As filed with the Securities and Exchange Commission on September 26, 1997
Registration No. 333-29659
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PAN AM CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0450311
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(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)
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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.
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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. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MIGHT DETERMINE.
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<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 SEPTEMBER 26, 1997
PROSPECTUS
7,500,000 SHARES
PAN AM CORPORATION
COMMON STOCK
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This Prospectus relates to the offering by the selling securityholders
(the "Selling Securityholders") of shares of common stock, par value $.0001 par
value per share ("Common Stock"), of Pan Am Corporation, a Florida corporation
("Pan Am" or the "Company"), to be received by such Selling Securityholders upon
conversion of shares of Series A Convertible Preferred Stock, par value $.0001
per share (the "Series A Preferred Stock"); shares of 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"); and upon exercise of
certain warrants to purchase Common Stock issued in connection with the sale and
issuance of the Preferred Stock (the "Warrants"). See "Selling Securityholders."
The Preferred Stock and Warrants were issued by the Company in April , May and
July of 1997, in private placements to institutional and accredited investors
pursuant to exemptions from registration under the Securities Act of 1933, as
amended (the "Securities 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." 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 6-18.
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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.
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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 September 26, 1997.
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TABLE OF CONTENTS
PAGE
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Available Information.......................................................2
Information Incorporated by Reference.......................................3
The Company.................................................................4
Recent Developments.........................................................5
Risk Factors............................................................... 6
Selling Securityholders.....................................................19
Plan of Distribution........................................................20
Legal Matters...............................................................22
Experts.....................................................................22
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.
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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 Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997, filed with the SEC
on August 14, 1997.
(4) The Company's Current Report on Form 8-K, dated May 15,
1997, filed with the SEC on June 5, 1997.
(5) The Company's Current Report on Form 8-K, dated July 8,
1997, filed with the SEC on July 17, 1997.
(6) The Company's Current Report on Form 8-K, dated August 29,
1997, filed with the SEC on August 29, 1997.
(7) 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).
(8) The description of Carnival Air contained on pages 65-74
of the Company's Definitive Proxy Statement, filed with
the SEC on September 8, 1997.
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.
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THE COMPANY
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. 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 June 30, 1997, the Company has realized net revenues
of approximately $61.7 million and experienced significant losses in every month
aggregating approximately $59.2 million. 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., a Florida corporation ("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 under the purchase method of
accounting, 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 4,748,000 shares of Common Stock upon the exercise of outstanding
options and warrants to purchase shares of Common Stock and (b) approximately
5,234,375 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"). 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
September, 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 year ended June 30, 1997, Carnival Air incurred a
$75.3 million loss compared to profits of approximately $800,000 for the year
ended June 30, 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 certified
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.
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<PAGE>
RECENT DEVELOPMENTS
NATIONSBANK FACILITY
On August 1, 1997, Carnival Air, as borrower, Pan Am, AHC and Mr. Micky
Arison, as guarantors, and NationsBank, National Association, as Lender (the
"Lender"), executed a credit agreement (the "NationsBank Credit Agreement")
under which the Lender provided two revolving credit bridge facilities (each a
"Facility" and collectively, the "NationsBank Facility") of up to an aggregate
of $25 million for use by Carnival Air for working capital and general corporate
purposes and for the repayment by Carnival Air of up to $5 million in existing
bank debt. Each of the Facilities permit Carnival Air to borrow up to $12.5
million, with borrowings under such Facilities maturing one year after the date
of closing, subject to certain repayment requirements. The NationsBank Credit
Agreement contains conditions and covenants, including, among other things,
dividend or other restricted payment limitations, capital expenditure
requirements and negative pledge covenants. There is no assurance that Carnival
Air, even with the NationsBank Facility, will generate sufficient cash to fund
its operations and significant cash requirements or that, upon consummation of
the Merger, Pan Am's management will be able to improve the results of
operations of Carnival Air or effectuate a combination of the airlines which
will operate on a profitable basis.
Mr. Micky Arison, an affiliate of the principal shareholder of Carnival
Air, and AHC provided a guaranty of payment with respect to one of the
Facilities ("Facility B"). After the consummation of the Merger, Mr. Arison's
guaranty will be converted from a guaranty of payment to a guaranty of
collection and AHC's guaranty will be terminated. Pan Am provided a guaranty of
collection of the other Facility ("Facility A" which will be binding on Pan Am
whether or not the Merger is consummated). In the event that the Merger is
consummated, Pan Am's guaranty of Facility A will be converted into a guaranty
of payment of the entire NationsBank Facility. Carnival Air's obligations are
secured by substantially all of its assets. Pan Am's guaranty is secured by a
first priority lien on substantially all of its assets. AHC's guaranty is
secured by a pledge of all of the securities of Carnival Air owned by it.
Amounts borrowed under the NationsBank Facility bear interest at the
prime rate of interest as quoted by the Lender for Facility B, and at a fixed
percentage over such prime rate for Facility A (beginning at 3% per annum over
such prime rate for the first six months and increasing by 1.5% per annum for
each of the next three month periods). Carnival Air is required to pay to the
Lender substantial fees relating to the NationsBank Facility. Additionally, Pan
Am issued to the Lender, as further consideration, warrants to purchase up to
550,000 shares of Common Stock at an exercise price equal to $7.917, exercisable
over ten years with a staggered vesting schedule based on the funding of the
NationsBank Facility. Further, Pan Am, Carnival Air and Mr. Arison entered into
an agreement pursuant to which Carnival Air, prior to the Merger, and Pan Am
after consummation of the Merger, will pay Mr. Arison a guaranty fee in an
amount equal to the difference between the cost to the borrower of Facility A
and Facility B and certain additional amounts if the Merger were not consummated
prior to August 31, 1997. As of September 5, 1997, Carnival Air has drawn down
$15 million of the NationsBank Facility.
Each of the parties to the Merger Agreement also entered into a First
Amendment to Acquisition Agreement dated July 8, 1997 pursuant to which the
latest date upon which the Merger could occur was extended to August 31, 1997.
On July 9, 1997, the parties to the Merger Agreement entered into a Second
Amendment to Acquisition Agreement (the "Second Amendment"), pursuant to which
the conditions required to close the Merger were further limited and which
presented a mechanism for either party to extend the latest date upon which the
Merger could occur to September 30, 1997. The Second Amendment provides that,
among other things, the conditions relating to governmental and other consents
are eliminated, as well as the provision concerning Carnival Air's ability to
terminate the
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<PAGE>
Merger Agreement if the price of the Common Stock falls below $6.00 per share.
The Second Amendment became effective upon the closing of the NationsBank
Facility. On August 26, 1997, the parties entered into a Third Amendment to
Acquisition Agreement which provided a mechanism for either party to extend the
latest date upon which the Merger could occur to November 30, 1997.
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<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 Securities 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 June 30, 1997, the Company has realized net revenues
of $61.7 million and experienced significant losses in every month aggregating
$59.2 million. 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 significant additional financing until Pan Am
becomes profitable.
Carnival Air has also recently experienced significant losses. During
the fiscal year ended June 30, 1997, Carnival Air incurred a $75.3 million loss
compared to profits of approximately $800,000 for the fiscal year ended June 30,
1996. Carnival Air expects such losses to continue for the foreseeable future
and expects that it will require significant additional financing or capital
infusions in the near term to continue its operations. Carnival Air's losses
have forced it to defer payments on aircraft leases, aircraft and engine
overhauls and other operating expenditures. Four of Carnival Air's A300 aircraft
have recently been replevied by their lessors and their respective leases
terminated due to disputes between Carnival Air and the lessors over unpaid rent
and maintenance reserves owed to Carnival Air. As a result of these
terminations, Carnival Air took a charge in excess of $13 million (including a
write-off of assets related to the return of aircraft amounting to $10 million)
in the fourth quarter of fiscal 1997, which management believes is sufficient to
cover any additional costs and penalties that may be assessed in connection with
the lease terminations. The termination of any additional 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 also recorded an impairment charge in excess of $12
million in the same period. Due to Carnival Air's projected continuing losses
and projected negative cash flows it was necessary to write-off certain assets.
Carnival Air's payables and accruals at June 30, 1997 were approximately $55
million, of which approximately $10 to $15 million could be considered past due.
Carnival Air believes that the NationsBank Facility will only provide sufficient
capital to satisfy all of its cash requirements and fund losses through the
middle of October 1997; however, there are no assurances that such financing
will satisfy such requirements. 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 expenditures or otherwise curtailing
operations or seeking 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 six
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months ended June 30, 1997 show a combined loss of approximately $61.8 million
and $91.6 million, 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 NationsBank
Facility as discussed under "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 NationsBank Facility will be able to
satisfy all of its cash requirements or fund the Company's combined operating
losses beyond the next several months or that any additional financing will be
available to Pan Am on acceptable terms, if 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.
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 year ended June 30, 1997, Carnival
Air incurred a $75.3 million loss compared to profits of approximately $800,000
for the year ended June 30, 1996. Carnival Air's independent certified 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 October 1997. Carnival Air's management
currently anticipates that, in the event that the NationsBank Facility is
insufficient to meet Carnival Air's capital requirements, Carnival Air may be
required to adopt one or more alternatives to its proposed expenditures, such as
sales of aircraft or other assets, the reduction or delay of capital
expenditures and certain aircraft and engine overhauls or the curtailment of
operations. If these measures are unsuccessful, Carnival Air could be forced to
seek protection under bankruptcy laws. There can be no assurance that any of
such alternatives will provide sufficient capital for Carnival Air to meet its
obligations.
HIGH LEVERAGE AND DEBT SERVICE ASSOCIATED WITH NATIONSBANK FACILITY AND
OTHER CARNIVAL AIR DEBT; PAN AM GUARANTY OF NATIONSBANK FACILITY. Upon the
consummation of the Merger, the NationsBank Facility poses certain risks for Pan
Am, including the risks that Pan Am and its subsidiaries may not generate
sufficient cash flow to service such indebtedness; that Pan Am will be unable to
renegotiate the terms of such indebtedness; that it may be unable to obtain
additional financing in the future; that, to the extent it is significantly more
leveraged than its competitors, Pan Am may be placed at a competitive
disadvantage; and that Pan Am's capacity to respond to market conditions and
other factors may be adversely affected. Pan Am's ability to service its debt
will depend on its future performance, which will be subject to prevailing
economic and competitive conditions and other specific
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<PAGE>
factors discussed herein, as well as developments in capital markets
generally. The terms of the NationsBank Facility (i) require Pan Am to maintain
minimum levels of liquidity and net worth and to meet specified financial
ratios, (ii) limit the issuance of debt by Pan Am and of debt or preferred stock
by Pan Am's subsidiaries, (iii) restrict the ability of its subsidiaries to pay
dividends or make distributions to Pan Am, (iv) restrict Pan Am's ability to pay
dividends, redeem capital stock or subordinated debt, make certain investments
or issue capital stock, place additional liens on its or its subsidiaries'
property, incur additional long-term indebtedness, make capital expenditures in
excess of specified limitations, and enter into mergers or similar transactions,
and (v) limit certain corporate acts and transactions by Pan Am. Such provisions
could adversely affect Pan Am's ability to pursue its strategy of growth through
acquisitions.
Additionally, Pan Am has guaranteed a portion of the NationsBank
Facility, which guaranty will become a guaranty of the entire NationsBank
Facility upon the Merger. However, if the Merger does not occur for any reason,
it is likely, given Carnival Air's financial condition , that Pan Am may be
called upon to satisfy at least a portion of the guaranteed portion of the debt.
Although management believes that because Pan Am's guaranty prior to the Merger
is a guaranty of collection and not of payment that Pan Am's financial
obligation under such circumstances would be lessened, there can be no assurance
that Pan Am would nevertheless be required to expend material amounts in
satisfying such obligations.
It should further be noted that the terms of the NationsBank Facility
become increasingly expensive after the Merger. There can be no assurances that
Pan Am will be able to refinance such financing after the Merger. The failure to
promptly refinance the NationsBank Facility after the Merger could have a
material adverse effect on Pan Am's operations.
RISKS OF INADEQUATE CASH FLOW. 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.
There can be no assurance that sources of funds will be available in amounts
sufficient for Carnival Air to meet its obligations. Carnival Air believes that
the NationsBank Facility should provide sufficient capital to satisfy all of its
cash requirements and fund losses through the middle of October 1997; however,
there are no assurances that such financing will satisfy such requirements. 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 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.
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 affected 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. To date, Pan
Am's operations have not been profitable, in significant part due to its
inability to attract sufficient passenger traffic on its widebody aircraft to
make utilization of such widebody aircraft profitable. Under Pan Am's existing
regulatory certificates, it is limited to operating not more than
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eight widebody aircraft. Carnival Air's existing regulatory certificates
do not limit the number or type of aircraft it may operate. The failure of Pan
Am to utilize narrowbody aircraft given its existing traffic flow could have a
material adverse effect on its operations. Although the Merger would permit Pan
Am to utilize Carnival's narrowbody aircraft, there are no assurances that Pan
Am will be able to operate such aircraft profitably. The DOT does not have
direct jurisdiction to approve or disapprove the Merger; however, 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 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.
POTENTIAL EFFECTS OF FUTURE AIRLINE INCIDENTS. The public's perception
of smaller, regional and new entrant carriers suffered a major blow in May 1996
after the ValuJet incident, which was widely believed to be caused by inadequate
safety procedures. The public's lack of confidence in small, regional and new
entrant carriers led to a deterioration in the financial condition of several
such airlines. The occurrence of any additional similar incidents may further
deteriorate the public's perception of smaller carriers, and may impact the
willingness of certain travelers to fly on such carriers. Moreover, such
incidents may lead the FAA, the DOT and other governmental agencies to increase
the scrutiny airlines receive from such agencies and may also cause such
agencies to promulgate additional regulations that may affect the operations of
these and other carriers. In light of the above, the Company believes that any
airline incident and the related or unrelated imposition of increased scrutiny
or additional regulations by various governmental agencies could have a material
adverse effect on the Company.
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
airlines or a general downturn in the United States economy could have a
material adverse effect upon Pan Am and the industry.
RISK TO PAN AM IF THE MERGER IS NOT CONSUMMATED. Pan Am will face
significant risks in the event that the Merger is not consummated. If the Merger
were not consummated, Pan Am would lose the benefits of the enhanced revenues
and cost synergies anticipated to be realized from the Merger. In that case, Pan
Am would be required to attempt to achieve such enhanced revenues and cost
synergies through, among other means, internal growth, which could be
significantly more expensive and time consuming than achieving them through the
Merger. Given the significant losses it has experienced and continues to
experience, there are no assurances that Pan Am would have sufficient resources
to sustain such growth until it becomes profitable. Finally, in the event the
Merger is not consummated, Pan Am may suffer the financial consequences of being
a guarantor of the NationsBank Facility without having received any of the
corresponding benefits of the Merger or such Facility. See "Risk Factors--High
Leverage and Debt Service Associated with NationsBank Facility and Other
Carnival Air Debt; Pan Am Guaranty of NationsBank Facility."
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 exercise of all outstanding options
and warrants to purchase shares of Common Stock (including the Warrants issued
in connection with the sale
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of the Preferred Stock), an aggregate of 4,748,000 shares, the current
shareholders of Pan Am will own approximately 44% of the then outstanding Common
Stock. For illustrative purposes only, assuming a market price of $8.00 and full
conversion of the Preferred Stock, an aggregate of 5,234,375 shares of Common
Stock will be issued and the current shareholders of Pan Am will own
approximately 37% of the outstanding Common Stock. Alternatively, for
illustrative purposes only, if the market price of the Preferred Stock were
either $4.00 or $10.50, and all of such shares were converted (assuming a 20%
discount to market), an aggregate of 10,468,750 shares (at a market price of
$4.00) would be issued or approximately 4,062,893 shares (at a market price of
$10.50) would be issued and upon such conversions, the current shareholders of
Pan Am would own approximately 32% (at a $4.00 market price) or 38% (at a $10.50
market price) of the outstanding Common Stock. 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. Further, as discussed in "Recent Developments," Pan
Am may in the near future issue and sell shares of a new series of preferred
stock. In addition, holders of the Preferred Stock and certain of the options
and warrants have registration rights and the exercise of such rights may
involve substantial expense to the Company.
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.
POTENTIAL CONTROL BY CERTAIN SHAREHOLDERS. Following the consummation of
the Merger, a trust of which Mr. Arison is beneficiary (the "Arison Trust"),
which is the principal shareholder of Carnival Air, will own approximately 43%
of the outstanding Common Stock without giving effect to the issuance of (i)
approximately 4,748,000 shares of Common Stock issuable upon the exercise of
outstanding options and warrants to purchase Common Stock and (ii) approximately
5,234,375 shares of Common Stock issuable upon 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). 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. Neither Mr. Arison nor the
Arison Trust currently own any options or warrants to purchase shares of Common
Stock or any shares of the Preferred Stock. It should further be noted that
pursuant to the Merger Agreement, upon the request of Mr. Arison, the Company
shall
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cause Mr. Arison and/or Mr. Frank to be nominated to Pan Am's Board of
Directors and to use reasonable efforts that are taken with respect to all other
nominees to the Board of Directors to have such persons elected to the Board of
Directors so long as Mr. Arison, directly or indirectly, beneficially owns more
than 5% of the issued and outstanding shares of Common Stock.
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
material 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 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. See "Risk Factors--Government Regulation."
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. 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.
None of the Company's officers, directors, promoters, their affiliates
or associates have had any significant discussions with and there are no present
plans, proposals, arrangements or understandings with any representatives of the
owners of any business or company regarding the possibility of any acquisition
or merger. Additionally, in accordance with the provisions of the Florida
Business Corporation Act, the Company intends to submit any transactions between
the Company and its directors or principal shareholders and their affiliates to
a committee of disinterested members of the Company's Board of Directors or to
require approval of such transactions by a majority of the disinterested members
of the Board of Directors. Pan Am does not intend to seek shareholder approval
for any acquisitions, including those involving management, unless required by
law or the rules of the securities exchange upon which the Common Stock is
traded.
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 Former Pan Am which ceased operations in 1991.
The rights and obligations of 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 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 Former Pan Am.
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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 Pan Am and Carnival Air which may 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.
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 that 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
and 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 obtained an injunction against
Eclipse compelling Eclipse to execute and deliver the required assignment
documentation. Eclipse has appealed such order and has also 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 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.
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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; AVAILABILITY OF ADDITIONAL
AIRCRAFT; INTEGRATION OF DIFFERENT AIRCRAFT. Pan Am leases five A300 aircraft
and Carnival Air's fleet currently consists of 21 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 that 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 interruption of service could
materially and adversely affect Pan Am's service, reputation and operating
results. 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 costs 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.
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 have a
material adverse effect on the financial condition of Pan Am following the
Merger.
AIRPORT AND GATE ACCESS. Pan Am presently operates over 22 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 which
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.
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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. 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. In May
1997, the Association of Flight Attendants ("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. In July 1997,
the Transport Workers Union ("TWU") successfully organized the dispatcher 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.
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. Upon consummation of the Merger, ALPA, AFA and TWU 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, AFA and TWU is to each
become the collective bargaining representative for the Pan Am pilot, flight
attendant and dispatcher groups that are currently unrepresented. 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.
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. 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.
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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 14 Stage 3 aircraft and 7 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 hush kits is approximately $2.5 million for each B727-200 and
approximately $1.3 million for each B737-200 aircraft. Carnival Air may also
achieve compliance through newly available alternatives to hush kits which may
be more cost effective, by selling one or more of the Stage 2 aircraft owned by
Carnival Air, by terminating one or more aircraft leases, or by acquiring
additional aircraft that already satisfy Stage 3 requirements.
To date, Carnival Air has not installed hush kits on any of its
aircraft; it nevertheless remains in current compliance with ANCA. 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 hush kits on its aircraft in
1997 through 1998 with installations completed by January 1, 2000 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
hush kits 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 hush kit selected by Carnival Air or that it will 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.
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Additionally, Carnival Air's fleet has been operating without hush kits,
and once the hush kits 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 hush
kitted 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.
ADDITIONAL RISKS ATTENDANT TO THE MERGER; 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.
Additionally, Pan Am is required to consummate the Merger even if it faced a
significant lawsuit (short of an injunction) relating to the Merger and even if
the DOT substantially restricted Carnival Air's operations (short of a complete
shutdown). Requiring Pan Am to close the transaction under such circumstances
could have a material adverse effect on Pan Am.
SUBSEQUENT REGISTRATION OF STOCK; SHARES ELIGIBLE FOR FUTURE SALE. In
addition to the Registration Statement, the Company has filed or is in the
process of filing other registration statements with the SEC covering (i)
2,380,953 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.
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.
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These provisions have the effect of limiting the voting interest in the
Company held by nonUnited 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 subsequent to the Merger.
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 following the Merger.
CARNIVAL AIR FACILITY LEASE. 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 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.
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.
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<PAGE>
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 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. See also "Risk Factors--Aging
Aircraft."
Pan Am remains subject to an eight aircraft limitation on its DOT
certificate . 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 . Carnival Air's existing regulatory certificates do
not limit the number of airplanes it may operate.
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
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.
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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 incident 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 $1
billion per any single incident . 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.
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<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the name of each Selling Securityholder
and (i) the number of Warrants and Preferred Stock owned by each Selling
Securityholder as of September 1, 1997, (ii) the amount of Common Stock owned by
each Selling Securityholder as of September 1, 1997, and (iii) the maximum
amount of Common Stock which may be offered for the account of such Selling
Securityholder under this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF COMMON
SHARES OF SERIES SERIES B NUMBER OF STOCK OWNED COMMON STOCK
A PREFERRED PREFERRED WARRANTS PRIOR TO OFFERED HEREBY
NAME OF SELLING SECURITYHOLDER STOCK OWNED STOCK OWNED OWNED OFFERING (1)
- ------------------------------ ---------------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Shepherd Investments
International, Ltd. 45,000 -- -- -- 849,056
Staro Partners 10,000 -- -- -- 188,679
Stark International Partnership 45,000 -- -- -- 849,056
Grace Brothers, Ltd. 50,000 -- -- -- 943,396
Global Emerging Markets -- -- 401,070 -- 401,070
RefCo Capital Markets, Ltd. -- 75,000 154,958 -- 1,570,052
Paresco Inc. -- 21,000 43,388 -- 439,614
Liberty View Plus Fund -- 3,000 6,198 -- 62,802
Liberty View Fund LLC -- 1,000 2,066 -- 20,934
Omicron Partners, L.P. -- 10,000 20,661 -- 209,340
Banistmo Capital Markets Group, Inc. -- 15,000 30,992 -- 314,011
Casanova -- 5,000 10,331 -- 104,671
The Gifford Fund Ltd. -- 4,000 8,264 -- 83,736
GPS Fund Ltd. -- 1,000 2,066 -- 20,934
P.R.I.F., L.P. -- 40,000 82,644 -- 837,361
JAS Securities -- 10,000 20,661 -- 209,340
-------- -------- -------- ------ ----------
TOTAL 150,000 185,000 783,299 -- 7,104,052
-------- -------- -------- ------ ----------
</TABLE>
(1) Assumes conversion into Common Stock of the total number of shares of
Preferred Stock by the Selling Securityholder at a conversion rate of
$5.30, based upon a market price of the Common Stock of $6.625 as reported
on the American Stock Exchange on September 18, 1997 and assuming a full
20% discount (the actual discount as of September 18, 1997, for the Series
A Preferred Stock is 12% and for the Series B Preferred Stock is 10%, see
"Plan of Distribution"). The Conversion Ratio and the number of shares of
Common Stock issuable upon conversion of the Preferred Stock is subject to
adjustment under certain circumstances. See "Plan of Distribution."
Accordingly, the number of shares of Common Stock issuable upon conversion
of the Preferred Stock may increase or decrease from time to time.
Because the Selling Securityholders may, pursuan to this Prospectus,
offer all or some portion of the Common Stock they have the right to acquire
upon conversion of the Preferred Stock or exercise of the Warrants, no estimate
can be given as to the amount of the Common Stock that will be held by the
Selling Securityholders upon termination of any such sales. In addition, the
Selling Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Preferred Stock or Warrants since the date
on which they provided the information regarding their Preferred Stock, Warrants
and Common Stock in transactions exempt from the registration requirements of
the Securities Act. See "Plan of Distribution."
Only Selling Securityholders identified above who beneficially own the
Preferred Stock, Warrants or the Common Stock they have the right to acquire
upon conversion of the Preferred Stock or Warrants set forth opposite each such
Selling Securityholder's name in the foregoing table on the effective date of
the Registration Statement may sell such Common Stock pursuant to this
Prospectus. The Company may from time to time include additional Selling
Securityholders in supplements to this Prospectus.
The Company will pay the expenses of registering the Common Stock being
sold hereunder.
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 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 14, 1997, and July 29, 1997, the Company
completed the sale of an aggregate of 185,000 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
$18.5 million and net proceeds of approximately $17.6 million, respectively, to
the Company. In addition to the Series B Preferred Stock, the Series B Holders
received in the aggregate, Warrants to purchase 382,229 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 Series A Holders 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
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Stock for a cash value equal to the value of the shares of Common Stock
issuable upon conversion at such 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 Series A 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 Series A 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, 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. The Series B Holders 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 Series B Holders 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 such 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.
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<PAGE>
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.
SALE OF COMMON STOCK
The Selling Securityholders may sell the shares of Common Stock offered
hereby (the "Shares") in transactions on the AMEX, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling the Shares to or through agents, dealers or underwriters designated from
time to time, and such agents, dealers or underwriters may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of Shares for whom they may act as
agent or to whom they sell as principals, or both. The Selling Securityholders
and any agents, dealers or underwriters that act in connection with the sale of
Shares might be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any discount or commission received by them and any
profit on the resale of Shares as principal might be deemed to be underwriting
discounts or commissions under the Securities Act.
To the extent required, the number of Shares to be sold, the purchase
price and public offering price, the name or names of any agent, dealer or
underwriter, and any applicable commissions or discounts with respect to a
particular offering will be set forth in a supplement to this Prospectus to be
filed with the SEC pursuant to Rule 424 under the Securities Act.
The Company will receive no portion of the proceeds from the sale of
the Shares. The Selling Securityholders and each person who controls the Selling
Securityholders, within the meaning of the Securities Act and the Exchange Act,
will be indemnified by the Company against certain civil liabilities, including
certain liabilities which may arise under the Securities 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.
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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 LLP, 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.
The audited financial statements of Carnival Air included on page 4 of
the Company's Current Report on Form 8-K dated August 29, 1997, which is
incorporated herein by reference, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent certified public accountants, given
on the authority of said firm as experts in auditing and accounting.
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<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 incorporated by reference to
documents previously filed or have been previously filed, 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 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.*
23.2 Consent of Price Waterhouse 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).
- -----------
* Previously filed
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
II-2
<PAGE>
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 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 Amendment to the 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 24th day of September, 1997.
PAN AM CORPORATION
By: /s/ MARTIN R. SHUGRUE, JR.
-----------------------------------------------
Martin R. Shugrue, Jr., Chief Executive Officer
and President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Amendment has
been signed by the following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C>
* Chairman of the Board September 24, 1997
- ------------------------------
Charles E. Cobb, Jr.
* Vice Chairman of the Board September 24, 1997
- ------------------------------
Phillip Frost, M.D.
/s/ MARTIN R. SHUGRUE, JR. President, Chief Executive September 24, 1997
- ------------------------------ Officer, Director
Martin R. Shugrue, Jr.
* Director September 24, 1997
- ------------------------------
John J. Sicilian
* Director September 24, 1997
- ------------------------------
Richard C. Pfenniger, Jr.
* Director September 24, 1997
- ------------------------------
Hershel F. Smith, Jr.
/s/ JOHN J. OGILBY, JR. Chief Financial Officer and September 24, 1997
- ------------------------------ General Counsel
John J. Ogilby, Jr. (Principal Financial Officer)
/s/ ROBERT COILE Vice President-Finance and September 24, 1997
- ------------------------------ Accounting
Robert Coile (Chief Accounting Officer)
* By:/s/ MARTIN R. SHUGRUE, JR.
------------------------------
Martin R. Shugrue, Jr.
Attorney-In-Fact pursuant to
Power of Attorney
</TABLE>
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