definitive agreement (the "Acquisition Agreement"), providing for, among other
things, the merger of FH Sub with and into Pan Am as outlined in the letter of
intent. Pan Am is a newly organized corporation established to operate a new low
fare, full service airline under the "Pan Am" name, which will serve selected
long-haul routes between major United States cities. Upon consummation of the
merger, each outstanding share of Pan Am common stock will be converted into the
right to receive one share of the Company's common stock. Approximately
7,561,191 shares of Pan Am common stock along with warrants and options to
acquire an additional 1,587,739 shares of Pan Am common stock were outstanding
as of April 30, 1996. Accordingly, assuming the exercise or conversion of all
outstanding Pan Am options and warrants and the exercise of the warrants held by
the underwriter of the Company's initial public offering (170,000 shares), the
shareholders of Pan Am would, upon consummation of the merger own approximately
seventy-two percent (72%) of the shares of the Company's common stock.
The consummation of the merger is subject to the satisfaction of a number of
conditions, including: (i) the merger shall have been approved and adopted by
the shareholders of the Company and Pan Am, and no more than 30% of the shares
of the Company Common Stock held by Public Stockholders shall have voted against
the merger; (ii) Pan Am shall be in material compliance with all material
business plans, budgets or projections submitted in connection with any
applications made to the United States Federal Aviation Administration (the
"FAA") and the United States Department of Transportation (the "DOT"); and (iii)
all licenses required to be procured from, among other persons and entities, the
FAA and the DOT, in order for Pan Am to commence operations as an air carrier in
a manner substantially in accordance with the applications made to the FAA and
the DOT, shall have been procured without imposition of unduly burdensome
conditions or restrictions.
In the event the merger is not consummated because of the failure of the
shareholders of Pan Am to approve the merger and if any of the existing
shareholders or their affiliates do not vote in favor of the merger, then Pan Am
is obligated to pay to the Company a termination fee of $1 million plus all
costs and expenses incurred by the Company in connection with the proposed
merger.
The foregoing description of the Acquisition Agreement is qualified in its
entirety to the full text of the Agreement, a copy of which is included in
Exhibit 2 to this Annual Report on Form 10-K. The merger is expected to be
consummated during the third quarter of 1996. There can be no assurance,
however, that the merger will be consummated, or, if consummated, that it will
be on the same terms described above and in the Acquisition Agreement.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Pan American World Airways, Inc. and Affiliate:
We have audited the accompanying combined balance sheet of Pan American World
Airways, Inc. and Affiliate (collectively, the "Predecessor Company") (a
development stage company) as of December 31, 1995 and the related combined
statements of development stage operations, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1995 and for the
period from Inception (see Note 1) to December 31, 1995. These financial
statements are the responsibility of the Predecessor Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures included 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, such combined financial statements present fairly, in all
material respects, the financial position of the Predecessor Company at December
31, 1995, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 1995, and for the period from
Inception to December 31, 1995, in conformity with generally accepted accounting
principles.
The Predecessor Company is in the development stage at December 31, 1995. As
discussed in Note 1 to the combined financial statements, the Predecessor
Company has not yet commenced operations or verified the market acceptance and
demand for the use of its service marks.
Deloitte & Touche, LLP
Miami, Florida
April 24, 1996,
except for the matter described in Note 4
as to which the date is April 29, 1996
F-21
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
COMBINED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<S> <C>
OTHER ASSETS:
Service marks (net of accumulated amortization of $82,211) $ 1,601,970
Organizational costs (net of accumulated amortization of
$8,371) 12,684
------------
Total $ 1,614,654
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 4,263
------------
CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock 8
Capital surplus 2,106,031
Deficit accumulated during the development stage (495,648)
------------
Total stockholders' equity 1,610,391
------------
Total $ 1,614,654
============
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF DEVELOPMENT STAGE OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE CUMULATIVE
DECEMBER 31, PERIOD FROM
INCEPTION
1994 1995 TO DECEMBER 31, 1995
<S> <C> <C> <C>
REVENUES:
License fees $ 1,010 $ 2,050 $ 3,060
------------ ------------ -------------
EXPENSES:
Amortization 44,086 46,283 90,582
Legal and professional 28,261 40,789 78,750
Compensation and benefits 24,665 114,651 139,316
Marketing and promotional 102,593
Travel 21,256 10,654 39,226
Other 17,280 28,766 48,241
----------- ------------ ------------
Total 135,548 241,143 498,708
----------- ------------ -------------
NET LOSS $ (134,538) $ (239,093) $ (495,648)
============ ============ =============
NET LOSS PER SHARE $ (179.38) $ (318.79) $ (1,674.49)
============ ============ =============
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
750 750 296
=== === ===
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE
CUMULATIVE PERIOD FROM INCEPTION TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
COMMON CAPITAL DURING THE
STOCK SURPLUS DEVELOPMENT STAGE TOTAL
<S> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK TO ORGANIZERS OF:
Pan Am Corporation $1 $ 99 $ 100
Pan American World Airways, Inc. 7 1,414,246 1,414,253
Capital contributions for the cumulative period
from inception to December 31, 1993 121,654 121,654
Net loss for the cumulative period from
inception to December 31, 1993 $(122,017) (122,017)
-- ---------- --------- ----------
BALANCE, DECEMBER 31, 1993 8 1,535,999 (122,017) 1,413,990
Capital contributions 273,146 273,146
Net loss for the year ended December 31, 1994 (134,538) (134,538)
-- ---------- --------- ----------
BALANCE, DECEMBER 31, 1994 8 1,809,145 (256,555) 1,552,598
Capital contributions 296,886 296,886
Net loss for the year ended December 31, 1995 (239,093) (239,093)
-- ---------- --------- ----------
BALANCE, DECEMBER 31, 1995 $8 $2,106,031 (495,648) 1,610,391
== ========== ========= ==========
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FOR THE CUMULATIVE
DECEMBER 31, PERIOD FROM INCEPTION
1994 1995 TO DECEMBER 31, 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (134,538) $ (239,093) $ (495,648)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization 44,086 46,283 90,582
Decrease in accounts payable (16,123) (24,665)
----------- ---------- ----------
Net cash used in operating activities (106,575) (217,475) (405,066)
----------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for service marks (162,396) (87,849) (1,684,181)
Payments for organization costs (21,055)
----------- ---------- ----------
Net cash used in investing activities (162,396) (87,849) (1,705,236)
----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Bank overdraft 4,263 4,263
Issuance of common stock 1,016,853
Capital contributions 273,146 296,886 1,089,186
----------- ---------- ----------
Net cash provided by financing activities 273,146 301,149 2,110,302
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 4,175 (4,175)
CASH AT BEGINNING OF PERIOD 4,175
----------- ---------- ----------
CASH AT END OF PERIOD $ 4,175 $ $
=========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND AFFILIATE
(COLLECTIVELY, THE "PREDECESSOR COMPANY")
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
1995 AND FOR THE CUMULATIVE PERIOD FROM INCEPTION TO DECEMBER 31, 1995
1. SUMMARY OF ACCOUNTING POLICIES
Pan American World Airways, Inc., a Delaware corporation, and Affiliate,
Pan Am Corporation, a Florida corporation (collectively, the "Predecessor
Company") (a development stage company) have common ownership and
management. The corporations were formed on December 29, 1993 and May 11,
1989, respectively (herein referred to as "Inception"). The Predecessor
Company's principal asset, service marks related to the Pan Am(R) trade
name, is held for development and on March 8, 1996 the common stock of the
Predecessor Company was contributed (see Note 4) to a newly-formed Florida
corporation which was formed for the purpose of operating a commercial
airline under a Certificate of Public Convenience and Necessity from the
United States Department of Transportation and an Operating Certificate
from the FAA. The following is a summary of significant accounting
policies of the Predecessor Company:
BASIS OF PRESENTATION - As previously noted, the Predecessor Company
is a development stage company established for the purpose of
developing commercial uses for service marks related to the Pan Am
trade name. The Predecessor Company has not yet commenced operations
or verified the market acceptance of the Pan Am trade name.
PRINCIPLES OF COMBINATION - All significant intercompany balances and
transactions have been eliminated from the accompanying combined
financial statements. The following represents the components of the
Predecessor Company's stockholders' equity accounts:
PAR SHARES SHARES COMMON CAPITAL
VALUE AUTHORIZED ISSUED STOCK SURPLUS
Pan American World
Airways, Inc. $0.01 10,000 650 $7 $1,552,275
Pan Am Corporation 0.01 10,000 100 1 553,756
-- ----------
Total $8 $2,106,031
== ==========
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Actual
results could differ from those estimates.
CASH AND CASH Equivalents - For purposes of combined financial
statements, the Predecessor Company considers all highly liquid
investments purchased with an original maturity of three months or
less to be cash equivalents.
F-26
<PAGE>
INTANGIBLE ASSETS - Intangible assets including service marks related
to the Pan Am trade name (stated at cost) and organizational costs are
amortized on the straight-line method over their legal or estimated
useful lives, whichever is shorter, as follows:
Service marks.......................forty years
Organizational costs................five years
The Predecessor Company continually evaluates the periods of
intangible asset amortization to determine whether events and
circumstances subsequent to the origination date of such assets
warrant a revised estimate of useful lives. In addition, the
Predecessor Company periodically reviews intangible assets to assess
recoverability based upon expectations of undiscounted cash flows from
future operations. An impairment would be recognized in operating
results based upon such reviews.
INCOME TAXES - The Predecessor Company is an S corporation for federal
income tax purposes. As such, the income tax effects of the results of
operations of the Predecessor Company accrue directly to the
stockholder's. Accordingly, the accompanying combined financial
statements do not include a provision for income taxes. As of December
31, 1995, the Predecessor Company's net assets exceed the
stockholder's tax basis in the Predecessor Company by approximately
$432,000 which resulted from intangible asset amortization deductions
taken for income tax purposes, but not yet taken for financial
statement purposes. Had the Predecessor Company been a C corporation,
it would not have had any provision for income taxes since it had net
losses during all periods.
NEW ACCOUNTING PRONOUNCEMENT - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR Long-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment would be recognized in operating results,
when there is a difference between the respective future undiscounted
cash flows and the carrying value of the long-lived assets. SFAS No.
121 will apply to the Predecessor Company for the year ended December
31, 1996. The implementation of SFAS No. 121 did not have a material
impact on the Predecessor Company's financial position or result of
operations.
2. LOSS PER SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding.
3. CONTINGENCIES
The Predecessor Company is party to litigation involving the acquisition
of the service marks. At the time of acquisition of such service marks and
pursuant to an asset purchase agreement, the seller of the service marks
agreed to sign such documents and take such steps as required for the
Predecessor Company to record assignments of the service marks in various
countries in which the service marks were registered. Such recordings were
to be affected by documents executed subsequent to the service mark
assignment to the Predecessor Company. The seller has failed to affect and
execute all documents as requested by the Predecessor Company.
Accordingly, the Predecessor Company filed suit for breach of contract,
specific
F-27
<PAGE>
performance and injunctive relief to cause an authorized officer
of the seller to execute all required documents. The seller has entered
counterclaims and has attempted to void the asset purchase agreement. The
Predecessor Company believes that the matter will be resolved in the
Predecessor Company's favor and that the likelihood of an unfavorable
outcome for the Predecessor Company in this matter is remote. However, in
the unlikely event that the Predecessor Company does not prevail in this
matter, the loss of the service marks would have a material adverse effect
on the Predecessor Company. Additionally, the Predecessor Company's legal
counsel has advised the Predecessor Company that although the Predecessor
Company is not a successor to the former Pan Am, certain foreign creditors
of the former Pan Am might seek within their foreign jurisdictions to
recover debts of the former Pan Am from the Predecessor Company and the
Predecessor Company's property might be subject to attachment or seizure
on a "successor liability" theory if the Predecessor Company were to
commence operations in certain foreign countries.
The Predecessor Company also has been a party to various litigation in
protecting the service marks, none of which would have a material adverse
impact on the Predecessor Company's financial statements.
4. SUBSEQUENT EVENTS
As previously noted, on March 8, 1996, corporate ownership of the
Predecessor Company was transferred, in a stock-for-stock exchange, to a
newly-formed Florida corporation, also named Pan American World Airways,
Inc. (the "Company").
The Company intends to raise additional capital through a private
placement with qualifying investors and through a merger with Frost Hanna
Mergers Group, Inc. ("Frost Hanna"), a public company whose primary asset
is cash.
As of April 12, 1996, the Company has completed a private offering
pursuant to which it sold 2,991,623 shares of the Company's common stock
at $3.53 per share.
On April 16, 1996, the Company issued warrants to certain registered
broker dealers to purchase an aggregate of 80,000 shares of the Company's
common stock at an exercise price of (i) $5 per share if exercised during
the first eight months immediately after the earlier of (a) the date of
receipt of a Certificate of Public Convenience and Necessity to Operate as
a commercial passenger and cargo airline or (b) the effective date of the
proposed merger with Frost Hanna, and (ii) $8.10 per share during the
subsequent three-year period.
On April 24, 1996, the Company's Board of Directors established, subject
to stockholder approval, a stock option plan. Under the plan, an aggregate
of 600,000 shares of common stock are available for issuance, the exercise
price of options may not be less than the fair market value of the
Company's common stock on the date of grant and the Company's Compensation
and Stock Option Committee determines the persons to whom grants are made
and the vesting, timing, amounts and other terms of such grants. Also on
April 24, 1996, the Company approved the grant of options to purchase
360,000 shares of common stock. The options have an exercise price of
$5.00 per share and vest in equal portions over three years.
As of April 29, 1996, the Company has completed a second private offering
pursuant to which it sold 1,721,500 shares of the Company's common stock
at $5 per share. Under the second private offering, a portion, $7,000,000,
of the proceeds is held in a special interest-bearing account pending
consummation of the merger with Frost Hanna.
F-28
<PAGE>
The proceeds from both private offerings will be utilized for working
capital expenses incurred prior to the commencement of airline operations.
* * * * * *
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Pan American World Airways, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Pan American
World Airways, Inc. and subsidiaries (a development stage company) (the
"Company") as of March 8, 1996. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall consolidated balance sheet
presentation. We believe that our audit of the consolidated balance sheet
provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company as of March 8, 1996 in
conformity with generally accepted accounting principles.
The Company is in the development stage at March 8, 1996. As discussed in Note 1
to the consolidated balance sheet, the Company has not yet commenced operations,
obtained required regulatory approvals, or verified the market acceptance and
demand for its service.
Miami, Florida
March 21, 1996, except for the matters
described in Note 7 as to which
the date is June 11, 1996
F-30
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
MARCH 8, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,500,000
Expendable aircraft parts 261,787
Prepaid rent 300,110
------------
Total current assets 4,061,897
PROPERTY 1,047,887
OTHER ASSETS:
Service marks 1,593,125
Organizational costs 61,922
Investment in affiliate
1,000
------------
TOTAL $ 6,765,831
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 491,458
Deferred income taxes 155,421
------------
Total current liabilities 646,879
------------
CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000
shares authorized, 2,848,068 shares issued and outstanding 285
Capital surplus 10,516,737
Deficit accumulated during the development stage (596,387)
Deferred compensation (790,918 shares) (2,001,023)
Receivable from Stockholder (425,085 shares) (1,500,550)
Receivable from Stockholder (85,017 shares) (300,110)
-------------
Total stockholders' equity 6,118,952
------------
TOTAL $ 6,765,831
============
See accompanying notes to consolidated balance sheet.
F-31
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED BALANCE SHEET
MARCH 8, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pan American World Airways, Inc. (a development stage company) (the
"Company") was incorporated on January 11, 1996, in the State of Florida
for the purpose of operating a commercial airline under a Certificate of
Public Convenience and Necessity from the United States Department of
Transportation and an Operating Certificate from the FAA and on March 8,
1996 (the "Contribution Date") stockholders contributed various ownership
interests in assets and liabilities in return for stock of the Company.
The accompanying consolidated balance sheet reflects the assets and
liabilities contributed by such contributing stockholders (the
"Contributing Stockholders"), recorded at the lower of contributors cost
or fair value. The following is a summary of significant accounting
policies of the Company:
BASIS OF PRESENTATION - As previously noted, the Company is a
development stage company established for the purpose of operating a
commercial passenger and cargo airline. The Company has not yet
commenced operations, obtained required regulatory approvals, or
verified the market acceptance and demand for its service.
The consolidated balance sheet includes the accounts of the Company
and its wholly-owned subsidiaries, PANF, Inc., a Florida
corporation, Pan American World Airways, Inc., a Delaware
corporation, Pan Am Corporation, a Florida corporation and EAL Asset
Company No. 1, Inc., a Florida corporation. All intercompany
balances and transactions have been eliminated.
FAIR VALUE - Fair value as referred to herein is based upon the cash
paid for common stock and the negotiated price/value as determined
among the Contributing Stockholders.
CASH AND CASH EQUIVALENTS - For purposes of consolidated financial
statements, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to be
cash equivalents.
EXPENDABLE AIRCRAFT PARTS - Expendable aircraft parts will be carried
at the lower of cost or market, with cost being determined on the
first-in, first-out basis. An allowance will be provided when, in
the judgment of management, the realizable value of individual parts
declines below the total cost of such parts.
PROPERTY - Property is stated at cost. Depreciation will be provided
on the straight-line method over the estimated useful lives of the
various assets. Property useful lives are as follows:
Spare rotables............................. five years
Technical library......................... five years
The cost of major renewals and betterments will be capitalized.
Repairs and maintenance will be charged to operations as incurred.
Upon disposition, the cost and related
F-32
<PAGE>
accumulated depreciation will be removed from the accounts, and
any related gain or loss will be reflected in earnings.
INTANGIBLE ASSETS - Intangible assets including service marks related
to the Pan Am trade name (stated at cost) and organizational costs
are amortized on the straight-line method over their legal or
estimated useful lives, whichever is shorter, as follows:
Service marks....................... forty years
Organizational costs............... five years
The Company continually evaluates the periods of intangible asset
amortization to determine whether events and circumstances
subsequent to the origination date of such assets warrant a revised
estimate of useful lives. In addition, the Company periodically
reviews intangible assets to assess recoverability based upon
expectations of undiscounted cash flows from future operations. An
impairment would be recognized in operating results based upon such
reviews.
INVESTMENT IN AFFILIATE - The Company will account for its investment
in affiliate under the equity method.
DEFERRED COMPENSATION - Deferred compensation, a contra-equity
account, is recorded for the difference between the fair value and
the exercise price of shares of common stock subject to stock
options. The deferred compensation will be amortized over the
one-year vesting period.
DEFERRED INCOME TAXES - The Company provides for deferred taxes under
the liability method. Under such method, deferred taxes will be
adjusted for tax rate changes as they occur. Deferred income tax
assets and liabilities are computed for differences between the
financial statements and the tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income.
Valuation allowances will be established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The Company expects to file Consolidated Income Tax returns.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived
assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. An
impairment would be recognized in operating results, when there is a
difference between the respective future cash flows and the carrying
value of the long-lived assets. SFAS No. 121 will apply to the
Company for the year ended December 31, 1996. The implementation of
SFAS No. 121 will not have a material impact on the Company's
financial position or result of operations.
F-33
<PAGE>
In October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which will be effective for the Company beginning
January 1, 1996. This Statement requires certain disclosures about
stock-based employee compensation arrangements, regardless of the
method used to account for them, defines a fair value based method
of accounting for an employee stock option or similar equity
instrument, and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure
compensation cost for stock-based compensation plans using the
intrinsic value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES. The Company will continue to apply APB Opinion No. 25
to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings
per share.
2. PROPERTY
Property at March 8, 1996 consisted of the following:
Spare rotables.............................. $ 797,887
Technical library.......................... 250,000
----------
Total property............................. $1,047,887
==========
3. INVESTMENT IN AFFILIATE
The Company's investment in affiliate, which is carried at a nominal
value, consists of a 30% interest in Chalks Air Bridge, Inc., which owns
100% of Flying Boat, Inc., a Delaware corporation. Flying Boat, Inc. is
the owner and operator of Chalks International Airlines, a seaplane
airline. The Company has granted, without royalties or fees, a license to
Flying Boat, Inc. to use the Pan Am trade name, subject to termination
only upon the occurrence of specific events.
4. DEFERRED INCOME TAXES
Deferred income taxes at March 8, 1996 consisted of the deferred tax
liability related to intangible asset amortization deductions taken for
income tax purposes by a Contributing Stockholder, but not yet taken for
financial statement purposes.
5. CONTINGENCIES
The Company is a party to litigation involving the acquisition of the
service marks. At the time of acquisition of such service marks and
pursuant to an asset purchase agreement, the seller of the service marks
agreed to sign such documents and take such steps as required for the
Company to record assignments of the service marks in various countries in
which the service marks were registered. Such recordings were to be
affected by documents executed subsequent to the service mark assignment
to the Company. The seller has failed to affect and execute all documents
as requested by the Company. Accordingly, the Company filed suit for
breach of contract, specific performance and injunctive relief to cause an
authorized officer of the seller to execute all required documents. The
seller has entered counterclaims and has attempted to void the asset
purchase agreement. The Company believes that the matter will be resolved
in the Company's favor and that the likelihood of an unfavorable outcome
for the Company in this matter is remote. However, in the unlikely event
that the Company does not prevail in this matter, the loss of the service
marks would have a material adverse effect on the Company. Additionally,
the Company's legal counsel has advised the Company that although the
Company is not a successor to the former Pan Am, certain foreign creditors
of the former Pan Am might seek within their foreign jurisdictions to
recover debts of the former Pan Am from the Company and the Company's
F-34
<PAGE>
property might be subject to attachment or seizure on a "successor
liability" theory if the Company were to commence operations in certain
foreign countries.
Certain of the assets owned by the Company include all of the issued and
outstanding capital stock of EAL Asset Company No. 1, Inc., a Florida
corporation, which, in turn, owns among other things certain aircraft
parts, intellectual property and marketing-related assets. All of the
issued and outstanding capital stock of EAL Asset Company No. 1 was
contributed to the Company pursuant to the terms of a certain Contribution
Agreement, dated March 8, 1996, by EAL Asset Holdings, Inc. ("Eastern"), a
Florida corporation and wholly-owned subsidiary of Eastern Airlines, Inc.
("Eastern Airlines"), in exchange for shares of the Company's common stock
and the issue of certain options. Pursuant to the terms of the merger
agreement with Frost Hanna Mergers Group, Inc. ("Frost Hanna") (see Note
7), a condition precedent to consummate the merger is approval of the
transactions contemplated under the merger agreement by the United States
Bankruptcy Court having jurisdiction over Eastern Airlines' liquidation.
In the event that such approval is not obtained, those assets which
Eastern contributed to the Company may be returned to Eastern in exchange
for all of Eastern's shares of the Company's common stock. While Eastern
and the Company believe that Eastern will obtain Bankruptcy Court
approval, there can be no assurance that such approval will be obtained.
The Company also has been a party to various litigation in protecting the
service marks, none of which would have a material adverse impact on the
Company's financial statements.
6. STOCKHOLDERS' EQUITY
STOCKHOLDER OPTIONS - The Company has granted certain Contributing
Stockholders options to purchase the Company's common stock as follows:
Options granted to purchase 790,918 shares of the Company's stock for
$1 per share which are exercisable on or after March 4, 1997 and
expire on March 3, 2006. The Company has accounted for the
difference between the fair value of the stock at the date of grant
and the $1 exercise price as deferred compensation, a reduction in
stockholders' equity in the accompanying consolidated balance sheet.
The deferred compensation will be amortized over the one-year
vesting period.
Options granted to purchase 276,821 shares of the Company's stock for
$1 per share which are exercisable immediately upon consummation of
the proposed merger with Frost Hanna (see Note 7) and expire 9 years
from the date of the merger. In the event the proposed merger is not
consummated, the options expire. Upon consummation of the merger,
the Company will account for the then difference between fair value
of the stock and the $1 exercise price as an expense.
NON-STOCKHOLDER OPTIONS - The Company has entered into two agreements,
which continue for an initial period ending on June 30, 2003 and
thereafter may be terminated upon six months notice, with certain general
sales agents to be the exclusive representatives of the Company in
Central/South America and Europe, respectively. The agreements provide for
advances to the Company of up to $10 million each, which shall be credited
toward the future purchases of airline tickets for travel on the Company's
aircraft. The agreements also provide that the advances must be repaid on
demand if the Company fails to obtain, by September 30, 1996, an Operating
Certificate from the FAA. Further, pursuant to the agreements, the Company
has agreed to issue options to purchase up to an aggregate of 300,000
shares of the Company's stock to each of the representatives. In each
case, the options are contingent upon the receipt by the Company of the
advance. To the extent a representative advances to the Company an amount
that is less than $10 million, the number of options issuable to such
representative will be reduced proportionately. The options will be
exercisable for a period of 44 months from issuance at a price of $5
during the first eight months of their term and $8.10 thereafter.
F-35
<PAGE>
STOCKHOLDER WARRANTS - The Company has granted certain Contributing
Stockholders warrants to purchase the Company's common stock as follows:
Warrants granted to purchase 80,000 shares of the Company's common
stock at an exercise price of (i) $5 per share if exercised during
the first eight months immediately after the earlier of (a) the date
of receipt of a Certificate of Public Convenience and Necessity to
Operate as a commercial passenger and cargo airline or (b) the
effective date of the proposed merger with Frost Hanna (see Note 7),
and (ii) $8.10 per share during the subsequent three-year period.
RECEIVABLE FROM STOCKHOLDERS - As described below, the Company has issued
common stock to certain Contributing Stockholders subject to payment upon
the occurrence of future events. The amounts receivable from stockholders
have been reflected as a reduction in stockholders' equity in the
accompanying consolidated balance sheet.
In consideration for the issuance of 425,085 shares of the Company's
stock, a Contributing Stockholder has agreed to contribute $1.5
million in cash upon the Company entering into a definitive lease
agreement with an aircraft leasing firm for two specific A-300
aircraft. In response, the Company has entered into a letter of
intent to lease these two specific aircraft. In the event that the
Company does not successfully conclude and enter into the definitive
lease agreement and the stockholder does not contribute the $1.5
million cash, the Company is entitled to redeem 425,085 shares from
a Contributing Stockholder for no consideration.
In consideration for the issuance of 85,017 shares of the Company's
stock, a Contributing Stockholder has agreed to contribute, upon the
Company's demand, a certain note receivable and a certain route
authority which have a combined estimated value of approximately
$300,000. In the event that the Board of Directors of the Company
determine that the value of the note and route authority are less
than $300,000, the Company shall be entitled to redeem from the
Contributing Stockholder for no consideration, a number of shares
having a value (based on the value attributed to such shares on the
Contribution Date) equal to the difference between the actual value
and $300,000. In the event that the Board of Directors of the
Company determine that the actual value exceeds $300,000, then the
Contributing Stockholder (at his option) may receive either cash or
additional shares of the Company's stock under the same methodology
described above. The determination of actual value shall be
accomplished as soon as practicable but in no event later than one
year after the Contribution Date.
7. SUBSEQUENT EVENTS
The Company intends to raise additional capital through a private
placement with qualifying investors and through a merger with Frost Hanna,
a public company whose primary asset is cash.
As of April 12, 1996, the Company has completed a private offering
pursuant to which it sold 2,991,623 shares of the Company's common stock
at $3.53 per share. Stock subscription deposits of $2,266,225 represent
the funds received by the Company through March 31, 1996.
On April 16, 1996, the Company issued warrants to certain registered
broker dealers to purchase an aggregate of 80,000 shares of the Company's
common stock at an exercise price of (i) $5 per share if exercised during
the first eight months immediately after the earlier of (a) the date of
receipt of a Certificate of Public Convenience and Necessity to Operate as
a commercial passenger and cargo airline or (b) the effective date of the
proposed merger with Frost Hanna, and (ii) $8.10 per share during the
subsequent three-year period.
F-36
<PAGE>
On April 24, 1996, the Company's Board of Directors established, subject
to stockholder approval, a stock option plan. Under the plan, an aggregate
of 600,000 shares of common stock are available for issuance, the exercise
price of options may not be less than the fair market value of the
Company's common stock on the date of grant and the Company's Compensation
and Stock Option Committee determines the persons to whom grants are made
and the vesting, timing, amounts and other terms of such grants. Also on
April 24, 1996, the Company approved the grant of options to purchase
360,000 shares of common stock. The options have an exercise price of
$5.00 per share and vest in equal portions over three years.
As of April 29, 1996, the Company has completed a second private offering
pursuant to which it sold 1,721,500 shares of the Company's common stock
at $5 per share. Under the second private offering, a portion, $7,000,000,
of the proceeds is held in a special interest-bearing account pending
consummation of the merger with Frost Hanna.
The proceeds from both private offerings will be utilized for working
capital expenses incurred prior to the commencement of airline operations.
On June 11, 1996, the Company was notified by Eastern Airlines that the
Bankruptcy Court having jurisdiction over Eastern Airlines' liquidation
had approved the transfer of assets contributed by Eastern to the Company
(see Note 5).
* * * * * *
F-37
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET - UNAUDITED
MARCH 31,
1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,513,502
Interest receivable 1,948
Expendable aircraft parts 261,787
Prepaid rent 271,528
-----------
Total current assets 6,048,765
PROPERTY - Net 1,034,788
OTHER ASSETS:
Service marks (net of accumulated amortization of $92,738) 1,591,443
Organizational costs (net of accumulated amortization
of $9,971) 61,028
Aircraft lease deposit 150,000
Investment in affiliate 1,000
-----------
TOTAL $ 8,887,024
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 610,231
Deferred income taxes 155,421
Stock subscription deposits 2,266,225
-----------
Total current liabilities 3,031,877
-----------
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 2,848,068 shares issued and outstanding
285
Capital surplus 10,516,737
Deficit accumulated during the development stage (1,026,944)
Deferred compensation (790,918 shares) (1,834,271)
Receivable from stockholder (425,085 shares) (1,500,550)
Receivable from stockholder (85,017 shares) (300,110)
-----------
Total stockholders' equity 5,855,147
-----------
TOTAL $ 8,887,024
============
See accompanying notes to consolidated financial statements - unaudited.
F-38
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF DEVELOPMENT STAGE OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE CUMULATIVE
MARCH 31, PERIOD FROM INCEPTION
1995 1996 TO MARCH 31, 1996
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
REVENUES:
License fees $ 100 $ 10 $ 10
----------- ------------- -------------
EXPENSES:
Amortization and depreciation 10,069 25,298 25,298
Legal and professional 19,864 344,021 344,021
Compensation and benefits 28,663 278,764 278,764
Marketing and promotional 150,357 150,357
Write-down of investment 17,000 17,000
Travel 2,656 38,343 38,343
Other 4,145 63,078 63,078
----------- ------------- -------------
Total 65,397 916,861 916,861
----------- ------------- -------------
OTHER INCOME:
Litigation settlement 35,000 35,000
Interest income 10,328 10,328
----------- ------------- -------------
45,328 45,328
----------- ------------- -------------
LOSS BEFORE DEFERRED
INCOME TAX PROVISION (65,297) (871,523) (871,523)
DEFERRED INCOME TAX PROVISION (155,421) (155,421)
----------- ------------- -------------
NET LOSS $ (65,297) $ (1,026,944) $ 1,026,944
=========== ============= =============
NET LOSS PER SHARE $ (87.06) $ (0.36) $ (0.36)
=========== ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 750 2,848,068 2,848,068
=========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements - unaudited.
F-39
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE CUMULATIVE
MARCH 31, PERIOD FROM INCEPTION
1995 1996 TO MARCH 31, 1996
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(65,297) $(1,026,944) $(1,026,944)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization and depreciation 10,069 25,298 25,298
Deferred compensation amortization 166,752 166,752
Deferred income taxes 155,421 155,421
Amortization of prepaid rent 28,582 28,582
Write-off of investment 17,000 17,000
Changes in assets and liabilities:
Increase in accounts receivable (1,948) (1,948)
Increase in accounts payable 28,663 551,116 551,116
-------- ----------- -----------
Net cash used in operating activities (26,565) (84,723) (84,723)
-------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Payments for service marks (10,124)
Payments for organization costs
Investment in affiliate (18,000) (18,000)
Aircraft lease deposit (150,000) (150,000)
-------- ----------- -----------
Net cash used in investing activities (10,124) (168,000) (168,000)
-------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Bank overdraft 22,664
Issuance of common stock 3,500,000 3,500,000
Capital contributions 9,850
Stock subscription deposits 2,266,225 2,266,225
-------- ----------- -----------
Net cash provided by financing activities 32,514 5,766,225 5,766,225
-------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (4,175) 5,513,502 5,513,502
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,175
-------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ $ 5,513,502 $ 5,513,502
======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements - unaudited.
F-40
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 AND
FOR THE CUMULATIVE PERIOD FROM INCEPTION TO MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pan American World Airways, Inc. (a development stage company) (the
"Company") was incorporated on January 11, 1996 in the State of Florida
for the purpose of operating a commercial airline under a Certificate of
Public Convenience and Necessity from the United States Department of
Transportation and an Operating Certificate from the FAA and on March 8,
1996 (the "Contribution Date") stockholders contributed various ownership
interests in assets and liabilities in return for stock of the Company.
The accompanying consolidated financial statements reflect the assets and
liabilities contributed by such contributing stockholders (the
"Contributing Stockholders"), recorded at the lower of contributors cost
or fair value and, although the Company was incorporated on January 11,
1996, for convenience sake includes the Company's development stage
operations from January 1, 1996 (herein referred to as "Inception"). The
following is a summary of significant accounting policies of the Company:
BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements as of March 31, 1996 and for each of the three-month periods
ended March 31, 1995 and 1996 and for the cumulative period from Inception
to March 31, 1996 have been prepared by the Company which is responsible
for their integrity and objectivity.
To the best of management's knowledge and belief, the statements and
related information were prepared in conformity with generally accepted
accounting principles and are based on recorded transactions and
management's best estimates and judgments. The interim results of
operations are not necessarily indicative of the results which may be
expected for the full year.
The financial statements for the three-month periods ended March 31, 1995
and 1996 and for the cumulative period from Inception to March 31, 1996
include, in the opinion of management, all adjustments (which are normal
recurring adjustments) necessary for a fair presentation of the financial
conditions and results of operations of the Company for the periods
indicated.
The Company is a development stage company established for the purpose of
operating a commercial passenger and cargo airline. The Company has not
yet commenced operations, obtained required regulatory approvals, or
verified the market acceptance and demand for its service.
As previously noted, on the Contribution Date, Contributing Stockholders
contributed various ownership interests in assets and liabilities in
return for stock of the Company. Among the interests contributed was the
100% corporate ownership of Pan American World Airways, Inc., a Delaware
corporation, and Pan Am Corporation, a Florida corporation (collectively,
the "Predecessor Company") (a development stage company). The Predecessor
Company had common ownership and management and its principal asset,
service marks related to the Pan Am trade name, was held for development.
F-41
<PAGE>
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Pan American Airways, Inc. (formerly
known as PANF, Inc.), a Florida corporation, Pan American World Airways,
Inc., a Delaware corporation, Pan Am Corporation, a Florida corporation,
and EAL Asset Company No. 1, a Florida corporation. All intercompany
balances and transactions have been eliminated.
FAIR VALUE - Fair value as referred to herein is based upon the cash paid
for common stock and the negotiated price/value as determined among the
Contributing Stockholders.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS - For purposes of consolidated financial
statements, the Company considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
EXPENDABLE AIRCRAFT PARTS - Expendable aircraft parts are carried at the
lower of cost or market, with cost being determined on the first-in,
first-out basis. An allowance is provided when, in the judgment of
management, the realizable value of individual parts declines below the
total cost of such parts.
PROPERTY - Property is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the various
assets. Property useful lives are as follows:
Spare rotables.................five years
Technical library..............five years
The cost of major renewals and betterments are capitalized. Repairs and
maintenance are charged to operations as incurred. Upon disposition, the
cost and related accumulated depreciation are removed from the accounts,
and any related gain or loss is reflected in earnings.
INTANGIBLE ASSETS - Intangible assets including service marks related to
the Pan Am trade name (stated at cost) and organizational costs are
amortized on the straight-line method over their legal or estimated useful
lives, whichever is shorter, as follows:
Service marks.....................forty years
Organizational costs..............five years
The Company continually evaluates the periods of intangible asset
amortization to determine whether events and circumstances subsequent to
the origination date of such assets warrant a revised estimate of useful
lives. In addition, the Company periodically reviews intangible assets to
assess recoverability based upon expectations of undiscounted cash flows
from future operations. An impairment would be recognized in operating
results based upon such reviews.
INVESTMENT IN AFFILIATE - The Company accounts for its investment in
affiliate under the equity method.
DEFERRED COMPENSATION - Deferred compensation, a contra-equity account, is
recorded for the difference between the fair value and the exercise price
of shares of common stock subject to stock options. Deferred compensation
is being amortized on a straight-line method over the one-year vesting
period.
F-42
<PAGE>
DEFERRED INCOME TAXES - The Company provides for deferred taxes under the
liability method. Under such method, deferred taxes are adjusted for tax
rate changes as they occur. Deferred income tax assets and liabilities are
computed for differences between the financial statements and the tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.
The Company expects to file consolidated income tax returns.
The Predecessor Company was an S corporation for federal income tax
purposes. Therefore, the income tax affects of the results of operations
prior to the Contribution Date accrue directly to the Predecessor Company
stockholder's. However, on the Contribution Date, the Predecessor Company
had a change in its tax status and, accordingly, the Company recognized a
deferred tax liability of $155,421 with a corresponding charge to the
provisions for income taxes during the three months ended March 31, 1996.
Had the Predecessor Company been a C corporation, it would not have had
any provision for income taxes since it had net losses during all periods.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment would be recognized in operating results, when
there is a difference between the respective future cash flows and the
carrying value of the long-lived assets. SFAS No. 121 will apply to the
Company for the year ended December 31, 1996. The implementation of SFAS
No. 121 did not have a material impact on the Company's financial position
or result of operations.
In October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which will be effective for the Company beginning January 1,
1996. This Statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to
account for them, defines a fair value based method of accounting for an
employee stock option or similar equity instrument, and encourages all
entities to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows an entity to continue to
measure compensation cost for stock-based compensation plans using the
intrinsic value method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
The Company will continue to apply APB Opinion No. 25 to its stock based
compensations awards to employees and will disclose the required proforma
effect on net income and earnings per share.
2. LOSS PER SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding.
F-43
<PAGE>
3. PROPERTY - NET
Property at March 31, 1996 consisted of the following:
Spare rotables.........................$ 797,887
Technical library...................... 250,000
----------
1,047,887
Less: depreciation.................... 11,643
----------
Total property........................ $1,036,244
==========
4. INVESTMENT IN AFFILIATE
The Company's investment in affiliate, which is carried at a nominal
value, consists of a 30% interest in Chalks Air Bridge, Inc., which owns
100% of Flying Boat, Inc., a Delaware corporation. Flying Boat, Inc. is
the owner and operator of Chalks International Airlines, a seaplane
airline. The Company has granted, without royalties or fees, a license to
Flying Boat, Inc. to use the Pan Am trade name, subject to termination
only upon the occurrence of specific events.
5. DEFERRED INCOME TAXES
Deferred income taxes at March 31, 1996 consisted of the deferred tax
liability related to intangible asset amortization deductions taken for
income tax purposes by the Contributing Stockholder, but not yet taken for
financial statement purposes.
6. CONTINGENCIES
The Company is a party to litigation involving the acquisition of the
service marks. At the time of acquisition of such service marks and
pursuant to an asset purchase agreement, the seller of the service marks
agreed to sign such documents and take such steps as required for the
Company to record assignments of the service marks in various countries in
which the service marks were registered. Such recordings were to be
affected by documents executed subsequent to the service mark assignment
to the Company. The seller has failed to affect and execute all documents
as requested by the Company. Accordingly, the Company filed suit for
breach of contract, specific performance and injunctive relief to cause an
authorized officer of the seller to execute all required documents. The
seller has entered counterclaims and has attempted to void the asset
purchase agreement. The Company believes that the matter will be resolved
in the Company's favor and that the likelihood of an unfavorable outcome
for the Company in this matter is remote. However, in the unlikely event
that the Company does not prevail in this matter, the loss of the service
marks would have a material adverse effect on the Company. Additionally,
the Company's legal counsel has advised the Company that although the
Company is not a successor to the former Pan Am, certain foreign creditors
of the former Pan Am might seek within their foreign jurisdictions to
recover debts of the former Pan Am from the Company and the Company's
property might be subject to attachment or seizure on a "successor
liability" theory if the Company were to commence operations in certain
foreign countries.
Certain of the assets owned by the Company include all of the issued and
outstanding capital stock of EAL Asset Company No. 1, Inc., a Florida
corporation, which, in turn, owns among other things certain aircraft
parts, intellectual property and marketing-related assets. All of the
issued and outstanding capital
F-44
<PAGE>
stock of EAL Asset Company No. 1 was contributed to the Company pursuant
to the terms of a certain Contribution Agreement, dated March 8, 1996, by
EAL Asset Holdings, Inc. ("Eastern"), a Florida corporation and
wholly-owned subsidiary of Eastern Airlines, Inc. ("Eastern Airlines"), in
exchange for shares of the Company's common stock and the issue of certain
options. Pursuant to the terms of the merger agreement with Frost Hanna
Mergers Group, Inc. ("Frost Hanna") (see Note 9), a condition precedent to
consummate the merger is approval of the transactions contemplated under
the merger agreement by the United States Bankruptcy Court having
jurisdiction over Eastern Airlines' liquidation. In the event that such
approval is not obtained, those assets which Eastern contributed to the
Company may be returned to Eastern in exchange for all of Eastern's shares
of the Company's common stock. While Eastern and the Company believe that
Eastern will obtain Bankruptcy Court approval, there can be no assurance
that such approval will be obtained.
The Company also has been a party to various litigation in protecting the
service marks, none of which would have a material adverse impact on the
Company's financial statements.
7. STOCKHOLDERS' EQUITY
STOCKHOLDERS OPTIONS - The Company has granted certain Contributing
Stockholders options to purchase the Company's common stock as follows:
Options granted to purchase 790,918 shares of the Company's stock for
$1 per share which are exercisable on or after March 4, 1997 and
expire on March 3, 2006. The Company has accounted for the difference
between the fair value of the stock at the date of grant and the $1
exercise price as deferred compensation, a reduction in stockholders'
equity in the accompanying consolidated balance sheet. The deferred
compensation will be amortized over the one year vesting period.
Options granted to purchase 276,821 shares of the Company's stock for
$1 per share are exercisable immediately upon consummation of the
proposed merger with Frost Hanna (see Note 9) and expire nine years
from the date of the merger. In the event the proposed merger is not
consummated, the options expire. Upon consummation of the merger, the
Company will account for the then difference between fair value of the
stock and the $1 exercise price as an expense.
NON-STOCKHOLDER OPTIONS - The Company has entered into two agreements,
which continue for an initial period ending on June 30, 2003 and
thereafter may be terminated upon six months notice, with certain general
sales agents to be the exclusive representatives of the Company in
Central/South America and Europe, respectively. The agreements provide for
advances to the Company of up to $10 million each, which shall be credited
toward the future purchases of airline tickets for travel on the Company's
aircraft. The agreements also provide that the advances must be repaid on
demand if the Company fails to obtain, by September 30, 1996, an Operating
Certificate from the FAA. Further, pursuant to the agreements, the Company
has agreed to issue options to purchase up to an aggregate of 300,000
shares of the Company's stock to each of the representatives. In each
case, the options are contingent upon the receipt by the Company of the
advance. To the extent the general sales agent for Central/South America
advances to the Company an amount that is less than $10 million, the
number of options issuable to such representative will be reduced
proportionately. The options will be exercisable for a period of 44 months
from issuance, at a price of $5 during the first eight months of their
term, and $8.10 thereafter.
STOCKHOLDER WARRANTS - The Company has granted certain Contributing
Stockholders warrants to purchase the Company's common stock as follows:
F-45
<PAGE>
Warrants granted to purchase 80,000 shares of the Company's common
stock at an exercise price of (i) $5 per share if exercised during the
first eight months immediately after the earlier of (a) the date of
receipt of a Certificate of Public Convenience and Necessity to
Operate as a commercial passenger and cargo airline or (b) the
effective date of the proposed merger with Frost Hanna (see Note 9),
and (ii) $8.10 per share during the subsequent three-year period.
RECEIVABLE FROM STOCKHOLDERS - As described below, the Company has issued
common stock to certain Contributing Stockholders subject to payment upon
the occurrence of future events. The amounts receivable from stockholders
have been reflected as a reduction in stockholders' equity in the
accompanying consolidated balance sheet.
In consideration for the issuance of 425,085 shares of the Company's
stock, a Contributing Stockholder has agreed to contribute $1.5
million in cash upon the Company entering into a definitive lease
agreement with an aircraft leasing firm from two specific A-300
aircraft. In response, the Company has entered into a letter of
agreement, including the posting of a $150,000 deposit, to lease three
aircraft which include these two specific aircraft. In the event that
the Company does not successfully conclude and enter into the
definitive lease agreement and the stockholder does not contribute the
$1.5 million cash, the Company is entitled to redeem 425,085 shares
from the Contributing Stockholder for no consideration.
In consideration for the issuance of 85,017 shares of the Company's
stock, a Contributing Stockholder has agreed to contribute, upon the
Company's demand, a certain note receivable and a certain route
authority which have a combined estimated value of approximately
$300,000. In the event that the Board of Directors of the Company
determine that the value of the note and route authority are less than
$300,000, the Company shall be entitled to redeem from the
Contributing Stockholder for no consideration, a number of shares
having a value (based on the value attributed to such shares on the
Contribution Date) equal to the difference between the actual value
and $300,000. In the event that the Board of Directors of the Company
determine that the actual value exceeds $300,000, then the
Contributing Stockholder (at his option) may receive either cash or
additional shares of the Company's stock under the same methodology
described above. The determination of actual value shall be
accomplished as soon as practicable but in no event later than one
year after the Contribution Date.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
There was no cash paid for taxes in any of the periods presented.
Non-cash investing and financing activities during the three-month period
ended March 31, 1996 and for the cumulative period from Inception to March
31, 1996 were as follows:
F-46
<PAGE>
Assets (liabilities contributed:
Aircraft parts $ 261,787
Prepaid rent 300,110
Property 1,047,887
Service marks 1,601,970
Organizational costs 62,700
Accounts payable (59,115)
Receivables from stockholders 1,800,660
----------
Net assets contributed $5,015,999
==========
Additionally, on the Contribution Date, the Company granted options to
purchase 790,918 shares of the Company's stock for $1 per share and
recorded $2,001,023 as deferred compensation (see Note 7).
9. SUBSEQUENT EVENTS
The Company intends to raise additional capital through a private
placement with qualifying investors and through a merger with Frost Hanna,
a public company whose primary asset is cash.
As of April 12, 1996, the Company has completed a private offering
pursuant to which it sold 2,991,623 shares of the Company's common stock
at $3.53 per share. Stock subscription deposits of $2,266,225 represent
the funds received by the Company through March 31, 1996.
On April 16, 1996, the Company issued warrants to certain registered
broker dealers to purchase an aggregate of 80,000 shares of the Company's
common stock at an exercise price of (i) $5 per share if exercised during
the first eight months immediately after the earlier of (a) the date of
receipt of a Certificate of Public Convenience and Necessity to Operate as
a commercial passenger and cargo airline or (b) the effective date of the
proposed merger with Frost Hanna, and (ii) $8.10 per share during the
subsequent three-year period.
On April 24, 1996, the Company's Board of Directors established, subject
to stockholder approval, a stock option plan. Under the plan, an aggregate
of 600,000 shares of common stock are available for issuance, the exercise
price of options may not be less than the fair market value of the
Company's common stock on the date of grant and the Company's Compensation
and Stock Option Committee determines the persons to whom grants are made
and the vesting, timing, amounts and other terms of such grants. Also on
April 24, 1996, the Company approved the grant of options to purchase
360,000 shares of common stock. The options have an exercise price of
$5.00 per share and vest in equal portions over three years.
As of April 29, 1996, the Company has completed a second private offering
pursuant to which it sold 1,721,500 shares of the Company's common stock
at $5 per share. Under the second private offering, a portion, $7,000,000,
of the proceeds is held in a special interest-bearing account pending
consummation of the merger with Frost Hanna.
F-47
<PAGE>
The proceeds from both private offerings will be utilized for working
capital expenses incurred prior to the commencement of airline operations.
On June 11, 1996, the Company was notified by Eastern Airlines that the
Bankruptcy Court having jurisdiction over Eastern Airline's liquidation
had approved the transfer of assets contributed by Eastern to the Company
( see Note 6).
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission to effect a merger with Frost Hanna.
* * * * * *
F-48
<PAGE>
APPENDIX A
ACQUISITION AGREEMENT
<PAGE>
ACQUISITION AGREEMENT
This Acquisition Agreement (the "Agreement") is made and entered into
as of the 13th day of March, 1996, by and among FROST HANNA MERGERS GROUP, INC.,
a Florida corporation ("FHM"), PA ACQUISITION CORPORATION, a Florida corporation
and a wholly-owned subsidiary of FHM ("Sub") and PAN AMERICAN WORLD AIRWAYS,
INC., a Florida corporation ("Pan Am").
RECITALS
A. Pan Am is a newly formed corporation established to operate, through
one of its Subsidiaries, as a low-cost air carrier in the transcontinental and
domestic market.
B. Upon the terms and subject to the conditions hereof, FHM, Sub and
Pan Am desire to cause the merger of Sub with and into Pan Am.
In consideration of the premises and the respective mutual agreements,
covenants, representations and warranties herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when utilized in this Agreement shall have the meanings indicated, which
meanings shall be equally applicable to both the singular and plural forms of
such terms:
"AFFILIATE" shall have the meaning attributed to such term by Rule 144
promulgated by the Commission under the Securities Act.
"AGENCY" shall mean any federal, state, municipal, county, parish,
local, foreign or other judicial, governmental or regulatory authority, agency
or instrumentality.
"AGREEMENT" shall mean this Acquisition Agreement together with all
exhibits and schedules contemplated hereby.
"AGREEMENT OF MERGER" shall have the meaning set forth in Article II of
this Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange Commission.
<PAGE>
"CONSENT" shall mean any consent, approval, waiver or authorization of,
or registration, qualification, designation, declaration or filing with, any
Person.
"CONTRIBUTION AGREEMENT" shall mean that certain Contribution
Agreement, dated March 8, 1996, including all schedules, exhibits and side
letters thereto, by and among Pan Am, Pan Am World Services, Inc., a Florida
corporation ("Pan Am World Services"), Pan Am Alliance, Inc., a Florida
corporation ("Alliance"), Frost Pan Investment Corp., a Florida corporation
("Frost Pan"), PANF, Inc., a Florida corporation ("PANF"), and EAL Asset
Holding, Inc., a Florida corporation ("EAL").
"CONTROL" shall mean, as used with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"COURT" shall mean any federal, state, municipal, county, parish,
local, foreign or other court or judicial entity.
"DOT" shall mean the United States Department of Transportation or any
successor.
"EFFECTIVE DATE" shall have the meaning set forth in Article II of this
Agreement.
"EFFECTIVE TIME" shall have the meaning set forth in Article II of this
Agreement.
"EMPLOYMENT AGREEMENT" shall have the meaning set forth in Section 7.16
of the Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in Section 3.10
of this Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FAA" shall mean the United States Federal Aviation Administration or
any successor.
"FHM COMMON STOCK" shall mean the common stock of FHM, par value $.0001
per share.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 4.9
of this Agreement.
"FLORIDA BCA" shall mean the Florida Business Corporation Act.
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"HAZARDOUS MATERIALS" shall have the meaning set forth in Section 4.27
of this Agreement.
"INTANGIBLE PROPERTY" shall mean all foreign and domestic trademarks,
trademark rights, trade names, trade dress, trade name rights, service marks,
brands and copyrights (or pending registrations and applications therefor)
owned, used or controlled by such entity, and all other intellectual property
and proprietary rights, including trade secrets, technology, know-how and other
information owned, held or used by such entity.
"KNOWLEDGE" shall mean, with respect to any representation or warranty
or other statement in this Agreement qualified by the knowledge of any party,
the actual (present and past) knowledge of such party and does not (a) include
constructive notice of matters or information or (b) imply that such party has
undertaken any independent investigation or inquiry as to the accuracy of or
completeness of any representations made or furnished in this Agreement. Where
reference is made to the knowledge of any entity, such reference shall be deemed
to include the actual (present and past) knowledge of all of the directors,
officers and shareholders of such entity and each of its Subsidiaries from
December 31, 1995 through the date hereof. Furthermore, with regard to any
Person, such reference means only that the party does not know of any facts or
circumstances contradicting the statement that follows and does not imply that
such party knows the statement to be correct (other than any specific documents
which may be referred). All information contained at any time in any document
received or reviewed by any such Person or in the files of any such Person or
any Affiliate shall be attributed to such Person.
"LAW" shall mean any federal, state, municipal, county, parish, local,
foreign or other governmental law, rule, regulation, ordinance, statute or
directive.
"LEASES" shall have the meaning set forth in Section 4.12 of this
Agreement.
"LICENSE" shall mean any license, franchise, approval, certificate,
permit, planning, permission, operating certificate, "slot" assignment,
essential air service designation or other authorization.
"LIEN" shall mean any lien, claim, charge, mortgage, security interest
or other encumbrance of any nature whatsoever.
"MERGER" shall have the meaning set forth in Article II of
this Agreement.
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"ORDER" shall mean any judgment, injunction, notice, suit, decree or
order of any Court or Agency.
"PAN AM COMMON STOCK" shall mean the common stock of Pan Am, $.0001 par
value.
"PERSON" shall mean any natural person, corporation, unincorporated
organization, partnership, association, joint-stock company, entity, joint
venture, trust or government, or any Agency.
"PLAN" shall have the meaning set forth in Section 4.22 of this
Agreement.
"PROXY STATEMENT" means the combined (i) proxy statement of Pan Am
soliciting the proxies of its shareholders to approve this Agreement and the
Merger, and (ii) the proxy statement and prospectus of FHM relating to the FHM
Common Stock to be issued to the shareholders of Pan Am in the Merger and
soliciting the proxies of the FHM shareholders to approve this Agreement and the
Merger, which proxy statements and prospectus are included in the Registration
Statement.
"REAL PROPERTY" shall have the meaning set forth in Section 4.12 of
this Agreement.
"REGISTRATION STATEMENT" shall mean the registration statement of FHM
on Form S-4 under the Securities Act to be filed with the Commission covering
the shares of FHM Common Stock to be issued to the shareholders of Pan Am in the
Merger.
"RELATED PARTY" shall have the meaning set forth in Section 4.19 of
this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SHAREHOLDERS" shall mean EAL, Pan Am World Services, PANF, Alliance
and Frost Pan.
"SUBSIDIARY" whether or not capitalized, shall mean any corporation
fifty (50) percent or more of whose outstanding voting securities, or any
partnership, joint venture or other entity fifty (50) percent or more of whose
equity interests, are directly or indirectly owned by a Person.
"TAX" means any federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal
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property, capital stock, social security, unemployment, disability, payroll,
license, employee or other withholding, or other tax or governmental charge, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; the foregoing shall include any
transferee or secondary liability for a Tax and any liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
affiliated group (or being included (or required to be included) in any tax
return relating thereto).
ARTICLE II
THE MERGER
Subject to the terms and conditions hereof, Sub will be merged with and
into Pan Am (the "Merger") in accordance with the Florida BCA, the separate
corporate existence of Sub shall cease and Pan Am shall be the surviving
corporation in the Merger. An Agreement and Plan of Merger (the "Agreement of
Merger"), in the form of Exhibit A hereto, is being executed and delivered
concurrently herewith by and among FHM, Sub and Pan Am. The Agreement of Merger
provides for the terms of the Merger, the mode of carrying the same into effect
and the manner of converting the outstanding shares of Pan Am Common Stock into
shares of FHM Common Stock. Subject to the terms and conditions hereof, the
Merger shall be consummated as promptly as practicable after the conditions in
Articles VII and VIII hereof are satisfied or waived by the filing of Articles
of Merger with the Secretary of State of the State of Florida in accordance with
the Florida BCA (the date of the filing of the Articles of Merger with the
Secretary of State of the State of Florida, being hereinafter referred to as the
"Effective Date" and the time of such filing being hereinafter referred to as
the "Effective Time"). The closing of the transactions contemplated hereunder
shall take place at the offices of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A., Museum Tower, Suite 2200, 150 West Flagler Street, Miami,
Florida 33130, at 10:00 am, local time, on such date as the parties shall agree
in accordance with the provisions hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FHM AND SUB
In order to induce Pan Am to enter into this Agreement and the
Agreement of Merger, and to consummate the transactions contemplated hereby and
thereby, FHM and Sub, jointly and severally, make the representations and
warranties set forth below to Pan Am:
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3.1 ORGANIZATION, STANDING AND POWER. Each of FHM and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation and has all requisite right, power and
authority to enter into this Agreement and the Agreement of Merger and to
consummate the transactions contemplated hereby and thereby.
3.2 AUTHORIZATION OF AGREEMENT. This Agreement and the Agreement of
Merger constitute the legal, valid and binding obligation of each of FHM and
Sub, enforceable in accordance with their respective terms. The execution,
delivery and performance of this Agreement and the Agreement of Merger by FHM
and Sub and the consummation by them of the transactions contemplated hereby and
thereby have been duly and effectively authorized by all requisite corporate
action on the part of FHM and Sub, subject to receipt of the approval of
shareholders of FHM as contemplated in Section 5.8 hereof.
3.3 NO VIOLATION OR CONFLICT. The execution, delivery and performance
of this Agreement and the Agreement of Merger by each of FHM and Sub, and the
consummation by them of the transactions contemplated hereby and thereby, and
compliance by each of FHM and Sub with the provisions hereof and thereof (i) do
not and will not violate or conflict in any material respect with any Order or
any Law or any term or provision of the Articles of Incorporation or Bylaws of
FHM or Sub, (ii) do not and will not, with or without the passage of time or the
giving of notice, or both create any right on the part of any party to any
instrument or agreement to which FHM or Sub is a party to unilaterally modify,
amend or terminate any such instrument or agreement, and (iii) do not and will
not with or without the passage of time or the giving of notice, result in the
material breach of, or constitute a default or require any Consent under, or
result in the creation of any Lien or any rights in any third party upon or with
respect to any property or assets of FHM or Sub pursuant to any instrument or
agreement to which FHM or Sub is a party or by which FHM or Sub or any of their
respective properties may be bound or affected, except for those instruments or
agreements as to which consent shall have been obtained at or prior to the
Effective Time.
3.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. A true and
complete copy of the Articles of Incorporation (as amended and in effect),
Bylaws (as amended and in effect) and minute books of each of FHM and Sub have
been delivered by FHM to Pan Am. The minute books of FHM and Sub in the form of
the copies supplied to Pan Am are complete and accurate in all material respects
and have embodied therein copies of all minutes of all meetings and all actions
by written consent of the Board of Directors, any committee thereof, the
incorporators and the shareholders of each of FHM and Sub from their respective
dates of incorporation to the date
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hereof, and such minutes and actions by written consent accurately reflect all
material actions taken by their respective Board of Directors, any committees
thereof, the incorporators and the shareholders during such periods.
3.5 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Other than in
connection with or in compliance with the Florida BCA, the Exchange Act, the
Securities Act and the state securities laws of any jurisdiction, the rules and
regulations of any applicable securities exchange or inter-dealer quotation
system on which the FHM Common Stock is listed and the procurement of any
Licenses, no Consent of any Agency is required in connection with the execution,
delivery or performance by FHM and Sub of this Agreement or the Agreement of
Merger or the consummation by FHM and Sub of the transactions contemplated
hereby or thereby.
3.6 SECURITIES AND EXCHANGE COMMISSION FILINGS; ABSENCE OF CHANGES. FHM
has heretofore furnished or made available to Pan Am a true and complete copy of
each report (the "FHM SEC Reports") filed by FHM with the Commission pursuant to
the Exchange Act since its inception. None of the FHM SEC Reports, as of the
dates they were respectively filed with the Commission, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
3.7 FINANCIAL STATEMENTS. The financial statements of FHM included in
the FHM SEC Reports (the "FHM Financial Statements"), as of the dates thereof
and for the periods covered thereby, present fairly, in all material respects,
the financial position, results of operations, and cash flows of FHM (subject,
in the case of unaudited statements, to normal recurring year-end audit
adjustments). Any supporting schedules included in the FHM SEC Reports present
fairly, in all material respects, the information required to be stated therein.
Such FHM Financial Statements and supporting schedules: (i) were prepared in
accordance with Regulation S-X promulgated by the Commission; (ii) present
fairly in all material respects the financial condition of FHM and the results
of operations as at and for the respective periods then ended; and (iii) except
as otherwise noted in the FHM SEC Reports, were prepared in conformity with
generally accepted accounting principles applied on a consistent basis. To the
extent any such FHM Financial Statements and supporting schedules are audited,
they were audited by independent public accountants within the meaning of the
rules promulgated by the Commission. FHM has delivered to Pan Am a statement
dated as of the date hereof which sets forth FHM's cash and cash equivalents and
restricted short-term investments as of a date three (3) days prior to the date
hereof.
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Such statement shall be certified by FHM's Chairman of the Board, President and
Chief Financial Officer.
3.8 VALIDITY OF FHM COMMON STOCK. The FHM Common Stock to be issued in
the Merger will, when issued in accordance with this Agreement and the Agreement
of Merger, be validly issued, fully paid and non-assessable.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. There is no basis for assertion
against FHM of any claim, liability, commitment or obligation of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due, which is not included, disclosed or noted in the FHM Financial Statements
except for the expenses, fees and costs incurred and to be incurred in
connection with this Agreement and the transactions contemplated hereby and
non-material liabilities incurred since September 30, 1995 in the ordinary
course of business consistent with past practice.
3.10 COMPLIANCE; GOVERNMENT AUTHORIZATION.
3.10.1 FHM is in material compliance with all Laws, Orders and
other requirements applicable to its business or properties, including, without
limitation, matters relating to the environment, anti-competitive practices,
discrimination, employment and health and safety. FHM is not subject to any
Court or Agency Order; and no action, suit, proceeding, claim or investigation
is now pending or to the best of FHM's knowledge is threatened, and no facts,
circumstances or conditions exist which could give rise to such actions, suits,
proceedings, investigations or claims.
3.10.2 There has not been any inspections of FHM's business
and properties through the date hereof.
3.10.3 There has been no Order, complaint, citation or notice
with regard to air emissions, water discharges, noise emissions, Hazardous
Materials or other environmental or health requirement affecting any of the
properties occupied or utilized by FHM and, to the knowledge of FHM, no facts,
circumstances or conditions exist which could reasonably give rise to such
Orders, complaints, citations or notices.
3.10.4 FHM is not in material violation of any Environmental
Law and has not received any notice from any Agency, of any actual, threatened
or alleged violation of any Environmental Law by FHM or any other Person for
whose conduct it is or may be responsible. The contemplated operation of FHM's
business complies with all Environmental Laws. For purposes of this Agreement,
"Environmental Laws" means any provision of any applicable Order or governmental
License or Consent relating to any environmental, health or safety matters or
conditions or pollution or protection
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of the environment, including, but not limited to, on-site or off-site
contamination, occupational safety and health and regulation of chemical
substances or products, emissions, discharges, releases or threatened releases
of Hazardous Materials or any wastes into the environment, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
3.10.5 To the best knowledge of FHM, there are not now and
there have not been any Hazardous Materials used, generated or stored or any
structures, fixtures, equipment or other storage vessels including, without
limitation, underground storage tanks, containing Hazardous Materials present
upon any of the premises occupied or utilized by FHM in the conduct of its
business in violation of applicable Environmental Laws. There has been no spill,
discharge, release, contamination or cleanup of any Hazardous Materials at any
of such properties including, without limitation, into or upon the soil, surface
water, ground water or the improvements located thereon, such properties are
clean of all such wastes and substances and none of such properties contains any
underground treatment or storage tanks or water, gas or oil wells or other
underground improvements. "Hazardous Materials" for purposes of this Agreement
shall include, without limitation: (i) hazardous substances or hazardous wastes,
as those terms are defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq., and any other
applicable federal, state, or local law, rule, regulation, ordinance or
requirement; (ii) petroleum, including, without limitation, crude oil; (iii) any
radioactive material, including, without limitation, any source, special
nuclear, or by-product material as defined in 42 U.S.C. ss.2011 et seq.; (iv)
asbestos in any form or condition; and (v) pesticides, contaminants, pollutants
or toxic wastes.
3.10.6 FHM has no liability under any Environmental Law with
respect to any of the premises utilized by FHM and, to the best knowledge of
FHM, with respect to any adjacent or neighboring sites or facilities or any
other site or facility to which FHM sent or transported Hazardous Materials or
at which FHM stored Hazardous Materials.
3.10.7 The maintenance, operation or use of any buildings,
improvements or structures presently located on the FHM Real Property or any
other real property occupied by FHM or used in their business do not now, and
shall not at the Effective Time, violate any zoning or building Law.
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3.11 LITIGATION. There are no actions, suits, proceedings,
investigations or claims pending, or to the best of FHM's knowledge, directly or
indirectly threatened, nor has any notice of such items been received by FHM in
any Court or before any Agency against or affecting FHM nor has any such action,
suit, proceeding, investigation or claim ever been pending, adjudicated or
settled. FHM has no knowledge of any facts which could result in any such
action, suit, proceeding, investigation or claim. FHM is not in default with
respect to any Order of any Court or Agency and there is no Order of any Court
or Agency upon or impacting any of FHM's assets or rights.
3.12 BUSINESS; SUBSIDIARIES. FHM has not engaged in any business other
than to seek to effect a business combination with an acquired business, and,
except for this Agreement, is not a party to any contract or agreement for the
acquisition of an operating business. Other than Sub, FHM has no direct or
indirect equity interest by stock ownership or otherwise in any other Person nor
is FHM engaged in a partnership, joint venture or other similar arrangement
(whether written or oral) with any Person.
3.13 BROKERS AND FINDER. Other than an investment banking firm or
consultant which may be selected by FHM in connection with securing a fairness
opinion or other advice, FHM has not employed any financial advisor, broker or
finder and has not incurred and will not incur any broker's, finder's,
investment banking, or similar fees, commissions or expenses to any other party
in connection with the transactions contemplated by this Agreement.
3.14 CAPITALIZATION. The authorized capital stock of FHM consists
solely of 100,000,000 shares of FHM Common Stock of which 3,344,000 shares were
issued and outstanding as of the date hereof. All of the outstanding shares of
FHM Common Stock have been duly authorized and validly issued and are credited
as fully paid, with no personal liability attaching to the ownership thereof. As
of the date hereof, no class of equity securities of FHM exists other than the
stock noted above. All voting rights with respect to FHM are vested exclusively
in the FHM Common Stock. All Taxes (including documentary stamp taxes) required
to be paid in connection with the issuance and any transfers of FHM Common Stock
have been paid. No securities issued by FHM from the date of its incorporation
to the date hereof were issued in violation of any statutory or common law
preemptive rights. All Licenses required to be obtained from or registrations
required to be effected with any Person in connection with any and all issuances
of securities of FHM from the date of FHM's incorporation to the date hereof
have been obtained or effected and all securities of FHM have been issued in
accordance with the provisions of all applicable securities or other Laws.
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3.15 RIGHTS, WARRANTS, OPTIONS. Except for the outstanding underwriter
options (the "Underwriters' Options") to purchase an aggregate of 170,000 shares
of FHM Common Stock at a purchase price of $8.10 per share, neither FHM nor Sub
has any commitment to issue or sell, and there are no rights, subscriptions,
warrants, options, conversion rights or agreements of any kind (other than this
Agreement and the Agreement of Merger) outstanding to issue, purchase or to
otherwise acquire, any shares of its stock, or securities or obligations of any
kind convertible or exchangeable into any shares of its stock of any class of
its capital stock.
3.16 REGISTRATION STATEMENT. None of the written information relating
to FHM included in the Registration Statement at the respective times that the
Registration Statement or any amendment thereto is filed with the Commission, is
declared effective by the Commission, and is mailed to FHM's and Pan Am's
shareholders, and at the time the FHM and Pan Am shareholders' meetings take
place, contains or will contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement, including any amendments thereto,
will comply with, and be distributed to FHM's shareholders in accordance with,
all applicable Law and the Articles of Incorporation and Bylaws of FHM.
3.17 TAX MATTERS.
3.17.1 All federal, state, local and foreign Tax returns and
Tax reports, if any, required to be filed with respect to the business or assets
of FHM have been filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed, all of
the foregoing as filed are true, correct and complete, and reflect accurately
all liability for Taxes of FHM for the periods for which such returns relate,
and all amounts shown as owing thereon have been paid. None of such returns or
reports have been audited by any Agency.
3.17.2 All Taxes, if any, payable by FHM or relating to or
chargeable against any of its assets, revenues or income through September 30,
1995 were fully paid by such date or provided for by adequate reserves in the
FHM Financial Statements and all similar items due through the Effective Time
will have been fully paid by that date or provided for by adequate reserves on
the books of FHM, which reserves shall remain available through the Effective
Time.
3.17.3 FHM will not have any liability with respect to any
such Taxes including, but not limited to, interest and/or penalties, in excess
of the amount so paid or the reserves so established on the books of FHM. FHM is
not delinquent in the payment of any Tax. No deficiencies for any Tax have been
asserted
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against FHM with respect to any Taxes which have not been paid, settled or
adequately provided for and there exists no basis for the making of any such
deficiency, assessment or charge.
3.17.4 FHM has not waived any restrictions on assessment or
collection of taxes or consented to the extension of any statute of limitations
relating to federal, state, local or foreign taxation.
3.18 EMPLOYEE PLANS.
3.18.1 The only employee benefit plans (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), stock purchase plan, stock option plan, fringe benefit plan, bonus
plan or other deferred compensation agreement or plan or funding arrangement
(including a simplified employee pension plan) sponsored, maintained or to which
contributions are made by FHM (an "FHM Plan") is employer provided health
insurance to one employee under the Humana Medical Plan Incorporated at a
monthly cost of $139.29.
3.18.2 With respect to the FHM Plan: (i) there are no actions,
suits, proceedings, investigations or claims pending, or to the knowledge of
FHM, threatened, and FHM has no knowledge of any facts which could give rise to
any such actions, suits, proceedings, investigations or claims; (ii) neither FHM
nor any employee or director of FHM or any fiduciary of any FHM Plan has, with
respect to any such FHM Plan, engaged in a prohibited transaction, as such term
is defined in ERISA Section 406, which would subject FHM to any penalties or
other liabilities resulting from prohibited transactions under ERISA Sections
409 or 502(i); (iii) no event has occurred and no condition exists that would
subject FHM to any penalty under ERISA Sections 502(c) or 502(l); (iv) the FHM
Plan and FHM, as the case may be, have complied with all applicable requirements
of ERISA; and (v) all insurance premiums related to the FHM Plan required as of
the Effective Time have been or will be paid at or prior to the Effective Time.
3.18.3 No FHM Plan has been (i) terminated, (ii) amended in
any manner which would directly or indirectly increase the benefits accrued, or
which may be accrued, by any participant thereunder; or (iii) amended in any
manner which would increase the cost to FHM of maintaining such FHM Plan, if it
so desires.
3.19 NO PRIOR ACTIVITIES. Sub has not incurred any liabilities or
obligations, except those incurred in connection with its organization, none of
which were material. Sub has not engaged in any business or activities of any
type or kind whatsoever, or entered into any agreements or arrangements with any
Person, and is not subject to or bound by any obligations or
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undertakings which are not contemplated by this Agreement or incurred in
connection with its organization.
3.20 AUTHORITY TO TRANSACT BUSINESS. Each of FHM and Sub has all
requisite power and authority to own and operate its properties and to conduct
its business in the manner and in the jurisdictions where now conducted.
3.21 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. FHM has good
and marketable title to each item of personal property, tangible and intangible,
as reflected on the September 30, 1995 Financial Statements included in the FHM
SEC Reports and to each item of personal property, tangible and intangible,
acquired since September 30, 1995 (other than (i) non-material property disposed
of in the ordinary course of business consistent with past practice since
January 1, 1996 to Persons who are not officers or directors of FHM or
Affiliated with FHM and (ii) those expenditures incurred in connection with
attempting to effectuate this business combination), free and clear of any
Liens, except as set forth in the FHM SEC Reports.
3.22 REAL PROPERTY. Neither FHM nor Sub owns any real property. The FHM
SEC Reports describe all real property leased by FHM (the "FHM Real Property"),
along with a brief description of the property and all improvements thereon and
a brief description of all leases (the "FHM Leases") under which such FHM Real
Property is leased by FHM. All of the FHM Real Property and improvements thereon
are suitable for the purposes for which currently used. All of the FHM Leases
are valid, subsisting and in full force and effect and all rents and additional
rents due to date on each FHM Lease have been paid. None of the FHM Leases is in
default, no waiver, indulgence or postponement of FHM's obligations thereunder
has been granted by the lessor and no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default thereunder.
FHM enjoys peaceful and undisturbed possession under all FHM Leases, none of
which contain any provisions that will impair or adversely affect the ability of
FHM to operate as it has in the past or as contemplated in the future. FHM has
not received notice that any of the FHM Leases will not be renewed upon their
respective expiration dates on terms and conditions which, taken as a whole,
will differ in a materially adverse manner from existing terms under such FHM
Leases. The continuation, validity and effectiveness of the FHM Leases under the
current terms thereof will in no way be affected by the consummation of the
transactions contemplated herein. At the Effective Time, FHM will have no
obligations under any of the FHM Leases.
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3.23 INSURANCE. The FHM SEC Reports describe all insurance policies, to
the extent any exist, providing insurance coverage of any nature to FHM. All of
such policies are in full force and effect, are valid and enforceable in
accordance with their terms, are free from any right of termination on the part
of the insurance carriers and provide adequate insurance covering risks and in
amounts customary for businesses of the type engaged in by FHM and are
sufficient for compliance with all requirements of any Law and all agreements to
which FHM is a party or by which any of its assets are bound. No claims have
been asserted under any of the foregoing insurance policies. True and complete
copies of all inspection reports made with respect to the business of FHM or any
of its properties and provided to FHM by any insurance carrier have been
furnished to Pan Am. Nothing contained herein shall be deemed to limit or
prevent FHM from acquiring directors and officers liability insurance on terms
acceptable to FHM and at commercially reasonable rates. FHM shall consult with
Pan Am in connection with securing such policies and will provide Pan Am with
copies of all such policies.
3.24 LABOR RELATIONS. FHM is in compliance with all applicable Laws
regarding employment and employment practices, terms and conditions of
employment, age and sex discrimination, and wages and hours, and FHM has not,
and is not, engaged in any unfair labor practices. No unfair labor practice
complaints have been filed against FHM with any Agency and FHM has not received
any notice or communication reflecting an intention or threat to file any such
complaint. No Person has made any claim, and to the best knowledge of FHM, there
is no basis for any claim, against FHM arising out of any Law relating to
discrimination with respect to employees or employment practices. There is no
strike, work stoppage or labor disturbance pending or, to FHM's knowledge,
threatened that involves any group of employees of FHM. FHM is not a party to or
otherwise bound by any labor or collective bargaining agreement.
3.25 LICENSES. FHM has all Licenses of or from any Person necessary for
the conduct of its respective trade or business and all such Licenses are
presently in full force and effect and no action or claim is pending, and no
notice of any such claim or action has been received which threatens to revoke,
vary, rescind, modify or terminate any License or declare any License invalid in
any material respect. FHM is being operated in compliance with all Licenses. All
material Licenses, if any, have been described in the FHM SEC Reports. Neither
the execution, delivery nor performance of this Agreement or the Agreement of
Merger (or the transactions contemplated hereby or thereby) shall adversely
affect the status of any License nor permit such License to be terminated
whether or not following the giving of notice or making of payment,
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nor shall the prospects of procuring any required Licenses be diminished or
changed by virtue thereof.
3.26 PROPRIETARY RIGHTS. Except as may be described in the FHM SEC
Reports, FHM has no Intangible Property.
3.27 RELATED PARTIES. Except as may be described in the FHM SEC
Reports, no director, officer, Shareholder or employee of FHM (individually a
"FHM Related Party" and collectively the "FHM Related Parties") or any Affiliate
of any FHM Related Party:
3.27.1 owns, directly or indirectly, any interest in any
Person which is a competitor or potential competitor of FHM, or a supplier or
potential supplier of FHM, except for the ownership of not more than 2% of the
outstanding stock of any company listed by a national securities exchange or an
over-the-counter stock quoted by the National Association of Securities Dealers;
3.27.2 owns, directly or indirectly, in whole or in part, any
material property, asset (other than cash) or right, real, personal or mixed,
tangible or intangible (including, but not limited to, any Intangible Property)
which is associated with or necessary in the operation of the business of FHM,
as presently conducted; or
3.27.3 has an interest in or is, directly or indirectly, a
party to any contract, agreement, lease or arrangement pertaining or relating to
FHM. Nothing contained herein shall be deemed to limit the ability of any FHM
Related Party or any Affiliate thereof from participating in any capacity in any
future "blank check" company or other business venture.
3.28 LIST OF PERSONNEL. The FHM SEC Reports contain, to the extent they
exist,: (i) the names of all incumbent directors and officers of FHM; (ii) the
names and job designations of all employees of FHM whose salaries exceed or are
anticipated to exceed $50,000 per annum; and (iii) a true and complete list of
all employee policies, employee benefit manuals or other manuals including
employee work rules or policies, vacation policies, sick leave policies, bonus
plans, compensation plans, and any other employee benefit policies or benefit
plans currently in effect for FHM. The FHM SEC Reports further set forth any
contracts or arrangements with any director, officer and employee which provides
for payments to be made to such party in connection with a change in control of
FHM or the termination of any office or employment of such person. Except as set
forth in the FHM SEC Reports, since September 30, 1995, FHM has not paid or
given any material increase in or improvement to the emoluments or benefits of
any nature of or any bonus to any of its respective directors, officers or
employees, and neither FHM is not under any obligation to increase
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or improve any such emoluments, benefits or bonuses with or without
retrospective operation. Except as disclosed or noted in the September 30, 1995
Financial Statements of FHM, there are no material amounts due or owing to any
employee of FHM for any accrued benefit, including without limitation, amounts
due for accrued vacation or sick leave.
3.29 GUARANTEES. FHM has not guaranteed any obligation or indebtedness
of any Person and no Person has guaranteed any obligation or indebtedness of
FHM.
3.30 ABSENCE OF CHANGES. Except as may be described in the FHM SEC
Reports, FHM has conducted its business only in the ordinary and usual course
consistent with past practices and there has not occurred any material adverse
change in the condition (financial or otherwise), results of operations,
properties, assets, liabilities, business or prospects of FHM other than
expenditures incurred in connection with attempting to effectuate this business
combination. Except as described in the FHM SEC Reports, FHM has not (i)
declared or paid any dividends or transferred any assets of any kind whatsoever
to its shareholders with respect to any shares of its respective capital stock;
(ii) suffered any damage, destruction or loss, whether or not covered by
insurance, which has had or could have a material adverse effect on any of the
properties, business or prospects of FHM; (iii) voluntarily or involuntarily
sold, transferred, surrendered, abandoned or disposed of any of its material
assets or property rights (tangible or intangible); (iv) made any mortgage or
pledge or subjected itself, its properties or assets to any Lien of any kind,
except in the ordinary course of business consistent with past practice; (v)
entered into any material contract or agreement; (vi) granted any increase in
the compensation payable or to become payable to officers or employees
(including, without limitation, any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment); (vii) increased, assumed
or taken any property subject to any liability, except for liabilities incurred
or assumed or property taken in the ordinary course of business and consistent
with past practices; (viii) altered the manner of keeping the books, accounts or
records of FHM; (ix) received notice (formal or otherwise) of any liability,
potential liability or claimed liability relating to any Environmental Law; (x)
amended its Articles of Incorporation or Bylaws (or other organizational
document); (xi) expended or committed to expend capital in excess of Ten
Thousand Dollars ($10,000) other than expenditures incurred in connection with
attempting to effectuate this business combination or as otherwise contemplated
hereunder; (xii) adopted any Plan; (xiii) cancelled, waived or released any
debts, rights or claims; (xiv) amended or terminated any material contract,
agreement, arrangement or commitment which, individually or in the aggregate,
has a material adverse effect on FHM; (xv) applied any
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of its assets to the direct or indirect payment, discharge, satisfaction or
reduction of any amount payable directly or indirectly to or for the benefit of
any shareholder or any Affiliate of any shareholder or FHM; (xvi) experienced
any strike or work stoppage; (xvii) written off the value of any material
portion of inventory or any accounts receivable or increased the reserves for
obsolete, damaged, spoiled or otherwise not useable inventory or uncollectible
receivables; (xviii) entered into any employment agreement or granted any
severance or termination pay other than expenditures incurred in connection with
attempting to effectuate a possible business combination; or (xix) experienced
any other event or condition of any character other than expenditures incurred
in connection with attempting to effectuate a possible combination which has had
or could have an adverse effect on the condition (financial or otherwise),
results of operations, assets, liabilities, properties, business or prospects of
FHM or an employee, customer or supplier relations of FHM.
3.31 MATERIAL AGREEMENTS. Either the FHM SEC Reports or SCHEDULE 3.31
contain a description of all material written and oral contracts, agreements or
commitments relating to FHM or made directly or indirectly by or on behalf of
FHM by any shareholder or Affiliate thereof which could bind FHM, including,
without limitation, any (i) contract, commitment, agreement or relationship
resulting in a commitment or potential commitment for expenditure or other
obligation or potential obligation, or which provides for the receipt or
potential receipt, involving in excess of Ten Thousand Dollars ($10,000), or
series of related contracts, commitments, agreements or relationships that in
the aggregate give rise to rights or liabilities exceeding such amount; (ii)
contract or commitment for the employment or retention of any employee,
consultant or agent or any other type of contract with any employee, consultant
or agent providing for annual payments in excess of Ten Thousand Dollars
($10,000); (iii) indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment relating to the borrowing of money, encumbrance
of assets or guaranty of any obligation; (iv) licensing or royalty agreements or
agreements providing for other similar rights or agreements with third parties
relating to the supply or use of products or materials or any Intangible
Property; (v) any Plan; (vi) agreements which restrict FHM from engaging in any
line of business or from competing with any other Person anywhere in the world;
(vii) agreements or arrangements for the sale of any of the assets, property or
rights of FHM, except for agreements to sell products or services in the
ordinary course of business consistent with past practices; (viii) agreement,
contract or arrangement with any Affiliate of FHM or any Affiliate of any
officer, director or employee of FHM; (ix) guaranty of the obligations of any
third party; (x) any indemnification, contribution or similar agreement or
arrangement pursuant to which FHM may be required to make or is
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entitled to receive any indemnification or contribution to or from any other
Person except to the extent provided in the Articles of Incorporation or Bylaws
of FHM; or (xi) any other contract, agreement or instrument which cannot be
terminated without penalty to FHM, upon the provision of not greater than thirty
(30) days notice.
3.31.1 All such contracts, agreements and other executory
contracts with third parties are valid, binding and enforceable in accordance
with their respective terms and are in full force and effect and were entered
into in the ordinary course of business on an "arms-length" basis with third
parties. FHM has performed all the obligations required to be performed by it to
date and is not in default or alleged to be in default in any respect under any
agreement, lease, contract, commitment, instrument or obligation required to be
listed or described in the FHM SEC Reports or on any schedule to this Agreement,
and there exists no event, condition or occurrence which, after notice or lapse
of time, or both, would constitute such a default by it or, to the best of its
knowledge, any other party to any of the foregoing.
3.31.2 Except as may be described in the FHM SEC Reports, the
continuation, validity and effectiveness of each contract described in the FHM
SEC Reports or on such schedule or any other schedule to this Agreement under
the current terms thereof will in no way be affected by the consummation of the
transactions contemplated hereby and all of such items will inure to the benefit
of FHM (as the parent of the surviving corporation in the Merger) and, if any
would be affected or would not inure to the benefit of FHM without Consent, FHM,
shall use all necessary and reasonable means at their disposal to cause an
appropriate Consent to be delivered to FHM prior to the Effective Date at no
cost or other adverse consequences to FHM.
3.31.3 To the best of FHM's knowledge, the other parties to
any such agreement, lease, contract, commitment, instrument or obligation are in
compliance with all terms and conditions thereof and none of such parties has
indicated to FHM an intention to terminate such contract or reduce the volume of
its transactions with FHM.
3.32 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither any employee or
agent of FHM, nor any officer or director of FHM, or other Person acting on
behalf of or associated or Affiliated with FHM, nor any other Person for whom
FHM may be responsible, acting alone or together, has (i) received, directly or
indirectly, any rebates, payments, commissions, promotional allowances or any
other economic benefits, regardless of their nature or type, from any customer,
supplier, trading company, shipping company, governmental
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employee or other Person with whom FHM has done business directly or indirectly;
or (ii) directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, trading company, shipping company,
governmental employee or other Person who is or may be in a position to help or
hinder the business of FHM (or assist FHM in connection with any actual or
proposed transaction) which (a) may subject FHM to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, or (b) if not given,
may have an adverse effect on the results of operations, assets, business,
operations or prospects of FHM or to suit or penalty in any private or
governmental litigation or proceeding.
3.33 DISCLOSURE. No representation or warranty of FHM or Sub herein
(including the exhibits and schedules hereto), and no statement, report, or
certificate furnished or to be furnished by or on behalf of FHM or Sub to Pan Am
or its agents pursuant hereto or in connection with the transactions
contemplated hereby, including, without limitation, the FHM Financial Statements
and any other financial information provided to Pan Am or its agents, contains
or will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PAN AM
In order to induce FHM and Sub to enter into this Agreement and the
Agreement of Merger and to consummate the transactions contemplated hereby and
thereby, Pan Am makes the representations and warranties set forth below to FHM
and Sub:
4.1 ORGANIZATION, STANDING AND POWER. Each of Pan Am and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation or organization. Pan Am
has all requisite right, power and authority to enter into this Agreement, the
Agreement of Merger and to consummate the transactions contemplated hereby and
thereby.
4.2 AUTHORIZATION OF AGREEMENT. This Agreement and the Agreement of
Merger constitute the legal, valid and binding obligations of Pan Am enforceable
in accordance with their respective terms. The execution, delivery and
performance of this Agreement and the Agreement of Merger and the consummation
by them of the transactions contemplated hereby and thereby have been duly and
effectively authorized by all requisite corporate action on the
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part of Pan Am, subject to the receipt of shareholder approval as contemplated
in Section 5.8 hereof.
4.3 AUTHORITY TO TRANSACT BUSINESS. Except as set forth on SCHEDULE 4.3
(which exceptions shall be cured prior to the Merger) each of Pan Am and its
Subsidiaries has all requisite power and authority to own and operate its
properties and to conduct its business in the manner and in the jurisdictions
where now conducted.
4.4 ARTICLES OF INCORPORATION, BYLAWS AND MINUTE BOOKS. A true and
complete copy of the Articles of Incorporation (as amended and in effect),
Bylaws (as amended and in effect) and minute books of each Pan Am and its
Subsidiaries have been delivered by Pan Am to FHM. The minute books of each Pan
Am and its Subsidiaries in the form of the copies supplied to FHM are complete
and accurate in all material respects and have embodied therein copies of all
minutes of all meetings and all actions by written consent of the respective
Boards of Directors, any committee thereof, the incorporators and the
shareholders from their respective dates of incorporation to the date hereof,
and such minutes and actions by written consent accurately reflect all material
actions taken by the Boards of Directors, any committees thereof, the
incorporators and the shareholders during such periods.
4.5 SUBSIDIARIES. SCHEDULE 4.5 lists all Subsidiaries of Pan Am, their
jurisdictions of incorporation or organization and the number of shares of their
respective capital stock or other equity interests issued and outstanding. Pan
Am owns directly all of the outstanding shares of capital stock of each of its
Subsidiaries, and all such shares are duly authorized, validly issued, fully
paid and non-assessable and owned by Pan Am free and clear of any Liens. There
are not outstanding subscriptions, options, warrants, calls or other commitments
or agreements to which Pan Am or any such Subsidiary or any Affiliate is subject
or a party or by which it is bound requiring the issuance by any Subsidiary of
additional shares of capital stock or other securities.
4.6 CAPITALIZATION. The authorized capital stock of Pan Am consists
solely of 100,000,000 shares of Pan Am Common Stock, $.0001 par value per share,
of which 2,848,068 shares were issued and outstanding as of the date hereof. All
of the outstanding shares of Pan Am Common Stock have been duly authorized and
validly issued and are credited as fully paid, with no personal liability
attaching to the ownership thereof. As of the date hereof, no class of equity
securities of Pan Am exists other than the stock noted above. All voting rights
with respect to Pan Am are vested exclusively in the Pan Am Common Stock. All
Taxes (including documentary stamp taxes) required to be paid in connection with
the issuance and any transfers of Pan Am Common Stock have been paid.
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No securities issued by Pan Am from the date of its incorporation to the date
hereof were issued in violation of any statutory or common law preemptive
rights. All Licenses required to be obtained from or registrations required to
be effected with any Person in connection with any and all issuances of
securities of Pan Am and its Subsidiaries from the date of their respective
incorporation to the date hereof have been obtained or effected and all
securities of Pan Am and its Subsidiaries have been issued in accordance with
the provisions of all applicable securities or other Laws.
4.7 RIGHTS, WARRANTS, OPTIONS. Except as set forth on SCHEDULE 4.7, Pan
Am has no commitment to issue or sell, and there are no rights, subscriptions,
warrants, options, conversion rights or agreements of any kind (other than this
Agreement and the Agreement of Merger) outstanding to issue, purchase or to
otherwise acquire, any shares of stock, or securities or obligations of any kind
convertible or exchangeable into any shares of any class of capital stock of Pan
Am. Pan Am has not redeemed, purchased or otherwise acquired, directly or
indirectly, any shares of capital stock of Pan Am or any option, warrant or
other right to purchase or acquire any such securities.
4.8 REGISTRATION STATEMENT. None of the written information relating to
Pan Am or its Subsidiaries included in the Registration Statement that is
supplied or to be supplied by or on behalf of Pan Am, the Shareholders or any
Affiliates for inclusion in the Registration Statement, at the respective times
that the Registration Statement or any amendment thereto is filed with the
Commission, is declared effective by the Commission, and is mailed to Pan Am's
and FHM's shareholders, and at the time the FHM and Pan Am shareholders'
meetings take place, contains or will contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement, including any amendments
thereto, will comply with, and be distributed to Pan Am's shareholders in
accordance with, all applicable laws and the Articles of Incorporation and
Bylaws of Pan Am.
4.9 FINANCIAL STATEMENTS. Pan Am has delivered to FHM true and complete
copies of Pan Am's consolidated unaudited balance sheet as of the date hereof.
The foregoing balance sheet (the "Financial Statements"), (i) has been prepared
in accordance with the books and records of Pan Am; (ii) present fairly and in
all material respects the financial condition of Pan Am as of the date hereof;
and (iii) has been prepared in accordance with generally accepted accounting
principles, consistently applied. The Financial Statements shall be certified by
the Chairman of the Board, the President and Chief Financial Officer of Pan Am
as conforming to the foregoing requirements.
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4.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 4.10, there is no basis for assertion against Pan Am or any of its
Subsidiaries of any claim, liability, commitment or obligation of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due, which is not included, disclosed or noted in the Financial Statements, it
being understood that additional liabilities will be incurred between the date
hereof and the Effective Time and that notification of certain of such
liabilities will be subject to the provisions of Section 5.6 hereof.
4.11 TITLE TO PERSONAL PROPERTY AND CONDITION OF ASSETS. Either Pan Am
or its Subsidiaries have good and marketable title to each item of personal
property, tangible and intangible, as reflected on the Financial Statements
(other than its Intangible Property with respect to which Pan Am makes
representations and warranties in Section 4.16 hereof) and to each item of
personal property, tangible and intangible (other than its Intangible Property
with respect to which Pan Am makes representations and warranties in Section
4.16 hereof), free and clear of any Liens, except as set forth in SCHEDULE 4.11
hereto. Included in such personal property are all assets (other than its
Intangible Property with respect to which Pan Am makes representations and
warranties in Section 4.16 hereof) and cash contributed to Pan Am pursuant to
the Contribution Agreement, except for cash expenditures since the date thereof
in accordance with the provisions of, and not materially exceeding amounts
required in the ordinary course of business of a start up airline and consistent
with documents submitted to the FAA and the DOT, as supplemented, amended or
modified from time to time. All aircraft, equipment, machinery, fixtures and
other personal property owned or utilized or anticipated to be utilized by Pan
Am in its operations are in good operating condition and in a good state of
maintenance and repair and are adequate for the conduct of its business. All
aircraft owned, leased or in the possession and control of Pan Am are in sound
operating condition and are being maintained in all material respects according
to FAA regulatory standards, all Laws and Pan Am's FAA-authorized maintenance
program. A list of all aircraft now owned, leased or in the possession and
control of Pan Am is set forth on SCHEDULE 4.11 hereto.
4.12 REAL PROPERTY. Neither Pan Am nor any of its Subsidiaries own any
real property. SCHEDULE 4.12 hereto sets forth a true and complete list of all
real property leased by Pan Am or any of its Subsidiaries (the "Real Property"),
along with a brief description of the property and all improvements thereon and
a brief description of all leases (the "Leases") under which such Real Property
is leased by Pan Am or any of its Subsidiaries. Pan Am has delivered to FHM a
true copy of the Leases, as amended. All of the Real Property and improvements
thereon are suitable for the
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purposes for which currently used. All of the Leases are valid, subsisting and
in full force and effect and all rents and additional rents due to date on each
Lease have been paid. None of the Leases is in default, no waiver, indulgence or
postponement of Pan Am's or its Subsidiaries obligations thereunder has been
granted by the lessor and no event has occurred which, with the passage of time
or the giving of notice, or both, would constitute a default thereunder. Either
Pan Am or its respective Subsidiaries, as the case may be, enjoys peaceful and
undisturbed possession under all Leases, none of which contain any provisions
that will impair or adversely affect the ability of Pan Am or its respective
Subsidiaries, as the case may be, to operate as it has in the past or as
contemplated in the future. Neither Pan Am nor any of its Subsidiaries has
received notice that any of the Leases will not be renewed upon their respective
expiration dates on terms and conditions which, taken as a whole, will differ in
an adverse manner from existing terms under such Leases. The continuation,
validity and effectiveness of the Leases under the current terms thereof will in
no way be affected by the consummation of the transactions contemplated herein.
4.13 INSURANCE. SCHEDULE 4.13 hereto sets forth a true and complete
list of all insurance policies providing insurance coverage of any nature to
either Pan Am or any of its Subsidiaries, true and complete copies of which have
been provided to FHM. All of such policies are in full force and effect, are
valid and enforceable in accordance with their terms, are free from any right of
termination on the part of the insurance carriers and provide adequate insurance
covering risks and in amounts customary for businesses of the type engaged in by
Pan Am and its Subsidiaries and are sufficient for compliance with all
requirements of any Law and all agreements to which Pan Am or any of its
Subsidiaries is a party or by which any of its assets are bound. No claims have
been asserted under any of the foregoing insurance policies. True and complete
copies of all inspection reports made with respect to the business of Pan Am and
its Subsidiaries or any of its properties and provided to Pan Am or its
Subsidiaries by any insurance carrier have been furnished to FHM.
4.14 LABOR RELATIONS. Each of Pan Am and its Subsidiaries is in
compliance with all applicable Laws regarding employment and employment
practices, terms and conditions of employment, age and sex discrimination, and
wages and hours, and neither Pan Am nor any of its Subsidiaries has, or is,
engaged in any unfair labor practices. No unfair labor practice complaints have
been filed against Pan Am or any of its Subsidiaries with any Agency and neither
Pan Am nor any of its Subsidiaries has received any notice or communication
reflecting an intention or threat to file any such complaint. No Person has made
any claim, and to the best knowledge of Pan Am or any of its Subsidiaries, there
is no basis for any
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claim, against Pan Am or any of its Subsidiaries arising out of any Law relating
to discrimination with respect to employees or employment practices. Neither Pan
Am nor any of its Subsidiaries is a party to or otherwise bound by any labor or
collective bargaining agreement. There is no strike, work stoppage or labor
disturbance pending or, to Pan Am's or any of its Subsidiaries knowledge,
threatened that involves any group of employees of Pan Am or any of its
Subsidiaries. Except as set forth on SCHEDULE 4.14 hereto, the terms of
employment or engagement of all employees, agents, consultants and professional
advisers of Pan Am or any of its Subsidiaries are such that their employment or
engagement may be terminated by not more than two weeks' notice given at any
time without liability for payment of compensation or damages and neither Pan Am
nor any of its Subsidiaries has entered into any agreement or arrangement for
the management of its business or any part thereof other than with its directors
or employees.
4.15 LICENSES. Except as set forth on SCHEDULE 4.15 hereto, Pan Am and
its Subsidiaries have all Licenses of or from any Person necessary for the
conduct of their respective trade or business and all such Licenses are
presently in full force and effect and no action or claim is pending, and no
notice of any such claim or action has been received which threatens to revoke,
vary, rescind, modify or terminate any License or declare any License invalid in
any material respect. Pan Am and its Subsidiaries are being operated in
compliance with all required Licenses. A true and complete list of all Licenses
has been delivered by Pan Am to FHM. Neither the execution, delivery nor
performance of this Agreement or the Agreement of Merger (or the transactions
contemplated hereby or thereby) shall adversely affect the status of any License
nor permit such License to be terminated whether or not following the giving of
notice or making of payment, nor shall the prospects of procuring any required
Licenses be diminished or changed by virtue thereof.
4.16 PROPRIETARY RIGHTS. SCHEDULE 4.16 sets forth a complete and
accurate list of all of Pan Am's and its Subsidiaries' Intangible Property
registered with or pending registration in the United States Patent and
Trademark Office (the "Marks"). Pan Am has delivered or made available to FHM
correct and complete copies of all material written documents in the possession
of Pan Am and its Subsidiaries or any of their Affiliates evidencing the Marks.
SCHEDULE 4.16 sets forth, to the knowledge of Pan Am, all material unresolved
claims or conflicts with the rights of others (individually, a "Claim") relating
to the Intangible Property. Except as set forth on SCHEDULE 4.16 hereto, no
interest in any Intangible Property has been assigned, transferred, licensed or
sublicensed by Pan Am or its Subsidiaries to any other party (including any
Affiliates of Pan Am or its Subsidiaries), and, to
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the knowledge of Pan Am or its Subsidiaries, no other License of any of the
Intangible Property exists. Except as set forth on SCHEDULE 4.16 hereto, to the
knowledge of Pan Am, no other Person is infringing, violating or
misappropriating interest it acquired to the Intangible Property by virtue of an
assignment from Eclipse Holdings, Inc. Except as set forth on SCHEDULE 4.16, to
Pan Am's knowledge, (i) Pan Am or its Subsidiaries possess all right, title and
interest in and to the Marks free and clear of any and all Liens and has rights
to all other Intangible Property and (ii) the Intangible Property is not subject
to any outstanding order or Claim, nor is there any action, suit, proceeding or
investigation pending with respect thereto. Notwithstanding the foregoing, the
parties hereto acknowledge and understand that neither Pan Am or its
Subsidiaries have registered, renewed or maintained registration for the
Intangible Property in many foreign territories and/or jurisdictions and that
certain of the registrations of the Intangible Property may be vulnerable to
cancellation for various reasons in certain foreign jurisdictions.
4.17 LITIGATION. Except as set forth in SCHEDULE 4.17 hereto, there are
no actions, suits, proceedings, investigations or claims pending, or to the best
of Pan Am's or its Subsidiaries' knowledge, directly or indirectly threatened,
nor has any notice of such items been received by Pan Am nor any of its
Subsidiaries in any Court or before any Agency against or affecting Pan Am or
any of its Subsidiaries nor has such action, suit, proceeding, investigation or
claim ever been pending, adjudicated or settled. Neither Pan Am nor any of its
Subsidiaries has knowledge of any facts which could result in any such action,
suit, proceeding, investigation or claim. Neither Pan Am nor any of its
Subsidiaries is in default with respect to any Order of any Court or Agency and
there is no Order of any Court or Agency binding upon or impacting any of Pan
Am's assets or rights.
4.18 NO VIOLATION OR CONFLICT. The execution, delivery and performance
of this Agreement and the Agreement of Merger by Pan Am and the consummation by
it of the transactions contemplated hereby and thereby, and compliance by it
with the provisions hereof and thereof, (i) do not and will not violate or
conflict in any material respect with any Order of any Court or Agency or any
Law, or any term or provision of Pan Am's or any of its Subsidiaries' Articles
or Certificates of Incorporation or Bylaws, (ii) do not and will not, with or
without the passage of time or the giving of notice, or both, create any right
on the part of any party to any instrument or agreement to which Pan Am or any
of its Subsidiaries is a party to unilaterally modify, amend or terminate any
such instrument or agreement and (iii) do not and will not, with or without the
passage of time or the giving of notice, result in the material breach of, or
constitute a default or require any Consent under, or result in the creation of
any Lien or any rights in any
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third party upon or with respect to any property or assets of Pan Am or any of
its Subsidiaries (including but not limited to, Intangible Property) pursuant
to, any instrument or agreement to which Pan Am or any Shareholder is a party or
by which Pan Am, any of its Subsidiaries or any of their respective property may
be bound or affected, except for those instruments or agreement as to which
consent shall have been obtained at or prior to the Effective Time.
4.19 RELATED PARTIES. Except as set forth in SCHEDULE 4.19 hereto, no
director, officer, Shareholder or employee of Pan Am (individually a "Related
Party" and collectively the "Related Parties") or any Affiliate of any Related
Party:
4.19.1 owns, directly or indirectly, any interest in any
Person which is a competitor or potential competitor of Pan Am or any of its
Subsidiaries, or a supplier or potential supplier of Pan Am or any of its
Subsidiaries, except for the ownership of not more than 2% of the outstanding
stock of any company listed by a national securities exchange or an
over-the-counter stock quoted by the National Association of Securities Dealers;
4.19.2 owns, directly or indirectly, in whole or in part, any
material property, asset (other than cash) or right, real, personal or mixed,
tangible or intangible (including, but not limited to, any Intangible Property)
which is associated with or necessary in the operation of the business of Pan Am
or any of its Subsidiaries, as presently conducted or proposed to be conducted;
or
4.19.3 has an interest in or is, directly or indirectly, a
party to any contract, agreement, lease or arrangement pertaining or relating to
Pan Am or any of its Subsidiaries, except for employment, consulting or other
personal service agreements which are listed and described on SCHEDULE 4.26
hereto.
4.20 LIST OF PERSONNEL. SCHEDULE 4.20 hereto contains: (i) the names of
all incumbent directors and officers of Pan Am and its Subsidiaries; (ii) the
names and job designations of all employees and consultants of Pan Am and its
Subsidiaries whose salaries exceed or are anticipated to exceed $50,000 per
annum; and (iii) a true and complete list of all employee policies, employee
benefit manuals or other manuals including employee work rules or policies,
vacation policies, sick leave policies, bonus plans, compensation plans, and any
other employee benefit policies or benefit plans currently in effect for Pan Am
or any of its Subsidiaries, a copy of each of which has been delivered to FHM.
SCHEDULE 4.20 further sets forth any contracts or arrangements with any
director, officer and employee which provides for payments to be made to such
party in connection with a change in control of Pan Am or any of its
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Subsidiaries or the termination of any office or employment of such person.
Except as set forth in SCHEDULE 4.20, since February 14, 1996, neither Pan Am
nor any of its Subsidiaries has paid or given any increase in or improvement to
the emoluments or benefits of any nature of or any bonus to any of its
respective directors, officers or employees, and neither Pan Am nor any of its
Subsidiaries is under any obligation to increase or improve any such emoluments,
benefits or bonuses with or without retrospective operation. Except as disclosed
or noted on SCHEDULE 4.20 or in the Financial Statements, there are no amounts
due or owing to any employee of Pan Am or any of its Subsidiaries for any
accrued benefit, including without limitation, amounts due for accrued vacation
or sick leave.
4.21 GUARANTEES. Neither Pan Am nor any of its Subsidiaries has
guaranteed any obligation or indebtedness of any Person and no Person has
guaranteed any obligation or indebtedness of Pan Am or any of its Subsidiaries.
4.22 EMPLOYEE BENEFIT PLANS.
Neither Pan Am nor any of its Subsidiaries presently has or
has ever had any employee benefit plans (within the meaning of Section 3(3) of
ERISA, stock purchase plan, stock option plan, fringe benefit plan, bonus plan
or other deferred compensation agreement or plan or funding arrangement
(including a simplified employee pension plan) sponsored, maintained or to which
contributions are made by Pan Am or any of its Subsidiaries.
4.23 CONSENT OR APPROVAL OF GOVERNMENTAL AUTHORITIES. Other than in
connection with or in compliance with the provisions of the Florida BCA or the
procurement of any Licenses, no Consent of any Agency is required in connection
with the execution, delivery or performance by Pan Am of this Agreement or the
Agreement of Merger or the consummation by Pan Am or its Subsidiaries of the
transactions contemplated hereby or thereby.
4.24 ABSENCE OF CHANGES. Neither Pan Am nor any of its Subsidiaries has
(i) declared or paid any dividends or transferred any assets of any kind
whatsoever to its shareholders with respect to any shares of its respective
capital stock; (ii) suffered any damage, destruction or loss, whether or not
covered by insurance, which has had or could have a material adverse effect on
any of the properties, business or prospects of Pan Am and its Subsidiaries;
(iii) voluntarily or involuntarily sold, leased, licensed, transferred,
surrendered, abandoned or disposed of any of its material assets or property
rights (tangible or intangible); (iv) altered the manner of keeping the books,
accounts or records of Pan Am or any of its Subsidiaries; (v) disposed of or
permitted a lapse of any rights to any Marks in the United States or its other
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material Intangible Property; (vi) received notice (formal or otherwise) of any
liability, potential liability or claimed liability relating to any
Environmental Law; (vii) amended its Articles or Certificate of Incorporation or
Bylaws except as contemplated in the Contribution Agreement; (viii) cancelled,
waived or released any debts, rights or claims; (ix) amended or terminated any
material contract, agreement, arrangement or commitment which, individually or
in the aggregate, has a material adverse effect on Pan Am and its Subsidiaries;
(x) applied any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly to or for
the benefit of any Shareholder or any Affiliate of any Shareholder or Pan Am,
its Subsidiaries or any Affiliate of Pan Am's or any of its Subsidiaries
officers or directors or to the prepayment of any such amounts; (xi) experienced
any strike or work stoppage; or (xii) written off the value of any material
portion of inventory or any accounts receivable or increased the reserves for
obsolete, damaged, spoiled or otherwise not useable inventory or uncollectible
receivables.
4.25 TAX MATTERS.
4.25.1 Except as set forth on SCHEDULE 4.25.1, all federal,
state, local and foreign Tax returns and Tax reports, if any, required to be
filed with respect to the business or assets of Pan Am or any of its
Subsidiaries have been filed with the appropriate governmental agencies in all
jurisdictions in which such returns and reports are required to be filed, all of
the foregoing as filed are true, correct and complete, and reflect accurately
all liability for Taxes of Pan Am or any of its Subsidiaries, as the case may be
the periods for which such returns relate, and all amounts shown as owing
thereon have been paid. None of such returns or reports have been audited by any
Agency.
4.25.2 Except as set forth on SCHEDULE 4.25.2, all Taxes, if
any, payable by Pan Am or any of its Subsidiaries or relating to or chargeable
against any of their respective assets, revenues or income through the date
hereof have been fully paid, and all similar items due or accrued through the
Effective Time will have been fully paid by that date.
4.25.3 Neither Pan Am nor any of its Subsidiaries will have
any liability with respect to any such Taxes including, but not limited to,
interest and/or penalties, in excess of the amount so paid. Neither Pan Am nor
any of its Subsidiaries are delinquent in the payment of any Tax. No
deficiencies for any Tax have been asserted against Pan Am or its Subsidiaries,
as the case may be, with respect to any Taxes which have not been paid, settled
or adequately provided for and there exists no basis for the making of any such
deficiency, assessment or charge.
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4.25.4 Neither Pan Am nor any of its Subsidiaries has waived
any restrictions on assessment or collection of taxes or consented to the
extension of any statute of limitations relating to federal, state, local or
foreign taxation.
4.26 MATERIAL AGREEMENTS.
4.26.1 SCHEDULE 4.26 hereto contains a list and brief
description of all material written and oral contracts, agreements or
commitments relating to Pan Am or any of its Subsidiaries or made directly or
indirectly by or on behalf of Pan Am or any of its Subsidiaries or which could
otherwise bind Pan Am or any of its Subsidiaries, including, without limitation,
any (i) contract, commitment, agreement or relationship resulting in a
commitment or potential commitment for expenditure or other obligation or
potential obligation, or which provides for the receipt or potential receipt,
involving in excess of Fifty Thousand Dollars ($50,000), or series of related
contracts, commitments, agreements or relationships that in the aggregate give
rise to rights or liabilities exceeding such amount; (ii) contract or commitment
for the employment or retention of any employee, consultant or agent or any
other type of contract or understanding with any employee, consultant or agent;
(iii) indenture, mortgage, promissory note, loan agreement, guarantee or other
agreement or commitment relating to the borrowing of money, encumbrance of
assets or guaranty of any obligation; (iv) licensing or royalty agreements or
agreements providing for other similar rights or agreements with third parties
relating to the supply or use of products or materials or any of its Intangible
Property; (v) any Plan; (vi) agreements which restrict Pan Am or any of its
Subsidiaries from engaging in any line of business or from competing with any
other Person anywhere in the world; (vii) agreements or arrangements for the
sale of any of the assets, property or rights of Pan Am or any of its
Subsidiaries, except for agreements to sell products or services in the ordinary
course of business consistent with past practices; (viii) agreement, contract or
arrangement with any Affiliate of Pan Am, any of its Subsidiaries or any
Affiliate of any officer, director or employee of Pan Am or any of its
Subsidiaries; (ix) guaranty of the obligations of any third party; (x) any
indemnification, contribution or similar agreement or arrangement pursuant to
which Pan Am or any of its Subsidiaries may be required to make or is entitled
to receive any indemnification or contribution to or from any other Person; (xi)
airplane leases or (xii) any other contract, agreement or instrument which
cannot be terminated without penalty to Pan Am or any of its Subsidiaries, as
the case may be, upon the provision of not greater than thirty (30) days notice.
True and correct copies of all written agreements listed on SCHEDULE 4.26 have
been furnished to FHM.
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4.26.2 All such contracts, agreements and other executory
contracts set forth on SCHEDULE 4.26 are valid, binding and enforceable in
accordance with their respective terms and are in full force and effect and were
entered into in the ordinary course of business on an "arms-length" basis with
third parties. Either Pan Am or one of its Subsidiaries has performed all the
obligations required to be performed by it to date and is not in default or
alleged to be in default in any respect under any agreement, lease, contract,
commitment, instrument or obligation required to be listed or described on any
schedule to this Agreement, and there exists no event, condition or occurrence
which, after notice or lapse of time, or both, would constitute such a default
by it or, to the best of its knowledge, any other party to any of the foregoing.
4.26.3 Except as otherwise indicated on SCHEDULE 4.26, the
continuation, validity and effectiveness of each item on such schedule or any
other schedule to this Agreement under the current terms thereof will in no way
be affected by the consummation of the transactions contemplated hereby and all
of such items will inure to the benefit of FHM (as the parent of the surviving
corporation in the Merger) and, if any would be affected or would not inure to
the benefit of FHM without Consent, Pan Am or its Subsidiaries, as the case may
be, shall use all necessary and reasonable means at their disposal to cause an
appropriate Consent to be delivered to FHM prior to the Effective Date at no
cost or other adverse consequences to Pan Am or its Subsidiaries or FHM.
4.26.4 To the best of Pan Am's and its Subsidiaries knowledge,
the other parties to any agreement, lease, contract, commitment, instrument or
obligation required to be listed on SCHEDULE 4.26 are in compliance with all
terms and conditions thereof and none of such parties has indicated to Pan Am or
its Subsidiaries or any Shareholder an intention to terminate such contract or
reduce the volume of its transactions with Pan Am or its Subsidiaries.
4.27 COMPLIANCE; GOVERNMENT AUTHORIZATION.
4.27.1 Each of Pan Am and its Subsidiaries is in material
compliance with all Laws, Orders and other requirements applicable to its
business or properties, including, without limitation, matters relating to the
environment, anti-competitive practices, discrimination, employment and health
and safety. Neither Pan Am nor any of its Subsidiaries is subject to any Court
or Agency Order; and no action, suit, proceeding, claim or investigation is now
pending or to the best of Pan Am's or its Subsidiaries knowledge is threatened,
and no facts, circumstances or conditions exist which could give rise to such
actions, suits, proceedings, investigations or claims.
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4.27.2 Pan Am has provided to FHM, accompanied by a cover
letter specifically identifying each such item and containing a brief
description thereof, true and correct copies of (i) all reports and letters of
inspections of Pan Am's or its Subsidiaries business and properties through the
date hereof under all applicable federal, state, foreign and local aviation,
transportation, environmental, health and safety laws and regulations; (ii) all
environmental analyses, environmental audits, reports of inspection, consulting
studies and compilations made by or for Pan Am or its Subsidiaries by any
non-governmental Person relating to any property, asset or right of Pan Am or
any of its Subsidiaries; and (iii) all correspondence and summaries of
communications with or from any Agency including, without limitation, all such
correspondence and summaries pursuant to which Pan Am or any of its Subsidiaries
is advised of any noncompliance with any Law or Order or which otherwise relates
to any noncompliance with any Law or Order.
4.27.3 There has been no Order, complaint, citation or notice
with regard to air emissions, water discharges, noise emissions, Hazardous
Materials or other environmental or health requirement affecting any of the
properties occupied or utilized by Pan Am or any of its Subsidiaries and, to the
knowledge of Pan Am and its Subsidiaries, no facts, circumstances or conditions
exist which could reasonably give rise to such Orders, complaints, citations or
notices.
4.27.4 Neither Pan Am nor any of its Subsidiaries has been or
is in material violation of any Environmental Law and has not received any
notice from any Agency, of any actual, threatened or alleged violation of any
Environmental Law by Pan Am or its Subsidiaries. The contemplated operation of
Pan Am's and its Subsidiaries business complies with all Environmental Laws.
4.27.5 To the best knowledge of Pan Am and its Subsidiaries,
there are not now and there have not been any Hazardous Materials used,
generated or stored or any structures, fixtures, equipment or other storage
vessels including, without limitation, underground storage tanks, containing
Hazardous Materials present upon any of the premises occupied or utilized by Pan
Am or its Subsidiaries in the conduct of their business in violation of
applicable Environmental Laws. There has been no spill, discharge, release,
contamination or cleanup of any Hazardous Materials at any of such properties
including, without limitation, into or upon the soil, surface water, ground
water or the improvements located thereon, such properties are clean of all such
wastes and substances and none of such properties contains any underground
treatment or storage tanks or water, gas or oil wells or other underground
improvements.
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4.27.6 Neither Pan Am nor its Subsidiaries has any liability
under any Environmental Law with respect to any of the premises utilized by Pan
Am or its Subsidiaries and, to the best knowledge of Pan Am and its
Subsidiaries, with respect to any adjacent or neighboring sites or facilities or
any other site or facility to which Pan Am or its Subsidiaries sent or
transported Hazardous Materials or at which Pan Am or its Subsidiaries stored
Hazardous Materials.
4.27.7 The maintenance, operation or use of any buildings,
improvements or structures presently located on the Real Property or any other
real property occupied by Pan Am or its Subsidiaries or used in their business
do not now, and shall not at the Effective Time, violate any zoning or building
Law.
4.28 BROKERS AND FINDERS. Neither Pan Am, its Subsidiaries nor any
Shareholder has employed any financial advisor, broker or finder and none of
them has incurred nor will any of them incur any broker's, finder's or similar
fees, commissions or broker's or finder's expenses payable by FHM, Sub or Pan Am
in connection with the transactions contemplated by this Agreement or the
Agreement of Merger.
4.29 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither any employee or
agent of Pan Am or its Subsidiaries, nor any officer or director of Pan Am or,
its Subsidiaries nor any other Person acting at the direction of any of the
foregoing or associated or Affiliated with Pan Am or its Subsidiaries, nor any
other Person for whom Pan Am or its Subsidiaries may be responsible, acting
alone or together, has (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other Person with whom Pan
Am or its Subsidiaries has done business directly or indirectly; or (ii)
directly or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, trading company, shipping company, governmental employee
or other Person who is or may be in a position to help or hinder the business of
Pan Am and its Subsidiaries (or assist Pan Am or its Subsidiaries in connection
with any actual or proposed transaction) which (a) may subject Pan Am or its
Subsidiaries to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, or (b) if not given, may have an adverse effect on the
results of operations, assets, business, operations or prospects of Pan Am and
its Subsidiaries or to suit or penalty in any private or governmental litigation
or proceeding.
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4.30 DISCLOSURE. No representation or warranty of Pan Am and its
Subsidiaries herein (including the exhibits and schedules hereto), and no
statement, report, or certificate furnished or to be furnished by or on behalf
of Pan Am or its Subsidiaries to FHM or its agents pursuant hereto or in
connection with the transactions contemplated hereby, including, without
limitation, the Financial Statements and any other financial information
provided to FHM or its agents, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 INTERIM OPERATIONS OF PAN AM. During the period from the date of
this Agreement to the Effective Date, each of Pan Am and its Subsidiaries shall
operate its business only in the usual and ordinary course of a start-up airline
and, in any event, in material compliance with its applications to be submitted
in connection with obtaining Licenses from the FAA and the DOT, and shall (i)
preserve intact its business organization and goodwill in all respects, (ii)
maintain and continue the approval process in the ordinary course of the
Licenses listed on SCHEDULE 4.15 hereto, including those required by the FAA or
the DOT, (iii) keep available the services of its key officers and employees
unless otherwise advised or ordered by the FAA or the DOT and (iv) maintain its
material relationships with customers, suppliers and others having business
relationships with it and comply in all material respects with all of its
obligations under all of its material agreements. Additionally, except as
described in SCHEDULE 5.1 or approved by FHM, which will not be unreasonably
withheld, during the period from the date of this Agreement to the Effective
Date, neither Pan Am nor its Subsidiaries shall, (i) amend or otherwise change
its Articles or Certificates of Incorporation or Bylaws; (ii) issue, sell or
authorize for issuance or sale, shares of any class of its securities
(including, but not limited to, by way of stock split or dividend) or any
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character obligating it to issue such
securities other than the sale of shares of Pan Am Common Stock to certain
additional investors as specifically described in and on the specific monetary
terms provided and contemplated in the Contribution Agreement or the issuance of
options as set forth on SCHEDULE 5.1; provided, however, that notwithstanding
any provisions contained herein to the contrary, no options, warrants or rights
of Pan Am may be exercised by any party (other than Eastern) prior to the
Effective Time; (iii) declare, set aside,
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make or pay any dividend or other distribution (whether in cash, stock or
property) with respect to its capital stock; (iv) redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock; (v) enter into any
commitment, agreement or transaction other than in the ordinary course of
business for a start-up airline, or acquire the stock, merge, or otherwise
acquire the business or a substantial portion of the business or significant
assets of any other Person or amend or modify in any material and adverse
respect or terminate any material agreement or contract; (vi) pay, discharge or
satisfy claims, liabilities or obligations (absolute, accrued, contingent or
otherwise) which involve payments or commitments to make payments which exceed
normal business operating requirements consistent with a start-up airline; (vii)
cancel any material debts or waive any material claims or rights; (viii) make
any loans, advances or capital contributions to any Person, except routine
advances for non-material expenses to employees in the ordinary course of
business; (ix) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person except in the ordinary course of business of a start-up
airline; (x) enter into any employment agreement or grant any severance or
termination pay with or to any officer, director or employee of Pan Am or its
Subsidiaries except in the ordinary course of business of a start-up airline;
(xi) alter in any material respect the manner of keeping the books, accounts or
records of Pan Am or its Subsidiaries or the accounting practices therein
reflected except consistent with a start-up airline; (xii) dispose of or permit
to lapse any rights to any Marks in the United States or its other material
Intangible Property; (xiii) enter into any licensing or royalty agreement with
respect to any products or services of Pan Am or its Subsidiaries or any
products or services of any third party except in the ordinary course of
business of a start-up airline; (xiv) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of any Affiliate of Pan Am or its
Subsidiaries (or any of Pan Am's or its Subsidiaries officers, shareholders or
directors) or to the prepayment of any such amounts, except for the payment of
salaries to any such persons who are employees of Pan Am or its Subsidiaries as
of the date hereof; or (xv) agree, whether in writing or otherwise, to do any of
the foregoing. During the period from the date of this Agreement to the
Effective Date, Pan Am shall provide FHM with a summary, on at least a bi-weekly
basis, of the progress of Pan Am in entering into contracts permitted hereunder,
the status of License applications, and other material matters relating to its
business.
5.2 INTERIM OPERATIONS OF FHM. During the period from the date of this
Agreement to the Effective Date, FHM shall conduct only such business that is
necessary to comply with applicable laws
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and regulations or which is in connection with the negotiation and consummation
of this Agreement and the transactions contemplated hereby. Additionally, during
the period from the date of this Agreement to the Effective Date, FHM shall not
(i) amend or otherwise change its Articles of Incorporation or Bylaws; (ii)
issue, sell or authorize for issuance or sale, shares of any class of its
securities (including, but not limited to, by way of stock split or dividend) or
any subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character obligating it to issue such
securities, other than issuances of FHM Common Stock in connection with the
exercise of any Underwriters' Options; (iii) declare, set aside, make or pay any
dividend or other distribution (whether in cash, stock or property) with respect
to its capital stock; (iv) redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock other than redemptions of shares of FHM
Common Stock from non-Affiliated FHM shareholders (an "FHM Redemption"); (v)
enter into any commitment or transaction or make any capital expenditure other
than those relating to the transactions contemplated by this Agreement; (vi)
create, incur, assume, maintain or permit to exist any long-term indebtedness or
short-term indebtedness; (vii) waive any claims or rights; (viii) make any
loans, advances or capital contributions to any Person; (ix) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person; (x) enter
into any employment agreement or grant any severance or termination pay with or
to any employee (who is not an officer or director) of FHM in excess of $20,000;
(xi) enter into any material contract or agreement other than this Agreement or
other contracts or agreements related hereto; (xii) do any act, or omit to do
any act, or permit any act or omission to act which would cause a violation or
breach of any of the representations, warranties or covenants of FHM set forth
in this Agreement (xiii) expend funds other than (a) in the ordinary course of
business consistent with past practice, (b) in connection with fees and costs
associated with and related to this business combination or (c) as otherwise
contemplated in this Agreement; or (xiv) agree, whether in writing or otherwise,
to do any of the foregoing. The parties agree and acknowledge that
notwithstanding any provision contained in this Agreement to the contrary, that
so long as FHM is in material compliance with the provisions of Section
5.2(xiii) hereto, Pan Am shall not be permitted or have any rights to terminate
this Agreement pursuant to Sections 8.1 and 8.4 hereto by virtue of such
expenditures.
5.3 ACCESS. Each of Pan Am and its Subsidiaries and FHM shall afford to
each other and their respective agents and representatives full access during
normal business hours throughout the period prior to the Effective Time to all
properties, books, contracts, commitments and records of each such party, and
during
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such period each such party shall furnish promptly to the other (i) copies of
all correspondence received or sent by or on behalf of such party from or to the
FAA, the DOT, the Commission or any other Agency and (ii) all other information
concerning such business, properties and personnel as the other party may
reasonably request. Each such party shall hold such documents and other material
in confidence until the Effective Time unless and until such time as such
information otherwise becomes publicly available and, in the event of the
termination of this Agreement, upon request by the other party, shall deliver to
such party all documents and other material so obtained by it.
5.4 CONSENTS. FHM and Pan Am will each use reasonable efforts to obtain
all Consents and Orders required in connection with, and waivers of any
violations, breaches and defaults that may be caused by, the consummation of the
transactions contemplated by this Agreement.
5.5 BEST EFFORTS. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its best efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
5.6 NOTIFICATION. Except as contemplated with respect to the Updates in
this Section 5.6, each of the parties hereto shall promptly notify the other in
writing of any event, condition, circumstance, occurrence, transaction or other
item occurring from the date of this Agreement through the Effective Time (i)
that would in itself, or with any notice, lapse of time or both, constitute a
violation or breach of this Agreement, or (ii) which would have been required to
have been disclosed on any schedule or exhibit hereto, had such event,
condition, circumstance, occurrence, transaction or item existed on the date of
this Agreement. Except as modified with respect to the Updates (as hereafter
defined), any such notification shall not diminish or alter any of the
representations, warranties or covenants of the parties set forth in this
Agreement nor shall it limit or restrict any rights or remedies either party may
have with respect to a breach or violation of any such representations,
warranties or covenants. If at any time after the Registration Statement is
filed with the Commission any event or circumstance relating to Pan Am or any
Shareholder should occur or exist which would be required to be described in an
amendment of or supplement to the Registration Statement (including the Proxy
Statement), or which would cause the Registration Statement (including the Proxy
Statement) to contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein not misleading,
Pan Am shall promptly inform FHM
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in writing of such event or circumstance. Notwithstanding anything contained
herein to the contrary, the necessity to update any schedule to this Agreement
solely to indicate the existence of any of the following events will not
constitute a violation or breach of this Agreement: (i) hiring new employees;
(ii) obtaining insurance policies; (iii) acquiring or leasing new assets or real
property; (iv) entering into any material agreements or guarantees; (v)
incurring liabilities in a manner contemplated in any material documents
submitted by Pan Am to the DOT and the FAA as amended, supplemented or modified
from time to time (the "DOT and FAA Applications") or in the ordinary course of
business for a start-up airline; (vi) encumbering Pan Am's assets in a manner
contemplated in the DOT and FAA Applications or in the ordinary course of
business for a start-up airline; or (vii) entering into a Plan not involving the
issuance of shares, options or similar rights except as otherwise disclosed in
SCHEDULE 4.7 hereto (the "Updates"). The parties further agree that with respect
to such items, the necessity to update any schedule will not be necessary to the
extent any such changes are not of a material nature.
5.7 REGISTRATION STATEMENT; PROXY STATEMENT. FHM and Pan Am will
cooperate with each other in order to prepare and file with the Commission as
soon as practicable the Registration Statement and any necessary post-effective
amendments to the Registration Statement and shall use all reasonable efforts to
have the Registration Statement and any such post-effective amendments to the
Registration Statement declared effective by the Commission and shall take all
reasonable actions required to be taken under any applicable state blue sky or
securities laws to permit the issuance of the FHM Common Stock pursuant to the
Merger. The Proxy Statement contained in the Registration Statement will
constitute the Proxy Statement for the shareholders' meetings referred to in
Section 5.8 hereto.
5.8 SHAREHOLDER APPROVAL. Each of Pan Am and FHM will take such action
as may be necessary to call, notice, solicit proxies and convene as promptly as
practicable a special meeting of its respective shareholders for the purpose of
obtaining any shareholder approvals required in connection with the transactions
contemplated hereby. The Board of Directors of Pan Am and FHM shall recommend in
the Proxy Statement and otherwise that their shareholders approve the
transactions contemplated hereby and otherwise use their best efforts to obtain
such approvals, unless otherwise required by applicable fiduciary duties of such
directors as determined by such directors in good faith after consultation with
and based on advice of independent legal counsel.
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5.9 ACQUISITION PROPOSALS. Except for the transactions contemplated by
this Agreement, unless and until this Agreement shall have been terminated, Pan
Am shall not (nor will it permit any of its officers, directors, agents or
Affiliates to): directly or indirectly solicit, encourage, initiate or
participate in any negotiations or discussions with respect to any offer or
proposal to acquire all or substantially all of the business and properties or
capital stock of Pan Am or any of its Subsidiaries, whether by merger, purchase
of assets or otherwise. In the event Pan Am or any of its Subsidiaries shall
receive any offer or proposal of the type referred to in clause (i) above, Pan
Am shall promptly inform FHM as to any such offer.
5.10 PUBLIC STATEMENTS. None of the parties hereto will issue any
public announcement and/or press release concerning this Agreement without the
prior written consent of the other party, which consents shall not be
unreasonably withheld, except as otherwise provided in this section or required
by law or the rules and regulations of any applicable securities exchange. The
parties hereto expressly acknowledge and agree that Pan Am shall be permitted to
issue public announcement and/or press releases concerning Pan Am's operations
from time to time without the consent of FHM provided such public announcements
and/or press releases do not include, or make references to, FHM or the
financial condition or projections of Pan Am.
5.11 SEC FILINGS. FHM shall timely file all reports and other documents
required to be filed by it with the Commission under the Exchange Act from the
date of this Agreement to the Effective Date.
5.12 INDEMNIFICATION; INSURANCE.
5.12.1 Subject to the limitations set forth herein, FHM shall,
from and after the Effective Time, indemnify, defend and hold harmless each
person who is now, or who becomes prior to the Effective Time, an officer or
director of FHM or Sub (the "Indemnified Parties") against (i) all losses,
claims, damages, costs, expenses, liabilities or judgments or amounts that are
paid in settlement with the approval of the indemnifying party (which approval
shall not be withheld unreasonably) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director, officer
or employee of FHM or Sub, whether pertaining to any matter existing or
occurring at or prior to the Effective Time and whether asserted or claimed
prior to, or at or after, the Effective Time ("Indemnified Liabilities"), and
(ii) all Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated by this Agreement, in each case to the full extent provided under
the
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Articles of Incorporation and Bylaws of FHM as in effect as of the date hereof
or permitted under the Florida BCA, to indemnify directors and officers.
Notwithstanding anything to the contrary set forth herein, no individual shall
be entitled to indemnification that is not permitted under the Articles of
Incorporation and Bylaws of FHM as in effect on the date hereof or pursuant to
the Florida BCA as in effect on the date hereof.
5.12.2 For a period of six years after the Effective Date, FHM
shall, subject to applicable law, keep in effect provisions in its Articles of
Incorporation and Bylaws providing for exculpation of director and officer
liability and indemnification of the directors and officers of FHM to the
fullest extent permitted under the Florida BCA, which provision shall not be
amended except as required by applicable law or except to make changes permitted
by law that would enlarge the right of indemnification.
5.12.3 For a period of six years after the Effective Time, FHM
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by FHM (provided that FHM may
substitute therefore policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
any claim, action, suit, proceeding or investigation arising from facts or
events which occurred before the Effective Time.
5.12.4 The provisions of this Section 5.12 are intended for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
5.13 BOARD REPRESENTATION. FHM shall, after the Effective Time, cause
the following persons to be nominated to the Board of Directors of FHM (subject
to the fiduciary duties of the Board of Directors of FHM or any committee
thereof and the Bylaws of FHM) and shall use reasonable efforts consistent with
and no less than those efforts that are taken with respect to all other nominees
to the Board of Directors to have such persons elected to the Board of Directors
of FHM for each of the three years thereafter: Charles E. Cobb, Jr. (as Chairman
of the Board); Martin R. Shugrue, Jr.; John J. Sicilian; two designees of FHM
prior to the Effective Time; and Phillip Frost, M.D., if he desires to serve on
the Board of Directors, and one additional designee of Frost Pan. As soon as
practicable after the Effective Time, FHM will seek to expand the Board to
include additional directors so that the Board shall consist of eleven members,
but in no event less than nine.
5.14 STOCK OPTIONS. At the Effective Time, Pan Am's obligations with
respect to each unexercised option or warrant to purchase Pan Am Common Stock,
as set forth on SCHEDULE 4.7 hereto,
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which is outstanding (collectively the "Stock Options"), as amended pursuant to
the following sentence, shall be assumed by FHM. The Stock Options shall
continue to have, and be subject to, the same terms and conditions (including,
but not limited to vesting and price) set forth in the option and warrant
agreement pursuant to which such Stock Options were issued as in effect
immediately prior to the Effective time, except that such Stock Options shall be
exercisable for the same number of shares of FHM Common Stock as such Stock
Options were previously exercisable for shares of Pan Am Common Stock. The date
of grant shall be the date on which the Stock Option was originally granted and
FHM shall issue an option assumption agreement, in form and substance reasonably
satisfactory to the parties hereto, to each holder of an assumed Stock Option as
soon as practicable after the Effective Time. FHM shall reserve for issuance the
number of share of FHM Common Stock that will become issuable upon the exercise
of such Stock Options pursuant to this Section 5.14.
5.15 FURTHER ASSURANCES. The parties hereto shall deliver any and all
other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement.
5.16 AUDITED PAN AM BALANCE SHEET. Pan Am shall deliver to FHM, within
two weeks from the date hereof, true and complete copies of Pan Am's
consolidated balance sheet as of the date hereof, certified, without
qualification, by independent accountants, pursuant to their audit of the
Financial Statements. The foregoing audited balance sheet including the notes
thereto (collectively, the "Audited Pan Am Balance Sheet"), (i) will have been
prepared in accordance with the books and records of Pan Am; (ii) will present
fairly and in all material respects the financial condition of Pan Am and its
Subsidiaries as of the date hereof; and (iii) will have been prepared in
accordance with generally accepted accounting principles, consistently applied.
The Audited Pan Am Balance Sheet shall be certified by the Chairman of the
Board, the President and Chief Financial Officer of Pan Am as conforming to the
foregoing requirements. Upon delivery of the Audited Pan Am Balance Sheet in
accordance with the provisions hereof, and provided it does not provide a basis
for termination of this Agreement by FHM as contemplated in Section 10.12.6, all
references to Financial Statements of Pan Am contained herein shall be also
deemed to refer to and include the Audited Pan Am Balance Sheet.
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ARTICLE VI
SURVIVAL
6.1 SURVIVAL OF THE REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Except as specifically set forth in Section 5.12 hereof, none of the
representations and warranties contained in this Agreement shall survive the
Effective Time.
6.2 INVESTIGATION. The representations, warranties, covenants and
agreements of this Agreement shall not be affected or diminished in any way by
any investigation (or failure to investigate) at any time by or on behalf of the
party for whose benefit such representations, warranties, covenants and
agreements were made. All statements contained herein or in any schedule,
certificate, exhibit, list or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties for purposes of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF FHM AND SUB
All of the obligations of FHM and Sub under this Agreement and the
Agreement of Merger are subject to the satisfaction at or prior to the Effective
Time of each and every one of the following conditions precedent (any of which
may be waived in writing by FHM and Sub in their sole discretion):
7.1 REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties of Pan Am contained herein or in any certificate or document
delivered by Pan Am pursuant to the provisions hereof or in connection with the
transactions contemplated hereby shall be true and correct in all material
respects (except for such representations and warranties qualified by
materiality which shall be true and correct in all respects) as of the Effective
Time with the same force and effect as though made on and as of such date;
provided, however, that with respect to the Updates, such representations and
warranties as modified by the Updates from time to time must be true and correct
in all material respects as of the Effective Time with the same force and effect
as though made on and as of such date.
7.2 PERFORMANCE. Pan Am shall have performed and complied in all
material respects with all of the agreements, covenants and obligations required
under this Agreement to be performed or complied with by it prior to or at the
Effective Time (except for
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agreements, covenants and obligations set forth herein to be performed or
complied with prior to or at the Effective Time which are qualified by
materiality, which shall have been performed or complied with in all respects).
7.3 CERTIFICATES. Pan Am shall have delivered to FHM a certificate
executed by Pan Am's President and Chief Financial Officer, dated the Effective
Date, certifying in such detail as FHM may reasonably request, that (i) the
conditions specified in Sections 7.1 and 7.2 (insofar as they are to be
performed by Pan Am) have been fulfilled and (ii) attached to such certificate
is a true and correct copy of the resolutions of the Board of Directors of Pan
Am authorizing the execution, delivery and performance of this Agreement and the
Agreement of Merger by Pan Am.
7.4 NONOCCURRENCE OF CERTAIN EVENTS. There shall not have occurred any
event or condition which has affected or may adversely affect in any material
respect FHM's ability to operate the business of Pan Am and its Subsidiaries as
such business is contemplated to be conducted in accordance with any
applications filed by Pan Am or any Subsidiary with any Agency, and no event or
condition shall have occurred which has adversely affected or may adversely
affect in any material respect the condition (financial or otherwise) of Pan Am
and its Subsidiaries or their assets, liabilities (whether absolute, accrued,
contingent or otherwise), earnings, business, operations or prospects. In
addition, no litigation, arbitration or other legal or administrative proceeding
shall have been commenced or shall be pending by or before any Court or Agency,
and no Law shall have been enacted after the date of this Agreement, and no
judicial or administrative decision shall have been rendered which (i) enjoins
or prohibits the consummation of all or any of the transactions contemplated by
this Agreement or the Agreement of Merger, or (ii) is an action by any Agency
thereof, which seeks to enjoin or prohibit the consummation of all or any of the
transactions contemplated by this Agreement or the Agreement of Merger.
7.5 CONSENTS. Either Pan Am or its Subsidiaries shall have obtained all
material Consents and Orders as may be required in connection with the
consummation of the transactions contemplated hereby.
7.6 REGISTRATION STATEMENT. The Registration Statement and all
requisite post-effective amendments to the Registration Statement shall have
been declared effective, there shall not be in effect a stop order with respect
thereto.
7.7 SHAREHOLDER APPROVAL. Each of FHM and Pan Am shall have obtained
the approval of their respective shareholders required for the consummation of
the transactions contemplated herein, which in
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the case of FHM shall mean the shareholder approval required as set forth in its
Prospectus, dated March 21, 1994 (the "FHM Prospectus").
7.8 OPINION OF PAN AM'S COUNSEL. FHM and Sub shall have received from
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., counsel to Pan Am, an
opinion letter in form and substance substantially in the form set forth in
Exhibit B attached hereto.
7.9 AUDITORS' LETTERS. FHM shall have received a letter dated as of a
date not more than three (3) days prior to each of the dates the Registration
Statement and each requisite post-effective amendment to the Registration
Statement are declared effective by the Commission and shall have received
subsequent letters dated as of a date not more than three (3) days prior to the
Effective Date, the date of mailing of the Proxy Statement by FHM and Pan Am as
contemplated herein and the Meeting Date, from Deloitte & Touche, auditors for
Pan Am, addressed to FHM and in form and substance reasonably satisfactory to
FHM.
7.10 AFFILIATE'S LETTERS. FHM shall have received a letter in the form
of Exhibit C hereto executed by each of the Shareholders and from each other
Person who may, in the opinion of FHM, be deemed "affiliates" of Pan Am within
the meaning of Rule 145 under the Securities Act.
7.11 BOARD APPROVAL; FAIRNESS OPINION. The Board of Directors of FHM
shall, within forty-five (45) days from the date hereof (the "Cut-Off Date"), in
its absolute discretion, have authorized the consummation of the transactions
contemplated hereby. In connection therewith, FHM shall have received by the
Cut-Off Date from an investment banking firm or other advisor or consultant an
opinion, or other advice, to the effect that the Exchange Ratio is fair from a
financial point of view to FHM and its shareholders or other advice acceptable
to the Board of Directors, which opinion or advice shall not have been withdrawn
or modified prior to the Effective Time. Within five (5) business days after the
Cut-Off Date, FHM may elect to waive any or both of the conditions contained in
this Section 7.11 or may terminate this Agreement; provided, however, that such
right to terminate must be exercised within five (5) business days after the
Cut-Off Date or shall be deemed waived.
7.12 PAN AM TRANSACTIONS. The transfer of the tangible and intangible
assets to Pan Am and the other transactions contemplated by the Contribution
Agreement shall have been consummated in accordance with the terms of the
Contribution Agreement, other than with respect to the items set forth on
SCHEDULE 7.12 hereof, which the Board of Directors of Pan Am may postpone until
a time after the Effective Time. The Contribution Agreement shall be in full
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force and effect and binding upon all parties thereto in accordance with its
terms.
7.13 CONFORMITY WITH APPLICATIONS. Pan Am and its Subsidiaries shall be
in material compliance with all material business plans, budgets or projections
submitted in connection with any applications made to the FAA or the DOT, as may
be amended, supplemented or modified from time to time in a manner which is not,
when considered as a whole, materially inconsistent in any material adverse
respect with such initial submissions.
7.14 LICENSES. All Licenses required to be procured from the FAA and
the DOT, and all material Licenses required from any other Person in order for
Pan American World Airways, Inc., a Florida corporation, to commence operations
as an air carrier in a manner substantially in accordance with all material
documents submitted in connection with applications made to the DOT and FAA (as
may be amended, supplemented or modified from time to time in a manner which is
not materially adverse of which is otherwise reasonably acceptable to FHM) shall
have been procured without imposition of unduly burdensome conditions or
restrictions; provided, however, if any federal agency has advised Pan Am and
FHM in writing that the (i) primary or sole basis of withholding a License is
the consummation of the Merger or requirement for Pan Am to have the funds to be
acquired by it pursuant to the Merger and (ii) granting of such License will
occur, unconditionally, immediately following consummation of the Merger or the
acquisition of the funds of FHM pursuant to the Merger, then such condition will
be waived with respect to such License provided that each and every other
material License from the FAA and the DOT or any other Person has been procured
on the terms provided herein and that no other material License from any other
Person remains to be procured.
7.15 EMPLOYMENT AGREEMENT. Pan Am shall have entered into an employment
agreement with Martin R. Shugrue containing the material terms set forth in the
term sheet attached hereto as Exhibit D.
7.16 BANKRUPTCY COURT APPROVAL. Approval of the transactions
contemplated in the Contribution Agreement, this Agreement and the Agreement of
Merger shall have been received from the Bankruptcy Court for the Southern
District of New York ("Bankruptcy Court Approval") without imposition of any
conditions on Pan Am, FHM or Sub. If this condition is not fulfilled within
forty-five (45) days from the date hereof (the "Bankruptcy Approval Date"), FHM
may elect to waive such condition or may terminate this Agreement; provided,
however, that such right to terminate must be exercised within five (5) business
days after the Bankruptcy Approval Date or shall be deemed waived.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PAN AM
All of the obligations of Pan Am under this Agreement are subject to
the satisfaction at or prior to the Effective Time of each and every one of the
following conditions precedent (any of which may be waived in writing by Pan Am
in its sole discretion):
8.1 REPRESENTATIONS AND WARRANTIES TRUE. Each of the representations
and warranties of FHM and Sub contained herein or in any certificate or document
delivered by FHM or Sub pursuant to the provisions hereof or in connection with
the transactions contemplated hereby shall be true and correct in all material
respects (except for such representations and warranties qualified by
materiality which shall be true and correct in all respects) on and as of the
Effective Time with the same force and effect as though made on and as of such
date.
8.2 PERFORMANCE. FHM and Sub shall have performed and complied in all
material respects with all of the agreements, covenants and obligations required
under this Agreement to be performed or complied with by them prior to or at the
Effective Time (except for agreements, covenants and obligations set forth
herein to be performed or complied with prior to or at the Effective Time which
are qualified by materiality, which shall have been performed or complied with
in all respects).
8.3 CERTIFICATES. FHM and Sub shall have delivered to Pan Am
certificates executed by the President and Chief Financial Officer of FHM and
Sub, as applicable, dated the Effective Date, certifying in such detail as Pan
Am may reasonably request, that: (i) the conditions specified in Sections 8.1
and 8.2 (insofar as they are to be performed by FHM or Sub) have been fulfilled;
and (ii) attached to such certificate is a true and correct copy of the
resolutions of the Board of Directors of FHM and Sub authorizing the execution,
delivery and performance of this Agreement and the Agreement of Merger by FHM
and Sub.
8.4 NONOCCURRENCE OF CERTAIN EVENTS. There shall not have occurred any
event or condition which has adversely affected or may adversely affect in any
material respect the condition (financial or otherwise) of FHM or its assets,
liabilities (whether absolute, accrued, contingent or otherwise), earnings,
business, operations or prospects, which in no event shall include an FHM
Redemption. In addition, no litigation, arbitration or other legal or
administrative proceeding shall have been commenced or shall be pending by or
before any Court or Agency, and no Law shall have been enacted after the date of
this Agreement, and no judicial or administrative decision shall have been
rendered which (i) enjoins
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or prohibits the consummation of all or any of the transactions contemplated by
this Agreement or the Agreement of Merger or (ii) is an action by any foreign or
domestic, national or local government, or any agency thereof, which seeks to
enjoin or prohibit the consummation of all or any of the transactions
contemplated by this Agreement or the Agreement of Merger.
8.5 SHAREHOLDER APPROVALS. Each of FHM and Pan Am shall have obtained
the approval of their respective shareholders required for the consummation of
the transactions contemplated herein, which in the case of FHM, shall mean the
shareholder approval set forth in the FHM Prospectus.
8.6 REGISTRATION STATEMENT. The Registration Statement and all
requisite post-effective amendments to the Registration Statement shall have
been declared effective and there shall not be in effect a stop order with
respect thereto.
8.7 OPINION OF FHM'S COUNSEL. Pan Am shall received from Stearns Weaver
Miller Weissler Alhadeff & Sitterson, P.A., counsel to FHM, an opinion letter in
form and substance substantially in the form set forth in Exhibit E attached
hereto.
8.8 CONSENTS. FHM shall have obtained all material Consents and Orders
as may be required in connection with the consummation of the transactions
contemplated hereby.
8.9 BANKRUPTCY COURT APPROVAL. Bankruptcy Court Approval shall have
been procured by the Bankruptcy Approval Date; provided, however, that such
right to terminate must be exercised within five (5) business days after the
Bankruptcy Approval Date or shall be deemed waived; and provided, further, that
if FHM waives as a condition precedent to its obligations to close the
transactions contemplated hereby the procurement of Bankruptcy Court Approval,
then this Section 8.9 shall be deemed of no force and effect and, accordingly,
Pan Am shall be required to close the transactions contemplated hereby
notwithstanding the failure to procure Bankruptcy Court Approval.
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ARTICLE IX
TERMINATION FEE
In the event that the Merger is not consummated because of the failure
of the shareholders of Pan Am to approve the Merger at the shareholders meeting
of Pan Am contemplated in Section 5.8 hereof, and if any of the shareholders of
Pan Am as of the date hereof or any Affiliate thereof does not vote all of its
shares in Pan Am in favor of the Merger, then Pan Am shall immediately, upon
demand by FHM, pay to FHM a termination fee equal to the sum of (a) One Million
Dollars ($1,000,000) and (b) all costs and expenses incurred by FHM in
connection with the transactions contemplated hereby, by wire transfer of
immediately available funds, to an account designated by FHM in its notice of
demand; provided however, that the termination fee provided herein shall not be
payable in the event that FHM has failed to comply with the material terms of
this Agreement in any material respect.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. Any notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given, received or made as of the date sent if
delivered personally or as of the first business day after the date sent, if
sent by prepaid overnight carrier to the parties at the following addresses (or
at such other addresses as shall be specified by the parties by like notice):
IF TO PAN AM:
Pan Am World Airways, Inc.
9300 N.W. 36th Street
Miami, FL 33178
Attention: Charles E. Cobb, Jr.
Martin R. Shugrue, Jr.
John J. Sicilian, Esq.
John J. Ogilby, Jr., Esq.
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WITH A COPY TO:
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Facsimile: (305) 579-0717
Attention: Fernando C. Alonso, Esq.
IF TO FHM OR SUB:
Frost Hanna Mergers Group, Inc.
7700 West Camino Real, Suite 222
Boca Raton, Florida 334531
Attention: Mark J. Hanna
Richard Frost
WITH A COPY TO:
Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.
Museum Tower
Suite 2200
150 West Flagler Street
Miami, Florida 33130
Facsimile: (305) 789-3395
Attention: Teddy D. Klinghoffer, Esq.
10.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral, among the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended or
modified in any way except by a written instrument executed by all of the
parties hereto.
10.3 BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto, their respective heirs, estates,
personal representatives, legal representatives, successors and assigns.
10.4 ASSIGNMENT. The rights and obligations of the parties under this
Agreement may not be assigned.
10.5 WAIVER. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether or
not similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly so provided.
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10.6 NO THIRD PARTY BENEFICIARY. Except for the provisions of Section
5.12 which are for the benefit of the officers and directors of FHM and Sub,
nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any Person other than the parties hereto and
their respective heirs and permitted successors or assigns hereunder, any rights
or remedies under or by reason of this Agreement.
10.7 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of the Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, section or
sections, or subsection or subsections, had not been inserted.
10.8 EXPENSES. All legal, accounting, printing, filing and other costs
and expenses incurred in connection with this Agreement, and any of the
transactions contemplated hereby shall be borne by the party incurring such
expenses. No party shall be obligated for any cost or expense incurred by any
other party unless this Agreement expressly so provides.
10.9 SECTION HEADINGS. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the several parties hereto in separate counterparts, each of
which shall be deemed to be one and the same instrument.
10.11 LITIGATION; PREVAILING PARTY. In the event of any litigation with
regard to this Agreement, the prevailing party shall be entitled to receive from
the non-prevailing party and the non-prevailing party shall pay all reasonable
fees and expenses of counsel for the prevailing party.
10.12 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned:
10.12.1 By the mutual consent of Pan Am and FHM;
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10.12.2 By FHM and Sub at any time after August 30, 1996 if,
by that date, the conditions set forth in Article VII hereof have not been
satisfied or waived;
10.12.3 By Pan Am, at any time after August 30, 1996, if, by
that date, the conditions set forth in Article VIII hereof have not been
satisfied or waived;
10.12.4 By FHM, upon written notice provided to Pan Am, if
there has been any material misrepresentation in this Agreement by Pan Am or a
material breach by Pan Am of any of the warranties or covenants of Pan Am set
forth herein; or
10.12.5 By Pan Am, upon written notice provided to FHM, if
there has been any material misrepresentation by FHM or Sub, or a material
breach by FHM or Sub of any of the warranties or covenants of FHM or Sub set
forth herein.
10.12.6 By FHM within five (5) business days after the later
of the date FHM receives the Audited Pan Am Balance Sheet or the Delivery Date
(as defined in the Contribution Agreement), if (i) the Audited Pan Am Balance
Sheet is materially different than the Financial Statements provided in
accordance with Section 4.9 hereto or (ii) any party to the Contribution
Agreement has made any claims against Pan Am or any party to the Contribution
Agreement based upon the Audited Pan Am Balance Sheet within five (5) business
days after having received the Audited Pan Am Balance Sheet.
10.12.7 By FHM within five (5) business days after the Cut-Off
Date, if the conditions set forth in Section 7.11 have not been met by the
Cut-Off Date.
10.12.8 By FHM or Pan Am, within five (5) business days after
the Bankruptcy Approval Date, if Bankruptcy Court Approval has not been procured
by such date; provided, however, that Pan Am may not exercise this right of
termination if FHM elects not to exercise it.
If the Merger does not occur because of the failure of any
party to fulfill its obligations hereunder or as a result of a breach of the
representations and warranties of such party, then the non-defaulting party
shall have available to it all legal and equitable rights and remedies.
10.13 INJUNCTIVE RELIEF. It is possible that remedies at law may be
inadequate and, therefore, the parties hereto shall be entitled to equitable
relief including, without limitation, injunctive relief, specific performance or
other equitable remedies
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in addition to all other remedies provided hereunder or available to the parties
hereto at law or in equity.
10.14 REMEDIES CUMULATIVE. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.
10.15 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Florida, without regard to the conflict of laws principles thereof. The parties
hereto hereby irrevocably consent that any suit, legal action or proceeding
against any of them or any of their respective properties with respect to this
Agreement may be brought in any Florida State or United States Federal court, as
the other party may elect, and, by execution and delivery of this Agreement,
each of the parties hereto hereby irrevocably submits to and accepts the
jurisdiction of the aforesaid courts. The parties hereby irrevocably waive any
objection they may now or hereafter have to the laying of venue of any suit,
legal action or proceeding relating to this Agreement in any court located in
the State of Florida and hereby further irrevocably waive any claim that a court
located in the State of Florida is not a convenient forum for any such suit
legal action or proceedings.
10.16 PARTICIPATION OF PARTIES; CONSTRUCTION. The parties hereto
acknowledge that this Agreement and all matters contemplated herein, have been
negotiated among all parties hereto and their respective legal counsel and that
all such parties have participated in the drafting and preparation of this
Agreement from the commencement of negotiations at all times through the
execution hereof. This Agreement shall be construed and interpreted without
regard to presumption or other rule or interpretation against the party who may
have had primary responsibility for drafting this Agreement. Any reference in
this Agreement to Pan Am as it relates to the period of time immediately after
the Effective Time and thereafter shall be deemed to include the surviving
corporation of the Merger.
10.17 REPRESENTATIONS AND COVENANTS NOT DIMINISHED. The force and
effect of any and all representations, warranties and covenants contained in
this Agreement shall not be diminished in any manner by virtue of the existence
of similar representations, warranties or covenants contained in any other
document executed in connection with the transactions contemplated herein.
A-51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
ATTEST: FROST HANNA MERGERS GROUP, INC.
By: By: /s/ RICHARD B. FROST
----------------------------- -----------------------------------
Richard B. Frost,
Chairman of the Board
ATTEST: PA ACQUISITION CORPORATION
By: By: /s/ MARK J. HANNA
----------------------------- -----------------------------------
Mark J. Hanna, President
ATTEST: PAN AMERICAN WORLD AIRWAYS,
INC.
By: By: /s/ MARTIN R. SHUGRUE
----------------------------- -----------------------------------
Martin R. Shugrue,
Chief Executive Officer
A-52
<PAGE>
APPENDIX B
PROPOSED RESTATED ARTICLES OFINCORPORATION
OF FROST HANNA MERGERS GROUP, INC.
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
FROST HANNA MERGERS GROUP, INC.
Pursuant to Sections 607.1006 and 607.1007 of the Florida Business
Corporation Act, the following Amended and Restated Articles of Incorporation of
Frost Hanna Mergers Group, Inc., a Florida Corporation (the "Corporation") were
duly adopted and approved by at least a majority of the shareholders at a
Special Meeting of Shareholders of the Corporation held on ____________, 1996,
and (ii) all of the directors of the Corporation by unanimous written consent in
lieu of meeting on ____________, 1996. The number of votes cast for the
amendment was sufficient for approval. The undersigned President of the
Corporation hereby executes and submits for filing with the Department of State,
State of Florida, these Amended and Restated Articles of Incorporation, to read
as follows:
ARTICLE I. - NAME
The name of the Corporation is Pan Am Corporation (the "Corporation").
ARTICLE II. - PURPOSE
The Corporation is organized for the purposes of transacting any or all
lawful business for which corporations may be organized under the laws of the
United States and the laws of the State of Florida.
ARTICLE III. - CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue is two hundred million (200,000,000) shares, of which one
hundred million (100,000,000) shares shall be "Common Stock," par value $.0001
per share, and of which one hundred million (100,000,000) shares shall be
"Preferred Stock," par value $.0001 per share. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of these
Amended and Restated Articles of Incorporation, to provide for the issuance of
shares of Preferred Stock in one or more series by adoption of amendments to the
articles of incorporation, to establish from time to time the number of shares
to be included in such series and to fix the designation, voting powers,
preferences and relative participating, optional or other special rights of the
shares of each of such series, and the qualifications, limitations or
restrictions thereof. The Board of Directors may authorize the issuance of stock
to such persons upon such terms and for such consideration in cash, property or
services as the Board of Directors may determine and as may be allowed by law.
The just valuation of such property or services shall be fixed by the Board of
Directors. All such stock when issued shall be fully paid and exempt from
assessment.
ARTICLE IV. - REGISTERED
OFFICE AND AGENT
The name of the registered agent of the Corporation and the street
address of the registered office of this Corporation is:
John J. Ogilby, Jr., Esq.
Pan American World Airways, Inc.
9300 N.W. 36th Street
Doral Building, 2nd Floor
Miami, Florida 33178
<PAGE>
ARTICLE V. - CORPORATE MAILING ADDRESS
The principal office and mailing address of the Corporation is:
9300 N.W. 36th Street
Miami, Florida 33178
ARTICLE VI. - INCORPORATOR
The name and address of the incorporator of the Corporation is as
follows:
NAME ADDRESS
Carrie F. Rinehart 1110 Brickell Avenue
Penthouse Suite
Miami, FL 33131
ARTICLE VII. - POWERS
The Corporation shall have all of the corporate powers enumerated under
Florida law.
ARTICLE VIII. - DIRECTOR-CONFLICTS OF INTEREST
No contract or other transaction between the Corporation and one or
more of its directors, or between the Corporation and any other corporation,
firm, association or other entity in which one or more of the directors are
directors or officers, or are financially interested, shall be either void or
voidable because of such relationship or interest or because such director or
directors are present at the meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction or
because his or her votes are counted for such purpose, if:
a) The fact of such relationship or interest is disclosed or known to
the Board of Directors, or a duly empowered committee thereof, which authorizes,
approves or ratifies the contract or transaction by a vote or consent sufficient
for such purpose without counting the vote or votes of such interested director
or directors; or
b) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote or written consent; or
c) The contract or transaction is fair and reasonable as
to the Corporation at the time it is authorized by the Board, committee or the
shareholders.
A director of the Corporation may transact business, borrow, lend, or
otherwise deal or contract with the Corporation to the full extent and subject
only to the limitations and provisions of the laws of the State of Florida and
the laws of the United States.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
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<PAGE>
ARTICLE IX. - NO ANTI-TAKEOVER LAW GOVERNANCE
The Corporation shall not be governed by Sections 607.0901
or 607.0902 of the Florida Business Corporation Act or any laws related thereto.
ARTICLE X. - INDEMNIFICATION
The Corporation shall indemnify and shall advance expenses on behalf of
its officers and directors to the fullest extent permitted by law in existence
either now or hereafter.
ARTICLE XI. - FISCAL YEAR
The fiscal year of this Corporation shall be the calendar year, unless
otherwise established by the Board of Directors.
ARTICLE XII. - DURATION
The duration of the Corporation is perpetual, unless sooner liquidated
or dissolved in accordance with law.
The undersigned has executed these Amended and Restated Articles of
Incorporation this _____ day of ___________, 1996.
-----------------------------------
Martin R. Shugrue, President
ACCEPTANCE OF REGISTERED AGENT
Having been named to accept service of process for FROST HANNA
MERGERS GROUP, INC. at the place designated in the Amended and Restated Articles
of Incorporation, JOHN J. OGILBY, JR. agrees to act in this capacity, and agrees
to comply with the provisions of Section 607.0505, Fla. Stat. (1991), relative
to keeping open such office until such time as it shall notify the Corporation
of his resignation.
Dated this _____ day of ____________, 1996.
------------------------
John J. Ogilby, Jr.
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<PAGE>
APPENDIX C
PAN AMERICAN WORLD AIRWAYS, INC. 1996 STOCK OPTION PLAN
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC.
1996 STOCK OPTION PLAN
1. PURPOSES. The purposes of this 1996 Stock Option Plan (the "Plan") are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries as well as other individuals who perform services for the
Company or its Subsidiaries, and to promote the success of the Company's
business. Options granted hereunder may be either Incentive Stock Options or
Nonqualified Stock Options, at the discretion of the Committee and as reflected
in the terms of the written option agreement.
2.DEFINITIONS. As used herein, the following definitions shall apply:
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the common stock, $.0001 par value per share,
of the Company.
"COMPANY" shall mean Pan American World Airways, Inc., a Florida
corporation.
"COMMITTEE" shall mean the committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
"CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence of any
interruption or termination of service as an Employee. Service as an
Employee shall not be considered interrupted for purposes of the Plan,
in the case of sick leave, military leave, or any other bona fide leave
of absence approved by the Committee.
"EMPLOYEE" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary. The payment of a
director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"INCENTIVE STOCK OPTION" shall mean a stock option intended to qualify
as an "incentive stock option" within the meaning of Section 422 of the
Code.
"NONQUALIFIED STOCK OPTION" shall mean a stock option not intended to
qualify as an "incentive stock option" within the meaning of Section
422 of the Code.
"OPTION" shall mean a stock option granted pursuant to the Plan.
"OPTIONED STOCK" shall mean the Common Stock subject to an Option.
"OPTIONEE" shall mean the recipient of an Option.
"PARENT" shall mean a "parent corporation" of the Company, whether now
or hereafter existing, as defined in Section 424(e) of the Code.
"RULE 16B-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act or any successor rule.
<PAGE>
"SHARE" shall mean a share of Common Stock, as adjusted in accordance
with Section 13 of the Plan.
"SUBSIDIARY" shall mean a "subsidiary corporation" of the Company,
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
3. STOCK. Subject to the provisions of Section 13 of the Plan, the maximum
aggregate number of Shares which may be issued under the Plan is 600,000. If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for further grant
under the Plan.
4.ADMINISTRATION.
(a) COMMITTEE. The Plan at all times shall be administered by a
Committee appointed by the Company's Board of Directors. The Committee shall
consist of not less than two members of the Board of Directors, each of whom is
a "disinterested person" as defined in Rule 16b-3 and an "outside director" as
defined for purposes of Section 162(m) of the Code.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion: (i) to grant Incentive
Stock Options or Nonqualified Stock Options; (ii) to determine the fair market
value of the Common Stock; (iii) to determine the exercise price per Share of
Options to be granted; (iv) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to determine the vesting schedule of Options to
be granted; (vi) to prescribe, amend and rescind rules and regulations relating
to the Plan; (vii) to determine the terms and provisions of each Option granted
under the Plan (which need not be identical); (viii) to accelerate the exercise
date of any Option; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Committee; (x) subject to the provisions of the Plan and subject
to such additional limitations and restrictions as the Committee may impose, to
delegate to specific members of management or to a committee of management
personnel the authority to determine: (A) the persons to whom, and the time and
times at which, Options shall be granted and the number of Shares to be
represented by each Option, (B) the vesting schedule of Options; (C) the term of
Options, and (D) other terms and conditions of any Options; provided that the
Committee shall not have the authority to delegate such matters with respect to
awards to be granted to any person subject to Section 16 of the Exchange Act or
any "covered employee" under Section 162(m) of the Code; and (xi) to interpret
the Plan and make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committee may require the voluntary surrender of
all or any portion of any Option granted under the Plan as a condition precedent
to a grant of a new Option to such Optionee. Subject to the provisions of the
Plan, such new Option shall be exercisable at the price, during the period and
on such other terms and conditions as are specified by the Committee at the time
the new Option is granted. Upon surrender, the Options surrendered shall be
unexercisable and the Shares previously subject to such Options shall be
available for the grant of other Options.
(c) EFFECT OF THE COMMITTEE'S DECISION. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
Optionees.
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<PAGE>
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, non-Employee directors
(in accordance with the provisions of Section 6 of the Plan), independent
contractors and agents. Any person who has been granted an Option may, if he is
otherwise eligible, be granted an additional Option or Options. Subject to the
provisions of Section 13 of the Plan, the maximum number of Shares with respect
to which Options may be granted under the Plan to any Employee in any calendar
year is 1% of the authorized and outstanding Shares of Common Stock on the date
of adoption of the Plan.
Except as otherwise provided under the Code, to the extent that the aggregate
fair market value of stock for which Incentive Stock Options (under all stock
option plans of the Company and of any Parent or Subsidiary) are exercisable for
the first time by an Employee during any calendar year exceeds $100,000, such
Options shall be treated as Nonqualified Stock Options. For purposes of this
limitation, (a) the fair market value of stock is determined as of the time the
Option is granted, (b) the limitation is applied by taking into account Options
in the order in which they were granted, and (c) Incentive Stock Options granted
before 1987 are not to be taken into account.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. AUTOMATIC GRANT OF OPTION TO NON-EMPLOYEE DIRECTORS. Subject to Section 3 of
the Plan, each person who is a non-employee director of the Company shall (i)
upon acceptance of a directorship, receive an Option to acquire 20,000 Shares
which shall vest ratably over three years (regardless of whether such director
serves for such three-year period) and (ii) after such director has served in
such capacity for a period of six months, then on the first business day
following any annual meeting of shareholders of the Company thereafter, such
person shall automatically receive on such date an Option to acquire 10,000
Shares as a director and an additional 5,000 Shares as the chair of any
committee of the Board of Directors, all as adjusted in accordance with Section
13 of the Plan. The exercise price for the Shares to be issued pursuant to
Options granted under this Section 6 shall be as set forth in Section 9(a)(ii)
of the Plan The Options granted pursuant to this Section 6 shall have a term of
ten years from the date of grant. The foregoing formula may not be amended more
than once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended or the rules
thereunder. Non-employee directors shall have the right, if they so wish, to
decline receipt of any Options to be granted under this Section 6.
7. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board
of Directors of the Company; provided that, if the Plan is not approved by the
shareholders of the Company in accordance with Section 18 of the Plan within
twelve months after the date of adoption by the Board of Directors, the Plan and
any Options granted thereunder shall terminate and become null and void. The
Plan shall continue in effect until April 1, 2006 unless sooner terminated in
accordance with Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be ten years from the date of
grant thereof or, except for Options granted pursuant to Section 6 of the Plan,
such shorter term as may be determined by the Committee. However, in the case of
an Incentive Stock Option granted to an Employee who, immediately before the
Incentive Stock Option is granted, owns stock representing more than 10% of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the
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<PAGE>
Incentive Stock Option shall be five years from the date of grant thereof or
such shorter time as may be determined by the Committee.
9. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Committee,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option: (A) granted to
an Employee who, immediately before the grant of such Incentive Stock Option,
owns stock representing more than 10% of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the fair market value per Share on the date of
grant; and (B) granted to any other Employee, the per share exercise price shall
be no less than the fair market value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share
exercise price shall be no less than the fair market value per Share on the date
of grant and, with respect to Options granted to non-Employee directors as
provided in Section 6 of the Plan, shall be equal to the fair market value per
Share on the date of the grant.
(b) Notwithstanding Section 9(a) of the Plan, in the event the Company
substitutes an Option for a stock option issued by another corporation in
connection with a corporate transaction, such as a merger, consolidation,
acquisition of property or stock, separation (including a spin-off or other
distribution of stock or property), reorganization (whether or not such
reorganization comes within the definition of such term in Section 368 of the
Code) or partial or complete liquidation involving the Company and such other
corporation, the exercise price of such substituted Option shall be as
determined by the Committee in its discretion (subject to the provisions of
Section 424(a) of the Code in the case of a stock option that was intended to
qualify as an "incentive stock option") to preserve, on a per share basis
immediately after such corporate transaction, the same ratio of fair market
value per option share to exercise price per share which existed immediately
prior to such corporate transaction under the option issued by such other
corporation.
(c) The fair market value per Share shall be determined by the
Committee in its discretion; provided, however, that if the Common Stock is
listed on a stock exchange, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported in the
Wall Street Journal.
(d) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of cash or check in an amount equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised or such other consideration as the Committee shall determine. Payment
may also be made, in the discretion of the Committee, by delivery (including by
facsimile) to the Company or its designated agent of an executed irrevocable
option exercise form together with irrevocable instructions to a broker-dealer
designated by the Company to sell (or margin) a sufficient portion of the Shares
and deliver the sale (or margin loan) proceeds directly to the Company to pay
for the exercise price; provided that Optionees subject to Section 16 of the
Exchange Act shall not be entitled to make payment by such method until either
the holders of a majority of the outstanding shares of the Company entitled to
vote have approved an amendment to the Plan permitting payment by such method or
counsel to the Company has advised the Committee that such approval is not
required by Rule 16b-3. For
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<PAGE>
purposes of this Section 9(d), the exercise date of such Option shall be the
date on which such documents have been delivered to the Company or its
designated agent.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee, including performance criteria with respect to the Company and/or the
Optionee, and as shall be permissible under the terms of the Plan. An Option may
not be exercised for a fraction of a Share. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Committee, consist of any consideration and method of payment allowable
under Section 9(d) of the Plan.
(b) RIGHTS AS A SHAREHOLDER. Until the issuance, which in no event
(except as provided in Section 16 of the Plan) will be delayed more than thirty
days from the date of the exercise of the Option, of the stock certificate
evidencing such Shares (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in the
Plan. Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
11. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF STATUS AS AN EMPLOYEE. If any Employee ceases to be
in Continuous Status as an Employee, other than (i) by reason of retirement or
(ii) as a result of a termination by the Company for deliberate, willful or
gross misconduct, any Option held by such Employee shall be exercisable within
six months after the date he ceases to be in Continuous Status as an Employee
(or such longer period as the Committee shall determine) to the extent the
Employee was entitled to exercise such Option as of the date of his termination
of employment.
(b) RETIREMENT OF OPTIONEE. If any Employee ceases to be in Continuous
Status as an Employee by reason of such Employee's retirement, any Option held
by such Employee shall be exercisable within thirty-six months after the date he
ceases to be in Continuous Status as an Employee to the extent that he was
entitled to exercise such Option as of the date of his retirement. For purposes
of the Plan, "retirement" means termination of services as an Employee at or
after age 65 other than as a result of deliberate, willful or gross misconduct.
(c) TERMINATION FOR MISCONDUCT. If any Employee ceases to be in
Continuous Status as an Employee as a result of a termination by the Company for
deliberate, willful or gross misconduct, any Option held by such Employee shall
terminate immediately and automatically on the date of his termination as an
Employee unless otherwise determined by the Committee.
(d) DEATH OF OPTIONEE. Subject to the provisions of the Plan, any
Option held by an Optionee at the time of his death may be subsequently
exercised by the legal representative of the Optionee's estate
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<PAGE>
or by the person or persons who acquired the right to exercise the Option by
bequest or inheritance but only to the extent the Optionee was entitled to
exercise such Option as of the date of his death. In the event of the death of
an Optionee during the final three months of the time period specified in
Section 11(a) or 11(b), as applicable, the Option may be exercised, at any time
within three 3 months following the date of his death, by the Optionee's estate
or by a person or persons who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent the Optionee was entitled to
exercise such Option as of the date of his death.
(e) EXPIRATION OF OPTIONS. None of the events described above in this
Section 11 shall extend the period of exercisability of the Option beyond the
expiration date thereof. To the extent that an Optionee was not entitled to
exercise an Option on the date he ceased to be in Continuous Status as an
Employee or the date of the Optionee's death, or if he does not exercise such
Option (which he was entitled to exercise) within the time period specified in
this Section 11, the Option shall terminate and become null and void.
Notwithstanding the provisions of Section 11(a), 11(b) or 11(d) of the Plan, no
Options shall be exercisable after an Optionee ceases to be in Continuous Status
as an Employee in the event the Optionee shall have during the time period in
which his Options are exercisable, engaged in deliberate action which, as
determined by the Committee, causes substantial harm to the interests of the
Company or constitutes a breach of any obligation of the Optionee to the
Company. In such event, the Optionee shall forfeit all rights to any unexercised
Option as of the date of such deliberate action.
12. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent and distribution or, in the case of a
Nonqualified Stock Option, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder, and, except with respect to a
qualified domestic relations order as aforesaid, may be exercised, during the
lifetime of the Optionee, only by the Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CHANGE IN CONTROL; DISSOLUTION.
(a) Subject to any required action by the shareholders of the Company,
each of (i) the number of shares of Common Stock covered by each outstanding
Option, (ii) the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, (iii) the price per share of Common Stock covered by each such
outstanding Option, (iv) the number of shares of Common Stock to be granted to
non-Employee directors pursuant to Section 6 of the Plan, and (v) the maximum
number of Shares with respect to which Options may be granted to any Employee,
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split or the payment of a
stock dividend with respect to the Common Stock or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that (a) each such
adjustment with respect to an Incentive Stock Option shall comply with the rules
of Section 424(a) of the Code (or any successor provision) and (b) in no event
shall any adjustment be made which would render any Incentive Stock Option
granted hereunder other than an "incentive stock option" as defined in Section
422 of the Code; and provided further, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities
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<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) If: (1) any person (as defined for purposes of Section 13(d) and
14(d) of the Exchange Act, but excluding the Company and any of its wholly-owned
subsidiaries) acquires direct or indirect ownership of 50% or more of the
combined voting power of the then outstanding securities of the Company as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise; or (2) the shareholders of the Company
approve (A) any consolidation or merger of the Company in which the Company is
not the surviving corporation (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of the surviving corporation immediately after the
merger), or (B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, of the assets
of the Company to an entity which is not a wholly-owned subsidiary of the
Company, then the exercisability of each Option outstanding under the Plan shall
be automatically accelerated so that each such Option shall, immediately prior
to the specified effective date of any of the foregoing transaction, become
fully exercisable with respect to the total number of Shares subject to such
Option and may be exercisable for all or any portion of such Shares. Upon the
consummation of any of such transaction, all outstanding Options under the Plan
shall, to the extent not previously exercised, terminate and cease to be
outstanding. Notwithstanding anything to the contrary set forth herein, the
provisions of this Section 13(b) shall not be triggered as a result of the
Merger of a wholly-owned subsidiary of Frost Hanna Mergers Group, Inc., with and
into the Company.
(c) In the event of the proposed dissolution or liquidation of the
Company, all outstanding Options will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee.
14. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall be the date
on which the Committee makes the determination granting such Option or such
later date as the Committee may specify. Notice of the determination shall be
given to each Employee to whom an Option is so granted within a reasonable time
after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Subject to the limitations set forth in Section 6 of the Plan, the
Committee may amend or terminate the Plan from time to time in such respects as
the Committee may deem advisable; provided that, the following revisions or
amendments shall require approval of the Company's shareholders in accordance
with Section 18 of the Plan (i) any increase in the number of Shares subject to
the Plan, other than in connection with an adjustment under Section 13 of the
Plan; (ii) any change in the designation of the class of persons eligible to be
granted Options; (iii) any material increase in the benefits accruing to
participants under the Plan; or (iv) any increase in the maximum number of
Shares with respect to which Options may be granted to any Employee.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination or
modification of the Plan shall in any manner affect any Option theretofore
granted without the consent of the Optionee, except that the Committee may amend
or modify the Plan in a manner that does affect Options theretofore granted upon
a finding by the Committee that such amendment or modification is in the best
interest of shareholders or Optionees.
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<PAGE>
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the advice of counsel for the Company with
respect to such compliance. As a condition to the exercise of an Option, the
Company may require the person exercising such Option to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
17. OPTION AGREEMENTS. Options shall be evidenced by written option agreements
in such form as the Committee shall approve. Such agreements shall contain such
provisions, including, without limitation, restrictions upon the exercise of the
Option, as the Committee shall determine.
18. SHAREHOLDER APPROVAL. The effectiveness of the Plan shall be subject to
approval by the shareholders of the Company, in a separate vote, within twelve
months after the date the Plan is adopted. The approval of such shareholders of
the Company shall be solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder, and shall
be obtained, at a duly held shareholders' meeting, by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon.
19. INDEMNIFICATION OF COMMITTEE MEMBERS. In addition to such other rights of
indemnification as they may have as Directors, the members of the Committee
shall be indemnified by the Company against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connecdtion with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in settlement thereof (provided such settlement
is approved to the extent required by and in the manner provided by the Articles
of Incorporation and Bylaws of the Company), or paid by them in satisfaction of
a judgment in any such action, suit or proceeding that such Committee member did
not act in good faith and in a manner he reasonably believed to be in and not
opposed to the best interests of the Company; provided that within 60 days after
institution of any such action, suit or proceeding a Committee member shall in
writing offer the Company the opportunity, at its own expense, to handle and
defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. HEADINGS. Headings of Articles and Sections hereof are inserted for
convenience and reference; they constitute no part of the Plan.
22. WITHHOLDING. The Company and any Subsidiary may, to the extent permitted by
law, deduct from any payments or transfers of any kind due to an Optionee the
amount of any federal, state, local or foreign taxes required by any
governmental regulatory authority to be withheld or otherwise deducted with
respect to the Options or the Optioned Stock.
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<PAGE>
23. GOVERNING LAW. The Plan, the Options granted hereunder and all related
matters shall be governed by, and construed and enforced in accordance with, the
laws of the State of Florida.
24. COMPLIANCE WITH RULE 16b-3. It is the intent of the Company that this Plan
comply in all respects with Rule 16b-3 (or any successor rule) in connection
with any Option granted to a person who is subject to Section 16 of the Exchange
Act. Accordingly, any provision of this Plan or any Option agreement that does
not comply with the requirements of Rule 16b-3 (or any successor rule) as then
applicable to any such person shall be construed or deemed amended to the extent
necessary to conform to such requirements, except that such automatic amendment
shall not apply to any other participant in the Plan who is not (at the time of
such application) subject to Section 16 of the Exchange Act. Any action taken by
the Committee pursuant to the Plan that does not comply with the requirements of
Rule 16b-3 (or any successor rule) shall be null and void.
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APPENDIX D
FH FAIRNESS OPINION OF MR. HARRIS HERMAN
<PAGE>
HARRIS K. HERMAN
44 Gramercy Park North
New York, New York 10010
May 7, 1996
Board of Directors
Frost Hanna Mergers Group, Inc.
7700 West Camino Real, Suite 222
Boca Raton, Florida 33431
Gentlemen:
You have requested my opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock, $.0001
par value (the "FH Common Stock"), of Frost Hanna Mergers Group, Inc. ("FH") of
the Exchange Ratio (as hereinafter defined) in the proposed merger (the
"Merger") pursuant to the Acquisition Agreement dated as of March 13, 1996 and
the related Agreement and Plan of Merger (collectively, the "Merger Agreement"),
among FH, PA Acquisition Corporation, a wholly-owned subsidiary of FH, and Pan
American World Airways, Inc. ("Pan Am"). Pursuant to the Merger Agreement, at
the effective time of the Merger, each outstanding share of common stock of Pan
Am, par value $.0001, will be converted into the right to receive one share of
FH Common Stock (the "Exchange Ratio"). The terms and conditions of the Merger
are more fully set forth in the Merger Agreement.
In connection with my opinion, I reviewed, among other things: (i) the
Merger Agreement and the financial terms of the Merger set forth therein; (ii)
publicly available financial and operating information with respect to FH; (iii)
financial and operating information with respect to the business, operations and
prospects of Pan Am furnished to me by FH and Pan Am; (iv) drafts of the Joint
Proxy Statement-Prospectus of FH and Pan Am; (v) certain internal analyses and
calculations regarding prospective revenue, cost and use of capital assumptions
provided by Simat, Helliesen & Eichner ("SH&E") who, along with Martin R.
Shugrue and Associates, developed the financial forecasts for Pan Am for the
fiscal years ending 1996 to 1999 included in Pan Am's proposed business plan;
(vi) publicly available industry data; (vii) certain other startup airline
business plans previously analyzed; and (viii) a Department of Transportation
list of startup airlines since 1989 and certain publicly available information
regarding the historical operating performance of such airlines. In addition, I
met with Mr. Martin R. Shugrue, President and CEO of Pan Am, concerning Pan Am's
current plans and strategies with regard to the planned July
<PAGE>
Board of Directors
May 7, 1996
Page 2
startup and the subsequent growth of the airline. As part of my analyses, I also
met with SH&E representatives to discuss issues regarding projected revenue,
expense and capital requirements of Pan Am.
In rendering my opinion, I have assumed and relied upon the
completeness and accuracy of all financial and other information reviewed by me
that was publicly available, furnished or otherwise communicated to me by or on
behalf of the officers, directors, employees, accountants and counsel of FH or
of Pan Am without an independent verification of such information and data. I
have also assumed that the Pan Am financial forecasts which I examined were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the management of Pan Am as to the future financial
performance of Pan Am. My opinion is necessarily based on economic, monetary,
regulatory and market conditions as they exist on, and the information made
available to me as of, the date hereof.
My findings indicate a potential fully diluted internal rate of return
(IRR) over four years for the FH shareholders of 32% to 46% based on the
Business Plan results using a 4.0x to 6.0x EBITDA valuation. The range of
returns would climb to 48% to 64% if the upside potential that I have identified
is realized. These valuations assume the Company requires no additional debt or
equity financing over the four year valuation horizon. The range of potential
IRR's are at an acceptable level for high risk ventures of this general type. I
have also examined the potential fully diluted IRR's for the other investor
constituencies in this transaction and believe they are within the range of
reasonableness. My estimate of an equally likely potential outcome with lower
revenues and higher costs yields an IRR in the range of 10% to 21%. The downside
potential outcome does not yield any return at all.
I am not expressing any opinion as to what the value of the FH Common
Stock actually will be when issued to Pan Am shareholders pursuant to the Merger
or the price at which FH Common Stock will trade subsequent to the Merger.
I have, from time to time, provided various services to SH&E as an
independent contractor and currently utilize certain office and administrative
services provided by SH&E in connection with work for SH&E as an independent
contractor and also in connection with other projects. The Pan Am financial
forecasts and business plan utilized by Pan Am and reviewed by me in connection
with rendering this opinion were prepared by SH&E.
<PAGE>
Board of Directors
May 7, 1996
Page 3
I will receive a fee for my services to FH in connection with the
Merger upon delivery of this opinion. In addition, FH has agreed to reimburse me
for my out-of-pocket expenses, including reasonable fees and expenses of legal
counsel, and to indemnify me against certain liabilities arising out of or in
connection with the rendering of this opinion.
Based upon and subject to the foregoing, it is my opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of FH Common Stock.
Very truly yours,
Harris K. Herman
<PAGE>
APPENDIX E
FLORIDA BUSINESS CORPORATION ACT
<PAGE>
FLORIDA BUSINESS CORPORATION ACT
SECTIONS: 607.1301
607.1302
607.1320
<PAGE>
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.-
The following definitions apply to ss. 607.1302 and 607.1320;
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value
of the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.-
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the to which the
corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled to vote
on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation, other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange pursuant to s. 607.1202, including a sale in dissolution but
not including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a
control-share acquisition;
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(d) Consummation of a plan of share exchange to which the
corporation is a party as the corporation the shares of which will be acquired,
if the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the
shareholder is entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to
any of his shares;
2. Altering or abolishing the voting rights pertaining to any
of his shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification
of any of his shares, when such exchange, cancellation, or reclassification
would alter or abolish his voting rights or alter his percentage of equity in
the corporation, or effecting a reduction or cancellation of accrued dividends
or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his
redeemable shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of
any of his preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his
preferred shares; or
7. Reducing any stated preferential amount payable on any of
his preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his other shares were registered in the names of
different shareholders.
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<PAGE>
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to be acted upon or
to consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.-
(1) (a) If a proposed corporate action creating dissenters' rights
under s. 607.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and
607.1320. A shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated, and
2. Not vote his shares in favor of the proposed action. A
proxy or vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights
under s. 607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if such
a request is not made, within 10 days after the date the corporation received
written consents without a meeting from the requisite number of shareholders
necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder
who elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing
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<PAGE>
an election to dissent shall deposit his certificates for certificated shares
with the corporation simultaneously with the filing of the election to dissent.
The corporation may restrict the transfer of uncertified shares from the date
the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or
the shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value
by a court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such
shareholder is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or within 10 days
after such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date) the corporation
shall make a written offer to each dissenting shareholder who has made demand as
provided in this section to pay an amount the corporation estimates to be the
fair value for such shares. If the corporate action has not been consummated
before the expiration of the 90-day period after the shareholders' authorization
date, the offer may be made conditional upon the consummation of such action.
Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which
the dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
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<PAGE>
(b) A profit and loss statement of such corporation for the
12-month period ended on the date of such balance sheet or, if the corporation
was not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair
rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined
by the court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such
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<PAGE>
offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida
business Corporation Act to indemnify its directors and officers to the extent
permitted in such statute. Article X of the Articles of Incorporation of Frost
Hanna Mergers Group, Inc. (the "Registrant") provides with respect to the
indemnification of directors and officers that the Registrant shall indemnify
its officers and directors to the fullest extent permitted by law in existence
either now or hereafter.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available under Florida law. In addition, each
director will continue to be subject to liability for (a) violations of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for or
assenting to an unlawful distribution; and (d) willful misconduct or a conscious
disregard for the best interests of the Registrant in a proceeding by or in the
right of the Registrant to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. The statute does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of Exhibits filed herewith as part of
the Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2.1 Acquisition Agreement, dated March 13, 1996, among Registrant,
PA Acquisition Corporation ("FH Sub") and Pan American World
Airways, Inc. ("Pan Am"), (included as Appendix A to the Joint
Proxy Statement-Prospectus which forms a part of this
Registration Statement).
3.1 Articles of Incorporation of Registrant.*
II-1
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3.2 Form of Restated Articles of Incorporation of Registrant
(included as Appendix B to the Joint Proxy Statement-
Prospectus which forms a part of this Registration Statement).
3.3 Bylaws of Registrant, as amended.*
3.4 Articles of Incorporation of FH Sub.*
3.5 Bylaws of FH Sub.*
3.6 Articles of Incorporation of Pan Am.*
3.7 Bylaws of Pan Am.*
4.1 Form of certificate evidencing shares of Common Stock of
Registrant.*
5.1 Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. as to the legality of the securities being
issued.
8 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A. as to certain Federal income tax matters.
10.1 1996 Frost Hanna Mergers Group, Inc. Stock Option Plan
(included as Appendix C to the Joint Proxy Statement-
Prospectus which forms a part of this Registration Statement).
10.2 Employment Agreement between Pan Am and Martin R. Shugrue,
Jr., dated March 8, 1996.*
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. (included in Exhibit 5.1).
23.4 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A.
23.5 Consent of Mr. Harris Herman.
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24.1 Power of Attorney (included on the signature page of Part II
of this Registration Statement).
99.1 Form of Proxy of Registrant.
99.2 Form of Proxy of Pan Am.
99.3 Consent of Charles E. Cobb, Jr.
99.4 Consent of Phillip Frost, M.D.
99.5 Consent of Martin R. Shugrue, Jr.
99.6 Consent of John J. Sicilian.
99.7 Consent of Richard C. Pfenniger, Jr.
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* Previously Filed
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes: (a) 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, as amended (the "Act"); (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; and (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; (b) that, for the purpose of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof; and (c) to remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
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 has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (and where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration Statement
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.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
II-4
<PAGE>
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Act, each such post-effective amendment 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.
The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request. The undersigned Registrant hereby undertakes
to supply by means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was not the
subject of and included in the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Frost Hanna Mergers Group, Inc., the Registrant, has duly caused this
Amendment to the Registration Statement on Form S-4 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boca Raton, State
of Florida, on the 19th day of June, 1996.
FROST HANNA MERGERS GROUP, INC.
By: /S/ MARK J. HANNA
------------------------------
Mark J. Hanna, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ RICHARD B. FROST Chief Executive Officer, June 19, 1996
- ------------------------------------ Chairman of the Board
Richard B. Frost
/S/ MARK J. HANNA President, Director June 19, 1996
- ------------------------------------
Mark J. Hanna
/S/ DONALD H. BAXTER Vice President, June 19, 1996
- --------------------------- Secretary, Director
Donald H. Baxter
/S/ MARSHAL E. ROSENBERG Vice-President, Treasurer June 19, 1996
- --------------------------- (Principal Financial and
Marshal E. Rosenberg, Ph.D. Accounting Officer), Director
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
5.1 Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A.
8 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A. as to certain Federal income tax matters.
11 Statement Regarding Computation of Per Share Earnings.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche, LLP.
23.4 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A.
23.5 Consent of Mr. Harris Herman.
99.1 Form of Proxy of Registrant.
99.2 Form of Proxy of Pan Am.
99.3 Consent of Charles E. Cobb, Jr.
99.4 Consent of Phillip Frost, M.D.
99.5 Consent of Martin R. Shugrue, Jr.
99.6 Consent of John J. Sicilian.
99.7 Consent of Richard C. Pfenniger, Jr.
EXHIBIT 5.1
June 19, 1996
Mr. Richard B. Frost
Chairman of the Board and
Chief Executive Officer
Frost Hanna Mergers Group, Inc.
7700 W. Camino Real, Suite 222
Boca Raton, FL 33431
RE: FROST HANNA MERGERS GROUP, INC. - MERGER OF PA ACQUISITION
CORPORATION WITH AND INTO PAN AMERICAN WORLD AIRWAYS, INC.
Dear Mr. Frost:
As counsel to Frost Hanna Mergers Group, Inc., a Florida corporation
(the "Corporation"), we have examined the Articles of Incorporation and Bylaws
of the Corporation as well as such other documents and proceedings as we have
considered necessary for the purposes of this opinion. We have also examined and
are familiar with the proceedings taken by the Corporation in connection with
the merger (the "Merger") of PA Acquisition Corporation, a Florida corporation,
which is a wholly-owned subsidiary of the Corporation, with and into Pan
American World Airways, Inc., a Florida corporation ("Pan Am"), and the
registration under the Securities Act of 1933, as amended, of the shares of the
Common Stock, par value $.0001 per share (the "Shares"), of the Corporation to
be issued in connection with the Merger, all as more fully described in the
Corporation's Registration Statement on Form S- 4, as amended (the "Registration
Statement"), filed with the Securities and Exchange Commission on May 2, 1996.
We have also examined a copy of the Agreement and Plan of Merger and a copy of
the Acquisition Agreement (collectively, the "Merger Agreement") set forth as
Appendix A to the Joint Proxy Statement-Prospectus of the Corporation and Pan
Am, which comprises a part of the Registration Statement. We have assumed the
genuineness of signatures on and the authenticity of all documents submitted to
us as copies. Also, we have relied upon such certificates of public officials,
corporate agents and officers of the Corporation
<PAGE>
Mr. Richard B. Frost
June 19, 1996
Page 2
and such other certificates with respect to the accuracy of material factual
matters contained therein which were not independently established.
Based upon the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that following the issuance and
delivery of the Shares by the Corporation in accordance with the terms of the
Merger Agreement and in the manner contemplated by the Registration Statement,
the Shares will be validly issued, fully paid and non-assesable. We hereby
consent to the inclusion of this opinion letter as an exhibit to the
Registration Statement.
Very truly yours,
STEARNS WEAVER MILLER WEISSLER
ALHADEFF & SITTERSON, P.A.
EXHIBIT 8
______________, 199_
Pan American World Airways, Inc.
9300 N.W. 36 Street
Miami, FL 33178
Re: Merger of PA Acquisition Corporation, a Wholly Owned Subsidiary of
Frost Hanna Mergers Group, Inc., into Pan American World Airways, Inc.
Ladies and Gentlemen:
We have acted as tax counsel to Pan American World Airways, Inc., a
Florida corporation ("Pan Am"), in connection with the proposed merger (the
"Merger") with and into Pan Am of PA Acquisition Corporation ("FH Sub"), a
Florida corporation and a wholly owned subsidiary of Frost Hanna Mergers Group,
Inc., a Florida corporation ("FH"), pursuant to the terms of the Acquisition
Agreement dated as of March 13, 1996 (the "Merger Agreement") by and among Pan
Am, FH and FH Sub, as described in the Registration Statement on Form S-4 to be
filed by FH with the Securities and Exchange Commission today (the "Registration
Statement"). These opinions are being rendered pursuant to your request. All
capitalized terms, unless otherwise specified, have the meaning assigned to them
in the Registration Statement.
<PAGE>
Pan American World Airways, Inc.
________________, 1996
Page 2
In connection with these opinions, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Merger Agreement, (ii) the shareholder certificates signed by Pan Am
shareholders holding __ percent of the outstanding Pan Am Common Stock on the
date of the Merger (the "Shareholder Certificates"), (iii) the Registration
Statement and (iv) those other documents as we have deemed necessary or
appropriate in order to enable us to render the opinions below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of those copies. In rendering the opinions set forth below, we have
relied upon certain written representations and covenants of Pan Am and FH (and
assumed the accuracy of their knowledge with respect to the relevant facts) and
on the Shareholder Certificiates, all of which are annexed hereto.
In rendering our opinions, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and those other authorities as we have considered
relevant.
Based upon and subject to the foregoing, it is our opinion that under
current law the Merger will constitute a reorganization within the meaning of
section 368(a) of the Code, and Pan Am, FH and FH Sub each will be a party to
the reorganization within the meaning of section 368(b) of the Code.
As a reorganization, the Merger will have the following Federal income
tax consequences:
1. A Pan Am shareholder will not recognize gain or loss on the exchange
of a share of Pan Am Common Stock for a share of FH Common Stock pursuant to the
Merger.
2. The basis of a Pan Am shareholder in a share of FH Common Stock
received pursuant to the Merger will be equal to his basis in the share of Pan
Am Common Stock surrendered in exchange therefor.
3. The holding period of a Pan Am shareholder in a share of FH Common
Stock received pursuant to the Merger will include his holding period for the
share of Pan Am Common Stock surrendered in exchange therefor, provided he held
that share of Pan Am Common Stock as a capital asset at the Effective Time.
4. FH, FH Sub and Pan Am will not recognize gain or loss as a result
of the Merger.
<PAGE>
Pan American World Airways, Inc.
________________, 1996
Page 3
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether Federal, state, local or foreign, of the
Merger or of any transactions related to the Merger or contemplated by the
Merger Agreement or described in the Registration Statement. These opinions are
being furnished only to you in connection with the Merger and are solely for
your benefit in connection therewith and may not be used or relied upon for any
other purpose and may not be circulated, quoted or otherwise referred to for any
other purpose without our express written consent.
Sincerely,
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
CES:ss
EXHIBIT 11
<TABLE>
<CAPTION>
FROST HANNA MERGERS GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
Year Year Three Three Period from Period from
Ended Ended Months Months Inception Inception
December December Ended Ended (October 4, (October 4,
31, 1994 31, 1995 March 31, March 31, 1993) to 1993) to
1995 1996 December March 31,
31, 1995 1996
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRIMARY AND FULLY
DILUTED EARNINGS
PER SHARE:
Weighted average of
Common Stock:
Beginning of period
Common Stock 1,389,000 3,344,000 3,344,000 3,344,000 1,389,000 1,389,000
Issuance of
Common Stock 1,481,061 -- -- -- 1,530,104 1,572,593
---------------------------------------------------------------------------
2,870,061 3,344,000 3,344,000 3,344,000 2,919,104 2,961,593
===========================================================================
</TABLE>
EXHIBIT 23.1
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Miami, Florida,
June 18, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-4350 of Frost Hanna Mergers Group, Inc. on Form S-4 of our reports dated
April 24, 1996 (except for the matter described in Note 4 as to which the date
is April 29, 1996) and March 21, 1996 (except for the matters described in Note
7 as to which the date is June 11, 1996) appearing in the Joint Proxy
Statement-Prospectus, which is part of this Registration Statement, and to the
reference to us under the headings "Selected Historical Financial Data of Pan
Am" and "Experts" in such Joint Proxy Statement-Prospectus.
Miami, Florida
June 19, 1996
EXHIBIT 23.4
CONSENT
We hereby consent to the filing of the form of our opinion as an exhibit to this
Registration Statement and to all references to our firm included in or made a
part of the prospectus contained in this Registration Statement.
/S/ GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
---------------------------------
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
Miami, Florida
June 19, 1996
EXHIBIT 23.5
CONSENT OF MR. HARRIS K. HERMAN
The undersigned hereby consents to the inclusion in the Joint
Proxy-Statement/Prospectus forming part of this Registration Statement on Form
S-4 of his opinion dated May 7, 1996 to the Board of Directors of Frost Hanna
Mergers Group, Inc., attached as Appendix D to such Joint Proxy
Statement/Prospectus and to any references to the undersigned and to such
opinion therein.
June 19, 1996
/S/ HARRIS K. HERMAN
---------------------------
Harris K. Herman
EXHIBIT 99.1
PROXY
FROST HANNA MERGERS GROUP, INC.
777 WEST CAMINO REAL, SUITE 222, MIAMI, FLORIDA 33431
SPECIAL MEETING OF SHAREHOLDERS - JULY 31, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard B. Frost and Mark J. Hanna, and
each of them, as proxies of the undersigned, with full power of substitution, to
vote all shares of Common Stock, par value $0.0001 per share, of Frost Hanna
Mergers Group, Inc. held of record by the undersigned at the close of business
on June 18, 1996, at the Special Meeting of Shareholders to be held on
Wednesday, July 31, 1996 at 10:00 A.M. local time, at the Westin Hotel, Cypress
Creek, 400 Corporate Drive, Fort Lauderdale, Florida, 33334 and at any
adjournments or postponements thereof, to the same extent and with the same
power as if the undersigned was personally present at said meeting or such
adjournments or postponements thereof and, without limiting the generality of
the power hereby conferred, the proxy nominees named above and each of them are
specifically directed to vote as indicated on the reverse side.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS.
If there are amendments or variations to the matters proposed at the
meeting or at any adjournments or postponements thereof, or if any other
business properly comes before the meeting, this proxy confers discretionary
authority on the proxy nominees named herein and each of them to vote on such
amendments, variations or other business.
(Continued, and to be signed and dated, on the other side.)
<PAGE>
(continued from other side)
1. Approval of the Acquisition Agreement, including an amendment of Frost
Hanna Mergers Group, Inc.'s Articles of Incorporation to change the name of
Frost Hanna Mergers Group, Inc. to Pan American Corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Amendment and restatement of Frost Hanna Mergers Group, Inc.'s Articles of
Incorporation to provide for an authorized class of Preferred Stock consisting
of 100,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned acknowledges receipt of
the accompanying Notice of Special
Meeting of Shareholders and Proxy
Statement for the July 31, 1996 Special
Meeting.
Dated: _________________________, 1996
--------------------------------------
Signature of Shareholder(s)
--------------------------------------
Print Name(s) Here
(Please sign exactly as name or names
appear hereon. Full title of one
signing in representative capacity
should be clearly designated after
signature. Names of all joint holders
should be written even if signed by
only one.)
PLEASE COMPLETE, DATE, SIGN AND MAIL
THIS PROXY IN THE ENVELOPE PROVIDED
-2-
EXHIBIT 99.2
PROXY
PAN AMERICAN WORLD AIRWAYS, INC.
9300 N.W. 36TH STREET, MIAMI, FLORIDA 33178
SPECIAL MEETING OF SHAREHOLDERS - JULY 31, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John J. Ogilby and Martin R. Shugrue, and
each of them, as proxies of the undersigned, with full power of substitution, to
vote all shares of Common Stock, par value $.0001 per share, of Pan American
World Airways, Inc. held of record by the undersigned at the close of business
on June 18, 1996, at the Special Meeting of Shareholders to be held on
Wednesday, July 31, 1996 at 11:00 A.M. local time, at the Company's corporate
headquarters, 9300 N.W. 36th Street, Miami, Florida, 33178, and at any
adjournments or postponements thereof, to the same extent and with the same
power as if the undersigned was personally present at said meeting or such
adjournments or postponements thereof and, without limiting the generality of
the power hereby conferred, the proxy nominees named above and each of them are
specifically directed to vote as indicated on the reverse side.
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. IF NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS.
If there are amendments or variations to the matters proposed at the
meeting or at any adjournments or postponements thereof, or if any other
business properly comes before the meeting, this proxy confers discretionary
authority on the proxy nominees named herein and each of them to vote on such
amendments, variations or other business.
(Continued, and to be signed and dated, on the other side.)
<PAGE>
(continued from other side)
1. Approval of the Acquisition Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Ratification and Approval of the Pan American World Airways, Inc. 1996
Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The undersigned acknowledges receipt of
the accompanying Notice of Special
Meeting of Shareholders and Proxy
Statement for the July 31, 1996 Special
Meeting.
Dated: _________________________, 1996
--------------------------------------
Signature of Shareholder(s)
--------------------------------------
Print Name(s) Here
(Please sign exactly as name or names
appear hereon. Full title of one
signing in representative capacity
should be clearly designated after
signature. Names of all joint holders
should be written even if signed by
only one.)
PLEASE COMPLETE, DATE, SIGN AND MAIL
THIS PROXY IN THE ENVELOPE PROVIDED
-2-
EXHIBIT 99.3
CONSENT OF CHARLES E. COBB, JR.
The undersigned, a nominee for director of Frost Hanna Mergers Group, Inc.,
a Florida corporation ("Frost Hanna"), hereby consents to being (i) nominated as
a director of Frost Hanna and agrees to serve as such upon consummation of the
merger (the "Merger") of PA Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Frost Hanna, with and into Pan American World
Airways, Inc., a Florida corporation, and (ii) named as a prospective director
and/or director nominee in Frost Hanna's Registration Statement on Form S-4 and
in the Joint Proxy Statement/Prospectus contained therein proposed to be
circulated in connection with such Merger, and all amendments thereto.
Executed this 19th day of June, 1996.
/S/ CHARLES E. COBB, JR.
-------------------------------
CHARLES E. COBB, JR.
EXHIBIT 99.4
CONSENT OF PHILLIP FROST, M.D.
The undersigned, a nominee for director of Frost Hanna Mergers Group, Inc.,
a Florida corporation ("Frost Hanna"), hereby consents to being (i) nominated as
a director of Frost Hanna and agrees to serve as such upon consummation of the
merger (the "Merger") of PA Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Frost Hanna, with and into Pan American World
Airways, Inc., a Florida corporation, and (ii) named as a prospective director
and/or director nominee in Frost Hanna's Registration Statement on Form S-4 and
in the Joint Proxy Statement/Prospectus contained therein proposed to be
circulated in connection with such Merger, and all amendments thereto.
Executed this 19th day of June, 1996.
/S/ PHILLIP FROST, M.D.
------------------------------
PHILLIP FROST, M.D.
EXHIBIT 99.5
CONSENT OF MARTIN R. SHUGRUE, JR.
The undersigned, a nominee for director of Frost Hanna Mergers Group, Inc.,
a Florida corporation ("Frost Hanna"), hereby consents to being (i) nominated as
a director of Frost Hanna and agrees to serve as such upon consummation of the
merger (the "Merger") of PA Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Frost Hanna, with and into Pan American World
Airways, Inc., a Florida corporation, and (ii) named as a prospective director
and/or director nominee in Frost Hanna's Registration Statement on Form S-4 and
in the Joint Proxy Statement/Prospectus contained therein proposed to be
circulated in connection with such Merger, and all amendments thereto.
Executed this 19th day of June, 1996.
/S/ MARTIN R. SHUGRUE, JR.
--------------------------------
MARTIN R. SHUGRUE, JR.
EXHIBIT 99.6
CONSENT OF JOHN J. SICILIAN
The undersigned, a nominee for director of Frost Hanna Mergers Group, Inc.,
a Florida corporation ("Frost Hanna"), hereby consents to being (i) nominated as
a director of Frost Hanna and agrees to serve as such upon consummation of the
merger (the "Merger") of PA Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Frost Hanna, with and into Pan American World
Airways, Inc., a Florida corporation, and (ii) named as a prospective director
and/or director nominee in Frost Hanna's Registration Statement on Form S-4 and
in the Joint Proxy Statement/Prospectus contained therein proposed to be
circulated in connection with such Merger, and all amendments thereto.
Executed this 19th day of June, 1996.
/S/ JOHN J. SICILIAN
---------------------------
JOHN J. SICILIAN
EXHIBIT 99.7
CONSENT OF RICHARD C. PFENNIGER
The undersigned, a nominee for director of Frost Hanna Mergers Group, Inc.,
a Florida corporation ("Frost Hanna"), hereby consents to being (i) nominated as
a director of Frost Hanna and agrees to serve as such upon consummation of the
merger (the "Merger") of PA Acquisition Corporation, a Florida corporation and
wholly-owned subsidiary of Frost Hanna, with and into Pan American World
Airways, Inc., a Florida corporation, and (ii) named as a prospective director
and/or director nominee in Frost Hanna's Registration Statement on Form S-4 and
in the Joint Proxy Statement/Prospectus contained therein proposed to be
circulated in connection with such Merger, and all amendments thereto.
Executed this 19th day of June, 1996.
/S/ RICHARD C. PFENNIGER
-----------------------------
RICHARD C. PFENNIGER
