As filed with the Securities and Exchange Commission on June 20, 1997
Registration No. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PAN AM CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0450311
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9300 N.W. 36TH STREET
MIAMI, FLORIDA 33178
(305) 873-3000
(Address of principal executive offices, including zip code)
------------------
JOHN J. OGILBY, JR.
9300 N.W. 36TH STREET
MIAMI, FLORIDA 33178
(305) 873-3000
(Name, address and telephone number, including
area code, of agent for service)
WITH A COPY 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
Approximate date of commencement of proposed sale to the public:
from time to time after the effective date of the Registration Statement.
------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) FEE (1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.0001 per share 7,500,000 shares $8.22 $61,650,000 $18,681.82
============================================================================================================================
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee
pursuant to Rule 457(g) on the basis of the average of the high and
low prices of the Common Stock as quoted on the AMEX on
June 16, 1997.
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), MIGHT DETERMINE.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 20, 1997
PROSPECTUS
7,500,000 SHARES
PAN AM CORPORATION
COMMON STOCK
---------------
Pan Am Corporation ("Pan Am" or the "Company"), a Florida corporation,
intends to issue from time to time (i) shares of its common stock, $.0001 par
value ("Common Stock"), to holders of its Series A Convertible Preferred Stock,
par value $.0001 per share (the "Series A Preferred Stock") upon conversion of
the Series A Preferred Stock in accordance with the terms hereof; (ii) shares of
its Common Stock to the holders of its Series B Convertible Preferred Stock, par
value $.0001 per share (the "Series B Preferred Stock") (the Series A Preferred
Stock and the Series B Preferred Stock may sometimes hereinafter be referred to
as the "Preferred Stock"), upon conversion of the Series B Preferred Stock in
accordance with the terms hereof; and (iii) up to 679,994 shares of its Common
Stock to the holders of certain warrants to purchase Common Stock issued in
connection with the sale and issuance of the Preferred Stock (the "Warrants"),
upon exercise of the Warrants, in accordance with the terms hereof. The
Preferred Stock and Warrants were issued in April and May of 1997, in private
placements to institutional and accredited investors pursuant to exemptions from
registration under the Securities Act of 1933, as amended (the "Act"). The
Preferred Stock is convertible at any time into shares of Common Stock at the
lesser of a fixed price or a floating price, as described under "Plan of
Distribution." The Preferred Stock will be mandatorily converted into shares of
Common Stock at a defined conversion price upon expiration of a three year term.
Additionally, the Company has the option to (i) redeem the Preferred Stock for
cash plus the issuance of a warrant to purchase shares of Common Stock and (ii)
mandatorily convert the Series B Preferred Stock into shares of Common Stock,
each as more fully described under "Plan of Distribution." No additional
consideration is payable upon conversion of the Preferred Stock. The Company
will receive proceeds upon the exercise of the Warrants. Unless the context
indicates otherwise, the "Company" refers to Pan Am Corporation and its
subsidiaries.
INVESTMENT IN THE COMPANY'S COMMON STOCK IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGES 5 -17.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED BY THIS
PROSPECTUS IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON TO OR FROM
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER, OR SOLICITATION OF AN OFFER. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
PURSUANT TO THIS 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 THE COMPANY SINCE THE DATE OF THIS PROSPECTUS OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The date of this Prospectus is ______________, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information......................................................2
Information Incorporated by Reference......................................3
The Company................................................................4
Risk Factors...............................................................5
Use of Proceeds ...........................................................17
Plan of Distribution.......................................................17
Transferability............................................................20
Legal Matters..............................................................20
Experts....................................................................20
AVAILABLE INFORMATION
The Company is subject to the informational 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 Securities and Exchange Commission (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, N.Y.
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. Such information is also available on the
internet at http;//www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company with the SEC with respect to the securities to which the Prospectus
relates, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. In addition, certain documents filed by the Company with
the SEC have been incorporated in this Prospectus by reference. See "Information
Incorporated by Reference." For further information with respect to the Company
and the Common Stock, reference is made to the Registration Statement including
the exhibits thereto and the documents incorporated herein by reference.
Statements contained herein concerning the provisions of any document are not
necessarily complete and in each instance reference is made to the copy of the
document filed as an exhibit or schedule to the Registration Statement. Each
such statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the SEC.
The Common Stock is listed on the American Stock Exchange (the "AMEX")
and reports and proxy statements and other information concerning the Company
also can be inspected at the offices of the AMEX at 86 Trinity Place, New York,
New York 10006.
-2-
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by the Company
are incorporated herein by this reference:
(1) The Company's Annual Report on Form 10-K, as amended,
for the fiscal year ended December 31, 1996, filed with
the SEC on March 31, 1997, and April 30, 1997.
(2) The Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1997, filed with the
SEC on May 15, 1997.
(3) The Company's Current Report on Form 8-K, dated May 15,
1997, filed with the SEC on June 6, 1997.
(4) The description of the Company's Common Stock contained
in the Company's Registration Statement on Form SB-2,
declared effective on March 21, 1994 (Registration No.
33-73428-A).
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of this offering shall be deemed to be incorporated
by reference herein and made a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein (or in any other subsequently filed
document which also is incorporated by reference herein) modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED UPON
WRITTEN OR ORAL REQUEST TO PAN AM CORPORATION, 9300 N.W. 36TH STREET, MIAMI,
FLORIDA 33178, ATTENTION: JOHN J. OGILBY, JR., TELEPHONE (305) 873-3000.
-3-
<PAGE>
THE COMPANY
Pan Am is an air carrier providing selected long-haul, high frequency,
point-to-point, low fare full service over a limited network of routes
throughout the United States and Puerto Rico. From its inception until it
commenced flight operations on September 26, 1996, the Company's activities were
limited to start-up activities, including raising capital, recruiting key
personnel, training and obtaining certification from the Department of
Transportation (the "DOT") and the Federal Aviation Administration (the "FAA").
The Company currently provides 11 daily round-trip flights between New York's
Kennedy International Airport and Miami, Florida, Los Angeles, California, San
Juan, Puerto Rico and Santo Domingo, Dominican Republic and between Miami,
Florida and Chicago's Midway Airport. During the period from the Company's
inception through March 31, 1997, the Company has realized net revenues of
$32,214,000 and experienced significant continuing losses in every month
aggregating $42,111,000. Pan Am's temporary executive offices are located at
9300 N.W. 36th Street, Miami, Florida, 33178; its telephone number is (305)
873-3000.
On March 20, 1997, the Company signed an acquisition agreement (the
"Merger Agreement"), among the Company, CAL Acquisition Corporation, a Florida
corporation and wholly-owned subsidiary of the Company ("acquisition
subsidiary"), Air Holding Company, a Florida corporation ("AHC"), and Carnival
Air Lines, Inc. ("Carnival Air"), pursuant to which, among other things, (i)
acquisition subsidiary will be merged with and into Carnival Air in a
transaction to be accounted for as a pooling-of-interests, as a result of which
Carnival Air will become a wholly-owned subsidiary of the Company (the "Merger")
and (ii) all outstanding shares of Carnival Air common stock, par value
$.0002105 per share (the "Carnival Air Common Stock"), will be converted into an
aggregate of 9,523,810 shares of Common Stock, which will constitute
approximately 46% of the then outstanding shares of Common Stock, without giving
effect to the issuance of (a) approximately 3,270,000 shares of Common Stock
upon the exercise of outstanding options and warrants to purchase Common Stock
(b) approximately 4,453,125 shares of Common Stock upon the conversion of the
Preferred Stock (assuming, for purposes of example only, a market price of $8.00
and a discount to market of 20% and full conversion of such shares, see "Plan of
Distribution"), and (c) 679,994 shares of Common Stock upon exercise of the
Warrants. The consummation of the Merger is subject to the satisfaction of a
limited number of conditions, including the approval by Pan Am's shareholders of
the issuance of the shares of Common Stock to be issued in connection with the
Merger. It is currently anticipated that the Merger will be consummated in
August, 1997.
Carnival Air provides low-fare, full service scheduled passenger air
transportation that targets value-conscious leisure and business travelers.
Carnival Air currently serves 16 cities with over 50 scheduled daily departures
between the Northeast, Florida, California and the Caribbean. Carnival Air also
provides commercial and military passenger charters, cargo and third party
maintenance and training services. Carnival Air has recently experienced
significant losses. During the nine months ended March 31, 1997, Carnival Air
incurred a $34 million loss compared to profits of approximately $3 million for
the nine month period ended March 31, 1996. Carnival Air expects such losses to
continue for the foreseeable future and expects that it will require additional
financing or capital infusions in the near term to continue its operations.
Carnival Air's losses have created an immediate liquidity problem for the
airline and it has been forced to defer payments on aircraft leases, aircraft
and engine overhauls and other operating expenditures. Further, Carnival Air's
independent public accountants' report includes an emphasis paragraph which
indicates conditions exist that raise substantial doubt as to Carnival Air's
ability to continue as a going concern. Carnival Air's principal executive
offices are currently located at 1815 Griffin Road, Suite 205, Dania, Florida,
33004-2213; and its telephone number is (954) 923-8672.
-4-
<PAGE>
RISK FACTORS
The business of Pan Am involves certain elements of risk. Additionally,
both the Merger and the business of Carnival Air involve certain elements of
risk. In addition to the other information contained or incorporated by
reference herein, the following factors relating to the Company, the Merger and
Carnival Air should be considered in evaluating the Company and its business
prospects. Prospective investors should note, in particular, that this
Prospectus contains forward-looking statements within the meaning of Section 27A
of the Act and Section 21E of the Exchange Act that involve substantial risks
and uncertainties. When used in this Prospectus, or in the documents
incorporated by reference herein, the words "anticipate", "believe", "estimate",
"may", "intend" and "expect" and similar expressions identify certain of such
forward-looking statements. Actual results, performance or achievements could
differ materially from those contemplated, expressed or implied by the
forward-looking statements contained herein. The considerations listed below
represent certain important factors the Company believes could cause such
results to differ. These considerations are not intended to represent a complete
list of the general or specific risks that may affect the Company. It should be
recognized that other risks, including general economic factors and expansion
strategies, may be significant, presently or in the future, and the risks set
forth below may affect the Company to a greater extent than indicated.
LIMITED OPERATING REVENUES; OPERATIONAL LOSSES; SIGNIFICANT NEED FOR
ADDITIONAL FINANCING. Pan Am is a start-up airline which has only limited flight
operations which commenced on September 26, 1996. During the period from the
Company's inception through March 31, 1997, the Company has realized net
revenues of $32,214,000 and experienced significant losses in every month
aggregating $42,111,000. The Company expects losses to continue for the
foreseeable future. Historically, Pan Am has funded its operations solely
through financing activities and Pan Am will require additional financing until
Pan Am becomes profitable.
Carnival Air has also experienced significant losses. During the nine
months ended March 31, 1997, Carnival Air incurred a $34 million loss compared
to profits of approximately $3 million for the nine month period ended March 31,
1996. Carnival Air expects such losses to continue for the foreseeable future
and expects that it will require additional financing or capital infusions in
the near term to continue its operations. Carnival Air's losses have created an
immediate liquidity problem for the airline and it has been forced to defer
payments on aircraft leases, aircraft and engine overhauls and other operating
expenditures. Such deferral of payments has recently resulted in Carnival Air
receiving notices of default under certain of its aircraft leases that unless
resolved may result in the return of the subject aircraft. The termination of
aircraft leases and the resulting cost and penalties associated therewith could
have a further material adverse effect on Carnival Air's financial condition and
results of operations. Carnival Air's payables at April 30, 1997 are estimated
at $50 million, of which, approximately $10 to $15 million could be considered
past due. Carnival Air does not believe that it can effectively manage its debts
beyond their existing levels. Accordingly, Carnival Air will require external
financing to fund its current and future operating losses and may also be forced
to curtail operations and/or seek protection under bankruptcy laws. The pro
forma combined condensed financial information for the combined entities for the
twelve months ended December 31, 1996 and the three months ended March 31, 1997
show a combined loss of $49,014,000 and $27,274,000, respectively. There is no
assurance that upon consummation of the Merger, Pan Am's management will be able
to reduce such losses or effectuate a combination of the airlines which will
operate on a profitable basis. Additionally, neither Pan Am nor the combined
companies after the Merger will generate sufficient cash to fund Pan Am's and
Carnival Air's operations and significant cash requirements. Pan Am will likely
be required to seek additional sources of capital to fund these losses and cash
requirements.
Except with respect to the [Recent Developments], Pan Am has no current
arrangements with respect to, or sources of additional financing. There can be
no assurances that the proceeds from the
-5-
<PAGE>
[Recent Developments] will be able to satisfy all of its cash requirements or
fund the Company's combined operating losses beyond the next ____ months.
Moreover, there can be no assurance that any additional financing will be
available to Pan Am on acceptable terms, or at all. To the extent Pan Am is not
able to generate sufficient revenues or obtain additional financing and its cash
requirements were to continue to exceed its available capital and financing, Pan
Am would be forced to reduce or discontinue some or all of its operations.
There is no assurance that Pan Am will be able to achieve
profitability. Over the near term, Pan Am will be required to expend significant
funds to cover its and Carnival Air's operating shortfalls. Pan Am's ability to
achieve profitability is dependent in part on its ability to successfully
integrate the two companies and increase the combined company's revenues. To
date, Pan Am has received limited revenues and there is no assurance when, if
ever, Pan Am will achieve profitability. Pan Am's prospects, both now and
following the Merger, therefore, must be evaluated in light of the risks,
expenses and complications normally encountered by a small "start-up" company
with limited resources in the highly competitive airline industry, which is
characterized by a high risk of failure. Significant delays or complications in
reducing each of Pan Am's and Carnival Air's operating losses and achieving the
anticipated synergies of the combined company would have a material adverse
effect on Pan Am's financial condition and results of operations.
CARNIVAL AIR GOING CONCERN CONSIDERATION; POTENTIAL ADVERSE EFFECTS OF
PRIOR AND EXPECTED FUTURE LOSSES. During the nine months ended March 31, 1997,
Carnival Air incurred a $34 million loss compared to profits of approximately $3
million for the nine months ended March 31, 1996 and had a negative cash flow
from operations of approximately $0.4 million. Carnival Air's independent public
accountants' report includes an emphasis paragraph which indicates conditions
exist that raise substantial doubt as to Carnival Air's ability to continue as a
going concern. Carnival Air anticipates that it will continue to incur losses
and negative cash flow through at least the balance of fiscal 1997. Negative
cash flow from operations should not be considered in isolation from, and may
not a be measure of, financial condition reported in accordance with generally
accepted accounting principles. The continuation of losses and negative cash
flow in future periods could prevent Carnival Air from meeting its obligations
or maintaining its current obligations.
HIGH LEVEL OF DEBT, STOCKHOLDERS' DEFICIT AND WORKING CAPITAL DEFICIT.
At March 31, 1997, Carnival Air had total long-term debt (including current
portion) of approximately $25.0 million, total stockholders' deficit of $27.5
million and a working capital deficit of $39.3 million. The presence of such
debt, stockholders' deficit and working capital deficit introduces a high degree
of risk, particularly because a significant portion of Carnival Air's cash flow
will be required to be dedicated to the payment of aircraft lease obligations
and the interest on Carnival Air's debt. Moreover, Carnival Air's operating
activities are capital intensive, and Carnival Air anticipates that it will have
significant capital requirements in the future. Carnival Air's financial
condition and continuing losses and negative cash flow will adversely affect its
ability to obtain future financing.
IMMEDIATE NEED FOR CAPITAL AND RISKS OF INADEQUATE CASH FLOW. Carnival
Air does not currently have available capital resources sufficient to fund
Carnival Air's remaining fiscal fourth quarter 1997 working capital needs,
including payments to aircraft lessors and debt service on its existing credit
facility. Moreover, management believes that Carnival Air's operating activities
will not generate sufficient cash flow to adequately fund its current
operations, including debt service and aircraft lease requirements. The amount
of the fiscal fourth quarter shortfall is currently estimated to total
approximately $20 million. Accordingly, Carnival Air expects that it will be
necessary to defer certain trade payables and to raise additional funds through
various means, including the sale of certain aircraft or other assets. There can
be no assurance that sources of funds will be available in amounts sufficient
for Carnival Air to meet its obligations. In the event Carnival Air is unable to
finance operations, Carnival Air may be required to adopt one or more
alternatives, such as reducing or delaying additional
-6-
<PAGE>
expenditures or otherwise curtailing operations or seeking protection under
bankruptcy laws. In view of Carnival Air's anticipated capital expenditures and
the competitive environment in which Carnival Air operates, any inability to
obtain additional financing will have a material adverse effect on Carnival
Air's prospects and future results of operations.
DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS, WARRANTS AND
PREFERRED STOCK. In connection with the Merger, all outstanding shares of
Carnival Air Common Stock will be converted into an aggregate of 9,523,810
shares of Common Stock, which will constitute approximately 46% of the then
outstanding shares of Common Stock. Assuming consummation of the Merger and
exercise of all outstanding options and warrants (including the Warrants) to
purchase shares of Common Stock an aggregate of _________ shares of Common Stock
will be then outstanding. Further, assuming for purposes of example only, a
market price of $8.00 and a discount to market of 20% and full conversion of the
Preferred Stock, an additional 4,453,125 shares of Common Stock will be issued.
If the Preferred Stock was converted at market prices of either $4.00 or $16.00,
and all of such shares were converted, an aggregate of 8,906,250 shares (at a
market price of $4.00) will be issued or 3,145,943 shares (at a market price of
$16.00) will be issued. For a description of the terms of the Preferred Stock,
see, "Plan of Distribution." The terms on which the Company may obtain
additional financing may be adversely affected by the existence of such options
and warrants and Preferred Stock. The holders of such options and warrants may
exercise them and the holders of the Preferred Stock may convert them at a time
when Pan Am might be able to obtain additional capital through a new offering of
securities on terms more favorable than those provided by Pan Am's outstanding
securities.
POTENTIAL CONTROL BY CERTAIN SHAREHOLDERS. Following the consummation
of the Merger, a trust of which Mr. Micky Arison is beneficiary (the "Arison
Trust"), the principal shareholder of Carnival Air, will own approximately 43%
of the outstanding Common Stock, without giving effect to the issuance of (a)
approximately 3,270,000 shares of Common Stock upon the exercise of outstanding
options and warrants to purchase Common Stock, (b) approximately 4,453,125
shares of Common Stock upon the conversion of the Preferred Stock (assuming, for
purposes of example only, a market price of $8.00 and a discount to market of
20% and full conversion of such shares, see "Plan of Distribution"), and (c)
679,994 shares of Common Stock upon exercise of the Warrants. Such level of
stock ownership may be sufficient to control the management policies of Pan Am
and exercise control over matters requiring shareholder approval, including the
election of directors, the adoption of amendments to Pan Am's Articles of
Incorporation and the approval of mergers and sales of all or substantially all
of the Company's assets which may deter a potential suitor from making a tender
offer or otherwise attempting to obtain control of Pan Am, even if such events
might be favorable to the Company's shareholders. It should further be noted
that pursuant to the Merger Agreement, Carnival Air has the right to request two
identified individuals to serve on Pan Am's Board of Directors.
RISKS ASSOCIATED WITH GROWTH; ACQUISITIONS AND OTHER CORPORATE
TRANSACTIONS. 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, such as the Merger, 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, such as the Merger, 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. Under Pan Am's
existing regulatory certificates it is limited to operating not more than eight
airplanes. Carnival Air's existing regulatory certificates do not limit the
number of aircraft it may operate. Following the Merger, Pan Am plans to
maintain its and Carnival Air's existing regulatory certificates independently
and operate both airline subsidiaries under the "Pan Am" brand. Although the DOT
does not have direct jurisdiction to approve or disapprove the Merger, it always
has jurisdiction to review a certified carrier's ability to be fit as an air
carrier. Based on such fitness review, the DOT could determine that, as a result
of the Merger, Carnival Air and/or
-7-
<PAGE>
Pan Am may not continue to be fit to be an air carrier, in which case changes in
either of the companies' operating or capital structure may be necessary to
insure the continuing fitness of Carnival Air and/or Pan Am. Such determination
by the DOT could have a material adverse effect on Pan Am and its prospects.
Additionally, acquisitions or mergers 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 the Common Stock is traded. Moreover, each potential acquisition
target may present its own unique problems with respect to financial condition
or other matters. There can be no assurances that any perceived benefits of any
such acquisition, including without limitation, the Merger, will be realized.
START-UP ENTERPRISE. Pan Am is a start-up airline with limited
resources in the highly competitive airline industry. 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. The rights
and obligations of the Former Pan Am were discharged in bankruptcy. In
connection with the bankruptcy proceedings, the various "Pan Am" tradenames,
trademarks and other intellectual property rights previously owned by the Former
Pan Am were purchased and were subsequently assigned to Pan Am. In addition,
certain of Pan Am's employees, including Mr. Martin R. Shugrue, Jr., President
and Chief Executive Officer of Pan Am, were once employed by the Former Pan Am.
LIMITED OPERATING HISTORY. The Company was formed to operate a low
fare, full service airline under the "Pan Am" name. Although many of the
Company's managerial and supervisory personnel have had substantial airline
industry experience, and some have worked together in the past, the Company has
a limited operating history. There is no assurance that the Company will be
profitable in the future.
COMPETITION. Pan Am and Carnival Air face significant and varying
competition from a large number of airlines. Their competitors include many
airlines which are larger and have greater financial resources. They also face
competition from other carriers pursuing low-cost/low-fare strategies similar to
theirs. Airlines 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 and Carnival Air
generally must compete for customers against the lowest revenue-generating seats
of other airlines. Other airlines may meet or price their fares below the fares
set by Pan Am or Carnival Air or introduce new non-stop service between cities
served by them which prevent them from attaining load factors necessary to
maintain profitable operations. Pan Am's and Carnival Air's ability to compete
successfully on the basis of price depends on their ability to operate at costs
equal to or lower than their 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 or Carnival Air's fares or increase
their service on routes served by Pan Am or Carnival Air, which could adversely
affect Pan Am's or Carnival Air'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 58 new applications
for approval to operate a scheduled airline and in excess of 45 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.
-8-
<PAGE>
TRADEMARK MATTERS. Pan Am believes that the various "Pan Am" trade
names, trademarks and other intellectual property rights (collectively, the "Pan
Am Intellectual Property") are valuable assets which are important to the long
term success of its business. Accordingly, the occurrence of any event which
diminishes the reputation or visibility of the "Pan Am" brand could materially
adversely affect the Company and its prospects. 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
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, the loss of Pan Am's rights to the Pan Am Intellectual Property
would have a material adverse effect on Pan Am. 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 or Pan Am's property (including the Pan Am Intellectual Property) 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 R. Shugrue, Jr., President and Chief
Executive Officer of Pan Am and is currently obtaining 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 continue 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.
OPERATIONS DEPENDENT UPON LIMITED FLEET. Pan Am has entered into
definitive lease agreements for five A300-B4 aircraft. Carnival Air's fleet
consists of 25 aircraft. Because of its small fleet size and limited number of
routes, Pan Am, both now and following the Merger, may be at a competitive
disadvantage compared to other airlines which can spread their operating costs
across more equipment and routes and retain connecting traffic (and revenue)
within their much more extensive route networks. In the event one or more of its
aircraft were to be lost or unexpectedly removed from service for maintenance,
repairs or other reasons, any resulting interruption in Pan Am's services or any
difficulty experienced in fulfilling its obligations under any aircraft lease
agreements could materially and adversely affect Pan Am's service, reputation
and profitability. In the event of a loss of an aircraft, there can be no
assurance that a suitable replacement aircraft could be located or that, if
located, Pan Am could acquire or contract for the use of such an aircraft on
favorable terms. Any extended interruption of operations due to the loss of an
aircraft or unavailability due to unscheduled maintenance or repair, or the lack
of availability of substitute aircraft, could have a material adverse effect on
Pan Am. In the event of a 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, significant delays could be incurred in completing such
work. Since reliable service is important to Pan Am's business, any
-9-
<PAGE>
interruption of service as a result of maintenance requirements or equipment
problems could materially and adversely affect Pan Am's service, reputation and
operating results.
AIRPORT AND GATE ACCESS. Pan Am presently operates over 24 daily
scheduled departures from 6 cities and Carnival Air presently operates over 50
daily scheduled departures from 16 cities. Operations at a number of airports,
including New York's John F. Kennedy International Airport, 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 lessees. There can be no assurance that Pan Am and Carnival Air will
be able to obtain or retain slots at these airports at acceptable prices or for
suitable times. Moreover, any other conditions, such as operating curfews, that
would deny or limit Pan Am's or Carnival Air's access to the airports that
either one intends to utilize or currently utilizes 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 previously entered into definitive
lease agreements to lease five A300-B4 aircraft. Carnival Air's fleet consists
of 25 aircraft. When Pan Am experienced problems associated with delays in
delivery of the leased planes, Pan Am was forced to "wet lease" additional
planes at substantially higher cost to the Company than it would have incurred
if its leased planes had been timely delivered. Pan Am cannot predict if
additional aircraft may 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 operations.
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 to significantly 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 are currently not represented by a labor union. If unionization of Pan
Am's employees occurs, Pan Am's costs could materially increase which could have
a material adverse effect on Pan Am.
Carnival Air believes that it has lower labor costs than many airlines,
principally due to its relatively favorable salary and wage rates and greater
flexibility in using part-time personnel. There can be no assurance that it will
continue to realize these advantages over higher cost air carriers for an
extended period of time. In September 1996, the Air Line Pilots Association
("ALPA") successfully organized the pilot group at Carnival Air and became the
collective bargaining representative as the result of a secret ballot conducted
by the National Mediation Board. Although ALPA has been certified and notified
Carnival Air that it wants to negotiate an initial collective bargaining
agreement, no negotiating sessions have commenced. Upon consummation of the
Merger, ALPA will in all likelihood petition to the National Mediation Board to
have the Board issue a determination that Pan Am and Carnival Air are a single
carrier for labor representation purposes. The likely goal of ALPA is to become
the collective bargaining representative for the Pan Am pilot group which is
currently unrepresented.
In March 1997, the Association of Flight Attendants ("AFA") petitioned
the National Mediation Board to conduct a representation election at Carnival
Air for flight attendants based on a showing of interest (signed cards)
presented to the Board. After an investigation by the National Mediation Board,
the Board ruled that an election should be held. Ballots were issued May 2,
1997.
-10-
<PAGE>
On May 29, 1997, the AFA successfully organized the flight attendant
group at Carnival Air and became the certified collective bargaining
representative as the result of a secret ballot election conducted by the
National Mediation Board. Although the AFA has been certified by the National
Mediation Board and has notified Carnival Air that it is in the process of
serving notice to begin negotiations regarding an initial collective bargaining
agreement, currently negotiations have not commenced. Upon consummation of the
Merger, the AFA will in all likelihood petition the National Mediation Board to
have the Board issue a determination that Pan Am and Carnival Air are a single
carrier for representation purposes. The likely goal of the AFA is to become the
collective bargaining representative for the Pan Am flight attendant group which
is currently unrepresented.
On May 5, 1997, the National Mediation Board notified Carnival Air that
an application had been filed on behalf of the Transport Workers Union ("TWU")
to represent dispatchers at Carnival Air. A mediator has been assigned to
investigate this case.
Such unionization of Pan Am's employees could materially increase Pan
Am's labor costs which could have a material adverse effect on Pan Am.
RELIANCE ON OTHERS. Pan Am and Carnival Air have entered into
agreements with contractors, which may include other airlines, to provide
certain facilities and services required for their respective operations,
including among others, ground facilities, aircraft maintenance, ticketing,
baggage handling and other ground services. Generally, all of these agreements
are subject to termination by either party after 30 to 90 days' notice. Pan Am's
and Carnival Air's reliance upon independent contractors to provide essential
services is intended to provide greater flexibility as their respective needs
change and to take advantage of the expertise offered by others, but may result
in increased costs in the ordinary course of business. In addition, the
efficiency, timeliness and quality of contract performance is beyond each
party's direct control and any operating difficulties experienced by these
contractors may adversely affect their respective operations. If the cost of
these services increase substantially, the operating results of Pan Am would be
adversely affected.
NONREALIZATION OF SYNERGIES OR OTHER BENEFITS FROM THE MERGER. The
Merger involves the integration of two companies that have previously operated
independently. Among the factors considered by the Board of Directors of Pan Am
in connection with its approval of the Merger Agreement were the opportunities
for economies of scale and operating efficiencies that could result from the
Merger and the potential for increased market penetration in Carnival Air's
existing operations through utilization of the "Pan Am" name. Pan Am's growth
and profitability will be impacted by its ability to integrate the respective
business, operations and employees of Carnival Air and Pan Am. Although Pan Am
expects to achieve annual savings in operating costs as a result of the Merger,
no assurance can be given that these savings or other benefits and operating
synergies anticipated from such consolidation and combination will be realized.
Moreover, there can be no assurance that the Company will be able to achieve
such increased market penetration through utilization of the "Pan Am" name or
that the combined entity will ever achieve profitable operations. Additionally,
there can be no assurance that the Company will not experience the loss of key
Carnival Air or Pan Am personnel. Further, there is no assurance whatsoever that
the merger will ultimately be consummated.
AIRCRAFT MAINTENANCE AND REPAIRS. Maintenance and related costs can
vary significantly from period to period as a result of unscheduled repairs and
maintenance, government mandated inspection and maintenance programs and the
time needed to complete required maintenance checks. The incurrence of
substantial additional maintenance expenses for its aircraft could have a
material adverse effect on Pan Am following the Merger.
START-UP LOSSES AND CASH REQUIREMENTS. Generally, when Pan Am commences
new routes, its load factors and yields are lower and its advertising and other
promotional costs are higher, which results in start-up losses. These start-up
losses frequently require a substantial amount of cash to fund.
-11-
<PAGE>
Pan Am may have other substantial cash needs as it expands, including cash
required to fund increases in accounts receivable, prepaid expenses and prepaid
maintenance and to fund aircraft deposits as additional aircraft are leased or
purchased.
AGING AIRCRAFT.
(a) MAINTENANCE AND RELIABILITY. In general, the cost of maintaining
older aircraft exceeds the cost of maintaining newer generation aircraft. Older
aircraft are usually subject to more Airworthiness Directives ("ADs")
promulgated by the FAA than newer aircraft, and are required to undergo
extensive structural inspections and modifications on an ongoing basis after 20
years in service. Although none of Pan Am's aircraft are over 20 years old, four
of Carnival Air's aircraft are over 20 years old and are therefore subject to
certain criteria of this program. Pan Am may acquire additional aircraft in the
future that are subject to ADs. Pan Am may also be required to comply with any
other future aging aircraft issues, regulations or ADs. There can be no
assurance, however, that Pan Am's cost of maintenance (including costs to comply
with ADs relating to Carnival Air's aircraft and other aging aircraft
requirements) will not significantly exceed management's estimates. In the event
Pan Am needs to replace parts or components it does not already own, they may
not be readily available in the marketplace. If Pan Am is unable to obtain
necessary parts or components in a timely manner, the Company's flight
operations could be adversely affected. In addition, even if such parts or
components are available, a shortage of supply could result in an increase in
procurement costs that may adversely affect Pan Am's operating costs. There can
be no assurance that Pan Am's or Carnival Air's aircraft will continue to be
sufficiently reliable in the future.
(b) STAGE 3 COMPLIANCE. The federal Airport Noise and Capacity Act of
1990 ("ANCA") is intended to convert the nation's commercial jet service to
quieter Stage 3 operations by requiring phaseout of Stage 2 operations (as
defined in Part 36 of the Federal Aviation Regulations) by December 31, 1999,
subject to certain exceptions. In general, airlines' fleets must be brought into
compliance with Stage 3 noise level requirements in phases: 50% by December 31,
1996, 75% by December 31, 1998 and full compliance by December 31, 1999.
Carnival Air currently operates 18 Stage 3 aircraft and seven Stage 2 aircraft.
Pan Am's current fleet, as of March 31, 1997 satisfied 100% Stage 3 compliance.
Although Carnival Air is in compliance with and is fully committed to
meeting ANCA's interim and final noise compliance requirements, management is
continuing to evaluate the economic impact of alternatives for retrofitting or
replacing Carnival Air's Stage 2 aircraft. Carnival Air expects that the current
cost to install hushkits is approximately $2.5 million for each 727-200 and
approximately $1.3 million for each 737-200 aircraft. Carnival Air may also
achieve compliance through newly available alternatives to hushkits which may
be more cost effective or by acquiring additional aircraft that already satisfy
Stage 3 requirements.
To date, Carnival Air has not installed hushkits on any of its
aircraft, however, Carnival Air is in current compliance. According to current
regulations, different aircraft types (i.e. widebody versus narrowbody) are
subject to different compliance standards. In the event Pan Am does not acquire
additional compliant aircraft types following the Merger such as the widebody or
similar aircraft, or begin to install hushkits on its aircraft in 1997 through
1998 with installations completed by January 1, 1999 to meet the Stage 3
requirements for its existing fleet, Pan Am's operational fleet size could be
significantly reduced. Such an aircraft fleet reduction would have a material
adverse effect on Pan Am's results of operations and financial condition. There
can be no assurance that the costs of acquiring and installing hushkits on its
aircraft thereof will not exceed management's estimates, be economically
feasible, or that the installation will be completed on a timely basis. There
can be no assurance that the FAA will continue to certify the type of hushkit
selected by Carnival Air or that it will
-12-
<PAGE>
not materially and adversely affect the cost and operating reliability of Pan
Am's and Carnival Air's aircraft.
(c) FUEL EFFICIENCY. Because of the relative age of Pan Am's and
Carnival Air's fleet, Pan Am's and Carnival Air's aircraft tend to be less fuel
efficient than newer generation aircraft. Additionally, Carnival Air's fleet has
been operating without hushkits, and once the hushkits are installed, there can
be no assurance that the operation of the aircraft will prove to be economically
feasible because of fuel and range restrictions resulting from the less fuel
efficient operation of hushkitted aircraft. A significant increase in the price
of fuel could therefore result in a disproportionately higher increase in Pan
Am's operating costs following the Merger than its competitors that use more
fuel efficient aircraft.
INTEGRATION OF DIFFERENT AIRCRAFT. Pan Am commenced operations
intending initially to primarily utilize the A300 aircraft. Carnival Air has a
variety of aircraft comprised of A300s, Boeing 737-400s, 737-200s and 727-200s.
Maintaining a fleet of different types of aircraft will require Pan Am to
maintain a more costly infrastructure and will necessitate maintaining separate
maintenance and operating programs and spare parts for each type of aircraft.
This more costly infrastructure could cause a material adverse effect on the
financial condition of Pan Am following the Merger.
ADDITIONAL RISKS ATTENDANT TO THE MERGER.
(a) LIMITED TERMINATION PROVISIONS. The Merger Agreement provides for
very limited circumstances under which a party may terminate the Merger
Agreement. The incurrence of substantial operating losses by Carnival Air or a
material adverse change in the financial condition, operations or prospects of
Carnival Air would not, in and of itself, provide Pan Am with a basis to
terminate the Merger Agreement. Additionally, it is not a condition to Pan Am's
obligations to close the Merger Agreement that the representations and
warranties of Carnival Air made upon execution be true and correct. Thus, even
if Carnival Air's significant operating losses continue or increase or Carnival
Air experiences other substantial material adverse changes, Pan Am could
nevertheless be required to close the transaction. Requiring Pan Am to close the
transaction under such circumstances could have a material adverse effect on Pan
Am. Notwithstanding the foregoing, there can be no assurance that the merger
will ultimately be consummated.
(b) AIRCRAFT LEASES. Carnival Air leases 22 airplanes. Nineteen of such
leases, with a total of seven different lessors, contain "change of control"
provisions which would require the consent of the lessors to the Merger.
Pursuant to the Merger Agreement, Pan Am is required to close the Merger even if
none of such lessors approve the Merger. The closing of the Merger without such
approval could permit the lessors to require return of such aircraft and may
subject Pan Am to increased costs and potentially a suit for substantial
damages. Although Pan Am's management believes that it will be able to procure
the consents required under most of these leases, if it is unable to do so, Pan
Am's financial condition could be materially and adversely affected.
SUBSEQUENT REGISTRATION OF STOCK; SHARES ELIGIBLE FOR FUTURE SALE. In
addition to the Registration Statement, the Company has filed other registration
statements with the SEC covering (i) the shares of Common Stock to be issued in
connection with the Merger and (ii) the resale of certain other shares of Common
Stock. All of such securities will be registered for sale to the public for the
respective accounts of the holders of such securities. No prediction can be made
as to the effect, if any, that future sales of shares of Common Stock, or the
availability of such shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could materially and adversely affect the prevailing market price of the
Common Stock or the ability of the Company to raise capital in the future
through the sale of its securities.
-13-
<PAGE>
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED
STOCK. Pan Am's Board of Directors is authorized to issue up to an additional
99,500,000 shares of preferred stock. The Board of Directors has the power to
establish the dividend rates, liquidation preferences, voting rights, redemption
and conversion terms and privileges with respect to any shares of preferred
stock. The issuance of any series of preferred stock having rights superior to
those of the Common Stock may result in a decrease in the value or market price
of the Common Stock and could further be used by the Board as a device to
prevent a change in control favorable to the Company. Holders of preferred stock
to be issued in the future may have the right to receive dividends and certain
preferences in liquidation and conversion rights. The issuance of such preferred
stock could make the possible takeover of Pan Am or the removal of management of
Pan Am more difficult, discourage hostile bids for control of the Company in
which shareholders may receive premiums for their Common Stock and adversely
affect the voting and other rights of the holder of Common Stock, or depress the
market price of the Common Stock.
FOREIGN OWNERSHIP RESTRICTIONS. The Federal Aviation Act of 1958, as
amended (the "Federal Aviation Act"), prohibits non-United States citizens from
owning more than 25% of the voting interest of any company, such as Pan Am, that
owns a United States air carrier. Consistent with these restrictions, the
Company's Articles of Incorporation provide that no shares of the Company's
outstanding voting securities (including, without limitation, the Common Stock
issuable upon the conversion of any of the Company's Preferred Stock) may be
voted by or at the direction of persons who are not United States citizens
unless such shares are registered on a separate stock record maintained by the
Company for non-United States holders (the "Foreign Stock Record"). The
Company's Bylaws further provide that no shares of Common Stock held by
non-United States citizens will be registered on the Foreign Stock Record if the
amount so registered would exceed federal foreign ownership restrictions.
In addition, the Company's Articles of Incorporation provide that, to
the extent the voting interest in the Company owned or controlled by non-United
States citizens in the aggregate exceeds such percentage of the voting interest
in the Company as would exceed federal foreign ownership restrictions, the
Company has the right to redeem or exchange such shares through the payment of
cash, securities of the Company having equivalent value or a combination
thereof.
These provisions have the effect of limiting the voting interest in the
Company held by non-United States citizens to an amount consistent with federal
foreign ownership restrictions and may help prevent non-United States citizens
from obtaining control of a voting interest in the Company greater than that
permitted under federal foreign ownership restrictions. The restrictions may
also have the effect of rendering the assumption of control of the Company by a
non-United States citizen more difficult, and may discourage the accomplishment
of a given transaction even if it is favorable to the Company's shareholders.
Accordingly, these restrictions could have an adverse effect upon the value of
the Company's stock.
VOLATILITY OF STOCK PRICE. There can be no assurances that an active
trading market for the Common Stock will be sustained. The market price of the
Common Stock may be subject to significant fluctuations in response to Pan Am'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 Common Stock.
NO DIVIDENDS. Pan Am has not paid cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future. Pan
Am intends to reinvest any funds that might otherwise be available for the
payment of dividends in further development of its business.
-14-
<PAGE>
CARNIVAL AIR FACILITY LEASES. Carnival Air's training and principal
maintenance facility at the Ft. Lauderdale International Airport, as well as
Carnival Air's adjacent purchasing and storage facility, are leased on a
month-to-month basis from the Broward County Airport Authority. Management
believes that month-to-month airport facility leases are prevalent in the
airline industry. However, there can be no assurance that Carnival Air will be
able to continue to lease such Ft. Lauderdale airport facilities on a long-term
basis and any termination of such Ft. Lauderdale airport leases could have a
material adverse effect on the Company.
CONTRABAND RISK. The inherent nature of the air cargo business and
applicable FAA regulations require Pan Am and Carnival Air to maintain security
and safety policies to ensure safe operation of their aircraft. Pan Am and
Carnival Air maintain extensive security and safety checks conducted on a daily
basis which include cargo searches, x-rays of freight and investigative searches
for seeking out hazardous materials, weapons, explosive devices and illegal
freight. Additionally, Pan Am and Carnival Air generally conduct searches for
contraband shipments in foreign countries at the point of origin prior to
departure of the shipment to the United States. Customers are required to inform
Pan Am and Carnival Air of the nature and composition of the transported freight
on the airway manifest bill. Notwithstanding these procedures, Pan Am or
Carnival Air may transport contraband which could result in fines, penalties,
flight bans or possible damage to the aircraft.
RISKS RELATED TO THE AIRLINE INDUSTRY
EFFECT OF GENERAL ECONOMIC CONDITIONS. The airline industry is highly
competitive and industry earnings are volatile. Due to high fuel costs,
unfavorable economic conditions, intense competition and various other factors,
the airline industry suffered unprecedented losses from 1990 through 1993, with
poor financial performance continuing into 1994. During these periods, a number
of carriers were forced to file for bankruptcy and ultimately ceased operations
and others filed for bankruptcy and reorganized. The industry has experienced
and continues to experience substantial restructuring as most established
carriers have implemented varying strategies in pursuit of profitability. The
introduction of deeply discounted fares by one or more major United States
airline or a general downturn in the United States economy could have a
material adverse impact upon Pan Am and the industry.
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 and high fixed costs. The expenses of
each flight do not vary significantly with the number of passengers carried and,
therefore, a relatively small change in the number of passengers, in fare
pricing or in traffic mix could have a disproportionate effect on operating and
financial results. Accordingly, a minor shortfall from expected revenue levels
could have a material adverse effect on Pan Am's growth or its financial
performance.
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 15% and 20% 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. 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
-15-
<PAGE>
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.
GOVERNMENT REGULATION. Pan Am and Carnival Air are subject to
regulation by the DOT and the FAA under the provisions of Title 49 of the United
States Code, and by certain other governmental agencies. The DOT regulates
principally economic issues affecting air service, including, among other
matters, air carrier certification and fitness, insurance, certain leasing
arrangements, allocation of international route rights, authorization of
proposed scheduled and charter operations, tariffs, advertising, consumer
protection and competitive practices.
Each of Pan Am and Carnival Air 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'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. A modification, suspension or
revocation of any of Pan Am's DOT or FAA authorizations or certificates could
have a material adverse effect upon the Company.
Pan Am remains subject to an eight aircraft limitation on its DOT
certificate authority. As a result of a host of industry circumstances since May
1996, as previously described, there can be no assurance that Pan Am will be
able to persuade the DOT to increase the number of aircraft permitted to be
flown under Pan Am's DOT certificate authority. Carnival Air's existing
regulatory certificates do not limit the number of airplanes it may operate.
Under legislation enacted in the United States in 1990 and related FAA
regulations, each carrier's aircraft fleet generally must comply with certain
"Stage 3" noise restrictions by certain specified deadlines. Currently, 18 of
Carnival Air's aircraft meet the Stage 3 requirements, with seven of its Boeing
727-200 and 737-200 aircraft remaining as "Stage 2" aircraft. Under the FAA
regulations, Carnival Air generally must achieve a fleet consisting of 75% Stage
3 aircraft by December 31, 1998, and eliminate or retrofit all Stage 2 aircraft
by the end of 1999. Carnival Air will determine, on an aircraft-by-aircraft
basis, whether it will retrofit its Stage 2 aircraft with "hushkits" or new,
Stage 3 compliant engines, or replace the aircraft with Stage 3 aircraft as it
becomes necessary. The cost of compliance will depend in part on the hushkit or
other technology developed and may be substantial.
The FAA has also issued a series of Airworthiness Directives under its
"Aging Aircraft" program which are currently applicable to four of Carnival
Air's aircraft and all of Pan Am's aircraft. These Airworthiness Directives call
for extensive aircraft inspections and structural modifications to address the
problems of corrosion and structural fatigue. Carnival Air estimates that the
cost of compliance with such directives in future periods will not be material.
However, if the FAA were to revise its Airworthiness Directives so as to
accelerate the deadlines for making required maintenance or repairs, or if new
Airworthiness Directives were promulgated, they could have a material adverse
effect on the Company.
-16-
<PAGE>
Pan Am's and Carnival Air's maintenance activities involve the use of
materials which are regulated as hazardous under federal, state and local law.
Each company is required to maintain programs to protect the safety of its
employees who use these materials and to manage and dispose of any waste
generated by the use of these materials in compliance with all such laws. In
addition, Pan Am and Carnival Air are subject to compliance with standards for
aircraft exhaust emissions promulgated by the Environmental Protection Agency
(the "EPA") pursuant to the Clean Air Act of 1970, as amended. More generally,
Pan Am and Carnival Air are also subject to federal, state and local regulations
relating to protection of the environment and to discharge of materials into the
environment.
Pan Am and Carnival Air are also subject to regulations adopted by the
various local authorities which operate the airports served throughout the route
networks, including but not limited, to aircraft noise regulations and curfews.
While Pan Am and Carnival Air intend to maintain all appropriate government
licenses and to comply with all appropriate standards, there can be no assurance
that such licenses can be maintained or that such standards will not be changed
in the future.
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 particularly heightened attention. Additionally, as a result of such
events, 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.
INSURANCE COVERAGE. Pan Am and Carnival Air are vulnerable to potential
losses which may be incurred in the event of an aircraft accident. Any such
accident could involve not only repair or replacement of a damaged aircraft and
the resulting temporary or permanent loss from service, but also potential
claims of injured passengers and others. Pan Am and Carnival Air are required by
the DOT to carry liability insurance on each aircraft. Carnival Air currently
maintains public liability insurance in the amount of $750 million per incident;
Pan Am currently maintains public liability insurance in the amount of $850
million per single incident or combined incidents in the aggregate per year.
Although Carnival Air and Pan Am currently believe their insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not be
changed or that Pan Am or Carnival Air will not be forced to bear substantial
losses from accidents. Substantial claims resulting from an accident could have
a material adverse effect on the business, financial condition and results of
operations of Pan Am or Carnival Air, and could seriously inhibit passenger
acceptance of Pan Am's and Carnival Air's services.
USE OF PROCEEDS
No additional consideration is payable upon conversion of the Preferred
Stock. In the event that the Warrants are exercised in full, the Company will
receive proceeds of approximately $6,324,500, before deducting related expenses.
The Company will use the proceeds received upon exercise of the Warrants for
general working capital purposes.
PLAN OF DISTRIBUTION
GENERAL
In March 1997, the Company authorized the issuance of 250,000 shares of
Series A Preferred Stock. On March 31, 1997, the Company completed the sale of
an aggregate of 150,000 shares of
-17-
<PAGE>
Series A Preferred Stock pursuant to those certain Convertible Preferred Stock
Purchase Agreements (the "Series A Agreements") dated the same date between Pan
Am and various purchasers (the "Series A Holders"). Such transaction resulted in
gross proceeds of $15 million and net proceeds of approximately $14.42 million,
respectively, to the Company. The Series A Agreements further provide that
certain Series A Holders are obligated to purchase 100,000 additional shares of
Series A Preferred Stock, with such additional purchase contingent only upon the
closing of the Merger. In addition to the Series A Preferred Stock, the Series A
Holders received in the aggregate, Warrants to purchase 401,070 shares of Common
Stock at an exercise price equal to 110% of the Series A Fixed Price (as defined
below) with a term of three years.
In May 1997, the Company authorized the issuance of 250,000 shares of
Series B Preferred Stock. On May 15, 1997, the Company completed the sale of an
aggregate of 135,000 shares of Series B Preferred Stock pursuant to those
certain Series B Convertible Preferred Stock Purchase Agreements dated the same
date between Pan Am and various purchasers (the "Series B Holders"). Such
transaction resulted in aggregate gross proceeds of $13.5 million and net
proceeds of approximately $12.825 million, respectively, to the Company. In
addition to the Series B Preferred Stock, the Series B Holders received in the
aggregate, Warrants to purchase 278,924 shares of Common Stock at an exercise
price equal to $9.23 with a term of three years.
TERMS OF SERIES A PREFERRED STOCK; CONVERSION; REDEMPTION
Each share of Series A Preferred Stock has a stated value equal to $100
per share and a term of three years. Each share of Series A Preferred Stock
cumulates dividends at the rate per share (as a percentage of stated value per
share) equal to 8% per annum, payable in shares of Series A Preferred Stock in
arrears on the date that the Series A Preferred Stock becomes convertible into
shares of Common Stock. The Series A Preferred Stock is convertible at the
option of the holders thereof into shares of Common Stock (following the
registration of such underlying shares of Common Stock) at the lesser of a fixed
price (the "Series A Fixed Price") or a floating price (the "Series A Floating
Price") (the Series A Fixed Price or the Series A Floating Price is sometimes
hereinafter referred to as the "Series A Conversion Price"). The Series A Fixed
Price is equal to $8.50 per share (subject to one reset option). The Series A
Floating Price is a discount to market beginning at 97%, with such discount
increasing 1% per month until said discount reaches 80%. Each share of Series A
Preferred Stock is convertible into shares of Common Stock equal to the stated
value per share divided by the applicable Series A Conversion Price (the "Series
A Conversion Ratio"). Upon the expiration of the three year term, each share of
Series A Preferred Stock will be mandatorily converted into shares of Common
Stock at such Series A Conversion Ratio. Pan Am also has the option to redeem
the Series A Preferred Stock for a cash value equal to the value of the shares
of Common Stock issuable upon conversion at the 80% discount, plus the issuance
of a warrant to purchase shares of Common Stock in an amount equal to the value
of the Series A Preferred Stock so redeemed, with an exercise price equal to the
Series A Fixed Price and a term expiring on March 18, 2000. The Series A
Preferred Stock is subject to a performance adjustment in favor of the Company
to the Series A Fixed Price if the Common Stock increases by greater than 40%.
In no event shall a holder of shares of Series A Preferred Stock (or Warrants)
be entitled to receive shares of Common Stock to the extent that the sum of (a)
the number of shares of Common Stock beneficially owned by the holder and (b)
the number of shares of Common Stock issuable upon the conversion of the shares
of Series A Preferred Stock (or Warrants) would result in beneficial ownership
by the holder of more than 4.9% of the outstanding shares of Common Stock.
The Series A Preferred Stock ranks prior to all classes or series of
equity securities of Pan Am, including Common Stock, and, except as otherwise
provided by law, the Series A Preferred Stock has no voting rights. Upon any
liquidation, dissolution or winding-up of the Company, the Series A Holders
shall be entitled to receive out of the assets of the Company, for each share of
Series A Preferred Stock, an amount equal to the stated value, plus an amount
equal to the accrued but unpaid dividends per share,
-18-
<PAGE>
before any distribution or payment is made to the holders of any junior
securities. The Series A Preferred Stock has full priority over the Series B
Preferred Stock in the event of liquidation of the Company.
TERMS OF SERIES B PREFERRED STOCK; CONVERSION, REDEMPTION
Each share of Series B Preferred Stock has a stated value equal to $100
per share and a term of three years. Holders of Series B Preferred Stock are
entitled to cumulative dividends at a rate per share (as a percentage of stated
value per share) equal to 7.25% per annum payable in shares of Common Stock in
arrears, the number of shares of which are determined by dividing the aggregate
cash value of such dividends payable by the closing bid price per share of
Common Stock on the day prior to the date on which the Series B Holder specifies
that a Series B conversion into shares of Common Stock is to be effected. For
nine months following the date that the Series B Preferred Stock is first issued
(the "Series B Issuance Date"), the Series B Preferred Stock is convertible at
the option of the holders thereof into shares of Common Stock (following the
registration of such underlying shares of Common Stock) at a fixed price (the
"Series B Fixed Price"); thereafter, the Series B Preferred Stock is convertible
at the lesser of the Series B Fixed Price or a floating price (the "Series B
Floating Price") (the Series B Fixed Price or the Series B Floating Price,
whichever applicable, is sometimes hereinafter referred to as the "Series B
Conversion Price"). The Series B Fixed Price is equal to $8.39. The Series B
Floating Price is a discount to market beginning at 97%, with such discount
increasing 1.5% per month until said discount reaches 80%. Each share of Series
B Preferred Stock is convertible into shares of Common Stock equal to the stated
value per share divided by the applicable Series B Conversion Price (the "Series
B Conversion Ratio"). Upon the expiration of the three year term, each share of
Series B Preferred Stock will be mandatorily converted into shares of Common
Stock at such Series B Conversion Ratio. Pan Am also has the option to redeem
the Series B Preferred Stock for (i) a cash value equal to the value of the
shares of Common Stock issuable upon conversion at the 80% discount, (ii) a cash
value equal to all accrued dividends payable and (iii) the issuance of a warrant
to purchase shares of Common Stock in an amount equal to the value of the Series
B Preferred Stock so redeemed, with an exercise price equal to the Series B
Fixed Price and a term expiring on May 15, 2000. The Company has the option to
convert the Series B Preferred Stock into shares of Common Stock at any time at
the lesser of the Series B Fixed Price, or the Series B Floating Price at the
80% discount. The Company will not require such conversion if such conversion
will cause a Series B Holder to either own more than 4.9% of the outstanding
shares of Common Stock or file a Schedule 13D or Schedule 13G under the Exchange
Act.
The Series B Preferred Stock ranks prior to all classes or series of
equity securities of Pan Am, including Common Stock, except for the Series A
Preferred Stock. Except as otherwise provided by law, the Series B Preferred
Stock has no voting rights. Upon any liquidation, dissolution or winding-up of
the Company, the Series B Holders shall be entitled to receive out of the assets
of the Company, for each share of Series B Preferred Stock, an amount equal to
the stated value, plus an amount equal to the accrued but unpaid dividends per
share, before any distribution or payment is made to the holders of any junior
securities.
SHAREHOLDER APPROVAL REQUIREMENT
At Pan Am's Annual Meeting of Shareholders, currently scheduled for
_______, 1997 (the "Annual Meeting"), shareholders are being asked to vote on a
number of matters including, among others, the issuance of Common Stock in
connection with the Merger and the issuance of Common Stock upon conversion of
the Preferred Stock. Approval of the issuance of Common Stock upon the
conversion of the Preferred Stock is being sought in accordance with the
requirements of Section 713(a)(ii) of the AMEX Listed Company Manual, which
requires, as a prerequisite to listing additional shares on the AMEX,
shareholder approval when such shares are to be issued in connection with a
transaction involving the sale or issuance by the Company of Common Stock (or
securities convertible
-19-
<PAGE>
into Common Stock) equal to 20% or more of presently outstanding Common Stock
for less than the greater of book or market value of the Common Stock. The
Preferred Stock was considered to be issued for less than the greater of book or
market value of the Common Stock as the Series A Floating Price and the Series B
Floating Price was set at a discount to market at the date of issuance of 97%.
The terms of the Preferred Stock provide that if, at the time of
conversion, the aggregate number of shares of Common Stock issuable equals or
exceeds 20% of the outstanding Common Stock on the date of issuance of the
Preferred Stock (the "Issuable Maximum"), then the Company will be obligated to
either (i) obtain shareholder approval for such issuance within ninety days of
receipt of the conversion notice in accordance with the requirements of the AMEX
or (ii) effect the conversion of only that number of shares of Preferred Stock
that upon conversion into Common Stock would not exceed the Issuable Maximum,
with the remaining portion of the shares of Preferred Stock subject to a
mandatory repurchase by the Company. In the event that the requisite shareholder
approval is not obtained, either at the Annual Meeting or at a future meeting,
the Company will be required to repurchase that number of shares of Preferred
Stock which if converted into shares of Common Stock would result in issuing
shares of Common Stock in excess of the Issuable Maximum.
TRANSFERABILITY
The shares issuable upon conversion of the Preferred Stock and the
exercise of the Warrants will be freely transferable in the hands of persons
other than affiliates of the Company. The Common Stock is listed and principally
traded on the AMEX under the symbol "PAA." Neither the Preferred Stock nor the
Warrants themselves, however, have been registered under applicable federal and
state securities laws and are not admitted to trading on any exchange. The
Preferred Stock and the Warrants may be transferred only pursuant to an
effective registration statement under the Act or in a transaction exempt from
registration under the Act.
LEGAL MATTERS
The validity of the shares of Common Stock offered in this Prospectus
will be passed upon for the Company by Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A., 150 West Flagler Street, Suite 2200, Miami, Florida 33130-1557.
EXPERTS
The financial statements incorporated in this Prospectus by reference
from the Company's Annual Report on Form 10-K have been audited by Deloitte &
Touche, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
-20-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated amount of expenses
to be borne by Pan Am Corporation (the "Registrant") in connection with the
offering:
SEC Registration Fee...........................................$ 18,681
Legal and Accounting Fees and Related Expenses................. 25,000
Miscellaneous Expenses ........................................ 6,319
---------
TOTAL FEES AND EXPENSES...............................$ 50,000
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the Florida
Business Corporation Act (the "FBCA") to indemnify its directors and officers to
the extent permitted in such statute. With respect to the indemnification of the
Registrant's directors and officers, the Registrant's Amended and Restated
Articles of Incorporation provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by law in existence now
or hereafter. In addition, the Registrant carries insurance permitted by the
laws of the State of Florida on behalf of its directors and officers which may
cover liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
The provisions of the FBCA 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. These provisions do not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws.
ITEM 16. EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
EXHIBIT DESCRIPTION
4.1 Amended and Restated Articles of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Current Report on Form 8-K dated May 15, 1997).
4.2 Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to
the Registrant's Registration Statement on Form S-4, filed on June
19, 1996 (Registration No. 333-4350)).
5.1 Form of Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. regarding the legality of the securities being
registered.
II-1
<PAGE>
23.1 Consent of Deloitte & Touche LLP.
23.3 Consent of Stearns Weaver Miller Weissler Alhadeff & Sitterson,
P.A. (included in Exhibit 5.1).
24.1 Power of Attorney (included with signature pages to this
Registration Statement).
ITEM 17. UNDERTAKINGS
(d) The 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;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(a)(i) and (ii) do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") that are incorporated by reference in the Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities 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.
(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.
(e) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
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.
(f) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
II-2
<PAGE>
(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
Securities Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, has
duly caused this Registration Statement on Form S-3 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Miami, State of
Florida, on the 18th day of June, 1997.
PAN AM CORPORATION
By: /S/ MARTIN R. SHUGRUE, JR.
------------------------------------------------
Martin R. Shugrue, Jr., Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Martin R. Shugrue, Jr. and John J.
Ogilby, Jr. and each of them acting alone, his true and lawful attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this 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/ CHARLES E. COBB, JR. Chairman of the Board June 18, 1997
- ------------------------------------
Charles E. Cobb, Jr.
/S/ PHILLIP FROST, M.D. Vice Chairman of the Board June 18, 1997
- ------------------------------------
Phillip Frost, M.D.
/S/ MARTIN R. SHUGRUE, JR. President, Chief Executive June 18, 1997
- ------------------------------------ Officer, Director
Martin R. Shugrue, Jr.
/S/ JOHN J. SICILIAN Director June 18, 1997
- ------------------------------------
John J. Sicilian
/S/ RICHARD C. PFENNIGER, JR. Director June 18, 1997
- ------------------------------------
Richard C. Pfenniger, Jr.
/S/ HERSHEL F. SMITH, JR. Director June 18, 1997
- ------------------------------------
Hershel F. Smith, Jr.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
5.1 Form of Opinion of Stearns Weaver Miller Weissler Alhadeff &
Sitterson, P.A. regarding the legality of the securities being
registered.
23.1 Consent of Deloitte & Touche LLP.
II-5
EXHIBIT 5.1
LAW OFFICES
STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A.
MUSEUM TOWER
150 WEST FLAGLER STREET
MIAMI, FLORIDA 33130
---------
MIAMI (305) 789-3200 o BROWARD (954) 463-5440
FAX (305) 789-3395
<TABLE>
<S> <C> <C> <C>
E. RICHARD ALHADEFF ALICE R. HUNEYCUTT DAVID A. ROTHSTEIN
LOUISE JACOWITZ ALLEN RICHARD B. JACKSON BETTY CHANG ROWE OWEN S. FREED
STUART D. AMES THEODORE A. JEWELL STEVEN D. RUBIN SENIOR COUNSEL
LAWRENCE J. BAILIN MICHAEL I. KEYES MIMI L. SALL
PATRICK A. BARRY TEDDY D. KLINGHOFFER RICHARD E. SCHATZ
SHAWN BAYNE ROBERT T. KOFMAN LESTER E. SEGAL TAMPA OFFICE
LISA K. BENNETT THOMAS A. LASH MARTIN S. SIMKOVIC SUITE 2200
SUSAN FLEMING BENNETT VERNON L. LEWIS CURTIS H. SITTERSON SUNTRUST FINANCIAL CENTER
LISA K. BERG KEVIN B. LOVE RONNI D. SOLOMON 401 EAST JACKSON STREET
MARK J. BERNET JOY SPILLIS LUNDEEN MARK D. SOLOV TAMPA, FLORIDA 33602
HANS C. BEYER MICHAEL C. MARSH JO CLAIRE SPEAR ____________
MARTIN G. BURKETT BRIAN J. McDONOUGH EUGENE E. STEARNS
CLAIRE BAILEY CARRAWAY ANTONIO R. MENENDEZ JENNIFER D. STEARNS (813) 223-4800
SETH THOMAS CRAINE FRANCISCO J. MENENDEZ BRADFORD SWING
PETER L. DESIDERIO ALISON W. MILLER ANNETTE TORRES
MARK P. DIKEMAN VICKI LYNN MONROE DENNIS R. TURNER FORT LAUDERDALE OFFICE
SHARON QUINN DIXON HAROLD D. MOOREFIELD, JR. RONALD L. WEAVER SUITE 1900
ALAN H. FEIN JOHN N. MURATIDES ROBERT I. WEISSLER 200 EAST BROWARD BOULEVARD
ANGELO M. FILIPPI JOHN K. OLSON PATRICIA G. WELLES FORT LAUDERDALE, FLORIDA 33301
ROBERT I. FINVARB ROBERT C. OWENS MARTIN B. WOODS ____________
ANDREA F. FISHER DARRIN J. QUAM
DEAN M. FREITAG PATRICIA A. REDMOND (954) 462-9500
ROBERT E. GALLAGHER, JR. ELIZABETH G. RICE
CHAVA E. GENET GLENN M. RISSMAN
PATRICIA K. GREEN CARL D. ROSTON
</TABLE>
June 19, 1997
Pan Am Corporation
9300 N.W. 36th Street
Miami, Florida 33178
RE: PAN AM CORPORATION
REGISTRATION STATEMENT ON FORM S-3
Gentlemen:
As counsel to Pan Am Corporation, 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 Corporation's Registration Statement on Form S-3 (the
"Registration Statement") as filed with the Securities and Exchange Commission
under the Securities Act of 1933, relating to 7,500,000 shares (the "Shares") of
the Corporation's common stock, par value $.0001 per share (the "Common Stock")
issuable by the Corporation upon conversion of the Company's Series A Preferred
Stock, par value $.0001 per share (the "Series A Preferred Stock"), the Company
Series B Preferred Stock, par value $.0001 per share (the "Series B Preferred
Stock" and together with the Series A Preferred Stock, the "Preferred Stock")
and upon the exercise of certain outstanding warrants to purchase shares of
Common Stock (the "Warrants").
In rendering this opinion, we have undertaken no independent review of
the operations of the Corporation. Instead, we have relied solely upon the
documents described above. In examining such documents, we have assumed, without
independent investigation: (i) the authenticity of all documents submitted to us
as originals; (ii) the conformity to original documents of all documents
submitted to us as certified or photostatic copies; (iii) the authenticity of
the originals of such latter documents; (iv) that all factual information
supplied to us is accurate, true and complete; and (v) the genuineness of all
signatures. In addition, as to questions of fact material to the opinions
expressed herein, we have relied upon the accuracy of: (i) all representations
and warranties as to factual matters contained in any of the documents submitted
to us for purposes of rendering the opinion; and (ii) factual recitals made in
the resolutions adopted by the Board of Directors of the Company. We have also
assumed that the exercise price of each Share will be in excess of the par value
of the Common Stock. We express no opinion as to federal securities laws or the
"blue sky" laws of any state or jurisdiction.
<PAGE>
Pan Am Corporation
June 19, 1997
Page 2
Based upon the foregoing, and having regard to legal considerations
which we deem relevant, we are of the opinion that the Shares registered under
the Registration Statement, will, if and when issued and delivered by the
Corporation in accordance with the terms of the Preferred Stock and Warrants, be
legally issued, fully paid and non-assessable.
This opinion is intended solely for the Corporation's use in connection
with the registration of the shares and may not be relied upon for any other
purpose or by any other person. This opinion may not be quoted in whole or in
part or otherwise referred to or furnished to any other person except in
response to a valid subpoena. This opinion is limited to the matters expressly
stated herein, and no opinion is implied or may be inferred beyond the matters
expressly stated herein. This opinion is rendered as of the date hereof, and we
assume no obligation to update or supplement such opinion to reflect any facts
or circumstances that may hereafter come to our attention or any changes in
facts or law that may hereafter occur. 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.
STEARNS WEAVER MILLER WEISSLER ALHADEFF & SITTERSON, P.A.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Pan Am Corporation on Form S-3 of our reports dated March 31, 1997 and April 24,
1996, appearing in the Annual Report on Form 10-K of Pan Am Corporation for the
year ended December 31, 1996 and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
Miami, Florida
June 17, 1997
