SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 23, 1996
PAN AM CORPORATION
(F/K/A FROST HANNA MERGERS GROUP, INC.)
9300 N.W. 36TH STREET, MIAMI, FLORIDA 33178
305-873-6039
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<S> <C> <C>
Incorporation under the laws of the Commission File Number I.R.S. Employer Identification Number
STATE OF FLORIDA 0-23444 65-0450311
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<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On September 23, 1996, Pan Am Corporation, a Florida corporation
formerly known as "Frost Hanna Mergers Group, Inc." (the "Registrant"),
consummated a business combination (the "Business Combination") with Pan
American World Airways, Inc., a Florida corporation ("PAWA"), pursuant to an
Acquisition Agreement, dated March 13, 1996, among the Registrant, PAWA and PA
Acquisition Corporation, a Florida corporation and a wholly-owned subsidiary of
the Registrant ("Acquisition Sub"), and an Agreement and Plan of Merger, dated
September 23, 1996, among the Registrant, PAWA and Acquisition Sub (collectively
the "Merger Agreement"). The Registrant's shareholders approved the Business
Combination pursuant to the terms of the Merger Agreement at a special meeting
held on September 4, 1996.
Pursuant to the Merger Agreement, (i) Acquisition Sub merged with and
into PAWA (the "Merger"), as a result of which PAWA became a wholly-owned
subsidiary of the Registrant, (ii) the Registrant issued an aggregate of
7,561,191 shares of its Common Stock to the owners of all of the issued and
outstanding shares of capital stock of PAWA, which constituted approximately 69%
of the then outstanding shares of Registrant Common Stock, without giving effect
to the issuance of 1,757,739 shares of Registrant Common Stock issuable,
subsequent to the Merger, upon the exercise of certain warrants and options held
by (a) the underwriter of the Registrant's initial public offering of equity
securities (170,000 shares) and (b) by existing PAWA investors (1,587,739
shares) and (iii) the Registrant changed its name to Pan Am Corporation.
Assuming full exercise of all of the outstanding options and warrants to
purchase shares of Registrant Common Stock, the former PAWA security holders
will own approximately 72% of the outstanding shares of Registrant Common Stock.
The Registrant, now currently located in Miami, Florida, operates a low
fare, full service airline under the "Pan Am" name, which initially will serve
selected long-haul routes between major United States cities.
Additional information with respect to the Business Combination is set
forth in the Joint Proxy Statement-Prospectus of the Registrant and PAWA, dated
August 12, 1996, which has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Registrant Common Stock
is traded on the American Stock Exchange under the symbol "PAA."
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 1 above.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
1. Combined Financial Statements of PAWA and Affiliate
(collectively, the "Predecessor Company") (a
development stage company) 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
-2-
<PAGE>
(incorporated herein by reference to the Joint Proxy
Statement-Prospectus of the Registrant and PAWA,
dated August 12, 1996, which has been filed with the
Securities and Exchange Commission).
2. Consolidated balance sheet of PAWA and Subsidiaries
(a development stage company) as of March 8, 1996
(incorporated herein by reference to the Joint Proxy
Statement-Prospectus of the Registrant and PAWA,
dated August 12, 1996, which has been filed with the
Securities and Exchange Commission).
3. Unaudited Consolidated Financial Statements of PAWA
and Subsidiaries (a development stage company) as of
March 31, 1996 and for the three months ended March
31, 1995 and 1996 and for the cumulative period from
inception to March 31, 1996 (incorporated herein by
reference to the Joint Proxy Statement-Prospectus of
the Registrant and PAWA, dated August 12, 1996, which
has been filed with the Securities and Exchange
Commission).
4. Unaudited Consolidated Financial Statements of PAWA
and Subsidiaries (a development stage company) as of
June 30, 1996 and for the six months ended June 30,
1995 and 1996 and for the cumulative period from
inception to June 30, 1996.
(b) Pro Forma Financial Information (unaudited).
1. Pro forma financial information with respect to PAWA
and the Registrant for the year ended December 31,
1995 (incorporated herein by reference to the Joint
Proxy Statement-Prospectus of the Registrant and
PAWA, dated August 12, 1996, which has been filed
with the Securities and Exchange Commission).
2. Pro forma financial information with respect to PAWA
and the Registrant as of June 30, 1996 and for the
six month period then ended.
(c) Exhibits.
20 Joint Proxy Statement-Prospectus of the Registrant
and PAWA, dated August 12, 1996 (incorporated by
reference to the Joint Proxy Statement-Prospectus of
the Registrant and PAWA, dated August 12, 1996, which
has been filed with the Securities and Exchange
Commission).
99.1 Press Release of the Registrant relating to the
consummation of the acquisition of PAWA.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PAN AM CORPORATION
By: /S/ JOHN J. OGILBY, JR.
------------------------
John J. Ogilby, Jr.
Chief Financial Officer
Dated: October 8, 1996
<PAGE>
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<CAPTION>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET - UNAUDITED
JUNE 30,
1996
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,313,032
Other receivables 85,515
Expendable aircraft parts 261,787
Prepaid expenses and other assets 373,600
-------------
Total current assets 20,033,934
PROPERTY - Net 1,744,707
OTHER ASSETS:
Service marks (net of accumulated amortization of $100,784) 1,583,397
Organizational costs (net of accumulated amortization of $12,725) 58,346
Deposits 356,350
Deferred expenses 21,250
Investment in affiliate 1,000
-------------
TOTAL $ 23,798,984
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,245,246
Deferred income taxes 155,421
-------------
Total current liabilities 1,400,667
-------------
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 7,561,191 shares issued and outstanding 756
Capital surplus 29,684,190
Deficit accumulated during the development stage (4,110,476)
Deferred compensation (790,918 shares) (1,334,015)
Receivable from stockholder (425,085 shares) (1,500,550)
Receivable from stockholder (85,017 shares) (300,110)
Receivable from officers (11,750 shares) (41,478)
-------------
Total stockholders' equity 22,398,317
-------------
TOTAL $ 23,798,984
==============
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See accompanying notes to consolidated financial statements - unaudited.
<PAGE>
<TABLE>
<CAPTION>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF DEVELOPMENT STAGE OPERATIONS - UNAUDITED
FOR THE SIX MONTHS ENDED FOR THE CUMULATIVE
JUNE 30, PERIOD FROM INCEPTION
1995 1996 TO JUNE 30, 1996
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
REVENUES:
License fees and other income $ 110 $ 19,869 $ 19,869
----------- ----------- ------------
EXPENSES:
Amortization and depreciation 20,138 78,313 78,313
Legal and professional 22,166 1,193,009 1,193,009
Compensation and benefits 57,326 1,549,480 1,549,480
Marketing and promotional 339,437 339,437
Material and supplies 155,655 155,655
Travel 3,650 294,952 294,952
Rent 192,860 192,860
Outside services 263,456 263,456
Write-down of investment 17,000 17,000
Other 10,771 157,583 157,583
----------- ----------- ------------
Total expenses 114,051 4,241,745 4,241,745
----------- ----------- ------------
OTHER INCOME (EXPENSES):
Litigation settlement 35,000 35,000
Interest income 234,213 234,213
Other (2,392) (2,392)
----------- ----------- ------------
Total other income 266,821 266,821
----------- ----------- ------------
LOSS BEFORE DEFERRED
INCOME TAX PROVISION (113,941) (3,955,055) (3,955,055)
DEFERRED INCOME TAX PROVISION (155,421) (155,421)
----------- ----------- ------------
NET LOSS $ (113,941) $ (4,110,476) $ (4,110,476)
=========== =========== ============
NET LOSS PER SHARE $ (151.92) $ (0.86) $ (0.86)
=========== =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 750 4,758,971 4,758,971
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements - unaudited.
<PAGE>
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<CAPTION>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE SIX MONTHS ENDED FOR THE CUMULATIVE
JUNE 30, PERIOD FROM INCEPTION
1995 1996 TO JUNE 30, 1996
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (113,941) $ (4,110,476) $ (4,110,476)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization and depreciation 20,138 78,313 78,313
Deferred compensation amortization 667,008 667,008
Deferred income taxes 155,421 155,421
Amortization of prepaid rent 160,773 160,773
Write-off of investment 17,000 17,000
Changes in assets and liabilities:
Increase in other receivables (85,515) (85,515)
Increase in prepaid expenses (234,263) (234,263)
Increase in deferred expenses (21,250) (21,250)
Increase in accounts payable 57,655 1,186,131 1,186,131
----------- -------------- -------------
Net cash used in operating activities (36,148) (2,186,858) (2,186,858)
----------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (252,206) (252,206)
Payments for service marks (31,006)
Investment in affiliate (18,000) (18,000)
Deposits (356,350) (356,350)
----------- -------------- -------------
Net cash used in investing activities (31,006) (626,556) (626,556)
----------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 22,126,446 22,126,446
Capital contributions 69,851
----------- -------------- -------------
Net cash provided by financing activities 69,851 22,126,446 22,126,446
----------- -------------- -------------
NET (DECREASE) INCREASE IN CASH 2,697 19,313,032 19,313,032
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,175 0 0
----------- -------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 6,872 $ 19,313,032 $ 19,313,032
=========== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements - unaudited.
<PAGE>
PAN AMERICAN WORLD AIRWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 AND
FOR THE CUMULATIVE PERIOD FROM INCEPTION TO JUNE 30, 1996
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pan American World Airways, Inc. (the "Company" or "Pan Am") 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 stockholders (the "Contributing Stockholders"),
recorded at the lower of contributors cost or fair value. Although the
Company was incorporated on January 11, 1996, the accompanying financial
statements reflect the Company's development stage operations as though
they commenced on January 1, 1996 (herein referred to as "Inception"). On
September 23, 1996, the Company completed a merger (the "Merger") with
Frost Hanna Mergers Group, Inc. ("FH") pursuant to which, among other
things; (i) the Company became a wholly-owned subsidiary of FH through a
conversion of 100% of the outstanding Common Stock, and (ii) FH changed its
name to Pan Am Corporation. See Note 10; Subsequent Events.
The following is a summary of significant accounting policies of the
Company:
BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements as of June 30, 1996 and for each of the six-month periods ended
June 30, 1995 and 1996 and for the cumulative period from Inception to June
30, 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 six-month periods ended June 30, 1995 and
1996 and for the cumulative period from Inception to June 30, 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, (See Note 10;
Subsequent Events) or verified market acceptance and demand for its
services.
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
<PAGE>
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.
The June 30, 1996 consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Pan American Airways, Inc.,
a Florida corporation, Pan American World Airways, Inc., a Delaware
corporation, Pan American Airbridge Holdings, Inc., f.k.a. 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.
Included in the balance at June 30, 1996 is $7,000,000 of restricted funds
received from the second private offering (see Note 8; Private Offerings).
Such funds have been placed in a special interest-bearing account pending
the consummation of the Merger with FH. See Note 10; Subsequent Events.
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 the lower of cost or market. Depreciation
and amortization are 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
Office equipment...........................five years
Software...................................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:
<PAGE>
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.
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 six months ended June 30, 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.
<PAGE>
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.
3. PROPERTY - NET
Property at June 30, 1996 consisted of the following:
Spare rotables..................................$ 797,887
Software........................................ 500,000
Technical library............................... 250,000
Office equipment................................ 252,206
----------
1,800,093
Less: depreciation and amortization............. 55,386
----------
Total property - net............................$1,744,707
==========
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.
<PAGE>
5. DEFERRED INCOME TAXES
Deferred income taxes at June 30, 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.
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
Merger and expire nine years from the date 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. See Note 10; Subsequent
Events.
<PAGE>
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. In July 1996, these agreements were amended. See Note 10;
Subsequent Events.
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 FH, and (ii) $8.10 per
share during the subsequent three-year period. See Note 10; Subsequent
Events.
Warrants granted 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 FH, and (ii) $8.10 per share during the
subsequent three-year period. See Note 10; Subsequent Events.
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
agreement, including the posting of a $150,000 deposit, to lease three
aircraft which include these two specified 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
<PAGE>
entitled to redeem 425,085 shares from the Contributing Stockholder
for no consideration. See Note 10; Subsequent Events.
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.
The Company received notes receivable totaling $41,478 from certain
officers in exchange for 11,750 shares issued pursuant to the Initial
Offering. The notes earn interest at 6% and are due upon demand.
STOCK OPTION PLAN - The Company's Board of Directors established, subject
to the 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. 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.
8. PRIVATE OFFERINGS
On April 12, 1996, the Company completed a private offering (the "Initial
Offering") pursuant to which it sold 2,991,623 shares of common stock at
$3.53 per share. The Company 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, the Company completed a second private offering (the
"Second Offering") pursuant to which it sold 1,721,500 shares of common
stock at $5.00 per share. The Company 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 the Company is
conditioned solely upon the consummation of the Merger, and, such funds,
amounting to 7.0 million have been placed in a special interest bearing
account pending such consummation. The Company will use the proceeds of the
Second Offering for working capital expenses. See Note 10; Subsequent
Events.
<PAGE>
9. 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 six-month period
ended June 30, 1996 and for the cumulative period from Inception to June
30, 1996 were as follows:
1996
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).
The Company received other assets of $500,000 in exchange for 100,000
shares issued pursuant to the Second Offering (see Note 8).
The Company received notes receivable totaling $41,478 in exchange for
11,750 shares issued pursuant to the Initial Offering. See Note 7;
Stockholders' Equity.
10. SUBSEQUENT EVENTS
On July 3, 1996, the Company terminated the airline ticket agreement with
its European general sale agent (see Note 7) concerning the $10 million
advance towards the future purchase of airline tickets for travel on the
Company's aircraft. In connection with the termination of this agreement,
the Company and the European general sales agent terminated the agreement
to issue options to the European general sales agent for the purchase of
300,000 shares of the Company's common stock.
On July 12, 1996, the Company reached an agreement in principle with its
general sales agent for Central/South America (see Note 7) to modify its
existing seat prepurchase agreement for Central/South America, whereby such
general sales agent could advance purchase from the Company up to $15
million in airlines tickets for the travel on the Company's aircraft. In
addition, the Company and its general sales agent for Central/South
American agreed to modify the number of option to be issued to such general
sales agent, such that options would be issued for the purchase of 10,000,
25,000 or 50,000 shares of the Company's common stock for the prepurchases
of seats by such general sales agent of $5 million, $10 million and $15
million, respectively.
<PAGE>
On September 23, 1996, Pan Am completed its merger (the "Merger") with
Frost Hanna Mergers Group, Inc. ("FH") whereby:
(i) FH merged with and into Pan Am, and Pan Am became a
wholly-owned subsidiary of FH; (ii) each outstanding share of Pan
Am Common Stock was converted into the rights to receive one share
of FH Common Stock; (iii) each outstanding option, warrant, or
other right to purchase Pan Am Common Stock was 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 was changed to "Pan Am Corporation" and (v)
the FH Board of Directors was 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.
The Merger will be 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.
Concurrent with the culmination of the Merger on September 23, 1996, the
restriction on the $7.0 million received in connection with the Second
Offering was released. See Note 8; Private Offerings.
On September 19, 1996, the Company received its final regulatory approval
and on September 26, 1996, commenced operations as a scheduled passenger
air carrier.
As of September 30, 1996, the Company has entered into leasing agreements,
including the posting of $450,000 in deposits, relating to three A-300
aircraft. Two of these aircraft relate to a certain transaction with a
Contributing Stockholder. See Note 7; Stockholders' Equity.
* * * * * *
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of June
30, 1996 and the unaudited pro forma combined condensed statements of
development stage operations for the six months ended June 30, 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 incorporated by reference or included elsewhere in this Form
8-K. 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 purpose of pro forma combined condensed statements of development
stage operations for the six months ended June 30, 1996 and the year ended
December 31, 1995 and (ii) as of June 30, 1996 for the purposes of the pro forma
combined condensed balance sheet.
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996 (IN THOUSANDS)
- -------------------------------------------------------------------------------
PRO FORMA
ASSETS PAN AM FROST HANNA ADJUSTMENTS COMBINED (d)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $19,313 $9,889 $29,202
Other receivables 86 86
Expendable aircraft parts 262 262
Prepaid expenses 374 2 376
Income taxes 60 60
------- ------ -------
Total current assets 20,035 9,951 29,986
PROPERTY, NET 1,745 5 1,750
OTHER ASSETS:
Service marks, net 1,583 1,583
Organizational costs, net 58 58
Aircraft lease deposit 250 250
Other deposits 106 106
Deferred expenses 21 21
Investment in affiliate 1 1
------- ------ -------
TOTAL $23,799 $9,956 $33,755
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,245 $ 30 $ 1,275
Deferred income taxes 155 155
------- ------ -------
Total current liabilities 1,400 30 1,430
REDEEMABLE COMMON STOCK 2,977 $(2,977)(a)
STOCKHOLDERS' EQUITY:
Common stock 1 1
Capital surplus 29,684 7,203 2,723 (a)(c) 39,610
Deficit (4,110) (254) 254 (c) (4,110)
Deferred compensation (1,334) (1,334)
Receivables from stockholders (1,842) (1,842)
------- ------ ------- -------
Total stockholders' equity 22,399 6,949 2,977 32,325
------- ------ ------- -------
TOTAL $23,799 $9,956 $ - $33,755
======= ====== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAN AM CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF DEVELOPMENT
STATE OPERATIONS SIX MONTH PERIOD ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
FROST PRO FORMA
PAN AM HANNA ADJUSTMENTS COMBINED (d)
<S> <C> <C> <C> <C>
REVENUE $ 20 $ $ 20
EXPENSES:
Compensation 1,550 108 1,658
General and administrative 2,692 501 3,193
---------- ---------- ---------
LOSS FROM OPERATIONS
(4,222) (609) (4,831)
OTHER INCOME (EXPENSES):
Interest income 234 250 484
Litigation settlement 35 35
Other (2) (2)
---------- ---------- ---------
LOSS BEFORE PROVISION
FOR INCOME TAXES
(3,955) (359) (4,314)
PROVISION (BENEFIT) FOR INCOME TAXES 155 (65) $(90) (b)
---------- ---------- ---- ---------
NET INCOME (LOSS) $ (4,110) $ (294) $ 90 $ (4,314)
========== ========== ==== =========
NET LOSS PER COMMON SHARE $ (0.86) $ (0.09) $ (0.53)
========== ========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,758,971 3,344,000 8,102,971
========== ========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF DEVELOPMENT
STATE OPERATIONS YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
FROST PRO FORMA
PAN AM HANNA ADJUSTMENT COMBINED (d)
<S> <C> <C> <C> <C>
REVENUE $ 2 $ $ $ 2
EXPENSES:
Compensation 115 216 331
General and administrative 126 162 288
-------- ---------- ----------
LOSS FROM OPERATIONS (239) (378) (617)
OTHER INCOME (EXPENSES):
Interest income 559 559
-------- ---------- ----------
LOSS (LOSS) BEFORE
PROVISION FOR INCOME TAXES (239) 181 (58)
PROVISION FOR INCOME TAXES 65 $(65)(b)
-------- ---------- ---- ----------
NET INCOME (LOSS) PER $ (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>
<PAGE>
PAN AM CORPORATION
NOTED 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.
(b) To eliminate income tax expense since on a pro forma combined bases
there is a net tax loss.
(c) To eliminate the accumulated deficit of Frost Hanna since the
transaction is accounted for as a capital transaction equivalent to the
issuance of the stock by Pan Am for FH's net monetary assets,
accompanied by a recapitalization of Pan Am.
(d) 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 option 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.
RIDER A
FOR IMMEDIATE RELEASE
CONTACT: JEFF KRIENDLER, PAN AM
305-866-2125
RANDY KAMBIE OR LENORE MORITZ
800-223-2121/212-420-1661
FOR IMMEDIATE RELEASE
PAN AM MERGER COMPLETED
-----------------------
PAN AM LISTS ON
AMEX TOMORROW
-----------------------
MIAMI, September 23 - Pan American World Airways, Inc. announced today that its
merger with the Frost Hanna Mergers Group, Inc. has been completed. The stock of
the newly merged entity (Pan American World Airways, Inc.) is expected to be
listed for trading tomorrow (Sept. 24, 1996) on the American Stock Exchange,
trading under the ticker symbol "PAA."
Pan Am began accepting reservations last Wednesday (Sept. 18, 1996) for its
scheduled services which will be inaugurated this Thursday (Sept. 26, 1996). The
new airline offers full service A-300 wide-body flights between New York's John
F. Kennedy Airport and both Miami and Los Angeles, with introductory
unrestricted fares of $99 one-way for all economy class seats to Miami and $199
to Los Angeles. First class seats will be available at the $198 fare to Miami
and $398 level to Los Angeles.
