UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-12
Ardent Acquisition Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.0001 per share
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(2) Aggregate number of securities to which transaction applies:
18,000,000
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
Calculated based on the purchase price of $
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(4) Proposed maximum aggregate value of transaction:
$98,640,000
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(5) Total fee paid:
$10,554.48
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|_| Fee paid previously with preliminary materials:
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ARDENT ACQUISITION CORPORATION
1415 KELLUM PLACE
SUITE 205
GARDEN CITY, NY 11530
To the Stockholders of Ardent Acquisition Corporation:
You are cordially invited to attend a special meeting of the
stockholders of Ardent Acquisition Corporation, or Ardent, relating to the
proposed acquisition of Avantair, Inc., or Avantair, which will be held at 10:00
a.m., eastern time, on , 200_, at the offices of Katten Muchin
Rosenman LLP, 575 Madison Avenue, New York, New York 10022.
At this important meeting, you will be asked to consider and vote upon
the following proposals:
o to adopt, and approve the transactions contemplated by, the
Stock Purchase Agreement, dated as of October 2, 2006, among
Ardent and certain stockholders of Avantair, and the Letter
Agreements, dated as of October 2, 2006, among Ardent,
Avantair and certain stockholders of Avantair, and to adopt
amendments to the certificate of incorporation of Ardent
designed to ensure Ardent's compliance with the citizenship
requirements of U.S. aviation laws after completion of the
acquisition and to increase the number of shares of common
stock which Ardent is authorized to issue from 30,000,000
shares to 75,000,000 shares - we call this proposal the
acquisition proposal;
o to adopt amendments to the certificate of incorporation of
Ardent to change the name of Ardent to Avantair, Inc. - we
call this proposal the name change proposal;
o to adopt Ardent's 2006 Long-Term Incentive Plan (an
equity-based incentive compensation plan) - we call this
proposal the plan proposal; and
o to adopt a proposal to adjourn the special meeting to a later
date or dates, if necessary, to permit further solicitation
and vote of proxies in the event there are not sufficient
votes at the time of the special meeting to adopt the
acquisition proposal, the name change proposal or the plan
proposal - we call this proposal the adjournment proposal.
The affirmative vote of a majority of the issued and outstanding shares
of Ardent's common stock is required to adopt each of the acquisition proposal
and the name change proposal. The affirmative vote of a majority of the shares
of Ardent Common Stock represented in person or by proxy at the meeting is
required to adopt the plan proposal and the adjournment proposal. Adoption of
the acquisition proposal also requires the affirmative vote of a majority of the
shares of Ardent's common stock issued in its initial public offering.
Adoption by Ardent stockholders of the acquisition proposal is not
conditioned on the adoption of the name change proposal, the plan proposal or
the adjournment proposal. However, the adoption of the name change proposal and
the plan proposal is conditioned upon the adoption of the acquisition proposal.
As provided in Ardent's certificate of incorporation, each Ardent
stockholder which holds shares of common stock issued in Ardent's initial public
offering, which we sometimes call IPO shares, has the right to vote against the
acquisition proposal and at the same time demand that Ardent convert such
stockholder's shares into cash equal to such stockholder's pro rata portion of
the trust account which contains a substantial portion of the net proceeds of
Ardent's initial public offering. These IPO shares will be converted into cash
only if the acquisition is completed. If the holders of at least 1,380,000 IPO
shares, or at least 20% of the total number of IPO shares, demand conversion of
their shares into their pro rata portion of the trust account, then Ardent will
not consummate the acquisition under the terms of Ardent's certificate of
incorporation. Ardent's shares of common stock are listed on the
Over-the-Counter Bulletin Board under the symbol AACQ.
Ardent's initial stockholders have agreed, with respect to the
acquisition proposal, to vote their 1,500,000 shares of Ardent common stock
acquired prior to Ardent's initial public offering, representing an aggregate of
approximately 17.9% of the outstanding shares of Ardent common stock, in
accordance with the vote of the majority of the IPO shares. The initial
stockholders intend to vote all of their shares of Ardent common stock "FOR" the
name change proposal, the plan proposal and the adjournment proposal.
After careful consideration, Ardent's Board of Directors has determined
that the acquisition proposal is fair to and in the best interests of Ardent and
its stockholders. Ardent's Board of Directors has also determined that the name
change proposal, the plan proposal and adjournment proposal are in the best
interests of Ardent's stockholders. Ardent's Board of Directors unanimously
recommends that you vote or give instruction to vote "FOR" the adoption of the
acquisition proposal, the name change proposal, the plan proposal and the
adjournment proposal.
Enclosed is a notice of special meeting and proxy statement containing
detailed information concerning the acquisition proposal and the transactions
contemplated thereby as well as detailed information concerning the name change
proposal, the plan proposal and the adjournment proposal. Whether or not you
plan to attend the special meeting, we urge you to read this material carefully.
I look forward to seeing you at the meeting.
Sincerely,
Barry J. Gordon
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENVELOPE PROVIDED.
Neither the Securities and Exchange Commission nor any state securities
commission has determined if this proxy statement is truthful or complete. Any
representation to the contrary is a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE 25 FOR A DISCUSSION OF VARIOUS
FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE ACQUISITION.
This proxy statement is dated , 200_ and is first
being mailed to Ardent stockholders on or about _____________, 200_.
ARDENT ACQUISITION CORPORATION
1415 KELLUM PLACE
SUITE 205
GARDEN CITY, NY 11530
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ______________, 200_
TO THE STOCKHOLDERS OF ARDENT ACQUISITION CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders, including
any adjournments or postponements thereof, of Ardent Acquisition Corporation, or
Ardent, a Delaware corporation, will be held at 10:00 a.m., eastern time, on
____________, 200_, at the offices of Katten Muchin Rosenman LLP, 575 Madison
Avenue, New York, New York 10022:
o to consider and vote upon a proposal to adopt, and approve
the transactions contemplated by, the Stock Purchase
Agreement, dated as of October 2, 2006, among Ardent and
certain stockholders of Avantair, and the Letter Agreements,
dated as of October 2, 2006, among Ardent, Avantair and
certain stockholders of Avantair, and to adopt amendments to
the certificate of incorporation of Ardent designed to ensure
Ardent's compliance with the citizenship requirements of U.S.
aviation laws after completion of the acquisition and to
increase the number of shares of common stock which Ardent is
authorized to issue from 30,000,000 shares to 75,000,000
shares;
o to consider and vote upon a proposal to adopt amendments to
the certificate of incorporation of Ardent to change the name
of Ardent to Avantair, Inc.;
o to consider and vote upon a proposal to adopt Ardent's 2006
Long-Term Incentive Plan (an equity-based incentive
compensation plan); and
o to consider and vote upon a proposal to adjourn the special
meeting to a later date or dates, if necessary, to permit
further solicitation and vote of proxies in the event there
are not sufficient votes at the time of the special meeting
to adopt the acquisition proposal, the name change proposal
or the plan proposal.
Adoption by Ardent stockholders of the first proposal listed above, the
acquisition proposal, is not conditioned on the adoption of the second, third
and fourth proposals listed above. However, adoption of the second proposal
listed above, the name change proposal, and the third proposal listed above, the
plan proposal, is conditioned upon the adoption of the acquisition proposal. If
the holders of at least 1,380,000 shares of common stock issued in Ardent's
initial public offering (which we sometimes call IPO shares), or at least 20% of
the total number of IPO shares, demand conversion of their shares into their pro
rata portion of the trust account, then Ardent will not consummate the
acquisition under the terms of Ardent's certificate of incorporation.
Ardent stockholders of record at the close of business on ___________,
200_ will be entitled to receive notice of, and to vote at, the Ardent special
meeting and any and all adjournments thereof.
YOUR VOTE IS IMPORTANT. Please sign, date and return your proxy card as
soon as possible to make sure that your shares are represented at the special
meeting. If you are a stockholder of record of Ardent common stock, you may also
cast your vote in person at the special meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct your broker or bank on
how to vote your shares. IF YOU DO NOT VOTE OR DO NOT INSTRUCT YOUR BROKER OR
BANK HOW TO VOTE, IT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE ACQUISITION
PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN PROPOSAL AND THE ADJOURNMENT
PROPOSAL.
ARDENT'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE ADOPTION OF EACH PROPOSAL LISTED ABOVE.
By Order of the Board of Directors,
Barry J. Gordon
Chairman of the Board and
Chief Executive Officer
______________, 200_
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION....................................1
FORWARD-LOOKING STATEMENTS.....................................................8
SUMMARY........................................................................9
The Acquisition Proposal....................................................9
Name Change Proposal.......................................................11
Plan Proposal..............................................................12
Adjournment Proposal.......................................................12
Special Meeting of Ardent's Stockholders...................................12
Voting Power; Record Date..................................................12
Vote Required to Adopt the Acquisition Proposal............................12
Conversion Rights..........................................................13
Vote Required to Adopt the Name Change Proposal............................13
Vote Required to Adopt the Plan Proposal...................................13
Vote Required to Adopt the Adjournment Proposal............................13
Appraisal or Dissenters Rights.............................................14
Proxies....................................................................14
Stock Ownership............................................................14
Ardent's Board of Directors' Recommendation................................14
Interests of Ardent Directors and Officers in the Acquisition..............14
Interests of Avantair Directors and Officers in the Acquisition............15
Conditions to the Completion of the Acquisition............................15
Termination................................................................16
Comparison of Stockholders Rights..........................................16
United States Federal Income Tax Consequences of the Acquisition...........17
Regulatory Matters.........................................................17
SELECTED HISTORICAL FINANCIAL INFORMATION.....................................18
AVANTAIR HISTORICAL FINANCIAL INFORMATION..................................18
ARDENT HISTORICAL FINANCIAL INFORMATION....................................19
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION OF ARDENT AND AVANTAIR .........................................20
COMPARATIVE PER SHARE INFORMATION.............................................22
PER SHARE MARKET PRICE INFORMATION............................................24
RISK FACTORS..................................................................25
THE ARDENT SPECIAL MEETING....................................................35
Ardent Special Meeting.....................................................35
Date, Time and Place.......................................................35
Purpose of the Special Meeting.............................................35
Record Date; Who is Entitled to Vote.......................................35
Voting Your Shares.........................................................36
Who Can Answer Your Questions About Voting Your Shares.....................36
No Additional Matters May Be Presented at the Special Meeting..............36
Revoking Your Proxy........................................................37
Vote Required to Adopt the Acquisition Proposal............................37
Conversion Rights..........................................................37
Vote Required to Adopt the Name Change Proposal............................38
Vote Required to Adopt the Plan Proposal...................................38
Vote Required to Adopt the Adjournment Proposal............................38
Broker Non-Votes...........................................................38
Solicitation Costs.........................................................39
Stock Ownership............................................................39
i
THE ACQUISITION PROPOSAL......................................................40
General Description of the Acquisition.....................................40
Background of the Acquisition..............................................40
Factors Considered by the Ardent Board in Approving the Acquisition........43
Fairness Opinion...........................................................46
Structure Following Completion of the Acquisition..........................51
Directors and Executive Officers Following Completion of
the Acquisition..........................................................51
Amendments to Ardent's Certificate of Incorporation........................52
Appraisal or Dissenters Rights.............................................55
United States Federal Income Tax Consequences of the Acquisition...........55
Fiscal Year................................................................55
Regulatory Matters.........................................................55
Consequences if Acquisition Proposal is Not Approved.......................55
Required Vote..............................................................55
Recommendation.............................................................56
Interest of Ardent Directors and Officers in the Acquisition...............56
Interests of Avantair Directors and Officers in the Acquisition............57
THE NAME CHANGE PROPOSAL......................................................58
General Description of the Amendment.......................................58
Ardent's Reasons for the Amendment and Recommendation of
Ardent's Board of Directors..... ........................................58
Consequences if Name Change Proposal is Not Approved.......................58
Required Vote..............................................................58
Recommendation.............................................................58
THE PLAN PROPOSAL.............................................................59
General Description of the Plan............................................59
Awards Under the Plan......................................................59
Amendment, Suspension or Termination of the Plan...........................63
Certain Federal Income Tax Consequences of the Plan........................63
Effective Date.............................................................66
Consequences if Plan Proposal is Not Approved..............................66
Required Vote..............................................................66
Recommendation.............................................................67
THE ADJOURNMENT PROPOSAL......................................................68
General Description of the Adjournment Proposal............................68
Consequences if Adjournment Proposal is Not Approved.......................68
Required Vote..............................................................68
Recommendation.............................................................68
THE AVANTAIR STOCK PURCHASE AGREEMENT.........................................69
Structure of the Acquisition...............................................69
Purchase Price.............................................................69
Escrow Amount..............................................................69
Closing Cash Statement - Purchase Price Adjustment.........................69
Contingent Deferred Payments...............................................69
Closing of the Acquisition.................................................70
Representations and Warranties.............................................70
Materiality and Material Adverse Effect....................................72
Interim Operations Relating to Avantair....................................72
No Solicitation............................................................74
Ardent's Stockholders' Meeting.............................................74
Access to Information; Confidentiality.....................................74
Reasonable Efforts; Notification...........................................75
Issuances of Ardent Securities.............................................75
Equity Compensation Plan...................................................75
Investor Rights Agreement..................................................75
ii
Indemnification............................................................75
Fees and Expenses..........................................................76
Public Announcements.......................................................76
Transfer Taxes.............................................................76
Conditions to the Completion of the Acquisition............................76
Termination, Amendment and Waiver..........................................78
Effect of Termination......................................................78
Assignment.................................................................78
Amendment..................................................................78
Further Assurances.........................................................78
Letter Agreement...........................................................79
ESCROW AGREEMENT..............................................................79
Creation of Escrow.........................................................79
Distribution of Escrowed Shares............................................79
STOCKHOLDERS AGREEMENT........................................................80
Restrictions on Transfer...................................................80
Voting Agreement...........................................................80
EMPLOYMENT AGREEMENTS.........................................................80
Scope of Employment........................................................80
Compensation...............................................................81
Fringe Benefits, Reimbursement of Expenses.................................81
Termination Benefits.......................................................81
Non-Competition and Non-Solicitation.......................................83
INVESTORS RIGHTS AGREEMENT....................................................83
Shelf Registration Rights..................................................83
INFORMATION ABOUT AVANTAIR....................................................84
Business of Avantair.......................................................84
Government and Other Regulations...........................................91
Risk of Loss and Liability Insurance.......................................92
Legal Proceedings..........................................................92
Employees..................................................................92
Facilities.................................................................92
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF AVANTAIR ..........................................93
Overview...................................................................93
Critical Accounting Policies...............................................94
Recently Issued Pronouncements.............................................96
Results of Operations......................................................96
Liquidity And Capital Resources............................................99
INFORMATION ABOUT ARDENT.....................................................103
Business of Ardent........................................................103
Competition...............................................................105
Facilities................................................................105
Executive Compensation....................................................105
Employees.................................................................105
Periodic Reporting and Audited Financial Statements.......................105
Legal Proceedings.........................................................105
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF ARDENT ...........................................106
Plan of Operations........................................................106
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS..................108
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET.........................110
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ...............111
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS...............112
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS .....113
BENEFICIAL OWNERSHIP OF SECURITIES...........................................115
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................117
PRICE RANGE OF SECURITIES AND DIVIDENDS......................................119
iii
Holders...................................................................119
Dividends.................................................................119
Avantair..................................................................120
DESCRIPTION OF ARDENT'S SECURITIES FOLLOWING THE ACQUISITION.................120
General...................................................................120
Units.....................................................................120
Common Stock..............................................................120
Preferred Stock...........................................................120
Unissued Shares of Capital Stock..........................................121
Board of Directors; Vacancies.............................................121
Limitation of Liability of Directors......................................121
Warrants..................................................................122
Quotation or Listing......................................................123
Investors Rights Agreement................................................123
Transfer Agent and Registrar..............................................123
COMPARISON OF STOCKHOLDER RIGHTS.............................................124
STOCKHOLDER PROPOSALS........................................................126
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS....................................126
WHERE YOU CAN FIND MORE INFORMATION..........................................127
FINANCIAL STATEMENTS.........................................................F-1
ANNEXES
A--Stock Purchase Agreement
B--Letter Agreement
C--Form of Amended and Restated Certificate of Incorporation
D--Escrow Agreement
E--Employment Agreements
F--Stockholders Agreement
G--Investors Rights Agreement
H--Fairness Opinion
I--2006 Long Term Incentive Plan
iv
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q. WHAT IS BEING VOTED ON? A. There are four proposals that you are
being asked to vote on. The first
proposal is to adopt, and approve the
transactions contemplated by, the Stock
Purchase Agreement and the Letter
Agreements (which we refer to
collectively as the Stock Purchase
Agreement) providing for the acquisition
of Avantair, Inc., which we refer to as
Avantair, and to adopt the amendments to
Ardent's certificate of incorporation
designed to ensure Ardent's compliance
with the citizenship requirements of U.S.
aviation laws after completion of the
acquisition and to increase the number of
shares of common stock which Ardent is
authorized to issue from 30,000,000
shares to 75,000,000 shares. Without
adoption of these amendments, Ardent will
not be able to acquire Avantair. We refer
to this first proposal as the acquisition
proposal. See page 40.
The second proposal is to adopt
amendments to Ardent's certificate of
incorporation to change the name of
Ardent to Avantair, Inc. We refer to this
second proposal as the name change
proposal. See page 58.
The third proposal is to adopt Ardent's
2006 Long Term Incentive Plan, which is
an equity-based compensation plan. We
refer to this third proposal as the plan
proposal. See page 59.
The fourth proposal allows the
adjournment of the special meeting to a
later date if necessary to permit further
solicitation of proxies in the event that
there are not sufficient votes at the
time of the special meeting to approve
the acquisition proposal, the name change
proposal and the plan proposal. We refer
to this fourth proposal as the
adjournment proposal. See page 68.
Q. WHY IS ARDENT PROPOSING A. Ardent was organized to effect a business
THE ACQUISITION PROPOSAL? combination with an operating business.
Under the terms of its certificate of
incorporation, prior to completing a
business combination, Ardent must submit
the transaction to its stockholders for
approval. Having negotiated the terms of
a business combination with Avantair,
Ardent is now submitting the transaction
to its stockholders for their approval.
Upon completion of the acquisition of
Avantair, Ardent would become subject to
certain United States aviation laws. In
an effort to ensure Ardent's continuing
compliance with U.S. aviation laws, as
part of the acquisition proposal Ardent
is proposing that its certificate of
incorporation be amended to adopt certain
limitations on the ownership and voting
of Ardent's common stock and other
securities by persons who are not
citizens of the United States. Ardent
cannot complete the Avantair acquisition
without adoption of these share ownership
limitations.
Under the Stock Purchase Agreement,
Ardent will issue 7,000,000 shares of
Ardent's common stock to Avantair's
stockholders at the closing of the
acquisition. Avantair's stockholders have
the opportunity to receive up to an
additional 11,000,000 shares of Ardent's
common stock based on Ardent's future
financial performance and the future
trading price of its common stock. At
present, Ardent does not have enough
shares of its common stock (after taking
into account shares reserved for issuance
upon the exercise of its outstanding
warrants and unit purchase options)
available for issuance in order to
satisfy Ardent's obligations under the
Stock Purchase Agreement. Ardent cannot
complete the Avantair acquisition without
an increase in the number of authorized
shares of its common stock. In addition,
Ardent believes it is prudent to have a
greater number of shares of its common
stock available for a variety of
corporate purposes, including financing
potential acquisitions and compensating
its officers, directors and employees
(under the proposed 2006 Long Term
Incentive Plan or otherwise).
Q. WHY IS ARDENT PROPOSING A. Ardent believes that the name Avantair,
THE NAME CHANGE PROPOSAL? Inc. more accurately reflects the
business it will conduct after the
acquisition, and will enable industry and
financial market participants to more
closely associate Ardent with its
operating business. See page 58.
Q. WHY IS ARDENT PROPOSING A. Ardent believes that the awards available
THE PLAN PROPOSAL? under the 2006 Long Term Incentive Plan
will assist Ardent in attracting,
retaining and motivating employees and
officers or those who will become
employees or officers of Ardent and/or
its subsidiaries (including Avantair),
and to align the interests of those
individuals and Ardent's shareholders.
Q. WHAT VOTE IS REQUIRED A. Adoption of the acquisition proposal
IN ORDER TO ADOPT THE requires the affirmative vote of a
ACQUISITION PROPOSAL? majority of the issued and outstanding
shares of Ardent's common stock. Adoption
of the acquisition proposal also requires
the affirmative vote of a majority of the
shares of Ardent's common stock issued in
its initial public offering. If the
holders of at least 1,380,000 shares of
common stock issued in Ardent's initial
public offering (which we sometimes call
IPO shares), or at least 20% of the total
number of IPO shares, demand conversion
of their shares into their pro rata
portion of the trust account, then Ardent
will not consummate the acquisition under
the terms of Ardent's certificate of
incorporation. See page 37. No vote of
the warrant holders is necessary to adopt
the acquisition proposal, and Ardent is
not asking the warrant holders to vote on
the acquisition proposal. Adoption of the
acquisition proposal is not conditioned
upon the adoption of the name change
proposal, the plan proposal or the
adjournment proposal. See page 55.
2
Q. DO I HAVE THE RIGHT A. If you hold IPO shares, then you have the
TO CONVERT MY SHARES right to vote against the acquisition
INTO CASH? proposal and demand that Ardent convert
your shares into your pro rata portion of
the trust account in which a substantial
portion of the net proceeds of Ardent's
initial public offering are held if the
acquisition is consummated. If the
holders of at least 1,380,000 IPO shares,
or at least 20% of the total number of
IPO shares, demand conversion of their
shares into their pro rata portion of the
trust account, then Ardent will not
consummate the acquisition under the
terms of Ardent's certificate of
incorporation. We sometimes refer to the
right to vote against the acquisition and
demand conversion of your shares into
your pro rata portion of the trust
account as conversion rights. See page
104.
Q. IF I HAVE CONVERSION A. If you wish to exercise your conversion
RIGHTS, HOW DO I rights, you must vote against the
EXERCISE THEM? acquisition and at the same time demand
that Ardent convert your shares into
cash. If, notwithstanding your vote, the
acquisition is completed, then you will
be entitled to receive your pro rata
share of the trust account in which a
substantial portion of the net proceeds
of Ardent's initial public offering are
held, including your pro rata share of
any interest earned thereon through the
date of the special meeting. Based on the
amount of cash held in the trust account
at June 30, 2006, you will be entitled to
convert each share that you hold into
approximately $5.50. If you exercise your
conversion rights, then you will be
exchanging your shares for cash and will
no longer own these shares. You will only
be entitled to receive cash for these
shares if you continue to hold these
shares through the closing date of the
acquisition and then tender your stock
certificate to Ardent. If the acquisition
is not completed, then your shares will
not be converted to cash at this time.
See page 104.
PRIOR TO EXERCISING CONVERSION RIGHTS,
ARDENT STOCKHOLDERS SHOULD VERIFY THE
MARKET PRICE OF ARDENT'S COMMON STOCK AS
THEY MAY RECEIVE HIGHER PROCEEDS FROM THE
SALE OF THEIR COMMON STOCK IN THE PUBLIC
MARKET THAN FROM EXERCISING THEIR
CONVERSION RIGHTS. Ardent's shares of
common stock are listed on the
Over-the-Counter Bulletin Board under the
symbol AACQ.
Q. WHAT VOTE IS REQUIRED A. Adoption of the name change proposal
TO ADOPT THE NAME requires the affirmative vote of a
CHANGE PROPOSAL? majority of the issued and outstanding
shares of Ardent's common stock. No vote
of the warrant holders is necessary to
adopt the name change proposal, and
Ardent is not asking the warrant holders
to vote on the name change proposal.
Adoption of the name change proposal is
conditioned upon the adoption of the
acquisition proposal, but is not
conditioned on adoption of the plan
proposal or the adjournment proposal. See
page 58.
3
Q. WHAT VOTE IS REQUIRED A. Adoption of the plan proposal requires
TO ADOPT THE PLAN the affirmative vote of a majority of the
PROPOSAL? shares of Ardent common stock represented
in person or by proxy at the meeting. No
vote of the warrant holders is necessary
to adopt the plan proposal, and Ardent is
not asking the warrant holders to vote on
the plan proposal. Adoption of the plan
proposal is conditioned upon the adoption
of the acquisition proposal, but is not
conditioned on adoption of the name
change proposal or the adjournment
proposal. See page 38.
Q. WHAT VOTE IS REQUIRED A. Adoption of the adjournment proposal
TO ADOPT THE ADJOURNMENT requires the affirmative vote of a
PROPOSAL? majority of the shares of Ardent Common
Stock represented in person or by proxy
at the meeting. No vote of the warrant
holders is necessary to adopt the
adjournment proposal, and Ardent is not
asking the warrant holders to vote on the
adjournment proposal. Adoption of the
adjournment proposal is not conditioned
upon the adoption of the acquisition
proposal or the name change proposal. See
page 68.
Q. WHAT IS ARDENT ACQUIRING A. Ardent will acquire all of the issued and
IN THE ACQUISITION? outstanding capital stock of Avantair, a
Nevada corporation based in Clearwater,
Florida. Avantair is a provider of
fractional ownerships of piloted aircraft
for personal and business use, in
addition to providing fixed base
operation services. Avantair has become
the fifth largest provider in the
fractional aircraft market with the
world's largest fleet of Piaggio Avanti
P-180 aircraft. See page 40.
Q. WHAT IS ARDENT PAYING A. Ardent has agreed to buy all of
FOR AVANTAIR? Avantair's issued and outstanding stock
for 7,000,000 shares of Ardent common
stock. Avantair's stockholders have the
opportunity to receive up to an
additional 11,000,000 shares of Ardent's
common stock (which we sometimes refer to
as the incentive shares) based on
Ardent's financial performance and the
trading price of its common stock. See
page 69.
Q. HOW IS ARDENT PAYING A. Following the increase of Ardent's
FOR THE ACQUISITION? authorized shares described in the
acquisition proposal, Ardent will issue
7,000,000 shares of its common stock to
the stockholders of Avantair based on the
number of shares of Avantair's class A
common stock held by them. In the event
that Avantair's stockholders become
eligible to receive some or all of the
incentive shares, Ardent will issue the
proportional number of shares of Ardent
common stock to them in accordance with
the Stock Purchase Agreement.
4
Q. WHAT WILL I RECEIVE A. You will not receive any cash or other
IN THE ACQUISITION? property in the acquisition, but instead
you will continue to hold your shares of
Ardent common stock. As a result of the
acquisition, Ardent will own all of the
outstanding stock of Avantair.
Q. IS ARDENT ISSUING ANY A. Yes. At the closing of the acquisition of
SHARES OF COMMON STOCK Avantair, Ardent will issue an aggregate
IN THE ACQUISITION? of 7,000,000 shares of Ardent common
stock to the stockholders of Avantair.
Following the closing, Ardent may issue
up to an additional 11,000,000 shares of
its common stock to Avantair's
stockholders based on Ardent's future
financial performance and the future
trading price of its common stock. See
"The Avantair Stock Purchase Agreement"
on page 69.
Q. WHAT HAPPENS TO THE FUNDS A. Upon consummation of the acquisition:
DEPOSITED IN THE TRUST
ACCOUNT AFTER CONSUMMATION o Approximately $15,000,000 of the
OF THE ACQUISITION? funds deposited in the trust account
will be paid to CNM, Inc. to satisfy
Avantair's obligations under its Loan
Agreement, dated October 2, 2006, and
Revolving Credit Agreement, dated May
31, 2005, with CNM, Inc.;
o The Ardent stockholders electing to
exercise their conversion rights will
receive their pro rata portion of the
funds deposited in the trust account;
and
o The remaining funds in the trust
account after the distributions
listed above will be released to
Ardent to be used for transaction
expenses, future aircraft deposits,
potential acquisitions and working
capital purposes.
Q. WHAT WILL THE STRUCTURE A. As a result of the acquisition, Avantair
OF THE COMPANY BE AFTER will become a wholly-owned subsidiary of
THE ACQUISITION? Ardent. See page 51.
Q. WHO WILL MANAGE THE A. Avantair and Ardent will be managed by
ACQUIRED COMPANY? Avantair's existing management. See page
51.
Q. WHAT HAPPENS IF THE A. If the acquisition is not consummated,
ACQUISITION IS NOT the trust account in which a substantial
CONSUMMATED? portion of the net proceeds of Ardent's
initial public offering are held will be
liquidated. In any liquidation, the net
proceeds of Ardent's initial public
offering held in the trust account, plus
any interest earned thereon, will be
distributed pro rata to Ardent's common
stockholders holding IPO shares.
Q. WHEN DO YOU EXPECT A. It is currently anticipated that the
THE ACQUISITION TO BE acquisition will be completed, or closed,
COMPLETED? promptly following the Ardent special
meeting on __________, 200_.
5
Q. IF I AM NOT GOING TO A. Yes. After carefully reading and
ATTEND THE ARDENT considering the information contained in
SPECIAL MEETING IN this document, please fill out and sign
PERSON, SHOULD I your proxy card. Then return the enclosed
RETURN MY PROXY CARD proxy card in the return envelope as soon
INSTEAD? as possible, so that your shares may be
represented at the Ardent special
meeting. See page 36.
Q. WHAT WILL HAPPEN IF A. An abstention or failure to vote will
I ABSTAIN FROM VOTING have the same effect as a vote against
OR FAIL TO VOTE? the acquisition proposal, but will not
have the effect of converting your shares
into your pro rata portion of the trust
account in which a substantial portion of
the net proceeds of Ardent's initial
public offering are held, unless an
affirmative election to convert shares of
common stock is made on the proxy card.
An abstention or failure to vote will
also have the same effect as a vote
against the name change proposal, the
plan proposal and the adjournment
proposal. To exercise your conversion
rights, you must affirmatively elect to
convert your shares by checking the
appropriate box, or directing your broker
to check the appropriate box, on the
proxy card and ensure that the proxy card
is delivered prior to the Ardent special
meeting. See page 36.
Q. WHAT DO I DO IF I A. Send a later-dated, signed proxy card to
WANT TO CHANGE Ardent's secretary prior to the date of
MY VOTE? the special meeting or attend the special
meeting in person, revoke your proxy and
vote. You also may revoke your proxy by
sending a notice of revocation to
Ardent's Chief Executive Officer at the
address of Ardent's corporate
headquarters. See page 37.
Q. IF MY SHARES ARE HELD A. No. Your broker can vote your shares only
IN "STREET NAME" BY if you provide instructions on how to
MY BROKER, WILL MY vote. You should instruct your broker to
BROKER VOTE MY vote your shares, following the
SHARES FOR ME? directions provided by your broker. To
exercise your conversion rights, you must
affirmatively elect to convert your
shares by directing your broker to check
the appropriate box on the proxy card and
ensure that the proxy card is delivered
prior to the Ardent special meeting. See
page 38.
Q. WHO WILL PAY FOR THIS A. Ardent has retained Morrow & Co., Inc. to
PROXY SOLICITATION? aid in the solicitation of proxies.
Morrow & Co., Inc. will receive a fee of
approximately $5,500, as well as
reimbursement for certain costs and out
of pocket expenses incurred by them in
connection with their services, all of
which will be paid by Ardent. In
addition, officers and directors may
solicit proxies by mail, telephone,
telegraph and personal interview, for
which no additional compensation will be
paid, though they may be reimbursed for
their out-of-pocket expenses. Ardent will
bear the cost of preparing, assembling
and mailing the enclosed form of proxy,
this Proxy Statement and other material
which may be sent to stockholders in
connection with this solicitation. Ardent
may reimburse brokerage firms and other
nominee holders for their reasonable
expenses in
6
sending proxies and proxy material to the
beneficial owners of our shares. See page
39.
Q. WHO CAN HELP ANSWER A. If you have questions about the
MY QUESTIONS? solicitation of proxies, you may write,
e-mail or call Morrow & Co., Inc., 470
West Avenue, Stamford, CT 06902; email:
Ardent.info@morrowco.com. Stockholders,
banks and brokerage firms, please call
800-607-0088.
7
FORWARD-LOOKING STATEMENTS
We believe that some of the information in this document constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as "may," "expect," "anticipate," "contemplate,"
"believe," "estimate," "intends," and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss future expectations;
o contain information which could impact future results of
operations or financial condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to the Ardent
stockholders. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors and
cautionary language discussed in this document provide examples of risks,
uncertainties and events that may cause actual results to differ materially from
the expectations described by Ardent or Avantair in its forward-looking
statements, including among other things:
o negative cash flow and losses;
o reliance on a limited number of suppliers;
o continued compliance with government regulations, and changes
in government regulations;
o legislation or regulatory environments, requirements or
changes affecting the businesses in which Avantair is
engaged;
o actions by competitors;
o Avantair's dependence on its key management personnel;
o fluctuations in fuel costs; and
o general economic conditions.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this document.
All forward-looking statements included herein attributable to each of
Ardent, Avantair or any person acting on either party's behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Except to the extent required by applicable laws and
regulations, Ardent and Avantair undertake no obligations to update these
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast you
should be aware that the occurrence of the events described in the "Risk
Factors" section and elsewhere in this document could have a material adverse
effect on Ardent or Avantair.
8
SUMMARY
THE FOLLOWING DISCUSSES IN SUMMARY FORM THE MATERIAL TERMS OF THE
ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN PROPOSAL AND THE
ADJOURNMENT PROPOSAL. THE PROPOSALS ARE DESCRIBED IN GREATER DETAIL ELSEWHERE IN
THIS DOCUMENT. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER
DOCUMENTS TO WHICH THIS DOCUMENT REFERS YOU. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 127.
THE ACQUISITION PROPOSAL
THE ACQUISITION
The acquisition proposal seeks your approval of the Stock Purchase
Agreement entered into on October 2, 2006 by Ardent and certain stockholders of
Avantair, and the Letter Agreements, dated as of October 2, 2006, among Ardent,
Avantair and certain stockholders of Avantair (we sometimes refer to the Stock
Purchase Agreement and the Letter Agreements collectively as the Stock Purchase
Agreement). The Stock Purchase Agreement provides for the acquisition of all of
the outstanding shares of capital stock of Avantair by Ardent for an aggregate
purchase price of 7,000,000 shares of Ardent common stock, plus the contingent
deferred payments described below. The purchase price is subject to adjustment
at closing in the event that the amount of cash in Ardent's accounts at the
closing, less Ardent's expenses related to the acquisition which have not been
paid as of the closing, is less than $35,000,000. The contingent deferred
payments are as follows:
o At the end of the fiscal year ending June 30, 2007, Ardent
will calculate (based on its annual audited consolidated
financial statements for such fiscal year) its net income or
loss, plus (i) interest expense, (ii) total taxes paid or
payable, and (iii) depreciation and amortization expense, all
as determined on a consolidated basis in accordance with GAAP
(except, for the purposes of this calculation, any revenues
generated by Ardent with respect to sales of aircraft (or
interests therein) and the associated costs shall be treated
as recognized in the fiscal year of sale and not amortized
over a period of several years). If this calculated amount,
which is sometimes referred to as Cash EBITDA, is greater
than $6,000,000 for the fiscal year ending June 30, 2007,
Ardent will issue an aggregate of 1,000,000 shares of its
common stock to Avantair's stockholders.
o At the end of the fiscal year ending June 30, 2008, Ardent
will calculate (based on its annual audited consolidated
financial statements for such fiscal year) Cash EBITDA. If
Cash EBITDA is greater than $20,000,000 for the fiscal year
ending June 30, 2008, Ardent will issue an aggregate of
5,000,000 shares of its common stock to Avantair's
stockholders.
o If at any time after the closing of the acquisition but prior
to February 23, 2009, the closing trading price on the
Over-the-Counter Bulletin Board (or on a national securities
market on which Ardent's common stock is then quoted for
trading) of Ardent's common stock for 20 trading days within
any 30 trading day period equals or exceeds $8.50 per share,
then Ardent will issue an additional aggregate of 5,000,000
shares of its common stock to Avantair's stockholders.
See "The Avantair Stock Purchase Agreement" on page 69.
1,750,000 of the shares included in the purchase price will be held in
escrow following the closing of the acquisition to secure the Avantair
stockholders' indemnification obligations under the Stock Purchase Agreement.
See the "Escrow Agreement" on page 79.
Ardent and the stockholders of Avantair plan to complete the acquisition
promptly after the Ardent special meeting, provided that:
o Ardent's stockholders have approved the acquisition proposal;
o holders of less than 20% of the shares of common stock issued
in Ardent's initial public offering, or IPO shares, properly
elect to exercise their right to convert their shares into
cash; and
9
o the other conditions specified in the Stock Purchase
Agreement have been satisfied or waived.
The Stock Purchase Agreement and the Letter Agreement are included as
Annexes A and B, respectively, to this document. We encourage you to read the
Stock Purchase Agreement and the Letter Agreement in its entirety. They are the
legal documents that govern the acquisition. See "The Avantair Stock Purchase
Agreement" on page 69 and "The Letter Agreement" on page 79.
In the Stock Purchase Agreement, Ardent acknowledged that it will comply
with certain obligations of Avantair under an Investors Rights Agreement. In the
Investors Rights Agreement, Avantair agreed with certain of its stockholders to
cause Ardent to file a "shelf" registration statement within 60 days following
the closing of the acquisition with respect to approximately 46% of the shares
of Ardent common stock issued to the Avantair stockholders at the closing of the
acquisition, and to file additional "shelf" registration statements within 60
days following the issuance of the deferred payments described above. If any of
these registration statements are not timely filed by Ardent, then, on the 60th
day after the issuance of such shares and for 30-day period thereafter that the
applicable registration statement remains unfiled, Avantair will cause Ardent to
issue warrants (exercisable at $5.00 per share) to the Avantair stockholders
eligible to participate in such registration statements in an amount equal to 2%
of their initial investment in Avantair. See "The Investors Rights Agreements"
on page 83.
As a condition to the closing of the acquisition, Ardent, its initial
stockholders and the Avantair stockholders will enter into a Stockholders
Agreement. Under the Stockholders Agreement:
o The executive officers of Avantair, along with certain other
owners and beneficial owners of Avantair's common stock, will
not transfer, sell, assign, pledge or otherwise dispose of a
portion of the shares of Ardent common stock that they
receive at the closing of the acquisition, other than certain
permitted transfers to relatives, affiliates, family trusts
and the like. For most of these shares, this restriction will
apply until the second anniversary of the closing.
o The initial stockholders of Ardent and all of the
stockholders of Avantair agree to designate certain
individuals for election to Ardent's board of directors and
to vote for such individuals. Ardent's initial stockholders
shall have the right to designate three directors, who shall
initially be Barry J. Gordon (who shall also be elected
non-executive Chairman of Ardent's Board of Directors),
Arthur H. Goldberg and ________. The Avantair stockholders
shall have the right to designate four directors, two of whom
shall initially be Steven Santo and John Waters, and one of
whom shall be subject to the consent of the initial
stockholders of Ardent.
AN ARDENT STOCKHOLDER WHO VOTES IN FAVOR OF THE ACQUISITION PROPOSAL IS
ALSO VOTING TO ADOPT THE AMENDMENTS TO ARDENT'S CERTIFICATE OF INCORPORATION
DESIGNED TO ENSURE ARDENT'S COMPLIANCE WITH THE CITIZENSHIP REQUIREMENTS OF U.S.
AVIATION LAWS AFTER COMPLETION OF THE ACQUISITION AND TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK WHICH ARDENT IS AUTHORIZED TO ISSUE FROM 30,000,000
SHARES TO 75,000,000 SHARES. These amendments will not become effective unless
the acquisition is completed. The effect of the citizenship-related amendments
will be to limit the voting rights of non-U.S. citizens holding Ardent's capital
stock to the extent that the total voting power of stock held by non-U.S.
citizens exceeds the percentage, currently 25%, permitted by U.S. aviation law.
In addition, these amendments give Ardent's Board of Directors the authority to
make additional determinations as may reasonably be necessary to ascertain such
ownership and to implement such additional limitations on its stock, including
limiting the transfer and voting rights with respect to shares or redeeming
shares , to the extent necessary to preserve its U.S. citizenship under U.S.
aviation laws.
The form of Amended and Restated Certificate of Incorporation of Ardent,
which reflects the amendments included in the acquisition proposal, is included
as Annex C to this document. You are encouraged to read the form of Amended and
Restated Certificate of Incorporation in its entirety. It is the legal document
that will govern Ardent following the acquisition. See "Comparison of
Stockholder Rights" on page 124.
10
ARDENT
Ardent is a blank check company organized as a corporation under the
laws of the State of Delaware on September 14, 2004. It was formed to effect a
business combination with an unidentified operating business. On March 2, 2005,
Ardent consummated an initial public offering of its equity securities from
which it derived net proceeds of approximately $32,205,000. Ardent's common
stock, warrants to purchase common stock and units consisting of one share of
common stock and two warrants to purchase common stock are listed on the
Over-the-Counter Bulletin Board under the symbols AACQ, AACQW and AACQU,
respectively. On March 3, 2005, Ardent sold an additional 900,000 units pursuant
to its underwriter's over-allotment option, from which Ardent received net
proceeds of approximately $5,022,000. $36,222,000 of the net proceeds of the
initial public offering and over-allotment option was placed in a trust account
and will be released to Ardent upon consummation of the acquisition. The balance
of the net proceeds of $1,005,000 has been used and will be used by Ardent to
pay the expenses incurred in its pursuit of a business combination. Other than
its initial public offering and the pursuit of a business combination, Ardent
has not engaged in any business to date. If Ardent does not consummate a
business combination by March 2, 2007, then, pursuant to article sixth of its
certificate of incorporation, as amended, Ardent's officers must take all
actions necessary to dissolve and liquidate Ardent as soon as reasonably
practicable.
Ardent will use the proceeds of its initial public offering currently
held in the trust account, $37,919,489 as of June 30, 2006, including interest,
as follows:
o Approximately $15,000,000 of the funds deposited in the trust
account will paid to CNM, Inc. to satisfy Avantair's
obligations under its Loan Agreement, dated October 2, 2006,
and Revolving Credit Agreement, dated May 31, 2005, with CNM,
Inc.;
o The Ardent stockholders electing to exercise their conversion
rights will receive their pro rata portion of the funds
deposited in the trust account; and
o The remaining funds in the trust account after the
distributions listed above will be released to Ardent to be
used to fund transaction expenses, for future aircraft
deposits, potential acquisitions and for working capital
purposes.
The mailing address of the principal executive office of Ardent is 1415
Kellum Place, Suite 205, Garden City, NY 11530, and its telephone number is
(516) 739-1017. See "Information about Ardent" on page 103.
AVANTAIR AND ITS SUBSIDIARIES
Avantair, a Nevada corporation, is engaged in the sale and management of
fractional ownerships of professionally piloted aircraft for personal and
business use. Avantair also operates fixed flight based operations, aircraft
maintenance, concierge services to customers from a hangar and office location
in Clearwater, Florida. Avantair anticipates opening a second fixed base
operation in Camarillo, California in November 2006 and is currently in
discussions to add a similar facility in Caldwell, New Jersey. Avantair is the
fifth largest company in the North American fractional aircraft industry.
Avantair presently operates 28 aircraft with 75 additional aircraft on order.
Avantair expects to have approximately 40 aircraft in its fleet by June 30,
2007.
The mailing address of Avantair's principal executive offices is 4311
General Howard Drive, Clearwater, Florida 33762, and its telephone number is
(727) 539-0071. See "Information about Avantair" on page 84.
NAME CHANGE PROPOSAL
Ardent is proposing an amendment to Ardent's certificate of
incorporation to change the name of Ardent to Avantair, Inc. Ardent believes
that the name Avantair, Inc. more accurately reflects the business it will
conduct after the acquisition, and will enable industry and financial market
participants to more closely associate Ardent with its operating business. See
"The Name Change Proposal" on page 58.
11
PLAN PROPOSAL
Ardent is proposing that its stockholders adopt Ardent's 2006 Long Term
Incentive Plan. Ardent believes that the awards available under the 2006 Long
Term Incentive Plan will assist Ardent in attracting, retaining and motivating
employees and officers or those who will become employees or officers of Ardent
and/or its subsidiaries (including Avantair), and to align the interests of
those individuals and the Ardent's shareholders. The 2006 Long Term Incentive
Plan is included as Annex I to this document. We encourage you to read the 2006
Long Term Incentive Plan in its entirety. It is the legal document that governs
the plan. See "The 2006 Long Term Incentive Plan" on page 59.
ADJOURNMENT PROPOSAL
In the event there are not sufficient votes at the time of the special
meeting to approve the acquisition proposal, Ardent's Board of Directors may
submit a proposal to adjourn the special meeting to a later date or dates, if
necessary, to permit further solicitation of proxies. See "The Adjournment
Proposal" on page 68.
SPECIAL MEETING OF ARDENT'S STOCKHOLDERS
The special meeting of the stockholders of Ardent will be held at 10:00
a.m., eastern time, on ________, 200_, at the offices of Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York 10022.
VOTING POWER; RECORD DATE
You will be entitled to vote or direct votes to be cast at the special
meeting if you owned shares of Ardent common stock at the close of business on
________, 200_, which is the record date for the special meeting. You will have
one vote for each share of Ardent common stock you owned at the close of
business on the record date. Ardent warrants do not have voting rights.
VOTE REQUIRED TO ADOPT THE ACQUISITION PROPOSAL
The affirmative vote of a majority of the issued and outstanding shares
of Ardent's common stock is required to adopt the acquisition proposal. Adoption
of the acquisition proposal also requires the affirmative vote of a majority of
the shares of Ardent's common stock issued in its initial public offering. No
vote of the warrant holders is necessary to adopt the acquisition proposal, and
Ardent is not asking the warrant holders to vote on the acquisition proposal.
Adoption of the acquisition proposal is not conditioned upon the adoption of the
name change proposal, the plan proposal or the adjournment proposal. If the
holders of at least 1,380,000 IPO shares, or at least 20% of the total number of
IPO shares, demand conversion of their shares into their pro rata portion of the
trust account, then Ardent will not consummate the acquisition under the terms
of Ardent's certificate of incorporation. See "Conversion Rights" below.
An Ardent stockholder who votes in favor of the acquisition proposal is
also voting to adopt amendments to Ardent's certificate of incorporation
designed to ensure Ardent's compliance with the citizenship requirements of U.S.
aviation laws after completion of the acquisition, and to increase the number of
shares of common stock which Ardent is authorized to issue from 30,000,000 to
75,000,000.
At the close of business on November 1, 2006, there were 8,400,000
shares of Ardent common stock outstanding, 6,900,000 of which were issued in
Ardent's initial public offering.
Ardent's initial stockholders have agreed to vote their 1,500,000 shares
of Ardent common stock acquired prior to Ardent's initial public offering,
representing an aggregate of approximately 17.9% of the outstanding shares of
Ardent common stock, in accordance with the vote of the majority of the shares
of Ardent common stock issued in its initial public offering.
12
CONVERSION RIGHTS
As provided in Ardent's certificate of incorporation, holders of IPO
shares may, if the stockholder votes against the acquisition proposal, demand
that Ardent convert their shares into cash. THIS DEMAND MUST BE MADE ON THE
PROXY CARD AT THE SAME TIME THAT THE STOCKHOLDER VOTES AGAINST THE ACQUISITION
PROPOSAL. If so demanded, Ardent will convert each share of common stock into a
pro rata portion of the trust account in which a substantial portion of the net
proceeds of Ardent's initial public offering are held, plus interest earned
thereon. Based on the amount of cash held in the trust account at June 30, 2006,
you will be entitled to convert each share of common stock that you hold into
approximately $5.50. If you exercise your conversion rights, then you will be
exchanging your shares of Ardent's common stock for cash and will no longer own
these shares. You will only be entitled to receive cash for these shares if you
continue to hold these shares through the closing date of the acquisition and
then tender your stock certificate to Ardent. If the acquisition is not
completed, then these shares will not be converted into cash. A stockholder who
exercises conversion rights will continue to own any warrants to acquire Ardent
common stock owned by such stockholder as such warrants will remain outstanding
and unaffected by the exercise of conversion rights.
The acquisition will not be consummated if the holders of at least
1,380,000 IPO shares, or at least 20% of the total number of IPO shares,
exercise their conversion rights.
PRIOR TO EXERCISING CONVERSION RIGHTS, ARDENT STOCKHOLDERS SHOULD VERIFY
THE MARKET PRICE OF ARDENT'S COMMON STOCK AS THEY MAY RECEIVE HIGHER PROCEEDS
FROM THE SALE OF THEIR COMMON STOCK IN THE PUBLIC MARKET THAN FROM EXERCISING
THEIR CONVERSION RIGHTS. Ardent's shares of common stock are listed on the
Over-the-Counter Bulletin Board under the symbol AACQ.
VOTE REQUIRED TO ADOPT THE NAME CHANGE PROPOSAL
Adoption of the name change proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Ardent's common stock. No vote
of the warrant holders is necessary to adopt the name change proposal, and
Ardent is not asking the warrant holders to vote on the name change proposal.
Adoption of the name change proposal is conditioned upon the adoption of the
acquisition proposal but is not conditioned on adoption of the plan proposal or
the adjournment proposal.
Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the name change proposal.
VOTE REQUIRED TO ADOPT THE PLAN PROPOSAL
Adoption of the plan proposal requires the affirmative vote of a
majority of the shares of Ardent's common stock represented in person or by
proxy at the meeting. No vote of the warrant holders is necessary to adopt the
plan proposal, and Ardent is not asking the warrant holders to vote on the plan
proposal. Adoption of the plan proposal is conditioned upon the adoption of the
acquisition proposal but is not conditioned on adoption of the name change
proposal or the adjournment proposal.
Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the plan proposal.
VOTE REQUIRED TO ADOPT THE ADJOURNMENT PROPOSAL
Adoption of the adjournment proposal requires the affirmative vote of a
majority of the shares of Ardent's common stock represented in person or by
proxy at the meeting. No vote of the warrant holders is necessary to adopt the
adjournment proposal, and Ardent is not asking the warrant holders to vote on
the adjournment proposal. Adoption of the adjournment proposal is not
conditioned upon the adoption of the acquisition proposal, the name change
proposal or the plan proposal.
13
Ardent's initial stockholders have agreed to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the adoption of the adjournment
proposal.
APPRAISAL OR DISSENTERS RIGHTS
No appraisal or dissenters rights are available under the Delaware
General Corporation Law for the stockholders of Ardent in connection with the
acquisition proposal.
PROXIES
Proxies may be solicited by mail, telephone or in person.
If you grant a proxy, you may still vote your shares in person if you
revoke your proxy before the special meeting. See page 37.
STOCK OWNERSHIP
At the close of business on the record date, Barry J. Gordon, Marc H.
Klee, Arthur H. Goldberg, Alan J. Loewenstein, Robert Sroka, Robert Brill and
Philip Goodman, who together comprise all of Ardent's directors and executive
officers, together with their affiliates, beneficially owned 1,500,000 shares of
Ardent common stock, or approximately 17.9% of the outstanding shares of Ardent
common stock. Such number does not include 950,999 shares of common stock
issuable upon exercise of warrants held by Ardent's executive officers and
directors. These 1,500,000 shares have a market value of approximately
$8,220,000 based on Ardent's common stock price of $5.48 per share as of
November 1, 2006. Those persons have agreed, with respect to the acquisition
proposal, to vote their 1,500,000 shares of common stock acquired by them prior
to the initial public offering in accordance with the vote of the majority of
the shares issued in connection with Ardent's initial public offering. Mr.
Gordon is currently Chairman of Ardent's Board of Directors and Chief Executive
Officer of Ardent. Mr. Klee is currently a member of Ardent's Board of Directors
and President, Chief Financial Officer and Secretary of Ardent. Messrs. Brill,
Goldberg and Goodman are currently directors of Ardent. Messrs. Loewenstein and
Sroka are each currently Vice Presidents of Ardent. For more information on
beneficial ownership of Ardent's common stock by executive officers, directors
and 5% stockholders, see page 115.
ARDENT'S BOARD OF DIRECTORS' RECOMMENDATION
After careful consideration, the Board of Directors of Ardent has
determined that the acquisition proposal is fair to and in the best interests of
Ardent and its stockholders. The Board of Directors of Ardent has also
determined that the name change proposal, the plan proposal and the adjournment
proposal are in the best interests of Ardent's stockholders. ARDENT'S BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE OR GIVE INSTRUCTION TO VOTE "FOR"
THE ADOPTION OF THE ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN
PROPOSAL AND THE ADJOURNMENT PROPOSAL.
INTERESTS OF ARDENT DIRECTORS AND OFFICERS IN THE ACQUISITION
When you consider the recommendation of Ardent's Board of Directors that
you vote in favor of adoption of the acquisition proposal, you should keep in
mind that certain of Ardent's executive officers and members of Ardent's Board,
and certain of their affiliates, have interests in the acquisition that
are different from, or in addition to, your interest as a stockholder.
These interests include, among other things:
o If the acquisition is not approved and Ardent is therefore
required to liquidate, the shares of common stock
beneficially owned by Ardent's executive officers and
directors and their affiliates that were acquired
prior to Ardent's initial public offering may be
worthless because no portion of the net proceeds of Ardent's
initial public offering that may be distributed upon
liquidation of Ardent will be allocated to such shares.
Similarly, the warrants to purchase Ardent common stock held
by Ardent's executive officers and directors and their
affiliates
14
may become worthless if the acquisition is not
approved and Ardent fails to consummate an alternative
transaction within the time allotted pursuant to its
certificate of incorporation;
o After the completion of the acquisition, it is expected that
two of Ardent's current directors, Barry J. Gordon and Arthur
H. Goldberg, will continue to serve on Ardent's Board of
Directors, and Barry J. Gordon will serve as non-executive
Chairman of Ardent's Board. Messrs. Gordon and Goldberg, as
directors of Ardent, will, following the acquisition, be
compensated in such manner, and in such amounts, as Ardent's
Board of Directors may determine to be appropriate. No
agreements or plans with respect to such compensation have
been entered into, adopted or otherwise agreed upon by
Ardent; and
o Ardent's directors have agreed that, if Ardent liquidates
prior to the consummation of a business combination, they
will be personally liable to pay debts and obligations to
vendors or other entities that are owed money by Ardent for
services rendered or products sold to Ardent in excess of the
net proceeds of this offering not held in the trust account.
INTERESTS OF AVANTAIR DIRECTORS AND OFFICERS IN THE ACQUISITION
You should understand that some of the current directors and officers of
Avantair have interests in the acquisition that are different from, or in
addition to, your interest as a stockholder. In particular:
o Steven Santo, Avantair's Chief Executive Officer, is expected
to remain the President and Chief Executive Officer of Avantair
and John Waters, the Chief Financial Officer of Avantair, is expected
to remain the Chief Financial Officer of Avantair and each such
individual has entered into an employment agreement with
Avantair in anticipation of the acquisition;
o Avantair is party to a lease under which it leases an
aircraft from Aircraft Support LLC, an entity in which Steven
Santo is the managing member, and Ardent currently intends to
continue to lease this aircraft after completion of the
acquisition. Ardent's management believes that this lease is
at a rate consistent with leases negotiated at arm's length;
o Steven Santo, Jeffrey Kirby (a stockholder and former
director of Avantair) and Alfred Rapetti (a beneficial owner
of shares of Avantair common stock and Avantair's former
chairman) have each personally guaranteed borrowings by
Avantair to third party lenders; and
o Avantair hired Kevco, a construction management business
owned by Kevin McKamey, Avantair's Executive Vice President,
to perform tenant improvements on the Clearwater, Florida
facility for Avantair.
CONDITIONS TO THE COMPLETION OF THE ACQUISITION
Completion of the acquisition is subject to the satisfaction or waiver
of specified conditions, including the following:
CONDITIONS TO ARDENT'S OBLIGATIONS
o the representations and warranties of the stockholders of
Avantair must be true and correct;
o the stockholders of Avantair must have performed in all
material respects all obligations required to be performed by
them under the terms of the Stock Purchase Agreement;
o no material adverse effect shall have occurred with respect
to Avantair since the date of the Stock Purchase Agreement;
15
o the stockholders of Avantair must have entered into a
stockholders agreement with the initial stockholders of
Ardent;
o Steven Santo and John Waters must each have entered into an
employment agreement with Avantair;
o Ardent's stockholders must have approved the transaction; and
o holders of less than 20% of the shares of common stock issued
in Ardent's initial public offering, or IPO shares, properly
elect to exercise their right to convert their shares into
cash.
CONDITIONS TO AVANTAIR'S STOCKHOLDERS' OBLIGATIONS
o the representations and warranties of Ardent must be true and
correct;
o Ardent must have performed in all material respects all
obligations required to be performed by it under the Stock
Purchase Agreement;
o no material adverse effect shall have occurred with respect
to Ardent since the date of the Stock Purchase Agreement;
o Avantair must have entered into an employment agreement with
each of Steven Santo and John Waters;
o Ardent's stockholders must have approved the transaction; and
o holders of less than 20% of the shares of common stock issued
in Ardent's initial public offering, or IPO shares, properly
elect to exercise their right to convert their shares into
cash.
TERMINATION
The Stock Purchase Agreement may be terminated at any time prior to the
closing of the acquisition, as follows:
o by mutual consent of Ardent and the stockholders of Avantair;
o by Ardent, on the one hand, or Avantair's stockholders, on
the other hand, if the other party has breached any of its
covenants or representations and warranties in any material
respect; or
o by either party if the closing has not occurred by March 2,
2007.
If permitted under applicable law, either Ardent or the stockholders of
Avantair may waive conditions for their own respective benefit, and consummate
the acquisition even though one or more of these conditions have not been met.
We cannot assure you that all of the conditions will be satisfied or waived or
that the acquisition will occur.
COMPARISON OF STOCKHOLDERS RIGHTS
In connection with the completion of the acquisition, Ardent's
certificate of incorporation will be amended and restated to incorporate those
amendments approved at the special meeting. The rights of Ardent's stockholders
will change accordingly. See the section "Comparison of Stockholders Rights"
starting on page 124.
16
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The U.S. Federal income tax consequences of the acquisition of Avantair
are discussed in the section entitled "United States Federal Income Tax
Consequences of the Acquisition" on page 55.
REGULATORY MATTERS
The acquisition and the transactions contemplated by the Stock Purchase
Agreement are not subject to any Federal, state or provincial regulatory
requirement or approval; however, in connection with the acquisition, Ardent
will be amending its certificate of incorporation to ensure Ardent's compliance
with the citizenship requirements of U.S. aviation laws regarding the ownership
and voting of its capital stock. Following the closing of the acquisition,
Ardent will notify the United States Department of Transportation that the
citizen ownership requirements continue to be met.
17
SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to assist you in
your analysis of the financial aspects of the acquisition. We derived the
Avantair historical information from the audited consolidated and combined
financial statements of Avantair as of June 30, 2006 and 2005 and for each of
the years ended June 30, 2006, 2005 and 2004. The information is only a summary
and should be read in conjunction with Avantair's historical consolidated and
combined financial statements and related notes contained elsewhere herein. The
historical results included below and elsewhere in this document are not
indicative of the future performance of Avantair or Ardent.
AVANTAIR HISTORICAL FINANCIAL INFORMATION
(000'S, EXCEPT SHARE DATA YEAR ENDED JUNE 30
AND PER SHARE DATA) --------------------------------
2006 2005 2004
--------- -------- --------
Revenue $48,395 $23,394 $7,718
Net (loss) (20,748) (8,706) (5,045)
Weighted average common
share outstanding - basic
and diluted 200 200 200
Net loss per share
- - basic and diluted (103,740) (43,531) (25,223)
JUNE 30
---------------------
2006 2005
--------- --------
Total assets $107,592 $96,078
Long-term obligations 105,446 79,954
Stockholders' (deficiency) (36,552) (15,684)
18
ARDENT HISTORICAL FINANCIAL INFORMATION
Ardent's balance sheet data and the statements of operations data as
of and for the year ended December 31, 2005 and for period from inception
(September 14, 2004) to December 31, 2004 are derived from the Ardent's
financial statements audited by Goldstein Golub Kessler LLP, independent
registered public accountants, which are included elsewhere in this proxy
statement.
Ardent's balance sheet as of June 30, 2006 and the statements of
operations for the six months ended June 30, 2006 and 2005, and for the period
from inception (September 14 ,2004) to June 30, 2006 are derived from Ardent's
unaudited interim financial statements which are included elsewhere in this
proxy statement. In the opinion of Ardent's management, the unaudited interim
financial statements include all adjustments (consisting of normal recurring
adjustments) that are necessary for a fair presentation of such financial
statements.
ARDENT SELECTED HISTORICAL FINANCIAL INFORMATION
FOR THE PERIOD FOR THE PERIOD
FROM INCEPTION FROM INCEPTION
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED (SEPTEMBER 14, 2004) (SEPTEMBER 14, 2004)
JUNE 30, 2006 JUNE 30, 2005 DECEMBER 31, 2005 TO DECEMBER 31, 2004 TO JUNE 30, 2006
---------------- ---------------- ----------------- -------------------- --------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Interest income $ 571,312 $ 284,375 $ 811,875 $ 179 $ 1,383,366
Net income (loss) 210,997 114,890 301,844 (1,651) 511,190
Net income (loss) per share $ 0.03 $ 0.02 $ 0.04 $ - $ 0.08
Cash dividends per share $ - $ - $ - $ - $ -
AS OF JUNE 30, AS OF DECEMBER 31, AS OF DECEMBER 31,
2006 2005 2004
----------------- ------------------- --------------------
(UNAUDITED)
Total assets (including assets held in Trust Fund) $ 38,315,497 $ 37,886,624 $ 103,624
Total liabilities 552,134 334,258 80,275
Common stock subject to possible conversion 7,240,778 7,240,778 -
Stockholders' equity 30,522,585 30,311,588 23,349
19
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF ARDENT
AND AVANTAIR
The following selected unaudited pro forma condensed combined financial
information is intended to provide you with a picture of what Ardent's business
might have looked like had Avantair and Ardent actually been combined. The
combined financial information may have been different had Avantair and Ardent
actually been combined. You should not rely on the selected unaudited pro forma
condensed combined financial information as being indicative of the historical
results that would have occurred had the acquisition occurred or the future
results that may be achieved after the acquisition. The following selected
unaudited pro forma condensed combined financial information has been derived
from, and should be read in conjunction with, the unaudited pro forma condensed
combined pro forma financial statements and related notes thereto starting on
page 108 in this proxy statement.
The acquisition will be accounted for as an issuance of stock by
Avantair for the net monetary assets of Ardent. The net monetary assets of
Ardent will be recorded as of the acquisition date, at their respective
historical cost, which is considered to be the equivalent of fair value. No
goodwill or other intangible assets will be recorded as a result of the
acquisition.
The unaudited pro forma condensed combined financial information
reflects the following circumstances that may affect whether the closing of the
acquisition occurs: (1) that no holders of IPO shares exercise their right to
have their shares redeemed upon the consummation of the acquisition, and (2)
that holders of 19.99% the IPO shares elect to have their shares redeemed upon
the consummation of the acquisition at the redemption value of $5.50 per share,
based on the amount held in the Ardent trust account, inclusive of interest
income to date thereon, at June 30, 2006. The basis of presentation described in
(2) results from the possibility that holders of up to a maximum of 19.99% of
the IPO shares may elect to have their shares redeemed at the redemption value
of approximately $5.50 per share, or a total of $7,580,106 as of June 30, 2006.
AVANTAIR (SURVIVING CORPORATION) UNAUDITED PRO FORMA CONDENSED COMBINED
INFORMATION:
STATEMENT OF OPERATIONS DATA TWELVE MONTHS ENDED JUNE 30, 2006
-------------------------------------------
ASSUMING NO ASSUMING MAXIMUM
CONVERSIONS(1) CONVERSIONS(2)
------------------ --------------------
Revenue $48,395,380 $48,395,380
Net loss (20,504,117) (20,504,117)
Weighted average shares outstanding,
basic and diluted 15,610,000 14,230,690
Net loss per share - basic and diluted $(1.31) $(1.44)
ASSUMING NO ASSUMING MAXIMUM
BALANCE SHEET DATA AS OF JUNE 30, 2006 CONVERSIONS(1) CONVERSIONS(2)
------------------ --------------------
Total assets $144,397,276 $136,817,170
Current liabilities 31,510,796 31,510,796
Long-term debt 6,550,138 6,550,138
Other long-term liabilities 98,895,767 98,895,767
Shareholders' equity (deficit) 7,440,575 (139,531)
NOTES
20
(1) Assumes that no Ardent public stockholders seek conversion of their Ardent
stock into their pro rata share of the trust fund.
(2) Assumes that 1,379,310 shares (19.99%) of Ardent common stock held by public
stockholders were redeemed into their pro rata share of the trust account.
21
COMPARATIVE PER SHARE INFORMATION
The following table sets forth selected historical per share ownership
information of Avantair and Ardent and unaudited pro forma combined per share
ownership information after giving effect to the acquisition described in the
Stock Purchase Agreement, assuming both no conversions and maximum conversions
of the trust account by holders of IPO shares. We are providing this information
to aid you in your analysis of the financial aspects of the acquisition. The
historical information should be read in conjunction with selected summary
historical financial information included elsewhere in this proxy statement and
the historical consolidated and combined financial statements of Avantair and
Ardent and the related notes thereto included elsewhere in this proxy statement.
The unaudited pro forma per share information is derived from, and should be
read in conjunction with, the unaudited pro forma condensed combined financial
information and related notes included elsewhere in this proxy statement.
The unaudited pro forma consolidated per share earnings (loss)
information does not purport to represent what the actual results of operations
of Avantair and Ardent would have been had the companies been combined or to
project Avantair or Ardent's results of operations that may be achieved after
the acquisition. The unaudited pro forma book value per share information below
does not purport to represent what the value of Avantair and Ardent would have
been had the companies been combined nor book value per share for any future
date or period.
PRO FORMA
AVANTAIR ARDENT COMBINED
-------------- ----------- -----------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
UPON CONSUMMATION OF THE ACQUISITION (1)
Assuming no conversions 7,000,000 8,400,000 15,400,000
45.5% 54.5 100.0%
Assuming maximum conversions 7,000,000 7,020,690 14,020,690
49.9% 50.1% 100.0%
NET INCOME (LOSS) PER SHARE - HISTORICAL (2):
Year ended December 31, 2005 (3) $ (103,740) $ 0.04
Year ended December 31, 2004 (3), (4) $ 43,531 $ 0.00
Six months ended June 30, 2006 N/A $ 0.03
Six months ended June 30, 2005 N/A $ 0.02
BOOK VALUE (DEFICIT) PER SHARE - HISTORICAL
JUNE 30, 2006(5), (6) $ (182,758) $ 4.54
NET INCOME (LOSS) PER SHARE - PRO FORMA:
Year ended June 30, 2006
No Conversions $ (1.31)
Maximum conversions $ (1.44)
BOOK VALUE PER SHARE - PRO FORMA JUNE 30, 2006
No Conversions $ 0.48
Maximum conversions $ (0.01)
NOTES
(1) Shares outstanding upon consummation of the acquisition excludes 210,000
shares expected to be issued to a financial advisor, after the closing of
the acquisition, as a fee for assistance in negotiating and structuring the
acquisition.
(2) Historical per share amounts for Avantair and Ardent were determined based
upon the actual weighted average shares outstanding for the year end and
interim periods and combined pro forma per share amounts for Ardent and
Avantair were determined based upon the assumed number of shares to be
outstanding under the two different levels of conversion rights.
(3) Operations of Avantair are for its years ended June 30, 2006 and 2005.
22
(4) Operations of Ardent are for the period from inception (September 14, 2004)
to December 31, 2004.
(5) Historical book value per share for Avantair was computed based on the book
value of Avantair divided by the issued and outstanding shares of Avantair
common stock.
(6) Historical book value per share for Ardent was computed based on the book
value of Ardent at June 30, 2006 plus common stock subject to possible
conversion, plus deferred interest divided by the issued and outstanding
shares of Ardent common stock at June 30, 2006.
23
PER SHARE MARKET PRICE INFORMATION
The shares of Ardent common stock, warrants and units are currently
quoted on the Over-the-Counter Bulletin Board under the symbols "AACQ," "AACQW"
and "AACQU," respectively. On October 2, 2006, the last day for which
information was available prior to the date of the public announcement of the
signing of the Stock Purchase Agreement, the last quoted sale prices of AACQ
AACQW and AACQU were $5.40, $0.44 and $6.20, respectively. On November 1, 2006,
the last quoted sale prices of AACQ, AACQW and AACQU were $5.48, $0.56 and
$6.50, respectively. Each unit of Ardent consists of one share of Ardent common
stock and two redeemable common stock purchase warrants.
There is no established public trading market for the shares of common
stock of Avantair because it is a private company.
The following table sets forth, for the calendar quarter indicated, the
quarterly high and low bid information of Ardent's common stock, warrants and
units as reported on the OTC Bulletin Board. The quotations listed below reflect
interdealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions:
COMMON STOCK* WARRANTS* UNITS**
---------------- --------------- -------------
HIGH LOW HIGH LOW HIGH LOW
-------- ------- -------- ----- ------ -----
QUARTER ENDED
2005
- ----
5.20 5.12 0.70 0.65 6.60 6.30
First Quarter
5.20 4.90 0.64 0.52 6.35 5.95
Second Quarter
5.15 4.90 0.64 0.46 6.30 5.75
Third Quarter
5.23 5.06 0.59 0.41 6.27 5.90
Fourth Quarter
2006
- ----
5.48 5.19 0.78 0.50 7.06 6.13
First Quarter
5.45 5.30 0.77 0.43 6.88 6.20
Second Quarter
5.37 5.29 0.48 0.36 6.20 6.00
Third Quarter
*Commencing March 8, 2005
** Commencing February 25, 2005
24
RISK FACTORS
You should carefully consider the following risk factors, together with
all of the other information included in this document, before you decide
whether to vote or instruct your vote to be cast to adopt the acquisition
proposal. As Ardent's operations will be those of Avantair upon the closing of
the acquisition, the following risk factors relating to the business and
operations of Avantair also apply to Ardent as the acquiror of Avantair's
business.
RISKS ASSOCIATED WITH AVANTAIR
AVANTAIR HAS A HISTORY OF LOSSES AND MAY NOT BE ABLE TO GENERATE SUFFICIENT NET
REVENUE FROM ITS BUSINESS IN THE FUTURE TO ACHIEVE OR SUSTAIN PROFITABILITY.
Avantair has incurred losses since inception. To date, Avantair's
revenues have largely come from sales of fractional interests in aircraft and
monthly management fees. Avantair's primary expenses - cost of aircraft, cost of
flight operations and overhead - have increased over the past several years and
significantly exceeded revenues. Avantair's expenses are expected to increase as
it acquires additional aircraft and expands its operations, and there is no
assurance that Avantair will be able to obtain sufficient financing (or
financing on acceptable terms) or earn sufficient revenues to generate positive
cash flow and attain profitability.
IF AVANTAIR IS UNABLE TO FUND ITS OPERATIONS AND CAPITAL EXPENDITURES, AVANTAIR
MAY NOT BE ABLE TO CONTINUE TO ACQUIRE ADDITIONAL INVENTORY OF AIRCRAFT, WHICH
WOULD HAVE A MATERIAL ADVERSE EFFECT ON ARDENT'S BUSINESS.
Avantair has experienced significant negative cash flow since its
inception. In order to fund Avantair's operations and capital expenditures,
Ardent may be required to incur borrowings or raise capital through the sale of
debt or equity securities. Ardent's ability to borrow or access the capital
markets for future offerings may be limited by Ardent's and Avantair's financial
condition at the time of any such offering as well as by adverse market
conditions resulting from, among other things, general economic conditions and
contingencies and uncertainties that are beyond their control. Ardent's failure
to obtain the funds for necessary future capital expenditures would limit its
ability to acquire additional inventory of aircraft and could have a material
adverse effect on Ardent's business, results of operations and financial
condition.
AVANTAIR'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS RAISED SUBSTANTIAL
DOUBT ABOUT AVANTAIR'S ABILITY TO CONTINUE AS A GOING CONCERN.
Avantair's accompanying consolidated and combined financial statements
have been prepared assuming that Avantair will continue as a going concern. This
basis of accounting contemplates the recovery of Avantair's assets and the
satisfaction of its liabilities in the normal course of business. Successful
transition to profitable operations is dependent upon obtaining a level of sales
adequate to support Avantair's cost structure. Avantair has suffered recurring
losses resulting in an accumulated deficit of $36.4 million and a working
capital deficiency of $23.9 million as of June 30, 2006. Avantair's management
intends to continue to finance its operations through cash flows from operations
and by raising additional capital from the sale of debt or equity securities, as
well as through the use of Ardent's capital. However, there can be no assurance
that Avantair will be able to obtain such financing or internally generate cash
flows from operations, which may impact Avantair's ability to continue as a
going concern. The accompanying consolidated and combined balance sheets of
Avantair do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the potential inability of
Avantair to continue as a going concern.
AVANTAIR IS DEPENDENT UPON KEY PERSONNEL WHOSE LOSS MAY ADVERSELY IMPACT
AVANTAIR'S BUSINESS.
Avantair depends on the expertise, experience and continued services of
its senior management employees, especially Steven Santo, its Chief Executive
Officer and John Waters, its Chief Financial Officer. Santo has acquired
specialized knowledge and skills with respect to Avantair and its operations and
most decisions concerning the business of Avantair will be made or significantly
influenced by him. Avantair does not maintain life insurance with respect to
Santo, Waters or any other of its executives. The loss of Santo, Waters or other
senior management employees, or an inability to attract or retain other key
individuals, could materially adversely affect Ardent. Ardent and Avantair seek
to compensate and incentivize their key executives, as well as other employees,
through
25
competitive salaries and bonus plans, but there can be no assurance that these
programs will allow Avantair to retain key employees or hire new key employees.
As a result, if Messrs. Santo and/or Waters were to leave Avantair following the
acquisition, Ardent and Avantair could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity while any such
successors obtain the necessary training and experience. In anticipation of the
acquisition, Avantair entered into employment agreements with each of Santo and
Waters. However, there can be no assurance that the terms of these employment
agreements will be sufficient to retain Santo and/or Waters.
AVANTAIR'S MANAGEMENT SYSTEMS AND PERSONNEL MAY NOT BE SUFFICIENT TO EFFECTIVELY
MANAGE ITS GROWTH.
Avantair's growth strategy involves increasing the number of available
aircraft and fractional share owners. Achieving Avantair's growth strategy is
critical in order for its business to achieve economies of scale and to achieve
profitability. Any condition that would deny, limit or delay its ability to
acquire additional aircraft and sell fractional shares in the future will
constrain Avantair's ability to grow. Acquiring additional aircraft and selling
fractional shares requires Avantair to commit a substantial amount of resources.
Expansion is also dependent upon Avantair's ability to maintain a safe and
secure operation and will require additional personnel, equipment and
facilities.
An inability to hire and retain personnel, timely secure the required
equipment and facilities in a cost-effective manner, efficiently operate
Avantair's expanded facilities, or obtain the necessary regulatory approvals may
adversely affect Avantair's ability to achieve its growth strategy. There can be
no assurance that Avantair will be able to successfully expand its business in
this increased competitive environment, and if Avantair fails to do so its
business could be harmed.
Expansion of Avantair's business will also strain its existing
management resources and operational, financial and management information
systems to the point that they may no longer be adequate to support its
operations, requiring Avantair to make significant expenditures in these areas.
Avantair will need to develop further financial, operational and management
reporting systems and procedures to accommodate future growth and reporting
requirements (including pursuant to applicable securities laws). There can be no
assurance that Avantair will be able to develop such additional systems or
procedures to accommodate its future expansion on a timely basis, and the
failure to do so could harm its business.
MATERIAL WEAKNESSES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING RAISE DOUBTS
ABOUT AVANTAIR'S ABILITY TO COMPLY WITH FINANCIAL REPORTING LAWS AND REGULATIONS
AND TO PUBLISH ACCURATE FINANCIAL STATEMENTS.
Avantair has been advised by J.H. Cohn LLP, its independent registered
public accounting firm, of the existence of material weaknesses in the design
and operation of Avantair's internal controls over financial reporting that
could adversely affect its ability to record, process, and summarize and report
financial data consistent with the assertions of management in the financial
statements. A material weakness is defined as a significant deficiency in which
the design or operation of one or more of the internal control components does
not reduce to a relatively low level the risk that misstatements caused by error
or fraud in amounts that would be material in relation to the financial
statements may occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions.
After the closing of the acquisition, any failure to effectively address
a material weakness or other control deficiency of Avantair or implement
required new or improved controls, or difficulties encountered in their
implementation, could disrupt Ardent's ability to process key components of its
result of operations and financial condition timely and accurately and cause
Ardent to fail to meet its reporting obligations under rules of the Securities
and Exchange Commission.
THE AVIATION INDUSTRY HAS INHERENT OPERATIONAL RISKS THAT MAY NOT BE ADEQUATELY
COVERED BY AVANTAIR'S INSURANCE.
Avantair maintains insurance on its aircraft for risks commonly insured
against by aircraft owners and operators, including hull physical damage
liability, third-party liability, airport premises liability, war risk liability
and ground hangar keepers liability coverage. Ardent can give no assurance that
Avantair will be adequately insured
26
against all risks or that its insurers will pay a particular claim. Even if its
insurance coverage is adequate to cover its losses, Avantair may not be able to
timely obtain a replacement aircraft in the event of a loss. Furthermore, in the
future, Avantair may not be able to obtain adequate insurance coverage at
reasonable rates for its fleet. Avantair's insurance policies will also contain
deductibles, limitations and exclusions which, although Ardent believes are
standard in the aviation industry, may nevertheless increase its costs.
Moreover, certain accidents or other occurrences may result in intangible
damages (such as damages to reputation) for which insurance may not provide an
adequate remedy.
AVANTAIR MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOWS TO MEET ITS DEBT
SERVICE OBLIGATIONS.
Avantair's ability to make payments on its indebtedness will depend on
its ability to generate cash from its future operations. As of June 30, 2006,
Avantair had incurred an aggregate of approximately $33.3 million in
indebtedness to third party lenders, and Avantair incurred an additional $7.6
million in indebtedness concurrently with the execution of the Stock Purchase
Agreement. As of June 30, 2006, indebtedness represented 31% of Avantair's
overall capitalization. Much of this indebtedness is secured by some or all of
Avantair's assets. Avantair's business may not generate sufficient cash flow
from operations or from other sources sufficient to enable it to repay its
indebtedness and to fund its other liquidity needs, including capital
expenditure requirements. Avantair may need to refinance or restructure all or a
portion of its indebtedness on or before maturity. Avantair may not be able to
refinance any of its indebtedness on commercially reasonable terms, or at all.
If Avantair cannot service or refinance its indebtedness, it may have to take
actions such as selling assets, seeking additional equity or reducing or
delaying capital expenditures, any of which could have a material adverse effect
on our operations. Additionally, Avantair may not be able to effect such
actions, if necessary, on commercially reasonable terms, or at all.
A DEFAULT UNDER AVANTAIR'S INDEBTEDNESS MAY HAVE A MATERIAL ADVERSE EFFECT ON
ARDENT'S FINANCIAL CONDITION.
In the event of a default under certain of Avantair's indebtedness, the
holders of the indebtedness generally would be able to declare all of such
indebtedness, together with accrued interest, to be due and payable. In
addition, borrowings under certain of Avantair's indebtedness are secured by a
first priority lien on all of its assets, and, in the event of a default, the
lenders generally would be entitled to seize the collateral. In addition,
default under certain debt instruments could in turn permit lenders under other
debt instruments to declare borrowings outstanding under those other instruments
to be due and payable pursuant to cross default clauses. Accordingly, the
occurrence of a default under any debt instrument, unless cured or waived, would
likely have a material adverse effect on Avantair's business and Ardent's
results of operations.
AVANTAIR'S LOAN AGREEMENTS CONTAIN RESTRICTIVE COVENANTS THAT WILL LIMIT ITS
LIQUIDITY AND CORPORATE ACTIVITIES.
Avantair's loan agreements impose operating and financial restrictions
that will limit Avantair's ability to:
o create additional liens on its assets;
o make investments;
o engage in mergers or acquisitions;
o pay dividends; and
o sell any of Avantair's aircraft or any other assets outside
the ordinary course of business.
Therefore, Avantair will need to seek permission from its lender in
order for Avantair to engage in some corporate actions. Avantair's lender's
interests may be different from those of Avantair, and no assurance can be given
that Avantair will be able to obtain its lender's permission when needed. This
may prevent Avantair from taking actions that are in its best interest.
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AVANTAIR'S DEPENDENCE ON A SMALL NUMBER OF AIRCRAFT MANUFACTURERS POSES A
SIGNIFICANT RISK TO ITS BUSINESS AND PROSPECTS.
Avantair has historically sold and flown only Piaggio Avanti aircraft.
Avantair recently contracted with another manufacturer, Embraer, for an
additional aircraft model. The types of aircraft sold and operated by Avantair
are the products of a small number of manufacturers. If any of these
manufacturers faced production delays due to, for example, natural disasters or
labor strikes, Avantair may experience a significant delay in the delivery of
previously ordered aircraft, which would adversely affect its revenues and
profitability and could jeopardize its ability to meet the demands of its
customers. Avantair has limited alternatives to find alternate sources of new
aircraft.
AVANTAIR'S DEPENDENCE ON THE IMPORTATION OF FOREIGN AIRCRAFT POSES A SIGNIFICANT
RISK TO ITS BUSINESS PROSPECTS.
Avantair's revenue and profitability are based in part on current laws
and regulations regarding the exportation from the country of manufacture and
importation into the United States of the aircraft. Current laws and regulations
do not preclude the exportation from the subject manufacturers' countries of
operation or importation of the aircraft into the United States, provided that
all applicable statutory and regulatory requirements are satisfied. Modification
of such statutes and regulations by any foreign government or any agency thereof
with respect to the exportation of the aircraft or modification of such statutes
and regulations by the federal government of the United States or any agency
thereof affecting the importation of the aircraft, could pose a significant risk
to Avantair's business operations. The risks for Avantair associated with the
modification of the exportation and importation statutes and regulations are
increased due to Avantair's current dependence on the importation of foreign
aircraft for the sale of fractional interests in aircraft.
AVANTAIR'S REPUTATION AND FINANCIAL RESULTS COULD BE HARMED IN THE EVENT OF AN
ACCIDENT OR INCIDENT INVOLVING ITS AIRCRAFT.
An accident or incident involving one of Avantair's aircraft could
involve significant potential claims of injured passengers or others in addition
to repair or replacement of a damaged aircraft and its consequential temporary
or permanent loss from service. Although Avantair believes it currently
maintains liability insurance in amounts and of the type generally consistent
with industry practice, the amount of such coverage may not be adequate and
Avantair may be forced to bear substantial losses from an accident. Substantial
claims resulting from an accident in excess of Avantair's related insurance
coverage would harm its business and financial results. Moreover, any aircraft
accident or incident, even if fully insured, could cause a public perception
that Avantair is less safe or reliable than other competitors, which would harm
Avantair's business.
THE FRACTIONAL AIRCRAFT INDUSTRY IS COMPETITIVE.
Avantair competes with national airlines, regional airlines, charter
carriers, other fractional aircraft ownership operators, and particularly on
shorter routes, ground transportation. According to AvData, there are only five
companies which have 3% or more of the total market for fractional aircraft,
based upon the units in operation - NetJets, Flight Options, FlexJet,
CitationShares, and Avantair, with NetJets having a market share of
approximately 50% and Avantair's three largest competitors having a combined
market share of over 80%. Avantair has a market share of approximately 3%. Many
of Avantair's competitors have been in business far longer than Avantair and
have significantly greater financial stability, access to capital markets and
name recognition. In addition, some of our competitors offer a greater selection
of aircraft (including jet aircraft), some of which permit owners to fly greater
distances or at greater speeds, travel with a greater number of passengers and
on shorter advance notice before flying. Unanticipated shortfalls in expected
revenues as a result of price competition or in delivery delays by suppliers
would negatively impact Ardent's financial results and harm Avantair's business.
There is no assurance that Avantair will be able to successfully compete in this
industry.
RESTRICTION ON FOREIGN OWNERSHIP AND POSSIBLE REQUIRED DIVESTITURE OF STOCK.
In some cases, including all current international operations, Avantair
is deemed to transport persons or property by air for compensation, and Avantair
accordingly is regulated by the FAA and the U.S. Department of
28
Transportation as an air taxi operator. Therefore, to comply with restrictions
imposed by U.S. aviation laws on foreign ownership of air carriers, Ardent's
certificate of incorporation and bylaws will be amended upon the closing of the
acquisition to reflect that at least 75% of the voting stock of Ardent is
required to be held by U.S. citizens. Although Ardent's amended and restated
certificate of incorporation will contain provisions limiting non-citizen
ownership of its voting stock, Avantair could lose its operating certificate,
which allows it to conduct aircraft operations in the U.S., if such provisions
prove unsuccessful in maintaining the required level of citizen ownership. Such
loss would have a material adverse effect on Ardent. If Ardent determines that
persons who are not citizens of the U.S. own more than the permitted percentage,
currently 25%, of Ardent's voting stock, Ardent may redeem such stock or, if
redemption is not permitted by applicable law or Ardent's Board of Directors, in
its discretion, elects not to make such redemption, Ardent may restrict the
voting rights of such excess shares. The required redemption would be at a price
equal to the average closing price during the preceding 10 trading days, which
price could be materially different from the current price of the common stock,
or at a price at which the non-citizen acquired the voting stock, or at a price
equal to the fair market value as determined by Ardent's Board of Directors,
plus the amounts of any dividends or other distributions which may be owed to
the stockholder. If a non-citizen purchases the voting stock, there can be no
assurance that his stock will not be redeemed, which redemption could result in
a material loss, or that he will be able to exercise full voting rights with
respect to such voting stock. Such restrictions and redemption rights may make
Ardent's equity securities less attractive to potential investors, which may
result in Ardent's publicly traded voting stock having a lower market price than
it might have in the absence of such restrictions and redemption rights.
FUTURE ACQUISITIONS OF FIXED BASE OPERATIONS BUSINESSES OR OTHER ASSETS BY
ARDENT OR AVANTAIR WOULD SUBJECT ARDENT AND AVANTAIR TO ADDITIONAL BUSINESS,
OPERATING AND INDUSTRY RISKS, THE IMPACT OF WHICH CANNOT PRESENTLY BE EVALUATED,
AND COULD ADVERSELY IMPACT ARDENT'S OR AVANTAIR'S CAPITAL STRUCTURE.
Avantair intends to pursue other acquisition opportunities following the
closing of the acquisition. While neither Ardent nor Avantair is presently
committed to any additional acquisition, Avantair is currently actively pursuing
one or more potential acquisition opportunities. Acquisitions may be of fixed
base operations businesses, operations in the aircraft industry or other
businesses that may be complementary to Avantair's business. In addition,
following the acquisition of Avantair, Ardent will not be limited to any
particular industry or type of business that it may acquire. Accordingly, there
is no current basis for you to evaluate the possible merits or risks of the
particular business or assets that Ardent may acquire, or of the industry in
which such business operates. To the extent Ardent acquires a financially
unstable business, we may be affected by numerous risks inherent in the acquired
business's operations. If Ardent acquires a business in an industry
characterized by a high level of risk, it may be affected by the currently
unascertainable risks of that industry. Although Avantair's management will
endeavor to evaluate the risks inherent in a particular industry or target
business, there can be no assurance that Avantair will properly ascertain or
assess all of the significant risk factors.
In addition, the financing of any acquisition after the Avantair
acquisition could adversely impact Ardent's capital structure as any such
financing would likely include the issuance of additional equity securities
and/or the borrowing of funds. The issuance of additional equity securities may
significantly reduce the equity interest of existing stockholders and/or
adversely affect prevailing market prices for Ardent's common stock. If Ardent
or Avantair incurs indebtedness, it could increase the risk of a default that
would entitle the holder to declare such indebtedness due and payable and/or to
seize any collateral securing the indebtedness. In addition, default under one
debt instrument could in turn permit lenders under other debt instruments to
declare borrowings outstanding under those other instruments to be due and
payable pursuant to cross default clauses. Accordingly, the financing of future
acquisitions could adversely impact our capital structure and your equity
interest in Ardent.
Except as required by law or the rules of any securities exchange on
which Ardent's securities might be listed at the time Ardent seeks to consummate
an acquisition, you will not be asked to vote on any proposed acquisition and
you will not be entitled to exercise conversion rights in connection with any
such acquisition.
AVANTAIR'S BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION, WHICH CAN
RESULT IN INCREASED COSTS, DELAYS, LIMITS ON ITS OPERATING FLEXIBILITY AND
COMPETITIVE DISADVANTAGES.
Commercial aircraft operators are subject to extensive regulatory
requirements. Many of these requirements result in significant costs. For
example, the Federal Aviation Administration (FAA) from time to time issues
29
directives and other regulations relating to the maintenance and operation of
aircraft, and compliance with those requirements drives significant
expenditures.
Moreover, additional laws, regulations, taxes and airport rates and
charges have been enacted from time to time that have significantly increased
the costs of commercial aircraft operations, reduced the demand for air travel
or restricted the way we can conduct its business. For example, the Aviation and
Transportation Security Act, which became law in 2001, mandates the
federalization of certain airport security procedures and imposes additional
security requirements on airlines. Similar laws or regulations or other
governmental actions in the future may adversely affect Ardent's business and
financial results.
Ardent's results of operations may be affected by changes in law and
future actions taken by governmental agencies having jurisdiction over
Avantair's operations, including:
o changes in the law which affect the services that can be
offered by commercial aircraft operators in particular
markets and at particular airports;
o restrictions on competitive practices (for example court
orders, or agency regulations or orders, that would curtail a
commercial aircraft operator's ability to respond to a
competitor);
o the adoption of regulations that impact customer service
standards (for example, new passenger security standards); or
o the adoption of more restrictive locally-imposed noise
restrictions.
Also, Avantair is subject to various federal and state environmental
statutes that are discussed in more detail under "Information About
Avantair--Environmental Regulation."
The FAA has jurisdiction over many aspects of Avantair's business,
including personnel, aircraft and ground facilities. Avantair is required to
have an FAA Air Carrier Operating Certificate to transport personnel and
property for compensation in aircraft it operates directly. The FAA certificate
contains operating specifications that allow Avantair to conduct its present
operations, but it is potentially subject to amendment, suspension or revocation
in accordance with procedures set forth in federal aviation laws. The FAA is
responsible for ensuring that Avantair complies with all FAA regulations
relating to the operation of its aviation business, and conducts regular
inspections regarding the safety, training and general regulatory compliance of
its aviation operations. Additionally, the FAA requires Avantair to file reports
confirming our continued compliance.
AVANTAIR COULD BE ADVERSELY AFFECTED BY A FAILURE OR DISRUPTION OF ITS COMPUTER,
COMMUNICATIONS OR OTHER TECHNOLOGY SYSTEMS.
Avantair is highly dependent on its computer systems and call center
software to operate its business. The systems and software on which Avantair
relies to manage the scheduling and monitoring of its flights could be disrupted
due to events beyond Avantair's control, including natural disasters, power
failures, terrorist attacks, equipment failures, software failures and computer
viruses and hackers. Further, the vendor of Avantair's scheduling software is a
small business and highly dependent on the services of its founder. Any
substantial or repeated failure of Avantair's systems or software could impact
Avantair's operations and customer service, result in a disruption in flight
scheduling, the loss of important data, loss of revenues, increased costs and
generally harm its business. Moreover, a catastrophic failure of certain of
Avantair's vital systems could limit its ability to operate flights for an
indefinite period of time, which would have a material adverse impact on
Avantair's business.
AVANTAIR MAY NOT BE ABLE TO OBTAIN ACCEPTABLE CUSTOMER CONTRACTS COVERING ALL OF
THE FRACTIONAL INTERESTS OF ITS NEW AIRPLANES WHICH COULD ADVERSELY AFFECT
ARDENT'S PROFITABILITY.
Avantair intends to substantially expand its fleet of airplanes. The
fractional interests of Avantair's new airplanes may not be fully sold when they
are placed into service. As a result, Ardent's financial performance could be
adversely affected if Avantair is unable to sell all of the fractional interests
in these aircraft.
30
SALES OF FRACTIONAL INTERESTS IN EXCESS OF AVAILABLE FLEET CAPACITY COULD
ADVERSELY AFFECT AVANTAIR'S BUSINESS.
Since fractional shareowners generally desire to enter a fractional
program when they make their decision to purchase a fractional share, it is
difficult for a fractional operator to pre-sell many shares in advance of
receipt of additional aircraft. An aircraft fleet provides a finite level of
capacity, and the addition of significant additional share owners to the usage
base may require an increase in charter usage, which may not be economical. If
Avantair does not adequately manage the sales process and sells shares in excess
of its available capacity, its business could be adversely affected.
AVANTAIR'S BUSINESS COULD BE ADVERSELY AFFECTED BY A FAILURE TO ATTRACT AND
RETAIN QUALIFIED PILOTS AND OTHER OPERATIONS PERSONNEL.
Avantair's ability to attract and retain qualified pilots, mechanics,
and other highly trained personnel will be an important factor in determining
Avantair's future success. Many of Avantair's customers require pilots of
aircraft that service them to have high levels of flight experience. The market
for these experienced and highly trained personnel is extremely competitive.
Accordingly, Ardent cannot assure you that Avantair will be successful in its
efforts to attract and retain such persons. If Avantair is unable to attract and
retain such persons, flight operations may be disrupted, which could have a
negative effect on Ardent's results.
AVANTAIR'S BUSINESS IS AFFECTED BY MANY CHANGING ECONOMIC CONDITIONS BEYOND ITS
CONTROL WHICH MAY ADVERSELY AFFECT ITS RESULTS OF OPERATIONS.
Ownership of fractional shares is likely considered a luxury item to
consumers, especially compared to the costs associated with commercial air
travel. As a result, a general downturn in economic, business and financial
conditions, including recession, inflation and higher interest rates, could have
an adverse effect on consumers' spending habits and could cause them to travel
less frequently and, to the extent they travel, to travel using commercial air
carriers or other means considered to be more economical than via a fractionally
owned aircraft.
THE OPERATION OF AIRCRAFT IS DEPENDENT ON THE PRICE AND AVAILABILITY OF FUEL.
CONTINUED PERIODS OF HISTORICALLY HIGH FUEL COSTS MAY MATERIALLY ADVERSELY
AFFECT ARDENT'S OPERATING RESULTS.
Ardent's operating results may be significantly impacted by changes in
the availability or price of fuel for aircraft operated by Avantair. Fuel prices
have increased substantially since 2004. Although Avantair is currently able to
obtain adequate supplies of fuel, it is impossible to predict the price of fuel.
Political disruptions or wars involving oil-producing countries, changes in
government policy, changes in fuel production capacity, environmental concerns
and other unpredictable events may result in fuel supply shortages and
additional fuel price increases in the future. Furthermore, Avantair bears the
entire cost of fuel when repositioning aircraft. There can be no assurance that
Avantair will be able to fully recover its increased fuel costs by passing these
costs on to its customers. In the event that Avantair is unable to do so,
Ardent's operating results will be adversely affected.
AVANTAIR'S RELIANCE ON CURRENT LAWS AND REGULATIONS WITH RESPECT TO THE
OPPORTUNITY TO CONDUCT SALES WITH FOREIGN CUSTOMERS AND FLIGHTS TO CURRENTLY
PERMITTED AREAS POSES A SIGNIFICANT RISK TO ITS BUSINESS PROSPECTS.
Avantair's revenue and profitability are based in part on current laws
and regulations by the federal government of the United States and the agencies
thereof, including but not limited to the Department of Homeland Security, the
Department of State, the Department of Commerce and the Department of the
Treasury, allowing sales to and provision of services for foreign persons and
flights to foreign locations that are permissible under current laws and
regulations. Modification of such statutes and regulations could pose a
significant risk to Avantair's business operations by reducing the pool of
potential customers through the preclusion of foreign persons and the locations
of permissible flights.
RISKS ASSOCIATED WITH THE ACQUISITION AND ARDENT
ARDENT MAY NOT BE ABLE TO CONSUMMATE THE ACQUISITION, OR ANOTHER BUSINESS
COMBINATION, WITHIN THE REQUIRED TIME FRAME, IN WHICH CASE ARDENT WOULD BE
FORCED TO LIQUIDATE.
31
Ardent must complete a business combination with a fair market value of
at least 80% of its net assets at the time of acquisition by March 2, 2007. If
Ardent fails to consummate the acquisition within the required time frame, it
will be forced to liquidate.
IF ARDENT IS FORCED TO LIQUIDATE BEFORE A BUSINESS COMBINATION, ITS PUBLIC
STOCKHOLDERS WILL RECEIVE LESS THAN $6.00 PER SHARE UPON DISTRIBUTION OF THE
TRUST ACCOUNT, AND ITS WARRANTS WILL EXPIRE WORTHLESS.
If Ardent is unable to complete the acquisition or another business
combination and is forced to liquidate its assets, the per share liquidation
value will be less than $6.00 because of the expenses related to its initial
public offering, its operating expenses and the costs of performing due
diligence for the acquisition, negotiating the stock purchase agreement and
otherwise seeking a business combination. Furthermore, Ardent's warrants will
expire worthless if it liquidates before the completion of a business
combination.
THERE WILL BE A SUBSTANTIAL NUMBER OF SHARES OF ARDENT'S COMMON STOCK AVAILABLE
FOR RESALE IN THE FUTURE THAT MAY BE DILUTIVE TO ARDENT'S CURRENT STOCKHOLDERS
AND MAY CAUSE A DECREASE IN THE MARKET PRICE OF ARDENT'S COMMON STOCK.
The consideration to be issued in the acquisition to Avantair's
stockholders will be comprised of 7,000,000 shares of Ardent common stock, with
the possibility of up to an additional 11,000,000 additional shares of Ardent
common stock depending on Ardent's financial performance and the trading price
of Ardent's common stock after the closing of the acquisition. In addition,
Ardent will issue to EarlyBirdCapital up to 210,000 shares of Ardent's common
stock at the closing of the acquisition as payment for consulting services. None
of these shares are initially being registered for resale. However, Ardent is
obligated to file a "shelf" registration statement within 60 days following the
acquisition of Avantair with respect to approximately 46% of the shares of
Ardent common stock issued at the closing of the acquisition, and to file
additional "shelf" registration statements within 60 days following the issuance
to Avantair's stockholders of the additional shares described above. See "The
Investors Rights Agreement" on Page 83. The Avantair stockholders who will
receive the balance of the shares of Ardent common stock issued in the
acquisition have agreed that their shares cannot be sold publicly until the
expiration of the restricted periods set out in the Stockholders Agreement (a
maximum of two years after the closing). See "The Stockholders Agreement" on
page 80. In addition, warrants to purchase 13,800,000 shares of common stock
issued in connection with Ardent's initial public offering, warrants to purchase
200,000 shares of common stock issued to John Waters pursuant to his employment
agreement and warrants to purchase 146,000 shares of common stock issued to
EarlyBirdCapital will become exercisable at the closing of the acquisition as
described under "Description of Ardent's Securities -- Warrants" on Page 122.
All of the common stock of Ardent issuable upon exercise of the warrants will be
available for resale upon exercise. Lastly, 1,500,000 shares of Ardent common
stock purchased by its initial stockholders prior to the initial public offering
will be held in escrow until February 24, 2008, at which time they will be
released from escrow and be eligible for resale in the public market subject to
compliance with applicable law, and Ardent's initial stockholders are entitled
to demand that Ardent register the resale of their shares of common stock at any
time after the date on which their shares are released from escrow. The presence
of this additional number of shares of common stock eligible for trading in the
public market may have an adverse effect on the market price of Ardent's common
stock.
ARDENT'S DIRECTORS MAY HAVE CERTAIN CONFLICTS IN DETERMINING TO RECOMMEND THE
ACQUISITION PROPOSAL SINCE CERTAIN OF THEIR INTERESTS, AND CERTAIN INTERESTS OF
THEIR AFFILIATES, ARE DIFFERENT FROM, OR IN ADDITION TO, YOUR INTERESTS
AS A STOCKHOLDER.
Members of Ardent's Board of Directors have interests in the acquisition
that are different from, or in addition to, your interests as a stockholder,
including the fact that the shares of common stock owned by them, or their
affiliates, would become worthless if the acquisition is not approved
and Ardent otherwise fails to consummate a business combination prior
to its liquidation date. Such shares, as of November 1, 2006, had a market value
of approximately $7,817,220. Similarly, the warrants owned by such directors
and affiliates to purchase 950,999 shares of common stock would expire
worthless. In addition, if the acquisition is approved, it is expected
that certain of Ardent's directors will continue to serve as such, and be
compensated in such capacity. Moreover, if the acquisition is not consummated,
Ardent's directors have agreed to be liable for certain of its expenses in
excess of Ardent's available cash. You should take these potential conflicts
into account when considering the recommendation of Ardent's Board of Directors
to vote in favor of the acquisition proposal.
32
IF THE ACQUISITION'S BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR
INDUSTRY ANALYSTS, THE MARKET PRICE OF ARDENT'S COMMON STOCK MAY DECLINE.
The market price of Ardent's common stock may decline as a result of the
acquisition if:
o Ardent does not achieve the perceived benefits of the
acquisition as rapidly as, or to the extent anticipated by,
financial or industry analysts; or
o the effect of the acquisition on Ardent's financial results
is not consistent with the expectations of financial or
industry analysts.
Accordingly, investors may experience a loss as a result of a decreasing
stock price and Ardent may not be able to raise future capital, if necessary, in
the equity markets.
IF ARDENT IS UNABLE TO RECEIVE A LISTING OF ITS SECURITIES ON NASDAQ OR ANOTHER
NATIONAL SECURITIES EXCHANGE, THEN IT MAY BE MORE DIFFICULT FOR ITS STOCKHOLDERS
TO SELL THEIR SECURITIES.
Shares of Ardent common stock, warrants and units are currently traded
in the over-the-counter market and quoted on the OTCBB. Following the
acquisition, Ardent anticipates that it will apply to have the common stock,
warrants and units included in The NASDAQ Stock Market. The listing of the
Ardent common stock, warrants and units on The NASDAQ Stock Market or another
national securities exchange is not a condition to the acquisition and there is
no assurance that this listing will be obtained. If Ardent is unable to receive
a listing or approval of trading of its securities on NASDAQ or another national
securities exchange, then it may be more difficult for its stockholders to sell
their securities.
ARDENT MAY ISSUE SHARES OF ITS COMMON STOCK AND PREFERRED STOCK TO COMPLETE A
FUTURE BUSINESS COMBINATION, WHICH WOULD REDUCE THE EQUITY INTEREST OF ARDENT'S
STOCKHOLDERS.
Ardent's certificate of incorporation authorizes the issuance of up to
30,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
shares of preferred stock, par value $.0001 per share. Ardent currently has
6,900,000 authorized but unissued shares of Ardent's common stock available for
issuance (after appropriate reservation for the issuance of shares upon full
exercise of Ardent's outstanding warrants and unit purchase options) and all of
the 1,000,000 shares of preferred stock available for issuance. If the
acquisition proposal is approved, Ardent will amend its certificate of
incorporation to increase the number of shares of common stock which Ardent is
authorized to issue from 30,000,000 shares to 75,000,000 shares. Under the terms
of the Stock Purchase Agreement, the stockholders of Avantair are entitled to
receive 7,000,000 shares of Ardent common stock at the closing of the
acquisition, with the possibility of receiving up to a total of 11,000,000
additional shares of Ardent common stock depending on Ardent's future financial
performance and the future trading price of Ardent's common stock after the
closing. In addition, Ardent has issued warrants for 146,000 shares of Ardent
Common Stock to EarlyBirdCapital in consideration for assisting Avantair in
raising equity financing, and at the closing of the acquisition, Ardent will
issue warrants for 200,000 shares of Ardent common stock to John Waters pursuant
to his employment agreement and warrants for 210,000 shares of Ardent common
stock to EarlyBirdCapital as a consulting fee. Although Ardent currently has no
other commitments to issue any additional shares of its common or preferred
stock, Ardent may in the future determine to issue additional shares of its
common or preferred stock to complete a business combination. The issuance of
additional shares of Ardent's common stock or preferred stock may significantly
reduce the equity interest of stockholders and may adversely affect prevailing
market prices for Ardent's common stock.
IF ARDENT'S STOCKHOLDERS EXERCISE THEIR RIGHT TO CONVERT THEIR SHARES INTO CASH,
ARDENT'S WORKING CAPITAL WOULD BE REDUCED AND MAY LIMIT AVANTAIR'S GROWTH AND
OPERATIONS.
Pursuant to Ardent's certificate of incorporation, holders of shares
issued in Ardent's initial public offering may vote against the merger and
demand that Ardent convert their shares into a pro rata share of the trust
account where a substantial portion of the net proceeds of the initial public
offering are held, including all interest earned thereon. Ardent will not
consummate the acquisition of Avantair if holders of 1,380,000 or more shares of
common stock issued in Ardent's initial public offering exercise these
conversion rights. To the extent the acquisition is
33
consummated and holders have demanded to convert their shares, there will be a
corresponding reduction in the amount of funds available to Ardent and Avantair
following the acquisition. As of June 30, 2006, assuming the acquisition
proposal is adopted, the maximum amount of funds that could be disbursed to the
Ardent stockholders upon exercise of their conversion rights is approximately
$7.6 million.
AN EFFECTIVE REGISTRATION STATEMENT MAY NOT BE IN PLACE WHEN AN INVESTOR DESIRES
TO EXERCISE WARRANTS, THUS PRECLUDING SUCH INVESTOR FROM BEING ABLE TO EXERCISE
HIS, HER OR ITS WARRANTS AND CAUSING SUCH WARRANTS TO BE PRACTICALLY WORTHLESS.
No warrant will be exercisable and Ardent will not be obligated to issue
shares of its common stock unless at the time a holder seeks to exercise such
warrant, a prospectus relating to the common stock issuable upon exercise of the
warrant is current and the common stock has been registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the
holder of the warrants. Under the terms of the warrant agreement, Ardent has
agreed to use its best efforts to meet these conditions and to maintain a
current prospectus relating to the common stock issuable upon exercise of the
warrants until the expiration of the warrants. However, Ardent cannot assure you
that it will be able to do so, and if Ardent does not maintain a current
prospectus related to the common stock issuable upon exercise of the warrants,
holders will be unable to exercise their warrants and Ardent will not be
required to settle any such warrant exercise. If the prospectus relating to the
common stock issuable upon the exercise of the warrants is not current or if the
common stock is not qualified or exempt from qualification in the jurisdictions
in which the holders of the warrants reside, the warrants may have no value, the
market for the warrants may be limited and the warrants may expire worthless.
RISKS IF THE ADJOURNMENT PROPOSAL IS NOT APPROVED
IF THE ADJOURNMENT PROPOSAL IS NOT APPROVED, AND AN INSUFFICIENT NUMBER OF VOTES
HAVE BEEN OBTAINED TO APPROVE THE ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL
AND THE PLAN PROPOSAL, ARDENT'S BOARD OF DIRECTORS WILL NOT HAVE THE ABILITY TO
ADJOURN THE SPECIAL MEETING TO A LATER DATE IN ORDER TO SOLICIT FURTHER VOTES,
AND, THEREFORE, THE ACQUISITION PROPOSAL, NAME CHANGE PROPOSAL AND PLAN PROPOSAL
WILL NOT BE APPROVED.
Ardent's Board of Directors is seeking approval to adjourn the special
meeting to a later date if, at the special meeting, there are insufficient votes
to approve the acquisition proposal and name change proposal. If the adjournment
proposal is not approved, Ardent's Board of Directors will not have the ability
to adjourn the special meeting to a later date and, therefore, will not have
more time to solicit votes to approve the acquisition proposal, name change
proposal and plan proposal. In such case, the acquisition proposal, the name
change proposal and the plan proposal will not be approved. Since approval of
the acquisition by Ardent's stockholders is a condition to completion of the
acquisition, the acquisition would not be completed.
34
THE ARDENT SPECIAL MEETING
ARDENT SPECIAL MEETING
We are furnishing this document to you as part of the solicitation of
proxies by Ardent's Board of Directors for use at the special meeting called to
consider and vote upon the acquisition proposal, the name change proposal, the
plan proposal and the adjournment proposal. This document provides you with the
information you need to know to be able to vote or instruct your vote to be cast
at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at 10:00 a.m., eastern time, on
__________, 200_, at the offices of Katten Muchin Rosenman LLP, 575 Madison
Avenue, New York, New York, to vote on the adoption of the acquisition proposal,
the name change proposal, the plan proposal and the adjournment proposal.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we are asking holders of Ardent common stock to:
o adopt the acquisition proposal and the amendments to Ardent's
certificate of incorporation designed to ensure Ardent's
compliance with the citizenship requirements of U.S. aviation
laws after completion of the acquisition and to increase the
number of shares of common stock which Ardent is authorized
to issue from 30,000,000 shares to 75,000,000 shares;
o adopt the name change proposal;
o adopt the plan proposal; and
o adopt the adjournment proposal.
Ardent's Board of Directors:
o unanimously recommends that Ardent common stockholders vote
"FOR" the acquisition proposal;
o unanimously recommends that Ardent common stockholders vote
"FOR" the name change proposal;
o unanimously recommends that Ardent common stockholders vote
"FOR" the plan proposal; and
o unanimously recommends that Ardent common stockholders vote
"FOR" the adjournment proposal.
Adoption by Ardent stockholders of the acquisition proposal is not
conditioned on the adoption of the name change proposal, the plan proposal or
the adjournment proposal. However, the adoption of the name change proposal and
the plan proposal is conditioned upon the adoption of the acquisition proposal.
RECORD DATE; WHO IS ENTITLED TO VOTE
The record date for the special meeting is _______, 200_. Record holders
of Ardent common stock at the close of business on the record date are entitled
to vote or have their votes cast at the special meeting. On the record date,
there were 8,400,000 outstanding shares of Ardent common stock.
Each share of Ardent common stock is entitled to one vote at the special
meeting.
35
Ardent's initial stockholders have agreed, with respect to the
acquisition proposal, to vote their 1,500,000 shares of Ardent common stock
acquired prior to Ardent's initial public offering, representing an aggregate of
approximately 17.9% of the outstanding shares of Ardent common stock, in
accordance with the vote of the majority of the shares of Ardent common stock
issued in its initial public offering. The initial stockholders intend to vote
all of their shares of Ardent common stock "FOR" the name change proposal, the
plan proposal and the adjournment proposal.
Ardent's issued and outstanding warrants do not have voting rights and
record holders of Ardent warrants will not be entitled to vote at the special
meeting.
VOTING YOUR SHARES
Each share of Ardent common stock that you own in your name entitles you
to one vote. Your proxy card shows the number of shares of Ardent common stock
that you own.
There are two ways to vote your shares of Ardent common stock at the
special meeting:
o YOU CAN VOTE BY SIGNING AND RETURNING THE ENCLOSED PROXY
CARD. If you vote by proxy card, your "proxy," whose name is
listed on the proxy card, will vote your shares as you
instruct on the proxy card. If you sign and return the proxy
card but do not give instructions on how to vote your shares,
your shares will be voted as recommended by Ardent's Board
"FOR" the adoption of the acquisition proposal, the name
change proposal, the plan proposal and the adjournment
proposal.
o YOU CAN ATTEND THE SPECIAL MEETING AND VOTE IN PERSON. We
will give you a ballot when you arrive. However, if your
shares are held in the name of your broker, bank or another
nominee, you must get a proxy from the broker, bank or other
nominee. That is the only way we can be sure that the broker,
bank or nominee has not already voted your shares.
IF YOU DO NOT VOTE YOUR SHARES OF ARDENT COMMON STOCK IN ANY OF THE WAYS
DESCRIBED ABOVE, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE ADOPTION OF
THE ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN PROPOSAL AND THE
ADJOURNMENT PROPOSAL BUT WILL NOT HAVE THE EFFECT OF A DEMAND FOR CONVERSION OF
YOUR SHARES INTO A PRO RATA SHARE OF THE TRUST ACCOUNT IN WHICH A SUBSTANTIAL
PORTION OF THE PROCEEDS OF ARDENT'S INITIAL PUBLIC OFFERING ARE HELD. TO
EXERCISE YOUR CONVERSION RIGHTS, YOU MUST AFFIRMATIVELY ELECT TO CONVERT YOUR
SHARES BY CHECKING THE APPROPRIATE BOX, OR DIRECTING YOUR BROKER TO CHECK THE
APPROPRIATE BOX, ON THE PROXY CARD AND ENSURE THAT THE PROXY CARD IS DELIVERED
PRIOR TO THE ARDENT SPECIAL MEETING.
WHO CAN ANSWER YOUR QUESTIONS ABOUT VOTING YOUR SHARES
If you have questions, you may write, e-mail or call Morrow & Co., Inc.,
470 West Avenue, Stamford, CT 06902; email: Ardent.info@morrowco.com.
Stockholders, banks and brokerage firms, please call 800-607-0088.
NO ADDITIONAL MATTERS MAY BE PRESENTED AT THE SPECIAL MEETING
This special meeting has been called only to consider the adoption of
the acquisition proposal, the name change proposal, the plan proposal and the
adjournment proposal. Under Ardent's by-laws, other than procedural matters
incident to the conduct of the meeting, no other matters may be considered at
the special meeting, if they are not included in the notice of the meeting.
In addition, representatives of Ardent's accountants are not expected to
be present at the special meeting and accordingly will not make any statement or
be available to respond to any questions.
36
REVOKING YOUR PROXY
If you give a proxy, you may revoke it at any time before it is
exercised by doing any one of the following:
o You may send another proxy card with a later date;
o You may notify Barry J. Gordon, Ardent's Chairman and Chief
Executive Officer, in writing before the special meeting that
you have revoked your proxy; and
o You may attend the special meeting, revoke your proxy, and
vote in person.
VOTE REQUIRED TO ADOPT THE ACQUISITION PROPOSAL
The affirmative vote of a majority of the issued and outstanding shares
of Ardent's common stock is required to adopt the acquisition proposal. Adoption
of the acquisition proposal also requires the affirmative vote of a majority of
the shares of Ardent's common stock issued in its initial public offering, which
we sometimes refer to as the IPO shares. No vote of the warrant holders is
necessary to adopt the acquisition proposal, and Ardent is not asking the
warrant holders to vote on the acquisition proposal. Adoption of the acquisition
proposal is not conditioned upon the adoption of the name change proposal, the
plan proposal or adjournment proposal. However, if the holders of at least
1,380,000 IPO shares, or at least 20% of the total number of IPO shares, demand
conversion of their shares into their pro rata portion of the trust account,
then Ardent will not consummate the acquisition under the terms of Ardent's
certificate of incorporation. See "Conversion Rights" below.
An Ardent stockholder who votes in favor of the acquisition proposal is
also voting to adopt amendments to Ardent's certificate of incorporation
designed to ensure Ardent's compliance with the citizenship requirements of U.S.
aviation laws after completion of the acquisition, and to increase the number
of shares of common stock which Ardent is authorized to issue from 30,000,000
shares to 75,000,000 shares.
At the close of business on November 1, 2006, there were 8,400,000
shares of Ardent common stock outstanding, 6,900,000 of which were issued in
Ardent's initial public offering.
Ardent's initial stockholders have agreed to vote their 1,500,000 shares
of Ardent common stock acquired prior to Ardent's initial public offering,
representing an aggregate of approximately 17.9% of the outstanding shares of
Ardent common stock, in accordance with the vote of the majority of the shares
of Ardent common stock issued in its initial public offering.
CONVERSION RIGHTS
As provided in Ardent's certificate of incorporation, holders of IPO
shares may, if the stockholder votes against the acquisition, demand that Ardent
convert their shares into cash. THIS DEMAND MUST BE MADE ON THE PROXY CARD AT
THE SAME TIME THAT THE STOCKHOLDER VOTES AGAINST THE ACQUISITION PROPOSAL. If so
demanded, Ardent will convert each share of common stock into a pro rata portion
of the trust account in which $36,222,000 of the net proceeds of Ardent's
initial public offering are held, plus interest earned thereon. Based on the
amount of cash held in the trust account at June 30, 2006, you will be entitled
to convert each share of common stock that you hold into approximately $5.50. If
you exercise your conversion rights, then you will be exchanging your shares of
Ardent's common stock for cash and will no longer own these shares. You will
only be entitled to receive cash for these shares if you continue to hold these
shares through the closing date of the acquisition and then tender your stock
certificate to Ardent. If the acquisition is not completed, then these shares
will not be converted into cash.
The acquisition will not be consummated if the holders of at least
1,380,000 IPO shares, or at least 20% of the total number of IPO shares,
exercise their conversion rights.
PRIOR TO EXERCISING CONVERSION RIGHTS, ARDENT STOCKHOLDERS SHOULD VERIFY
THE MARKET PRICE OF ARDENT'S COMMON STOCK AS THEY MAY RECEIVE HIGHER PROCEEDS
FROM THE SALE OF THEIR COMMON STOCK IN THE PUBLIC MARKET
37
THAN FROM EXERCISING THEIR CONVERSION RIGHTS. Ardent's shares of common stock
are listed on the Over-the-Counter Bulletin Board under the symbol AACQ.
VOTE REQUIRED TO ADOPT THE NAME CHANGE PROPOSAL
Adoption of the name change proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Ardent's common stock. No vote
of the warrant holders is necessary to adopt the name change proposal, and
Ardent is not asking the warrant holders to vote on the name change proposal.
Adoption of the name change proposal is conditioned upon the adoption of the
acquisition proposal but is not conditioned on adoption of the plan proposal or
the adjournment proposal.
Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the name change proposal.
VOTE REQUIRED TO ADOPT THE PLAN PROPOSAL
Adoption of the plan proposal requires the affirmative vote of a
majority of the shares of Ardent's common stock represented in person or by
proxy at the meeting. No vote of the warrant holders is necessary to adopt the
plan proposal, and Ardent is not asking the warrant holders to vote on the plan
proposal. Adoption of the plan proposal is conditioned upon the adoption of the
acquisition proposal but is not conditioned on adoption of the name change
proposal or the adjournment proposal.
Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the plan proposal.
VOTE REQUIRED TO ADOPT THE ADJOURNMENT PROPOSAL
Adoption of the adjournment proposal requires the affirmative vote of a
majority of the shares of Ardent's common stock represented in person or by
proxy at the meeting. No vote of the warrant holders is necessary to adopt the
adjournment proposal, and Ardent is not asking the warrant holders to vote on
the adjournment proposal. Adoption of the adjournment proposal is not
conditioned upon the adoption of the acquisition proposal, the name change
proposal or the plan proposal.
Ardent's initial stockholders have agreed to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the adoption of the adjournment
proposal.
IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE, EITHER IN PERSON OR BY PROXY OR BY
VOTING INSTRUCTION, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE ADOPTION
OF THE ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN PROPOSAL AND THE
ADJOURNMENT PROPOSAL, BUT NOT AS A DEMAND OF CONVERSION OF YOUR SHARES INTO A
PRO RATA PORTION OF THE TRUST ACCOUNT IN WHICH THE PROCEEDS OF ARDENT'S INITIAL
PUBLIC OFFERING ARE HELD. To exercise your conversion rights, you must
affirmatively elect to convert your shares by checking the appropriate box, or
directing your broker to check the appropriate box, on the proxy card and ensure
that the proxy card is delivered prior to the Ardent special meeting.
BROKER NON-VOTES
If your broker holds your shares in its name and you do not give the
broker voting instructions, under the rules of the NASD, your broker may not
vote your shares on the acquisition proposal, the name change proposal, the plan
proposal or the adjournment proposal. If you do not give your broker voting
instructions and the broker does not vote your shares, this is referred to as a
"broker non-vote." ABSTENTIONS OR BROKER NON-VOTES HAVE THE SAME EFFECT AS A
VOTE "AGAINST" THE ACQUISITION PROPOSAL, THE NAME CHANGE PROPOSAL, THE PLAN
PROPOSAL AND THE ADJOURNMENT PROPOSAL, BUT WILL NOT HAVE THE EFFECT OF ELECTING
TO EXERCISE YOUR CONVERSION RIGHTS. To exercise your conversion rights, you must
affirmatively elect to convert your shares by checking the appropriate box, or
38
directing your broker to check the appropriate box, on the proxy card and ensure
that the proxy card is delivered prior to the Ardent special meeting.
SOLICITATION COSTS
Ardent will bear all expenses incurred in connection with the
solicitation of proxies. Ardent will, upon request, reimburse brokerage firms
and other nominee holders for their reasonable expenses incurred in forwarding
the proxy solicitation materials to the beneficial owners of our shares. Our
officers and directors may solicit proxies by mail, personal contact, letter,
telephone, telegram, facsimile or other electronic means. They will not receive
any additional compensation for those activities, but they may be reimbursed for
their out-pocket-expenses. In addition, we have hired Morrow & Co., Inc. to
solicit proxies on our behalf. The cost of soliciting proxies on our behalf will
be approximately $5,500 plus costs and expenses.
STOCK OWNERSHIP
At the close of business on the record date, Barry J. Gordon, Marc H.
Klee, Arthur H. Goldberg, Alan J. Loewenstein, Robert Sroka, Robert Brill and
Philip Goodman, who together comprise all of Ardent's directors and executive
officers, together with their affiliates, beneficially owned 1,500,000 shares of
Ardent common stock, or approximately 17.9% of the outstanding shares of Ardent
common stock. Such number does not include 950,999 shares of common stock
issuable upon exercise of warrants held by Ardent's executive officers and
directors. These 1,500,000 shares have a market value of approximately
$8,220,000 based on Ardent's common stock price of $5.48 per share as of
November 1, 2006. Those persons have agreed to vote their 1,500,000 shares of
common stock acquired by them prior to the initial public offering in accordance
with the vote of the majority of the shares issued in connection with Ardent's
initial public offering. Mr. Gordon is currently Chairman of Ardent's Board of
Directors and Chief Executive Officer of Ardent. Mr. Klee is currently a member
of Ardent's Board of Directors and President, Chief Financial Officer and
Secretary of Ardent. Messrs. Brill, Goldberg and Goodman are currently directors
of Ardent. Messrs. Loewenstein and Sroka are each currently Vice Presidents of
Ardent. For more information on beneficial ownership of Ardent's common stock by
executive officers, directors and 5% stockholders, see page 115.
39
THE ACQUISITION PROPOSAL
The discussion in this document of the acquisition and the principal
terms of the Stock Purchase Agreement, dated as of October 2, 2006, by and among
Ardent and certain stockholders of Avantair, and the Letter Agreements, dated as
of October 2, 2006, among Ardent, Avantair and certain stockholders of Avantair
is subject to, and is qualified in its entirety by reference to, the Stock
Purchase Agreement and the Letter Agreements. A copy of the Stock Purchase
Agreement and the Letter Agreements are attached as Annexes A and B,
respectively, to this document and is incorporated in this document by
reference. We sometimes refer to the Stock Purchase Agreement and the Letter
Agreements collectively as the Stock Purchase Agreement.
GENERAL DESCRIPTION OF THE ACQUISITION
The acquisition involves the purchase all of the outstanding shares of
capital stock of Avantair by Ardent.
BACKGROUND OF THE ACQUISITION
The terms of the Stock Purchase Agreement are the result of arm's-length
negotiations between representatives of Ardent and Avantair. The following is a
brief discussion of the background of these negotiations, the acquisition and
related transactions.
Ardent is a blank check company organized as a corporation under the
laws of the State of Delaware on September 14, 2004. On March 2, 2005, Ardent
successfully consummated an initial public offering of its equity securities
from which it derived net proceeds of approximately $37,227,000. Ardent's common
stock, warrants to purchase common stock and units consisting of one share of
common stock and two warrants to purchase common stock are listed on the
Over-the-Counter Bulletin Board under the symbols AACQ, AACQW and AACQU,
respectively. $36,222,000 of the net proceeds of the initial public offering was
placed in a trust account and will be released to Ardent upon consummation of
the acquisition or upon the liquidation of Ardent. Subsequent to its initial
public offering, Ardent's officers and directors commenced an active search for
a prospective operating business. Other than its initial public offering and the
pursuit of a business combination, Ardent has not engaged in any business to
date. If Ardent does not consummate a business combination by March 2, 2007,
then, pursuant to article sixth of its certificate of incorporation, as amended,
Ardent's officers must take all actions necessary to dissolve and liquidate
Ardent within 60 days. As of June 30, 2006, $37,919,489, including interest, was
held on deposit in the trust account.
Following its initial public offering, Ardent contacted numerous
investment banks, private equity firms and business brokers in an effort to
identify a suitable target company for an acquisition. From and after March
2005, Ardent reviewed and evaluated more than seventy prospective target
businesses. In August 2005, Ardent entered into a preliminary letter of intent
with one of these companies, which included specified levels of merger
consideration. The recipient agreed to this preliminary letter of intent,
subject to due diligence. Ultimately both parties decided not to proceed further
and the preliminary letter of intent expired 90 days after execution. Ardent
chose not to proceed due to concerns about the depth of the target company's
management team, and the target company opted to pursue private financing as an
alternative. The proposal was not presented to the Ardent Board of Directors for
consideration. In February 2006, Ardent entered into a second preliminary letter
of intent with another target company, which included specified levels of merger
consideration. Ardent chose not to proceed further with this transaction due to
the target company's inability to achieve certain operational and financial
targets, which were considered critical to Ardent's management team. This
preliminary letter of intent expired 75 days after it was executed. This
proposal was not presented to the Ardent Board of Directors for consideration.
In August 2006, Ardent entered into one additional preliminary letter of intent,
which included specified levels of merger consideration. This letter of intent
terminated 60 days after it was executed. This proposal was not presented to the
Ardent Board of Directors for consideration.
Throughout the course of Ardent's discussions and negotiations with
other targets, various issues arose with the companies being considered,
including an inability to agree on valuation, unfavorable issues identified in
the due diligence process, lack of anticipated growth of the target company's
business, and perceived issues with the overall structure of the transaction, as
well as accounting and regulatory issues. Accordingly, although many of the
opportunities were discussed with the Ardent Board of Directors, none of them
proved to be a satisfactory candidate
40
for a merger or acquisition and no proposals were submitted to the Ardent Board
of Directors for formal consideration and approval other than with respect to
the proposed acquisition of Avantair.
Avantair, a Nevada corporation, is engaged in the sale and management of
fractional ownerships of professionally piloted aircraft for personal and
business use. Avantair operates fixed flight based operations, aircraft
maintenance, concierge services to customers from a hangar and office location
in Clearwater, Florida. Avantair anticipates opening a second fixed base
operation in Camarillo, California and is currently in discussions to add a
similar facility in Caldwell, New Jersey. Avantair is the fifth largest company
in the North American fractional aircraft industry. Avantair presently operates
28 aircraft with 75 additional aircraft on order. Avantair expects to have
approximately 40 aircraft in its fleet by June 30, 2007.
In March 2006, John Waters, Avantair's Chief Financial Officer, had
begun exploring options with respect to a financing or sale transaction
involving Avantair and was introduced to Harvey Granat, an Ardent stockholder,
through a mutual acquaintance. On March 23, 2006, Mr. Granat forwarded this
information to Marc H. Klee, Ardent's President and Chief Financial Officer and
member of its Board.
On March 24, 2006, various members of the Ardent management team had an
initial telephonic meeting with management of Avantair. As a consequence of that
conversation, a meeting between Avantair's management and Barry J. Gordon,
Ardent's Chairman and Chief Executive Officer, and Arthur H. Goldberg, a member
of Ardent's Board of Directors, was held on March 31, 2006 in both Palm Beach,
Florida and at Avantair's corporate headquarters at the Clearwater/St.
Petersburg International Airport in Florida. Attending that meeting on behalf of
Avantair were Steven Santo, Chief Executive Officer, John Waters, Chief
Financial Officer and Alfred Rapetti, who was then Avantair's Chairman. Several
additional phone conversations were held over the following weeks, and
preliminary due diligence information was obtained from Avantair while Ardent
conducted initial reference checks. While Avantair's financial statements were
unaudited at that point, both Ardent's and Avantair's management agreed that the
value of Avantair would stem from cash flow generation. As information was
provided to Ardent, and as Ardent better understood Avantair's business model,
both parties began to view the value of Avantair utilizing a methodology which
was based upon cash EBITDA, a measure not recognized under generally accepted
accounting principles. "Cash EBITDA" can be summarized as a company's net income
before interest, taxes, depreciation and amortization, each of which was to be
determined on a consolidated basis in accordance with US generally accepted
accounting principles (consistently applied), provided, that any revenues
generated by Avantair with respect to sales of aircraft (or interests therein)
are to be treated as recognized in the fiscal year of sale. It was understood by
both parties that there were no comparable public companies to utilize for
valuation since Avantair's four principal competitors were subsidiaries of much
larger companies. Also discussed, but not ultimately utilized as a valuation
methodology, was the underlying asset values, primarily the value of contracts
for future aircraft deliveries, the various FAA certificates, and the future
stream of management fees. These methods were not utilized because Ardent's
management believed that the cash flow methodology took the asset values into
account.
On March 28, 2006, during a weekly conference call among members of
Ardent's management and members of its Board of Directors, Avantair was first
discussed, and it was one of the topics of conversation in subsequent conference
calls, along with various other potential transactions. During the April 11,
2006, Ardent conference call, the valuation of Avantair was noted for the first
time.
On April 28, 2006, Messrs. Gordon and Goldberg again met with Avantair's
management, and a follow-up meeting was held on May 16, 2006, including Messrs.
Gordon and Klee, and Philip Goodman, a member of Ardent's Board. At that time,
it became clear that Avantair required capital for aircraft deposits, progress
payments on aircraft to be delivered over the coming months and for the
opportunity to expand its fixed base operations, or FBO, business.
On the May 2, 2006 Ardent weekly conference call, following the April 28
in-person meeting, a term sheet was discussed. The term sheet had been drafted
the day before and had been circulated to the various members of the Ardent
team. The term sheet was presented to Avantair on May 2, 2006. The terms were
essentially identical to those set forth in the subsequent signed non-binding
letter of intent with respect to the acquisition.
On June 5, 2006, a draft non-binding letter of intent was presented by
Ardent to Avantair. After some negotiations, on June 20, 2006 Ardent and
Avantair signed the non-binding letter of intent setting forth the terms of
41
Ardent's proposed acquisition of all of the capital stock of Avantair. The
letter of intent provided for a period of exclusivity of the greater of either
60 days or 14 days following the receipt of Avantair's audited financial
statements for the 2004, 2005 and 2006 fiscal years, during which time Avantair
agreed not to discuss merger with or a sale to any other entity. The terms in
the letter of intent differ in several respects from the final terms reflected
in the Stock Purchase Agreement. The initial terms and the subsequent changes
were:
o At closing Ardent was to issue 12,000,000 shares in exchange
for Avantair's capital stock subject to adjustment based upon
net debt outstanding. This was subsequently adjusted to
7,000,000 shares without a debt adjustment.
o The letter of intent was silent regarding any portion of the
purchase price being held in escrow. An escrow fund of
1,750,000 shares was subsequently agreed to in the Stock
Purchase Agreement.
o Incentives based upon Cash EBITDA (as defined below) were
established. If the combined company earned $10,000,000 in
Cash EBITDA in the fiscal year ending June 30, 2007, Ardent
would issue 2,000,000 additional shares to Avantair's
stockholders. This was subsequently reduced to 1,000,000
shares in the event Ardent achieves $6,000,000 in Cash EBITDA
in the fiscal year ending June 30, 2007.
o If the combined company earned $25,000,000 in Cash EBITDA in
the fiscal year ending June 30, 2008, Ardent was to issue an
additional 7,000,000 shares to Avantair's stockholders. This
was subsequently reduced to 5,000,000 shares in the event the
combined company achieves $20,000,000 in Cash EBITDA in the
fiscal year ending June 30, 2008.
o The letter of intent provided for two incentives based on
Ardent's stock price. Ardent was to issue 2,000,000 shares to
Avantair's stockholders in the event that Ardent's closing
stock price for 20 trading days within any 30 trading day
period achieved at least $8.50 per share by February 23, 2009
and an additional 2,000,000 shares in the event that Ardent's
closing stock price for 20 trading days within any 30 trading
day period achieved at least $10.00 per share by February 23,
2009. In the Stock Purchase Agreement, the second incentive
was eliminated and the first incentive was adjusted to an
issuance of 5,000,000 shares in the event that the Ardent's
closing stock price achieves at least $8.50 per share for 20
trading days within any 30 trading day period by February 23,
2009.
o Cash EBITDA was defined in the Letter of Intent as the
combined company's earnings before interest, taxes,
depreciation and amortization, each of which was to be
determined on a consolidated basis in accordance with US
generally accepted accounting principles (consistently
applied) for the applicable fiscal year then ended and set
forth on Ardent's audited financial statements, provided,
that any revenues generated by Avantair with respect to sales
of aircraft (or interests therein) are to be treated as
recognized in the fiscal year of sale, and provided, further,
that for the purposes of the calculations, such calculation
will not reflect any expenses or charges related to or
arising from the issuance of stock options, if any, by
Avantair or the issuance of stock to employees of Avantair
prior to the closing of the acquisition at prices below
then-current fair market values.
Subsequent to signing the letter of intent in June, Ardent received
significantly more due diligence materials and made customer checks and obtained
industry information. Many additional in-person and telephonic discussions were
held in the subsequent weeks, including a meeting on August 11, 2006 in New York
which was attended by representatives of both companies and their legal counsel.
Following this meeting, as a consequence of the ongoing discussions between the
parties, and Ardent gaining a better understanding of the various aspects of
Avantair's business, operations and financial condition, the revised terms of
the transaction were established. This occurred on September 5, 2006 at a
meeting of management teams of both companies, along with representatives of
EarlyBirdCapital, which acted as a consultant to Ardent in connection with the
acquisition. The revised terms reflected continuing losses generated by Avantair
due to its inability to obtain aircraft because its aircraft supplier was unable
to get timely certification from the FAA. In addition, it became apparent that
Avantair's business model
42
required more capital than Ardent had originally anticipated, and these capital
needs were reflected in the revised terms. Later that same day, Mr. Rapetti
resigned as chairman of Avantair. Subsequently, in a letter dated September 12,
2006, Mr. Rapetti returned a majority of the shares he beneficially owned in
Avantair to facilitate Avantair's raising of additional external equity
financing. On September 25, 2006, a meeting among Ardent, Avantair,
EarlyBirdCapital and legal counsel for each of Ardent and Avantair was held in
New York to discuss the remaining open items with respect to the transaction.
Final terms were agreed to at that meeting and in various telephone discussions
among the parties and their counsel during the following week.
In addition to the internal due diligence conducted by Ardent personnel,
Ardent employed both legal and financial due diligence teams. Ardent and
Avantair spoke frequently and met both in Clearwater, at Avantair's
headquarters, and in New York on a number of occasions. As a consequence of the
financial shortfall which led to the revaluation of the terms of the transaction
noted above, both companies felt that an infusion of additional equity capital
was a necessity, and consequently Avantair employed the services of
EarlyBirdCapital to assist in that process. In conjunction with the signing of
the Stock Purchase Agreement on October 2, 2006, Avantair raised an aggregate of
$9.0 million in equity financing from the sale of 3,237,410 shares of its class
A common stock. These investors included Steven Santo, John Waters, Kevin
McKamey, Avantair's Executive Vice President, and Jeffrey Kirby, a stockholder
and former director of Avantair, as well as thirteen outside investors who were
introduced to Avantair by EarlyBirdCapital. As compensation for introducing
these investors to Avantair, EarlyBirdCapital received an aggregate of $730,000
in cash and 146,000 of Ardent's publicly traded warrants. These investors
received registration rights with respect to the shares of Ardent common stock
they will receive upon the closing of the acquisition (along with any shares
received as part of the deferred payments) as well as registration and other
rights with respect to Avantair in the event that the acquisition is not
consummated. In addition, Avantair was able to draw down an additional $7.6
million in debt from CNM, Inc., an existing creditor of Avantair. This draw was
conditioned on Avantair executing a new loan agreement with CNM, Inc., which
included a security interest on all of Avantair's assets and the requirement
that the total amount owed to CNM, Inc. by Avantair would be reduced from
approximately $25 million to under $10 million within seven days following the
closing of the acquisition. Ardent acknowledged this repayment obligation to
CNM, Inc. as part of this loan agreement.
On September 28, 2006, Ardent's Board of Directors met by conference
telephone call to again discuss the terms of the prospective acquisition and
related financing transactions. At this telephonic meeting, representatives of
Capitalink, L.C., Ardent's financial advisor retained to render its opinion as
to the fairness of the acquisition and related common stock issuance and other
matters, presented a summary of its analyses and findings and orally rendered
its opinion that the purchase price to be paid in the acquisition was fair, from
a financial point of view, to Ardent's stockholders, and that the fair market
value of Avantair was at least equal to 80% of Ardent's net assets. Based on its
review of the terms of the acquisition and related financing transactions, and
based on the Capitalink opinion and other matters discussed below, Ardent's
Board of Directors unanimously approved the acquisition and authorized the
execution of the Stock Purchase Agreement and the other documents related to the
acquisition.
On October 2, 2006, after the close of business, Ardent and the
stockholders of Avantair entered into the Stock Purchase Agreement and related
agreements, and on October 3, 2006 prior to the opening of the stock markets
publicly announced their agreement through a joint press release.
FACTORS CONSIDERED BY THE ARDENT BOARD IN APPROVING THE ACQUISITION
In approving the Stock Purchase Agreement, Ardent's Board of Directors
relied on financial and other information relating to Avantair, the competitive
environment, and the industry fundamentals. Ardent's Board also relied on a
financial and legal due diligence review of Avantair, including a review of
Avantair's customer and supplier relationships and credit arrangements. Ardent's
Board of Directors considered a wide variety of factors in connection with its
evaluation of the acquisition. In light of the complexity of those factors, the
Ardent Board did not consider it practical to, nor did it attempt to, quantify
or otherwise assign relative weights to the specific factors it considered in
reaching its decision. In addition, individual members of the Ardent Board may
have given different weight to different factors.
Ardent's Board of Directors considered the factors below, in addition to
the Risk Factors described starting on page 25 above, in reaching its conclusion
to adopt the Stock Purchase Agreement and approve the acquisition.
43
OPERATING CHARACTERISTICS OF THE INDUSTRY
An important factor for the Ardent Board of Directors is the belief that
the sale of fractional aircraft units is a growing business which will be
enhanced by demographic changes and the continuing deterioration of the
commercial airline service. According to AvData, an industry source,
fractionally owned aircraft totaled 8 aircraft in 1986 and have increased to 952
aircraft as of May 2006, with fractional interests held by approximately 5,900
owners. Ardent's Board believes that the number of fractional aircraft has grown
due to an increase in choices of price, size and range of available aircraft.
Ardent's Board also believes that market growth has been enhanced by growth in
net worth of individuals, resulting in a broader consumer base for fractional
interests. Ardent's Board further believes that the threat of terrorist attacks,
coupled with rising fuel prices, have caused commercial airlines to reduce
service (both frequencies and non-stop destinations) and have led to longer
security check-in times, both of which have resulted in inefficiencies for
consumers. Ardent's Board believes that Avantair is well positioned to take
advantage of these trends.
ADVANTAGES OF THE PIAGGIO AVANTI AIRCRAFT
Another important factor for the Ardent Board of Directors is the type
of aircraft which comprise Avantair's fleet. Currently, Avantair flies the
Piaggio Avanti P-180, a light turboprop aircraft model which competes on a price
basis with light jets, but has the cabin size of a mid-sized jet. While it is
only slightly slower than comparably priced aircraft, the Avanti uses 30%-50%
less fuel than such aircraft, leading to lower operating costs. Using September
2006 data, the fractional owner of an Avanti's pays annual operating costs which
are 40% lower than the CitationShares' Citation CJ3 and 37%-39% less than the
Hawker 400XP (from NetJets and Flight Options, respectively) (source: BCA,
ARG/US, and Avantair pricing sheets). In addition, Ardent's Board believes that
the Avanti's amenities and short runway capability, which is unmatched by the
principal competitors, provide Avantair with additional competitive advantages.
INDEPENDENT OF AIRCRAFT MANUFACTURERS
Another important factor for the Ardent Board of Directors is that
Avantair is not owned by or affiliated with any aircraft manufacturer as opposed
to several of Avantair's competitors. Three of Avantair's four primary
competitors are subsidiaries of large companies which also produce business
jets. As a consequence, Ardent's Board believes that Avantair would be likely to
have flexibility to evaluate all of the aircraft available to them in a given
market niche and to purchase the aircraft which would provide Avantair with the
most competitive advantages.
DIVERSIFIED REVENUE STREAMS
Another important factor for the Ardent Board of Directors is its belief
that Avantair will benefit from two primary revenue streams: sales of fractional
shares in aircraft and monthly management fees. Fractional aircraft sales
provide income on the spread between the pricing provided by manufacturers to
the fractional aircraft companies, such as Avantair, which place orders in
advance and order in volume, and the selling of fractional shares to their
customers. Monthly management fees provide a 60-month stable revenue stream,
enhanced by a fuel surcharge which reduces the impact of changing energy prices.
In addition, with the recent introduction of fixed base operation (FBO) service,
Ardent's Board of Directors believes that Avantair should benefit from both the
continuing growth of secondary and tertiary airports and from the expected
growth of low cost very light jets.
PREDICTABLE CASH FLOWS
Another important factor for the Ardent Board of Directors is the
consistent monthly management fee charged by Avantair to fractional owners.
Ardent's Board believes that this consistent fee makes it easier for Avantair to
meet its costs, generate income and predict cash flows and for fractional owners
to budget their costs, as opposed to Avantair's competitors who charge hourly
fees. Avantair charges a fuel surcharge, which is based upon any price above
$2.40 per gallon, as an add-on to its management fees which partially offsets
higher fuel prices. Ardent's Board believes that this surcharge is less than the
level charged by Avantair's competitors, giving Avantair an additional pricing
advantage over its competitors.
44
POTENTIAL TO REALIZE ECONOMIES OF SCALE
Another important factor for the Ardent Board of Directors is that
Avantair's costs are likely to decline as a percentage of revenue as Avantair
uses Ardent's current levels of capital resources to grow Avantair's fleet size
and spread the costs for items such as the call center and flight scheduling
over a greater revenue base. Ardent's Board also believes that Avantair's FBO
business should also reduce fuel costs for internal usage of aircraft due to the
advantages of purchasing in volume.
LOWER CAPITAL REQUIREMENTS THAN GENERALLY FOUND IN THE AVIATION INDUSTRY
Another important factor for the Ardent Board of Directors is its belief
that Avantair's capital requirements on a long-term basis will not be
significant. Ardent's Board believes that the fractional ownership sector is not
nearly as capital intensive as the traditional airline and charter industries
because Avantair only needs to make deposits on aircraft and some limited
progress payments prior to accepting deliveries of aircraft, with the remainder
of the purchase price for aircraft funded through fractional shares sold in
advance of delivery of the aircraft.
COMMITTED AND EXPERIENCED MANAGEMENT TEAM WITH INTERESTS ALIGNED WITH
STOCKHOLDERS
Another important factor for the Ardent Board of Directors is the
commitment and experience of Avantair's management team. Many members of
Avantair's senior management team have had significant experience in the
aviation industry in general and in the fractional area in particular. In
addition, Steven Santo, Avantair's founder and Chief Executive Officer, and
other members of Avantair's management team are exchanging all of their shares
in Avantair for shares of Ardent, and Mr. Santo and members of Avantair's senior
management team purchased additional shares, together with outside investors, in
Avantair's recent equity financing, which occurred in conjunction with the
signing of the Stock Purchase Agreement. Ardent's Board considered these actions
to evidence a commitment by Avantair's management team.
OPPORTUNITIES FOR GROWTH WITH ADDITIONAL CAPITAL
Another important factor for the Ardent Board of Directors is Avantair's
opportunities for growth in the fractional ownership business through the use of
Ardent's capital as well as cash generated from operations. Currently, due to a
relatively small fleet and the fleet's limited operating range, Avantair's sales
force only covers limited geographical regions. Ardent's Board believes Avantair
will be able to use Ardent's capital to expand the number and types of aircraft
operated by Avantair, as well as expand Avantair's sales force, resulting in an
increase in revenues in geographic regions beyond Avantair's current geographic
base. Longer term, through the use of capital provided by Ardent, Ardent's Board
believes that Avantair will have the ability to expand its fleet to target price
points above and below its current offerings.
Ardent's Board of Directors considered a variety of risks and other
potentially negative factors associated with Avantair, including the Risk
Factors described starting on page 25 and those factors listed below.
HISTORY OF LOSSES
Since inception, Avantair has recorded net losses in each fiscal year.
Ardent's Board cannot be certain when, or if, in the future Avantair will
generate net income.
NEGATIVE CASH FLOW
As a result of Avantair's history of net losses, Avantair has generated
negative cash flow since inception. Ardent's Board cannot be certain when, or
if, in the future Avantair will generate positive cash flow.
MANAGEMENT SYSTEMS AND PERSONNEL
Avantair's finance and accounting departments will need additional
resources and staffing to manage and administer future growth and reporting
requirements.
45
LACK OF PUBLIC COMPARABLES FOR STOCK EVALUATION
Avantair's principal competitors are primarily relatively small
divisions of larger public companies. It may, therefore, be difficult for
investors to measure Avantair's performance relative to its competitors, which
could adversely affect the trading price of Ardent's common stock.
COMPLETION OF THE ACQUISITION
If the acquisition is not completed, Ardent will be required to
liquidate under the terms of its certificate of incorporation.
Ardent's Board of Directors considered all of the foregoing factors as a
whole and concluded that it supported a favorable determination to approve the
acquisition and recommend it to Ardent's stockholders.
FAIRNESS OPINION
In addition to the factors listed above and the Risk Factors described
starting on page 25 above, Ardent's Board of Directors considered Capitalink
L.C.'s Fairness Opinion described below in reaching the conclusion to approve
the acquisition.
Capitalink, L.C. made a presentation to Ardent's Board of Directors on
September 28, 2006 and subsequently delivered its written opinion to the Board
of Directors, which stated that, as of September 28, 2006, and based upon and
subject to the assumptions made, matters considered, and limitations on its
review as set forth in the Fairness Opinion, (i) the purchase price that Ardent
proposes to pay to Avantair's stockholders is fair, from a financial point of
view, to Ardent's stockholders, and (ii) the fair market value of Avantair is at
least equal to 80% of Ardent's net assets. The amount of the purchase price was
determined pursuant to negotiations between Ardent and Avantair and not pursuant
to recommendations of Capitalink. The full text of the written opinion of
Capitalink is attached as Annex H and is incorporated by reference into this
proxy statement.
You are urged to read the Capitalink opinion carefully and in its
entirety for a description of the assumptions made, matters considered,
procedures followed and limitations on the review undertaken by Capitalink in
rendering its opinion. The summary of the Capitalink opinion set forth in this
proxy statement is qualified in its entirety by reference to the full text of
the opinion.
The Capitalink opinion is for the use and benefit of Ardent's Board of
Directors in connection with its consideration of the acquisition and is not
intended to be and does not constitute a recommendation to you as to how you
should vote or proceed with respect to the acquisition. Capitalink was not
requested to opine as to, and its opinion does not in any manner address, the
relative merits of the transaction as compared to any alternative business
strategy that might exist for Ardent, its underlying business decision to
proceed with or effect the acquisition, and other alternatives to the
acquisition that might exist for us. Capitalink does not express any opinion as
to the underlying valuation or future performance of Avantair or the price at
which our securities might trade at any time in the future.
In arriving at its opinion, Capitalink took into account an assessment
of general economic, market and financial conditions, as well as its experience
in connection with similar transactions and securities valuations generally. In
so doing, among other things, Capitalink:
o Reviewed the draft Stock Purchase Agreement dated September
27, 2006.
o Reviewed publicly available financial information and other
data with respect to Ardent, including the Annual Report on
Form 10-KSB for the year ended December 31, 2005 and the
Quarterly Report on Form 10-QSB for the six months ended June
30, 2006.
46
o Reviewed non-public information and other data with respect
to Avantair, including audited financial statements for the
three years ended June 30, 2006, financial projections for
the three years ending June 30, 2009, and other internal
financial information and management reports.
o Reviewed and analyzed the transaction's pro forma impact on
Ardent's outstanding securities and stockholder ownership.
o Considered the historical financial results and present
financial condition of both Ardent and Avantair.
o Reviewed certain publicly available information concerning
the trading of, and the trading market for, Ardent's common
stock.
o Reviewed and analyzed the indicated value of the purchase
price.
o Reviewed and analyzed Avantair's projected unlevered free
cash flows and prepared a discounted cash flow analysis.
o Reviewed and compared the net asset value of Ardent to the
indicated enterprise value range of Avantair.
o Reviewed and discussed with representatives of Ardent and
Avantair management certain financial and operating
information furnished by them, including financial analyses
with respect to Avantair's business and operations.
o Performed such other analyses and examinations as were deemed
appropriate.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used without assuming any responsibility for any independent verification of any
such information. Further, Capitalink relied upon the assurances of Ardent and
Avantair management that they were not aware of any facts or circumstances that
would make any such information inaccurate or misleading. With respect to the
financial information and projections utilized, Capitalink assumed that such
information has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments, and that such information provides
a reasonable basis upon which it could make an analysis and form an opinion. The
projections used by Capitalink were prepared by Avantair management and are not
to be interpreted as projections of future performance (or "guidance") by
Avantair. Capitalink did not evaluate the solvency or fair value of Ardent or
Avantair under any foreign, state or federal laws relating to bankruptcy,
insolvency or similar matters. Capitalink did not make a physical inspection of
the properties and facilities of Ardent and Avantair and did not make or obtain
any evaluations or appraisals of either company's assets and liabilities
(contingent or otherwise). In addition, Capitalink did not attempt to confirm
whether Ardent and Avantair had good title to their respective assets.
Capitalink assumed that the transaction will be consummated in a manner
that complies in all respects with the applicable provisions of the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and
all other applicable federal and state statutes, rules and regulations.
Capitalink assumes that the transaction will be consummated substantially in
accordance with the terms set forth in the Stock Purchase Agreement, without any
further amendments thereto, and that any amendments, revisions or waivers
thereto will not be detrimental to Ardent's stockholders.
Capitalink's analysis and opinion are necessarily based upon market,
economic and other conditions, as they existed on, and could be evaluated as of,
September 28, 2006. Accordingly, although subsequent developments may affect its
opinion, Capitalink has not assumed any obligation to update, review or reaffirm
its opinion.
In connection with rendering its opinion, Capitalink performed certain
financial, comparative and other analyses as summarized below. The summary of
Capitalink's analyses described below is not a complete description of the
analyses underlying Capitalink's opinion. The preparation of a fairness opinion
is a complex
47
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Capitalink made qualitative judgments as to the relevance of each
factor that it considered. In addition, Capitalink may have given various
factors more or less weight than other factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
valuations resulting from any particular analysis described above should not be
taken to be Capitalink's view of the value of Avantair's assets. The estimates
contained in Capitalink's analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses or assets neither purports to be appraisals nor do they necessarily
reflect the prices at which businesses or assets may actually be sold.
Accordingly, Capitalink's analyses and estimates are inherently subject to
substantial uncertainty. Capitalink believes that its analyses must be
considered as a whole and that selecting portions of its analyses or the factors
it considered, without considering all analyses and factors collectively, could
create an incomplete and misleading view of the process underlying the analyses
performed by Capitalink in connection with the preparation of its opinion.
The analyses performed were prepared solely as part of Capitalink's
analysis of the fairness, from a financial point of view, of the purchase price
to our stockholders, and were provided to our board of directors in connection
with the delivery of Capitalink's opinion. The opinion of Capitalink was just
one of the many factors taken into account by our board of directors in making
its determination to approve the transaction, including those described
elsewhere in this proxy statement/prospectus.
PURCHASE PRICE ANALYSIS
Capitalink calculated an indicated value for the purchase price of
approximately $37.5 million based on 7 million shares to be issued to Avantair
stockholders at $5.35 per share (the trading price of Ardent stock as of
September 25, 2006). Capitalink assumed that no additional shares will be issued
pursuant to any deferred purchase price or additional consideration as
Avantair's projections utilized by Capitalink did not achieve the targets
necessary to trigger these additional share issuances.
VALUATION OVERVIEW
Capitalink generated an indicated valuation range for Avantair based on
a discounted cash flow analysis as more fully discussed below. Due to the lack
of comparable companies and transactions, other methodologies commonly used in
valuing companies were not used in the analysis. Capitalink arrived at an
indicated equity value range of approximately $40.0 million and approximately
$52.0 million. Capitalink noted that Avantair's indicated equity value range is
higher than the indicated value of the purchase price.
As of the date of the opinion, Avantair was in the process of securing
approximately $15.6 million in a combined equity raise and bridge loan facility.
Capitalink assumed that Avantair will receive this funding prior to the close of
the transaction and was therefore included in Avantair's value.
DISCOUNTED CASH FLOW ANALYSIS
A discounted cash flow analysis estimates value based upon a company's
projected future free cash flow discounted at a rate reflecting risks inherent
in its business and capital structure. Unlevered free cash flow represents the
amount of cash generated and available for principal, interest and dividend
payments after providing for ongoing business operations.
While the discounted cash flow analysis is the most scientific of the
methodologies used, it is dependent on projections and is further dependent on
numerous industry-specific and macroeconomic factors.
Capitalink utilized the forecasts provided by Avantair management, which
project strong future growth in cash adjusted revenues (which do not equate to
those reported by Avantair using generally accepted accounting principles) from
FY2006 to FY2009 from approximately $78.7 million to $188.7 million,
respectively. This
48
represents a compound annual growth rate of approximately 33.8% over the period.
Avantair's growth reflects an increase in fractional aircraft shares sold and a
corresponding growth in management fees as a result of a growing fractional
owner base.
The projections utilized by Capitalink in evaluating Avantair's business
model are set forth below. These projections were based on information provided
by Avantair during the course of the due diligence process. They were prepared
on the assumption that Avantair would continue its business and operations as
currently conducted and did not incorporate, amongst other factors, the
expansion of aircraft types.
The projections demonstrate an improvement in Cash EBITDA (as defined
below) from FY2006 to FY2009, from approximately $(1.1) million to $21.7
million. This represents an improvement in Avantair's Cash EBITDA margin from
(1.4)% to 11.5%. For purposes of Capitalink's analyses, "Cash EBITDA" means
earnings before interest, taxes, depreciation and amortization, adjusted for
changes in deferred revenue and deferred aircraft costs. Avantair's improving
profitability reflects a widening fractional owner base as Avantair projects to
sell more aircraft shares. The resulting increase in maintenance and management
fees provides sufficient economies of scale for Avantair to become less
dependent on aircraft share sales.
- -------------------------------------------------------------------------------------------------
---------------------------------------
PROJECTED
---------------------------------------
FYE June 30
(dollar amounts in thousands)
---------------------------------------
2007 2008 2009
---------------------------------------
FINANCIAL DATA
- -------------------------------------------------------------------------------------------------
Fractional Aircraft Shares Sold $ 96,399 $ 85,800 $ 79,200
Maintenance and Management Fees 45,792 74,992 99,616
Other Revenue 3,381 9,900 9,900
------------ ------------- ------------
Total Cash Revenue $ 145,572 $ 170,692 $ 188,716
============ ============= ============
Cash EBITDA $ 561 $ 16,777 $ 21,718
MARGIN AND GROWTH ANALYSIS
Cash EBITDA Margin 0.4% 9.8% 11.5%
Cash Revenue Growth 84.9% 17.3% 10.6%
AIRCRAFT PURCHASES AND SALES (EXCLUDING CORE PLANES)
Beginning Aircraft Fleet 21 38 51
Aircraft Purchases 17 13 12
------------ ------------- ------------
Ending Aircraft Fleet 38 51 63
============ ============= ============
Shares Sold During Period 272.0 208.0 192.0
Shares Sold (Cumulative) 592.5 800.5 992.5
- -------------------------------------------------------------------------------------------------
49
"Other Revenue" is comprised of demonstration flight fees and the net
revenues (revenues less expenses) of fixed base operations.
Some of the significant assumptions used in preparing the projections
included:
o Fractional aircraft revenues are recorded in the year of sale (not in
accordance with EITF 00-21);
o Fractional aircraft share price rises on July 1, 2007 from $405,000 to
$415,000 per 1/16th share and do not rise through the 2009 fiscal year;
o Avantair does not augment its fleet with additional and/or different
aircraft beyond the 58 orders outstanding as of September 28, 2006;
o Management restructuring, implementation of cost control programs and
layoffs reduce annual costs by $1.5 million in the 2007 fiscal year,
resulting in a decline in overall selling, general and administrative
expenses of approximately $209,000;
o Flight hours for repositioning aircraft decline from 45% to 35% in April
2007 and remain at that level through the projection horizon; and
o Each aircraft entering the fleet increases pilot headcount by four
full-time equivalent (FTE) employees and maintenance personnel by 0.25
FTE.
These projections were not prepared with a view towards public
disclosure or compliance with published guidelines of the Securities and
Exchange Commission, the guidelines established by the American Institute of
Certified Public Accountants for Prospective Financial Information or United
States generally accepted accounting principles, and are included in this proxy
statement only because they were provided to Ardent and used by its financial
advisor, Capitalink, in rendering its opinion.
Except as required by applicable securities laws, Ardent undertakes no
obligation to, and does not intend to, update or otherwise revise the
projections to reflect circumstances existing after the date when made or to
reflect the occurrences of future events even in the event that any or all of
the assumptions are shown to be in error.
The projections are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those statements, including the risks described under the "Risk Factors" section
of this document.
In order to arrive at a present value, Capitalink utilized discount
rates ranging from 20% to 22%. This was based on an estimated weighted average
cost of capital of 21% (based on Avantair's estimated weighted average cost of
debt of 9.4% and a 24.9% estimated cost of equity). The cost of equity
calculation was derived utilizing the Ibbotson build up method utilizing
appropriate equity risk, industry risk and size premiums and a company specific
risk factor of 5%, reflecting the risk associated with achieving the projected
sales growth and increasing margins throughout the projection period. Avantair's
long term capital structure was based on adjusting Avantair's current debt of
approximately $37.2 million by the estimated cash inflow from the sale of
certain non-operating assets and the planned equity raise. The resulting
adjusted debt was used to determine the long term debt to equity ratio of
20%/80%.
Capitalink presented a range of terminal values at the end of the
forecast period by applying a range of long term perpetual growth rates.
According to the Federal Aviation Administration's Aerospace Forecast for 2006 -
2017, the turbine-powered fleet (including rotorcraft) is projected to grow at
an average of 4.0%. Within this segment, turboprop fleet is projected to grow at
an average of 2.2%, while the turbojet fleet is projected to grow at an average
of 6.0%.
Based on the industry information and Avantair's competitive
positioning, Capitalink utilized long term perpetual growth rates of between
5.0% and 6.0%. Capitalink then calculated a range of indicated enterprise values
and then deducted net debt of approximately $5.8 million (which includes
approximately $37.2 million in interest bearing debt and approximately $31.4
million in cash and non-operating assets) to derive an indicated equity value
range of approximately $40.0 million to approximately $52.0 million. For
purposes of Capitalink's analyses, "enterprise value" means equity value plus
all interest-bearing debt less cash.
50
80% TEST
Ardent's initial business combination must be with a target business
whose fair market value is at least equal to 80% of Ardent's net assets at the
time of such acquisition.
Capitalink reviewed and estimated Ardent's net assets based on its
stockholders' equity as of June 30, 2006 and compared that to Avantair's
indicated range of enterprise value. Capitalink noted that the fair market value
of Avantair exceeds 80% of Ardent's net asset value.
Based on the information and analyses set forth above, Capitalink
delivered its written opinion to Ardent's Board of Directors, which stated that,
as of September 28, 2006, based upon and subject to the assumptions made,
matters considered, and limitations on its review as set forth in the opinion,
(i) the purchase price is fair, from a financial point of view, to our
stockholders, and (ii) the fair market value of Avantair is at least equal to
80% of our net assets. Capitalink is an investment banking firm that, as part of
its investment banking business, regularly is engaged in the evaluation of
businesses and their securities in connection with mergers, acquisitions,
corporate restructurings, private placements, and for other purposes. We
determined to use the services of Capitalink because it is a recognized
investment banking firm that has substantial experience in similar matters.
Capitalink has received a fee in connection with the preparation and issuance of
its opinion and we will reimburse Capitalink for its reasonable out-of-pocket
expenses, including attorneys' fees. In addition, we have agreed to indemnify
Capitalink for certain liabilities that may arise out of the rendering of its
opinion. Capitalink does not beneficially own any interest in either Ardent or
Avantair and has not provided either company with any other services.
STRUCTURE FOLLOWING COMPLETION OF THE ACQUISITION
Under the terms of the Stock Purchase Agreement, Ardent will acquire
100% of the outstanding capital stock of Avantair from its stockholders. As a
result of the acquisition, Avantair will become a wholly-owned subsidiary of
Ardent.
DIRECTORS AND EXECUTIVE OFFICERS FOLLOWING COMPLETION OF THE ACQUISITION
If the acquisition of Avantair is completed, the directors and executive
officers of Ardent will be as follows:
NAME AGE POSITION
- --------------------------------------------------------------------------------
Barry J. Gordon 61 Chairman of the Board
Arthur H. Goldberg 64 Director
Steven Santo 39 Chief Executive Officer and
Director
John Waters 60 Chief Financial Officer and
Director
[To be determined]
[To be determined]
[To be determined]
Barry J. Gordon has been Ardent's Chairman of the Board and Chief
Executive Officer since its inception. Mr. Gordon served as executive vice
president of American Fund Advisors, Inc. from September 1978 until December
1980, as its president from December 1980 until May 1987 and has been its
chairman of the board since
51
May 1987. American Fund Advisors is a private money management firm that manages
money for high net worth individuals, pension and profit sharing plans. Mr.
Gordon has been a director of American Fund Advisors since December 1980. From
December 1991 to March 2005, he was president, and from December 1991 to
December 1993, he was director, of the John Hancock Technology Series, Inc., an
investment company. Since September 1999, Mr. Gordon has been President, Chief
Executive Officer and a director of BlueStone AFA Management, LLC, the general
partner of the AFA Private Equity Fund 1, (formerly BlueStone AFA Fund), a
venture capital fund providing equity capital for public and private companies
primarily in the technology sector, and since January 2000, he has been a
director of the AFA Private Equity Fund. Mr. Gordon has also been chairman of
the board and Chief Executive Officer of the New Jersey Cardinals, a Class A
affiliate of the St. Louis Cardinals, from February 1990 until April 2006 and
the Norwich Navigators, a Class AA affiliate of the San Francisco Giants, from
March 1991 until April 2005. He also served as a director of Winfield Capital
Corp., an Over The Counter Bulletin Board listed small business investment
company, from October 1995 to October 2005. Mr. Gordon was Entrepreneur of the
Year for Long Island in financial services. Mr. Gordon received a B.B.A. from
the University of Miami and an M.B.A. from Hofstra University.
Arthur H. Goldberg has been a member of Ardent's Board of Directors
since inception. Mr. Goldberg has served as a member of Corporate Solutions
Group since January 2000. From February 1994 to December 1999, Mr. Goldberg
served president of Manhattan Associates, an investment and merchant banking
firm. Mr. Goldberg has been a director of Atlantic Realty Trust, a NASDAQ
SmallCap listed real estate investment trust, since 1996, and has been a trustee
of Ramco-Gershenson Properties Trust (formerly named RPS Realty Trust), a New
York Stock Exchange listed real estate investment trust, since 1998. Mr.
Goldberg received a B.S. (cum laude) from New York University Stern School and a
J.D. from the New York University School of Law.
Steven Santo has served as Chief Executive Officer, President and a
director of Avantair since its inception in June 2003 and Skyline Aviation
Services, Inc. since June 2002. Mr. Santo is a licensed, commercially-rated
pilot who has been flying for approximately 15 years. From 1995 through 2001,
Mr. Santo practiced law as an attorney in private practice, concluding his law
practice in 2001 as a name partner at the firm of Fields, Silver & Santo. From
1992 to 1995, Mr. Santo served as an Assistant District Attorney in New York
working in the office's major crimes unit. Mr. Santo received a J.D. from St.
Johns School of Law and a bachelor's degree from Villanova University.
John Waters has served as Chief Financial Officer, Treasurer and a
director of Avantair since October 2006. From December 2005 to September 2006,
Mr. Waters served as a consultant to Avantair. From July 2004 through December
2005 he was the Chief Administrative Officer of Authentidate Holdings Corp. Upon
his retirement from Arthur Andersen & Co. in August 2001 he formed John Waters
Consulting LLC, an entity that provided merger and acquisition services to
several private equity organizations primarily located in New York City. From
June 1967 though August 2001, Mr. Waters was employed by Arthur Andersen & Co.
LLP. When he retired he was senior partner in that firm and in 1992 helped form
and lead their acquisition Advisory Business Segment which provided merger and
acquisition and structuring advice to private equity organizations and also
consulted on several large cross boarder acquisitions initiated by clients
located outside the United States. Mr. Waters received a bachelor's degree in
business administration from Iona College and is a Certified Public Accountant.
AMENDMENTS TO ARDENT'S CERTIFICATE OF INCORPORATION
An Ardent stockholder who votes in favor of the acquisition proposal is
also voting to adopt amendments to Ardent's certificate of incorporation
designed to enable Ardent to regulate the ownership of its voting stock by
persons who are not citizens of the United States. The proposed amendment, which
is included in the form of Amended and Restated Certificate of Incorporation
attached as Annex C, is intended to ensure that Ardent will continue to satisfy
the domestic stock ownership requirements of federal aviation laws. These
amendments of Ardent's certificate of incorporation will:
o provide for the automatic reduction in voting power of voting
stock owned or controlled by a non-U.S. citizen if necessary
to maintain Ardent's U.S. citizenship (as defined below);
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o permit Ardent's Board of Directors to otherwise limit
transfer and voting rights or redeem shares to the extent
necessary to maintain Ardent's U.S. citizenship; and
o permit Ardent's Board of Directors to make such
determinations as may reasonably be necessary to ascertain
such ownership and implement such limitations.
In some cases, including all current international operations, Avantair
is deemed to transport persons or property by air for compensation. Therefore,
federal law requires that at least 75% of Ardent's voting securities be owned or
controlled by citizens of the U.S. (as defined below), that Ardent be under the
actual control of citizens of the United States, and that the president of
Ardent and at least two-thirds of its directors and other managing officers be
U.S. citizens. All of Ardent's officers and directors are presently U.S.
citizens and at no time shall the president or less than two-thirds of its
directors and other managing officers be non-U.S. citizens. Ardent's bylaws will
provide that no shares of Ardent's voting stock may be voted by or at the
direction of non-U.S. citizens unless such shares are registered on a separate
stock record, which will be referred to as the foreign stock record. Ardent's
bylaws may further provide that no shares of Ardent's voting stock will be
registered on the foreign stock record if the amount so registered would exceed
the foreign ownership and control restrictions imposed by federal law. Ardent's
bylaws may additionally provide that at least two-thirds of its directors and
other managing officers be U.S. citizens and that Ardent be under the actual
control of U.S. citizens.
The proposed amendment to Ardent's certificate of incorporation would
give Ardent's Board of Directors the power to effect any and all measures
necessary and desirable to ensure its compliance with the citizenship
requirements that at least two-thirds of Ardent's directors and other managing
officers are U.S. citizens and that Ardent is under the actual control of U.S.
citizens.
If the proposed amendment to Ardent's certificate of incorporation is
adopted, Ardent's Board of Directors would be able to implement certain measures
described below in the event the Board believes that a transfer or purported
transfer of shares of Ardent's capital stock would result in the voting control
by more than the percentage permitted by federal aviation law, currently 25%, of
Ardent's voting stock by persons or entities that are not U.S. citizens. Persons
or entities that are U.S citizens will be referred to as U.S. citizens and
persons or entities that are not U.S. citizens will be referred to as
non-citizens. For these purposes, "U.S. citizen" means:
o an individual who is a citizen of the United States;
o a partnership each of whose partners is an individual who is a citizen
of the United States; or
o a corporation or association organized under the laws of the United
States or a State, the District of Columbia, or a territory or
possession of the United States, of which the president and at least
two-thirds of the board of directors and other managing officers are
citizens of the United States, which is under the actual control of
citizens of the United States, and in which at least 75% of the voting
interest is owned or controlled by persons that are citizens of the
United States.
The proposed amendment would give Ardent's Board of Directors the power
to effect any and all measures necessary and desirable to implement the
following provisions designed to ensure compliance with the domestic stock
ownership requirements of federal law: (1) restrictions or prohibitions on
transfer of shares of Ardent's voting stock to non-citizens, (2) dual stock
record or similar system, (3) suspension of voting, dividend and distribution
rights with respect to any shares of voting stock owned by non-citizens in
excess of the 25% limitation and (4) if necessary, mandatory redemption of
voting shares owned by non-citizens in excess of the 25% limitation. To
implement these measures, the Board may amend the bylaws of Ardent. The effect
of each of these measures is described below.
The proposed amendment to the certificate of incorporation authorizes
Ardent's Board of Directors to implement measures to ensure that any transfer or
attempted or purported transfer that would result in more than 25% of the shares
of voting stock of Ardent being owned by non-citizens will be ineffective until
the excess no longer exists. With respect to such shares, Ardent's Board of
Directors may implement measures that would cause
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Ardent not to recognize the purported transferee of the shares as a stockholder
of Ardent for any purpose other than the transfer by the purported transferee of
such excess to a person who is a U.S. citizen, or to the extent necessary to
effect any other remedy available to Ardent under the proposed amendment to the
certificate of incorporation.
The proposed amendment to the certificate of incorporation would also
authorize Ardent's Board of Directors to implement measures to ensure that it
can monitor effectively the citizenship of the holders of its voting stock. To
that end, the Board could implement changes to Ardent's bylaws that would
require record holders and beneficial owners from time to time to confirm their
citizenship status. Moreover, in the discretion of Ardent's Board of Directors,
the Board may implement changes to its bylaws that would allow the establishment
of a dual stock record or similar system under which outstanding shares of
Ardent's voting stock owned by U.S. citizens would be recorded separately from
the outstanding shares owned by non-U.S. citizens, whose shares would be
maintained on a foreign stock record, and the temporary withholding of dividends
and denial of voting rights to the shares of capital stock held by any such
record holder and beneficial owner until confirmation of its citizenship status
is received.
Under the proposed amendment to the certificate of incorporation, the
Board would be authorized to implement changes to the bylaws to deny voting
rights to shares held by non-citizens in excess of the 25% limitation, and to
withhold dividends with respect to such shares, pending transfer of the shares
to U.S. citizens or a reduction in the aggregate number of voting shares owned
by non-citizens to or below the 25% limitation, at which time voting rights
would be restored and dividends that had been withheld would be paid. Ardent's
Board of Directors would have the power to make a conclusive determination as to
the voting shares of Ardent's capital stock held by non-citizens in excess of
the 25% limitation. This determination would be made by reference to the most
recent acquisitions of shares of capital stock of Ardent by non-citizens.
In addition, the proposed amendment to the certificate of incorporation
would authorize, but not require, Ardent to redeem shares of its voting stock
owned by non-citizens in excess of the 25% limitation in order to reduce
ownership of voting stock by non-citizens. The redemption price would be equal
to (i) the average of the closing price of the capital stock on a national
securities exchange on which the stock is traded or listed during the 10 trading
days immediately prior to the date the notice of redemption is given, except
that, if the capital stock is not so traded or quoted, the average closing price
would be determined in good faith by Ardent's Board of Directors and (ii) any
dividend or other distribution declared with respect to such shares prior to the
date such shares are called for redemption but which has been withheld by
Ardent. Ardent would have the option to pay the redemption price for any shares
owned by non-citizens in excess of the 25% limitation in cash or by delivery of
a promissory note having a maturity of not more than ten years from the date of
issuance and bearing interest at a rate equal to the then current coupon rate of
a 10-year Treasury note.
Although the implementation of the proposed amendment to the certificate
of incorporation will not affect the rights of Ardent's stockholders who are
U.S. citizens to hold its outstanding capital stock, if the number of shares of
any class of Ardent's voting stock held by non-citizens approaches 25%, the
ability of stockholders of Ardent who are U.S. citizens to sell capital stock to
non-citizens may be curtailed, which could have an adverse effect on the
liquidity of their holdings of capital stock. Because sales of capital stock of
Ardent by U.S. citizens and non-citizens to U.S. citizens will not be affected
by the implementation of the proposed amendment to the certificate of
incorporation, the effect of the proposed amendment to the certificate of
incorporation on such sales is not expected to be material.
The proposed amendment with respect to ownership of Ardent's stock,
which is included in the form of Amended and Restated Certificate of
Incorporation attached as Annex C, will also increase the number of shares of
common stock which Ardent is authorized to issue from 30,000,000 shares to
75,000,000 shares. At present, of Ardent's 30,000,000 authorized shares of
common stock, 8,400,000 shares are issued and outstanding and an additional
14,846,000 are reserved for issuance upon exercise of Ardent's outstanding
warrants and unit purchase options. Under the terms of the Stock Purchase
Agreement, Ardent is required to issue 7,000,000 shares of its common stock to
Avantair's stockholders at the closing of the acquisition. In addition, at the
closing of the acquisition, Ardent is required to issue warrants for 200,000
shares of Ardent common stock to John Waters pursuant to his employment
agreement and warrants for 210,000 shares of Ardent common stock to
EarlyBirdCapital as a consulting fee. Based on the number of shares of common
stock currently authorized, Ardent does not have a sufficient number of
authorized but unissued shares in order to issue the required amount at the
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closing of the acquisition. In addition, following the closing of the
acquisition, Ardent's stockholders are eligible to receive up to an additional
11,000,000 shares of Ardent common stock based on Ardent's financial performance
and the trading price of Ardent's common stock. If the number of Ardent's
authorized shares is not increased, Ardent will not be able to complete the
acquisition. Moreover, Ardent believes it is prudent to have a greater number of
shares of its common stock available for a variety of corporate purposes,
including financing potential acquisitions and compensating its officers,
directors and employees (including under the 2006 Long Term Incentive Plan
contemplated by the plan proposal). Ardent does not presently have any
agreements or plans to issue any of the shares which would be authorized upon
adoption of the name change proposal. There are no preemptive rights with
respect to these securities.
APPRAISAL OR DISSENTERS RIGHTS
No appraisal or dissenters rights are available under the Delaware
General Corporation Law for the stockholders of Ardent in connection with the
acquisition proposal.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following discusses the U.S. Federal income tax consequences of the
acquisition of Avantair by Ardent This discussion is based on the United States
Internal Revenue Code of 1986, as amended. The statements set forth in this
section as to tax consequences of the transaction to Ardent common stockholders
are those of Ardent. Ardent does not intend to obtain an opinion of counsel with
respect to such matters. Accordingly, you should consult your personal tax
advisor as to the tax consequences of the transaction.
Ardent common stockholders who do not exercise their conversion rights
will continue to hold their Ardent common stock and as a result will not
recognize any gain or loss from the acquisition.
Ardent common stockholders who exercise their conversion rights will
recognize gain or loss to the extent that the amount received by such common
stock holders upon conversion is greater than or less than, respectively, such
holder's tax basis in their shares. A holder's tax basis in the shares generally
will equal the cost of the shares. A stockholder that purchased Ardent's units
will have to allocate the cost between the shares and the warrants of the units
based on their fair market values at the time of the purchase. Assuming the
shares are held as a capital asset, the gain or loss will be capital gain or
loss and will be long-term capital gain or loss if such holder's holding period
in the shares is longer than one year.
FISCAL YEAR
Following the closing of the acquisition, Ardent anticipates that it
will change its fiscal year end from December 31 to June 30.
REGULATORY MATTERS
The acquisition and the transactions contemplated by the Stock Purchase
Agreement are not subject to any Federal, state or local regulatory requirement
or approval, except for post-closing notices to certain U.S. regulatory
authorities.
CONSEQUENCES IF ACQUISITION PROPOSAL IS NOT APPROVED
If Ardent does not complete a business combination by March 2, 2007,
Ardent will be liquidated and Ardent will distribute to all holders of IPO
shares, in proportion to the number of such shares held by them, an aggregate
sum equal to the amount in the trust fund, inclusive of any interest, plus any
remaining net assets. Ardent's initial stockholders have waived their rights to
participate in any liquidation distribution with respect to their shares of
common stock sold in such offering. There will be no distribution from the trust
fund with respect to Ardent's warrants.
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REQUIRED VOTE
The affirmative vote of a majority of the issued and outstanding shares
of Ardent's common stock is required to adopt the acquisition proposal. Adoption
of the acquisition proposal also requires the affirmative vote of a majority of
the shares of Ardent's common stock issued in its initial public offering. An
Ardent stockholder who votes of favor of the acquisition proposal is also voting
to adopt amendments to Ardent's certificate of incorporation designed to ensure
Ardent's compliance with the citizenship requirements of U.S. aviation laws
after completion of the acquisition and to increase the number of shares of
common stock which Ardent is authorized to issue from 30,000,000 shares to
75,000,000 shares.
Ardent's initial stockholders have agreed to vote their shares of Ardent
common stock acquired prior to Ardent's initial public offering, representing an
aggregate of approximately 17.9% of the outstanding shares of Ardent common
stock, in accordance with the vote of the majority of the shares of Ardent
common stock issued in its initial public offering.
Adoption of the acquisition proposal is not conditioned upon the
adoption of the name change proposal, the plan proposal or the adjournment
proposal.
RECOMMENDATION
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS VOTE "FOR" THE ACQUISITION PROPOSAL.
INTEREST OF ARDENT DIRECTORS AND OFFICERS IN THE ACQUISITION
In considering the recommendation of the Board of Directors of Ardent to
vote for the proposal to adopt the acquisition, you should be aware that certain
members of the Ardent's Board, and their affiliates, have agreements or
arrangements that provide them with interests in the acquisition that differ
from, or are in addition to, those of Ardent stockholders generally. In
particular:
o If the acquisition is not approved and Ardent is therefore
required to liquidate, the shares of common stock
beneficially owned by Ardent's executive officers and
directors and their affiliates that were acquired prior to
Ardent's initial public offering may be worthless because no
portion of the net proceeds of Ardent's initial public
offering that may be distributed upon liquidation of Ardent
will be allocated to such shares. Similarly, the warrants to
purchase Ardent common stock held by Ardent's executive
officers and directors and their affiliates may become
worthless if the acquisition is not approved and Ardent fails
to consummate an alternative transaction within the time
allotted pursuant to its certificate of incorporation;
o After the completion of the acquisition, it is expected that
two of Ardent's current directors, Barry J. Gordon and Arthur
H. Goldberg, will continue to serve on Ardent's Board of
Directors, and Barry J. Gordon will serve as non-executive
Chairman of Ardent's Board. Messrs. Gordon and Goldberg, as
directors of Ardent, will, following the acquisition, be
compensated in such manner, and in such amounts, as Ardent's
Board of Directors may determine to be appropriate. No
agreements or plans with respect to such compensation have
been entered into, adopted or otherwise agreed upon by
Ardent; and
o Ardent's directors have agreed that, if Ardent liquidates
prior to the consummation of a business combination, they
will be personally liable to pay debts and obligations to
vendors or other entities that are owed money by Ardent for
services rendered or products sold to Ardent in excess of the
net proceeds of this offering not held in the trust account.
Ardent's Board of Directors was aware of these agreements and
arrangements during its deliberations on the merits of the acquisition and in
determining to recommend to the stockholders of Ardent that they vote for the
adoption of the acquisition proposal.
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INTERESTS OF AVANTAIR DIRECTORS AND OFFICERS IN THE ACQUISITION
You should understand that some of the current directors and officers of
Avantair have interests in the acquisition that are different from, or in
addition to, your interest as a stockholder. In particular:
o Steven Santo, Avantair's Chief Executive Officer, is expected
to remain the President of Avantair and John Waters, the
Chief Financial Officer of Avantair, is expected to remain
the Chief Financial Officer of Avantair and each such
individual has entered into an employment agreement with
Avantair in anticipation of the acquisition;
o Avantair is party to a lease under which it leases an
aircraft from Aircraft Support LLC, an entity in which Steven
Santo is the managing member, and Ardent currently intends to
continue to lease this aircraft after completion of the
acquisition. Ardent's management believes that this lease is
at a rate consistent with leases negotiated at arm's length;
o Steven Santo, Jeffrey Kirby (a stockholder and former
director of Avantair) and Alfred Rapetti (a beneficial owner
of shares of Avantair common stock and Avantair's former
chairman) have each personally guaranteed borrowings by
Avantair to third party lenders; and
o Avantair hired Kevco, a construction management business
owned by Kevin McKamey, Avantair's Executive Vice President,
to perform tenant improvements on the Clearwater, Florida
facility for Avantair.
Ardent's Board of Directors was aware of these agreements and
arrangements during its deliberations on the merits of the acquisition and in
determining to recommend to the stockholders of Ardent that they vote for the
adoption of the acquisition proposal.
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THE NAME CHANGE PROPOSAL
GENERAL DESCRIPTION OF THE AMENDMENT
The amendment involves the change of the name of Ardent to Avantair,
Inc.
ARDENT'S REASONS FOR THE AMENDMENT AND RECOMMENDATION OF ARDENT'S BOARD OF
DIRECTORS
Ardent's Board of Directors has concluded that the amendments to its
certificate of incorporation are in the best interests of Ardent's stockholders.
Ardent believes that the name Avantair, Inc. more accurately reflects
the business Ardent will conduct after the acquisition, and will enable industry
and financial market participants to more closely associate Ardent with its
operating business.
CONSEQUENCES IF NAME CHANGE PROPOSAL IS NOT APPROVED
If the name change proposal is not approved by the stockholders,
Ardent's name will remain "Ardent Acquisition Corporation."
REQUIRED VOTE
Adoption of the name change proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Ardent's common stock. No vote
of the warrant holders is necessary to adopt the name change proposal, and
Ardent is not asking the warrant holders to vote on the name change proposal.
ADOPTION OF THE NAME CHANGE PROPOSAL IS CONDITIONED UPON THE ADOPTION OF THE
ACQUISITION PROPOSAL BUT IS NOT CONDITIONED ON ADOPTION OF THE PLAN PROPOSAL OR
THE ADJOURNMENT PROPOSAL.
Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the name change proposal.
RECOMMENDATION
After careful consideration, Ardent's Board of Directors has determined
unanimously that the name change proposal is in the best interests of Ardent and
its stockholders. Ardent's Board of Directors has approved and declared
advisable the name change proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE NAME CHANGE PROPOSAL.
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THE PLAN PROPOSAL
GENERAL DESCRIPTION OF THE PLAN
In October 2006, Ardent's Board of Directors adopted Ardent's 2006 Long
Term Incentive Plan (which we sometimes refer to as the Plan), subject to
approval by Ardent's stockholders. Ardent's stockholders are now requested to
approve the adoption of the Plan.
A general description of the basic features of the Plan is set forth
below. Such description is qualified in its entirety by reference to the full
text of the Plan, which is set forth as Annex I to this Proxy Statement.
PURPOSE
The purpose of the Plan is to further promote the interests of Ardent,
its subsidiaries and its stockholders by enabling Ardent and its subsidiaries to
attract, retain and motivate employees, non-employee directors and consultants
or those who will become employees, non-employee directors or consultants, and
to align the interests of those individuals and Ardent's stockholders.
NUMBER OF SHARES
The maximum number of shares of Ardent common stock as to which awards
may be granted under the Plan may not exceed 1,500,000 shares. With respect to
awards intending to be "qualified performance-based compensation" under Section
162(m) of the Internal Revenue Code (which is referred to as the Code) the
maximum amount that can be awarded in any calendar year to any participant is
(i) in respect of performance units, performance-based restricted shares and
restricted stock units and other awards (other than options and stock
appreciation rights), 150,000 shares of Ardent common stock (or the then
equivalent fair market value of such shares), and (ii) in the case of stock
options and stock appreciation rights, 150,000 shares of Ardent common stock.
The limits on the numbers of shares described in this paragraph and the number
of shares subject to any award under the Plan are subject to proportional
adjustment as determined by Ardent's Board to reflect certain stock changes,
such as stock dividends and stock splits (see "Recapitalization Adjustments"
below).
If any awards under the Plan expire or terminate unexercised, the shares
of common stock allocable to the unexercised or terminated portion of such award
shall again be available for award under the Plan.
ADMINISTRATION
The administration, interpretation and operation of the Plan will be
vested in the Compensation Committee of Ardent's Board of Directors. The
Compensation Committee may designate persons other than members of the
Compensation Committee to carry out the day-to-day administration of the Plan.
ELIGIBILITY
The Plan permits awards to employees, non-employee directors of, and
consultants to Ardent and its subsidiaries.
No determination has been made as to future awards which may be granted
under the Plan, although it is anticipated that recipients of awards will
include the current executive officers of Avantair. It is not determinable what
awards under the Plan would have been received by the executive officers and
directors of Ardent and its subsidiaries during the fiscal year ended December
31, 2005 had the Plan then been in effect.
AWARDS UNDER THE PLAN
Awards under the Plan may consist of stock options, stock appreciation
rights (which are sometimes referred to as SARs), restricted shares, restricted
stock units or performance unit awards, each of which is described below. All
awards will be evidenced by an award agreement between Ardent and the individual
participant and
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approved by the Compensation Committee. In the discretion of the Compensation
Committee, an eligible employee may receive awards from one or more of the
categories described below, and more than one award may be granted to an
eligible employee.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
A stock option is an award that entitles a participant to purchase
shares of Ardent common stock at a price fixed at the time the option is
granted. Stock options granted under the Plan may be in the form of incentive
stock options (which qualify for special tax treatment) or non-qualified stock
options, and may be granted alone or in addition to other awards under the Plan.
An SAR entitles a participant to receive, upon exercise, an amount equal
to:
o the excess of
o the fair market value on the exercise date of a share of Ardent
common stock, over
o the fair market value of a share of Ardent common stock on the
date the SAR was granted,
o multiplied by the number of shares of Ardent common stock for which
the SAR has been exercised.
The exercise price and other terms and conditions of stock options and
the terms and conditions of SARs will be determined by the Compensation
Committee at the time of grant, and in the case of stock options, the exercise
price per share may not be less than 100 percent of the fair market value of a
share of Ardent common stock on the date of the grant. In addition, the term of
any incentive stock options granted under the Plan may not exceed ten years. An
option or SAR grant under the Plan does not provide the recipient of the option
any rights as a shareholder and such rights will accrue only as to shares
actually purchased through the exercise of an option or the settlement of an
SAR.
If stock options and SARs are granted together in tandem, the exercise
of such stock option or the related SAR will result in the cancellation of the
related stock option or SAR to the extent of the number of shares in respect of
which such option or SAR has been exercised.
Stock options and SARs granted under the Plan shall become exercisable
at such time as designated by the Compensation Committee at the time of grant.
Payment for shares issuable pursuant to the exercise of a stock option
may be made either in cash, by certified check, bank draft, or money order
payable to the order of Ardent, or by payment through any other mechanism
permitted by the Compensation Committee, including, if the Compensation
Committee so determines, by delivery of shares of Ardent common stock.
In addition, the Compensation Committee, in its sole discretion, may
provide in any stock option or SAR award agreement that the recipient of the
stock option or SAR will be entitled to dividend equivalents with respect to
such award. In such instance, in respect of any such award which is outstanding
on a dividend record date for Ardent common stock, the participant would be
entitled to an amount equal to the amount of cash or stock dividends that would
have paid on the shares of Ardent common stock covered by such stock option or
SAR award had such shares of Ardent common stock been outstanding on the
dividend record date.
RESTRICTED SHARE AWARDS AND RESTRICTED STOCK UNITS
Restricted share awards are grants of Ardent common stock made to a
participant subject to conditions established by the Compensation Committee in
the relevant award agreement on the date of grant. Restricted stock units are
similar to restricted shares except that no shares of common stock are actually
awarded to a participant on the date of grant and the common stock underlying
the award will generally be provided to the participant after the vesting
conditions have been satisfied.
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Restricted shares and restricted stock units will vest in accordance
with the conditions and vesting schedule, if any, provided in the relevant award
agreement. A participant may not sell or otherwise dispose of restricted shares
or restricted stock units until the conditions imposed by the Compensation
Committee with respect to such shares and/or units have been satisfied.
Restricted share awards and restricted stock units under the Plan may be granted
alone or in addition to any other awards under the Plan. Restricted shares which
vest will be reissued as unrestricted shares of Ardent common stock.
Each participant who receives a grant of restricted shares will have the
right to receive all dividends and vote or execute proxies for such shares. Any
stock dividends granted with respect to such restricted shares will be treated
as additional restricted shares. Participants receiving grants of restricted
stock units will not be stockholders until the common stock underlying the award
is provided to them and they will not enjoy the rights of stockholders (such as
receiving dividends and voting or executing proxies) until that time.
PERFORMANCE UNITS
Performance units (with each unit representing a monetary amount
designated in advance by the Compensation Committee) are awards which may be
granted to participants alone or in addition to any other awards granted under
the Plan. Generally, participants receiving performance unit grants will only
earn such units if certain performance goals are satisfied during a designated
performance period. The Compensation Committee will establish such performance
goals and may use measures such as level of sales, earnings per share, income
before income taxes and cumulative effect of accounting changes, income before
cumulative effect of accounting changes, net income, earnings before interest
and taxes, return on assets, return on equity, return on capital employed, total
stockholder return, market valuation, cash flow, Cash EBITDA, completion of
acquisitions and/or divestitures, comparisons to peer companies, individual or
aggregate participant performance or such other measure or measures of
performance as the Compensation Committee determines. The participant may
forfeit such units in the event the performance goals are not met. If all or a
portion of a performance unit is earned, payment of the designated value thereof
will be made in cash, unrestricted shares of Ardent common stock, in restricted
shares or in any combination thereof, as provided in the relevant award
agreement.
PERFORMANCE GOALS FOR QUALIFIED PERFORMANCE-BASED COMPENSATION
Section 162(m) of the Code limits Ardent's ability to deduct
compensation paid to its senior executive officers, unless the compensation
qualifies as "qualified performance-based compensation," as defined in that
section and the regulations promulgated under that section. In order to qualify
as "qualified performance-based compensation," the material terms of the
performance goals must be disclosed to Ardent's stockholders and approved by the
stockholders. Among the material terms of the performance goals are descriptions
of the business criteria on which the performance goals will be based.
Ardent intends to have the Plan satisfy the requirements of Section
162(m) so that the Compensation Committee is able to grant awards satisfying the
requirements of "qualified performance-based compensation." Consequently, Ardent
must disclose, and you must approve its use of, the following business criteria
in establishing performance goals under the plan:
o level of sales,
o earnings per share,
o income before income taxes and cumulative effect of accounting
changes,
o income before cumulative effect of accounting changes,
o net income,
o earnings before interest and taxes, return on assets,
61
o return on equity,
o return on capital employed,
o total stockholder return,
o market valuation,
o cash flow,
o Cash EBITDA,
o comparisons to peer companies, and
o completion of acquisitions and/or divestitures.
These performance goals will be based on any of the above business
criteria, either alone or in any combination, on either a consolidated or
business unit or divisional level, as the Compensation Committee may determine.
Such business criteria will have any reasonable definitions that the
Compensation Committee may specify, which may include or exclude any or all of
the following items: extraordinary, unusual or non-recurring items; effects of
accounting changes; effects of currency fluctuations; effects of financing
activities (e.g., effect on earnings per share of issuing convertible debt
securities); expenses for restructuring or productivity initiatives;
non-operating items; acquisition expenses; and effects of divestitures. Any such
business criterion or combination of such criteria may apply to a participant's
award opportunity in its entirety or to any designated portion or portions of
the award opportunity, as the Compensation Committee may specify.
Your approval of the Plan will be an approval of the Compensation
Committee's use of the business criteria described herein in establishing
performance goals.
RECAPITALIZATION ADJUSTMENTS
Awards granted under the Plan, any agreements evidencing such awards and
the maximum number of shares of Ardent common stock subject to all awards, as
well as the per participant per calendar year limitations described above, shall
be subject to adjustment or substitution, as determined by Ardent's Board of
Directors, as to the number, price or kind of a security or other consideration
subject to such awards or as otherwise determined by the Board to be equitable
(i) in the event of changes in the outstanding stock or in the capital structure
of Ardent by reason of stock or extraordinary cash dividends, stock splits,
reverse stock splits, recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges, or other relevant changes in
capitalization occurring after the date of grant of any such award or (ii) in
the event of any change in applicable laws or any change in circumstances which
results in or would result in any substantial dilution or enlargement of the
rights granted to, or available for, participants, or which otherwise warrants
equitable adjustment because it interferes with the intended operation of the
Plan. Ardent shall give each participant notice of an adjustment hereunder and,
upon notice, such adjustment shall be conclusive and binding for all purposes.
MERGERS AND OTHER SIMILAR EVENTS
In the event of any of the following,
A. Ardent is merged into or consolidated with another corporation
or entity;
B. All or substantially all of the assets of Ardent are acquired
by another person; or
C. The reorganization or liquidation of Ardent;
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then Ardent's Board of Directors may cancel any outstanding awards and cause the
holders thereof to be paid, in cash, securities or other property (including any
securities or other property of a successor or acquirer), or any combination
thereof, the value of such awards as determined by Ardent Board of Directors, in
its sole discretion (e.g., in the case of Stock Options, based upon the excess
of the value of a share of Ardent common stock over the exercise price per
share). Ardent's Board of Directors may provide that such cash, securities or
other property is subject to vesting and/or exercisability terms similar to the
award being cancelled.
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
Unless earlier terminated by Ardent's Board of Directors, the Plan shall
terminate on the date 10 years after the date the first award is granted
thereunder. The Board may amend, suspend or terminate the Plan (or any portion
thereof) at any time. However, no amendment shall (a) materially and adversely
affect the rights of any participant under any outstanding award, without the
consent of such participant (except as described below) or (b) increase the
number of shares available for awards under the Plan without shareholder
approval.
Section 409A of the Code provides substantial penalties to persons
deferring taxable income, unless the requirements of Section 409A have been
satisfied. Many awards provided under the Plan could be viewed as deferring
income for participants and may, therefore, be subject to Section 409A. As of
the date this proxy statement is being prepared, the Internal Revenue Service
has not yet issued final regulations interpreting Section 409A, but they are
expected to be issued in the near future. These final regulations, when issued,
may require amendments to be made to the Plan. Consequently, the Plan explicitly
provides that Ardent's Board of Directors may amend the Plan, without
participant consent, in any way it deems appropriate, even if such amendment
would materially and adversely affect the rights of participants to satisfy
Section 409A and the regulations that will be issued thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a brief and general summary of some United States
federal income tax consequences applicable to the Plan. The summary does not
reflect any provisions of the income tax laws of any state, local or foreign
taxing jurisdiction. Because the tax consequences of events and transactions
under the Plan depend upon various factors, including an individual's own tax
status, each participant who receives an award under the Plan should consult a
tax advisor.
INCENTIVE STOCK OPTIONS
Stock options granted under the Plan may qualify as incentive stock
options (within the meaning of Section 422 of the Code) or non-qualified stock
options. Upon the grant of an incentive stock option, the optionee will not
recognize any income. Generally, no income is recognized by the optionee upon
the exercise of an incentive stock option. The optionee must increase his or her
alternative minimum taxable income for the taxable year in which he or she
exercised the incentive stock option by the amount that would have been ordinary
income had the option not been an incentive stock option.
Upon the subsequent disposition of shares acquired upon the exercise of
an incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the later to occur of (i) the end of the two
year period beginning the day after the day the incentive stock option is
awarded to the optionee, or (ii) the end of the one-year period beginning on the
day after the day the shares are issued to the optionee (we refer to the later
of (i) or (ii) as the ISO Holding Period), any gain or loss realized upon such
disposition will be long-term capital gain or loss, and Ardent (or a subsidiary)
will not be entitled to any income tax deduction in respect of the option or its
exercise. For purposes of determining the amount of such gain or loss, the
optionee's tax basis in the shares will be the option price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within the two year period beginning on the day after the day the
option was awarded to the optionee, or the one-year period beginning on the day
after the day the shares are issued to the optionee, the excess, if any, of the
amount realized (up to the fair market value of the shares on the exercise date)
over the option price will be compensation taxable to the optionee as
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ordinary income, and Ardent generally will be entitled to a deduction (subject
to the provisions of Section 162(m) of the Code discussed below under the
caption "Limits on Deductions") equal to the amount of ordinary income realized
by the optionee. Any amount realized upon such a disposition by the optionee in
excess of the fair market value of the shares on the exercise date will be
capital gain.
If an optionee has not remained an employee of Ardent or it subsidiaries
during the period beginning with the grant of an incentive stock option and
ending on the day three months (one year if the optionee becomes disabled)
before the date the option is exercised (other than in the case of the
optionee's death), the exercise of such option will be treated as the exercise
of a non-qualified stock option with the tax consequences described below.
NON-QUALIFIED STOCK OPTIONS
In general, upon the grant of a non-qualified stock option, an optionee
will not recognize any income. At the time a nonqualified option is exercised,
the optionee will recognize compensation taxable as ordinary income, and Ardent
generally will be entitled to a deduction (subject to the provisions of Section
162(m) of the Code discussed below under the caption "Limits on Deductions"), in
an amount equal to the difference between the fair market value on the exercise
date of the shares acquired pursuant to such exercise and the option price. Upon
a subsequent disposition of the shares, the optionee will recognize long- or
short-term capital gain or loss, depending upon the holding period of the
shares. For purposes of determining the amount of such gain or loss, the
optionee's tax basis in the shares will be the fair market value of such shares
on the exercise date.
EFFECT OF SHARE-FOR-SHARE EXERCISE
If an optionee elects to tender shares of Ardent common stock in partial
or full payment of the option price for shares to be acquired through the
exercise of an option, generally the optionee will not recognize any gain or
loss on such tendered shares. However, if the shares tendered in connection with
any share-for-share exercise were previously acquired upon the exercise of an
incentive stock option, and such share-for-share exercise occurs during the ISO
Holding Period for such shares, then there will be a taxable disposition of the
tendered shares with the tax consequences described above for the taxable
dispositions during the ISO Holding Period of the shares acquired upon the
exercise of an incentive stock option.
If the optionee tenders shares upon the exercise of a nonqualified
option, the optionee will recognize compensation taxable as ordinary income and
Ardent generally will be entitled to a deduction (subject to the provisions of
Section 162(m) of the Code discussed below under the caption "Limits on
Deductions") in an amount equal only to the fair market value of the number of
shares received by the optionee upon exercise which is in excess of the number
of tendered shares, less any cash paid by the optionee.
RESTRICTED SHARES
A participant will not recognize any income upon the award of restricted
shares unless the participant makes an election under Section 83(b) of the Code
in respect of such grant, as described below. Unless a participant has made an
election under Section 83(b) of the Code in respect of any restricted shares,
any dividends received by the participant with respect to restricted shares
prior to the date the participant recognizes income with respect to such award
(as described below) must be treated by the participant as compensation taxable
as ordinary income, and Ardent will be entitled to a deduction, in an amount
equal to the amount of ordinary income recognized by the participant. After the
terms and conditions applicable to the restricted shares are satisfied, or if
the participant has made an election under Section 83(b) of the Code in respect
of the restricted shares, any dividends received by the participant in respect
of such award will be treated as a dividend taxable as ordinary income, and
Ardent will not be entitled to a deduction in respect of any such dividend
payment.
Unless the participant has made an election under Section 83(b) of the
Code (as described below), at the time the terms and conditions applicable to
the restricted shares are satisfied, a participant will recognize compensation
taxable as ordinary income, and Ardent generally will be entitled to a
deduction, in an amount equal to the then fair market value of the shares of
Ardent common stock or which the terms and conditions applicable to
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the restricted share award have been satisfied. The participant's tax basis for
any such shares of Ardent common stock would be the fair market value on the
date such terms and conditions are satisfied.
A participant may irrevocably elect under Section 83(b) of the Code to
recognize compensation taxable as ordinary income, and Ardent will be entitled
to a corresponding deduction, in an amount equal to the fair market value of
such restricted shares (determined without regard to any restrictions thereon)
on the date of grant. Such an election must be made by the participant not later
than 30 days after the date of grant. If such an election is made, no income
would be recognized by the participant (and Ardent will not be entitled to a
corresponding deduction) at the time the applicable terms and conditions are
satisfied. The participant's tax basis for the restricted shares received and
for any shares of Ardent common stock subsequently held in respect thereof would
be the fair market value of the restricted shares (determined without regard to
any restrictions thereon) on the date of grant. If a participant makes such an
election and subsequently all or part of the award is forfeited, the participant
will not be entitled to a deduction as a result of such forfeiture.
The holding period for capital gain or loss purposes in respect of the
Ardent common stock underlying an award of restricted shares shall commence when
the terms and conditions applicable to the restricted shares are satisfied,
unless the participant makes a timely election under Section 83(b) of the Code.
In such case, the holding period will commence immediately after the grant of
such restricted shares.
PERFORMANCE UNITS AND RESTRICTED STOCK UNITS
A participant will not recognize any income upon the award of a
performance unit or restricted stock unit. A participant will generally
recognize compensation taxable as ordinary income when he or she receives
payment with respect to a performance unit or a restricted stock unit, and at
such time Ardent will generally be entitled to a deduction equal to the amount
of cash or the then fair market value of unrestricted Ardent common stock
received by the participant in payment of the performance units or restricted
stock units. The participant's tax basis for any such shares of Ardent common
stock would be the fair market value on the date such unrestricted shares are
transferred to the participant. If all or a portion of the performance units or
restricted stock units are paid in restricted shares, see "Restricted Shares"
above for a discussion of the applicable tax treatment.
LIMITS ON DEDUCTIONS
Under Section 162(m) of the Code, the amount of compensation paid to the
chief executive officer and the four other most highly paid executive officers
of Ardent in the year for which a deduction is claimed by Ardent (including its
subsidiaries) is limited to $1,000,000 per person in any year, except that
qualified performance-based compensation will be excluded for purposes of
calculating the amount of compensation subject to this $1,000,000 limitation.
The ability of Ardent to claim a deduction for compensation paid to any other
executive officer or employee of Ardent (including its subsidiaries) is not
affected by this provision.
Ardent has structured the Plan so that Ardent may claim a deduction in
connection with (i) the exercise of non-qualified stock options and/or SARs,
(ii) the disposition during the ISO Holding Period by an optionee of shares
acquired upon the exercise of incentive stock options, and (iii) the payment of
any performance units or restricted stock units, provided that, in each case,
the requirements imposed on qualified performance-based compensation under
Section 162(m) of the Code and the regulations thereunder are satisfied with
respect to such awards. Any awards, other than stock options and SARs, which
vest solely as a result of the passage of time will not be qualified
performance-based compensation under Section 162(m) of the Code (e.g., certain
restricted stock, restricted stock units and performance units), and amounts for
which Ardent may claim a deduction upon the lapse of any restrictions on such
awards will be subject to the limitations on deductibility under Section 162(m).
However, the Plan does permit the Compensation Committee to make awards
that will not qualify as "qualified performance-based compensation" within the
meaning of Section 162(m) and, while the Compensation Committee expects that a
significant portion of the awards it grants under the Plan will be "qualified
performance-based compensation," the Compensation Committee may very well make
various awards that do not satisfy those requirements.
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SECTION 409A
Section 409A of the Code provides substantial penalties (described
below) to persons deferring taxable income, unless the requirements of Section
409A have been satisfied. Many awards provided under the Plan could be viewed as
deferring income for participants and may, therefore, be subject to Section
409A. As of the date this proxy statement is being prepared, the Internal
Revenue Service has not yet issued final regulations interpreting Section 409A,
but they are expected to be issued in the near future. While it is the intention
of Ardent's Board of Directors to prevent awards made under the Plan from being
subject to Section 409A and failing to satisfy the requirements of Section 409A,
there can be no assurance that awards made under the Plan which are subject to
Section 409A will satisfy the requirements of Section 409A.
In the event that an award made under the Plan is subject to Section
409A, but does not satisfy the requirements of that Section, then the affected
participant will incur an additional 20% penalty of the amount found to be
improperly deferred, as well as full taxation of that amount and interest on
that amount from the date when that amount became vested. In addition, other
deferrals by that participant found to be part of the same "plan," even if the
deferrals themselves satisfied Section 409A, would also be treated as failing to
satisfy Section 409A and, with respect to those deferrals, the participant would
also incur an additional 20% penalty of the amount deferred, as well as full
taxation of that amount and interest on that amount from the date it became
vested.
ADDITIONAL INFORMATION
The recognition by an employee of compensation income with respect to a
grant or an award under the Plan will be subject to withholding for federal
income and employment tax purposes. If an employee, to the extent permitted by
the terms of a grant or award under the Plan, uses shares of Ardent common stock
to satisfy the federal income and employment tax withholding obligation, or any
similar withholding obligation for state and local tax obligations, the employee
will recognize a capital gain or loss, short-term or long-term, depending on the
tax basis and holding period for such shares of Ardent common stock.
In the event that certain compensation payments or other benefits
received by "disqualified individuals" (as defined in Section 280G(c) of the
Code) under the Plan may cause or result in "excess parachute payments" (as
defined in Section 280G(b)(I) of the Code) then, pursuant to Section 280G of the
Code, any amount that constitutes an excess parachute payment is not deductible
by Ardent. In addition, Section 4999 of the Code generally imposes a 20% excise
tax on the amount of any such excess parachute payment received by such a
disqualified individual, and any such excess parachute payments will not be
deductible by Ardent (or a subsidiary).
EFFECTIVE DATE
The Plan is effective on October 24, 2006, the date of its adoption by
the Board of Directors subject to stockholder approval. The Plan will terminate
on the date 10 years after the date of its adoption by the Board of Directors,
except with respect to awards then outstanding. After such date no further
awards will be granted under the Plan unless the Plan is extended by the Board.
CONSEQUENCES IF PLAN PROPOSAL IS NOT APPROVED
If the plan proposal is not approved by the stockholders, Ardent will
not adopt the 2006 Long Term Incentive Plan.
REQUIRED VOTE
Adoption of the plan proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Ardent's common stock
represented in person or by proxy at the meeting. No vote of the warrant holders
is necessary to adopt the plan proposal, and Ardent is not asking the warrant
holders to vote on the plan proposal. ADOPTION OF THE PLAN PROPOSAL IS
CONDITIONED UPON THE ADOPTION OF THE ACQUISITION PROPOSAL BUT IS NOT CONDITIONED
ON ADOPTION OF THE NAME CHANGE PROPOSAL OR THE ADJOURNMENT PROPOSAL.
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Ardent's initial stockholders intend to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the plan proposal.
RECOMMENDATION
After careful consideration, Ardent's Board of Directors has determined
unanimously that the plan proposal is in the best interests of Ardent and its
stockholders. Ardent's Board of Directors has approved and declared advisable
the plan proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE PLAN PROPOSAL.
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THE ADJOURNMENT PROPOSAL
GENERAL DESCRIPTION OF THE ADJOURNMENT PROPOSAL
The adjournment proposal allows Ardent's Board of Directors to submit a
proposal to adjourn the special meeting to a later date or dates, if necessary,
to permit further solicitation of proxies in the event there are not sufficient
votes at the time of the special meeting to approve the acquisition proposal.
CONSEQUENCES IF ADJOURNMENT PROPOSAL IS NOT APPROVED
If the adjournment proposal is not approved by the stockholders,
Ardent's Board of Directors may not be able to adjourn the special meeting to a
later date in the event there are not sufficient votes at the time of the
special meeting to approve the acquisition and name change proposal.
REQUIRED VOTE
Adoption of the adjournment proposal requires the affirmative vote of a
majority of the issued and outstanding shares of Ardent's common stock
represented in person or by proxy at the meeting. No vote of the warrant holders
is necessary to adopt the adjournment proposal, and Ardent is not asking the
warrant holders to vote on the adjournment proposal. ADOPTION OF THE ADJOURNMENT
PROPOSAL IS NOT CONDITIONED UPON THE ADOPTION OF THE ACQUISITION PROPOSAL, THE
NAME CHANGE PROPOSAL OR THE PLAN PROPOSAL.
Ardent's initial stockholders have agreed to vote their shares of Ardent
common stock, representing an aggregate of approximately 17.9% of the
outstanding shares of Ardent common stock, "FOR" the adoption of the adjournment
proposal.
RECOMMENDATION
After careful consideration, Ardent's Board of Directors has determined
unanimously that the adjournment proposal is in the best interest of Ardent and
its stockholders. Ardent's Board of Directors has approved and declared
advisable the adjournment proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE ADJOURNMENT PROPOSAL.
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THE AVANTAIR STOCK PURCHASE AGREEMENT
The following summary of the material provisions of the Stock Purchase
Agreement and Letter Agreement for Avantair is qualified by reference to the
complete text of the Stock Purchase Agreement for Avantair, a copy of which is
attached as Annex A to this document. All stockholders are encouraged to read
the Stock Purchase Agreement in its entirety for a more complete description of
the terms and conditions of the acquisition.
STRUCTURE OF THE ACQUISITION
Upon completion of the acquisition under the Stock Purchase Agreement
and Letter Agreement, Ardent, will own all of the outstanding stock of Avantair.
Avantair will continue to operate its business in the same manner as before the
acquisition.
PURCHASE PRICE
The purchase price for the shares of Avantair is 7,000,000 shares of
Ardent common stock, plus the contingent deferred payments described below. The
purchase price is subject to an adjustment based on the amount of cash in
Ardent's accounts at the closing of the acquisition.
ESCROW AMOUNT
At the closing of the acquisition, 1,750,000 shares of Ardent common
stock will be transferred to an escrow agent to secure the indemnification
obligations of certain of the stockholders of Avantair for breaches of their
representations, warranties and covenants to Ardent contained in the Stock
Purchase Agreement. See "Escrow Agreement" on page 79.
CLOSING CASH STATEMENT - PURCHASE PRICE ADJUSTMENT
At the closing of the acquisition, the purchase price will be increased
to the extent that, as of the close of business on the day immediately
proceeding the closing date, the aggregate amount of cash in Ardent's accounts
(including amounts held in Ardent's trust account) at the closing, less all
transaction expenses incurred by Ardent which have not been paid as of the
closing, is less than $35,000,000. In this event, the number of shares of Ardent
common stock comprising the purchase price will be increased by dividing (a) the
amount, if any, by which $35,000,000 exceeds the amount in Ardent's accounts by
(b) $6.00.
CONTINGENT DEFERRED PAYMENTS
The contingent deferred payments are as follows:
o At the end of the fiscal year ending June 30, 2007, Ardent will
calculate (based on its annual audited consolidated financial
statements for such fiscal year) its net income or loss, plus (i)
interest expense, (ii) total taxes paid or payable, and (iii)
depreciation and amortization expense, all as determined on a
consolidated basis in accordance with GAAP (except, for the
purposes of this calculation, any revenues generated by Ardent
with respect to sales of aircraft (or interests therein) and the
associated costs shall be treated as recognized in the fiscal
year of sale and not amortized over a period of several years).
If this calculated amount, which is sometimes referred to as Cash
EBITDA, is greater than $6,000,000 for the fiscal year ending
June 30, 2007, Ardent will issue an aggregate of 1,000,000 shares
of its common stock to Avantair's stockholders.
o At the end of the fiscal year ending June 30, 2008, Ardent will
calculate (based on its annual audited consolidated financial
statements for such fiscal year) Cash EBITDA. If Cash EBITDA is
greater than $20,000,000 for the fiscal year ending June 30,
2008, Ardent will issue an aggregate of 5,000,000 shares of its
common stock to Avantair's stockholders.
69
o If at any time after the closing of the acquisition but prior to
February 23, 2009, the closing trading price on the
Over-the-Counter Bulletin Board (or on a national securities
market on which Ardent's common stock is then quoted for trading)
of Ardent's common stock for 20 trading days within any 30
trading day period equals or exceeds $8.50 per share, then Ardent
will issue an additional aggregate of 5,000,000 shares of its
common stock to Avantair's stockholders.
In the event that, at any time following the closing and prior to
February 23, 2009, Ardent consummates a merger or similar transaction with a
third party which results in a change of control of Ardent, or consummates a
sale of all or substantially all of Ardent's assets, in each case for aggregate
consideration equal to at least the product of (x) $8.50 and (y) the aggregate
number of shares of Ardent common stock issued and outstanding after giving
effect to the issuance to the Avantair stockholders of all shares of Ardent
common stock under the Stock Purchase Agreement (including all deferred
payments) and full exercise or conversion of all of warrants, options and other
convertible securities exercisable for or convertible into Ardent common stock
then outstanding, then Ardent shall issue to the Avantair stockholders a number
of shares of Ardent common stock equal to the maximum amount of the deferred
payments which could be issued to the Avantair stockholders under the Stock
Purchase Agreement with respect to each fiscal year ending June 30, 2007 and
2008 which has not yet been completed, and assuming the trading price of
Ardent's common stock had satisfied the criteria for the issuance of deferred
payments.
CLOSING OF THE ACQUISITION
The closing of the acquisition will take place on the second business
day following the satisfaction or waiver of the conditions described below under
"The Avantair Stock Purchase Agreement - Conditions to the Completion of the
Acquisition," unless Ardent and the stockholders of Avantair agree in writing to
another time.
REPRESENTATIONS AND WARRANTIES
The Stock Purchase Agreement contains a number of representations and
warranties that each of the stockholders of Avantair made to Ardent as to
themselves and that certain stockholders of Avantair made as to Avantair, and
which Ardent made to the stockholders of Avantair. The representations and
warranties made by the Avantair stockholders as to themselves relate to:
o authority; execution and delivery; enforceability of the Stock
Purchase Agreement;
o absence of conflicts or violations under organizational
documents, certain agreements and applicable laws or decrees;
o title to the shares of Avantair;
o receipt of all required consents and approvals;
o litigation and claims;
o absence of brokers or finders;
o investment representations; and
o accredited investor status.
The representations and warranties made by certain of the Avantair
stockholders as to Avantair relate to:
o organization, good standing;
o subsidiaries, equity interests;
70
o absence of conflicts or violations under organizational
documents, certain agreements and applicable laws or decrees;
receipt of all required consents and approvals;
o accuracy of corporate documents;
o capitalization; options;
o title to assets; sufficiency of assets;
o real property and leasehold interests;
o employment related agreements and actions;
o contracts;
o intellectual property;
o insurance;
o books and records;
o financial statements; liabilities;
o accounting practices;
o tax matters;
o absence of certain changes and events since June 30, 2006;
o litigations and claims;
o governmental permits; compliance with the laws;
o environmental matters;
o employee plans;
o accounts receivable;
o major customers;
o aircraft operations;
o product and service warranties;
o bank accounts; and
o absence of brokers and finders.
The representations and warranties made by Ardent as to themselves
relate to:
o organization; good standing;
71
o authority; execution and delivery; enforceability of the Stock
Purchase Agreement;
o absence of conflicts or violations under organizational
documents, certain agreements and applicable laws or decrees;
o consents and approvals;
o SEC reports;
o purchase price;
o litigations and claims;
o capitalization;
o absence of brokers and finders;
o board approval; and
o tax free merger.
MATERIALITY AND MATERIAL ADVERSE EFFECT
Several of the representations and warranties of the Avantair
stockholders are qualified by materiality or material adverse effect. For the
purposes of the Stock Purchase Agreement, a material adverse effect means any
event, condition or contingency that has had, or is reasonably likely to have, a
material adverse effect on the business, assets, liabilities, results of
operations, prospects or condition of Avantair and its subsidiaries, taken as a
whole, except that a material adverse effect shall not include any such effect
or change resulting from or arising in connection with changes in general
economic conditions which do not disproportionately affect Avantair and its
subsidiaries, taken as a whole.
INTERIM OPERATIONS RELATING TO AVANTAIR
Under the Stock Purchase Agreement, Avantair's stockholders have agreed
to cause Avantair, prior to the closing of the acquisition, to conduct
Avantair's business in the ordinary course consistent with past practice, except
as expressly permitted by the Stock Purchase Agreement. In addition to this
agreement regarding the conduct of the business generally, subject to specific
exceptions, the Avantair stockholders have agreed that Avantair:
o will use its commercially reasonable efforts to preserve the
organization of the business of Avantair intact and to retain the
services of the employees of Avantair and to preserve the
goodwill of Avantair's suppliers and customers;
o will pay and perform all debts, obligations and liabilities as
and when due and manage its working capital consistent with past
practice;
o will maintain all material assets consistent with past practices
and not take any action adverse to the preservation of such
material assets;
o will fully satisfy all obligations, on a timely basis, under each
employee benefit plan;
o will comply in all material respects with all applicable laws;
o will insure and keep fully insured all of its properties, but in
no event to a lesser extent than existed prior to the execution
of the Stock Purchase Agreement;
72
o will comply in all material respects with environmental laws and
notify Ardent in the event of any release or discovery of any
hazardous substance or contaminant at any of Avantair's
properties, or any related environmental matters;
o will defend the title to and all of its rights in all of its
material intellectual property;
o will prepare and file all tax returns required to be filed on or
before the closing date in a timely manner and in a manner
consistent with prior years and applicable tax laws, and timely
pay all taxes shown thereon;
o will pay, or establish adequate reserves for the payment of, all
taxes payable for taxable periods or portions thereof ending
through the closing date;
o will obtain, renew and otherwise keep in full force and effect
all authorizations, licenses, certificates and permits from the
appropriate federal, state and local governmental authorities;
o will conduct its business in such a manner that, on the closing
date, the representations and warranties of the Avantair
stockholders contained in the Stock Purchase Agreement shall be
true, correct and complete as if such representations and
warranties were made on and as of such date;
o will not make any material change in its business or operations;
o will not incur any loans or other debt obligations to any third
party;
o will not incur or discharge any liability or sell or transfer any
property, or acquire or dispose of any assets or businesses, in
each case, except in the ordinary course of business;
o will not guarantee or assume any other obligation or make any
loan or advance to any third party;
o will not waive or cancel any debt owed to, or claims held by,
Avantair except in the ordinary course of business;
o will not settle or compromise any dispute or litigation;
o will not make any tax election or change any of its methods of
reporting income or deductions for tax purposes, except as
required by law;
o will not make any change in the methods of accounting or
accounting principles except as required by law or generally
accepted accounting principles;
o will not, except as required by law, adopt amend or terminate any
benefit plan, profit sharing, compensation or other plan or grant
any general increase in compensation to its employees or any
increase (other than increases required under a contract) in the
compensation payable to any of its officers or directors, or
completely or partially withdraw from any multiemployer plan;
o will not amend, modify, terminate or breach any material
contract, or enter into any material contract, except in the
ordinary course of business;
o will not enter into, amend or modify any collective bargaining
agreements;
o will not authorize, or agree to make, capital expenditures in
excess of $100,000 individually or $500,000 in the aggregate;
o will not amend its organizational documents;
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o will not issue or grant any shares of its capital stock, or any
option, warrant or right to purchase any shares of its capital
stock, or any security convertible into or exchangeable for, any
shares of such capital stock, or issue any bonds, notes or other
securities;
o will not conduct any capital reorganization of Avantair or redeem
or acquire any of its securities, or declare, set aside or make
any dividends or distributions of property in respect of
Avantair's capital stock;
o will not fail to maintain the insurance coverage in effect the
date of execution of the Stock Purchase Agreement;
o will not issue any communication to its employees with respect to
compensation, benefits or employment continuation, except as
required by law;
o will not enter into any partnership or joint venture agreement or
arrangement or any similar agreement or arrangement;
o will not enter into any contract which would require a consent
with respect to the consummation of the acquisition;
o will not enter into a voluntary recognition agreement or other
contract with any employee association, labor union or other
similar organization; and
o will not authorize or enter into an agreement in violation of the
foregoing.
NO SOLICITATION
Ardent and the Avantair stockholders have agreed, from the date of the
Stock Purchase Agreement and until the termination of the Stock Purchase
Agreement, that Ardent will, and the Avantair stockholders will cause Avantair
and its subsidiaries, and each will cause their respective directors, officers,
affiliates, employees, representatives and other agents of Ardent and Avantair
to agree, to immediately cease any existing discussions or negotiations with any
person or entity other than each other with respect to a business combination
involving Ardent or Avantair, and will not take any action to solicit, initiate,
encourage or facilitate any proposal or offer from, or furnish any information
to, any person other than each other relating to any business combination
involving Ardent or Avantair.
ARDENT'S STOCKHOLDERS' MEETING
Ardent has agreed to call and hold a meeting of its stockholders, as
promptly and as reasonably practicable, for the purpose of seeking the adoption
of the acquisition proposal by its stockholders. Ardent has also agreed that it
will, through its Board of Directors, recommend to its stockholders that they
approve and adopt the acquisition proposal, subject to applicable law and the
fiduciary duties (exercised in good faith and on the advice of independent legal
counsel) of Ardent's Board of Directors.
ACCESS TO INFORMATION; CONFIDENTIALITY
The stockholders of Avantair will afford to Ardent and its
representatives prior to the closing of the acquisition reasonable access during
normal business hours to all of Avantair's and its subsidiaries' properties,
assets, liabilities, books and records, operations and businesses and access to
their directors, officers, employees, customers and business partners for the
purposes of such meetings and communications as Ardent and the stockholders of
Avantair reasonably agree.
The stockholders of Avantair agree to hold in confidence all information
of Avantair which is non-public, confidential or proprietary in nature, other
than disclosures that are required by law.
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REASONABLE EFFORTS; NOTIFICATION
Ardent and the stockholders of Avantair have agreed that they will use
their respective reasonable best efforts to take all actions, and to do all
things necessary, proper or advisable to consummate the acquisition and the
transactions contemplated by the Stock Purchase Agreement. This includes:
o obtaining all necessary waivers, consents and approvals from
governmental entities and making all necessary registrations and
filings, including filings with governmental entities;
o obtaining all necessary consents, approvals or waivers from third
parties; and
o executing and delivering any additional instruments necessary to
consummate the acquisition or other transactions contemplated by
the Stock Purchase Agreement and to fully carry out the purposes
of the Stock Purchase Agreement and the transaction agreements
contemplated by the Stock Purchase Agreement.
The Avantair stockholders will give prompt notice to Ardent, and Ardent
will give prompt notice to the Avantair stockholders, of the occurrence of any
event or condition which would result in such party's inability to satisfy any
of the other party's conditions to the closing of the acquisition. However, no
notification will affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligation of the parties
under the Stock Purchase Agreement or the related agreements.
ISSUANCES OF ARDENT SECURITIES
Prior to the closing, Ardent will not, without prior consent of the
stockholders of Avantair, issue or grant any option or other right to purchase
any shares of capital stock of Ardent or any convertible instrument exchangeable
for shares of Ardent capital stock, except for issuances of securities upon
exercise of already existing warrants, options or other securities.
EQUITY COMPENSATION PLAN
Ardent agreed to submit to its stockholders for their approval a
proposed equity compensation plan that would permit the granting of stock
options, shares of restricted stock and other awards to such persons in such
amounts as may be determined by the compensation committee of Ardent's Board of
Directors. The pool of shares initially available for this plan will equal
1,500,000 of the total shares of Ardent common stock expected to be outstanding
immediately after the closing. See "The Plan Proposal" on page 59.
INVESTOR RIGHTS AGREEMENT
Ardent acknowledges that, in connection with an equity financing by
Avantair, Avantair and certain holders of its class A common stock are party to
an Investors Rights Agreement, dated October 2, 2006, and Ardent acknowledges
that upon the occurrence of the closing, Ardent will become subject to
obligations arising under the Investors Rights Agreement. See "Investors Rights
Agreement" on page 83.
INDEMNIFICATION
The Avantair stockholders will hold harmless Ardent, its affiliates and
their respective representatives, successors and permitted assigns for any
damages, whether as a result of a third party or otherwise, which arise from or
in connection with a breach of a representation or warranty with respect to
themselves. Certain Avantair stockholders will hold harmless Ardent, its
affiliates and their respective representatives, successors and permitted
assigns for any damages, whether as a result of any third party or otherwise,
which arise from or in connection with a breach of the representations,
warranties or covenants with respect to Avantair. Ardent has agreed to hold
harmless the stockholders of Avantair and its representatives, successors and
permitted assigns, for any damages, whether as a result of any third party or
otherwise, and which arise from or in connection with a breach of
representations, warranties and covenants of Ardent. Subject to certain
exceptions, claims made by Ardent, its
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affiliates and their respective representatives, successors and permitted
assigns for breaches of the representations and warranties of the Avantair
stockholders may be asserted only once an aggregate of $500,000 in damages for
all claims has been incurred. However, Ardent and its representatives will be
entitled to be indemnified on a dollar-for-dollar basis from the first dollar of
damages without regard to threshold for breaches of certain representations and
warranties and for all covenants. No individual stockholder of Avantair will be
liable for a percentage of any claim in excess of the percentage of the purchase
price allocated to such stockholder. The maximum indemnification amount that may
be received by Ardent for breaches of representations and warranties with
respect to Avantair will not exceed 1,750,000 shares of Ardent common stock, the
amount placed in escrow, except for breaches of certain representations and
warranties, for which Ardent may seek indemnification from certain Avantair
stockholders after the entire escrow amount is exhausted. The representations
and warranties of the Avantair stockholders with respect to Avantair will
survive the closing until 30 days after Ardent files its form 10-K for the
fiscal year ending June 30, 2008, however certain representation and warranties
will survive for a longer period.
Ardent agrees not to change, for six years after the closing, the
provisions of its certificate of incorporation and bylaws relating to
indemnification of each present and former director of Ardent in a manner that
adversely affects the rights of such director, and to maintain director's and
officers' liability insurance coverage for such directors for six years after
the closing.
FEES AND EXPENSES
Except for certain expenses in connection with indemnification claims,
disputes regarding contingent deferred payments and transfer taxes, each of the
Avantair stockholders, on the one hand, and Ardent, on the other, shall be
responsible for their own fees and expenses (including, without limitation,
legal and accounting fees and expenses) in connection with the Stock Purchase
Agreement and the transactions contemplated thereby. The stockholders of
Avantair on the one hand and Ardent on the other hand will split equally the
fees and expenses in connection with the escrow agreements.
PUBLIC ANNOUNCEMENTS
Ardent and the stockholders of Avantair have agreed that any
announcements concerning the transactions provided for in the Stock Purchase
Agreement by Ardent or the stockholders of Avantair shall be subject to the
prior approval of both parties, except that approval shall not be required as to
any statements and other information which any party may be required to make
pursuant to any applicable rule or regulation of the Securities and Exchange
Commission, any United States or foreign securities exchange or otherwise
required by law.
TRANSFER TAXES
The stockholders of Avantair will pay all applicable transfer, sales,
use, real property transfer, excise, recording, deed, stamp and other similar
taxes incurred in connection with the transfer of Avantair's common stock to
Ardent.
CONDITIONS TO THE COMPLETION OF THE ACQUISITION
Each of Ardent's and Avantair's stockholders' obligations to effect the
acquisition is subject to the satisfaction or waiver of specified conditions
before completion of the acquisition, including the following:
CONDITIONS TO ARDENT'S OBLIGATIONS
The obligations of Ardent to effect the acquisition are further subject
to the following conditions:
o the representations and warranties of the stockholders of
Avantair that are qualified as to materiality must be true and
correct and those not qualified as to materiality must be true
and correct in all material respects, as of the date of
completion of the acquisition, except representations and
warranties that address matters as of another date, which must be
true and correct as of that other date;
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o the stockholders of Avantair must have performed in all material
respects all covenants and agreements that are to be performed by
them;
o there must not have occurred any material adverse effect on
Avantair since the date of the Stock Purchase Agreement;
o the absence of any order or injunction preventing consummation of
the acquisition or the right of Avantair or any of its
subsidiaries to operate their respective businesses after the
completion of the acquisition;
o the stockholders of Avantair shall have obtained all written
consents, approvals, waivers or similar authorizations necessary
to consummate the acquisition and the transactions contemplated
by the Stock Purchase Agreement;
o Ardent will have received the written resignations of all
directors of Avantair, effective as of the closing of the
acquisition;
o the stockholders of Avantair and each of the directors of
Avantair will have executed and delivered to Ardent a general
release with respect to events occurring prior to the closing;
o Avantair will have received stockholder approval of the
acquisition;
o the stockholders of Avantair and JP MorganChase (an escrow agent)
shall have entered into the escrow agreement;
o Steven Santo and John Waters shall have each entered into his
employment agreement with Avantair; and
o the stockholders of Avantair will have each entered into the
Stockholders Agreement.
CONDITIONS TO AVANTAIR'S OBLIGATIONS
The obligation of Avantair's stockholders to effect the acquisition is
further subject to the following conditions:
o the representations and warranties of Ardent that are qualified
as to materiality must be true and correct and those not
qualified as to materiality must be true and correct in all
material respects, as of the date of completion of the
acquisition, except representations and warranties that address
matters as of another date, which must be true and correct as of
that other date;
o Ardent must have performed in all material respects all covenants
and agreements that are to be performed by them;
o there must not have occurred any material adverse effect on
Ardent since the date of the Stock Purchase Agreement;
o Ardent shall have obtained all written consents, approvals,
waivers or similar authorizations necessary to consummate the
acquisition and the transactions contemplated by the Stock
Purchase Agreement;
o Ardent will have received the stockholder approval of the
acquisition;
o Steven Santo and John Waters will have each entered into his
employment agreement with Ardent;
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o Ardent will have entered into the Stockholders Agreement;
o Ardent and JPMorgan Chase will have entered into the escrow
agreement;
o the Avantair stockholders shall have received the written
resignations of all directors of Ardent, effective as of the
closing time;
o Ardent shall have made arrangements to have the trust fund
disbursed to Ardent immediately upon the closing; and
o holders of twenty percent or more of shares of Ardent common
stock issued in Ardent's initial public offering shall not have
exercised rights to convert their shares.
TERMINATION, AMENDMENT AND WAIVER
The Stock Purchase Agreement may be terminated at any time prior to the
closing of the acquisition, as follows:
o by mutual consent of Ardent and the stockholders of Avantair;
o by either party if the other party has breached any of its
covenants or representations and warranties in any material
respect; or
o by either party if stockholder approval of the acquisition is not
received at the special meeting, or if the closing has not
occurred by March 2, 2007.
EFFECT OF TERMINATION
In the event of termination by either the Avantair stockholders or
Ardent, all further obligations and rights of the parties under Stock Purchase
Agreement will terminate, with each party responsible for its own costs and
expenses except that a party will remain liable for any material breach prior of
the Stock Purchase Agreement that occurred prior to the date of termination.
ASSIGNMENT
The Stock Purchase Agreement may not be assigned by any party without
prior written consent of the counterparty.
AMENDMENT
The Stock Purchase Agreement may not be amended or modified except by an
instrument in writing. In the event the parties contemplate an amendment to the
Stock Purchase Agreement following the closing, Ardent will establish a special
committee of the board of directors (which committee shall exclude the Avantair
stockholders and their affiliates) for purpose of making all decisions on
Ardent's behalf.
FURTHER ASSURANCES
Each of Ardent and the stockholders of Avantair agreed that they will
execute and deliver, or cause to be executed and delivered, on or after the
close of the acquisition, all such other documents and instruments and will take
all reasonable actions as may be necessary to effectuate the transactions
contemplated by the Stock Purchase Agreement.
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LETTER AGREEMENT
The following summary of the material provisions of the Letter Agreement
is qualified by reference to the complete text of the Letter Agreement, a copy
of which is attached as Annex B to this document. All stockholders are
encouraged to read the Letter Agreement in its entirety for a more complete
description of the terms and conditions of the acquisition.
In conjunction with the signing of the Stock Purchase Agreement on
October 2, 2006, Avantair raised an aggregate of $9.0 million in equity
financing from investors in its class A common stock (we sometimes refer to this
financing as the equity financing). These investors included Steven Santo, John
Waters, Kevin McKamey, Avantair's Executive Vice President and Jeffrey Kirby, a
current Avantair stockholder (and former director), as well as thirteen outside
investors who were introduced to Avantair by EarlyBirdCapital.
In connection with this equity financing transaction, these outside
investors entered into letter agreements, dated October 2, 2006, with Ardent and
Avantair. Pursuant to the letter agreements, each investor agreed that:
o the investor had received copies of the final Stock Purchase
Agreement;
o if the acquisition is consummated, then at the closing of the
acquisition the investor will sell to Ardent all of the
investor's shares of Avantair's class A common stock on the same
economic terms as provided in the Stock Purchase Agreement; and
o the investor makes all of the representations and warranties as
to itself which the other Avantair stockholders made as to
themselves in the Stock Purchase Agreement.
ESCROW AGREEMENT
Pursuant to the Stock Purchase Agreement, on the closing date of the
acquisition, Ardent, certain stockholders of Avantair and JPMorgan Chase Bank,
N.A., as escrow agent, will enter into an escrow agreement in the form of Annex
D. The following description of the escrow agreement describes the material
terms of the escrow agreement but does not purport to describe all the terms of
the agreement. The complete text of the escrow agreement is attached as Annex D
to this document and is incorporated by reference into this document. We
encourage all stockholders to read the escrow agreement in its entirety.
CREATION OF ESCROW
At the closing of the acquisition, 1,750,000 of the shares of Ardent
common stock included within the purchase price will be transferred to the
escrow agent to secure the indemnification obligations of Avantair's
stockholders under the Stock Purchase Agreement.
DISTRIBUTION OF ESCROWED SHARES
If the stockholders of Avantair breach any representation, warranty,
covenant or agreement contained in the Stock Purchase Agreement, Ardent may
claim damages arising out of the breach, and the escrow agent will pay to Ardent
the amount directed (i) by joint written direction from Ardent and the
stockholders of Avantair, (ii) by final order, decree or judgment of a court of
competent jurisdiction or (iii) as may be demanded by Ardent without timely
objection by the Avantair stockholders whose shares are held in escrow. The
number of shares transferred to Ardent to satisfy a claim shall be calculated by
dividing the amount of the claim (or lesser amount to be paid to Ardent) by the
closing sale price of Ardent common stock on the trading day immediately
preceding the closing date. The escrowed shares will only be available to
satisfy claims that are made prior to the 45th day following the date on which
Ardent files its Form 10-K with respect to the fiscal year ending June 30, 2008.
On the fifth business day following the end of such period, any remaining
escrowed amounts that have not been used to satisfy claims, or which are not
then in dispute, will be released to those stockholders of Avantair whose shares
were placed into escrow.
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STOCKHOLDERS AGREEMENT
Pursuant to the Stock Purchase Agreement, on the closing date of the
acquisition, Ardent, the initial stockholders of Ardent, the stockholders of
Avantair and certain beneficial owners of Avantair's common stock will enter
into the Stockholders Agreement in the form attached as Annex F. The following
description of the Stockholders Agreement describes the material terms of the
Stockholders Agreement but does not purport to describe all the terms of the
agreement. The complete text of the Stockholders Agreement is attached as Annex
F to this document and is incorporated by reference into this document. We
encourage all stockholders to read the Stockholders Agreement in its entirety.
RESTRICTIONS ON TRANSFER
The executive officers of Avantair, along with certain other owners and
beneficial owners of Avantair's common stock, will not transfer, sell, assign,
pledge or otherwise dispose of a portion of the shares of Ardent common stock
that they receive at the closing of the acquisition, other than certain
permitted transfers to relatives, affiliates, family trusts and the like. This
restriction will apply until the second anniversary of the closing of the
acquisition, except with respect to any shares (a) held by Steven Santo, John
Waters, Kevin McKamey or Jeffrey Kirby which are received by them in exchange
for shares of Avantair common stock purchased in the equity financing, or (b)
which become directly owned by BHP Partners LLC (a beneficial owner of shares of
Avantair's common stock) for whom these restrictions will lapse (subject to
applicable securities laws) with respect to one-third of its shares of Ardent
common stock every six months following the filing by Ardent of a "shelf"
registration statement pursuant to the Investors Rights Agreement (see
"Investors Rights Agreement" on page 83).
VOTING AGREEMENT
The initial stockholders of Ardent and all of the stockholders of
Avantair agree to designate certain individuals for election to Ardent's Board
of Directors and to vote for such individuals. Ardent's initial stockholders
shall have the right to designate three directors, who shall initially be Barry
J. Gordon (who shall also be elected non-executive Chairman of Ardent's Board of
Directors), Arthur H. Goldberg and _________. Two of Ardent's initial
stockholders' designees must qualify as "independent" directors under applicable
securities laws and applicable market exchange rules. The Avantair stockholders
shall have the right to designate four directors, two of whom shall initially be
Steven Santo and John Waters, and one of whom shall be subject to the consent of
the initial stockholders of Ardent. Two of the designees of the Avantair
stockholders (including the designee who is subject to Ardent's consent) must
also qualify as an independent directors. The respective rights of the initial
stockholders of Ardent and the stockholders of Avantair will terminate on the
later of 60 days following the date on which Ardent files its Form 10-K with
respect to the fiscal year ending June 30, 2008, and the date on which each
group beneficially owns (on a collective basis) less than 50% of the percentage
of Ardent's common stock that they beneficially own (on a collective basis)
immediately following the closing of the acquisition.
EMPLOYMENT AGREEMENTS
Each of Steven Santo and John Waters has entered into an employment
agreement with Avantair. The following description describes the material terms
of the employment agreements but does not purport to describe all of the terms
of the employment agreements. The complete text of the employment agreement for
each of Messrs. Santo and Waters is attached as Annex E, to this document and is
incorporated by reference into this document. We encourage all stockholders to
read the form of each employment agreement in its entirety.
SCOPE OF EMPLOYMENT
The employment agreements provide that Steven Santo will be employed as
the Chief Executive Officer and John Waters as the Chief Financial Officer of
Avantair. Messrs. Santo and Waters are collectively sometimes referred to as the
employees. Other than these differences described below (and other requirements
under applicable laws), the employment agreements are substantially identical.
The employment agreements of Messrs. Santo and Waters are for a period of three
years, with automatic successive one-year renewals unless Avantair or the
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applicable employee terminates the agreement at least 30 days prior to the end
of the initial term or any renewal period.
COMPENSATION
Mr. Santo is entitled to an annual salary in the amount of $325,000
which will be increased to $400,000 at the time of the closing of the
acquisition. Mr. Waters is entitled to an annual salary in the amount of
$275,000.
o Messrs. Santo and Waters are each entitled to an annual bonus.
Mr. Santo is entitled to receive an annual cash and/or stock
bonus award for the fiscal year ending June 30, 2007 with a
target bonus equal to 60% of Mr. Santo's base salary. Mr. Waters
is entitled to receive a cash and/or stock bonus award for the
year ending June 30, 2007 in the amount of $137,500. All future
bonuses of the employees will be determined in the sole
discretion of the board of directors and the compensation
committee of Avantair;
o Messrs. Santo and Waters are eligible to participate in any
incentive program that provides for awards of stock, restricted
stock, or options in Avantair to similarly situated employees;
and
o Mr. Waters will receive, upon the closing of the acquisition,
warrants to purchase 200,000 shares of Ardent common stock on the
same terms as Ardent's publicly traded warrants.
FRINGE BENEFITS, REIMBURSEMENT OF EXPENSES
Mr. Santo is entitled, among other things, to:
o participate in all benefit programs, including the registered
retirement savings plan, established and made available to its
employees;
o monthly living expenses in the amount of $2,800 through June 30,
2007;
o monthly automobile lease reimbursement of $1,500; and
o reimbursement for any reasonable out-of-pocket expenses incurred
in the course of employment.
Mr. Waters is entitled, among other things, to:
o participate in all benefit programs, including the registered
retirement savings plan, established and made available to its
employees;
o monthly living expenses in the amount of $2,000 through June 30,
2007;
o monthly automobile lease reimbursement of $500; and
o reimbursement for any reasonable out-of-pocket expenses incurred
in the course of employment.
TERMINATION BENEFITS
If the agreements are terminated by Avantair for cause, Avantair shall
have no further obligations following the effective date of termination.
If the agreements are terminated by Santo or Waters voluntarily without
good reason, Avantair shall have no further obligations following the effective
date of termination other than to pay the employee for any accrued but unpaid
salary and reimbursable expenses.
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If Mr. Santo's agreement is terminated by Avantair without cause or by
the executive for good reason or for disability, then Mr. Santo is entitled to:
o any then accrued but unpaid base salary and performance bonus as
of the date of termination; and
o payment of the base salary in effect at the time of termination
and continuation of health insurance for a period of 12 months.
If Mr. Waters' agreement is terminated by Avantair without cause or by
the executive for good reason or for disability, then Mr. Waters is entitled to:
o any then accrued but unpaid base salary and performance bonus as
of the date of termination; and
o payment of the base salary in effect at the time of termination
and continuation of health insurance for the period of the lesser
of (i) the remaining term of the employment agreement, or (ii) a
period of 12 months from the effective date of termination.
In each agreement, "cause" means:
o employee's fraud or breach of fiduciary obligations in connection
with performance of his duties with Avantair (including but not
limited to any acts of embezzlement or misappropriation of
funds);
o employee's indictment for a felony or plea of guilty or nolo
contendere to a felony charge or any criminal act involving moral
turpitude;
o employee's being under the influence of any drugs (other than
prescription medicine or other medically-related drugs to the
extent that they are taken in accordance with their directions)
or repeatedly being under the influence of alcohol, during the
performance of his duties under his employment agreement, or,
while under the influence of such drugs or alcohol, engaging in
grossly inappropriate conduct during the performance of his
duties under his employment agreement;
o employee's refusal to substantially perform his duties under his
employment agreement, except in the event that the employee
becomes permanently disabled;
o employee's willful misconduct or gross negligence in connection
with his employment;
o employee's material violation of any Avantair policies or
procedures relating to harassment, discrimination or insider
trading; or
o employee's material breach of any provision of his employment
agreement.
In each agreement, "good reason" means:
o Avantair's willful material breach of any provision of his
employment agreement;
o any material adverse change in employee's position, authority,
duties or responsibilities (other than a change due to employee's
permanent disability or as an accommodation under the Americans
With Disabilities Act) which results in: (A) a diminution in any
material respect in employee's position,
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authority, duties, responsibilities or compensation, which
diminution continues in time over at least thirty (30) days, such
that it constitutes an effective demotion; or (B) a material
diversion from employee's performance of the functions of
employee's position, excluding for this purpose material adverse
changes made with employee's written consent or due to employee's
termination for cause or termination by employee without good
reason; or
o relocation of Avantair's headquarters and/or employee's regular
work address to a location which requires the employee to travel
more than forty (40) miles from employee's place of employment on
the date of his employment agreement.
In addition, each employee's interest in any stock options or restricted
stock will fully vest on the effective date of a termination without cause.
NON-COMPETITION AND NON-SOLICITATION
Each of Mr. Santo and Mr. Waters is subject to restrictions during the
term of each respective employment agreement and for 24 months after the
termination thereof, including;
o carrying on, engaging in, or having any financial interest in any
fractional aircraft ownership business, fixed base operations
business, air charter business, business regulated as an "air
taxi" services under applicable Federal Aviation Administration
regulations or related business activities that compete with any
business of Avantair; or
o directly or indirectly soliciting any customer, employee,
including former employees during the 12 months preceding such
solicitation, or service provider away from Avantair.
INVESTORS RIGHTS AGREEMENT
In connection with entering into the Stock Purchase Agreement, Avantair
entered into an Investors Rights Agreement with those holders of shares of its
Class A Common Stock who purchased such shares in conjunction with the execution
of the Stock Purchase Agreement (we refer to these holders as Investors). The
following description describes the material terms of the form of the Investor
Rights Agreement with respect to Ardent but does not purport to describe all of
the terms therein. The complete text of the form of Investor Rights Agreement is
attached as Annex G to this document and is incorporated by reference into this
document. We encourage all stockholders to read the form of the investor rights
agreement in its entirety.
SHELF REGISTRATION RIGHTS
Avantair agreed to cause Ardent to file a "shelf" registration statement
within 60 days of the closing of the acquisition. If the closing of the
acquisition occurs, the registration statement will provide for the resale of
shares of common stock of Ardent issued to the Investors in connection with the
closing of the acquisition, including dividends and distributions on such common
stock, and the resale of any common stock underlying the warrants described
below.
In the event a "shelf" registration statement is not filed with the SEC
within 60 days after the date of the closing of the acquisition, Ardent will
promptly issue to the Investors warrants to purchase a number of shares of
Ardent common stock. The warrants will have an exercise price of $5.00 per share
and will be identical to Ardent's currently publicly traded warrants, calculated
by (x) multiplying (a) the aggregate amount invested by the holder pursuant to
its Stock Purchase Agreement, dated October 2, 2006, with Avantair, by (b) 0.02,
and (y) dividing such amount by 5. Each Investor is entitled to the warrants for
each consecutive thirty (30) day period for which the "shelf" registration
statement is not filed with the Securities and Exchange Commission.
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INFORMATION ABOUT AVANTAIR
BUSINESS OF AVANTAIR
Avantair, Inc. is engaged in the sale and management of fractional
ownerships of professionally piloted aircraft for personal and business use.
Avantair is the fifth largest company in the North American fractional aircraft
industry. As of October 20, 2006, Avantair operated 28 aircraft with 75
additional aircraft on order. Avantair expects to have approximately 40 aircraft
in its fleet by June 30, 2007. Its fleet currently consists exclusively of
Piaggio Avanti P-180 turboprops, and 55 of the current orders are for that
aircraft. In addition, on October 17, 2006, Avantair announced orders for 20
Embraer Phenom 100 aircraft. The Phenom 100 is in the Very Light Jet category of
business jets, with the largest cabin in the category. Avantair will take
delivery of its first Phenom 100 in 2009. Avantair was incorporated July 11,
2003 in the State of Nevada.
Avantair currently derives revenues from two primary revenue streams:
sales of fractional aircraft shares and monthly management fees. Avantair
generates approximately 96% of its revenues from the sales of fractional
aircraft shares and monthly management fees associated with such shares, which
represented $23.7 million and $22.8 million, respectively, during the fiscal
year ended June 30, 2006.
Avantair is in the process of developing a new revenue stream from fixed
base operations (FBO). As a fixed base operator, Avantair will provide fuel,
maintenance and refurbishment services, hangar rental, office space rental and
other services to aircraft owners. Avantair believes that the fixed base
operations will also allow it to lower operating costs for its fractional
aircraft. Since it provides a more geographically diverse base of operations,
Avantair believes that the FBO business will allow it to reduce its
repositioning costs by providing additional maintenance, cleaning and fueling
facilities. Avantair believes that maintaining fixed base operations will allow
it to capitalize on both internal and industry growth since Avantair will
provide these services not only to aircraft in the Avantair fleet, but also to
other operators, particularly those flying aircraft in the very light jet
market. Avantair operates an FBO facility in Clearwater, Florida, and will begin
limited revenue service at an FBO in Camarillo, California in November 2006. In
addition, Avantair is presently in discussions to add an FBO in Caldwell, New
Jersey and has identified other possible locations for future potential
expansion.
FRACTIONAL OWNERSHIP BUSINESS
Fractional aircraft ownership provides customers with the convenience
and flexibility of private air service without the more significant costs
associated with sole ownership of an aircraft. Commercial flight delays can be
costly and tiresome, commercial hubs are increasingly crowded, major commercial
airports may be far from final destinations and commercial air travel is
increasingly subject to threats and security-related inconveniences. Attempting
to divide the use of a plane among multiple parties to maximize its value can be
logistically challenging. For businesses and high net worth individuals,
fractional ownership often offers a balance between convenience and cost.
A fractional aircraft company assembles a fleet of planes with each of
these planes available for a certain number of revenue generating flight hours
per year. Those hours are then divided into partial ownership shares and these
partial ownership shares are sold to individuals and businesses. Avantair's
customers typically purchase one-sixteenth or one-eighth shares in an aircraft,
although in some cases the purchases are one-quarter shares or more. The
purchase of a one-eighth share means that the owner will pay approximately
one-eighth of the aircraft retail price initially and receive one-eighth of the
total number hours of flying time per year for the life of the contract
(typically five years). An Avantair fractional share owner agrees to pay
Avantair an additional predetermined monthly fee to cover the various costs of
maintaining and operating the aircraft. Avantair is responsible for all of these
services. The fractional shareowner contacts Avantair's flight scheduling
personnel to schedule use of the plane.
According to AvData, the North American fractionally owned aircraft
fleet has grown from 8 aircraft in 1986 to an aggregate of 952 aircraft as of
May 2006, and the number of fractional share owners has grown to 5,902 in that
same period. According to AvData, there are only five companies which have 3% or
more of the total market for fractional aircraft, based upon the units in
operation - NetJets, Flight Options, FlexJet, CitationShares, and
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Avantair, with NetJets having a market share of approximately 50% and Avantair's
three largest competitors having a combined market share of over 80%. Avantair
has a market share of approximately 3%.
The general aviation industry builds and sells aircraft ranging from
single passenger, single engine propeller planes to multimillion dollar
transoceanic jets costing $50 million or more. The fractional aircraft industry
has primarily concentrated on the middle to upper end of that market. Most
fractionally owned aircraft have a capacity of between four and seven passengers
and a minimum range of 1,250-1,500 nautical miles. The list prices of these
types of aircraft are generally $5 million to $50 million. There are numerous
manufacturers and models in most categories of aircraft. Both providers of
fractional aircraft shares and purchasers of these shares consider the choice of
aircraft based upon a variety of factors including:
o price;
o availability;
o operating costs;
o reliability;
o speed;
o range;
o cabin size and features;
o safety features and record;
o efficiency;
o maintenance cost;
o manufacturer; and
o runway requirements.
Other than NetJets, all of Avantair's principal competitors are owned by
aircraft manufacturers, which have resulted in their fleets being largely
comprised of aircraft built by their respective parent companies. Avantair,
however, is not owned by any manufacturer, giving it a greater level of
flexibility than most of its competitors.
Fractional operators must have sufficient numbers of aircraft in the
fleet to provide the service required. Since fractional share buyers desire to
enter the program as soon as possible after purchasing shares, operators are
obligated to provide access to aircraft when the shareowner requests it. If the
operator does not have ample capacity available, it must charter that capacity,
a practice that can be very costly. As a result, fractional operators tend to
place orders for aircraft in advance, and only sell shares within a few weeks
prior to taking delivery of the aircraft. Fractional operators may also offer
card programs, which provide a certain number of flight hours to be used during
a specific period of time, generally one year.
The capital requirements of the fractional aviation business are less
intensive than other segments of the aviation industry. Ordering aircraft
requires the operator to place deposits well in advance of receiving its planes.
Progress payments are made as certain milestones are achieved. The amounts of
the deposits and progress payments are a function of several factors including
the price of the underlying plane, the creditworthiness of the buyer, and the
time until delivery. The majority of the payments are generally made upon
delivery. In normal practice, however, the fractional operator sells the plane
in advance, so that the title transfers to the fractional shareowner within
hours or days after title transfers from the manufacturer to the fractional
operator. As a consequence, the fractional operator receives the funds from the
share owners virtually at the same time as the bulk of the payments are paid to
the manufacturer.
HOW AVANTAIR'S FRACTIONAL OWNERSHIP PROGRAM WORKS
Each of Avantair's current aircraft is available to fractional owners
for a total of 800 flight hours per year. Those hours are then divided into
blocks of ownership, beginning at fifty hours per year (a one-sixteenth share of
the aircraft), and these partial ownership shares are sold to buyers. A share of
an aircraft currently can be purchased from Avantair starting at $405,000 for a
one-sixteenth share. Purchase prices for larger interests are slightly
discounted. Each fractional owner must enter into a Management and Cross Lease
Agreement with Avantair as part of the purchase of shares in an Avantair
aircraft. A monthly management fee, currently $8,900, is assessed per
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1/16th share owned. This fee covers any direct costs in operating and
maintaining the aircraft, other than fuel surcharges which are based on actual
aircraft usage. This is unlike other fractional programs, which generally charge
fractional owners an occupied hourly rate for use of the aircraft. All programs
have fuel surcharges, but due to the efficiency of the Avanti and the way
Avantair calculates its management fee, Avantair's surcharges tend to be less
than those charged by its competitors. Any landing fees, excess catering fees,
applicable international fees and taxes are billed to the owner. Monthly fees
are adjusted upwards on each anniversary date by the greater of either the
current Consumer Price Index or 3.5%, but will not exceed the then-current rate
offered to new share owners.
Each fractional owner is allocated a certain number of flight hours per
year based on the size of their ownership share. The owner may exceed the number
of annual allocated hours by up to 20%, to the extent that the owner did not use
all of their allocated hours in the prior year and/or as an advance use of the
next year's allocated hours.
Each share owner owns an "undivided interest" that cannot be affected or
encumbered by the financial actions of other owners. In order to avoid
scheduling conflicts, each share owner throughout Avantair's fleet agrees to
trade off use of such owner's airplane with the other share owners in the fleet.
Avantair must move planes to the necessary destinations to meet the fractional
owners' needs. Avantair keeps a certain number of core aircraft in the fleet in
order to have enough planes to meet demand.
AIRCRAFT USAGE AND SCHEDULING
A fractional share owner is required to provide a minimum of 24 hours
notice to Avantair prior to the scheduled take-off time when scheduling the
first leg of a trip during non-peak travel times. During peak travel times,
requests for use by owner of an aircraft must be made at least 72 hours prior to
the scheduled departure date of the first leg. No later than January 1st of each
year, Avantair will notify all of its fractional owners of a list of the year's
peak travel days, which will not exceed 25 days.
For all flights outside of the Primary Service Area, which is comprised
of the continental United States, certain airports in the Bahamas and Cabo San
Lucas, fractional owners must request an aircraft at least 7 days prior to the
scheduled date of the first leg of the trip. All such requests are filled on a
first-come first-served basis, provided that, for each such request, the
fractional owner has provided sufficient information regarding the trip to
enable Avantair to schedule the trip.
THE AVANTAIR CARD PROGRAM
In 2006, Avantair introduced a card program that allows a purchaser to
access Avantair's aircraft for 15 or 25 hours of flight time without the
requirement to purchase ownership shares in an aircraft. The card holder
purchases the entire card amount in advance and receives the same service as a
fractional owner. After the card holder has exhausted the hours purchased, the
holder has no further obligations to Avantair. The program offers an option for
individuals and businesses seeking to experience fractional ownership.
Avantair's management considers its card program to be an effective means of
introducing potential purchasers to its fractional ownership program. Avantair's
card program currently is priced at $60,000 for a 15 hour card and $95,000 for a
25 hour card.
CHARTERING
Whenever possible, Avantair will schedule an aircraft from its fleet for
each request for use by a fractional owner. In the event that none of Avantair's
aircraft are available, Avantair will charter a comparable aircraft for use by
the owner, provided that the fractional owner has complied with all applicable
notice requirements and all other program provisions. Avantair will only charter
aircraft that satisfy the Aviation Research Group US (ARG/US) Gold or Platinum
rating.
EXPIRATION OF THE PROGRAM
Upon the expiration of the term of Avantair's agreement with a
fractional owner, the owner shall have the option to (i) sell the owner's
interest in the aircraft and cease to participate in the Avantair program, (ii)
sell
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this interest and purchase an interest in another aircraft that participates or
will participate in the Avantair program or (iii) retain this interest and renew
their participation in the program.
SALES AND MARKETING
Avantair targets customers based on demographic data, including net
worth, household income, job title and age.
Avantair uses a variety of methods to market and advertise its
fractional ownership program, including print advertising, direct mail, trade
events, web site and online and referral incentives. In fiscal 2006,
approximately half of Avantair's marketing budget was allocated to print
advertising. Advertising placement is based on historical data and demographics.
Avantair's direct mail advertising consists of several mailings and
e-mailings per year to targeted prospective customers. Avantair also
participates in live events, including events at fixed base operators attended
by owners and prospective owners. The events are targeted geographically and
often timed to coincide with trade shows and other industry events to reduce the
cost to Avantair.
As part of its marketing, Avantair maintains a web site at
www.avantair.com. All of Avantair's collateral and print marketing materials,
direct mail, email and video materials direct prospective buyers to its web
site.
Public relations efforts are driven by editorial opportunities and news
pitches to key editors. Recent editorial placements include magazines such as
Robb Report, Golf Digest and Business Week, as well as travel and aircraft
industry publications. An owner newsletter, Contrails, is published quarterly
with pertinent news, purchase reinforcement and any new programs. Contrails is
also placed in packages that are sent to prospects at first inquiry into the
fractional program.
An important element of Avantair's marketing strategy is referral
incentives. Approximately 30% of new share sales during 2005 and 2006 have been
generated from referrals from existing share owners. Under Avantair's referral
incentive program, a fractional owner who refers a customer to Avantair receives
two additional allocated hours of flight time.
One internal measurement used to assess future sales is leads generated
by both the sales force and the other marketing methods described above. The
number of Avantair's sales leads has nearly doubled over the past year. While
many leads do not turn into sales, they provide the basis for future sales.
Another important indicator is demonstration flights. A very high percentage of
potential buyers of shares will request a demonstration flight on one or more
aircraft types and on one or more products from different fractional operators.
Avantair's demonstration flights cost the potential buyer approximately $3,000
per hour, with the price charged deducted from the purchase only in the event
that a share or shares are ultimately bought. Avantair's management believes
that in excess of 80% of demonstration flights convert into sales of fractional
shares.
Avantair's sales department is comprised of a vice president of sales
and regional sales directors supported by a sales department and a marketing
department. Avantair's sales staff is compensated with a base salary plus
commissions.
FLEET AND GEOGRAPHIC SCOPE
Avantair's fleet currently consists of 28 aircraft, including four
planes that Avantair operates as core aircraft to provide additional capacity.
Currently, all of the fractional aircraft in Avantair's fleet are Piaggio Avanti
P-180 turboprops. In addition, on October 17, 2006, Avantair announced orders
for 20 Embraer Phenom 100 aircraft. The Phenom 100 is in the Very Light Jet
category of business jets, with the largest cabin in the category. Avantair will
take delivery of its first Phenom 100 in 2009.
Avantair has focused its sales efforts to date in two geographic regions
- - the East Coast and Southern California. Over the last six months, Avantair's
customer base and flight time has increased significantly on the West Coast.
Currently, the top 100 city pairs most frequented by Avantair's customers show
the East Coast region
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at 52% and the West Coast region at 39%. This geographical breakdown makes it
more effective for Avantair to position aircraft on the West Coast where they
will be utilized for occupied hours on a consistent basis, which reduces the
need to frequently reposition aircraft across the country. A fractional owner is
entitled to board a plane at the location of his/her choosing. The costs of
moving a plane, or repositioning it, are borne by Avantair. These costs have
been very significant due to fuel, pilots and crew and maintenance costs arising
from increased overall usage of the aircraft. As the number of planes in
Avantair's fleet increases, Avantair believes that the relative amount of
repositioning should decline. As the size of Avantair's fleet reaches a critical
mass, aircraft will be domiciled in strategic locations based on travel
patterns. Those locations are frequently determined through the usage of a
software optimization program. In addition, Avantair incurs costs associated
with pilots and crew, such as transportation to flight departure locations, per
diems, meals and hotel expenses. As Avantair's fleet expands, crews will be
domiciled in cities frequented by fractional owner flights. This presents an
opportunity for Avantair to leverage more favorable discounts for air and hotel
due to volume, as well as making more efficient use of pilot and crew work
hours.
Avantair believes that operating a very limited number of aircraft
models provides it with cost and operating advantages relative to other
fractional aircraft operators that may operate as many as 26 different aircraft
models. Among the advantages of operating a limited number of aircraft models
are:
o MAINTENANCE - Reduces costs of repair and maintenance by enabling
nearly every member of Avantair's maintenance staff to service
all of its aircraft, plus reduced repositioning of an aircraft
results in fewer flight hours and therefore less frequent
maintenance;
o PILOT TRAINING - Pilots need to be certified for a given aircraft
model, therefore the operation of a limited number of models
means that nearly all employed pilots are available to operate
any aircraft in the fleet. Avantair anticipates acquiring a
Piaggio Avanti flight simulator during the fourth calendar
quarter of 2006 for use in pilot training. This simulator will
enable significant pilot training without the use of actual
aircraft, and will therefore increase available flight hours for
Avantair's aircraft by an estimated 1,800 hours annually and
reduce fuel, maintenance and insurance costs associated with
Avantair's internal use of its aircraft for training purposes.
o INVENTORY - Fewer parts need to be inventoried which reduces the
overall cost of inventory. Due to the uniformity of the fleet,
Avantair is exposed to lower capital investment and inventory due
to interchangeability of parts and the greater ease of
troubleshooting.
Avantair is the exclusive fractional operator in North America of the
Piaggio Avanti P-180 aircraft. The Piaggio Avanti has a unique design that uses
forward wing technology which allows it to both provide the fastest speed of any
turboprop and yet have an unusually large cabin relative to aircraft in its
category. The Piaggio Avanti also compares favorably to light jets as the
Piaggio Avanti has the lowest fuel usage in the category. This aircraft also
allows access to a greater number of airports than most of the jets in its
category since it has the capability to land on shorter runways.
The Piaggio Avanti has several very attractive features to fractional
shares owners:
o STAND-UP CABIN - A stand-up cabin and a private lavatory, which
is unique in its category.
o FLYING CAPACITY - Ability to fly 1,300 nautical miles with five
passengers, luggage and a full fuel load.
o SPEED - Fastest turboprop manufactured, with jet-like speed of
458 mph
o RUNWAY CAPABILITY - Ability to land on shorter runways allowing
access to a greater number of airports
o COMFORTABLE RIDE - Sound dampening interior and rear mounted
props, which help deliver a quiet ride
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o SAFETY - Since its introduction in 1989, there has not been a
fatal accident involving a Piaggio Avanti P-180. In addition, the
Avanti's wing design reduces the effects of turbulence and its
de-icing system reduces the impact of inclement weather on
aircraft operation.
The pricing structure afforded by utilizing the Piaggio Avanti allows
Avantair to attract a customer desiring quality at a lower price point. Offering
the cabin cross section of a mid-size aircraft and fuel efficiency of a
turboprop, along with no hourly fees, allows Avantair to lower the cost of
fractional ownership to a broader range of consumers.
FLIGHT OPERATIONS
Avantair's Operations Control Center is made up of four departments that
all play a role in a fractional owner's trip from the first phone call to
completion of the trip at the final destination:
o Owner Services
o Pilot Services
o Flight Specialist
o Flight Following
After a fractional share is sold to a customer, a fractional owner is
assigned an Owner Services team. This team assists the fractional owner in
scheduling flights and making necessary arrangements based on the owner's flight
requirements, including coordinating with Avantair's Operations Control Center.
The flight scheduling process begins when a fractional owner contacts
the owner's Owner Services team. When a fractional owner contacts Avantair to
schedule a flight, an assigned Owner Services team member handles the request.
The team member will ask for all details of the proposed trip, including airport
of departure and arrival as well as fixed base operation preference. This
department also handles any ground transportation and/or catering orders.
The trip request is subject to an approval process with the Flight
Specialist. After approval, the trip is entered into Avantair's FlightOps
computer system by Owner Services. The trip request is then delivered to the
fractional owner for approval. This is used as a quality control so that
Avantair is sure it has all the correct details of the fractional owner's trip.
After a signed confirmation is received from the fractional owner, Owner
Services will confirm this trip reservation in FlightOps. The night before and
the morning of the trip, Owner Services reconfirms all ground and/or catering
requests for quality control.
The day before the trip, the flights will be assigned to an Avantair
aircraft by the Flight Specialist. The Flight Specialist then confirms the
availability and location of the aircraft for the next day in an effort to
ensure that the fractional owner gets the optimal schedule with the least amount
of repositioning time. This confirmation process also takes into consideration
the crew duty, rest and flight time regulations.
The job of Pilot Services is to schedule pilots for flights and arrange
accommodations for pilots away from their base of operations. Pilot Services is
also responsible for the crew scheduling of all aircraft.
Flight Following tracks all current flights that are in progress through
direct contact with the crew and through FlightOps. Flight Following monitors
weather conditions and other situations which may lead to delays, and works with
the flight crews and the Operations Control Center to resolve delays as quickly
as possible.
PILOT HIRING AND TRAINING
Avantair selects and hires pilots based on a detailed screening process,
including interviews, assessments of the candidate's knowledge of Avantair's
aircraft, applicable regulations and flight skills, and background checks. All
pilots are initially hired into first officer positions. Minimum requirements
for initial hires include:
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o 2,500 hours of total flight time;
o 1,000 multi-engine flight hours; and
o 250 hours of flight hours within the previous 12 months.
All pilots must complete FAA required and approved ground and flight
training prior to flying any flight leg for any of Avantair's fractional owners.
Further, all of Avantair's pilots must fulfill ongoing training requirements.
Avantair's pilots each have an average of over 6,200 hours of total flight time.
AIRCRAFT MAINTENANCE
Avantair aircraft maintenance follows a schedule of inspections based on
the numbers of hours flown at the recommendation of the aircraft manufacturer
and approval of the FAA. This schedule consists of four levels of inspection -
A, B, C and D checks. An A check occurs at every 150 flight hours; a B check at
every 300 flight hours; a C check at every 1,500 flight hours; and a D check at
every 3,000 flight hours. The scheduled maintenance events, as well as
unanticipated events, result in an average downtime of one day for A checks, two
days for B checks, five days for C checks and twenty-one days for D checks.
Avantair contracts with FAA-approved repair stations to outsource C checks and D
checks on Avantair's aircraft. Avantair's management believes that the
outsourcing of these maintenance services reduces repositioning time and
provides consistent levels of service. As a condition of employment, all of
Avantair's maintenance technicians must have an FAA license and are subject to a
background check and drug screening prior to employment. Avantair's Lead
Technicians and Supervisors attend the FAA-approved Piaggio factory training
program at Flight Safety. In addition, training is provided at the Rockwell
Collins factory school as well as Pratt & Whitney Powerplant (engine) school.
Avantair's main maintenance base and its Maintenance Control Center, which
oversees and coordinates all maintenance activity on Avantair's aircraft, is
located in Clearwater, Florida and is staffed 24 hours a day and seven days a
week. The average years of experience is over 17 years for Avantair's
maintenance technicians, 25 years for its maintenance controllers and over 25
years for its maintenance quality control staff.
COMPETITION
Avantair faces competition from other fractional aircraft operations.
Avantair's primary competitors are NetJets, a subsidiary of Berkshire Hathaway,
Flight Options, a subsidiary of Raytheon, FlexJet, a Bombardier subsidiary, and
CitationShares, which is 75% owned by Cessna, a wholly-owned Textron subsidiary.
None of these competitors are stand-alone entities like Avantair and all of
these competitors are significantly larger than Avantair and with more
resources. All of these companies (other than NetJets) are subsidiaries of
business jet manufacturers, which Avantair's management believes may hamper
their flexibility in purchasing aircraft. According to AvData, there are only
five companies which have 3% or more of the total market for fractional
aircraft, based upon the units in operation - NetJets, Flight Options, FlexJet,
CitationShares, and Avantair, with NetJets having a market share of
approximately 50% and Avantair's three largest competitors having a combined
market share of over 80%. Avantair has a market share of approximately 3%.
Avantair and other fractional airlines also face competition from
charter airlines, air taxis and commercial airlines. Some of these competitors
offer greater selection of aircraft (including jet aircraft), some of which
permit owners to fly greater distances or at greater speeds, travel with a
greater number of passengers and on shorter advance notice before flying.
Avantair's management believes that fractional aircraft operators
compete on the basis of aircraft model and features, price, customer service and
scheduling flexibility. Avantair's management believes that customers are
generally willing to continue to use the same fractional aircraft operator so
long as such operator provides satisfactory service with competitive pricing.
Avantair's management believes that the quality of its aircraft and service, and
the value it provides to its customers, enables it to compete effectively
against its larger competitors.
INFORMATION TECHNOLOGY
Avantair's core software application, FlightOps, is designed, developed,
and licensed by Bitwise Solutions, Inc. for use in Avantair's Operations Control
Center to plan, schedule and track fractional owner trips as well as manage its
fleet. FlightOps uses Oracle as its database server.
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Avantair has invested in an efficient high-performance computing
environment that includes Dell PowerEdge servers with the latest commercially
available Windows-based operating system. In addition, Avantair has
approximately 60 Fujitsu Tablet PCs that are used as part of its pilots'
Electronic Flight Bag. These PCs are equipped with core software applications
that include navigational aids, flight charts, and aircraft manuals.
Avantair currently has two agreements with Application Services
Providers:
o Salesforce - Customer Relationship Management Sales Force
Automation; and
o Corridor - Enterprise Resource Management Aviation Service
Software (Maintenance, Inventory and FBOs).
GOVERNMENT AND OTHER REGULATIONS
Avantair, like all air carriers, is subject to extensive regulatory and
legal compliance requirements, both domestically and internationally. In
addition to state and federal regulation, airports and municipalities enact
rules and regulations that affect aircraft operations. The FAA regulates
Avantair's activities, primarily in the areas of flight operations, maintenance,
and other safety and technical matters. FAA requirements cover, among other
things, security measures, collision avoidance systems, airborne windshear
avoidance systems, noise abatement and other environmental concerns, and
aircraft safety and maintenance procedures. Specifically, the FAA may issue
mandatory orders, relating to, among other things, the grounding of aircraft,
inspection of aircraft, installation of new safety-related items and removal and
replacement of aircraft parts that have failed or may fail in the future.
The FAA also has authority to issue air carrier operating certificates
and aircraft airworthiness certificates and regulate pilot and other employee
training, among other responsibilities. Avantair's management of fractional
aircraft is regulated by the FAA under Part 91, subpart K of the Federal
Aviation Regulations ("FARs"), and the FAA has issued Management Specifications
reflecting Avantair's authority to manage such aircraft. In some cases,
including all current international operations, the FAA deems Avantair to
transport persons or property by air for compensation. Such "charter" operations
are regulated under Part 135 of the FARs, and Avantair's authority to conduct
those operations is reflected in an Air Carrier Operating Certificate with
operating specifications. Both types of FAA authority potentially are subject to
amendment, suspension or revocation. From time to time, the FAA issues rules
that require aircraft operators to take certain actions, such as the inspection
or modification of aircraft and other equipment.
Avantair's charter operations under Part 135 also are subject to
economic regulation by the U.S. Department of Transportation ("DOT"). To retain
its DOT registration as an air taxi, Avantair must remain a U.S. citizen; that
is, U.S. citizens must actually control Avantair, at least 75% of Avantair's
outstanding voting stock must be owned and controlled by U.S. citizens, and the
President and two-thirds of the directors and other managing officers must be
U.S. citizens. Avantair's organizational documents will provide for the
automatic reduction in voting power of common stock owned or controlled by
non-U.S. citizens if necessary to maintain U.S. citizenship. If Avantair cannot
maintain its U.S. citizenship, it would lose its ability to conduct its charter
operations (though not its fractional program manager operations).
Aircraft operators also are subject to various other federal, state and
local laws and regulations. The Department of Homeland Security ("DHS") has
jurisdiction over virtually all aspects of civil aviation security and arrivals
into and departures from the United States. Avantair is also subject to
inquiries by DOT, the FAA, and other U.S. and international regulatory bodies.
ENVIRONMENTAL REGULATION
Many aspects of Avantair's operations also are subject to increasingly
stringent federal, state, local and foreign laws and regulations protecting the
environment concerning emissions to the air, discharges to surface and
subsurface waters, safe drinking water, and the management of hazardous
substances, oils, and waste materials. Future regulatory developments in the
U.S. and abroad could require aircraft operators to take additional action to
maintain compliance with applicable laws. For example, potential future actions
that may be taken by the U.S.
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government, foreign governments, or the International Civil Aviation
Organization to limit the emission of greenhouse gases by the aviation sector
are unknown at this time but could require significant action from aircraft
operators in the future.
Avantair is also subject to other environmental laws and regulations,
including those that require it to remediate soil or groundwater to meet certain
objectives. Under the federal Comprehensive Environmental Response, Compensation
and Liability Act (commonly known as "Superfund") and similar environmental
cleanup laws, generators of waste materials, and owners or operators of
facilities, can be subject to liability for investigation and remediation costs
at facilities that have been identified as requiring response actions. Certain
operations of Avantair are also subject to the oversight of the Occupational
Safety and Health Administration (OSHA) concerning employee safety and health
matters. Avantair also conducts voluntary remediation actions. Environmental
cleanup obligations can arise from, among other circumstances, the operation of
fueling facilities, and primarily involve airport sites. Future costs associated
with these activities are not expected to have a material adverse effect on
Avantair's business.
RISK OF LOSS AND LIABILITY INSURANCE
The operation of any fractional aircraft business includes risks such as
mechanical failure, physical damage, collision, property loss or damage and
business interruption due to events beyond the operator's control. Avantair
carries an all-risk aviation insurance policy (subject to standard aviation
exclusions and provisions) which offers protection for physical damage to the
hull, bodily injury to passengers, as well as third party bodily injury and
property damage. While Avantair believes that its present insurance coverage is
adequate, not all risks can be insured, and there can be no guarantee that any
specific claim will be paid, or that Avantair will always be able to obtain
adequate insurance coverage at reasonable rates.
LEGAL PROCEEDINGS
Avantair is not involved in any legal proceedings which it believes will
have a significant effect on its business, financial position, results of
operations or liquidity, nor is Ardent aware of any proceedings that are pending
or threatened which may have a significant effect on its business, financial
position, results of operations or liquidity. From time to time, Avantair may be
subject to legal proceedings and claims in the ordinary course of business,
involving principally commercial charter party disputes. It is expected that
these claims would be covered by insurance if they involve liabilities such as
arise from collision, other casualty, death or personal injuries to crew,
subject to customary deductibles. Those claims, even if lacking merit, could
result in the expenditure of significant financial and managerial resources.
EMPLOYEES
As of September 30, 2006, Avantair had approximately 264 full-time
employees, 28 of whom were management and 236 of whom were operational. Avantair
believes that it has good relations with its employees. None of Avantair's
employees are represented by labor unions or covered by collective bargaining
agreements.
FACILITIES
Avantair leases its corporate headquarters and hangar space at 4311
General Howard Drive, Clearwater, Florida under two leases that each expire on
April 30, 2020. In addition, Avantair currently leases the following principal
properties:
o 100 square feet of hangar space at 155 Passaic Avenue, Fourth
Floor, Fairfield, New Jersey under a lease that is month to
month;
o approximately 1,600 square feet of office space at 7757 Auburn
Road, #16, Concord, Ohio under a lease that expires on January
14, 2007;
o approximately 3,000 square feet of office space at 14020
Roosevelt Blvd, #805, Clearwater, Florida under a lease that
expires February 28, 2007;
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o approximately 65,258 square feet of office and hangar space at
575 Aviation Drive, Camarillo, California under a lease that
expires on August 1, 2021; and
o approximately 75 square feet of office and terminal space at 50
Airport Road, Morristown, New Jersey under a lease that expires
on June 15, 2007.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AVANTAIR
This discussion summarizes the significant factors affecting the
consolidated and combined operating results, financial condition, liquidity and
cash flows of Avantair for the fiscal years ended June 30, 2006, June 30, 2005,
June 30, 2004. This discussion should be read in conjunction with Avantair's
audited consolidated and combined financial statements, included elsewhere in
this proxy statement, and the notes thereto. This proxy statement contains
audited financial statements for Avantair that comply with U.S. generally
accepted accounting principles.
OVERVIEW
Avantair is engaged in the sale and management of fractional ownerships
of professionally piloted aircraft for personal and business use. Avantair is
the fifth largest company in the North American fractional aircraft industry.
Currently, Avantair operates 28 aircraft with 75 additional aircraft on order.
Avantair expects to have approximately 40 aircraft in its fleet by June 30, 2007
presuming that the current delivery schedule is met by the manufacturer.
Avantair operates fixed flight based operations, aircraft maintenance, concierge
and other services to customers from hangars and office locations in Clearwater,
Florida, in Camarillo, California beginning in November 2006 and is in
discussions to open an additional facility in Caldwell, New Jersey. Avantair,
Inc. was incorporated July 11, 2003 in the State of Nevada.
Avantair has one wholly owned subsidiary, Skyline Aviation, Inc. Skyline
is a Delaware corporation established on September 14, 1999. On August 20, 2004
the stockholders of Skyline entered into a Contribution Agreement in which they
agreed to contribute 100 shares of common stock (representing 100% of the common
stock outstanding), no par value, to Avantair for 100 shares of Avantair Class A
Common Stock or Class B common stock. Skyline at this time became a wholly owned
subsidiary of Avantair, resulting in the consolidated financial statements
presented. Since the date of this business combination, Skyline's operations and
financial performance have not been material to Avantair's operations and
financial condition, taken as a whole. From the inception of Avantair and prior
to the Contribution Agreement, the companies conducted business under common
ownership as defined by Emerging Issues Task Force 02-5, Definition of "Common
Control", and with 85% common ownership, the financial statements for the period
ended June, 30, 2004 were presented as combined financial statements. Since in
this business combination there was only an exchange of shares between entities
under common control the business combination did not require the assets and
liabilities to be fair valued, therefore they were recorded at their historical
cost.
The results of operations for the fiscal year ended June 30, 2004 are
the combined results of Skyline and Avantair for that period. The results of
operations for the fiscal year ended June 30, 2005 include approximately two
months of combined operations and the balance of the operations are consolidated
from August 20, 2004. The accounting described above had no impact on the
results of operations. The results of operations for the fiscal year ended June
30, 2006 were consolidated. All inter-company transactions have been eliminated
in consolidation. There were no inter-company sales or expenses during the
periods that the operations were combined.
Avantair has experienced losses since its inception and as of June 30,
2006 had an accumulated deficit of approximately $36.4 million. Avantair
generates revenues through the sales of fractional shares of aircraft and
providing operations, maintenance and management services related to these
aircraft. Avantair presently sources all of its aircraft from a single
manufacturer and has contractual commitments to purchase these aircraft at
wholesale pricing for an aggregate of approximately $297.0 million to this
manufacturer through 2010 for the delivery of 55 additional aircraft. For these
aircraft, Avantair has provided initial deposits aggregating approximately $9.0
million,
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and makes progress payments of an additional $0.3 million per aircraft when
delivered in the United States. Prior to delivery of these aircraft, Avantair
markets and sells fractional interests, separated into ownership shares as low
as 1/16th interest, at retail prices to individuals and businesses. Avantair has
placed an order with another manufacturer for 20 very light jets, with delivery
scheduled beginning in 2009. In addition, Avantair generates significant revenue
through maintenance and management agreements with fractional owners under which
Avantair provides pilots, maintenance, fuel and hangar space for the aircraft.
In addition to the cost of acquiring aircraft, Avantair's primary expenses have
been related to aircraft repositioning (i.e., moving an aircraft to another
location to accommodate customer needs, pilot training and demonstration flights
for sales purposes), maintenance and staffing, charters and insurance. Further,
Avantair incurred increased costs of flight operations and general and
administrative expenses in anticipation of increased aircraft deliveries and
usage in the fiscal year ended June 30, 2006. However, these aircraft deliveries
were delayed pending regulatory approvals of updated avionics. Subsequent to
this period, regulatory approval was obtained and Avantair began accepting
deliveries of these aircraft in September 2006. Avantair's management
anticipates that the opening of its proposed fixed base operations business in
Camarillo, California and potentially other FBOs, will generate an additional
source of revenue in future fiscal years.
Avantair's primary source of liquidity is cash provided by operations
and cash provided from its line of credit. Principal uses of cash are capital
expenditures, principally the purchase of core aircraft and leasehold
improvements. At June 30, 2006 Avantair had a working capital deficit of
approximately $23.9 million. On October 2, 2006 Avantair sold approximately 3.2
million shares of its Class A common stock and raised approximately $9.0
million. In addition, it borrowed $7.6 million to finance its business in the
near term. For the fiscal year ended June 30, 2006, Avantair's net cash provided
by operating activities totaled $3.6 million, a decrease of $1.7 million
compared to the prior fiscal year. This decrease resulted primarily from a $18.1
million net loss from operations (after non cash charges), which was partially
offset by a $15.7 million increase in deferred revenue (net of aircraft costs
related to fractional shares) related to fractional aircraft shares sold on
planes not yet delivered to Avantair and a $7.0 million increase in accounts
payable to its vendors.
CRITICAL ACCOUNTING POLICIES
Avantair's discussion and analysis of its financial condition and
results of operations for the purposes of this document are based upon its
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Avantair's significant accounting policies are presented in Note 2 to
its audited consolidated and combined financial statements, and the following
summaries should be read in conjunction with the financial statements and the
related notes included in this proxy statement. While all accounting policies
affect the financial statements, certain policies may be viewed as critical.
Critical accounting policies are those that are both most important to the
portrayal of the financial statements and results of operations and that require
Avantair's management's most subjective or complex judgments and estimates.
Avantair's management believes the policies that fall within this category are
the policies related to variable revenue recognition, aircraft costs related to
fractional sales, use of estimates, capital assets, impairment of long-lived
assets, income taxes and loss per share.
REVENUE RECOGNITION. Avantair sells fractional shares of aircraft and
the related maintenance and management services that accompany aircraft
ownership. The aircraft are sold in 1/16th shares or multiples thereof. The
purchase agreement grants the customer the right to the use of the aircraft for
a specified number of hours each year the aircraft is in service. When a
customer purchases a fractional share, the customer is also required to enter
into a five-year management and maintenance agreement. Under the terms of the
management and maintenance agreement, Avantair agrees to manage, operate and
maintain the aircraft on behalf of the customer in exchange for a fixed monthly
fee plus a fuel surcharge.
FRACTIONAL AIRCRAFT SHARES. Avantair does not have vendor
specific objective evidence to determine the fair value of each element
and as a result has adopted the provisions of EITF 00-21 ("Accounting
for Revenue Arrangements with Multiple Deliverables") to account for the
sale of fractional shares of aircraft. Accordingly, if the sale of the
fractional share cannot be separated from the underlying maintenance
agreement, the revenue must be recognized ratably over the life of the
maintenance agreement. The sales of the fractional shares of the
aircraft are recognized as income over the five-year period. For
example, if the retail value of an aircraft is $6.5 million, when
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all of the shares in the aircraft are sold this amount is recorded as a
deferred liability and amortized to income over a five-year period.
MANAGEMENT AND MAINTENANCE AGREEMENT. Revenue earned in
connection with the management and maintenance agreement is recognized
ratably over the term of the agreement or five years. At times a
customer will prepay their management and maintenance fee for a period
of one year or longer. This is recorded as unearned revenue and
amortized into revenue on a monthly basis in accordance with the
schedule provided for within each agreement.
AIRCRAFT COSTS RELATED TO FRACTIONAL SALES. As a result of the adoption
of EITF 00-21, aircraft costs related to the sale of fractional shares are
recorded as an asset which is then charged to cost of sales over a five year
period commencing on the date the plane is delivered and paid for. For example,
if an aircraft costs $5.5 million, this amount is recorded as an asset and
recognized as cost of aircraft shares sold over a five-year period.
USE OF ESTIMATES. The preparation of financial statements in conformity
with GAAP requires management to make certain estimates and assumptions that
affect the amounts reported in the consolidated and combined financial
statements and accompanying notes. Avantair is subject to uncertainties such as
the impact of future events, economic, environmental and political factors and
changes in Avantair's business environment; therefore, actual results could
differ from these estimates. Accordingly, the accounting estimates used in the
preparation of Avantair's financial statements will change as new events occur,
as more experience is acquired, as additional information is obtained and as
Avantair's operating environment changes. Changes in estimates are made when
circumstances warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in reported results of operations; if material, the
effects of changes in estimates are disclosed in the notes to the consolidated
and combined financial statements. Significant estimates and assumptions by
management affect: the proper recording of revenue arrangements with multiple
deliverables, the allowance for doubtful accounts, the carrying value of
long-lived assets, the amortization period of long-lived assets, the provision
for income taxes and related deferred tax accounts, certain accrued expenses and
contingencies. Avantair's management believes that the assumptions made to these
estimates are appropriate and reasonable. However, changes in circumstances and
conditions affecting these assumptions could have a material effect on
Avantair's results of operations.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and
consist principally of aircraft purchased which are not fractionalized and which
provide additional capacity to Avantair to meet customer demand. Depreciation
and amortization is computed using the straight-line method over the following
useful lives:
Aircraft 7 years
Office equipment 5-7 years
Flight management software/hardware 5 years
Vehicles 5 years
Improvements Lesser of estimated useful
life or the term of the lease
Avantair reviews the estimates of its capital assets' useful lives
annually. Any changes to these methods of depreciation could have a material
effect on Avantair's results of operations.
IMPAIRMENT OF LONG-LIVED ASSETS. Avantair accounts for the impairment of
long-lived assets under the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the estimated undiscounted cash flows to be generated
by those assets are less than the assets' carrying value. In accordance with
SFAS No. 144, long-lived assets used in operations are reviewed for impairment
whenever events or changes in circumstances indicate that carrying amounts may
not be recoverable. For long-lived assets to be held and used, Avantair
recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based on
the difference between the carrying amount and fair value. Long-lived assets
held for sale are reported at the lower of cost or fair value less costs to
sell. Avantair's management believes that the assumptions made to evaluate the
long-lived assets for impairment are appropriate and reasonable. However,
changes in circumstances and conditions affecting these assumptions could result
in impairment charges in future periods that may be material.
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INCOME TAXES. Avantair accounts for income taxes under the asset and
liability method in accordance with Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is established to
reduce deferred tax assets to the amounts expected to be realized. Avantair's
management believes that the assumptions made to calculate this allowance are
appropriate and reasonable. However, changes in circumstances and conditions
affecting these calculations could result in charges in future periods that may
be material.
LOSS PER SHARE. Basic loss per common share is presented in conformity
with SFAS No. 128, "Earnings Per Share." In accordance with SFAS No. 128, basic
loss per common share has been computed using the weighted-average number of
shares of common stock outstanding during the periods presented. Avantair has no
dilutive securities outstanding.
RECENTLY ISSUED PRONOUNCEMENTS
Stock-Based Compensation. In December 2004, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123, "(Revised 2004): Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to Employees." SFAS 123R requires all share-based payments to employees,
including grants of Avantair stock options to Avantair employees, to be
recognized in the financial statements based on their fair values. Under SFAS
123R, Avantair will have to determine the appropriate fair value model to be
used for valuing share-based payments and the amortization method for
compensation cost. Avantair has not adopted a stock option or award plan and
since its inception has not issued option or stock awards to employees or
consultants. Avantair's management does not expect that the adoption of this
standard will have a material impact on its consolidated financial statements.
Income Taxes. In June 2006, the FASB issued Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes (as amended) - an interpretation of
FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS No. 109, "Accounting for Income Taxes," and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. Avantair expects to implement FIN 48 beginning in fiscal year 2007 and
will evaluate the impact that adopting FIN 48 will have on its financial
position and results of operations.
No other pronouncements have been recently issued that Avantair believes
will have a material impact on Avantair's financial position and results of
operations.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005.
Revenues for the fiscal year ended June 30, 2006 were $48.4 million, an
increase of 107% from $23.4 million for the fiscal year ended June 30, 2005.
This increase was the result of a 125% increase in the revenue generated from
the sale of fractional aircraft shares to $23.8 million for the fiscal year
ended June 30, 2006 from $10.6 million for the fiscal year ended June 30, 2005
and an increase of 96% in maintenance and management fees to $22.8 million for
the fiscal year ended June 30, 2006 from $11.7 million for the fiscal year ended
June 30, 2005. Revenue from the sale of fractional aircraft shares increased due
to an increase of 19% in the number of fractional shares sold to 133.5
fractional shares sold in the fiscal year ended June 30, 2006 from 112
fractional shares sold in the fiscal year ended June 30, 2005, and an increase
of 78% in the number of fractional shares sold to 112 fractional shares sold in
the fiscal year ended June 30, 2005 from 62.5 fractional shares sold in the
fiscal year ended June 30, 2004. The increase in revenue from maintenance and
management fees increased due to several primary factors:
o an increase of 19% in the number of fractional aircraft shares sold in
the fiscal year ended June 30, 2006 from the fiscal year ended June 30,
2005;
o two separate price increases in the maintenance and management fees
beginning in September 2005; and
o that 43% of the fiscal year ended June 30, 2005 fractional aircraft
sales occurred in the last four months of the fiscal year ended June 30,
2005 which on an annualized basis had a favorable impact on the fiscal
year ended June 30, 2006. Other Revenue increased $0.6 million primarily
as a result of an increase in chartered time card revenue of $0.2
million and an increase in demonstration sales fees of $0.4 million.
Operating expenses for the fiscal year ended June 30, 2006 were 116%
higher than in the fiscal year ended June 30, 2005, with total expenses of $68.0
million compared to $31.6 million. The cost of fractional aircraft shares sold
increased to $19.2 million for the fiscal year ended
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June 30, 2006 from $9.3 million for the fiscal year ended June 30, 2005, due to
an increase of 19% in the number of fractional shares sold to 133.5 fractional
shares sold in the fiscal year ended June 30, 2006 from 112 fractional shares
sold in the fiscal year ended June 30, 2005, and an increase of 78% in the
number of fractional shares sold to 112 fractional shares sold in the fiscal
year ended June 30, 2005 from 62.5 fractional shares sold in the fiscal year
ended June 30, 2004. The cost of flight operations increased 121% to $31.8
million for the fiscal year ended June 30, 2006 from $14.4 million for the
fiscal year ended June 30, 2005, due to:
o an increase of $6.3 million in maintenance expenses, comprised primarily
of an increase of $4.5 million in parts expense and $1.4 million in
maintenance salary expense, each of which resulted from the increase in
fleet size and usage;
o an increase of $3.0 million in fuel prices and flight fees (which
includes landing fees, airport fees and ground transportation fees)
borne by Avantair for repositioning flights, demonstration flights and
pilot training flights;
o an increase of $2.5 million in pilot salary expense due to hiring an
additional 40 pilots;
o an increase of $2.4 million in related pilot expenses, including hotel
expenses, pilot airfare, living expenses and pilot training expenses due
to hiring an additional 40 pilots and increase in fleet size of 7
planes;
o an increase of $0.9 million in charter expenses; and
o an increase in $1.4 million in engine insurance expense due to increased
fleet size and usage.
Cost of flight operations (including maintenance expenses, costs related
to repositioning, pilot-related costs and charter expenses) was negatively
impacted in all areas by a delay at the FAA in approving a newly designed
avionics package in the Piaggio Avanti II. This delay caused 6 planes scheduled
for delivery during the last 6 months of fiscal year ended June 30, 2006 to not
be delivered, in part, until September 2006, which resulted in greater than
anticipated use of Avantair's existing fleet.
General and administrative expenses increased 95% to $13.4 million for
the fiscal year ended June 30, 2006 from $6.9 million for the fiscal year ended
June 30, 2005, due to:
o an increase of $1.5 million in depreciation expense due to the purchase
in late fiscal 2005 of core aircraft (aircraft used by Avantair),
o an increase of $2.5 million in wages and benefits due to an increase in
the number of administrative employees;
o $1.0 million in moving costs and related expenses due to the relocation
of Avantair's headquarters from New Jersey to Florida;
o an increase of $0.5 million in rent expense caused by increase in the
number of facilities, particularly the opening of Avantair's
headquarters in Clearwater, Florida; and
o $0.4 million in consulting fees.
Selling expenses increased to $3.7 million for the fiscal year ended
June 30, 2006 from $1.0 million for the fiscal year ended June 30, 2005 due to
an increase of $1.9 million in advertising expenses, aircraft shows and
promotions and an increase of $0.6 million in commissions and salaries paid to
sales employees.
Loss from operations was $19.6 million in the fiscal year ended June 30,
2006, an increase of 140% from $8.2 million in the fiscal year ended June 30,
2005 for the reasons set forth above.
Total other income and expense was $(1.1 million) in the fiscal year
ended June 30, 2006 compared to $(0.5 million) in the fiscal year ended June 30,
2005, primarily due to an increase in interest expense. Interest expense
increased 77% or $0.9 million due to an increase in the interest rate on
Avantair's line of credit. The interest rate on Avantair's line of credit
increased to 7.9% from 4.2% due to interest rate fluctuations and an increase in
the base rate of Avantair's primary line of credit from 2.5% over LIBOR to 3.75%
over LIBOR.
Net loss increased to $(20.7 million) in the fiscal year ended June 30,
2006 compared to $(8.7 million) in the fiscal year ended June 30, 2005. The
primary reason for the increase in the net loss is the loss from operations and
the increase in interest expense discussed above.
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YEAR ENDED JUNE 30, 2005 COMPARED TO YEAR ENDED JUNE 30, 2004.
Revenues for the fiscal year ended June 30, 2005 were $23.4 million, an
increase of 203% from $7.7 million for the fiscal year ended June 30, 2004. This
increase was due to a 228% increase in revenues generated by the sale of
fractional aircraft shares to $10.6 million for the fiscal year ended June 30,
2005 from $3.2 million for the fiscal year ended June 30, 2004, and to an
increase in maintenance and management fees of 236% to $11.6 million for the
fiscal year ended June 30, 2005 from $3.5 million for the fiscal year ended June
30, 2004. Revenue from the sale of fractional aircraft shares increased due to
an increase of 78% in the number of fractional shares sold to 112 fractional
shares sold in the fiscal year ended June 30, 2005 from 62.5 fractional shares
sold in the fiscal year ended June 30, 2004, and an increase of 363% in the
number of fractional shares sold to 62.5 fractional shares sold in the fiscal
year ended June 30, 2004 from 13.5 fractional shares sold in the fiscal year
ended June 30, 2003. Revenue from maintenance and management fees increased due
to several primary factors:
o an increase of 78% in the number of fractional aircraft shares sold in
fiscal 2005 from fiscal 2004; and
o that 64% of the fiscal 2004 fractional aircraft sales occurred in the
last five months of fiscal 2004 which on an annualized basis had a
favorable impact on fiscal 2005. Other revenue increased to $1.2 million
for the fiscal year ended June 30, 2005 from $1.0 million for the fiscal
year ended June 30, 2004 due to an increase in demonstration sales fees.
Operating expenses for the fiscal year ended June 30, 2005 were 138%
higher than in the fiscal year ended June 30, 2004, with total expenses of $31.6
million compared to $13.3 million. The cost of fractional aircraft shares sold
increased to $9.3 million for the fiscal year ended June 30, 2005 from $2.9
million for the fiscal year ended June 30, 2004, due to an increase of 78% in
the number of fractional shares sold to 112 fractional shares sold in the fiscal
year ended June 30, 2005 from 62.5 fractional shares sold in the fiscal year
ended June 30, 2004 and an increase of 363% in the number of fractional shares
sold to 62.5 fractional shares sold in the fiscal year ended June 30, 2004 from
13.5 fractional shares sold in the fiscal year ended June 30, 2003. The cost of
flight operations increased to $14.3 million for the fiscal year ended June 30,
2005 from $5.6 million for the fiscal year ended June 30, 2004 due to:
o an increase of $3.2 million in fuel prices and flight fees (which
includes landing fees, airport fees and ground transportation fees)
borne by Avantair for repositioning flights, demonstration flights and
pilot training flights;
o an increase of $1.5 million in pilot salary expense due to hiring an
additional 30 pilots;
o an increase of $0.9 million in related pilot expenses, including hotel
expense, pilot airfare, living expenses and pilot training expenses due
to hiring an additional 30 pilots and increase in fleet size of 6
planes;
o an increase of $3.5 million in maintenance expenses, comprised primarily
of increases in maintenance salary expense, each of which resulted
from the increase in fleet size and usage;
o an increase of $2.0 million in charter expenses due to the need to
obtain certification under Federal Aviation Regulation (FAR) 135 which
required Avantair to idle each plane in the fleet for 4 weeks in order
to obtain the requisite certification and comply with FAR 135; and
o an increase in $0.4 million in engine insurance expense due to an
increase of 6 planes in the fractional aircraft fleet, an increase of 4
planes in the core aircraft fleet and an increase in the number of hours
flown for the entire fleet.
General and administrative expenses increased to $6.9 million for the
fiscal year ended June 30, 2005 from $4.2 million for the fiscal year ended June
30, 2004 due to:
o an increase of $1.5 million in wages and benefits due to an increase in
the number of administrative employees;
o an increase of $0.3 million in rent expense due to an increase in square
feet leased at the Caldwell, New Jersey facility and the Reno, Nevada
facility; and
o an increase of $0.9 million in depreciation expense due to the purchase
of 4 core aircraft.
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Selling expenses increased to $1.0 million for the fiscal year ended
June 30, 2005 from $0.5 million for the fiscal year ended June 30, 2004, due
primarily to an increase of approximately $0.3 million in advertising expenses,
an increase of approximately $0.1 million in sales commissions paid to sales
employees and an increase of approximately $0.1 million of travel expense.
Loss from operations was $(8.2 million) in the fiscal year ended June
30, 2005, an increase of 47% from $(5.6 million) in the fiscal year ended June
30, 2004, for the reasons discussed above.
Total other income and expense was $(0.5 million) in the fiscal year
ended June 30, 2005 compared to $0.5 million in the fiscal year ended June 30,
2004, primarily due to increase in interest expense. Interest expense increased
344% or $0.9 million primarily due to an increase in the principal amount
outstanding under Avantair's line of credit.
Net loss increased to $(8.7 million) in the fiscal year ended June 30,
2005 compared to $(5.0 million) in the fiscal year ended June 30, 2004. The
primary reason for the increase in the net loss is the loss from operations and
the increase in interest expense discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Avantair's primary source of liquidity is cash provided by operations
and cash provided from Avantair's line of credit. Principal uses of cash are
costs of operations and capital expenditures, principally deposits on fractional
aircraft, the purchase of core aircraft and leasehold improvements. Information
on Avantair's consolidated cash flow is presented in the consolidated statement
of cash flows (categorized by operating, financing and investing activities)
which is included in Avantair's audited consolidated financial statements for
the fiscal years ended June 30, 2006, 2005 and 2004, each of which are
incorporated into this proxy statement. Cash generated by the business has not
been sufficient to provide working capital to meet Avantair's present
requirements.
At June 30, 2006 Avantair had a working capital deficit of $23.9 million
and an accumulated deficit of $36.4 million. These conditions, among other
matters, raised substantial doubt about Avantair's ability to continue as a
going concern. On October 2, 2006 Avantair sold approximately 3.2 million shares
of its Class A common stock and raised approximately $9.0 million. In addition
it borrowed $7.6 million to finance its business in the near term. Avantair has
continued to sustain operating losses in the period subsequent to June 30.
Following the closing of the acquisition, Avantair will have access to Ardent's
capital resources. As of June 30, 2006, Ardent's trust fund contained
approximately $38.0 million, including interest. Following the closing, these
amounts will be used as follows:
o approximately $15.0 million of the funds deposited in the trust account
will paid to CNM, Inc. to satisfy Avantair's obligations under its Loan
Agreement, dated October 2, 2006, and Revolving Credit Agreement, dated
May 31, 2005, with CNM, Inc.;
o the Ardent stockholders electing to exercise their conversion rights
will receive their pro rata portion of the funds deposited in the trust
account; and
o the remaining funds in the trust account after the distributions listed
above will be released to Ardent and Avantair to be used to fund
transaction expenses, for future aircraft deposits, potential
acquisitions and for working capital purposes.
With its borrowings, recent equity financing and anticipated access to
Ardent's capital, Avantair anticipates that its existing resources combined with
revenues will enable it to maintain its current and planned operations through
June 30, 2007. However, changes in its plans or other events affecting its
operating expenses, such as acquisition opportunities, may cause Avantair to
expend its existing resources sooner than expected.
Avantair may seek additional funding through equity financing
transactions or strategic relationships. However, the uncertainty as to its
future profitability may make it difficult for Avantair to secure additional
financing on acceptable terms, if it is able to secure additional financing at
all. Insufficient funds may require Avantair to delay, scale back or eliminate
some or all of its activities. Avantair's auditors have qualified their report
on its financial statements citing that certain conditions raise substantial
doubt about Avantair's ability to continue as a going concern.
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YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005.
Net cash provided by operating activities totaled $3.6 million for the
fiscal year ended June 30, 2006, a decrease of $1.7 million from $5.3 million in
the fiscal year ended June 30, 2005. This decrease resulted primarily from a
$18.1 million net loss from operations (after non cash charges). This loss from
operations was partially offset by an increase of $15.7 million in deferred
revenue related to fractional aircraft sales (net of the aircraft costs related
to fractional shares). This deferred revenue amount represents cash received for
fractional shares sold on planes not yet delivered to Avantair. Avantair also
increased its accounts payable to its vendors by $7.0 million.
Net cash provided by investing activities was $0.7 million for the
fiscal year ended June 30, 2006, compared to net cash of $12.1 million used by
Avantair for the fiscal year ended June 30, 2005. During the fiscal year ended
June 30, 2006, Avantair received proceeds of $3.2 million from the sale and
subsequent leaseback of a core aircraft. These proceeds were used to partially
repay amounts owed to Wells Fargo, N.A. The cash used by investing activities
consisted mainly of capital expenditures related to leasehold improvements in
the fiscal year ended June 30, 2006 and acquisition of core aircraft in the
fiscal year ended June 30, 2005.
Net cash provided by (used by) financing activities totaled ($4.2
million) and $8.1 million for the fiscal year ended June 30, 2006 and 2005,
respectively. Cash flows generated by financing activities consist of borrowings
under long term notes payable, borrowings under line of credit, principal
payments on long-term notes payable, principal payments on line of credit and
advances to stockholder. During the fiscal year ended June 30, 2006 Avantair
made principal payments of $8.6 million on its line of credit and $5.3 million
on long-term notes payable, partially offset by $7.0 million in borrowings
received from the line of credit and $3.3 million in borrowings from long-term
notes payable. During the fiscal year ended June 30, 2005 Avantair made
principal payments of $23.8 million on its line of credit and $6.4 million on
long-term notes payable offset by $32.2 million in borrowings received from the
line of credit and $6.1 million in borrowings from long-term notes payable.
YEAR ENDED JUNE 30, 2005 COMPARED TO YEAR ENDED JUNE 30, 2004.
Net cash provided by operating activities totaled $5.3 million for the
fiscal year ended June 30, 2005, compared to ($18.9 million) used in the fiscal
year ended June 30, 2004. This increase resulted primarily from a $6.0 million
increase in deferred revenue in the fiscal year ended June 30, 2005 related to
fractional aircraft share sales (net of the aircraft costs related to fractional
shares). This deferred revenue amount represents cash received for fractional
shares sold on planes not yet delivered to Avantair. Also, in the fiscal year
ended June 30, 2005, Avantair began to prebill management and maintenance fees
and consequently received $4.0 million from fractional share owners. In
addition, accounts payable to vendors increased by $1.8 million. This offset a
$6.6 million net loss (after adding back non cash charges) in the fiscal year
ended June 30, 2005.
Net cash used in investing activities increased to ($12.1 million) in
the fiscal year ended June 30, 2005 from ($1.8 million) for the fiscal year
ended June 30, 2004. The $12.1 million of cash disbursements in fiscal 2005 was
comprised of capital expenditures for the purchase of three core aircraft,
compared to $4.1 million cash disbursements for capital expenditures in the
prior fiscal year, representing a capital expenditures increase of $8.0 million
in fiscal 2005. In addition, Avantair received $2.3 million in proceeds for the
sale of certain aircraft in fiscal 2004.
Net cash provided by financing activities in fiscal 2005 totaled $8.1
million, a decrease of $13.0 million compared to $21.2 million provided by
financing activities in fiscal 2004. Cash flows generated by financing
activities consist of borrowings under long-term notes payable, borrowings and
principal payment under Avantair's line of credit and principal payments on
long-term notes payable. During fiscal 2005 Avantair received $32.2 million in
borrowings on its line of credit and $6.1 million in borrowings from long-term
notes offset by principal
100
payments of $23.8 million on its line of credit and $6.4 million on long-term
notes payable. During fiscal 2004, Avantair received $28.8 million in borrowings
on the line of credit and $11.9 million in borrowings from long-term notes
offset by principal payments of $13.3 million on its line of credit and $6.3
million on long-term notes payable.
Neither Avantair nor its subsidiary has historically issued a
dividend.
FINANCING ARRANGEMENTS
On October 2, 2006, Avantair entered into stock purchase agreements with
various investors, whereby it sold 3,237,410 shares of its Class A common stock
for an aggregate purchase price of $9.0 million. The proceeds of the equity
financing were used for working capital purposes and to pay a $2.1 million
balance due an Avantair supplier for certain aircraft. In connection with the
stock purchase agreements, Avantair entered into a Loan Agreement, a Security
Agreement and a Secured Promissory Note with CNM, Inc., a former stockholder of
Avantair. Under these documents, CNM, Inc. loaned Avantair the sum of $7.6
million, the proceeds of which were used to reduce the balance due an Avantair
supplier for certain aircraft. The loan was collateralized by all of Avantair's
assets. The loan accrues interest at a rate of 15.0% per year on any unpaid
principal until paid in full, with the entire balance and any accrued interest
due on the earlier of (i) May 31, 2007, or (ii) the closing of the acquisition.
In addition, within seven days of the closing of the acquisition,
Avantair and Ardent have agreed to repay the full balance of the $7.6 million
loan received pursuant to the Loan Agreement, and to reduce the balance on its
outstanding line of credit with CNM, Inc. to no more than $10.0 million with a
minimum payment to CNM, Inc. in the amount of $15.0 million (inclusive of the
$7.6 million loan repayment). As of June 30, 2006, $22.3 million was outstanding
under the line of credit. The line of credit bears interest at a rate of 3.75%
above LIBOR. Under the terms of its credit arrangements with CNM, Inc., Avantair
is subject to certain restrictions and covenants including that Avantair may not
make any distributions to its shareholders and that Avantair must apply all
proceeds from the sale of any assets to reduce its debt obligations with CNM,
Inc.
As of June 30, 2006, Avantair owes Wells Fargo Equipment Finance, Inc.
an aggregate of $7.6 million pursuant to various notes payable. Avantair used
the proceeds received pursuant to these notes to purchase four aircraft. The
notes are payable in monthly installments ranging from $4,550 to $38,480 with
interest rates ranging from 5.75% to 6.12% per year. The notes are
collateralized by the aircraft. Avantair also has financed an aircraft
maintenance program contract with Jet Support Services, Inc. in the amount of
$3.5 million. The promissory note provides for seven monthly installments of
$145,867 and 53 monthly installments of $45,867, respectively, and interest is
payable pursuant to the note at a rate of 7% per year.
Avantair has entered into a sale and leaseback agreement, dated August
11, 2006, with JMMS, LLC and a sale and lease-back agreement, dated August 15,
2006, with Comvest Group Holdings LLC. Under the sale and lease-back agreement
with JMMS, LLC, Avantair sold 100% of its interest in a core aircraft for $4.2
million and leased back 68.8% of the aircraft for a five year term. Under the
sale and lease-back agreement with Comvest Group Holdings LLC, Avantair sold
100% of its interest in a core aircraft for $4.0 million and leased back 50% of
the aircraft for a five year term. The proceeds of the sale and leaseback
arrangements were used to pay down the line of credit with CNM, Inc.
As described above, Avantair has various contractual obligations that
affect its liquidity. The following table represents Avantair's line of credit
obligations, long-term debt obligations and contractual obligations, each as of
June 30, 2006:
Obligations (In Line of Credit(2) (Long-Term Debt Operating
U.S. currency) (1) Obligations Leases (3)
2007 $22,317,000 $4,400,000 1,831,000
2008 - 851,000 2,082,000
2009 - 861,000 2,152,000
2010 - 915,000 2,242,000
2011 - 977,000 2,313,000
After 2011 - 2,946,000 $25,504,000
Total minimum $22,317,000 $10,950,000 $36,124,000
payment
101
(1) Amounts shown in table are not necessarily representative of, and
may vary substantially from, amounts that will actually be paid in future years
as Avantair may incur additional or different obligations subsequent to the date
of this proxy statement.
(2) Assumes maximum utilization of Avantair's revolving line of credit
in effect on June 30, 2006.
(3) Includes hangar, office and auto leases.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Avantair is exposed to various market risks, including changes in
interest rates. Market risk is the potential loss arising from adverse changes
in market rates and prices, such as interest rates and foreign currency exchange
rates. Avantair does not enter into derivatives or other financial instruments
for trading or speculative purposes. Avantair has also not entered into
financial instruments to manage and reduce the impact of changes in interest
rates and foreign currency exchange rates, although Avantair may enter into such
transactions in the future.
INTEREST RATE RISK
Avantair is subject to market risk from exposure to changes in interest
rates associated with its line of credit pursuant, a current liability, to which
Avantair is obligated to pay 3.75% above LIBOR. At June 30, 2006 and 2005, the
liability of Avantair with exposure to interest rate risk was approximately
$22.3 million and $23.9 million, respectively. As of June 30, 2006 and 2005, all
of Avantair's long-term indebtedness is at a fixed rate of interest.
OFF-BALANCE SHEET ARRANGEMENTS
Avantair has no off-balance sheet obligations nor guarantees and has not
historically used special purpose entities for any transactions.
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INFORMATION ABOUT ARDENT
BUSINESS OF ARDENT
GENERAL
Ardent is a blank check company formed on September 14, 2004 to effect a
merger, capital stock exchange, asset acquisition or other similar business
combination with an operating business. Ardent's efforts in identifying a
prospective target business have not been limited to a particular industry.
OFFERING PROCEEDS HELD IN TRUST
On March 2, 2005, Ardent consummated its initial public offering of
6,000,000 units with each unit consisting of one share of Ardent's common stock
and two warrants, each to purchase one share of Ardent's common stock at an
exercise price of $5.00 per share. On March 4, 2005, Ardent consummated the
closing of an additional 900,000 units subject to the over-allotment option. The
units were sold at an offering price of $6.00 per unit, generating total gross
proceeds of $41,400,000. After deducting the underwriting discounts and
commissions and the offering expenses, the total net proceeds to Ardent from the
offering were approximately $37,227,000, of which $36,222,000 was deposited into
a trust fund and the remaining proceeds ($1,005,000) were available to be used
to provide for business, legal and accounting due diligence on prospective
business combinations, taxes and continuing general and administrative expenses.
Through June 30, 2006, Ardent has used substantially all of the net proceeds
that were not deposited into the trust fund for those purposes. The net proceeds
deposited into the trust fund remain on deposit in the trust fund earning
interest. As of June 30, 2006, there is $37,919,489 held in the trust fund.
Ardent is not presently engaged in, and we will not engage in, any substantive
commercial business until Ardent consummates a business combination.
USE OF TRUST FUND PROCEEDS
Ardent will use the proceeds of its initial public offering currently
held in the trust account, approximately $38,000,000 as of June 30, 2006,
including interest, as follows:
o Approximately $15,000,000 of the funds deposited in the trust
account will paid to CNM, Inc. to satisfy Avantair's obligations
under its Loan Agreement, dated October 2, 2006, and Revolving
Credit Agreement, dated May 31, 2005, with CNM, Inc.;
o The Ardent stockholders electing to exercise their conversion
rights will receive their pro rata portion of the funds deposited
in the trust account; and
o The remaining funds in the trust account after the distributions
listed above will be released to Ardent to be used for
transaction expenses, future aircraft deposits, potential
acquisitions, and working capital purposes.
FAIR MARKET VALUE OF TARGET BUSINESS
The initial target business that Ardent acquires must have a fair market
value equal to at least 80% of Ardent's net assets at the time of such
acquisition. The fair market value of such business will be determined by
Ardent's Board of Directors based upon standards generally accepted by the
financial community, such as actual and potential sales, earnings and cash flow
and book value. If Ardent's Board is not able to independently determine that
the target business has a sufficient fair market value, Ardent will obtain an
opinion from an unaffiliated, independent investment banking firm with respect
to the satisfaction of such criteria. Ardent will not be required to obtain an
opinion from an investment banking firm as to the fair market value if Ardent's
Board of Directors independently determines that the target business has
sufficient fair market value. Ardent's Board has obtained such an opinion in
connection with the Stock Purchase Agreement. See "The Acquisition Proposal -
Fairness Opinion" on page 46.
103
STOCKHOLDER APPROVAL OF BUSINESS COMBINATION
Prior to the completion of a business combination, Ardent will submit
the transaction to its stockholders for approval, even if the nature of the
acquisition is such as would not ordinarily require stockholder approval under
applicable state law. In connection with the vote required for any business
combination, our initial stockholders have agreed to vote their respective
shares of common stock owned by them immediately prior to our initial public
offering, representing an aggregate of 17.9% of the outstanding shares of
Ardent's common stock, in accordance with the vote of the majority of the IPO
shares. This voting arrangement shall not apply to any shares purchased by our
initial stockholders after Ardent's initial public offering in the open market.
Ardent will proceed with the business combination only if a majority of the IPO
shares cast at the meeting to approve the business combination are voted for the
approval of such business combination and stockholders holding less than 20% of
the IPO shares exercise their conversion rights.
CONVERSION RIGHTS
Any stockholder of Ardent who holds IPO shares has the right to have
such shares converted to cash if the stockholder votes against the acquisition
proposal and the acquisition proposal is approved and completed. The actual
per-share conversion price will be equal to the amount in the trust fund,
inclusive of any interest, as of two business days prior to the consummation of
the acquisition, divided by the total number of IPO shares. As of June 30, 2006,
the per-share conversion price would have been $5.50. An eligible stockholder
may request conversion at any time after the mailing to our stockholders of this
proxy statement and prior to the vote taken with respect to the acquisition at
the special meeting, but the request will not be granted unless the stockholder
votes against the acquisition proposal and the acquisition is approved and
completed. Any request for conversion, once made, may be withdrawn at any time
up to the date of the meeting. It is anticipated that the funds to be
distributed to stockholders entitled to convert their shares who elect
conversion will be distributed promptly after completion of a acquisition.
Ardent will not complete the acquisition if stockholders owning 20% or more of
the IPO shares exercise their conversion rights. Holders of IPO shares who
convert their stock into their share of the trust fund still have the right to
exercise any warrants they continue to hold that they purchased as part of the
units.
Prior to exercising conversion rights, Ardent stockholders should verify
the market price of Ardent's common stock as they may receive higher proceeds
from the sale of their common stock in the public market than from exercising
their conversion rights if the market price per share is higher than the
conversion price. Ardent's shares of common stock are listed on the
Over-the-Counter Bulletin Board under the symbol AACQ.
LIQUIDATION IF NO BUSINESS COMBINATION
If Ardent does not complete a business combination by March 2, 2007,
Ardent will be liquidated and Ardent will distribute to all holders of IPO
shares, in proportion to the number of such shares held by them, an aggregate
sum equal to the amount in the trust fund, inclusive of any interest, plus any
remaining net assets. Ardent's initial stockholders have waived their rights to
participate in any liquidation distribution with respect to their shares of
common stock sold in such offering. There will be no distribution from the trust
fund with respect to Ardent's warrants.
If Ardent is unable to consummate the acquisition by March 2, 2007,
Ardent will then liquidate the trust account. Upon notice from Ardent, the
trustee of the trust account will commence liquidating the investments
constituting the trust fund and will turn over the proceeds to the transfer
agent for distribution to the stockholders. Ardent anticipates that the
instruction to the trustee would be given promptly after the expiration of the
applicable time periods.
If Ardent were to expend all of the net proceeds of the initial public
offering, other than the proceeds deposited in the trust account, the per-share
liquidation price as of June 30, 2006 would have been approximately $5.50. The
proceeds deposited in the trust account could, however, become subject to the
claims of Ardent's creditors that could be prior to the claims of Ardent's
public stockholders. Ardent's directors have agreed that, if Ardent liquidates
prior to the consummation of a business combination, they will be personally
liable to pay debts and obligations to vendors or other entities that are owed
money by Ardent for services rendered or products sold to
104
Ardent, or to any target business, in excess of the net proceeds of Ardent's
initial public offering not held in the trust account.
COMPETITION
If the acquisition is completed, Ardent will become subject to
competition from competitors of Avantair. See "Business of
Avantair--Competition."
FACILITIES
Ardent maintains its executive offices at 1415 Kellum Place, Suite 205,
Garden City, NY 11530.
EXECUTIVE COMPENSATION
Commencing on February 24, 2005 and ending upon the acquisition, Ardent
will pay American Fund Advisors, an affiliate of Barry J. Gordon, Marc H. Klee
and Alan J. Loewenstein a fee of $7,500 per month for providing Ardent with
certain general and administrative services including office space, utilities
and secretarial support. Other than this $7,500 per-month fee, no compensation
of any kind, including finders and consulting fees, will be paid to any of
Ardent's founding stockholders, including all officers and directors, or any of
their respective affiliates, for services rendered prior to or in connection
with a business combination. However, Ardent's existing stockholders will be
reimbursed for out-of-pocket expenses incurred in connection with activities on
Ardent's behalf such as identifying potential target businesses and performing
due diligence on suitable business combinations. There is no limit on the amount
of these out-of-pocket expenses and there will be no review of the
reasonableness of the expenses by anyone other than Ardent's Board of Directors,
which includes persons who may seek reimbursement, or a court of jurisdiction if
such reimbursement is challenged.
Since Ardent's formation, it has not granted any stock options stock
appreciation rights or any awards under long-term incentive plans.
EMPLOYEES
Ardent has four executive officers, two of which are members of Ardent's
board or directors. These individuals are not obligated to contribute any
specific number of hours to Ardent's matters and intend to devote only as much
time as they deem necessary to Ardent's affairs. Ardent has no full time
employees.
PERIODIC REPORTING AND AUDITED FINANCIAL STATEMENTS
Ardent has registered its securities under the Securities Exchange Act
of 1933 and has reporting obligations, including the requirement to file annual
and quarterly reports with the Securities and Exchange Commission. In accordance
with the requirements of the Securities Exchange Act of 1934, Ardent's annual
reports will contain financial statements audited and reported on by its
independent registered public accounting firm. Ardent has filed a Form 10-KSB
with the Securities and Exchange Commission covering the fiscal year ended
December 31, 2005 and a Form 10-QSB covering the quarterly periods ended March
31, 2006 and June 30, 2006.
LEGAL PROCEEDINGS
Ardent is not involved in any legal proceeding which may have, or have
had a significant effect on its business, financial positions, results of
operations or liquidity, nor is Ardent aware of any proceedings that are pending
or threatened which may have a significant effect on such business, financial
position, results of operations or liquidity.
105
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ARDENT
PLAN OF OPERATIONS
The following discussion should be read in conjunction with the Ardent's
Consolidated Financial Statements and footnotes thereto contained in this proxy
statement.
The following discussion should be read in conjunction with Ardent's
Financial Statements and related Notes thereto included elsewhere in this proxy
statement.
Ardent was formed on September 14, 2004 to serve as a vehicle to effect
an acquisition, merger, capital stock exchange, asset acquisition or other
similar business combination with an unidentified operating business. Ardent
intends to utilize the proceeds of its initial public offering, its capital
stock, debt or a combination of cash, capital stock and debt, in effecting a
business combination.
For the three months ended June 30, 2006, Ardent had a net profit of
$95,773, attributable to interest income and unrealized gains on trust assets
offset primarily by routine operational expenses such as rent, insurance, and
professional fees.
For the three months ended June 30, 2005, Ardent had a net profit of
$106,180, attributable to interest income and unrealized gains on trust assets
offset primarily by routine operational expenses such as rent, insurance, and
professional fees.
For the six months ended June 30, 2006, Ardent had a net profit of
$210,997, attributable to interest income and unrealized gains on trust assets
offset primarily by routine operational expenses such as rent, insurance, and
professional fees.
For the six months ended June 30, 2005, Ardent had a net profit of
$114,890, attributable to interest income and unrealized gains on trust assets
offset primarily by routine operational expenses such as rent, insurance, and
professional fees.
For the period from September 14, 2004 through June 30, 2006, Ardent had
a net profit of $511,190, attributable to interest income and unrealized gains
on trust assets offset primarily by routine operational expenses such as rent,
insurance, and professional fees.
Ardent consummated its initial public offering on November 2, 2005. On
March 4, 2005, Ardent closed on an additional 900,000 units that were subject to
the underwriters' over-allotment option. Gross proceeds from Ardent's initial
public offering were $41,400,000. Ardent paid a total of $2,898,000 in
underwriting discounts and commissions, and approximately $1,277,000 was or will
be paid for costs and expenses related to the offering, including $720,000 for
the underwriters' non-accountable expense allowance of 2% of the gross proceeds.
After deducting the underwriting discounts and commissions and the offering
expenses, the total net proceeds to Ardent from the offering were approximately
$37,227,000, of which $36,222,000 was deposited into the trust account (or $5.25
per share sold in the offering). The remaining proceeds are available to be used
by Ardent to provide for business, legal and accounting due diligence on
prospective acquisitions and continuing general and administrative expenses.
Ardent will use substantially all of the net proceeds of this offering to
acquire a target business, including identifying and evaluating prospective
acquisition candidates, selecting the target business, and structuring,
negotiating and consummating the business combination. To the extent that
Ardent's capital stock is used in whole or in part as consideration to effect a
business combination, the proceeds held in the trust fund as well as any other
net proceeds not expended will be used to finance the operations of the target
business. Ardent believes it will have sufficient available funds outside of the
trust fund to operate through March 2, 2007, assuming that a business
combination is not consummated during that time. From March 2, 2005 through
March 2, 2007, Ardent anticipates approximately $180,000 for the administrative
fee payable to American Fund Advisors ($7,500 per month for two years), $150,000
of expenses for legal, accounting and other expenses attendant to the due
diligence investigations, structuring and negotiating of a business combination,
$50,000 of expenses for the due diligence and investigation
106
of a target business, $40,000 of expenses in legal and accounting fees relating
to Ardent's Securities and Exchange Commission reporting obligations and
$585,000 for general working capital that will be used for miscellaneous
expenses and reserves, including approximately $210,000 for director and officer
liability insurance premiums. Ardent does not believe it will need to raise
additional funds following this offering in order to meet the expenditures
required for operating Ardent's business. However, Ardent may need to raise
additional funds through a private offering of debt or equity securities if such
funds are required to consummate a business combination that is presented to
Ardent. Ardent would only consummate such a financing simultaneously with the
consummation of a business combination.
Commencing on February 24, 2005 and ending upon the acquisition of a
target business, Ardent incurs a fee from American Fund Advisors, an affiliate
of Barry J. Gordon, Ardent's Chairman of the Board and Chief Executive Officer,
Marc H. Klee, Ardent's President, Chief Financial Officer and Secretary, and
Alan J. Loewenstein, Ardent's Vice President, of $7,500 per month for providing
us with office space and certain office and secretarial services. In addition,
in September 2004 and January 2005, Barry J. Gordon advanced an aggregate of
$77,500 to Ardent for payment on our behalf of offering expenses. These loans
were repaid following our initial public offering from the proceeds of the
offering.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
combines the consolidated historical balance sheet of Avantair and the balance
sheet of Ardent as of June 30, 2006, giving effect to the acquisition as if it
had been consummated on June 30, 2006. The following unaudited pro forma
condensed consolidated statement of operations for the twelve month period ended
June 30, 2006 combines the consolidated and combined statement of operations of
Avantair for the twelve month period from July 1, 2005 to June 30, 2006 with the
statement of operations of Ardent for the twelve month period from July 1, 2005
to June 30, 2006, giving effect to the acquisition as if it had occurred at July
1, 2005. The historical financial information has been adjusted to give effect
to pro forma events that are directly attributable to the acquisition, are
factually supportable and are expected to have a continuing impact on the
combined results.
We are providing the following information to aid you in your analysis
of the financial aspects of the acquisition. We derived the pro forma
information of Avantair for the year ended June 30, 2006 from the audited
financial statements of Avantair for the year ended June 30, 2006 included
elsewhere in this proxy statement. We derived historical financial information
of Ardent from the December 31, 2005 audited financial statements of Ardent and
the June 30, 2006 unaudited financial statements of Ardent included elsewhere in
this proxy statement. The unaudited condensed statement of operations
information of Ardent for the twelve month period ended June 30, 2006 is derived
by adding Ardent's unaudited condensed statement of operations for the six
months ended June 30, 2006 to the audited statement of operations for the year
ended December 31, 2005 and subtracting Ardent's unaudited condensed statement
of operations for the six months ended June 30, 2005.
This information should be read together with Avantair's and Ardent's
audited and unaudited financial statements and related notes, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
Avantair and Ardent and other financial information included elsewhere in this
proxy statement/prospectus.
The unaudited pro forma condensed combined financial information is for
illustrative purposes only. The financial results may have been different had
the companies always been combined. You should not rely on the unaudited pro
forma condensed combined financial information as being indicative of the
historical results that would have been achieved had the companies always been
combined or the future results that the combined company will experience.
Avantair and Ardent have not had any historical relationships prior to the
acquisition. Accordingly, no pro forma adjustments were required to eliminate
activities among the companies.
In the proposed acquisition, Ardent intends to purchase all the issued
and outstanding stock of Avantair from its stockholders in exchange for
consideration consisting of 7,000,000 shares of Ardent common stock. The shares
issuable are subject to adjustment if the cash balance of Ardent, including
amounts held in the trust account less all acquisition expenses incurred by
Ardent, is less than $35 million as of the closing of the acquisition.
Immediately after the acquisition the Avantair stockholders will own
approximately 45.5% of the then issued and outstanding common stock of the
combined company and the existing Ardent stockholders will own approximately
54.5% of the then issued and outstanding common stock of the combined company.
Additionally, further consideration may be issued to Avantair
stockholders based on the achievement of certain future earnings milestones of
the combined company after the acquisition and/or upon the achievement of
certain stock price level milestones of the combined company. Avantair
stockholders are eligible to receive additional consideration based on the
financial performance of the combined company based on an adjusted income amount
(as defined elsewhere in this proxy and in the stock purchase agreement) during
the fiscal year ending June 30, 2007 and the fiscal year ending June 30, 2008.
If the calculated adjusted income amount is greater than $6,000,000 for the
fiscal year ending June 30, 2007, the Avantair stockholders will receive an
additional aggregate of 1,000,000 shares of common stock of the combined
company. If the calculated adjusted income amount is greater than $20,000,000
for the fiscal year ending June 30, 2008, the Avantair stockholders will receive
an additional aggregate of 5,000,000 shares of common stock of the combined
company. In addition, if at any time after the consummation of the acquisition
but prior to February 23, 2009, the closing trading price of the combined
company's common stock for 20 trading days within any 30 trading day period
equals or exceeds $8.50 per share, then the combined company will issue to the
Avantair stockholders an additional aggregate of 5,000,000 shares of the
combined company's common stock. Assuming achievement of all such milestones,
the Avantair stockholders would then own approximately 68% of the then issued
and outstanding common stock of the combined company.
108
Ardent and Avantair plan to complete the acquisition promptly after the
special meeting, provided that:
o holders of Ardent's common stock have approved the acquisition;
o holders of less than 20% of the shares of common stock issued in
Ardent's initial public offering vote against the acquisition and
elect conversion of their shares into cash; and
o other conditions specified in the purchase documents have been
satisfied or waived.
The acquisition will be accounted for as a reverse acquisition,
equivalent to a recapitalization, through the issuance of stock by Avantair for
the net monetary assets of Ardent. The net monetary assets of Ardent will be
recorded as of the acquisition date at their respective historical costs, which
is considered to be the equivalent of fair value. No goodwill or intangible
assets will be recorded as a result of the acquisition. The determination of
Avantair as the accounting acquirer has been made based on an evaluation of the
relevant factors and circumstances of the acquisition, including among other
factors the existence of a significant minority stockholders group comprising
members of Avantair's management included in the Avantair stockholders which
will own approximately 16.1% of Ardent after the completion of the acquisition,
the minimal 9% differential in overall shareholder ownership between current
Ardent stockholders and current Avantair stockholders upon consummation of the
acquisition, that Avantair shareholder ownership can increase to 68% of the
combined company upon achievement of certain milestones, that Avantair's
management will assume all the officer and senior management positions of Ardent
and, accordingly, all day to day decision authority for carrying out the
business plan after the acquisition and that former stockholders of Avantair
will nominate four members to Ardent's Board of Directors while Ardent's
stockholders will nominate three members which will place the former
stockholders of Avantair's nominees in a position to establish company strategy
and control Board of Director group votes.
Separate pro forma information has been presented for the following
circumstances: (1) that no holders of Ardent common stock exercise their right
to have their shares redeemed upon the consummation of the acquisition, and (2)
that holders of 19.99% of the IPO shares elect to have their shares redeemed
upon the consummation of the acquisition at the redemption value of $5.50 per
share, based on the amount held in the Ardent Trust Account, inclusive of
interest income to date thereon, at June 30, 2006. The basis of presentation
described in (2) is based on the possibility that holders of up to a maximum of
19.99% of the IPO shares may elect to have their shares redeemed at the
redemption value of approximately $5.50 per share, or a total of $7,580,106 as
of June 30, 2006.
109
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2006
COMBINED ADJUSTMENTS COMBINED
PRO FORMA (ASSUMING NO FOR MAXIMUM (ASSUMING MAXIMUM
AVANTAIR, INC. ARDENT ADJUSTMENTS CONVERSION) CONVERSION CONVERSION)
--------------- ---------- ------------- -------------- ----------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,175,734 $ 157,029 37,919,489 (a)
(1,875,000)(b)
8,650,000 (c)
(2,180,474)(d)
(380,000)(d)
(15,000,000)(e)
(885,500)(f) $ 28,581,278 (7,580,106)(j) $ 21,001,172
Assets held in Trust Fund - 37,919,489 (37,919,489)(a) - -
Accounts receivable, net 1,935,501 - 1,935,501 1,935,501
Accounts receivable from vendor 856,775 - 856,775 856,775
Inventory 253,533 - 253,533 253,533
Property held for sale 7,870,300 - 7,870,300 7,870,300
Current portion of notes
receivable 1,672,481 - 1,672,481 1,672,481
Prepaid expenses and other
current assets 80,419 72,328 152,747 152,747
------------- ------------ ------------- -------------
Total current assets 14,844,743 38,148,846 41,322,615 33,742,509
Non-Current Assets:
Aircraft costs related to
fractional sales, net 68,033,951 - 9,780,474 (d) 77,814,425 77,814,425
Property and Equipment, net 4,835,743 - 4,835,743 4,835,743
Deposits 13,431,683 - 13,431,683 13,431,683
Deferred maintenance agreement 3,329,500 - 3,329,500 3,329,500
Notes receivable 2,921,163 - 2,921,163 2,921,163
Other assets 195,496 166,651 380,000 (d) 742,147 742,147
------------- ------------ ------------- -------------
Total assets $ 107,592,279 $ 38,315,497 $ 144,397,276 $ 136,817,170
============= ============ ============= =============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and other
accrued expenses $ 11,399,629 $ 74,539 $ 11,474,168 $ 11,474,168
Borrowings under line of credit
from a related party 22,317,079 - 7,600,000 (d)
(15,000,000)(e) 14,917,079 14,917,079
Deferred interest - 339,328 (339,328)(i) - -
Taxes payable - 138,267 138,267 138,267
Customer deposits 580,989 - 580,989 580,989
Current portion of notes payable 4,400,293 - 4,400,293 4,400,293
------------- ------------ ------------- -------------
Total current liabilities 38,697,990 552,134 31,510,796 31,510,796
------------- ------------ ------------- -------------
Non-Current Liabilities:
Notes payable, net of current
portion 6,550,138 - 6,550,138 6,550,138
Deferred revenue related to
fractional aircraft share sales 94,156,720 - 94,156,720 94,156,720
Deferred gain on sale and
leaseback of asset 1,003,946 - 1,003,946 1,003,946
Deferred maintenance and
management fees 3,437,615 - 3,437,615 3,437,615
Other liabilities 297,486 - 297,486 297,486
------------- ------------ ------------- -------------
105,445,905 - 105,445,905 105,445,905
------------- ------------ ------------- -------------
Common stock, subject to
possible conversion - 7,240,778 (7,240,778)(i) - -
------------- ------------ ------------- -------------
Stockholders' Equity (Deficit):
Common stock 1,000 840 700 (g)
21 (b)
(1,000)(h) 1,561 (138)(j) 1,423
Common stock, Class B 1,000 - (1,000)(f) - -
Additional paid-in capital 412,600 30,010,555 (1,875,000)(b)
(21)(b)
8,650,000 (c)
(884,500)(f)
(700)(g)
511,190 (g)
1,000 (h)
7,580,106 (i) 44,405,230 (7,579,968)(j) 36,825,262
Retained earnings/(accumulated
deficit) (36,432,230) 511,190 (511,190)(g) (36,432,230) (36,432,230)
Due from stockholder (533,986) - (533,986) (533,986)
------------- ------------ ------------- -------------
Total stockholders' equity
(deficit) (36,551,616) 30,522,585 7,440,575 (139,531)
------------- ------------ ------------- -------------
Total liabilities and
stockholders' equity $ 107,592,279 $ 38,315,497 $ 144,397,276 $ 136,817,170
============= ============ ============= =============
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
110
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2006
The pro forma condensed combined balance sheet reflects the acquisition
as a recapitalization through the issuance of stock by Avantair in exchange for
the net monetary assets of Ardent, assuming that the acquisition had been
completed as of June 30, 2006. The historical balance sheets used in the
preparation of the pro forma financial statements have been derived from
Avantair's audited consolidated and combined financial statements as of June 30,
2006 and Ardent's unaudited financial statements as of June 30, 2006.
Pro forma adjustments are necessary to record the accounting for the
acquisition. No pro forma adjustments were required to conform Avantair's
accounting policies to Ardent's accounting policies. Descriptions of the
adjustments included in the unaudited pro forma condensed combined balance sheet
are as follows:
(a) Reflects the release of Ardent's restricted cash held in trust and
the transfer of the balance to cash and cash equivalents, assuming no
holders of Ardent common stock sold in its initial public offering
exercise their right to have their shares redeemed upon the consummation
of the acquisition.
(b) Gives effect to the payment of $1,875,000 of estimated costs payable
in cash directly attributable to the acquisition. Such costs incurred by
Ardent will be charged to operations as incurred but are non-recurring
in nature and, accordingly, have not been included on the accompanying
pro forma condensed combined statement of operations. Costs incurred by
Avantair will be deferred and charged to paid-in capital upon
consummation of the acquisition. In addition 210,000 shares of Ardent's
common stock will be issued to certain advisors for services related to
structuring and negotiating the acquisition. The value of such shares of
approximately $1,200,000 will be charged to paid-in capital of the
combined company upon consummation of the acquisition with a
corresponding increase in common stock and paid-in capital.
(c) Reflects the sale of 3,237,410 shares of Avantair Class A common
stock at $2.78 per share in October 2006 generating gross proceeds of
$9,000,000. Avantair incurred financing costs directly attributable to
the transaction of approximately $350,000.
(d) Reflects payment of balance of amount due on purchase of an aircraft
for $9,780,474 and resulting increase in aircraft costs related to
fractional shares by Avantair in October 2006. In order to finance the
purchase of the aircraft Avantair entered into a Loan Agreement with CNM
dated October 2, 2006. The Loan Agreement provides for a $7,600,000 loan
to Avantair from CNM and for Avantair to pay the balance due for the
aircraft of $2,180,474. The loan bears interest at 15% per annum, is
collateralized by all assets of Avantair and is due and payable on March
31, 2007 or seven (7) days after closing of the acquisition. In
connection with the Loan Agreement, Avantair incurred financing costs of
approximately $380,000 which are included in other assets and will be
amortized to interest expense over the term of the Loan Agreement.
(e) Reflects the payment of a minimum of $15,000,000 of Avantair
borrowings under a line of credit from CNM which are required to be paid
at the consummation of the acquisition in connection with the Loan
Agreement described in (d) above.
(f) Reflects Avantair's acquisition of all of its outstanding shares of
Class B Common Stock for $885,500 in October 2006.
(g) Reflects the transaction through the elimination of Ardent's
retained earnings and the issuance of 7,000,000 shares of common stock
$.0001 par value.
(h) Reflects the adjustment to conform the common stock of Avantair to
that of the combined company after the acquisition.
(i) Reflects the reclassification of the conversion value of the
Ardent's common stock subject to conversion and deferred interest
related to the common stock subject to conversion to Stockholders'
equity (deficit).
(j) To reflect the payment of cash to the maximum amount of dissenting
Ardent stockholders as consideration for the return and cancellation of
their shares of common stock.
111
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2006
COMBINED ADJUSTMENTS COMBINED
PRO FORMA (ASSUMING NO FOR MAXIMUM (ASSUMING MAXIMUM
AVANTAIR, INC. ARDENT ADJUSTMENTS CONVERSION) CONVERSION CONVERSION)
--------------- ---------- ------------- -------------- ----------- ------------------
Fractional aircraft shares sold $ 23,756,070 $ - $ 23,756,070 $ 23,756,070
Maintenance and management fees 22,824,940 - 22,824,940 22,824,940
Other 1,814,370 - 1,814,370 1,814,370
------------- ------------ ------------- -------------
Total revenue 48,395,380 - 48,395,380 48,395,380
Operating Expenses:
Cost of fractional aircraft
shares sold 19,166,722 - 19,166,722 19,166,722
Cost of flight operations 31,782,820 - 31,782,820 31,782,820
General and administrative 13,406,376 406,282 150,000 (k) 13,962,658 13,962,658
Selling expenses 3,672,754 - 3,672,754 3,672,754
------------- ------------ ------------- -------------
Total operating expenses 68,028,672 406,282 68,584,954 68,584,954
------------- ------------ ------------- -------------
Loss from operations (19,633,292) (406,282) (20,189,574) (20,189,574)
Other Income (Expense):
Interest income 557,508 18,428 575,936 575,936
Interest Income on Trust Account - 1,080,384 (503,326)(l) 577,058 577,058
Interest expense (2,110,119) - (1,140,000)(m)
1,724,600 (n)
(380,000)(n) (1,905,519) (1,905,519)
Other income, net 437,982 - 437,982 437,982
------------- ------------ ------------- -------------
Total other income (expense) (1,114,629) 1,098,812 (314,543) (314,543)
------------- ------------ ------------- -------------
Income (loss) before provision
for income taxes (20,747,921) 692,530 (20,504,117) (20,504,117)
Provision for income taxes - 294,579 (294,579)(O) - -
------------- ------------ ------------- -------------
Net income (loss) $ (20,747,921) $ 397,951 $ (20,504,117) $ (20,504,117)
============= ============ ============= =============
Weighted average number of
shares outstanding:
Basic 200 8,400,000 15,610,000(p) 14,230,690(q)
Diluted 200 8,400,000 15,610,000(r) 14,230,690(s)
Net (loss) income per common
share
Basic $ (103,740) $ 0.05 $ (1.31) $ (1.44)
============= ============ ============= =============
Diluted $ (103,740) $ 0.05 $ (1.31) $ (1.44)
============= ============ ============= =============
See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
112
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2006
The unaudited pro forma condensed combined statement of operations for
the twelve months ended June 30, 2006 combines the audited consolidated and
combined statement of operations of Avantair for the year ended June 30, 2006
and the unaudited statement of operations of Ardent for the twelve months ended
June 30, 2006 assuming that the acquisition occurred at the beginning of the
period presented. We derived the pro forma information of Avantair for the year
ended June 30, 2006 from the audited consolidated and combined financial
statements of Avantair for the year ended June 30, 2006 included elsewhere in
this proxy statement. The unaudited condensed statement of operations
information of Ardent for the twelve month period ended June 30, 2006 is derived
by adding Ardent's unaudited condensed statement of operations for the six
months ended June 30, 2006 included elsewhere in this proxy statement to the
audited statement of operations for the year ended December 31, 2005 included
elsewhere in this proxy statement and subtracting Ardent's unaudited condensed
statement of operations for the six months ended June 30, 2005 included
elsewhere in this proxy statement.
Certain reclassifications have been made to conform Ardent's and
Avantair's historical amounts. The pro forma combined provision for income taxes
does not reflect the amounts that would have resulted had Ardent and Avantair
filed consolidated income tax returns during the periods presented.
Descriptions of the adjustments included in the unaudited pro forma
condensed combined statements of operations are as follows:
(k) Reflects salary and bonus compensation expense in excess of
historical amounts for officers of Avantair associated with employment
agreements to be entered into with certain officers upon consummation of
the acquisition. Such adjustment does not include non-recurring charges
for fully vested equity compensation to be granted to an officer upon
consummation of the acquisition as such amount will not have an ongoing
impact on the combined company. In addition such adjustment does not
include charges incurred by Avantair in September and October 2006
related to shares sold to certain members of management.
(l) Reflects a reduction of Ardent's interest income due to the payment
of cash from the Ardent trust account for $15 million of Avantair debt
and $1.9 million of estimated acquisition costs. The estimate of
reduction in interest income is based on the combined entity having
approximately $17,000,000 less in cash and cash equivalents, assuming an
average rate of return consistent with that earned by Ardent of
approximately 3.0% for the period from July 1, 2005 to June 30, 2006.
(m) Reflects $1,140,000 of additional interest expense related to the
promissory note issued described in (d).
(n) Reflects $1,724,600 decrease in interest expense due to repayment of
$15,000,000 of debt described in (e) assuming repayment of $7,600,000 of
debt incurring interest at 15% per annum and $7,400,000 of debt
incurring interest at an average rate incurred by Avantair on the line
of credit of approximately 7.9% per annum during the year ended June 30,
2006. In addition reflects the amortization of $380,000 of debt issuance
costs to interest expense due to the repayment of the $7,600,000
borrowed from CNM on October 2, 2006.
(o) Reflects the adjustment to the provision for income taxes as a
result of net operating losses generated for Federal and State income
tax purposes on a pro forma condensed combined basis. Due to the
uncertainty related to the utilization of the net operating losses to
offset taxable income in future periods, no adjustment has been made
related to the recognition of deferred tax assets.
(p) Reflects 8,400,000 shares of Ardent outstanding before the
acquisition plus 7,000,000 shares issued to Avantair stockholders and
210,000 shares to be issued to a financial advisor upon consummation of
the acquisition.
(q) Reflects 8,400,000 shares of Ardent outstanding before the
acquisition plus 7,000,000 shares issued to Avantair stockholders and
210,000 shares to be issued to a financial advisor upon consummation of
the acquisition, less the 1,379,310 Ardent shares assumed converted as
described in (j).
(r) Reflects 8,400,000 shares of Ardent outstanding before the
acquisition plus 7,000,000 shares issued to Avantair stockholders and
210,000 shares to be issued to a financial advisor upon consummation of
the acquisition, plus the effect of 15,046,000 of Ardent outstanding
warrants and options after the acquisition
113
on weighted average shares outstanding. Warrants and options have no
impact on diluted pro forma loss because they would be anti-dilutive.
(s) Reflects 8,400,000 shares of Ardent outstanding before the
acquisition plus 7,000,000 shares issued to Avantair stockholders and
210,000 shares to be issued to a financial advisor upon consummation of
the acquisition, less the 1,379,310 Ardent shares assumed converted as
described in (j), plus the effect of 15,046,000 of Ardent outstanding
warrants and options after the acquisition on weighted average shares
outstanding. Warrants and options have no impact on diluted pro forma
loss per share since the exercise price of such securities is in excess
of the average market price of Ardent common stock during the periods
presented.
114
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial
ownership of Ardent's common stock as of November 1, 2006 by:
o each person known by Ardent to be the beneficial owner of more than
5% of Ardent's outstanding shares of common stock;
o each of Ardent's officers and directors; and
o all of Ardent's officers and directors as a group.
Unless otherwise indicated, Ardent believes that all persons named in
the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS
- ------------------------------------------------ -------------------- ----------
Paul Sonkin (2) 718,767(3) 8.6%
Barry J. Gordon 561,940(4) 6.7%
Dr. Andrew M. Weiss (5) 551,500(6) 6.6%
Marc H. Klee 437,060(7) 5.2%
Arthur H. Goldberg (8) 187,500(9) 2.2%
Alan J. Loewenstein 60,000(10) *
Robert Sroka (8) 60,000(10) *
Robert Brill (11) 60,000(10) *
Philip Goodman (12) 60,000(10) *
All directors and executive officers as a group 1,426,500(13) 17.0%
(7 individuals)
* Less than 1%
(1) Unless otherwise noted, the business address of each of the following is
1415 Kellum Place, Suite 205, Garden City, New York 11530.
(2) The business address of Mr. Sonkin is 460 Park Avenue, 12th Floor, New
York, New York 10022.
(3) The shares are held by Hummingbird Value Fund, L.P., The Hummingbird
Microcap Value Fund, L.P. and The Hummingbird Concentrated Fund, L.P.
Mr. Sonkin, as managing member and control person of Hummingbird
Management LLC, the investment manager of such entities, has sole voting
and dispositive power over such shares. [Does not include 983,200 shares
of common stock issuable upon exercise of
115
warrants not currently exercisable and that will not become exercisable
within the next 60 days]. The foregoing information was derived from a
Schedule 13G filed with the SEC on October 3, 2006.
(4) Does not include 374,626 shares of common stock issuable upon exercise
of warrants not currently exercisable and that will not become
exercisable within the next 60 days.
(5) The business address of Dr. Weiss is 29 Commonwealth Avenue, 10th Floor,
Boston, Massachusetts 12116.
(6) The shares are held by Weiss Asset Management, LLC, Weiss Capital, LLC
and Dr. Weiss individually. Shares reported for Dr. Weiss include shares
beneficially owned by a private investment partnership of which Weiss
Asset Management is the sole general partner and which may be deemed to
be controlled by Dr. Weiss, who is the Managing Member of Weiss Asset
Management, and also includes shares held by a private investment
corporation which may be deemed to be controlled by Dr. Weiss, who is
the managing member of Weiss Capital, the Investment Manager of such
private investment corporation. The foregoing information was derived
from a Schedule 13G filed with the SEC on September 28, 2006.
(7) Does not include 291,373 shares of common stock issuable upon exercise
of warrants not currently exercisable and that will not become
exercisable within the next 60 days.
(8) The business address of each of these individuals is c/o Corporate
Solutions Group, 175 Great Neck Road, Suite 408, Great Neck, NY 11021.
(9) Does not include 125,000 shares of common stock issuable upon exercise
of warrants not currently exercisable and that will not become
exercisable within the next 60 days.
(10) Does not include 40,000 shares of common stock issuable upon exercise of
warrants not currently exercisable and that will not become exercisable
within the next 60 days.
(11) The business address of Dr. Brill is c/o Newlight Associates, 500 North
Broadway, Suite 144, Jericho, New York 11753.
(12) The business address of Mr. Goodman is 6 Oakwood Drive, Sewall's Point,
Florida 34996.
(13) Does not include 950,999 shares of common stock issuable upon exercise
of warrants not currently exercisable and that will not become
exercisable within the next 60 days.
All 1,500,000 shares of Ardent outstanding common stock owned by Ardent
initial stockholders prior to Ardent's initial public offering have been placed
in escrow with Continental Stock Transfer & Trust Company, as escrow agent,
pursuant to an escrow agreement described below.
Barry J. Gordon, Marc H. Klee and Arthur H. Goldberg may be deemed to be
Ardent's "parents" and "promoters," as these terms are defined under the Federal
securities laws.
116
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 2004, Ardent issued 750,000 shares of its common stock to
the following individuals for $25,000 in cash, at an average purchase price of
approximately $0.033 per share as set forth below:
NAME NUMBER OF SHARES RELATIONSHIP TO US
- ---------------------- ---------------- ----------------------------------
Barry J. Gordon 280,970 Chairman of the Board and Chief
Executive Officer
Marc H. Klee 218,530 President, Chief Financial Officer
and Director
Arthur H. Goldberg 93,750 Director
Harvey Granat 36,750 Stockholder
Alan J. Loewenstein 30,000 Vice President
Robert Sroka 30,000 Vice President
Robert Brill 30,000 Director
Philip Goodman 30,000 Director
On January 4, 2005, Ardent's board of directors authorized a stock
dividend of 0.666666 shares of common stock for each outstanding share of common
stock and on January 24, 2005, Ardent's board of directors authorized a stock
dividend of 0.2 shares of common stock for each outstanding share of common
stock, effectively lowering the purchase price to approximately $0.0167 per
share.
Pursuant to an escrow agreement between Ardent, the initial stockholders
and Continental Stock Transfer & Trust Company, all of the initial stockholder
shares were placed in escrow, with Continental acting as escrow agent, pursuant
to an escrow agreement, until the earliest of:
o February 24, 2008;
o Ardent's liquidation; or
o the consummation of a liquidation, merger, stock exchange or
other similar transaction that results in all of Ardent's
stockholders having the right to exchange their shares of common
stock for cash, securities or other property subsequent to
Ardent's consummating a business combination with a target
business.
During the escrow period, these shares cannot be sold, but the initial
stockholders will retain all other rights as stockholders, including, without
limitation, the right to vote their shares of common stock and the right to
receive cash dividends, if declared. If dividends are declared and payable in
shares of common stock, such dividends will also be placed in escrow. If we are
unable to effect a business combination and liquidate, none of Ardent's initial
stockholders will receive any portion of the liquidation proceeds with respect
to common stock owned by them prior to Ardent's initial public offering.
Ardent also entered into a registration rights agreement with its
initial stockholders pursuant to which the holders of the majority of shares
held by Ardent's initial stockholders will be entitled to make up to two demands
that Ardent register these shares pursuant to an agreement to be signed prior to
or on the date of this prospectus. The holders of the majority of these shares
may elect to exercise these registration rights at any time after the date on
which these shares of common stock are released from escrow. In addition, these
stockholders have certain "piggy-back" registration rights on registration
statements filed subsequent to the date on which these shares of common
117
stock are released from escrow. Ardent will bear the expenses incurred in
connection with the filing of any such registration statements.
Each of Ardent's initial stockholders also entered into a letter
agreement with Ardent and EarlyBirdCapital pursuant to which, among other
things:
o each agreed to vote all initial stockholder shares owned by him
in accordance with the majority of the IPO shares if Ardent
solicits the approval of Ardent stockholders for a business
combination;
o if Ardent fails to consummate a business combination by September
2, 2006 (or by March 2, 2007 under certain limited
circumstances), each agreed to take all reasonable actions within
his power to cause Ardent to liquidate as soon as reasonably
practicable;
o each waived any and all rights he may have to receive any
distribution of cash, property or other assets as a result of
such liquidation with respect to his initial stockholder shares;
o each agreed to present to Ardent for consideration, prior to
presentation to any other person or entity, any suitable
opportunity to acquire an operating business, until the earlier
of Ardent's consummation of a business combination, Ardent's
liquidation or until such time as he ceases to be an officer or
director of Ardent, subject to any pre-existing fiduciary
obligations he might have;
o each agreed that Ardent could not consummate any business
combination which involves a company which is affiliated with any
of the initial stockholders unless Ardent obtains an opinion from
an independent investment banking firm reasonably acceptable to
EarlyBirdCapital that the business combination is fair to Ardent
stockholders from a financial perspective;
o each agreed that he and his affiliates will not be entitled to
receive and will not accept any compensation for services
rendered to Ardent prior to the consummation of Ardent's business
combination; and
o each agreed that he and his affiliates will not be entitled to
receive or accept a finder's fee or any other compensation in the
event he or his affiliates originate a business combination.
American Fund Advisors, an affiliate of Barry J. Gordon, Marc H. Klee
and Alan J. Loewenstein, has agreed that, through the acquisition of a target
business, it will make available to us a small amount of office space and
certain office and secretarial services, as Ardent may require from time to
time. Ardent has agreed to pay American Fund Advisors $7,500 per month for these
services.
During 2004, Barry J. Gordon advanced an aggregate of $77,500 to Ardent
to cover expenses related to Ardent's initial public offering. The loans were
payable without interest on the earlier of September 30, 2005 or the
consummation of Ardent's initial public offering. These loans were repaid in
March 2005.
Ardent will reimburse its officers and directors for any reasonable
out-of-pocket business expenses incurred by them in connection with certain
activities on Ardent's behalf such as identifying and investigating possible
target businesses and business combinations.
Other than the $7,500 per-month administrative fee and reimbursable
out-of-pocket expenses payable to Ardent's officers and directors, no
compensation or fees of any kind, including finders and consulting fees, will be
paid to any of Ardent's initial stockholders or to any of their respective
affiliates for services rendered to Ardent prior to or with respect to the
business combination.
All ongoing and future transactions between Ardent and any of its
officers and directors or their respective affiliates, will be on terms believed
by Ardent to be no less favorable than are available from unaffiliated third
parties and will require prior approval in each instance by a majority of the
members of Ardent's Board of Directors who do not have an interest in the
transaction.
118
In August and September 2006, the initial stockholders lent Ardent a
total of $150,000 to be used to cover some of the expenses which it has incurred
to date. It is anticipated that additional loans will be necessary prior to the
closing of the acquisition, at which time those loans would come due. The loans
do not carry any associated interest charge.
PRICE RANGE OF SECURITIES AND DIVIDENDS
Ardent units, common stock and warrants are traded on the
Over-the-Counter Bulletin Board under the symbols AACQU, AACQ and AACQW,
respectively. The following table sets forth the range of high and low closing
bid prices for the units, common stock and warrants for the periods indicated
since such common stock and warrants commenced public trading on March 8, 2005.
The over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect actual
transactions.
COMMON STOCK* WARRANTS* UNITS**
--------------- -------------- -------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ----- ------ ------
2005
- ----
First Quarter 5.20 5.12 0.70 0.65 6.60 6.30
Second Quarter 5.20 4.90 0.64 0.52 6.35 5.95
Third Quarter 5.15 4.90 0.64 0.46 6.30 5.75
Fourth Quarter 5.23 5.06 0.59 0.41 6.27 5.90
2006
- ----
First Quarter 5.48 5.19 0.78 0.50 7.06 6.13
Second Quarter 5.45 5.30 0.77 0.43 6.88 6.20
Third Quarter 5.37 5.29 0.48 0.36 6.20 6.00
*Commencing March 8, 2005
** Commencing February 25,2005
HOLDERS
As of November 1, 2006, there was one holder of record of Ardent units,
nine holders of record of Ardent common stock and one holder of record of Ardent
warrants.
DIVIDENDS
Ardent has not paid any cash dividends on its common stock to date and
does not intend to pay cash dividends prior to the completion of a business
combination. The payment of dividends in the future will be contingent upon
Ardent's revenues and earnings, if any, capital requirements and general
financial condition subsequent to a business combination will be within the
discretion of Ardent's then board of directors. It is the present intention of
Ardent's Board of Directors to retain all earnings, if any, for use in Ardent's
business operations and, accordingly, Ardent's Board does not anticipate
declaring any dividends in the foreseeable future.
119
AVANTAIR
There is no established public trading market for the shares of common
stock of Avantair because it is a private company. There are currently 17
holders of the shares of Avantair common stock. Avantair does not have any
authorized or outstanding equity compensation plans.
DESCRIPTION OF ARDENT'S SECURITIES FOLLOWING THE ACQUISITION
The following description of the material terms of the capital stock and
warrants of Ardent following the acquisition includes a summary of specified
provisions of the proposed amendments to Ardent's certificate of incorporation
which will be in effect upon completion of the acquisition and upon adoption of
the name change proposal. This description is subject to the relevant provisions
of Delaware General Corporation Law. If both the acquisition proposal and the
name change proposal are adopted at the special meeting, the resulting changes
to Ardent's certificate of incorporation will be reflected in an amended and
restated certificate of incorporation in the form of Annex C to this document,
which is incorporated in this document by reference. If the name change proposal
is not adopted, the amendments providing for the change of Ardent's corporate
name will not be included in its amended and restated certificate of
incorporation.
GENERAL
Ardent's authorized capital stock will consist of 76 million shares of
all classes of capital stock, of which 75 million will be shares of common
stock, par value, $0.0001 per share, and 1 million will be shares of preferred
stock, par value of $0.0001 per share.
UNITS
Each unit consists of one share of common stock and two warrants, which
started trading separately as of the opening of trading on March 9, 2005. Each
warrant entitles the holder to purchase one share of common stock at an exercise
price of $5.00 per share.
COMMON STOCK
The holders of shares of Ardent's common stock are entitled to one vote
for each share on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Subject to the preferences and rights, if any,
applicable to the shares of preferred stock, the holders of the shares of common
stock of Ardent are entitled to receive dividends if and when declared by the
Board of Directors of Ardent. Subject to the prior rights of the holders, if
any, of the preferred shares, the holders of Ardent's shares of common stock are
entitled to share ratably in any distribution of the assets of Ardent upon
liquidation, dissolution or winding-up, after satisfaction of all debts and
other liabilities.
Ardent's amended and restated certificate of incorporation will not
include the provisions of Ardent's current certificate of incorporation
regarding the liquidation of Ardent in the event that Ardent does not consummate
a business combination within 18 months from the date of the consummation of its
initial public offering, or 24 months from the consummation of the initial
public offering if specified extension criteria have been satisfied, and the
corresponding distribution of assets to its stockholders.
PREFERRED STOCK
Shares of preferred stock may be issued from time to time in one or more
series and Ardent's Board of Directors, without approval of the stockholders, is
authorized to designate series of preferred stock and to fix the rights,
privileges, restrictions and conditions to be attached to each such series of
shares of preferred stock. The issuance of shares of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of holders of Ardent's shares of common stock.
120
As of the date of this document, there are no outstanding shares of
preferred stock of any series.
UNISSUED SHARES OF CAPITAL STOCK
COMMON STOCK. After the acquisition, Ardent will have outstanding
15,610,000 shares of common stock assuming that none of the public stockholders
elect to exercise their conversion rights. In addition, 15,046,000 shares will
have been reserved on Ardent's books and records for issuance upon the exercise
of outstanding warrants and issuance of the securities underlying the
outstanding unit purchase options, if exercised. The remaining shares of
authorized and unissued common stock will be available for future issuance
without additional stockholder approval (subject to applicable securities laws
and the rules of any securities market or exchange on which Ardent's common
stock is quoted at the time). While the additional shares are not designed to
deter or prevent a change of control, under some circumstances Ardent could use
the additional shares to create voting impediments or to frustrate persons
seeking to effect a takeover or otherwise gain control by, for example, issuing
those shares in private placements to purchasers who might side with Ardent's
Board of Directors in opposing a hostile takeover bid.
PREFERRED STOCK. After the acquisition, Ardent will not have outstanding
any shares of preferred stock.
BOARD OF DIRECTORS; VACANCIES
Ardent's Board of Directors currently has five members, but will be
expanded to seven members following the acquisition. Any director elected to
fill a vacancy, including a vacancy created by increasing the size of the Board,
will hold office until such director's successor shall have been duly elected
and qualified. No decrease in the number of directors will shorten the term of
any incumbent director. These provisions may have the effect of slowing or
impeding a third party from initiating a proxy contest, making a tender offer or
otherwise attempting a change in the membership of Ardent's Board of Directors
that would effect a change of control.
LIMITATION OF LIABILITY OF DIRECTORS
The amended and restated certificate of incorporation will continue to
provide that no director will be personally liable to Ardent or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that this limitation on or exemption from liability is not permitted by
the Delaware General Corporation Law and any amendments to that law. As
currently enacted, the Delaware General Corporation Law permits a corporation to
provide in its certificate of incorporation that a director of the corporation
will not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability for:
o any breach of the director's duty of loyalty to the corporation
or its stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o payments of unlawful dividends or unlawful stock repurchases or
redemptions; or
o any transaction from which the director derived an improper
personal benefit.
The principal effect of this limitation on liability provision is that a
stockholder will be unable to recover monetary damages against a director for
breach of fiduciary duty unless the stockholder can demonstrate that one of the
exceptions listed in the Delaware General Corporation Law applies. This
provision, however, will not eliminate or limit director liability arising in
connection with causes of action brought under the Federal securities laws.
Ardent's certificate of incorporation does not eliminate its directors'
fiduciary duties. The inclusion of this provision in the certificate of
incorporation may, however, discourage or deter stockholders or management from
bringing a lawsuit against directors for a breach of their fiduciary duties,
even though such an action, if successful, might otherwise have benefited Ardent
and its stockholders. This provision should not affect the availability of
equitable remedies such as injunction or rescission based upon a director's
breach of his or her fiduciary duties.
121
The Delaware General Corporation Law provides that a corporation may
indemnify its directors and officers as well as its other employees and agents
against judgments, fines, amounts paid in settlement and expenses, including
attorneys' fees, in connection with various proceedings, other than an action
brought by or in the right of the corporation, if such person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, if he or she had no reasonable cause to believe his or her
conduct was unlawful. A similar standard is applicable in the case of an action
brought by or in the right of the corporation, except that indemnification in
such a case may only extend to expenses, including attorneys' fees, incurred in
connection with the defense or settlement of such actions, and the statute
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. Ardent's
amended and restated certificate of incorporation will continue to provide that
Ardent will indemnify its directors to the fullest extent permitted by Delaware
law. Under these provisions and subject to the Delaware General Corporation Law,
Ardent will be required to indemnify its directors for all judgments, fines,
settlements, legal fees and other expenses incurred in connection with pending
or threatened legal proceedings because of the director's position with Ardent
or another entity that the director serves as a director, officer, employee or
agent at Ardent's request, subject to various conditions, and to advance funds
to Ardent's directors before final disposition of such proceedings to enable
them to defend against such proceedings. To receive indemnification, the
director must have been successful in the legal proceeding or have acted in good
faith and in what was reasonably believed to be a lawful manner in the best
interest of Ardent.
WARRANTS
Ardent currently has warrants outstanding to purchase 14,546,000 shares
of Ardent common stock, 13,946,000 of which entitle the registered holder to
purchase one share of Ardent's common stock at a price of $5.00 per share and
600,000 of which entitle the registered holder to purchase one share of Ardent's
common stock at a price of $6.25 per share, in each case subject to adjustment
as discussed below, at any time commencing on the later of:
o the completion of a business combination; or
o February 24, 2006.
In addition, warrants to purchase an additional 200,000 shares will be
issued at the closing of the acquisition to John Waters pursuant to his
employment agreement. The warrants will expire on February 23, 2009, at 5:00
p.m., New York City time. Ardent may call the warrants for redemption in whole
and not in part, at a price of $.01 per warrant at any time after the warrants
become exercisable, upon not less than 30 days' prior written notice of
redemption to each warrant holder, if, and only if, the last reported sale price
of the common stock equals or exceeds $8.50 per share for any 20 trading days
within a 30 trading day period ending on the third business day prior to the
notice of redemption to warrant holders.
The warrants are issued in registered form under a warrant agreement
between Continental Stock Transfer & Trust Company, as warrant agent, and
Ardent.
The exercise price and number of shares of common stock issuable on
exercise of the warrants may be adjusted in certain circumstances including in
the event of a stock dividend, or Ardent's recapitalization, reorganization,
merger or consolidation. However, the warrants will not be adjusted for
issuances of common stock at a price below their respective exercise prices.
The warrants may be exercised upon surrender of the warrant certificate
on or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price, by
certified check payable to Ardent, for the number of warrants being exercised.
The warrant holders do not have the rights or privileges of holders of common
stock or any voting rights until they exercise their warrants and receive shares
of common stock. After the issuance of shares of common stock upon exercise of
the warrants, each holder will be entitled to one vote for each share held of
record on all matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of exercise a
prospectus relating to common stock issuable upon exercise of the warrants is
current and the common stock has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. Under the terms of the warrant agreement, Ardent has agreed to meet
these conditions and use its best efforts to maintain a current prospectus
relating to common stock issuable upon exercise of the warrants until the
expiration of the warrants. On November 2, 2006, Ardent entered into a Warrant
Clarification Agreement, dated as of February 24, 2005, by and between Ardent
and Continental Stock Transfer & Trust Company, as Warrant Agent, to clarify the
terms of the warrant agreement. The Warrant Clarification Agreement clarified,
consistent with the terms of the warrant agreement and the disclosure contained
in Ardent's prospectus, that if the prospectus relating to the common stock
issuable upon the exercise of the warrants is not current or if the common stock
is not qualified or exempt from qualification in the jurisdictions in which the
holders of the warrants reside, Ardent will not be required to net cash settle
or cash settle the warrant exercise, the warrants may have no value, the market
for the warrants may be limited and the warrants may expire worthless. As
discussed above, the foregoing clarification was based on the disclosure set
forth in the warrant agreement and the final prospectus. Such clarification is
entirely consistent with the terms of the warrant agreement and the disclosure
contained in Ardent's prospectus.
122
No fractional shares will be issued upon exercise of the warrants. If,
upon exercise of the warrants, a holder would be entitled to receive a
fractional interest in a share, Ardent will, upon exercise, round up to the
nearest whole number the number of shares of common stock to be issued to the
warrant holder.
In addition, options to purchase a total of 300,000 units at an exercise
price of $9.90 per unit (with each unit consisting of one share of Ardent's
common stock and two warrants, each to purchase one share of Ardent's common
stock at an exercise price of $6.25 per share) were sold in connection with the
underwriting of Ardent's initial public offering.
On November 2, 2006, in connection with the Warrant Clarification
Agreement with respect to Ardent's warrants discussed above, Ardent similarly
amended the terms of the unit purchase options granted in connection with its
initial public offering. In doing so, Ardent clarified, as of the date of its
initial public offering, that (i) if it is unable to deliver any securities
pursuant to the exercise of the unit purchase options as a result of its
inability to satisfy its registration requirements set forth in the options,
Ardent will have no obligation to pay such holder any cash or otherwise "net
cash settle" the option or the warrants underlying the option and (ii) there was
no specified liability for Ardent's failure to satisfy its registration
requirements.
QUOTATION OR LISTING
Ardent's outstanding common stock and warrants currently are quoted on
the Over-the-Counter Bulletin Board. Following the completion of the acquisition
(if approved at the special meeting), Ardent intends to seek to have its shares
of common stock and warrants listed on a national securities exchange or market.
INVESTORS RIGHTS AGREEMENT
Following the acquisition, Ardent will be subject to the terms of an
Investors Rights Agreement which was entered into by Avantair and certain equity
investors, and which provides for the registration of the shares of Avantair's
Class A common stock issued to those investors. See "Investors Rights Agreement"
on page 83.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares of Ardent common stock,
warrants and units is Continental Stock Transfer & Trust Company.
123
COMPARISON OF STOCKHOLDER RIGHTS
Ardent is incorporated under the laws of the State of Delaware. The
following is a comparison of the material rights of the current stockholders of
Ardent, and the stockholders of Ardent after the acquisition, under Ardent's
amended and restated certificate of incorporation and the statutory framework in
Delaware assuming adoption of the acquisition proposal and the name change
proposal. If both the acquisition proposal and the name change proposal are
adopted at the special meeting, the resulting changes to Ardent's certificate of
incorporation will be reflected in an amended and restated certificate of
incorporation in the form of Annex C to this document, which is incorporated in
this document by reference.
The following description does not purport to be complete and is
qualified by reference to Delaware General Corporation Law and Ardent's amended
and restated certificate of incorporation.
COMPARISON OF CERTAIN CERTIFICATE OF INCORPORATION PROVISIONS OF ARDENT
BEFORE AND AFTER THE ACQUISITION.
PROVISION CURRENT CERTIFICATE OF AMENDED AND RESTATED
INCORPORATION CERTIFICATE OF INCORPORATION
NAME OF CORPORATION Ardent Acquisition Corporation Avantair, Inc.
AUTHORIZED CAPITAL STOCK 31 million, of which: 76 million, of which:
o 30 million are shares of o 75 million are shares
common stock, par value of common stock, par value
$0.0001 per share; and $0.0001 per share; and
o 1 million are shares of o 1 million are shares
preferred stock, par value of preferred stock, par
$0.0001 per share. value $0.0001 per share.
BOARD OF DIRECTORS The Board of Directors must Same, except that the Board
have not less than 1 and not will be expanded to 7 members
more than 9 directors. The (Note also that at least
exact number is determined two-thirds of the Board (and
from time to time by other managing officers) must
resolution adopted by a be U.S. citizens under
majority of the entire Board federal aviation law).
of Directors. Ardent
currently has 5 directors.
QUALIFICATION OF Directors need not be Same.
DIRECTORS stockholders.
FOREIGN OWNERSHIP None. The aggregate percentage
RESTRICTIONS ownership by non-citizens of
Ardent's voting stock
(including the common stock)
is limited to the amount
permitted by federal law
(currently no more than 25%).
Ardent's Board of Directors
will be permitted to
implement additional
limitations, including
limiting the transfers or
voting rights of shares and
redeeming shares., and to
make such determinations as
may reasonably be necessary
to ascertain ownership and
maintain its U.S. citizenship.
CUMULATIVE VOTING None. None.
CLASSES OF DIRECTORS Directors are not classified. Same.
VACANCIES ON THE BOARD Vacancies (unless they are Same.
the result of the action of
stockholders) and
124
PROVISION CURRENT CERTIFICATE OF AMENDED AND RESTATED
INCORPORATION CERTIFICATE OF INCORPORATION
newly-created directorships
are filled by the majority vote
of the remaining directors in
office, even though less than
a quorum, or by a sole
remaining director. Vacancies
that result from the action of
stockholders are filled by the
stockholders.
BOARD QUORUM AND VOTE A majority of the entire Same.
Board of Directors
constitutes a quorum.
STOCKHOLDER APPROVAL OF "Business combination" is Holders of Ardent's common
"BUSINESS COMBINATIONS" subject to approval of a stock will not have special
majority of the shares issued approval rights over any
in Ardent's initial public transactions (subject to the
offering. If Ardent does not Delaware General Corporate
consummate a business Law, applicable securities
combination by the later of laws and regulations of any
September 2, 2006 or March 2, national market on which
2007 in the event that a Ardent's common stock may be
letter of intent, an traded in the future).
agreement in principle or a No automatic liquidation
definitive agreement to provisions.
complete a business
combination was executed but
not consummated by September
2, 2006, then Ardent's
officers must take all
actions necessary to dissolve
and liquidate Ardent within
60 days.
ANNUAL STOCKHOLDER Date, time and place of the Same.
MEETINGS annual meeting is determined
by the Board of Directors.
AMENDMENTS TO ORGANIZED Amendments to Ardent's Same.
DOCUMENTS certificate of incorporation
generally must be approved
by the Board of Directors
and by a majority of the
outstanding stock entitled
to vote on the amendment, and,
if applicable, by a majority of
the outstanding stock of each
class or series entitled to vote
on the amendment as a class or
series.
125
PROVISION CURRENT CERTIFICATE OF AMENDED AND RESTATED
INCORPORATION CERTIFICATE OF INCORPORATION
EXCULPATION AND A director may not be Same.
INDEMNIFICATION OF personally liable for
DIRECTORS, OFFICERS AND monetary damages for breach
EMPLOYEES of fiduciary duty as a
director, except for
liability:
o for any breach of the
director's duty of loyalty;
o for acts or omissions not
in good faith or which
involve intentional
misconduct or a knowing
violation of law;
o under Section 174 of the
Delaware General
Corporation Law; or
o for any transaction from
which the director derived
an improper personal
benefit.
If the Delaware General
Corporation Law is amended
to authorize corporate action
further eliminating or limiting
the personal liability of
directors, then the liability
of directors must be eliminated
or limited to the fullest extent
permitted by the Delaware
General Corporation Law, as so
amended.
STOCKHOLDER PROPOSALS
If the acquisition is not consummated, Ardent will be liquidated and
will not hold an annual meeting in 2007. If the acquisition is consummated,
Ardent's 2007 annual meeting of stockholders will be held on or about November
15, 2007 unless the date is changed by Ardent's Board of Directors. If you are a
stockholder and you want to include a proposal in the proxy statement for the
year 2007 annual meeting, you must give timely notice of the proposal, in
writing, along with any supporting materials to Ardent's secretary at Ardent's
principal office in Garden City, New York. To be timely, the notice has to be
given by July 10, 2007. The proxy or proxies designated by the Board of
Directors will have discretionary authority to vote on any matter properly
presented by a stockholder for consideration at the 2007 Annual Meeting of
Stockholders but not submitted for inclusion in the proxy materials for such
meeting unless notice of the matter is received by Ardent on or before August
27, 2007 and certain other conditions of the applicable rules of the SEC are
satisfied.
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
The consolidated and combined financial statements of Avantair, Inc. and
Subsidiary as of and for the years ended June 30, 2004, 2005 and 2006 included
in this proxy statement have been audited by J.H. Cohn LLP, independent
registered public accounting firm. J.H. Cohn LLP has acted as the independent
auditor for Avantair since 2006.
The financial statements of Ardent as of Deceember 31, 2005 and 2004 and
for the periods then ended, included in this proxy statement have been audited
by Goldstein Golub Kessler LLP, its independent registered public accountants.
Goldstein Golub Kessler LLP has acted as independent auditor for Arrdent since
2005.
126
WHERE YOU CAN FIND MORE INFORMATION
Ardent files reports, proxy statements and other information with the
Securities and Exchange Commission as required by the Securities Exchange Act of
1934, as amended.
You may read and copy reports, proxy statements and other information
filed by Ardent with the Securities and Exchange Commission at the Securities
and Exchange Commission public reference room located at Headquarters Office,
100 F Street, N.E., Room 1580 Washington, DC 20549.
You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also obtain copies of the materials described above at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section,
Headquarters Office, 100 F Street, N.E., Room 1580 Washington, DC 20549.
Ardent files its reports, proxy statements and other information
electronically with the Securities and Exchange Commission. You may access
information on Ardent at the Securities and Exchange Commission web site
containing reports, proxy statements and other information at:
http://www.sec.gov.
Information and statements contained in this document, or any annex to
this document, are qualified in all respects by reference to the copy of the
relevant contract or other annex filed as an exhibit to this document.
All information contained in this document relating to Ardent has been
supplied by Ardent, and all such information relating to Avantair has been
supplied by Avantair. Information provided by either of us does not constitute
any representation, estimate or projection of the other.
If you would like additional copies of this document, or if you have
questions about the acquisition, you should contact:
Morrow & Co., Inc.
470 West Avenue
Stamford, CT 06902
Phone: 800-607-0088
127
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AVANTAIR COMBINED FINANCIAL STATEMENT
Report of Independent Registered Public Accounting Firm F-2
Consolidated and Combined Balance Sheets F-3
June 30, 2006 and 2005
Consolidated and Combined Statements of Operations F-5
For the Years Ended June 30, 2006, 2005 and 2004
Consolidated and Combined Statements of Changes in Stockholders' Deficit F-6
For the Years Ended June 30, 2006, 2005 and 2004
Consolidated and Combined Statements of Cash Flows F-7
For the Years Ended June 30, 2006, 2005 and 2004
Notes to Consolidated and Combined Financial Statements F-8
ARDENT FINANCIAL STATEMENTS
Condensed Balance Sheet F-19
June 30, 2006 and December 31, 2005
Unaudited Condensed Statements of Operations F-20
For the Six Months Ended June 30, 2006 and 2005
Statement of Stockholder's Equity F-21
Unaudited Condensed Statement of Cash Flows F-22
For the six months ended June 30, 2006, June 30, 2005 and the period
between September 14, 2004 (inception) through June 30, 2006
Notes to Consolidated and Combined Financial Statements F-23
Report of Independent Registered Public Accounting Firm F-26
Balance Sheet F-27
December 31, 2005
Statements of Operations F-28
For the Year Ending December 31, 2005, for the period from
September 14, 2004 (inception) to December 31, 2004 and for the period
from September 14, 2004 (inception) to December 31, 2005
Statements of Stockholders' Equity F-29
Balance at December 31, 2005 and balance at December 31, 2004
Statements of Cash Flows F-30
For the year ending December 31, 2005, for the year ending September 14,
2004 (inception) to December 31, 2004 and from September 14, 2004
(inception) to December 31, 2005
Notes to Consolidated and Combined Financial Statements F-32
F-1
The Stockholders and Board of Directors
Avantair, Inc.
We have audited the accompanying consolidated balance sheets of Avantair, Inc.
and Subsidiary as of June 30, 2006 and 2005, and the related consolidated and
combined statements of operations, stockholders' deficit and cash flows for each
of the years in the three-year period ended June 30, 2006. These consolidated
and combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
and combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to
above present fairly, in all material respects, the financial position of
Avantair, Inc. as of June 30, 2006 and 2005, and their results of operations and
cash flows for each of the years in the three-year period ended June 30, 2006,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated and combined financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1, the Company has experienced recurring net losses resulting
in an accumulated deficit of $36,432,230 as of June 30, 2006. In addition, the
Company has a working capital deficiency of $23,853,247 as of June 30, 2006.
These conditions, among other matters, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters are also described in Note 1. The consolidated and combined
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
One of the Company's stockholders filed an action in the amount of $25,000,000
against the Company (but did not serve) alleging a breach of the related party
financing agreement described in Note 7.
/s/ J.H. Cohn LLP
Jericho, New York
October 20, 2006, except for Note 11 as to which the date is November 1, 2006
F-2
AVANTAIR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 AND 2005
ASSETS
2006 2005
------------- -------------
CURRENT ASSETS
Cash and cash equivalents $ 2,175,734 $ 2,009,779
Accounts receivable, net of allowance for doubtful accounts of
$600,000 at June 30, 2006 and $400,000 at June 30, 2005 1,935,501 1,954,929
Accounts receivable from vendor 856,775 388,686
Inventory 253,533 2,165,386
Property held for sale 7,870,300 --
Current portion of notes receivable 1,672,481 2,884,537
Current portion of lease payments receivable -- 2,650,655
Prepaid expenses and other current assets 80,419 123,795
------------- -------------
Total current assets 14,844,743 12,177,767
------------- -------------
AIRCRAFT COSTS RELATED TO FRACTIONAL SALES 99,781,531 66,724,380
Less amounts charged to cost of sales 31,747,580 12,580,857
------------- -------------
68,033,951 54,143,523
------------- -------------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation and amortization of $1,549,828 at June 30, 2006
and $2,806,848 at June 30, 2005 4,835,743 15,848,135
------------- -------------
OTHER ASSETS
Deposits 13,431,683 9,127,078
Deferred maintenance agreement 3,329,500 --
Notes receivable 2,921,163 4,531,740
Other assets 195,496 249,974
------------- -------------
Total other assets 19,877,842 13,908,792
------------- -------------
Total assets $ 107,592,279 $ 96,078,217
============= =============
SEE NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
F-3
AVANTAIR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 AND 2005
LIABILITIES AND STOCKHOLDERS' DEFICIT
2006 2005
------------- -------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 11,399,629 $ 4,384,189
Borrowings under line of credit from a related party 22,317,079 23,885,522
Customer deposits 580,989 1,397,700
Current portion of notes payable 4,400,293 1,726,789
------------- -------------
Total current liabilities 38,697,990 31,394,200
------------- -------------
Notes payable, net of current portion 6,550,138 11,287,340
Deferred revenue related to fractional aircraft share sales 94,156,720 64,587,790
Deferred gain on sale and leaseback of asset 1,003,946 --
Deferred maintenance and management fees 3,437,615 4,032,921
Other liabilities 297,486 45,675
------------- -------------
Total long-term liabilities 105,445,905 79,953,726
------------- -------------
Total liabilities 144,143,895 111,347,926
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, Class A, $10 par value, 1,250 shares
authorized, 100 shares issued and outstanding 1,000 1,000
Common stock, Class B, non-voting, $10 par value,
1,250 shares authorized, 100 shares issued and outstanding 1,000 1,000
Paid-in capital 412,600 412,600
Accumulated deficit (36,432,230) (15,684,309)
Due from stockholder (533,986) --
------------- -------------
Total stockholders' deficit (36,551,616) (15,269,709)
------------- -------------
Total liabilities and stockholders' deficit $ 107,592,279 $ 96,078,217
============= =============
SEE NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
F-4
AVANTAIR, INC. AND SUBSIDIARY
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2006, 2005 AND 2004
2006 2005 2004
------------ ------------ ------------
REVENUES
Fractional aircraft shares sold $ 23,756,070 $ 10,580,859 $ 3,226,890
Maintenance and management fees 22,824,940 11,645,999 3,463,810
Demonstration and other 1,814,370 1,167,520 1,027,348
------------ ------------ ------------
Total revenue 48,395,380 23,394,378 7,718,048
------------ ------------ ------------
OPERATING EXPENSES
Cost of fractional aircraft shares sold 19,166,722 9,318,013 2,925,978
Cost of flight operations 31,782,820 14,384,368 5,620,085
General and administrative expenses 13,406,376 6,885,229 4,224,404
Selling expenses 3,672,754 976,164 514,430
------------ ------------ ------------
Total operating expenses 68,028,672 31,563,774 13,284,897
------------ ------------ ------------
Loss from operations (19,633,292) (8,169,396) (5,566,849)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 557,508 490,591 237,927
Interest expense (2,110,119) (1,194,723) (269,036)
Other income, net 437,982 167,329 553,457
------------ ------------ ------------
Total other income (expense) (1,114,629) (536,803) 522,348
------------ ------------ ------------
Net loss $(20,747,921) $ (8,706,199) $ (5,044,501)
============ ============ ============
Loss per common share:
Basic and diluted $ (103,740) $ (43,531) $ (25,223)
============ ============ ============
Weighted-average common shares outstanding:
Basic and diluted 200 200 200
============ ============ ============
SEE NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
F-5
AVANTAIR, INC. AND SUBSIDIARY
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED JUNE 30, 2006, 2005 AND 2004
CLASS A CLASS B TOTAL
COMMON COMMON PAID-IN DUE FROM ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL STOCKHOLDER DEFICIT DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2003 $ 1,000 $ 1,000 $ 412,600 $ -- $ (1,933,609) $ (1,519,009)
Net loss -- -- -- -- (5,044,501) (5,044,501)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2004 1,000 1,000 412,600 -- (6,978,110) (6,563,510)
Net loss -- -- -- -- (8,706,199) (8,706,199)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2005 1,000 1,000 412,600 -- (15,684,309) (15,269,709)
Advances to stockholder -- -- -- (533,986) -- (533,986)
Net loss -- -- -- -- (20,747,921) (20,747,921)
------------ ------------ ------------ ------------ ------------ ------------
Balance, June 30, 2006 $ 1,000 $ 1,000 $ 412,600 $ (533,986) $(36,432,230) $(36,551,616)
============ ============ ============ ============ ============ ============
SEE NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
F-6
AVANTAIR, INC. AND SUBSIDIARY
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2006, 2005 AND 2004
2006 2005 2004
------------ ------------ ------------
OPERATING ACTIVITIES:
Net loss $(20,747,921) $ (8,706,199) $ (5,044,501)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,649,096 1,932,757 1,011,464
Gain on sale of equipment (207,544) -- --
Provision for bad debts 200,000 200,000 200,000
Changes in operating assets and liabilities:
Accounts receivable (180,572) (2,136,033) (188,600)
Accounts receivable from vendor (468,089) (388,686) --
Inventory 1,911,853 8,020,487 (10,185,872)
Deposits and other assets (4,304,605) (271,078) (8,381,224)
Deferred maintenance agreement (3,329,500) -- --
Prepaid expenses and other current assets 43,376 (161,646) (37,815)
Notes and leases payments receivable 5,473,288 (4,725,253) (3,754,386)
Aircraft costs related to fractional shares (13,890,428) (29,866,783) (20,697,986)
Other assets 54,478 (224,750) --
Accounts payable and accrued liabilities 7,015,440 1,778,197 2,091,466
Deferred maintenance and management fees (595,306) 4,032,921 --
Customer deposits (816,711) (74,800) 1,472,500
Other liabilities 251,811 45,241 --
Deferred gain on sale and leaseback of asset 1,003,946 -- --
Deferred revenue related to fractional
aircraft share sales 29,568,930 35,862,142 24,657,400
------------ ------------ ------------
Net cash provided by (used in) operating activities 3,631,542 5,316,517 (18,857,554)
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 3,207,625 -- 2,300,000
Capital expenditures (2,507,085) (12,117,319) (4,125,656)
------------ ------------ ------------
Net cash provided by (used in) investing activities 700,540 (12,117,319) (1,825,656)
------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings under long-term notes payable 3,272,000 6,148,576 11,944,850
Borrowings under line of credit 7,019,591 32,235,792 28,793,992
Principal payments on long-term notes payable (5,335,698) (6,395,768) (6,267,240)
Principal payments on line of credit (8,588,034) (23,844,262) (13,300,000)
Advances to stockholder (533,986) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (4,166,127) 8,144,338 21,171,602
------------ ------------ ------------
Net increase in cash and cash equivalents 165,955 1,343,536 488,392
Cash and cash equivalents, beginning of the year 2,009,779 666,243 177,851
------------ ------------ ------------
Cash and cash equivalents, end of the year $ 2,175,734 $ 2,009,779 $ 666,243
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid (net of amounts capitalized) $ 2,120,658 $ 1,082,224 $ 228,010
============ ============ ============
SEE NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS.
F-7
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
Avantair, Inc., ("Avantair" or the "Company") was incorporated July 11, 2003 in
the State of Nevada. Avantair is the successor to Skyline Aviation, Inc., an S
Corporation, ("Skyline"). Skyline is a Delaware corporation established on
September 14, 1999. On August 20, 2004 the stockholders of Skyline entered into
a Contribution Agreement in which they agreed to contribute 100 shares of common
stock (representing 100% of the common stock outstanding), no par value, to
Avantair for 100 shares of Avantair Class A common stock or Class B common
stock. Skyline at this time became a wholly owned subsidiary of Avantair,
resulting in the consolidated financial statements presented. From the inception
of Avantair (July 11, 2003) and prior to the Contribution Agreement, the
companies conducted business under common ownership as defined by Emerging
Issues Task Force ("EITF") 02-5, Definition of "Common Control", and with 85%
common ownership, the financial statements for the period ended June 30, 2004
were presented as combined financial statements. Since in this business
combination there was only an exchange of shares between entities under common
control the business combination did not require the assets and liabilities to
be fair valued, therefore they were recorded at their historical cost.
The results of operations for the year ended June 30, 2004 are the combined
results of Skyline and Avantair for that period. The results of operations for
the year ended June 30, 2005 include approximately two months of combined
operations and the balance of the operations are consolidated from August 20,
2004. The accounting described above had no impact on the results of operations.
The results of operations for the year ended June 30, 2006 were consolidated.
All inter-company transactions have been eliminated in consolidation. There were
no inter-company sales or expenses during the periods that the operations were
combined.
NATURE OF BUSINESS
The Company is engaged in the sale and management of fractional ownership of
professionally piloted aircraft for personal and business use. The Company
operates fixed flight based operations, aircraft maintenance, concierge services
to customers from hangars and office locations in Reno, Nevada (closing in
October 2006), Clearwater, Florida, and Caldwell, New Jersey.
The accompanying consolidated and combined financial statements have been
prepared assuming that the Company will continue as a going concern. This basis
of accounting contemplates the recovery of the Company's assets and the
satisfaction of its liabilities in the normal course of business. Successful
transition to profitable operations is dependent upon obtaining a level of sales
adequate to support the Company's cost structure. The Company has suffered
recurring losses resulting in an accumulated deficit of $36,432,230 and a
working capital deficiency of $23,853,247 as of June 30, 2006. Management
intends to continue to finance the operations of the Company through cash flows
from operations and by raising additional capital from the sale of its stock.
However, there can be no assurance that the Company will be able to obtain such
financing or internally generate cash flows from operations, which may impact
the Company's ability to continue as a going concern. The accompanying
consolidated balance sheets do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the potential
inability of the Company to continue as a going concern.
F-8
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The accompanying consolidated and combined financial statements include the
accounts of the Company and its subsidiary, and have been prepared in conformity
with U.S. generally accepted accounting principles. All material intercompany
accounts and transactions have been eliminated in the consolidated and combined
financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments held
with investment grade financial institutions, with maturities of three months or
less from the date of acquisition.
REVENUE RECOGNITION
The Company sells fractional shares of aircraft and the related maintenance and
management services that accompany aircraft ownership. The aircraft are sold in
1/16th shares or multiples thereof. The purchase agreement grants the customer
the right to the use of the aircraft for a specified number of hours each year
the aircraft is in service. When a customer purchases a fractional share, they
are also required to enter into a five-year management and maintenance
agreement. Under the terms of the management and maintenance agreement, the
Company agrees to manage, operate and maintain the aircraft on behalf of the
customer in exchange for a fixed monthly fee.
FRACTIONAL AIRCRAFT SHARES
The Company does not have vendor specific objective evidence to determine
the fair value of each element and as result has adopted the provisions of
EITF 00-21 ("Accounting for Revenue Arrangements with Multiple
Deliverables") to account for the sale of fractional shares of aircraft.
Accordingly, if the sale of the fractional share cannot be separated from
the underlying maintenance agreement, the revenue must be recognized
ratably over the life of the maintenance agreement. The sales of the
fractional shares of the aircraft are recognized as income over the
five-year period.
MANAGEMENT AND MAINTENANCE AGREEMENT
Revenue earned in connection with the management and maintenance agreement
is recognized ratably over the term of the agreement or five years. At
times a customer will prepay their management and maintenance fee for a
period of one year or longer. This is recorded as unearned revenue and
amortized into revenue on a monthly basis in accordance with the schedule
provided for within each agreement.
AIRCRAFT COSTS RELATED TO FRACTIONAL SALES
The Company reflects aircraft costs related to the sale of fractional aircraft
shares. As a result of the adoption of EITF 00-21 the Company recognizes the
sales of the fractional shares of aircraft as income over the five-year period.
The aircraft costs related to sales of fractional shares consist of the cost of
the aircraft and are recorded as an asset and recognized as cost of aircraft
shares sold over the five-year period.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. The Company provides an allowance for doubtful accounts
equal to the estimated uncollectible amounts. The Company's estimate is based on
historical collection experience and a review of the current status of trade
accounts receivable. Management believes that they have adequately provided for
uncollectible receivables in the Company's allowance for doubtful accounts.
CUSTOMER DEPOSITS
Customer deposits are cash payments received from customers who have purchased a
fractional interest in an aircraft and that specific aircraft is not available
for delivery.
F-9
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $1,766,517, $459,979 and
$85,885 for the years ended June 30, 2006, 2005 and 2004, respectively.
INVENTORY
Inventory consists of unsold fractional aircraft shares and aircraft parts.
Inventory is valued at the lower of cost (determined by the first-in, first-out
method) or market.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the amounts reported in the
consolidated and combined financial statements and accompanying notes. The
Company is subject to uncertainties such as the impact of future events,
economic, environmental and political factors and changes in the Company's
business environment; therefore, actual results could differ from these
estimates. Accordingly, the accounting estimates used in the preparation of the
Company's financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained and as the
Company's operating environment changes. Changes in estimates are made when
circumstances warrant. Such changes in estimates and refinements in estimation
methodologies are reflected in reported results of operations; if material, the
effects of changes in estimates are disclosed in the notes to the consolidated
and combined financial statements. Significant estimates and assumptions by
management affect: the proper recording of revenue arrangements with multiple
deliverables, the allowance for doubtful accounts, the carrying value of
long-lived assets, the amortization period of long-lived assets, the provision
for income taxes and related deferred tax accounts, certain accrued expenses and
contingencies.
NOTES RECEIVABLE AND LEASE PAYMENTS RECEIVABLE
The Company provides financing for the purchase of fractional shares of
aircraft. The financing is done through a note receivable secured by the
fractional share of the aircraft or by a sales-type lease. The carrying amount
of notes receivable consists of the principal balance of the note receivable and
the accrued interest at rates ranging from 5% to 8% per annum. Interest on notes
receivable is recognized into income over the life of the note using a method
that produces a constant periodic rate of return.
The carrying amount of lease payments receivable consists of the total payments
receivable less unearned income portion of payments.
DEFERRED RENT
The aggregate of minimum annual operating lease payments are expensed on a
straight-line basis over the term of the related leases. The amount by which
straight-line rent differs from actual lease payments is recognized as deferred
rent and is included in other liabilities.
INCOME TAXES
Income taxes are accounted for under the asset and liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is established to
reduce deferred tax assets to the amounts expected to be realized.
F-10
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists principally of aircraft
purchased which are not fractionalized and which provide additional capacity to
the Company to meet customer demand. Depreciation and amortization is computed
using the straight-line method over the following useful lives:
Aircraft 7 years
Office equipment and furniture and fixtures 5-7 years
Flight management software/hardware 5 years
Vehicles 5 years
Improvements Lesser of estimated
useful life or the
life of the lease
Expenditures for maintenance and repairs of property and equipment are expensed
as incurred. Major improvements are capitalized.
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," long-lived assets used in operations are reviewed for
impairment whenever events or changes in circumstances indicate that carrying
amounts may not be recoverable. For long-lived assets to be held and used, the
Company recognizes an impairment loss only if its carrying amount is not
recoverable through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and fair value. Long-lived
assets held for sale are reported at the lower of cost or fair value less costs
to sell.
The Company capitalized interest costs relating to borrowings made for the
acquisition of aircraft. The amounts capitalized are as follows:
2006 2005 2004
---------- ---------- ----------
Total interest costs $2,610,119 $1,594,723 $ 569,036
Less: amount capitalized 500,000 400,000 300,000
---------- ---------- ----------
Interest expense $2,110,119 $1,194,723 $ 269,036
========== ========== ==========
LOSS PER SHARE
Basic loss per common share is presented in conformity with SFAS No. 128,
"Earnings Per Share." In accordance with SFAS No. 128, basic loss per common
share has been computed using the weighted-average number of shares of common
stock outstanding during the periods presented. The Company has no dilutive
securities outstanding.
RECENTLY ISSUED PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "(Revised 2004): Share-Based Payment" ("SFAS 123R"), which replaces
SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires
all share-based payments to employees, including grants of Company stock options
to Company employees, to be recognized in the financial statements based on
their fair values. Under SFAS 123R, the Company will have to determine the
appropriate fair value model to be used for valuing share-based payments and the
amortization method for compensation cost. The Company has not adopted a stock
option or award plan and since its inception has not issued option or stock
awards to employees or consultants.
In June 2006, the FASB issued interpretation No. 48, "Accounting for Uncertainty
in Income Taxes (as amended) - an interpretation of FASB Statement No. 109"
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS
No.109, "Accounting for Incomes Taxes," and prescribes a recognition threshold
and measurement attribute for the financial statement
F-11
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company expects to implement FIN 48 beginning in fiscal year 2007 and
will evaluate the impact that adopting FIN 48 will have on its financial
position and results of operations.
NOTE 3 - CONCENTRATIONS OF RISK
The Company acquires all of its aircraft from one supplier and is dependent on
that supplier for timely delivery of its airplanes. Any disruption in the
delivery of these airplanes would cause the Company to incur significant costs
without the benefit and the cash flow it receives from its customers.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents. The Company
maintains its cash and cash equivalents in bank deposits, the balances of which,
at times, may exceed Federally insured limits. Exposure to credit risk is
reduced by placing such deposits in high credit quality financial institutions.
At June 30, 2006, the Company had cash and cash equivalents in excess of
Federally insured limits of $1,967,257.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, stated at cost as of June 30, 2006 and 2005 consisted of
the following:
2006 2005
------------ ------------
Aircraft $ 3,513,003 $ 17,584,480
Leasehold improvements 1,442,873 262,016
Furniture, fixtures and equipment 1,036,358 473,405
Flight management software/hardware 349,266 282,511
Vehicles 44,071 52,571
------------ ------------
Totals 6,385,571 18,654,983
Less: accumulated depreciation and amortization (1,549,828) (2,806,848)
------------ ------------
$ 4,835,743 $ 15,848,135
============ ============
Depreciation and amortization expense for the years ended June 30, 2006, 2005
and 2004 was $2,649,096, $1,932,757 and $1,011,464, respectively, and is
included in general and administrative expenses.
NOTE 5 - PROPERTY HELD FOR SALE
During 2006, the Company decided to sell certain of its aircraft. The Company
sold one of its aircraft and is pursuing buyers for the sale of two other
aircraft. The Company recovered its net book value on the aircraft sold and the
pending arrangements, if complete, will also provide the Company with sufficient
proceeds to recover its net book value.
F-12
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 6 - INCOME TAXES
The differences between income tax benefit provided at the Company's effective
rate and the statutory rate (35% in 2006 and 34% in 2005 and 2004) at June 30,
2006, 2005 and 2004 are as follows:
2006 2005 2004
----------- ----------- -----------
Income tax benefit at statutory rate $ 7,261,772 $ 2,960,108 $ 1,715,130
State taxes, net of Federal benefit 622,438 -- --
Increase in valuation allowance (7,884,210) (2,960,108) (1,715,130)
----------- ----------- -----------
Total $ -- $ -- $ --
=========== =========== ===========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) at June 30, 2006 and 2005 are as
follows:
2006 2005
------------ ------------
Deferred tax liability
Depreciation $ (1,187,940) $ (1,243,557)
------------ ------------
(1,187,940) (1,243,557)
------------ ------------
Deferred tax assets
Deferred revenues, net of amortized aircraft costs
related to fractional share sales 9,508,882 3,551,051
Other 323,217 151,530
Net operating loss carryforwards 4,586,319 2,887,244
------------ ------------
14,418,418 6,589,825
------------ ------------
Net deferred tax assets 13,230,478 5,346,268
Less valuation allowance (13,230,478) (5,346,268)
------------ ------------
$ -- $ --
============ ============
As the ultimate realization of the potential benefits of the Company's net
operating loss carryforwards is considered unlikely by management, the Company
has offset the deferred tax assets attributable to those potential benefits
through a valuation allowance in 2006, 2005 and 2004 and, accordingly, the
Company did not recognize any benefit from income taxes in the accompanying
consolidated and combined statements of operations. At June 30, 2006, the
Company had net operating loss carryforwards of approximately $12,000,000 which
begin to expire in 2019.
In the event that the planned merger takes place (see Note 10), the Company will
experience a change of ownership event as defined in Section 382 of the IRS
Code. Accordingly, utilization of the net operating loss carryforward will be
subject to substantial annual limitation due to the ownership change limitations
provided by the IRS Code of 1986, as amended and similar state provisions. The
annual limitation will result in the expiration of the net operating loss before
utilization.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company leases an aircraft hangar in Reno, Nevada from CNM Hangar, LLC
("CNM"), a former stockholder of the Company. The lease provides for monthly
payments of $20,000 through August 2006. In September 2006, the Company and CNM
informally agreed to reduce the monthly payments by $5,000 to $15,000 and to
terminate
F-13
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
the lease as of October 1, 2006. Total rent expense for the years ended June 30,
2006, 2005 and 2004 was $240,000, $240,000 and $60,000, respectively.
The Company has a financing arrangement with the majority stockholder of CNM.
The borrowings under this arrangement bear interest at 3-3/4 points over the
one-month LIBOR rate per annum and are personally guaranteed by CNM. The terms
of the arrangement provide that the Company repay the borrowings under the line
as fractional interests in aircraft are sold. Borrowings outstanding as of June
30, 2006 and 2005 were $22,317,079 and $23,885,522, respectively. The weighted
average interest rates on these borrowings were 3.75% and 1.75% over the
one-month LIBOR rate, at June 30, 2006 and 2005, respectively (7.9% and 4.2% at
June 30, 2006 and 2005, respectively). Reference is made to Note 8, which
describes amounts due to CNM relating to the acquisition of aircraft.
During fiscal 2006, the CNM Inc. et.al. and Charles Mathewson filed an action
(but did not serve) against the Company and its largest stockholder. The
complaint alleged that the parties breached certain credit agreements and owed
the defendants $25,000,000 as a result of the alleged breach. On September 27,
2006, the Company and CNM agreed to enter into a tolling agreement relating to
this litigation (see Notes 5, 10 and 11).
Included in cost of flight operations are costs for continuing education of
customer-facing personnel including pilots, which have been paid to a company
that is owned by the wife of the Company's former Chairman (See Note 10). The
payments made to this entity approximated $165,000 during the year ended June
30, 2006. No such costs were incurred in fiscal years 2005 and 2004. Effective
September 2006, this arrangement has been terminated.
The Company leased an apartment, which is owned by the former Chairman's wife
for use by Company personnel and clients. Rental payments of approximately
$60,000 were paid to her for the year ended June 30, 2006. Effective September
8, 2006, the Company terminated the arrangement and ceased making payments.
As a result of the relocation of the major business activities to Clearwater,
Florida, the Company pays rent for the Chief Executive Officer's living quarters
in Florida. The amount of these rental payments approximated $26,000 for the
year ended June 30, 2006.
The Chief Executive Officer leases an aircraft used principally by the Company.
The Company reimburses the Chief Executive Officer for the lease payments. The
lease agreement provides for monthly payments of $18,000. Lease payments for the
year ended June 30, 2006 were approximately $54,000.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2006 and 2005:
2006 2005
------------ ------------
Wells Fargo Equipment Finance, Inc. $ 7,593,212 $ 8,917,149
CIT Group/Equipment Financing, Inc. -- 2,828,494
Jet Support Services, Inc. 3,145,219 --
CNM Aviation, LLC -- 734,375
CNM, Inc. -- 196,611
Other 212,000 337,500
------------ ------------
10,950,431 13,014,129
Less current portion (4,400,293) (1,726,789)
------------ ------------
Long-term debt $ 6,550,138 $ 11,287,340
============ ============
F-14
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 8 - LONG-TERM DEBT (CONTINUED)
WELLS FARGO EQUIPMENT FINANCE, INC.
The Company has financing arrangements for the purchase of four aircraft under
various notes payable with Wells Fargo Equipment Finance, Inc. The notes are
payable in monthly installments ranging from $4,550 to $38,480 with interest
ranging from 5.75% to 6.12% per annum, through 2012. The notes are secured by
the aircraft and are personally guaranteed by a stockholder of the Company.
On December 16, 2003, the Company entered into a promissory note with Wells
Fargo Equipment Finance, Inc. for $2,900,000 in connection with the purchase of
an aircraft. The terms of the note provide for interest only monthly payments at
5.75% per annum through December 15, 2007, at which the outstanding principal
balance is due in full. The note is secured by the aircraft and is personally
guaranteed by a stockholder of the Company.
CIT GROUP/EQUIPMENT FINANCING, INC.
In September 2002, the Company entered into a negotiable promissory note with
CIT Group/Equipment Financing, Inc. for $3,432,551 for the purchase of an
aircraft. The note was payable in 60 monthly installments of $19,475 plus
interest at 2.88% in excess of the rate published in the H15 Report by the
Federal Reserve Bank (3.26% at June 30, 2005). The note is secured by the
aircraft and is personally guaranteed by a stockholder of the Company. During
2006, the note was repaid in full.
JET SUPPORT SERVICES, INC.
In April 2006, the Company financed an aircraft maintenance program contract
with Jet Support Services, Inc. ("JSSI") totaling $3,452,040. The promissory
note provides for 7 monthly installments of $145,867 and 53 monthly installments
of $45,867 including interest at 7% per annum.
CNM AVIATION, LLC
In 2004, the Company purchased an aircraft from a company that is under common
ownership with a stockholder of the Company, CNM, in exchange for a non-interest
bearing note in the amount of $4,700,000. Under the terms of the agreement the
Company is required to repay the loan as fractional shares of the underlying
aircraft are sold. The note was substantially repaid within one year of its
issuance.
CNM, INC.
In 2003, the Company entered into a promissory note with a company that is under
common ownership with a stockholder of the Company, CNM, in the amount of
$550,000. The terms of the note provide for monthly payments of interest only at
the rate of 6% per annum through June 2008, at which the outstanding principal
balance is due in full. This note was repaid in full during 2006.
Future minimum payments on notes payable in years subsequent to June 30, 2006
are as follows:
Year Ending June 30,
2007 $ 4,400,293
2008 850,474
2009 861,373
2010 915,313
2011 976,764
Thereafter 2,946,214
-----------
$10,950,431
===========
F-15
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts a major part of its operations from leased facilities,
which include airplane hangars and administrative offices. The hangar lease,
which is for 15 years expiring in 2021, is classified as an operating lease. All
of the leases of store facilities expire over the next 10 years.
Most of the operating leases contain an option to renew at the then fair rental
value for periods of five to ten years. These options enable the Company to
retain use of facilities in desirable operating areas.
In addition, the Company leases transportation equipment and data processing
equipment under operating leases expiring during the next three years.
Total rent expense for all operating leases was approximately $1,904,000,
$769,000 and $233,000 in 2006, 2005 and 2004, respectively.
Future minimum lease payments on these leases are:
Year Ending June 30,
2007 $ 1,831,456
2008 2,081,830
2009 2,151,741
2010 2,241,851
2011 2,312,597
Thereafter 25,504,112
-------------
$ 36,123,587
=============
With respect to the Company operating leases at Clearwater, Florida (which
covers hangar space), the lease provides for rent allocation credits for the
first three years. These credits have been included in rental expense ratably
over the life of the lease.
NET INVESTMENT IN DIRECT FINANCING AND SALES-TYPE LEASE
The following lists the components of the net investment in direct financing and
sales-type leases as of June 30:
2006 2005
---------- ----------
Total minimum lease payments to be
received and receivable $ -- $3,089,960
Less: Unearned income -- 439,305
---------- ----------
Net investment in direct financing and
sales-type leases $ -- $2,650,655
========== ==========
CONTINGENCIES
Two sales tax assessments have been made against the Company's wholly owned
subsidiary with regards to aircraft purchased in 2003 totaling $875,000,
including interest and penalties. In management's opinion, the outcome of this
contingency will not have a material impact on the consolidated and combined
financial statements.
F-16
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
PURCHASE COMMITMENT
The Company has agreed to purchase 60 additional Avant II P180 aircraft from
Piaggio America. The total commitment is approximately $324,000,000 to be
delivered through 2010.
The Company is committed to acquire a total of 104 aircraft in the amount of
approximately $570,000,000 from a different aircraft manufacturer. The Company
paid $1,300,000 in deposits in connection with this commitment.
NOTE 10 - SUBSEQUENT EVENTS
Avantair entered into a sale and leaseback agreement, dated August 11, 2006,
with JMMS, LLC and a sale and leaseback agreement, dated August 15, 2006, with
Comvest Group Holdings LLC. Under the sale and leaseback agreement with JMMS,
LLC, Avantair sold 100% of its interest in a core aircraft for $4.2 million and
leased back 68.8% of the aircraft for a five year term. Under the sale and
leaseback agreement with Comvest Group Holdings LLC, Avantair sold 100% of its
interest in a core aircraft for $4.0 million and leased back 50% of the aircraft
for a five year term. The proceeds of the sale and leaseback arrangements were
used to pay down the line of credit with CNM, Inc. The Company will account for
these sale and leaseback transactions in accordance with SFAS No. 98, Accounting
For Leases.
Effective September 8, 2006, the Company's Chairman resigned. In connection
therewith it was agreed that the amounts due from him ($533,986) were forgiven
in exchange for a significant portion of the stock he owns. The amount has been
classified as a reduction to stockholders' equity at June 30, 2006.
On September 29, 2006, management entered into an arrangement with the
manufacturer of aircraft to substantially reduce their commitment from 104 to 20
aircraft totaling approximately $60,000,000 to be delivered through 2009. The
arrangement provides for $1,000,000 of the deposits made to be applied to this
order with the balance to be applied as consideration for renegotiating the
existing commitment and will be charged to operations in the quarter ended
September 30, 2006.
On October 2, 2006 the Company and CNM and its principal stockholders entered
into a revolving credit agreement (the "agreement") that provides for the
Company to borrow $7,600,000 from CNM. The borrowings are conditional on the
execution of a definitive stock purchase agreement with the public company (see
below). The parties also agreed that upon the completion of the stock purchase
agreement and approval of the proposed acquisition by the public company
shareholders, the Company would repay $15,000,000 of the borrowings under the
revolving credit agreement. In addition, upon the execution of the stock
purchase agreement, the balance outstanding which may be no more than
$10,000,000 will be converted into a term loan payable quarterly over three
years and bearing interest at 10% per annum. The borrowings under the
arrangement will be collateralized by a first priority lien and security
interest in all of the Company's assets.
The agreement also provides that as long as the Company enters into a definitive
stock purchase agreement, repays $15,000,000 of the borrowings under the
agreement, makes a deposit of $2,180,474 to an aircraft manufacturer for two
aircraft and executes a security interest in all of the Company's assets, CNM
will enter into a tolling agreement, if such agreement is satisfactory to CNM in
its sole discretion. The tolling agreement contemplates that if the conditions
referred to above are met, CNM will immediately dismiss the litigation discussed
in Note 7 without prejudice.
Under the agreement, the Company also has agreed to provide the principal
stockholder of CNM 100 hours use of its aircraft over the three-year period. The
fair value of aircraft usage will be accrued and amortized to interest expense
over the life of the remaining debt under a method that will produce a constant
periodic rate of return.
On September 29, 2006, the Company entered into employment agreements with its
Chief Executive Officer and Chief Financial Officer ("CFO"). The individual
agreements are for three years and provide for aggregate
F-17
AVANTAIR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
JUNE 30, 2006, 2005 AND 2004
NOTE 10 - SUBSEQUENT EVENTS (continued)
compensation including bonuses of approximately $2,400,000 over the term of the
agreements. In addition, upon the close of the acquisition, the CFO will receive
warrants of the SPAC for $.01 exercisable for an aggregate of 200,000 shares of
the SPAC. These warrants will be issued on the same terms as the publicly traded
warrants of the SPAC.
On October 2, 2006, the Company increased its authorized common stock, Class A,
$10 par value from 1,250 shares to 10,000,000 shares. The Company entered into
an agreement to sell 3,237,410 shares of its Class A common stock at $2.78 per
share, of which 539,568 were sold to existing stockholders including members of
management. Compensation expense of $1,413,668 will be recorded in the quarter
ended December 31, 2006 related to this transaction. In addition, the Company
acquired all of the outstanding Common stock, Class B shares for approximately
$900,000.
Upon completion of the acquisition, three members of management purchased
460,000 shares of Class A, common stock, for $.01 per share. The Company will
recognize compensation expense at the fair value of the stock at the date of
issuance.
On October 2, 2006, the Company signed a definitive stock purchase agreement
with a Special Purpose Acquisition Company ("SPAC"). A SPAC is an entity that
was formed for the sole purpose of effecting a merger with or acquisition of an
unidentified operating company. The transaction provides (upon the approval of
its shareholders) for the SPAC to issue 7,000,000 shares to the stockholders of
the Company in exchange for all of the issued and outstanding shares of the
Company. The agreement also provides for the SPAC to issue to the existing
shareholders of the Company an additional 1,000,000 shares in fiscal 2007 and
5,000,000 shares in fiscal 2008 if certain financial milestones are achieved. In
addition, there will be 5,000,000 shares issued to the existing stockholders of
the Company if the future trading price of the stock meets certain criteria
prior to February 23, 2009. Upon the closing of the transaction, 1,750,000 of
the shares of the SPAC's common stock included within the purchase price will be
transferred to an escrow agent to secure the indemnification obligations of the
Company's stockholders under the stock purchase agreement.
The stockholders and management of Avantair will own a substantial portion of
the equity of the combined company and control four of the seven seats on the
Board of Directors. In addition Avantair's management will be responsible for
carrying out its current business plan. Management believes that based on these
factors that this transaction will be accounted for as a recapitalization of
Avantair which is equivalent to Avantair issuing stock for cash.
NOTE 11 - MATTHEWSON LITIGATION - SUBSEQUENT EVENT
On October 23, 2006, the tolling agreement described in Note 10 was executed.
The related litigation described in Note 10 was dismissed without prejudice on
November 1, 2006.
F-18
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
CONDENSED BALANCE SHEETS
JUNE 30, 2006 DECEMBER 31, 2005
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 157,029 $ 541,355
Assets held in Trust Fund (Note 1) 37,919,489 37,214,871
Prepaid expenses 72,328 19,828
- ----------------------------------------------------------------------------------------------------------
Total current assets 38,148,846 37,776,054
Deferred Tax Asset 166,651 110,570
- ----------------------------------------------------------------------------------------------------------
Total assets $ 38,315,497 $ 37,886,624
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 3,455 $ 2,011
Accrued expenses 71,084 133,772
Deferred Interest 339,328 198,475
Taxes payable 138,267 --
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 552,134 334,258
- ----------------------------------------------------------------------------------------------------------
Common stock, subject to possible conversion,
1,379,310 shares at conversion value (Note 2) 7,240,778 7,240,778
- ----------------------------------------------------------------------------------------------------------
COMMITMENT (NOTE 4)
STOCKHOLDERS' EQUITY (NOTES 1, 2, 3 AND 4)
Preferred stock, $.0001 par value, Authorized -- --
1,000,000 shares; none issued
Common stock, $.0001 par value
Authorized 30,000,000 shares
Issued and outstanding 8,400,000 shares 840 840
(which includes 1,379,310 subject to possible
conversion) and 1,500,000 respectively
Additional paid-in capital 30,010,555 30,010,555
Income accumulated during the development stage 511,190 300,193
- ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 30,522,585 30,311,588
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,315,497 $ 37,886,624
==========================================================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
F-19
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX FOR THE
MONTHS MONTHS MONTHS MONTHS PERIOD FROM
ENDED JUNE ENDING JUNE ENDING JUNE ENDING JUNE SEPTEMBER
30, 2006 30, 2005 30, 2006 30, 2005 14, 2004
(INCEPTION)
TO JUNE
30, 2006
==================================================================================================================================
INCOME:
Interest Income $ 2,643 5,315 7,547 6,598 25,205
Interest Income on Trust Assets 261,119 218,662 563,765 277,777 1,358,161
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME $ 263,762 223,977 571,312 284,375 1,383,366
- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Professional fees $ 49,891 10,363 61,182 14,311 127,130
Rent and office 22,500 22,500 45,000 31,875 121,875
State Franchise and Capital Taxes 3,757 22,633 12,445 24,303 47,195
Insurance 26,250 26,250 52,500 35,000 140,000
Other formation and operating costs 8,537 10,083 50,133 18,628 96,029
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES $ 110,935 91,829 221,260 124,117 532,229
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 152,827 132,148 350,052 160,258 851,137
Provision for income taxes $ 57,055 40,968 139,055 45,368 339,947
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) FOR THE PERIOD 95,772 91,180 210,997 114,890 511,190
==================================================================================================================================
NET INCOME PER SHARE BASIC AND DILUTED $ 0.01 0.01 0.03 0.02 0.08
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 8,400,000 8,400,000 8,400,000 6,102,762 6,616,947
BASIC AND DILUTED
==================================================================================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
F-20
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF STOCKHOLDERS' EQUITY
(Deficit)/Income
Accumulated
COMMON STOCK During the
Shares Addition paid-in Development
Amount capital Stage Total
-------------------------------------------------------------------------------
Sale of 1,500,000 shares of common stock to 1,500,000 $ 150 $ 24,850 -- $ 25,000
initial stockholders on September 14, 2005 at
$.0167 per share
Net Loss for the period -- -- -- $ (1,651) (1,651)
-------------------------------------------------------------------------------
Balance at December 31, 2004 1,500,000 $ 150 $ 24,850 $ (1,651) $ 23,349
Sale of 6,900,000 units, net of underwriters' 6,900,000 690 37,226,383 37,227,073
discount and offering expenses (includes
1,379,310 shares subject to possible conversion)
Proceeds subject to possible conversion of
1,379,310 shares -- -- (7,240,778) -- (7,240,778)
Proceeds from issuance of option 100 100
Net income for the period -- -- -- 301,844 301,844
-------------------------------------------------------------------------------
Balance, December 31, 2005 8,400,000 $ 840 $ 30,010,555 $ 300,193 $ 30,311,588
-------------------------------------------------------------------------------
Unaudited:
Net income for the period -- -- -- 210,997 210,997
-------------------------------------------------------------------------------
Balance, June 30, 2006 8,400,000 $ 840 $ 30,010,555 $ 511,190 $ 30,522,585
===============================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
F-21
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS FOR THE SIX MONTHS FOR THE PERIOD FROM
ENDING JUNE 30, 2006 ENDING JUNE 30, 2005 SEPTEMBER 14, 2004
(INCEPTION) TO JUNE
30, 2006
====================================================================================================================================
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 210,997 $ 114,890 $ 511,190
Adjustments to reconcile net
income to net cash used
in operating activities:
Deferred Tax Asset (56,081) -- (166,651)
Accrued interest on (704,618) (347,178) (1,697,489)
Treasury Bills
(Increase) in prepaid expenses (52,500) (100,043) (72,328)
Increase (Decrease) in accrued expenses (62,688) 34,567 71,084
Increase in deferred interest 140,853 69,401 339,328
Increase in accounts payable 1,444 203 3,455
Increase in income taxes payable 138,267 -- 138,267
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (384,326) (228,160) (873,144)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM
INVESTING ACTIVITIES
====================================================================================================================================
Assets Placed in Trust -- 36,222,000 36,222,000
Redemption of Treasury Bill Held in Trust 37,673,751 -- 37,673,751
Purchase of Municipal Securities Held in Trust (37,673,751) -- (37,673,751)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Assets in Trust -- 36,222,000 36,222,000
====================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Gross Proceeds -- 41,400,000 41,400,000
Payment of notes, -- (70,000) (70,000)
stockholder
Proceeds from sale of shares of common stock -- -- 25,000
Proceeds from issuance of option -- 100 100
Payment of costs of public offering -- (4,084,117) (4,172,927)
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 37,245,983 37,252,173
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH (384,326) 795,823 157,029
CASH AT BEGINNING OF THE PERIOD 541,355 6,314 0
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AT THE END OF THE PERIOD $ 157,029 $ 802,137 $ 157,029
====================================================================================================================================
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
F-22
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION The financial statements at June 30, 2006 and
for the periods ended June 30, 2006 are
unaudited. In the opinion of management, all
adjustments (consisting of normal accruals)
have been made that are necessary to present
fairly the financial position of Ardent
Acquisition Corporation (the "Company") as of
June 30, 2006 and 2005 and the results of its
operations and its cash flow for the periods
ended June 30, 2006. Operating results for the
interim period presented are not necessarily
indicative of the results to be expected for a
full year.
The statements and related notes have been
prepared pursuant to the rules and regulations
of the U.S. Securities and Exchange
Commission. Accordingly, certain information
and footnote disclosures normally included in
financial statements prepared in accordance
with generally accepted accounting principles
have been omitted pursuant to such rules and
regulations. These financial statements should
be read in conjunction with the financial
statements that were included in the Company's
Annual Report on Form 10-KSB for the period
ended December 31, 2005. The December 31, 2005
balance sheet was derived from the audited
financial statements.
2. ORGANIZATION AND BUSINESS The Company was incorporated on September 14,
OPERATIONS 2004 as a blank check company whose objective
is to acquire an operating business.
The registration statement for the Company's
initial public offering ("Offering") was
declared effective February 24, 2005. The
Company consummated the offering on March 2,
2005 and received net proceeds of
approximately $32,205,000 (Note 3). On March
3, 2005, the Company consummated the closing
of the over-allotment option and the Company
received net proceeds of approximately
$5,022,000 (Note 3). The Company's management
has broad discretion with respect to the
specific application of the net proceeds of
this Offering, although substantially all of
the net proceeds of this Offering are intended
to be generally applied toward consummating a
business combination with an operating
business ("Business Combination"). An amount
of approximately $36,222,000 of the net
proceeds is being held in an interest-bearing
trust account ("Trust Fund") until the earlier
of (i) the consummation of a Business
Combination or (ii) liquidation of the
Company. Under the agreement governing the
Trust Account, funds will only be invested in
United States "government securities" within
the meaning of Section 2(a)(16) of the
Investment Company Act of 1940 with a maturity
of 180 days or less, or in money market funds
meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act
of 1940. At June 30, 2006, the value of the
Trust Account amounted to approximately
$37,919,489. The excess of market value over
cost, exclusive of the deferred interest
described further below, is included in
interest income in the accompanying statements
of operations. The remaining net proceeds (not
held in the Trust Fund) may be used to pay for
business, legal and accounting due diligence
on prospective acquisitions and continuing
general and administrative expenses.
The Company, after signing a definitive
agreement for the acquisition of a target
business, will submit such transaction for
stockholder approval. In the event that
stockholders owning 20% or more of the shares
sold in the Offering vote against the Business
Combination and exercise their conversion
rights described below, the Business
Combination will not be consummated. All of
the Company's stockholders prior to the
Offering, including all of the officers and
directors of the Company ("Initial
Stockholders"), have agreed to vote their
1,500,000 founding shares of common stock in
accordance with the
F-23
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
vote of the majority in interest of all other
stockholders of the Company ("Public
Stockholders") with respect to any Business
Combination. After consummation of a Business
Combination, these voting safeguards will no
longer be applicable.
With respect to a Business Combination which
is approved and consummated, any Public
Stockholder who voted against the Business
Combination may demand that the Company
convert his or her shares. The per share
conversion price will equal the amount in the
Trust Fund as of two days prior to the
consummation of the proposed Business
Combination divided by the number of shares of
common stock held by Public Stockholders at
the consummation of the Offering. Accordingly,
Public Stockholders holding 19.99% of the
aggregate number of shares owned by all Public
Stockholders may seek conversion of their
shares in the event of a Business Combination.
Such Public Stockholders are entitled to
receive their per share interest in the Trust
Fund computed without regard to the shares
held by Initial Stockholders. Accordingly, a
portion of the net proceeds from the offering
(19.99% of the amount originally held in the
Trust Fund) has been classified as common
stock subject to possible conversion in the
accompanying June 30, 2006 balance sheet and
19.99% of the related interest earned on the
Treasury Bills and Municipal Bonds has been
recorded as deferred interest.
The Company's Certificate of Incorporation
provides for mandatory liquidation of the
Company in the event that the Company does not
consummate a Business Combination within 18
months from the date of the consummation of
the Offering, or 24 months from the
consummation of the Offering if certain
extension criteria have been satisfied. There
is no assurance that the Company will be able
to successfully effect a Business Combination
during this period. This factor raises
substantial doubt about the Company's ability
to continue as a going concern. The
accompanying financial statements are prepared
assuming the Company will continue as a going
concern. The financial statements do not
include any adjustments that might result from
the outcome of this uncertainty. In the event
of liquidation, it is likely that the per
share value of the residual assets remaining
available for distribution (including Trust
Fund assets) will be less than the initial
public offering price per share in the
Offering (assuming no value is attributed to
the Warrants contained in the Units sold in
the Offering discussed in Note 3).
3. INITIAL PUBLIC OFFERING On March 2, 2005, the Company sold 6,000,000
units ("Units") in the Offering. On March 3,
2005, the Company sold an additional 900,000
Units pursuant to the underwriters'
over-allotment option. Each Unit consists of
one share of the Company's common stock,
$.0001 par value, and two Redeemable Common
Stock Purchase Warrants ("Warrants"). Each
Warrant will entitle the holder to purchase
from the Company one share of common stock at
an exercise price of $5.00 commencing the
later of the completion of a Business
Combination with a target business or one year
from the effective date of the Offering and
expiring five years from the date of the
prospectus. The Warrants will be redeemable at
a price of $.01 per Warrant upon 30 days'
notice after the Warrants become exercisable,
only in the event that the last sale price of
the common stock is at least $8.50 per share
for any 20 trading days within a 30 trading
day period ending on the third day prior to
the date on which notice of redemption is
given. In connection with this Offering, the
Company issued, for $100, an option to the
representative of the underwriters
F-24
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
to purchase 300,000 Units at an exercise price
of $9.90 per Unit. In addition, the warrants
underlying such Units are exercisable at $6.25
per share.
4. COMMON STOCK On January 4, 2005, the Company's Board of
Directors authorized a stock dividend of
0.666666 shares of common stock for each
outstanding share of common stock and on
January 24, 2005, the Company's Board of
Directors authorized a further stock dividend
of 0.2 shares of common stock for each
outstanding share of common stock. All
references in the accompanying financial
statements to the numbers of shares have been
retroactively restated to reflect these
transactions.
As of June 30, 2006, 14,700,000 shares of
common stock were reserved for issuance upon
exercise of redeemable warrants and
underwriters' unit purchase option.
F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Ardent Acquisition Corporation
We have audited the accompanying balance sheet of Ardent Acquisition Corporation
(a corporation in the development stage) as of December 31, 2005, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 2005, the period from September 14, 2004 (inception) to
December 31, 2004 and the cumulative period from September 14, 2004 (inception)
to December 31, 2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ardent Acquisition Corporation
as of December 31, 2005 and the results of its operations and its cash flows for
the year ended December 31, 2005, the period from September 14, 2004 (inception)
to December 31, 2004 and the cumulative period from September 14, 2004
(inception) to December 31, 2005 in conformity with United States generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Ardent
Acquisition Corporation will continue as a going concern. As discussed in Note 1
to the financial statements, the Company may face a mandatory liquidation by
September 2, 2006 if a business combination is not consummated, unless certain
extension criteria are met, which makes substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ Goldstein Golub Kessler LLP
Goldstein Golub Kessler LLP
New York, New York
March 27, 2006
F-26
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEET
DECEMBER 31, 2005
ASSETS
Current assets:
CASH $ 541,355
ASSETS HELD IN TRUST FUND (NOTE 1) 37,214,871
PREPAID EXPENSES 19,828
- --------------------------------------------------------------------------------
Total current assets 37,776,054
- --------------------------------------------------------------------------------
Deferred Tax Asset (Note 7) 110,570
- --------------------------------------------------------------------------------
Total assets $37,886,624
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
ACCOUNTS PAYABLE $ 2,011
ACCRUED EXPENSES 133,772
DEFERRED INTEREST (NOTE 1) 198,475
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 334,258
- --------------------------------------------------------------------------------
COMMON STOCK, SUBJECT TO POSSIBLE CONVERSION,
1,379,310 SHARES AT CONVERSION VALUE (NOTE 1) 7,240,778
Commitment (Note 4)
Stockholders' equity (Notes 1, 2, 5 and 6)
Preferred stock, $.0001 par value, Authorized --
1,000,000 shares; none issued
Common stock, $.0001 par value
Authorized 30,000,000 shares
Issued and outstanding 8,400,000 shares
(which includes 1,379,310 subject to possible
conversion) 840
ADDITIONAL PAID-IN CAPITAL 30,010,555
INCOME ACCUMULATED DURING THE DEVELOPMENT STAGE 300,193
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 30,311,588
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $37,886,624
================================================================================
THE ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS.
F-27
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDING FOR THE PERIOD FROM FOR THE PERIOD FROM
DECEMBER 31, 2005 SEPTEMBER 14, 2004 SEPTEMBER 14, 2004
(INCEPTION) (INCEPTION)
TO DECEMBER 31, 2004 TO DECEMBER 31, 2005
- ----------------------------------------------------------------------------------------------------------------------------
Income:
INTEREST INCOME $ 17,479 $ 179 $ 17,658
INTEREST INCOME ON TRUST ASSETS 794,396 -- 794,396
- ----------------------------------------------------------------------------------------------------------------------------
Total Income 811,875 179 812,054
- ----------------------------------------------------------------------------------------------------------------------------
Expenses:
PROFESSIONAL FEES 65,949 -- 65,949
RENT 76,875 -- 76,875
STATE CAPITAL TAXES 34,750 -- 34,750
INSURANCE 87,500 -- 87,500
OTHER FORMATION AND OPERATING COSTS 44,065 1,830 45,895
- ----------------------------------------------------------------------------------------------------------------------------
Total Expenses 309,139 1,830 310,969
- ----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 502,736 (1,651) 501,085
PROVISION FOR INCOME TAXES 200,892 -- 200,892
- ----------------------------------------------------------------------------------------------------------------------------
Net income/(loss) for the period $ 301,844 $ (1,651) $ 300,193
============================================================================================================================
NET INCOME PER SHARE BASIC AND DILUTED $ 0.04 $ (0.00) $ 0.05
Weighted average shares outstanding 7,260,822 1,500,000 5,936,076
- ----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS.
F-28
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF STOCKHOLDERS' EQUITY
Income/
(Deficit)
Accumulated
Common Stock During the
------------ Additional paid- Development
Shares Amount in capital Stage Total
------------------------------------------------------------------------------
Sale of 1,500,000 shares of common stock to 1,500,000 $ 150 $ 24,850 -- $ 25,000
initial stockholders on September 14, 2004 at
$.0167 per share
Net Loss for the period -- -- -- $ (1,651) (1,651)
------------------------------------------------------------------------------
Balance at December 31, 2004 1,500,000 $ 150 $ 24,850 $ (1,651) $ 23,349
Sale of 6,900,000 units, net of underwriters' 6,900,000 690 37,226,383 37,227,073
discount and offering expenses (includes
1,379,310 shares subject to possible conversion)
Proceeds subject to possible conversion of
1,379,310 shares -- -- (7,240,778) -- (7,240,778)
Proceeds from issuance of option 100 100
Net income for the year -- -- -- 301,844 301,844
------------------------------------------------------------------------------
Balance, December 31, 2005 8,400,000 $ 840 $ 30,010,555 $ 300,193 $ 30,311,588
==============================================================================
THE ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS.
F-29
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDING FOR THE PERIOD FROM
SEPTEMBER 14, 2004 SEPTEMBER 14, 2004
FOR THE YEAR ENDING (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005
CASH FLOW FROM OPERATING ---------------------------------------------------------------------
ACTIVITIES
Net income (loss) $ 301,844 $ (1,651) $ 300,193
Deferred income taxes (110,570) -- (110,570)
Adjustments to reconcile net
Income (loss) to net cash provided by (used in)
operating activities:
Accrued interest on Treasury Bills (992,871) -- (992,871)
Changes in Operating Assets and Liabilities:
(Increase) in Prepaid expenses (19,828) -- (19,828)
Increase in Accrued expenses 131,997 1,775 133,772
Increase in Deferred Interest 198,475 -- 198,475
Increase in Accounts Payable 2,011 -- 2,011
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (488,942) 124 (488,818)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING
ACTIVITY - ASSETS PLACED IN TRUST (36,222,000) -- (36,222,000)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (36,222,000) -- (36,222,000)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITES
Gross Proceeds 41,400,000 -- 41,400,000
Proceeds from notes, stockholder 70,000 70,000
Payment of notes, stockholder (70,000) -- (70,000)
Proceeds from sale of shares of common stock -- 25,000 25,000
Proceeds from issuance of option 100 -- 100
Payment of costs of public offering (4,084,117) (88,810) (4,172,927)
THE ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS.
F-30
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDING FOR THE PERIOD FROM
SEPTEMBER 14, 2004 SEPTEMBER 14, 2004
FOR THE YEAR ENDING (INCEPTION) TO (INCEPTION) TO
DECEMBER 31, 2005 DECEMBER 31, 2004 DECEMBER 31, 2005
- ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING 37,245,983 6,190 37,252,173
ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 535,041 6,314 541,355
CASH AT BEGINNING OF PERIOD 6,314 -- --
- ----------------------------------------------------------------------------------------------------------------
CASH AT THE END OF THE PERIOD $ 541,355 $ 6,314 $ 541,355
================================================================================================================
SUPPLEMENTAL CASH FLOW
INFORMATION:
INCOME TAXES PAID $ 237,952 -- $ 237,952
=========== =========== ===========
NON CASH FINANCING ACTIVITY:
ACCRUAL OF COST OF PUBLIC
OFFERING -- $ 8,500 --
=========== =========== ===========
THE ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS.
F-31
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION Ardent Acquisition Corporation (the "Company")
AND BUSINESS OPERATIONS was incorporated in Delaware on September 14,
2004 as a blank check company whose objective
is to acquire an operating business.
The registration statement for the Company's
initial public offering ("Offering") was
declared effective February 24, 2005. The
Company consummated the offering on March 2,
2005 and received net proceeds of
approximately $32,205,000 (Note 2). On March
3, 2005, the Company consummated the closing
of the over-allotment option and the Company
received net proceeds of approximately
$5,022,000 (Note 2). The Company's management
has broad discretion with respect to the
specific application of the net proceeds of
this Offering, although substantially all of
the net proceeds of this Offering are intended
to be generally applied toward consummating a
business combination with an operating
business ("Business Combination").
Furthermore, there is no assurance that the
Company will be able to successfully effect a
Business Combination. An amount of $36,222,000
of the net proceeds was placed in an
interest-bearing trust account ("Trust
Account") until the earlier of (i) the
consummation of a Business Combination or (ii)
liquidation of the Company. Under the
agreement governing the Trust Account, funds
will only be invested in United States
government securities (Treasury Bills) with a
maturity of 180 days or less. The Treasury
Bills have been accounted for as trading
securities, which are recorded at their market
value of approximately $37,214,000 at December
31, 2005. The excess of market value over
cost, exclusive of the deferred interest
described below, is included in the
accompanying financial statements. The
remaining net proceeds (not held in the Trust
Account) may be used to pay for business,
legal and accounting due diligence on
prospective acquisitions and continuing
general and administrative expenses.
The Company, after signing a definitive
agreement for the acquisition of a target
business, will submit such transaction for
stockholder approval. In the event that
stockholders owning 20% or more of the shares
sold in the Offering vote against the Business
Combination and exercise their conversion
rights described below, the Business
Combination will not be consummated.
All of the Company's stockholders prior to the
Offering, including all of the officers and
directors of the Company ("Initial
Stockholders"), have agreed to vote their
1,500,000 founding shares of common stock in
accordance with the vote of the majority in
interest of all other stockholders of the
Company ("Public Stockholders") with respect
to any Business Combination. After
consummation of a Business Combination, these
voting safeguards will no longer be
applicable.
With respect to a Business Combination which
is approved and consummated, any Public
Stockholder who voted against the Business
Combination may demand that the Company
convert his or her shares. The per share
conversion price will equal the amount in the
Trust Account, calculated as of two business
days prior to the consummation of the proposed
Business Combination, divided by the number of
shares of common stock held by Public
Stockholders at the consummation of the
Proposed Offering. Accordingly, Public
Stockholders holding 19.99% of the aggregate
number of shares owned by all Public
Stockholders may seek conversion of their
shares in the event of a Business Combination.
Such Public Stockholders are entitled to
receive their per share interest in the Trust
Account computed without regard to the shares
held by Initial Stockholders. Accordingly, a
portion of the net proceeds from the offering
(19.99% of the amount held in
F-32
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
the Trust Account) has been classified as
common stock subject to possible conversion in
the accompanying December 31, 2005 balance
sheet and 19.99% of the related interest
earned on the Treasury Bills has been recorded
as deferred interest.
The Company's Amended and Restated Certificate
of Incorporation provides for mandatory
liquidation of the Company in the event that
the Company does not consummate a Business
Combination within 18 months from the date of
the consummation of the Offering, or 24 months
from the consummation of the Offering if
certain extension criteria have been
satisfied. There is no assurance that the
Company will be able to successfully effect a
Business Combination during this period. This
factor raises substantial doubt about the
Company's ability to continue as a going
concern. The accompanying financial statements
are prepared assuming the Company will
continue as a going concern. The financial
statements do not include any adjustments that
might result from the outcome of this
uncertainty. In the event of liquidation, it
is likely that the per share value of the
residual assets remaining available for
distribution (including Trust Account assets)
will be less than the initial public offering
price per share in the Offering due to costs
related to the Offering and since no value
would be attributed to the Warrants contained
in the Units sold (Note 2).
Deferred income taxes are provided for the
differences between the bases of assets and
liabilities for financial reporting and income
tax purposes. A valuation allowance is
established when necessary to reduce deferred
tax assets to the amount expected to be
realized.
For purposes of the statements of cash flows,
the Company considers all investments
purchased with an original maturity of three
months or less to be cash equivalents.
The Company maintains cash in bank deposit
accounts which, at times, exceed federally
insured limits. The Company has not
experienced any losses on these accounts.
Basic net income per share is computed by
dividing net income by the weighted-average
number of shares of common stock outstanding
during the period. Diluted net income per
share reflects the additional dilution for all
potentially dilutive securities such as stock
warrants and options. The effect of the
13,800,000 outstanding warrants, issued in
connection with the initial public offering
described in Note 2 has not been considered in
the diluted net income per share since the
warrants are contingently exercisable. The
effect of the 300,000 units included in the
underwriters purchase option, as described in
Note 2 along with the warrants underlying such
units, has not been considered in the diluted
earnings per share calculation since the
market price of the option was less than the
exercise price during the period.
In December 2004, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 123 (revised 2004)
("SFAS 123(R)"), "Share Based Payment". SFAS
123(R) requires all share-based payments to
employees, including grants of employee stock
options, to be recognized in the financial
statements based on their fair values. The
Company is required to adopt SFAS 123(R)
effective January 1, 2006. The Company does
not believe that the adoption of SFAS No.
123(R) will have a significant impact on its
financial condition or results of operations.
Management does not believe that any other
recently issued, but not yet
F-33
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
effective, accounting standards if currently
adopted would have a material effect on the
accompanying financial statements.
The preparation of financial statements in
conformity with accounting principles
generally accepted in the United States of
America requires management to make estimates
and assumptions that affect the reported
amounts of assets and liabilities at the date
of the financial statements and the reported
amounts of expenses during the reporting
period. Actual results could differ from those
estimates.
2. INITIAL PUBLIC OFFERING On March 2, 2005 and March 3, 2005 the Company
sold 6,900,000 units ("Units") in the Offering
(including the over-allotment option) for
$6.00 per Unit. Each Unit consists of one
share of the Company's common stock, $.0001
par value, and two Redeemable Common Stock
Purchase Warrants ("Warrants"). Each Warrant
entitles the holder to purchase from the
Company one share of common stock at an
exercise price of $5.00 commencing the later
of the completion of a Business Combination or
one year from the effective date of the
Offering and expiring four years from the
effective date of the Offering. The Warrants
will be redeemable, upon prior written consent
of EarlyBirdCapital, Inc., at a price of $.01
per Warrant upon 30 days' notice after the
Warrants become exercisable, only in the event
that the last sale price of the common stock
is at least $8.50 per share for any 20 trading
days within a 30 trading day period ending on
the third day prior to the date on which
notice of redemption is given. In connection
with this Offering, the Company issued an
option, for $100, to the representative of the
underwriters to purchase 300,000 Units at an
exercise price of $9.90 per Unit. In addition,
the warrants underlying such Units are
exercisable at $6.25 per share.
3. DUE TO In September 2004, the Company issued a
STOCKHOLDER $70,000 unsecured promissory note to an
Initial Stockholder, who is also an officer.
An additional $7,500 was advanced in January
2005. The amounts due were non
interest-bearing and were paid from the net
proceeds of the Offering.
4. COMMITMENT The Company presently occupies office space
provided by an affiliate of an Initial
Stockholder. Such affiliate has agreed that,
until the acquisition of a target business by
the Company, it will make such office space,
as well as certain office and secretarial
services, available to the Company, as may be
required by the Company from time to time. The
Company has agreed to pay such affiliate
$7,500 per month for such services commencing
on the effective date of the Offering. The
statement of operations for the period ended
December 31, 2005 includes $76,875 related to
this agreement.
5. PREFERRED The Company is authorized to issue 1,000,000
STOCK shares of preferred stock with such
designations, voting and other rights and
preferences as may be determined from time to
time by the Board of Directors.
6. COMMON STOCK On January 4, 2005, the Company's Board of
Directors authorized a stock dividend of
0.666666 shares of common stock for each
outstanding share of common stock and on
January 24, 2005, the Company's Board of
Directors authorized a further stock dividend
of 0.2 shares of common stock for each
outstanding share of common stock. All
references in the accompanying financial
statements to the number of shares of stock
have been retroactively restated to reflect
these transactions.
F-34
ARDENT ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
At December 31, 2005, 14,700,000 shares of
common stock were reserved for issuance upon
exercise of redeemable warrants and
underwriters' unit purchase option.
7. INCOME TAXES The provision for income taxes consists of the following:
FOR THE PERIOD ENDED DECEMBER 31,
2005 2004
--------- ---------
Current:
Federal $ 241,079 --
State 70,382 --
Deferred:
Federal (85,584) --
State (24,986) --
--------- ---------
Total $ 200,892 $ --
========= =========
The total provision for income taxes differs from that amount which would be
computed by applying the U.S. federal income tax rate to income before provision
for income taxes principally due to the effect of state and local income taxes.
The tax effect of temporary differences that give rise to the net deferred tax
asset is as follows:
DECEMBER 31,
2005
-----------
Interest income deferred for
reporting purposes $ 79,310
Expenses deferred for
income tax purposes 31,260
--------------------------------------------------
Deferred tax asset $110,570
==================================================
The Company's effective tax rate differs from the Federal statutory tax rate of
34% due to the following:
Year ended Period ended
December 31, December 31,
2005 2004
---------------------------------------------------
Federal statutory rate 34% (34%)
State income taxes 6 (6)
Valuation allowance -- 40
---------------------------------------------------
Effective tax rate 40% --
===================================================
The Company recorded a valuation allowance on its deferred tax asset during the
period ended December 31, 2004 since the Company was not yet earning interest
income at that time.
F-35
ANNEX A
EXECUTION COPY
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 2, 2006
BETWEEN
ARDENT ACQUISITION CORP.
AND
THE STOCKHOLDERS OF AVANTAIR, INC.
ARTICLE I. CLOSING; SALE AND PURCHASE........................................1
1.1 The Closing....................................................1
1.2 Sale and Purchase of the Purchase Shares.......................1
1.3 Delivery of Purchase Price and Stock Certificates..............2
1.4 Directors and Officers.........................................2
1.5 Purchase Price Adjustment......................................2
1.6 Deferred Purchase Price........................................2
1.7 Additional Consideration.......................................4
1.8 Acceleration Events............................................5
1.9 Actions Simultaneous...........................................5
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
WITH RESPECT TO THE PURCHASE SHARES...............................5
2.1 Authority; Execution and Delivery; Enforceability..............5
2.2 Non-Contravention..............................................6
2.3 Title to Purchase Shares.......................................6
2.4 Consents and Approvals.........................................6
2.5 Litigation and Claims..........................................6
2.6 No Finder......................................................6
2.7 Investment Representations.....................................7
2.8 Accredited Investor............................................7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
WITH RESPECT TO THE COMPANY.......................................7
3.1 Organization; Good Standing....................................7
3.2 Subsidiaries; Equity Interests.................................7
3.3 Non-Contravention..............................................8
3.4 Corporate Documents............................................8
3.5 Capitalization; Options........................................8
3.6 Consents and Approvals.........................................9
3.7 Title to Assets; Sufficiency of Assets.........................9
3.8 Real Property.................................................10
3.9 Employment Related Agreements and Actions.....................11
3.10 Contracts.....................................................13
3.11 Intellectual Property.........................................15
3.12 Insurance.....................................................18
3.13 Books and Records.............................................19
3.14 Financial Statements; Liabilities.............................19
3.15 Accounting Practices..........................................19
3.16 Tax Matters...................................................20
3.17 Absence of Certain Changes and Events.........................21
3.18 Litigation and Claims.........................................23
3.19 Governmental Permits; Compliance with Laws....................23
i
3.20 Environmental Matters.........................................24
3.21 Employee Plans................................................24
3.22 Accounts Receivable...........................................26
3.23 Major Customers...............................................27
3.24 Aircraft Operations...........................................27
3.25 Product and Service Warranties................................28
3.26 Bank Accounts.................................................29
3.27 No Finder.....................................................29
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................29
4.1 Organization; Good Standing...................................29
4.2 Authority; Execution and Delivery; Enforceability.............29
4.3 Non-Contravention.............................................29
4.4 Consents and Approvals........................................30
4.5 SEC Reports...................................................30
4.6 Purchase Price................................................30
4.7 Litigation and Claims.........................................30
4.8 Capitalization................................................30
4.9 No Finder.....................................................31
4.10 Board Approval................................................31
ARTICLE V. ACTION PRIOR TO THE CLOSING DATE...................................31
5.1 Conduct of Business...........................................31
5.2 Notification of Certain Matters...............................34
5.3 Access........................................................35
5.4 Issuance of Purchaser Securities..............................35
5.5 Standstill....................................................35
5.6 Purchaser Stockholder Approval................................36
5.7 Notice of Litigation..........................................37
5.8 Fulfillment of Conditions to Purchaser's Obligations..........37
5.9 Fulfillment of Conditions to Company's Obligations............37
5.10 Governmental Consents.........................................37
5.11 Third Party Consents..........................................38
5.12 Publicity.....................................................38
5.13 Equity Compensation Plan......................................38
ARTICLE VI. OTHER AGREEMENTS OF THE PARTIES...................................38
6.1 Confidentiality...............................................38
6.2 Further Assurances............................................39
6.3 Tax Returns...................................................39
6.4 Corporate Indemnification.....................................40
6.5 Qualification as a "Reorganization."..........................41
ARTICLE VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.................41
7.1 Representations and Warranties................................42
7.2 Performance...................................................42
ii
7.3 No Material Adverse Effect....................................42
7.4 Certificates..................................................42
7.5 No Injunction.................................................42
7.6 Government Approvals..........................................42
7.7 Third Party Consents..........................................42
7.8 Resignations..................................................42
7.9 Releases......................................................42
7.10 Liens.........................................................43
7.11 Stockholder Approval..........................................43
7.12 Employment Agreement..........................................43
7.13 Stockholders Agreement........................................43
7.14 Escrow Agreement..............................................43
7.15 Good Standing.................................................43
ARTICLE VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS..............43
8.1 Representations and Warranties................................43
8.2 Performance...................................................43
8.3 No Material Adverse Effect....................................43
8.4 Certificates..................................................43
8.5 No Injunction.................................................44
8.6 Government Approvals..........................................44
8.7 Third Party Consents..........................................44
8.8 Stockholder Approval..........................................44
8.9 Employment Agreement..........................................44
8.10 Stockholders Agreement........................................44
8.11 Escrow Agreement..............................................44
8.12 Stock Certificates............................................44
8.13 Good Standing.................................................44
8.14 Trust Fund....................................................44
8.15 Purchaser Common Stock........................................45
8.16 Resignations..................................................45
ARTICLE IX. INDEMNIFICATION...................................................45
9.1 Survival......................................................45
9.2 Indemnification by Sellers....................................45
9.3 Indemnification by Purchaser..................................46
9.4 Limitations on Indemnification................................46
9.5 Tax Treatment of Indemnity Payments...........................47
9.6 Notice of Claims..............................................47
9.7 Third Party Claims............................................47
9.8 Effect of Investigation.......................................48
9.9 Payment of Indemnification....................................48
9.10 Claims Management.............................................48
iii
ARTICLE X. TERMINATION........................................................49
10.1 Termination...................................................49
10.2 Effects of Termination........................................49
ARTICLE XI. MISCELLANEOUS.....................................................50
11.1 Expenses of the Transaction...................................50
11.2 Notices.......................................................50
11.3 No Modification Except in Writing.............................51
11.4 Entire Agreement..............................................51
11.5 Severability..................................................51
11.6 Assignment....................................................51
11.7 Governing Law.................................................51
11.8 Specific Performance..........................................52
11.9 Headings; References..........................................52
11.10 Interpretation................................................52
11.11 Third Parties.................................................53
11.12 Counterparts and Facsimile Signatures.........................53
iv
APPENDICES
APPENDIX A. DEFINITIONS
APPENDIX B. SELLER DISCLOSURE SCHEDULE
APPENDIX C. PURCHASER DISCLOSURE SCHEDULE
EXHIBITS
ALLOCATION AMONG SELLERS EXHIBIT 1
RELEASE EXHIBIT 2
SANTO EMPLOYMENT AGREEMENT EXHIBIT 3
WATERS EMPLOYMENT AGREEMENT EXHIBIT 4
STOCKHOLDERS AGREEMENT EXHIBIT 5
ESCROW AGREEMENT EXHIBIT 6
v
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated as of October 2, 2006,
between Ardent Acquisition Corp., a Delaware corporation ("Purchaser"), and
Andiamo Aviation, LLC, Camelot 27, LLC, John Waters, Jeffrey Kirby and Kevin
McKamey (each, a "Seller," and collectively, the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers own of record and beneficially all of the shares of
Class A common stock, par value $0.01 per share (the "Purchase Shares"), of
Avantair, Inc., a Nevada corporation (the "Company"), representing 100% of the
Company's issued and outstanding capital stock on a fully diluted basis;
WHEREAS, Steven F. Santo owns 50% of the membership interests in Camelot
27, LLC;
WHEREAS, Alfred Rapetti owns a minority membership interest in Andiamo
Aviation, LLC;
WHEREAS, Purchaser desires to purchase and acquire from the Sellers, and
the Sellers desire to sell and transfer to Purchaser, the Purchase Shares on the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, terms used in this Agreement and not otherwise defined in this
Agreement are defined in Appendix A hereto.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I.
CLOSING; SALE AND PURCHASE
--------------------------
1.1 THE CLOSING. The closing (the "Closing") of the transactions
contained in this Article I shall take place at 10:00 A.M., Eastern Time, on the
second Business Day after all of the conditions contained in Articles VII and
VIII have been satisfied or waived (other than those conditions which will be
satisfied at the Closing Time), or at such other time or such other date as
Purchaser and the Sellers may agree, at the offices of Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York (hereinafter, such date is referred
to as the "Closing Date" and such time on the Closing Date is referred to as the
"Closing Time").
1.2 SALE AND PURCHASE OF THE PURCHASE SHARES. Upon the terms and
subject to the conditions set forth herein, at the Closing, the Sellers agree to
sell, convey, transfer and assign the Purchase Shares to Purchaser free and
clear of all Liens, and deliver to Purchaser certificates representing the
Purchase Shares, duly endorsed in blank or accompanied by stock or other
appropriate powers in blank with all appropriate transfer stamps affixed thereto
(the "Stock Certificates"), and Purchaser agrees to purchase the Purchase Shares
from the Sellers for an aggregate consideration of (the "Purchase Price") (i)
Seven Million (7,000,000) shares of
1
Purchaser Common Stock, subject to adjustment in accordance with Section 1.5,
PLUS (ii) at the times and subject to the terms and conditions set forth
therein, the shares of Purchaser Common Stock issuable pursuant to Sections 1.6
and 1.7.
1.3 DELIVERY OF PURCHASE PRICE AND STOCK CERTIFICATES. Subject to
satisfaction or waiver by the relevant party of the relevant conditions to
Closing, at the Closing, (i) 7,000,000 shares of Purchaser Common Stock (as
adjusted in accordance with Section 1.5), less the Escrow Amount (which shall be
deducted solely from the shares of Purchaser Common Stock otherwise payable to
Camelot 27, LLC, Jeffrey Kirby, John Waters, Kevin McKamey, and Andiamo
Aviation, LLC (provided, however, in the event of the dissolution of Andiamo
Aviation then from the shares payable to Alfred Rapetti), in the amounts set
forth on Exhibit 1), shall be issued by Purchaser to the Sellers pursuant to the
allocation set forth on Exhibit 1, (ii) the shares of Purchaser Common Stock
comprising the Escrow Amount shall be issued by Purchaser to the Escrow Agent in
accordance with the terms of the Escrow Agreement and (iii) the Stock
Certificates shall be delivered by the Sellers to Purchaser.
1.4 DIRECTORS AND OFFICERS. At the Closing, the directors of Purchaser
immediately prior to the Closing shall resign, and the Board of Directors of
Purchaser will be comprised of three individuals designated by Purchaser's
stockholders and four individuals designated by the Sellers, of which one
individual will be subject to the approval of Purchaser. At least two of the
designees of Purchaser and at least two of the designees of the Sellers must
meet the independence requirements of Rule 10A-3 of the Exchange Act and of any
securities exchange on which Purchaser's securities are then listed for trading
or on which Purchaser proposes to be listed for trading following the Closing.
Purchaser and the Sellers hereby agree that one of Purchaser's initial designees
shall be Barry Gordon, who shall serve as Purchaser's non-executive Chairman
until such time as his successor shall be duly elected.
1.5 PURCHASE PRICE ADJUSTMENT. The Purchase Price may be adjusted as
follows:
(a) At the Closing, Purchaser shall prepare and deliver to the Sellers
a certificate (the "Closing Cash Statement") setting forth the aggregate amount
of cash in the Purchaser's accounts (including amounts held in the trust account
administered by Continental Stock Transfer & Trust Company) as of the close of
business on the day immediately preceding the Closing Date, LESS all transaction
expenses of the Purchaser incurred, or anticipated in good faith to be incurred,
in connection with the transactions contemplated hereby (but not including such
expenses of the Sellers, the Company or any Subsidiary) (the "Purchaser Closing
Cash Amount"). The Closing Cash Statement shall be prepared from the Books and
Records of the Purchaser in conformity with GAAP.
(b) If the Closing Cash Statement states that the Purchaser Closing
Cash Amount is less than $35,000,000 (the "Target Net Purchaser Closing Cash
Amount"), then the number of shares of Purchaser Common Stock comprising the
Purchase Price shall be increased by dividing (A) the amount, if any, by which
the Target Net Purchaser Closing Cash Amount exceeds the Purchaser Closing Cash
Amount by (B) $6.00.
2
(c) Any such increase in the Purchase Price provided in Section 1.5(b)
shall be effected by the issuance at the Closing of additional shares of
Purchaser Common Stock by the Purchaser to the Sellers in the proportions set
forth on Exhibit 1.
1.6 DEFERRED PURCHASE PRICE.
(a) Within ten Business Days after the completion of the Purchaser's
annual audited consolidated financial statements for each of the fiscal years
ending June 30, 2007 and 2008 (each of which shall be prepared in accordance
with GAAP, consistently applied), Purchaser shall prepare and deliver to the
Sellers a calculation of EBITDA with respect to the Purchaser for the fiscal
years ended June 30, 2007 and 2008 based on the applicable financial statements
(the "2007 EBITDA Calculation" and "2008 EBITDA Calculation," respectively, and
the "EBITDA Calculations," collectively), and a calculation of any adjustment to
the Purchase Price described below.
(b) The term "EBITDA" shall mean, with respect to any period, the
combination of (i) Purchaser's net income or loss (after giving effect to
deduction of or provision for all operating expenses, all taxes and reserves and
all other proper deductions), plus (ii) Purchaser's interest expense after
giving effect to payments made or received under interest rate protection
agreements, plus (iii) total federal, state, local and foreign income, value
added and similar Taxes paid or payable by Purchaser and the Company, plus (iv)
Purchaser's depreciation and amortization expense, all as determined on a
consolidated basis in accordance with GAAP and as set forth on Purchaser's
annual audited consolidated financial statements included in its applicable SEC
Reports, provided, that any revenues generated by the Company with respect to
sales of aircraft (or interests therein) and the associated costs shall be
treated as recognized in the fiscal year of sale and not amortized over a period
of several years, and provided, further, that for the purposes of the
calculations under this Section 1.6, the calculation of EBITDA will not reflect
any expenses or charges related to or arising from the issuance of stock options
by Purchaser or the Company or the pre-Closing issuance of shares of the
Company's capital stock to employees of the Company at prices below then-current
fair market values.
(c) Each EBITDA Calculation shall become final and binding upon the
parties on the 30th day following delivery thereof, unless the Sellers give
written notice of its disagreement with any amounts or calculations set forth on
such EBITDA Calculation (a "Notice of EBITDA Disagreement") to Purchaser prior
to such date and all amounts and calculations set forth on such EBITDA
Calculation that are not the subject of a Notice of EBITDA Disagreement shall
become final and binding on such date. Any Notice of EBITDA Disagreement shall
(i) specify in reasonable detail the nature of any disagreement so asserted and
(ii) only include disagreements based on mathematical errors or based on such
EBITDA Calculation not being calculated in accordance with this Section 1.6. If
a Notice of EBITDA Disagreement is received by Purchaser in a timely manner,
then any amounts or calculations set forth on the applicable EBITDA Statement
that are the subject of any such Notice of EBITDA Disagreement shall become
final and binding upon the Sellers and Purchaser on the earlier of (A) the date
the Sellers and Purchaser resolve in writing any differences they have with such
amounts or calculations and (B) the date any such disputed amounts or
calculations are finally resolved in accordance with Section 1.6(d) below.
3
(d) During the 30-day period following the delivery of a Notice of
EBITDA Disagreement, the Sellers and Purchaser shall seek in good faith to
resolve any differences that they may have with respect to the matters specified
in such Notice of EBITDA Disagreement. If, at the end of such 30-day period,
such differences have not been resolved, the Sellers and Purchaser shall, within
the subsequent 30-day period, submit to an independent accounting firm (the
"Accounting Firm") for arbitration, in accordance with the standards set forth
in this Section 1.6, any and all matters that remain in dispute and were
properly included in the Notice of EBITDA Disagreement, in the form of a written
brief. The Accounting Firm shall be a nationally recognized U.S. independent
public accounting firm as shall be agreed upon by the Sellers and Purchaser in
writing. The Sellers and Purchaser shall use reasonable efforts to cause the
Accounting Firm to render a written decision resolving the matters submitted on
a timely basis to the Accounting Firm within 30 days of the receipt of such
submission. The Accounting Firm's decision shall be based solely on written
submissions made on a timely basis by the Sellers and Purchaser and their
respective representatives and not by independent review. The Accounting Firm
shall address only those items in dispute and may not assign a value greater
than the greatest value for such item claimed by either party or smaller than
the smallest value for such item claimed by either party. Judgment may be
entered upon the determination of the Accounting Firm in any court having
jurisdiction over the party against which such determination is to be enforced.
The fees and expenses of the Accounting Firm incurred pursuant to this Section
1.6 shall be borne by Purchaser and the Sellers in inverse proportion as they
may prevail on matters resolved by the Accounting Firm, which proportionate
allocations shall also be determined by the Accounting Firm at the time the
determination of the Accounting Firm is rendered on the merits of the matters
submitted.
(e) If the final 2007 EBITDA Calculation states that the Purchaser's
EBITDA for the fiscal year ending June 30, 2007 is greater than $6,000,000, the
shares of Purchase Common Stock comprising the Purchase Price shall be increased
by an additional aggregate of 1,000,000 shares of Purchaser Common Stock, which
shares shall be issued by Purchaser to the Sellers in the proportions set forth
on Exhibit 1 within ten Business Days after such time that the 2007 EBITDA
Calculation become final and binding on the parties. If the final 2008 EBITDA
Calculation states that the Purchaser's EBITDA for the fiscal year ending June
30, 2008 is greater than $20,000,000, the shares of Purchase Common Stock
comprising the Purchase Price shall be increased by an additional aggregate of
5,000,000 shares of Purchaser Common Stock, which shares shall be issued by
Purchaser to the Sellers in the proportions set forth on Exhibit 1 within ten
Business Days after such time that the 2008 EBITDA Calculation become final and
binding on the parties. Any additional shares of Purchaser Common Stock issued
pursuant to this Section shall be treated and reported as part interest in
accordance with Section 1274 of the Code and the regulations thereunder.
1.7 ADDITIONAL CONSIDERATION.
(a) In the event that at any time after the Closing but prior to
February 23, 2009, the closing trading price on the Over-the-Counter Bulletin
Board (or on a national securities market on which Purchaser Common Stock is
then quoted for trading) of Purchaser Common Stock for 20 trading days within
any 30 trading day period equals or exceeds $8.50 per share (subject to
adjustment in the event of stock splits, reverse stock splits, stock dividends,
recapitalizations or
4
similar events), then the shares of Purchaser Common Stock comprising the
Purchase Price shall be increased by an additional 5,000,000 shares of Purchaser
Common Stock.
(b) All additional shares of Purchaser Common Stock issuable by
Purchaser to the Sellers under this Section 1.7 shall be in the amounts set
forth on Exhibit 1 and shall be effected within ten Business Days after the date
of the occurrence of the events described in subsections (a) and (b) above. Any
additional shares of Purchaser Common Stock issued pursuant to this Section
shall be treated and reported as part interest in accordance with Section 1274
of the Code and the regulations thereunder.
1.8 ACCELERATION EVENTS. In the event that, at any time following the
Closing and prior to February 23, 2009, Purchaser (i) consummates a merger,
reorganization or consolidation of Purchaser into or with another Person (A)
immediately following which the holders of Purchaser Common Stock immediately
prior to the consummation of such merger, reorganization or consolidation do not
hold more than 50% of the voting securities of the surviving entity or (B) in
which more than 50% of the voting power of Purchaser is disposed of in exchange
for property, rights or securities distributed to the holders thereof by the
acquiring Person, (ii) consummates a similar transaction or series of
transactions which has the effect referred to in clause (A) or (B) above, or
(iii) consummates a sale of all or substantially all of the assets of Purchaser
to any Person (other than a direct or indirect parent or subsidiary of
Purchaser), in each case for aggregate consideration equal to at least the
product of (x) $8.50 (subject to adjustment in the event of stock splits,
reverse stock splits, stock dividends, recapitalizations or similar events) and
(y) the aggregate number of shares of Purchaser Common Stock issued and
outstanding on a fully diluted basis after giving effect to the issuance to the
Sellers of all shares of Purchaser Common Stock under this Agreement (and
assuming issuance of all shares issuable under this Section 1.8) and full
exercise or conversion of all of warrants, options and other convertible
securities exercisable for or convertible into Purchaser Common Stock then
outstanding, then Purchaser shall, within 30 days of the consummation of any
such transaction, issue to the Sellers a number of shares of Purchaser Common
Stock equal to the maximum amount which could be issued to the Sellers (a) under
Section 1.6 with respect to each fiscal year ending June 30, 2007 and 2008 which
has not yet been completed, and (b) under Section 1.7 had the conditions set
forth therein been satisfied. 1.9 ACTIONS SIMULTANEOUS. For purposes of
agreement of the parties hereto, all actions to be taken and all documents to be
executed and delivered by all parties at the Closing shall be deemed to have
been taken and executed and delivered simultaneously and no actions shall be
deemed to have been taken nor shall any documents be deemed to have been
executed and delivered until all actions have been taken and all documents have
been executed and delivered.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS WITH RESPECT TO THE PURCHASE SHARES
--------------------------------------------------
Each Seller, severally but not jointly, hereby represents and warrants to
Purchaser as to such Seller and the Purchase Shares owned by such Seller, as set
forth below. Each exception to
5
such representations and warranties set forth in the Seller Disclosure Schedule
is identified by reference to, or has been grouped under a heading referring to,
a specific section of this Agreement. Any fact or item disclosed in any section
of the Seller Disclosure Schedule shall be deemed to be disclosed with respect
to any other section to the extent that it is readily apparent from the face of
the disclosure that such disclosure is applicable to such section.
2.1 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Each Seller has
full power, authority and capacity to execute and deliver this Agreement and, to
the extent a party thereto, the Related Agreements, to perform such Seller's
respective obligations hereunder and under such Related Agreements and to
consummate the transactions contemplated hereby and by such Related Agreements.
Each of this Agreement and (when executed) the Related Agreements has been (or
will be) duly executed and delivered by such Seller (to the extent a party
thereto), and constitutes (or will, when executed, constitute) the legal, valid
and binding obligation of such Seller (to the extent a party thereto),
enforceable against such Seller in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, moratorium and other similar Laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
2.2 NON-CONTRAVENTION. The execution and delivery of this Agreement
and the Related Agreements by such Seller (to the extent a party thereto) does
not, and the consummation of the transactions contemplated hereby and by such
Related Agreements and compliance with the terms hereof and of such Related
Agreements, will not (or would not with the giving of notice or the passage of
time):
(a) constitute a default under or a violation or breach (with or
without notice) of, result in the acceleration of any obligation under, any
provision of any contract or other instrument to which such Seller is a party or
result in the termination or revocation of any authorization held by such Seller
or the Company necessary to the ownership of the Purchase Shares or the
operation of the business of the Company;
(b) violate any Order or any Law affecting such Seller; or
(c) result in the creation of any Lien on such Seller's Purchase
Shares.
2.3 TITLE TO PURCHASE SHARES. Each Seller has good and valid title to
the Purchase Shares owned by such Seller as set forth on the Seller Disclosure
Schedule, free and clear of all Liens. At the Closing, each Seller will transfer
legal and beneficial, good and valid title to each of the Purchase Shares, free
and clear of all Liens. No Seller is currently bound by any contract, agreement,
arrangement, commitment or understanding (written or oral) with, and has not
granted any option or right currently in effect or which would arise after the
date hereof to, any Person other than Purchaser with respect to the acquisition
of any of such Seller's Purchase Shares.
2.4 CONSENTS AND APPROVALS. Except as set forth in the Seller
Disclosure Schedule, no consent, approval, waiver, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, and no consent, approval, waiver or other similar authorization of
any other Person (including, without limitation, any Person who is a party to a
Contract binding on or affecting the Company or any Subsidiary), is required to
be obtained by or on behalf of such Seller as a result of, or in connection
with, or as a condition of
6
the lawful execution, delivery and performance of this Agreement or the Related
Agreements (to the extent a party thereto) or the consummation of the
transactions contemplated hereby and by such Related Agreements.
2.5 LITIGATION AND CLAIMS. There is no Action pending or, to the
Knowledge of such Seller, threatened, against or affecting such Seller that
could reasonably be expected to affect such Seller's ability to consummate the
transactions contemplated hereby or by the Related Agreements (to the extent a
party thereto).
2.6 NO FINDER. Except as set forth in the Seller Disclosure Schedule,
neither such Seller nor any party acting on such Seller's behalf has paid or
become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated hereby or by the
Related Agreements, and the Company will not be liable or obligated in any way
whatsoever with respect to any such fee or commission.
2.7 INVESTMENT REPRESENTATIONS. Each Seller hereby acknowledges and
agrees that each of the shares of Purchaser Common Stock to be received by such
Seller pursuant to this Agreement will not be registered under the Securities
Act or any state securities laws and may not be offered or sold except pursuant
to registration or an exemption from the registration requirements of the
Securities Act and all applicable state securities laws, subject to the terms
and conditions of the Stockholders Agreement. In this connection, each Seller
understands Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
2.8 ACCREDITED INVESTOR. Each Seller represents that: (i) such Seller
is an "accredited investor" (as such term is defined in Regulation D under the
Securities Act) and is acquiring Purchaser Common Stock for its own account, for
investment purposes only, and not with a view to the resale or offer for sale
thereof or with any present intention of distributing or selling or offering for
sale any of such securities; and (ii) such Seller is capable of bearing the
economic risk of such investment, including a complete loss of the investment in
Purchaser Common Stock.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
WITH RESPECT TO THE COMPANY
---------------------------------------------
The Sellers (for the purpose of this Article III, "Seller" shall be
defined as Steven Santo, Jeffrey Kirby, John Waters, Kevin McKamey and Alfred
Rapetti), jointly and severally, hereby represent and warrant to Purchaser as
set forth below. Each exception to such representations and warranties set forth
in the Seller Disclosure Schedule is identified by reference to, or has been
grouped under a heading referring to, a specific section of this Agreement. Any
fact or item disclosed in any section of the Seller Disclosure Schedule shall be
deemed to be disclosed with respect to any other section to the extent that it
is readily apparent from the face of the disclosure that such disclosure is
applicable to such section.
3.1 ORGANIZATION; GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of state of
Nevada. The Company has full
7
corporate power and authority to conduct all of the business and activities
conducted by it, and to own or lease and operate all of the assets owned or
leased by it; and is duly licensed, registered or qualified to do business and
is in good standing as a foreign corporation in all jurisdictions in which the
nature of the business and activities conducted by it, and/or the character of
the assets owned or leased by it, makes such qualification or license necessary.
3.2 SUBSIDIARIES; EQUITY INTERESTS.
(a) The Seller Disclosure Schedule contains a complete list of each of
the Company's direct or indirect subsidiaries (each, a "Subsidiary"). Each such
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of its jurisdiction of incorporation, each of which is
listed on the Seller Disclosure Schedule. Each subsidiary has full corporate
power and authority to conduct all of the business and activities conducted by
it, and to own or lease and operate all of the assets owned or leased by it; and
is duly licensed or qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of the business and
activities conducted by it, and/or the character of the assets owned or leased
by it, makes such qualification or license necessary. Each jurisdiction in which
each of such subsidiaries is qualified to do business is listed on the Seller
Disclosure Schedule.
(b) Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary, directly or indirectly, owns any capital stock of or
other equity interests in any Person. Neither the Company nor any Subsidiary is
a participant in any joint venture, partnership or similar arrangement.
3.3 NON-CONTRAVENTION. The execution and delivery of this Agreement by
the Sellers does not, and the consummation of the transactions contemplated
hereby and compliance with the terms hereof, will not (or would not with the
giving of notice or the passage of time):
(a) except as set forth in the Seller Disclosure Schedule, constitute
a default under or a violation or breach (with or without notice) of, or result
in the acceleration of any obligation of the Company or any Subsidiary under, or
change in any right or obligation of, the Company, any Subsidiary or
counterparty under, any provision of any Contract to which the Company or any
Subsidiary is a party or result in the termination or revocation of any
authorization held by the Company or any Subsidiary or necessary to the
ownership of the Company or any Subsidiary or the operation of the business of
the Company or any Subsidiary;
(b) violate any Order or any Law affecting the Company or any
Subsidiary, or their respective assets;
(c) violate or contravene the terms or provisions of the Amended and
Restated Articles of Incorporation, By-laws or similar formation or
organizational documents of the Company or any Subsidiary; or
(d) result in the creation of any Lien on any of the assets of the
Company or any Subsidiary.
3.4 CORPORATE DOCUMENTS. The Sellers have delivered to Purchaser
complete and correct copies of the Amended and Restated Articles of
Incorporation, By-laws and other
8
organizational documents and stock transfer books of the Company and each
Subsidiary. The Sellers have delivered to Purchaser copies of all minute books
and all other existing records of any meeting of the board of directors (and any
committee thereof) or stockholders of the Company and each Subsidiary, which
minute books and records are complete and correct in all material respects and
have been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. No meeting of the board
of directors (or committee thereof) or stockholders of the Company or any
Subsidiary has occurred for which minutes have not been prepared and are not
contained in such minute books.
3.5 CAPITALIZATION; OPTIONS(a) The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common Stock, which are issued
and outstanding and held by the Sellers in the amounts listed on the Seller
Disclosure Schedule Except as set forth in this Section 3.5(a), no shares or
classes of the Company's capital stock are issued, outstanding or reserved for
issuance.
(b) The authorized capital stock of each Subsidiary consists of 200
shares of common stock, of which 50 shares are issued and outstanding and owned
beneficially and of record by the Company. There are no options, warrants or
other classes of equity securities of any Subsidiary issued or outstanding, nor
are any such equity securities reserved for issuance.
(c) All the outstanding shares of capital stock of the Company and
each Subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable, free and clear of all Liens. The rights, preferences,
privileges and restrictions applicable to the Company's capital stock are as set
forth in the Company's currently effective Amended and Restated Articles of
Incorporation. Except as set forth in Section 3.5(a) above, there are no
outstanding subscriptions, warrants, options, contracts, rights (preemptive or
otherwise), calls, demands, commitments, voting agreements, voting trusts
proxies or other arrangements of any character binding on the Company or any
Subsidiary relating to any authorized and issued or unissued shares of capital
stock of the Company or any Subsidiary, or other instruments binding on the
Company or any Subsidiary convertible into or exchangeable for such stock, or
which obligate the Company or any Subsidiary to seek authorization to issue
additional shares of any class of stock, nor will any be created by virtue of
this Agreement or the transactions contemplated hereby. None of the shares of
capital stock of the Company or any Subsidiary were issued in violation of any
applicable Laws.
3.6 CONSENTS AND APPROVALS. Except as set forth in the Seller
Disclosure Schedule, no consent, approval, waiver, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority, and no consent, approval, waiver or other similar authorization of
any other Person (including without limitation any Person who is a party to a
Contract binding on or affecting the Company or any Subsidiary), is required to
be obtained by or on behalf of the Company or any Subsidiary as the case may be,
as a result of, or in connection with, or as a condition of the lawful
execution, delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
9
3.7 TITLE TO ASSETS; SUFFICIENCY OF ASSETS.
(a) Except as set forth in the Seller Disclosure Schedule, the Company
and the Subsidiaries have good and valid title to all of the properties and
assets (whether tangible or intangible) that they purport to own, free and clear
of all Liens (other than Permitted Liens), including, without limitation, all of
the tangible and intangible assets reflected on the balance sheet included in
the Company Audited Financial Statements, other than assets disposed of since
June 30, 2006 in the ordinary course of business consistent with past practice.
(b) Except as set forth in the Seller Disclosure Schedule, none of the
Sellers own any assets primarily used in or necessary to conduct the business of
the Company or the Subsidiaries.
(c) All of the tangible personal property of the Company and the
Subsidiaries has been maintained in accordance with generally accepted industry
practice and is in good working order and condition, reasonable wear and tear
excepted, and is suitable for the use to which they are being put. All of the
leased personal property of the Company and the Subsidiaries is in the condition
required of such property by the terms of the lease applicable thereto during
the relevant term of the lease. None of such tangible personal property is in
need of maintenance or repairs, except as shown in the Seller Disclosure
Schedule and except for ordinary routine maintenance and repairs that are not
material in cost.
(d) No Person has any written or oral agreement, option, understanding
or commitment, or any right or privilege (whether at law, by contract or
otherwise) capable of becoming such, for the purchase or other acquisition from
the Company or any Subsidiary of any of their assets other than in the ordinary
course.
(e) The property and assets owned and leased by each of the Company
and each Subsidiary include all rights, assets and property necessary for the
conduct of the business of the Company and each Subsidiary after the Closing,
substantially in the same manner as it was conducted prior to the Closing.
3.8 REAL PROPERTY.
(a) The Seller Disclosure Schedule sets forth a true, complete and
correct list of all real property and interests in real property leased by the
Company or any Subsidiary (individually, a "Real Property Lease" and the real
properties specified in such leases, being referred to herein individually as a
"Company Property" and collectively as the "Company Properties") as lessee or
lessor. There are no real properties or interests in real properties owned in
any respect by the Company or any Subsidiary. The Company Properties constitute
all interests in real property currently used or currently held for use in
connection with the business of the Company and the Subsidiaries and which are
necessary for the continued operation of such business by Purchaser as such
business is currently conducted. To the Knowledge of the Sellers, all of the
Company Properties, buildings, fixtures and improvements thereon leased by the
Company and Subsidiaries are in good operating condition and repair (subject to
normal wear and tear). The Company has delivered to Purchaser true, complete and
correct copies of the Real Property Leases, together with all amendments,
modifications or supplements thereto. No Person (other than the Company or a
Subsidiary) has subleased or otherwise uses, possesses or occupies any of the
premises covered by a Real Property Lease.
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(b) Each Real Property Lease is in full force and effect, has not been
amended and is a legal, valid and binding agreement, enforceable in accordance
with its terms, of the Company or the Subsidiaries and, to the Knowledge of the
Sellers, of each other Person that is a party thereto. There is no, and neither
the Company nor any Subsidiary has received written notice of any, default in
any material respect (or any condition or event which, after notice or lapse of
time or both, would constitute a default in any material respect) thereunder
which remains uncured. Neither the Company nor any Subsidiary has assigned or
transferred all or any portion of its interests in any Real Property Lease.
There are no disputes under any of the Real Property Leases in relation to the
state of repair of the premises demised or otherwise. Each Real Property Lease
has not been assigned or encumbered by the Company or any Subsidiary.
(c) No proceeding is pending or, to Knowledge of the Sellers,
threatened for the taking or condemnation of all or any portion of the Company
Properties. There is no brokerage commission or finder's fee due from the
Company or any Subsidiary and unpaid with regard to any of the Company
Properties, or which will become due at any time in the future with regard to
any Company Properties.
(d) Except as set forth on the Seller Disclosure Schedule, the Company
Properties and assets owned, leased or used by the Company or any Subsidiary in
the operation of the Company Properties, including the walls, ceilings and other
structural elements of any improvements erected on any part thereof and the
building systems such as heating, plumbing, ventilation, air conditioning and
electric, are adequate and sufficient for the current operations of the
Company's and the Subsidiaries' business.
(e) Neither the Company nor any Subsidiary has received any written
notice that any portion of any of the security deposits under the Real Property
Leases has been applied or retained by the lessor or licensor or sublessor
thereunder. Neither the Company nor any Subsidiary has within the last five
years, with respect to any Real Property Lease, (i) made, asserted or has any
defense, set off or counterclaim, (ii) claimed or is entitled to "free" rent,
rent concessions, rebates or rent abatements, (iii) questioned or disputed its
share of any additional rent or other charges required to be paid under such
Real Property Lease, or (iv) made rent payments in advance for more than one
month. Except as set forth on the Seller Disclosure Schedule, neither the
Company nor any Subsidiary has exercised any option granted to it under any such
Real Property Lease to (A) cancel or terminate such Real Property Lease or
lessen the term thereof, (B) renew or extend the term thereof or (C) take
additional space. There are no written or oral promises, understandings or
commitments between the Company or any Subsidiary, on the one hand, and each
other Person that is a party to such Real Property Lease, on the other hand,
other than those contained in such Real Property Lease.
(f) The Company Properties are fully serviced, including storm and
sanitary sewers, water, gas, telephone and paved roads, all expenses and costs
related thereto have been accounted for in accordance with GAAP and each of the
said premises has free and unfettered access to and from said roads by existing
entrances and exits without requiring any permit therefor from any Governmental
Authority.
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3.9 EMPLOYMENT RELATED AGREEMENTS AND ACTIONS.
(a) The Seller Disclosure Schedule contains a complete and correct
list of the directors and the officers of the Company and each Subsidiary.
(b) The Seller Disclosure Schedule contains a complete and correct
list of all Contracts currently in effect with current or former employees,
consultants, or independent contractors of the Company and each Subsidiary, in
each case which provides for payments in excess of $100,000 per annum. The
Company and each Subsidiary have delivered to Purchaser true, correct and
complete copies of each such Contract and performed obligations required to be
performed by it, and is entitled to all benefits under and is not in default
under, any such Contract and, to the Knowledge of the Sellers, no other party to
any such Contract is in default thereunder. Each such Contract is in full force
and effect, unamended, and is a legal, valid and binding agreement, enforceable
in accordance with its terms, of the Company or a Subsidiary and, to the
Knowledge of the Sellers, each other Person that is a party thereto. Except as
set forth in the Seller Disclosure Schedule, no event has occurred (including
the performance of this Agreement) which, with the lapse of time or the giving
of notice or both, would constitute a default by the Company or any Subsidiary,
or, to the Knowledge of the Sellers, by any other party to any such Contract.
(c) With respect to employees of the Company or any Subsidiary
("Employees"), except as set forth in the Seller Disclosure Schedule:
(i) none of the Employees is represented by a labor
union or organization, no labor union or organization has been
certified or recognized as a representative of any such Employees,
and neither the Company nor any Subsidiary is a party to or has
any obligation under any collective bargaining agreement or other
labor union contract or side agreement with any labor union or
organization, or has any obligation to recognize or deal with any
labor union or organization, and there are no such contracts or
side agreements pertaining to or which determine the terms or
conditions of employment of any Employee;
(ii) there are no pending or, to the Knowledge of the
Sellers, threatened representation campaigns, elections or
proceedings or questions concerning union representation involving
any of the Employees;
(iii) to the Knowledge of the Sellers, there are no
present activities or efforts of any labor union or organization
(or representatives thereof) to organize any of the Employees, nor
any demands for recognition or collective bargaining, nor any
strikes, slowdowns or work stoppages of any kind or, to the
Knowledge of the Sellers threats thereof, and no such activities,
efforts, demands, strikes, slowdowns or work stoppages have
occurred since January 1, 2002;
(iv) neither the Company nor any Subsidiary has engaged
in, admitted committing or been held in any administrative or
judicial proceeding to have committed any unfair labor practice
under the National Labor Relations Act, as amended, or any other
applicable Law, and there are no unfair labor practice charges or
complaints pending or, to the Knowledge of the Sellers,
threatened, against the Company or any Subsidiary;
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(v) there are no controversies, claims, demands or
grievances pending or, to the Knowledge of the Sellers, threatened
between the Company or any Subsidiary and any of their respective
Employees or any actual or claimed representative thereof;
(vi) the Company and the Subsidiaries have at all times
materially complied and are in compliance with all applicable Laws
respecting employment, wages, hours, compensation, occupational
health and safety, and payment and withholding of taxes in
connection with employment, and neither the Company, nor any
Subsidiary, is liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing;
(vii) there are no claims, complaints or legal or
administrative proceedings pending or, to the Knowledge of the
Sellers, threatened against the Company or any Subsidiary before
any federal, state or municipal court or any other Governmental
Authority involving or relating to any past or present Employees
or applicants for employment of the Company or any Subsidiary, or
relating to any acts, omissions or practices of the Company or any
Subsidiary relating to discrimination, harassment, wage payment,
overtime and hours of work, workplace safety or any other
employment-related issues. Neither the Company nor any Subsidiary
is a party to or bound by any Order respecting the employment or
compensation of any Employees or prospective Employees, other than
garnishments of employee wages obtained by third parties. There
are no pending investigations or abatement orders and no citations
issued within the past 3 years by the Occupational Safety and
Health Administration or any other Governmental Authority relating
to the Company or any Subsidiary;
(viii) the Company and the Subsidiaries have paid in full
to all of the Employees, or accrued on its books, all wages,
salaries, commissions, bonuses, benefits and other compensation
due to such Employees or otherwise arising under any policy,
practice, agreement, plan, program, statute or other applicable
Law;
(ix) neither the Company nor any Subsidiary is closing,
or since January 1, 2002, has closed any Facility, effectuated any
layoffs of Employees or implemented any early retirement,
separation or window program, nor has the Company or any
Subsidiary planned or announced any such action or program for the
future;
(x) the Company and each Subsidiary are in compliance
with their obligations pursuant to WARN, and all other
notification and bargaining obligations arising under any
collective bargaining agreement or Law; and
(xi) there are no written or oral employment manuals,
policies, plans, guides, handbooks or instruction booklets that
set out any terms and or conditions of employment for any of the
Employees. To the Knowledge of the Sellers, none of the Employees
have any non-competition or non-solicitation or other restrictive
covenant agreements other than with the Company or any Subsidiary.
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(d) Neither the Company nor any Subsidiary has any Employees whose
primary work location is outside the United States.
3.10 CONTRACTS.
(a) The Seller Disclosure Schedule contains a complete and correct
list of all Contracts that involve payments by, or to, the Company and/or any
Subsidiary, of more than $50,000 per annum or $100,000 in the aggregate (or the
equivalent amount in such other currencies in which the Company or any
Subsidiary conduct business) and all Contracts without regard to dollar amount,
or such lower amount expressly set forth, in the following categories (each, a
"Material Contract"):
(i) partnership or joint venture Contracts or
arrangements or any other agreements involving a sharing of
revenue or profits;
(ii) Contracts restricting the Company or any Subsidiary
from carrying on its business or activities, as the case may be,
in its usual and customary manner in any jurisdiction, including,
without limitation, restricting the Company or any Subsidiary from
hiring or soliciting any Person, or operating its assets at
maximum capacity;
(iii) any non-competition agreements in favor of or
restricting the Company or any Subsidiary (other than employment
or consulting agreements);
(iv) each Contract between the Company or any Subsidiary,
on the one hand, and any Affiliate of the Company or any
Subsidiary, on the other hand;
(v) any Contracts for the sale or other disposition by
the Company or any Subsidiary of any of its assets, or the
acquisition by the Company or any Subsidiary of any assets, other
than in the ordinary course of business, consistent with past
practice;
(vi) any Contracts relating to the leasing or chartering
of any assets of the Company to or from any third party, except
those with annual payments not more than $50,000;
(vii) any Contract that (a) limits or contains
restrictions on the ability of the Company or any Subsidiary to
declare or pay dividends on, or to make any other distribution in
respect of or to issue or purchase, redeem or otherwise acquire
its capital stock, or to incur Indebtedness, or to incur or suffer
any Lien, to purchase or sell any of assets or properties, to
change the lines of business in which it participates or engages
or to engage in any Business Combination, or (b) require the
Company or any Subsidiary to maintain specified financial ratios
or levels of net worth or other indicia of financial condition;
(viii) any Contract relating to Indebtedness incurred or
accrued by, or credit provided to, the Company or any Subsidiary;
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(ix) any Contract of support, indemnification, guaranty,
suretyship or assumption or any similar commitment with respect to
the obligations, liabilities (whether accrued, absolute,
contingent or otherwise) or indebtedness of any other Person;
(x) any letters of credit, any currency exchange,
commodities or other hedging arrangement or capitalized leases;
(xi) each outstanding loan or advance made by the Company
or any Subsidiary to any director, officer, employee, stockholder
or other Affiliate of the Company or any Subsidiary (other than
any intercompany indebtedness reflected in the financial
statements of the Company or such Subsidiary and any
business-related advances to employees made in the ordinary course
of business, consistent with past practice); and
(xii) any Contract with any Seller or any Contract made
out of the ordinary course of business and not consistent with
past practice.
(b) Except as set forth in the Seller Disclosure Schedule, the Company
and each Subsidiary have, with respect to all Material Contracts, delivered to
Purchaser true, correct and complete copies thereof and performed obligations
required to be performed by it, and is entitled to all benefits under and is not
in default in any material respect under, any Material Contract, and each
Material Contract is in full force and effect, unamended, and, to the Knowledge
of the Sellers, no other party to any Material Contract is in default in any
material respect under any Material Contract. Except as set forth in the Seller
Disclosure Schedule, no event has occurred (including the performance of this
Agreement) which, with the lapse of time or the giving of notice or both, would
constitute a default in any material respect by the Company or any Subsidiary,
or, to the Knowledge of the Sellers, by any other party to any Material
Contract. For purposes of this Section 3.10(b), representations that are
qualified by Knowledge with respect to another party's compliance shall be
deemed not to include the Knowledge qualifier if such other party to the
Material Contract is an Affiliate of the Company or any Subsidiary.
3.11 INTELLECTUAL PROPERTY.
(a) The term "Intellectual Property" means, collectively, all
worldwide:
(i) inventions, designs and other industrial property,
and all enhancements and improvements thereto, whether patentable
or unpatentable and whether or not reduced to practice, and all
patent rights in connection therewith (including all U.S. and
foreign patents, patent applications, patent disclosures, mask
works and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof), whether or not
any of the foregoing are registered, filed or issued;
(ii) trademarks, trade names and service marks, trade
dress, logos, Internet domain names, and other commercial product
or service designations, together with all translations,
adaptations, derivations and combinations thereof, and all
goodwill and similar value associated with any of the foregoing,
all common law
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rights associated therewith, and all U.S. and foreign
applications, registrations, and renewals in connection therewith;
(iii) copyrights (whether or not registered), "moral
rights," and all U.S. and foreign registrations and applications
for registration thereof, as well as rights to renew all such
copyrights;
(iv) trade secrets (as such are determined under
applicable law), know-how and other confidential business
information, including technical information, any and all
technology, supplier lists, computer software programs or
applications, in both source and object code form, technical
documentation of such software programs, statistical models,
customer lists, inventions, sui generis database rights,
databases, and data, whether in tangible or intangible form and
whether or not stored, compiled or memorialized physically,
electronically, graphically, photographically or in writing; and
(v) any and all other rights to existing and pending
U.S. and foreign registrations and applications for any of the
foregoing and all other proprietary rights in, or relating to, any
and all of the foregoing, including remedies against and rights to
sue for past infringements, and rights to damages and profits due
or accrued in or relating to any of the foregoing.
(b) The Seller Disclosure Schedule contains a true and complete list
of all the Intellectual Property owned by the Company or any Subsidiary and/or
used by, useful to or related to the Company's or any Subsidiary's business and
any and all other tangible and intangible proprietary property, information and
materials that are or have been used (including in the development of) by the
Company or any Subsidiary and/or in any product, technology or process (i)
currently being or formerly manufactured, published, marketed or used by the
Company or any Subsidiary, and (ii) previously or currently under development
for possible future manufacturing, publication, marketing or other use by the
Company or any Subsidiary (the "Company Intellectual Property"), and includes
details of all due dates for further filings, maintenance and other payments or
other actions falling due in respect of the Company Intellectual Property within
twelve (12) months following the Closing Date, and the current status of the
corresponding registrations, filings, applications and payments throughout the
world. All of the issued patent, trademark, copyright and domain name
registrations and applications arising from or relating to the Company
Intellectual Property are and remain valid and subsisting, in good standing,
with all fees, payments and filings due as of the Closing Date duly made, and
the due dates specified on the Seller Disclosure Schedule are accurate and
complete. All of the issued patent, trademark and copyright registrations and
applications included in the Company Intellectual Property are enforceable, are
in compliance with all formal legal requirements, and the Company has delivered
correct and complete copies of the same, and the Company has made available for
review correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each of the foregoing. The Company
and each Subsidiary have all rights in the Company Intellectual Property
necessary and sufficient to carry out the Company's and each Subsidiary's
current and proposed activities (and had all rights necessary to carry out its
former activities at the time such activities were being conducted), including
and to the extent required to carry out such activities, rights to
16
make, use, reproduce, modify, adapt, create derivative works based on,
translate, distribute (directly and indirectly), transmit, display and perform
publicly, license, rent and lease and, as applicable, assign and sell, the
Company Intellectual Property.
(c) The term "Licensed Intellectual Property" means Intellectual
Property rightfully used by the Company and/or a Subsidiary pursuant to a valid
license, sublicense, consent or other similar written agreement, other than
off-the-shelf software programs. The parties and date of each such agreement are
set forth on the Seller Disclosure Schedule. The Company and each Subsidiary
have all rights in the Licensed Intellectual Property necessary and sufficient
to carry out the Company's and each Subsidiary's current and proposed activities
(and had all rights necessary to carry out its former activities at the time
such activities were being conducted), including and to the extent required to
carry out such activities, rights to make, use, reproduce, modify, adapt, create
derivative works based on, translate, distribute (directly and indirectly),
transmit, display and perform publicly, license, rent and lease and, as
applicable, assign and sell, the Licensed Intellectual Property. The Company has
delivered to Purchaser correct and complete copies of all license agreements
with respect to Licensed Intellectual Property, and, as applicable, has made
available for review correct and complete copies of all other written
documentation evidencing that the Company and each Subsidiary have the necessary
and sufficient rights in each and every of the foregoing.
(d) Neither the Company nor any Subsidiary has infringed upon or
misappropriated any Intellectual Property rights or personal right of any Person
anywhere in the world. No claims or notices (i) challenging the validity,
enforceability, effectiveness or ownership by the Company or any Subsidiary of
any of the Intellectual Property, or (ii) to the effect that the use,
distribution, licensing, sublicensing, sale or any other exercise of rights in
any product, service, work, technology or process as now used or offered or
proposed for use, licensing, sublicensing, sale or other manner of commercial
exploitation by the Company or any Subsidiary infringes or will infringe on any
Intellectual Property rights or personal right of any Person have been asserted
or, to the Knowledge of the Sellers, are threatened by any Person, nor are
there, to the Knowledge of the Sellers, any valid grounds for any bona fide
claim of any such kind. To the Knowledge of the Sellers, there is and has been
no unauthorized use, disclosure, infringement or misappropriation of any Company
Intellectual Property or Licensed Intellectual Property by any third party,
employee or former employee.
(e) All personnel (including employees, agents, consultants and
contractors), who have contributed to or participated in the conception and/or
development of the Company Intellectual Property on behalf of the Company or any
Subsidiary have executed nondisclosure agreements with the Company or such
Subsidiary and either (i) have been a party to a "work-for-hire" and/or other
arrangement or agreements with the Company or such Subsidiary in accordance with
applicable Law that has accorded the Company and such Subsidiary full,
effective, exclusive and original ownership of all rights whatsoever in all
Intellectual Property rights thereby arising or relating thereto, or (ii) have
executed appropriate instruments of assignment in favor of the Company and such
Subsidiary as assignee that have conveyed to the Company and such Subsidiary
effective and exclusive ownership of all Intellectual Property rights thereby
arising and related thereto.
17
(f) The Company and each Subsidiary are not, nor as a result of the
execution or delivery of this Agreement, or performance of the Company's
obligations hereunder, will the Company or any Subsidiary be, in violation of
any license, sublicense, agreement or instrument relating to the Intellectual
Property to which the Company or any Subsidiary is a party or otherwise bound,
nor will execution or delivery of this Agreement, or performance of the
Company's obligations hereunder, cause the diminution, termination or forfeiture
of any Intellectual Property or any rights therein or thereto.
(g) Except as set forth on the Seller Disclosure Schedule, all of the
Company Intellectual Property is free and clear of any and all Liens, and to the
Knowledge of the Sellers, nothing shall interfere with the quiet enjoyment of
the Company with respect to the Company Intellectual Property following
consummation of the transactions contemplated hereby.
(h) The Company and each Subsidiary do not owe any royalties or other
payments to third parties in respect of any of the Intellectual Property. All
royalties or other payments set forth on the Seller Disclosure Schedules that
have accrued prior to the Closing have been paid. The Company and each
Subsidiary will not owe any such payments or any additional payments as a result
of the consummation of the transactions contemplated hereby.
(i) The Company and each Subsidiary has used its commercially
reasonable efforts to regularly scan all software programs included among the
Company Intellectual Property and Licensed Intellectual Property with "best in
class" virus detection software. Such software programs contain no "viruses."
For the purposes of this Agreement, "virus" means any computer code
intentionally designed to disrupt, disable or harm in any manner the operation
of any software or hardware. None of the foregoing contains any worm, bomb,
trojan horse, backdoor, clock, timer, or other disabling device code, or any
other design or routine which causes any system, software, data or information
to be erased or become inoperable or otherwise incapable of being used, either
automatically or upon command by any Person.
(j) The Company and each Subsidiary has implemented all reasonable
steps consistent with "best" practices in the information systems industries in
the physical and electronic protection of their information and electronically
stored assets from unauthorized disclosure, use or modification. The Seller
Disclosure Schedule sets forth: (i) each breach of security of which the Company
has Knowledge or is aware; (ii) its known or anticipated consequences; and (iii)
the steps the Company and each Subsidiary have taken to remedy such breach.
(k) The Company and each Subsidiary has taken and will continue to
take all reasonable measures to protect the secrecy, confidentiality, and value
of all of the Company Intellectual Property rights. The Company and each
Subsidiary (or to the Knowledge of the Sellers, any other party) have not taken
any action nor, to the Knowledge of the Sellers, failed to take any action that
directly or indirectly caused any Company Intellectual Property to enter the
public domain or in any way adversely affect its value to Purchaser, or its
absolute ownership thereof.
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3.12 INSURANCE.
(a) All property and assets of the Company and the Subsidiaries are
insured against loss or damage by all insurable hazards or risks on a
replacement cost basis, subject to the deductibles in each applicable insurance
policy. The Seller Disclosure Schedule contains a complete and correct list
(together with their respective termination dates) of all policies of fire,
casualty, general liability, product liability, business interruption,
defamation, personal injury, property damage, workers' compensation and all
other forms of insurance carried by the Company and the Subsidiaries or pursuant
to which the Company or any Subsidiary is a named beneficiary or pursuant to
which the business or properties of the Company or any Subsidiary is insured,
complete and correct copies of which have been provided to Purchaser. All of
such policies and any substantially equivalent replacement coverages are in full
force and effect and no notice of cancellation or termination has been received
with respect to such coverage, and such policies are for amounts and for
coverages customary for businesses of the type and size of the Company and its
Subsidiaries, taken as a whole. The Company or the applicable Subsidiary has
notified such insurers of any claim which could potentially exceed the
applicable insurance policy deductible amount arising since January 1, 2001
known to it which it believes is covered by any such insurance policy and has
provided Purchaser with a copy of such claim.
(b) Except as set forth in the Seller Disclosure Schedule, the Company
or each applicable Subsidiary has notified the insurers of the Company and/or
such Subsidiary of all claims known to them which are believed to be covered by
insurance. All such claims have been filed on a timely basis with insurers and
pursued by cooperating with and responding to insurers' requests for
documentation and/or information. To the extent any claim has been denied by
insurers, information concerning such claim is set forth in the Seller
Disclosure Schedule.
(c) Except as set forth in the Seller Disclosure Schedule, there are
no pending or potential claims under insurance covering the Company and/or any
Subsidiary.
3.13 BOOKS AND RECORDS. All accounting, financial and corporate Books
and Records have been fully, properly and accurately kept and are complete in
all material respects.
3.14 FINANCIAL STATEMENTS; LIABILITIES.
(a) The Company has provided to Purchaser the audited consolidated
balance sheets of the Company and the Subsidiaries as of, and the audited
consolidated statements of operations, retained earnings and cash flows of the
Company and the Subsidiaries for the fiscal years ended, June 30, 2004, 2005 and
2006, together with the notes thereto and the opinions of J.H. Cohn thereon
(collectively, the "Company Audited Financial Statements"). The Company Audited
Financial Statements have been prepared from the Books and Records of the
Company and its Subsidiaries, and present fairly in all material respects, in
conformity with GAAP, the assets, liabilities, income, losses, retained
earnings, financial condition, results of operations and cash flows of the
Company and its Subsidiaries on a consolidated basis for the periods and dates
covered thereby.
(b) Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary has any liabilities or obligations of any kind,
whether absolute, accrued, asserted or unasserted, contingent or otherwise,
except liabilities, obligations and contingencies, that (i) are not reflected on
or accrued or reserved against in the Company Audited Financial Statements
19
for the fiscal year ended June 30, 2006, or reflected in any notes thereto or
(ii) were incurred since June 30, 2006 in the ordinary course of business. The
reserves reflected in the Company Audited Financial Statements are adequate,
appropriate and reasonable and have been calculated in a consistent manner.
3.15 ACCOUNTING PRACTICES.
(a) The Company and the Subsidiaries maintain in all material respects
accurate books and records reflecting their assets and liabilities and maintain
proper and adequate internal accounting controls that provide assurances that:
(i) transactions are executed with the authorization of the Company's
management; (ii) transactions are recorded as necessary to permit preparation of
the Company's financial statements in accordance with GAAP and to maintain
accountability for such assets; (iii) access to such assets is permitted only in
accordance with the authorization of the Company's management; (iv) the
reporting of such assets is compared with existing assets at regular intervals;
and (v) its accounts, notes and other receivables and inventory are recorded
accurately, and proper and adequate procedures are implemented to effect the
collection of the accounts, notes and other receivables on a current, timely and
consistent basis in accordance with applicable Laws and local practices.
(b) Neither the Company nor any Subsidiary has received or been under
a duty to report (including any self reporting obligations) a non-frivolous
complaint, allegation, assertion or claim, whether written or oral, regarding
the accounting, reserving or auditing practices, procedures, methodologies or
methods of the Company or any Subsidiary or their respective internal accounting
controls, including any complaint, allegation, assertion or claim that any
Company or any Subsidiary has engaged in questionable accounting, reserving or
auditing practices.
3.16 TAX MATTERS.
(a) The Company and each Subsidiary has:
(i) duly and timely filed, or caused to be filed, in
accordance with applicable Law all Company Tax Returns required to
be filed, each of which is true, correct and complete in all
material respects,
(ii) duly and timely paid in full, or caused to be paid
in full, all Company Taxes due and payable (whether or not shown
on any Company Tax Returns), and
(iii) properly accrued, in accordance with GAAP in the
Company Audited Financial Statements and has adequate reserves for
the payment of all Company Taxes that are or may become payable
for all taxable periods or portions thereof ending through the
date hereof and the Closing Date, respectively.
(b) Except as set forth in the Seller Disclosure Schedule, (i) no
Company Tax Return has ever been filed, and no Company Tax has ever been
determined, on a consolidated, combined, unitary or other similar basis
(including, but not limited to, a consolidated federal income Tax return) under
any Tax Law with respect to Taxes other than for a group of which the
20
Company is the common parent, (ii) neither the Company nor any Subsidiary has
any liability for the Taxes of any person (other than the Company and its
current Subsidiaries) under Treasury Regulation section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise, and (iii) neither the Company nor any Subsidiary is a
party to any tax sharing, tax indemnity or other agreement or arrangement with
respect to Taxes with any person under which the Company or any Subsidiary will
have any continuing rights or obligations following the Closing Date.
(c) Except as set forth in the Seller Disclosure Schedule, (i) neither
the Internal Revenue Service nor any foreign, state, local or other Governmental
Authority is now asserting or, to the Knowledge of the Sellers, threatening to
assert any deficiency or claim for Taxes, and (ii) no federal, state, local or
foreign audits or other administrative proceedings are presently pending with
regard to any Company Tax Returns or Company Taxes.
(d) The Company and each Subsidiary have complied with all applicable
Laws relating to the deposit, collection, withholding, payment or remittance of
any Tax (including, but not limited to, sales Taxes, use Taxes and payroll and
withholding Taxes).
(e) There is no Lien for any Tax upon any asset or property of the
Company or any Subsidiary (except for any statutory Lien for any Tax not yet
due).
(f) No jurisdiction where a Company Tax Return has not been filed has
made or, to the Knowledge of the Sellers, threatened to make a claim for the
filing of any Company Tax Return.
(g) Except as set forth in the Seller Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any agreement with any Governmental
Authority (including, but not limited to, any closing agreement within the
meaning of Code Section 7121 or any analogous provision of applicable Law) in
respect of Company Taxes or Company Tax Returns.
(h) Except as set forth in the Seller Disclosure Schedule, the federal
income Tax Returns of the Company and each of its Subsidiaries consolidated in
such returns have been examined by and settled with the Internal Revenue
Service, or the statute of limitations on assessment or collection of any
federal income Taxes due from the Company or any of its Subsidiaries has
expired, through such taxable years as are set forth in the Seller Disclosure
Schedule. Except as set forth in the Seller Disclosure Schedule, there are no
outstanding requests, agreements, consents or waivers to extend the statutory
period of limitations applicable to the assessment of any Company Taxes.
(i) Sellers have made available to Purchaser complete and correct
copies of (i) all Company Tax Returns for the past three taxable years; and (ii)
all Tax examination reports and statements of deficiencies assessed with respect
to the Company or any Subsidiary for the last three taxable years.
(j) There is no change of accounting method that currently requires,
or will require, an adjustment to the taxable income of the Company of any
Subsidiary under Section 481 of the Code for any period following the Closing
Date. Neither the Company or any Subsidiary will be required to include any item
of income in, or exclude any item of deduction from, taxable
21
income for any taxable period (or portion thereof) ending after the Closing Date
(A) pursuant to a "closing agreement" as described in Section 7121 of the Code
(or any corresponding or similar provision of state, local or foreign income Tax
Law) executed on or prior to the Closing Date, (B) as a result of an
"intercompany transaction" consummated prior to the Closing or an "excess loss
account" existing at the Closing as such terms are defined in Treasury
Regulations under Section 1502 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax Law), (C) pursuant to an
installment sale or open transaction disposition made prior to the Closing, or
(D) as a result of any prepaid amount received prior to the Closing.
(k) Neither the Company nor any Subsidiary is, nor has it ever been, a
"United States real property holding corporation" within the meaning of Code
Section 897(c)(2) at any time during the applicable period referred to in Code
Section 897(c)(l)(A)(ii).
3.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since June 30, 2006, except
as set forth in the Seller Disclosure Schedule, the Company and each Subsidiary
have conducted its business in the ordinary course thereof consistent with past
practice. From such date, with respect to the Company or any Subsidiary, as the
case may be, except as set forth in the Seller Disclosure Schedule, there has
not been any:
(a) change in the business, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves, working capital, prospects, results of
operations or financial condition of the business of the Company or any
Subsidiary, or any event, condition or contingency (either individually or taken
together) that constitutes, or could reasonably be expected to constitute, a
Material Adverse Effect;
(b) (A) incurrence, payment or discharge of any liability or
obligation (absolute, accrued, contingent or otherwise), (B) sale or transfer of
any property, or (C) acquisition or sale, lease, grant of interest in, or other
disposition of, any assets or businesses, in each of clauses (A), (B) and (C),
other than in the ordinary course of business, consistent with past practice;
(c) guarantee or any other assumption of the Indebtedness or other
obligations of any Person;
(d) settlement or compromise of any Action;
(e) instance of the Company or any Subsidiary permitting or allowing
any of their respective properties or assets (real, personal or mixed, tangible
or intangible) to be subjected to any Lien (other than a Permitted Lien);
(f) Tax election or change in a Tax election or the filing for any
change of any method of accounting with any relevant Governmental Authority;
(g) change in any method of accounting applied in the preparation of
the Company Audited Financial Statements, other than a change which is required
by reason of a concurrent change in Law or GAAP;
(h) (A) adoption of or amendment to any benefit plan or bonus, profit
sharing, deferred compensation, incentive, stock option or stock purchase plan,
program or commitment,
22
paid time off for sickness or other plan, program or arrangement for the benefit
of its employees, consultants or directors, or (B) grant of any increase (other
than increases required under any Contract entered into before June 30, 2006 and
annual increases in the ordinary course of business, consistent with past
practice) in the compensation of its employees, officers or directors (including
any such increase pursuant to any bonus, profit sharing or other compensation or
incentive plan, program or commitment);
(i) entering into, change, termination or modification of any Material
Contract;
(j) issuance or sale by the Company or any Subsidiary of any capital
stock of the Company or any Subsidiary, or any security convertible into or
exchangeable for, or any right exercisable to acquire, any shares of such
capital stock;
(k) declaration, distribution or the setting aside for distribution of
any property (including cash), or directly or indirectly, the redemption,
purchase or other acquisition of any shares of capital stock;
(l) amendment, termination or waiver of any rights of value to the
Company or any Subsidiary;
(m) any extraordinary loss, damage or destruction, whether or not
covered by insurance;
(n) increase in the Company's or any Subsidiary's reserves for
contingent liabilities;
(o) writing off as uncollectible any Inventory or Accounts Receivable
or any portion thereof in amounts exceeding $25,000 in each instance or $50,000
in the aggregate;
(p) (i) disposal or lapse of any rights to the ownership or use of
Company Intellectual Property, or (ii) disclosure to any Person (other than
representatives of Purchaser) of any trade secret, formula, process, know-how or
other Company Intellectual Property not theretofore a matter of public
knowledge;
(q) making of any single capital expenditure or commitment in excess
of $100,000 for additions to property, plant, equipment or intangible capital
assets or the making of aggregate capital expenditures and commitments in excess
of $500,000 (or the equivalent amount in such other currencies in which the
Company or any Subsidiary conducts business) or additions to property, plant,
equipment or intangible capital assets; or
(r) agreement, whether in writing or otherwise, to take any action
described in this Section 3.17.
3.18 LITIGATION AND CLAIMS. Except as set forth in the Seller
Disclosure Schedule, there is no Action pending or, to the Knowledge of the
Sellers, threatened or contemplated against or affecting the Company or any
Subsidiary or any property or assets used by them or any of the Company's
capital stock, and there is no Action pending or, to the Knowledge of the
Sellers, threatened or contemplated, against the Company or any Subsidiary
affecting the propriety or validity of the transactions contemplated hereby. To
the Knowledge of the Sellers,
23
no event has occurred or circumstance exists which could reasonably be expected
to give rise to or serve as a basis for the commencement of any Action by or
against the Company or any Subsidiary. Except as set forth in the Seller
Disclosure Schedule, neither the Company nor any Subsidiary is subject to or in
default under or with respect to any Order.
3.19 GOVERNMENTAL PERMITS; COMPLIANCE WITH LAWS.
(a) The Company and each Subsidiary owns, holds or possesses all
material Governmental Permits which are necessary to entitle it to own or lease,
operate and use its assets and to carry on its business as currently conducted.
(b) The Seller Disclosure Schedule sets forth a complete and correct
list and brief description of each Governmental Permit owned, held or possessed
by the Company or any Subsidiary. Each such material Governmental Permit is
valid, subsisting and in good standing. Except as set forth on the Seller
Disclosure Schedule, all such material Governmental Permits are renewable by
their terms or in the ordinary course of business without the need for the
Company or any Subsidiary to comply with any special rules or procedures, agree
to any materially different terms or conditions, or pay any amounts other than
routine filing fees. Except as set forth in the Seller Disclosure Schedule, (i)
the Company and each Subsidiary have fulfilled and performed in all respects its
obligations under each of such material Governmental Permits, and (ii) no notice
(or, to the Knowledge of the Sellers, no threat) of cancellation, of default or
of any dispute concerning any such material Governmental Permit, or of any
event, condition or state of facts described in the preceding clause, has been
received by the Company, the Company or any Subsidiary.
(c) The Company and each Subsidiary have conducted their respective
businesses in compliance, and are currently in compliance, in all material
respects with all Laws which are applicable to their respective businesses.
(d) The Company and each Subsidiary are in full compliance with the
Foreign Corrupt Practices Act, as amended, 15 U.S.C. ss.ss. 78m, 78dd-l, 78dd-2,
78dd-3 and 78ff (the "FCPA"), and no pending or former contracts or pending bids
of the Company or any Subsidiary were obtained or submitted in violation of the
FCPA.
3.20 ENVIRONMENTAL MATTERS. Except as set forth in the Seller
Disclosure Schedule:
(a) The Company and each Subsidiary, and the assets of the Company and
each Subsidiary (including real property leased by the Company and each
Subsidiary) are, and at all times have been, in compliance in all material
respects with applicable Environmental Laws;
(b) Neither the Company nor any Subsidiary has caused or permitted a
release of a Hazardous Substance to the Environment at any of the Facilities;
(c) There are no Environmental Conditions present at, on, or under,
any Facility as a result of activities of the Company or any Subsidiary or any
of their employees or agents, or as a result of activities of any other Person,
in each case in amounts exceeding the levels permitted by applicable
Environmental Law or under circumstances that would reasonably be expected to
result in liability in any material respect under or relating to Environmental
Law;
24
(d) Neither the Company nor any Subsidiary has disposed of, arranged
for the disposal of, released, threatened to release, or transported any
Hazardous Substances in violation of any applicable Environmental Law or in a
manner that would reasonably be expected to result in liability under or
relating to Environmental Law;
(e) Neither the Company nor any Subsidiary is subject to any Actions,
is subject to any Order or has received any notice or other communication from
any Governmental Authority or the current or prior owner or operator of any of
the Facilities or any other Person, in each case with respect to any actual or
potential violation or failure to comply with any Environmental Law or of any
actual or threatened obligation or liability under any Environmental Law, or
regarding any Hazardous Substances; and to the Knowledge of the Sellers, neither
the Company nor any Subsidiary is threatened with any such Action, Order, notice
or communication;
(f) Neither the Company nor any Subsidiary has been charged with or
convicted of an offense for non-compliance with any Environmental Laws; and
(g) Since June 30, 2000, there are no Environmental Reports in the
custody or control of the Company or any Subsidiary relating to the Facilities,
the business of the Company or any Subsidiary or activities of the Company or
any Subsidiary that have not been delivered to Purchaser.
3.21 EMPLOYEE PLANS.
(a) Except as set forth in the Seller Disclosure Schedule, none of the
Company, any Subsidiary, nor any other Person which together with the Company,
any Subsidiary or any of the Sellers constitutes a member of the Company's, any
Subsidiary's or such Seller's "controlled group" or "affiliated service group"
(within the meaning of Sections 4001(a)(14) and/or (b) of ERISA and/or Sections
414(b), (c), (m) or (o) of the Code (each such group or groups and each member
thereof hereinafter referred to individually and collectively as the "Group"))
sponsors or maintains, or has any material liability with respect to or has any
present or future obligation to contribute to or make payment under (i) any
employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to
ERISA, or (ii) any other material benefit plan, program, contract or arrangement
of any kind whatsoever (whether for the benefit of present, former, retired or
future employees, consultants or independent contractors of the Group, or for
the benefit of any other Person or Persons) including, without limitation,
plans, programs, contracts or arrangements with respect to pension, retirement,
profit sharing, deferred compensation, thrift, savings, stock ownership, stock
bonus, restricted stock, health, dental, medical, life, hospitalization,
disability, relocation, child care, educational assistance, stock purchase,
stock option, incentive, bonus, sabbatical leave, vacation, severance,
cafeteria, pre-tax premium, flexible spending or other contribution, benefit or
payment of any kind, and plans, programs, contracts or arrangements providing
for contributions, benefits or payments in the event of a change of ownership or
control in whole or in part of the Company or any Subsidiary (all such employee
benefit plans and other benefit plans, programs, contracts or arrangements,
whether written or oral, hereinafter individually and collectively called the
"Employee Benefit Plans"). Except as set forth in the Seller Disclosure
Schedule, neither the Company nor any Subsidiary has any obligation other than
as required by applicable Law, to amend any Employee Benefit Plan so as to
increase
25
benefits thereunder or otherwise or to establish any new benefit plan, program,
contract or arrangement.
(b) No Employee Benefit Plan is subject to Title IV of ERISA, Section
302 of ERISA or Section 412 or 413(c) of the Code. No member of the Group is a
party to, or participates in, or has any obligation or liability, contingent or
otherwise, with respect to any multiemployer plan (as defined in Section 3(37)
of ERISA). Neither the Company nor any Subsidiary sponsors or maintains any
nonqualified deferred compensation plan that is or could become subject to
Section 409A of the Code.
(c) Any and all amounts which any member of the Group is required to
pay, deduct or remit, as contributions or otherwise, with respect to the
Employee Benefit Plans, have been timely paid, deducted, remitted or accrued.
(d) Except as set forth in the Seller Disclosure Schedule, each
Employee Benefit Plan has been established, maintained, operated and
administered in all material respects in accordance with its terms and all
applicable Law. Each Employee Benefit Plan which is intended to be "qualified"
within the meaning of Sections 401(a) and 501(a) of the Code (a "Qualified
Plan") is the subject of an Internal Revenue Service opinion letter as to its
qualified status and nothing has occurred to adversely affect such qualified
status. There are no pending, threatened or anticipated Actions, suits, claims,
trials, demands, investigations, arbitrations or proceedings (other than routine
claims for benefits) involving any of the Employee Benefit Plans with respect to
or affecting the Company or any Subsidiary or any current or former employee of
the Company or any Subsidiary. There have been no nonexempt "prohibited
transactions" within the meaning of Section 406 of ERISA or Section 4975 of the
Code with respect to any of the Employee Benefit Plans.
(e) A complete and correct copy of each of the Employee Benefit Plans
and governing documents thereof, and all amendments thereto, whether currently
effective or to become effective at a later date, and all contracts and
agreements relating thereto, or to the funding thereof (including, without
limitation, all trust agreements, insurance contracts, investment management
agreements, subscription and participation agreements, administration and
recordkeeping agreements) have been delivered to Purchaser. In the case of any
Employee Benefit Plan that is not in written form, an accurate and complete
description of such Employee Benefit Plan has been delivered to Purchaser. With
respect to each Employee Benefit Plan, Company has delivered to Purchaser a
complete and correct copy of each of (i) the three most recent annual reports
(Form 5500 series), including any schedules thereto and audit reports, (ii) the
most recent summary plan description (including summaries of material
modification), and a copy of any other material or documents distributed to any
Employee, participant or any beneficiary in connection with any Employee Benefit
Plan, (iii) the most recent Internal Revenue Service opinion letter, and (iv) in
the case of any funded Employee Benefit Plan, to the extent not included in the
annual reports (Form 5500 series) delivered to Purchaser, a current schedule of
assets (and the fair market value thereof assuming liquidation of any asset
which is not readily tradable) held with respect thereto.
26
(f) There have been no material adverse changes in the financial
condition of the respective Employee Benefit Plans (or other information
provided hereunder) from that stated in each Employee Benefit Plan's most recent
of such annual reports.
(g) No Employee Benefit Plan provides benefits including, without
limitation, death or medical benefits (whether or not insured), with respect to
any employees, former employees or directors of the Company or any Subsidiary
beyond their retirement or other termination of service, other than group health
continuation coverage mandated by applicable Law.
(h) Except as set forth in the Seller Disclosure Schedules, neither
the execution and delivery by the Company of this Agreement nor the consummation
by the Company of the transactions contemplated hereby shall (either alone or
upon the occurrence of additional events or acts) (x) require the Company or any
Subsidiary to make any payment to, or obtain any consent or waiver from, any
officer, director, employee, consultant or agent of any member of the Group
(other than the Sellers) or (y) accelerate vesting or payment of any benefits or
any payments, increase the amount or value of any benefit or payment or result
in the payment of or obligation to pay any "excess parachute payment" (within
the meaning of Section 280G of the Code).
(i) Except as set forth on the Seller Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any Contract that results or could
result in any amount that is not deductible under Code Section 162(m), Code
Section 280G, or Code Section 404, or any similar provision of applicable Law.
3.22 ACCOUNTS RECEIVABLE. Except to the extent of the amount of the
reserve for doubtful accounts reflected in the Company Audited Financial
Statements or as set forth on the Seller Disclosure Schedule, all Accounts
Receivable of the Company or any Subsidiary reflected therein and all Accounts
Receivable that have arisen since June 30, 2006 (except Accounts Receivable that
have been collected since such date) are valid and enforceable claims and
constitute bona fide Accounts Receivable resulting from the sale of goods and
services in the ordinary course of business.
3.23 MAJOR CUSTOMERS. The Seller Disclosure Schedule lists, by dollar
volume paid for the year ended June 30, 2006, all customers of the Company and
each Subsidiary, taken as a whole, who purchased at least $100,000 in goods and
services (collectively, the "Major Customers"). The relationships of Company and
each Subsidiary with the Major Customers are reasonable commercial working
relationships and: (i) all amounts owing from the Major Customers, if not in
dispute, have been paid in accordance with their respective terms; (ii) none of
the Major Customers within the last twelve months has threatened in writing to
cancel, or otherwise terminate, the relationship of such Major Customer with the
Company or any Subsidiary; and (iii) none of the Major Customers during the last
twelve months has decreased materially, or threatened in writing to decrease or
limit materially, its relationship with the Company or any Subsidiary or, to the
Knowledge of the Sellers, intends to decrease or limit materially its
relationship with the Company or any Subsidiary. To the Knowledge of the
Sellers, no Major Customer is insolvent or has claimed protection under
applicable bankruptcy laws. Neither the Company nor any Subsidiary has given (or
agreed to give) any discount, free
27
goods, rebate or other incentive to any customer of the Company or any
Subsidiary in order to induce any such customer to accelerate the timing of
orders to the Company or any Subsidiary.
3.24 AIRCRAFT OPERATIONS.
(a) The Company and each Subsidiary holds a valid and current Air
Carrier Certificate or Operating Certificate pursuant to FAR Part 119.
(b) All aircraft owned, leased or operated by Company and its
Subsidiaries are included on Company's Part 135 Certificate.
(c) The Company and each Subsidiary has been granted an exemption
certificate by the United States Department of Transportation exempting each of
them from economic regulatory provisions as provided in Section 298 of the
Aviation Economic Regulations.
(d) Neither the Company nor any Subsidiary is under, or has been the
subject of, any investigation or enforcement action by the FAA, the DOT or any
Foreign Aviation Authority for violations of any regulations of either thereof.
(e) The Company and each Subsidiary is in compliance with all
applicable provisions of the FAA Regulations, including but not limited to
Subpart K of Part 91 thereof.
(f) Neither the Company nor any Subsidiary has been granted any
waivers of any requirements under Part 91 of the FAA Regulations.
(g) The Company and each Subsidiary holds all licenses, certificates,
permits and franchises from the appropriate Government Authorities, including,
without limitation, the FAA, DOT and all Foreign Aviation Authorities, necessary
to authorize Company and each Subsidiary to lawfully engage in air
transportation and to carry on commercial passenger service as currently
conducted.
(h) All pilots in the employ of the Company and each Subsidiary hold
all current licenses and certificates as are required by the FAA are up-to-date
in their recurrent training status, and have at least the minimum total pilot
hours required by any policy of insurance covering the aircraft they fly for the
Company or any Subsidiary.
(i) The Company maintains a drug and alcohol testing program, approved
by the FAA, pursuant to which all employees of the Company and each Subsidiary
are subject to regular testing.
(j) The Company and each Subsidiary is a Citizen of the United States.
(k) All aircraft owned by, leased to or operated by the Company or any
Subsidiary have been duly certificated by the FAA as to type and airworthiness,
are in a condition in accordance with the relevant manufacturer's maintenance
program and are in the specifications and configuration set forth in the
documents delivered to the Purchaser.
28
(l) All aircraft owned, leased or operated by the Company or any
Subsidiary have been enrolled in a FAA approved inspection program.
(m) No aircraft owned by, leased to or operated by the Company or any
Subsidiary has been involved in any incident (i) reportable to the FAA or the
NTSB, or (ii) which caused damage in excess of $100,000
(n) No airworthiness directives issued by the FAA or the country of
manufacture are past due against any Aircraft owned by, leased to or operated by
the Company or any Subsidiary.
(o) The Company has paid or caused to be paid all fees or charges
assessed and due against the Company or any Subsidiary (or any aircraft owned by
or leased to or operated by the Company or any Subsidiary) by any airport or air
navigation authority.
(p) There are no Actions pending or, to the Knowledge of the Sellers,
threatened in respect of any aircraft owned by, leased to or operated by the
Company or any Subsidiary which, if unsatisfied, would give rise to a Lien over
such aircraft.
(q) There are no Actions which have been asserted or, to the Knowledge
of the Sellers, threatened against the Company or any Subsidiary arising out of
the sale or lease of any aircraft (or any interests therein) by the Company or
any Subsidiary.
(r) The Company has provided to Purchaser current insurance
certificates together with an independent insurance broker's reports relating to
all insurances maintained with respect to aircraft owned by, leased to or
operated by the Company or any Subsidiary.
3.25 PRODUCT AND SERVICE WARRANTIES. Except in the ordinary course of
business or pursuant to applicable Laws, neither the Company nor any Subsidiary
has furnished any warranty, guaranty and or other similar undertaking with
respect to contractual performance. Neither the Company nor any Subsidiary has
been notified of any material claims for, and to the Knowledge of the Sellers,
there are no threatened material claims for, any returns, recalls, warranty
obligations or product services relating to any of the material assets of the
Company or any Subsidiary.
3.26 BANK ACCOUNTS. The Seller Disclosure Schedule sets forth a
complete list of (i) all bank accounts, savings deposits, money-market accounts,
certificates of deposit, safety deposit boxes, and similar investment accounts
with banks or other financial institutions maintained by or on behalf of the
Company or any Subsidiary showing the depository bank or institution address,
appropriate bank contact personnel, account number and names of signatories, and
(ii) the names of all Persons holding powers of attorney from the Company or any
Subsidiary. True, correct and complete copies of all powers of attorney granted
by the Company or any Subsidiary have been provided to Purchaser.
3.27 NO FINDER. Except as set forth on the Seller Disclosure Schedule,
neither the Company nor any Subsidiary or any party acting on their behalf, has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated hereby.
29
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to each Seller as set forth below:
4.1 ORGANIZATION; GOOD STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 AUTHORITY; EXECUTION AND DELIVERY; ENFORCEABILITY. Purchaser has
full corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby, subject to obtaining Stockholder Approval. Other than
obtaining Stockholder Approval, all corporate acts and other proceedings
required to be taken by Purchaser to authorize the execution, delivery and
performance of this Agreement have been duly and properly taken. This Agreement
has been duly executed and delivered by Purchaser, and constitutes the legal,
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium and other similar Laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
4.3 NON-CONTRAVENTION. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof will not (or would not with the giving of
notice or the passage of time):
(a) constitute a violation or breach of the certificate of
incorporation or the by-laws of Purchaser;
(b) constitute a default under or a violation or breach of, or result
in the acceleration of any obligation under, any provision of any material
Contract or other instrument to which Purchaser is a party or by which any of
the assets of Purchaser is bound; or
(c) assuming the consents described in Section 4.4 have been received,
violate any Order or any Law affecting Purchaser or its assets.
4.4 CONSENTS AND APPROVALS. Except as set forth in Purchaser
Disclosure Schedule, no consent, approval, waiver, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority or other Person (other than Stockholder Approval) is required to be
obtained by or on behalf of Purchaser in connection with, or as a condition of
the lawful execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
4.5 SEC REPORTS. Purchaser has filed all forms, reports and documents
required to be filed by it with the SEC since February 24, 2005 (collectively,
the "SEC Reports"). Except as set forth on the Purchaser Disclosure Schedule,
the SEC Reports (i) were prepared in all material respects in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made,
30
not misleading. Except as set forth on the Purchaser Disclosure Schedule, each
of the balance sheets (including the related notes) included in the SEC Reports
presents fairly in all material respects the consolidated financial position of
Purchaser as of the respective dates thereof, and the other related financial
statements (including the related notes) included therein presented fairly in
all material respects the consolidated results of operations and changes in
financial position of Purchaser for the respective periods indicated, except, in
the case of interim financial statements, for year-end audit adjustments,
consisting only of normal recurring accruals. Except as set forth on the
Purchaser Disclosure Schedule, each of the financial statements (including the
related notes) included in the SEC Reports has been prepared in accordance with
GAAP, consistently applied, except as otherwise noted therein or, in the case of
the unaudited financial statements, as permitted by the applicable rules and
regulations of the SEC.
4.6 PURCHASE PRICE. The shares of Purchaser Common Stock issued as
Purchase Price, when issued in accordance with the terms of this Agreement, will
be duly and validly issued, fully paid and non-assessable, will be free and
clear of any Liens and other restrictions on transfer (other than restrictions
on transfer under applicable federal and state securities laws, and restrictions
applicable to the Sellers pursuant to the Stockholders Agreement) and will not
be subject to preemptive rights or rights of first refusal.
4.7 LITIGATION AND CLAIMS. There is no Action pending or, to the
knowledge of Purchaser, threatened, against or affecting Purchaser with respect
to the propriety or validity of the transactions contemplated hereby.
4.8 CAPITALIZATION. The authorized capital stock of Purchaser consists
of (a) 30,000,000 shares of Purchaser Common Stock, of which 8,400,000 shares
are issued and outstanding and 14,700,000 shares are reserved for issuance upon
exercise of outstanding warrants and an option held by Purchaser's underwriter,
and (b) 1,000,000 shares of preferred stock, $0.0001 par value per share, none
of which are issued or outstanding. Except as set forth in this Section 4.8, no
shares of Purchaser's capital stock are issued, outstanding or reserved for
issuance. All the outstanding shares of capital stock of Purchaser have been
duly authorized and validly issued and are fully paid and non-assessable, free
and clear of all Liens. The rights, preferences, privileges and restrictions
applicable to Purchaser's capital stock are as set forth in Purchaser's
currently effective Certificate of Incorporation, as amended. Except as set
forth in this Section 4.8, there are no outstanding subscriptions, warrants,
options, contracts, rights (preemptive or otherwise), calls, demands,
commitments, voting agreements, voting trusts proxies or other arrangements of
any character binding on Purchaser relating to any authorized and issued or
unissued shares of capital stock of Purchaser, or other instruments binding on
Purchaser convertible into or exchangeable for such stock, or which obligate
Purchaser to seek authorization to issue additional shares of any class of
stock, nor will any be created by virtue of this Agreement or the transactions
contemplated hereby. None of the shares of capital stock of Purchaser were
issued in violation of any applicable Laws.
4.9 NO FINDER. Except as set forth on Purchaser Disclosure Schedule,
neither Purchaser nor any party acting on its behalf, has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary for
or on account of the transactions contemplated hereby.
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4.10 BOARD APPROVAL. The Board of Directors of the Purchaser (including
any required committee or subgroup of the Board of Directors of Purchaser) has,
as of the date of this Agreement, determined that the fair market value of the
Company is equal to at least 80% of Purchaser's net assets.
4.11 TAX FREE MERGER.
(a) Purchaser has no plan or intention to sell or otherwise dispose of
any capital stock of the Company acquired in the transactions contemplated
hereunder, or to take any action, which would result in Purchaser not being in
control of the Company after the acquisition, other than, in each case, actions
permitted by section 368(a)(2)(C) of the Code and the Treasury Regulations
issued thereunder.
(b) Purchaser does not currently own any shares of capital stock of
the Company.
(c) Following the acquisition, Purchaser will cause the Company to
continue the Company's historic business or to use a significant portion of the
Company's historic business assets in a business within the meaning of section
1.368-1(d) of the Treasury Regulations, assuming that the assets of, and the
business conducted by, the Company on the Closing Date constitute the Company's
historic business assets and historic business, respectively.
(d) Purchaser does not have a plan or intention to require, and, to
Purchaser's knowledge, no person related to Purchaser within the meaning of
Treasury Regulation section 1.368-1(e)(3) has a plan or intention to acquire,
any Purchaser stock issued in the acquisition, other than pursuant to a share
repurchase program described in Revenue Ruling 99-58
ARTICLE V.
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
From and after the execution of this Agreement until the Closing Time (or
earlier termination of this Agreement in accordance with Section 10.1):
5.1 CONDUCT OF BUSINESS.
(a) The Sellers shall, and shall cause the Company and each Subsidiary
to, (i) continue to conduct the business of the Company and each Subsidiary in
the ordinary course thereof and use its commercially reasonable efforts to
maintain its business in substantially the same manner as heretofore, carry on
its business practices in substantially the same manner as heretofore and keep
their books of account, records and files in a manner consistent with past
practice, (ii) use its commercially reasonable efforts to preserve the
organization of the business of the Company and each Subsidiary intact and to
retain the services of the employees of the Company and each Subsidiary and to
preserve the goodwill of the suppliers and customers of the business of the
Company and each Subsidiary, (iii) pay and perform all of the debts, obligations
and liabilities of the Company and each Subsidiary as and when due and manage
the working capital of the Company and each Subsidiary consistent with past
practice; (iv) maintain all of their material assets in a manner consistent with
past practices and not take any action adverse to the preservation of such
material assets, (v) fully satisfy all obligations, on a timely basis, under
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each Employee Benefit Plan, including, without limitation, all contribution
obligations, and to administer, operate and maintain each such Employee Benefit
Plan in accordance with its terms and all applicable Laws, including with
respect to any Qualified Plan, the qualification requirements of the Code; (vi)
comply in all material respects with all Laws applicable to the Company and each
Subsidiary; (vii) insure and keep fully insured all properties of the Company
and each Subsidiary, customarily insured by companies carrying on a similar
business, but in no event to a lesser extent than existed prior to the execution
of this Agreement; (viii) comply in all material respects with the requirements
of Environmental Laws and to notify Purchaser immediately in the event of any
release or discovery of any Hazardous Substance or contaminant at, upon, under,
over or within any Company Property and promptly forward to Purchaser copies of
all Orders, notices, permits, applications or other communications and reports
in connection with any release or the presence of any contaminant or any matters
relating to Environmental Laws as they affect any Company Property; (ix) defend
the title to and all of the Company's and each Subsidiary's rights in all of the
material Company Intellectual Property; (x) prepare and file all Company Tax
Returns required to be filed after the date hereof and on or before the Closing
Date in a timely manner and in a manner consistent with prior years and
applicable Tax Laws, and timely pay all Taxes shown thereon; (xi) pay, or
establish adequate reserves for the payment of, all Taxes payable for taxable
periods or portions thereof ending through the Closing Date, (xii) obtain, renew
and otherwise keep in full force and effect all authorizations, licenses,
certificates and permits from the appropriate federal, state and local
Governmental Authorities, including, without limitation, the FAA, DOT and all
Foreign Aviation Authorities, necessary to authorize the Company and each
Subsidiary to lawfully engage in air transportation and to carry on commercial
passenger service as currently conducted and as may from time to time be
necessary to enable it lawfully to own, lease or operate aircraft and to perform
the obligations herein undertaken by it, and observe and comply with the terms
and conditions of any such authorizations, licenses, certificates and permits,
and (xiii) conduct the business of the Company and each Subsidiary in such a
manner that, on the Closing Date, the representations and warranties of the
Sellers contained in this Agreement shall be true, correct and complete as if
such representations and warranties were made on and as of such date.
(b) Notwithstanding Section 5.1(a) hereof, the Sellers shall not, and
shall cause the Company and each Subsidiary not to, without the prior written
consent of Purchaser:
(i) make any material change in the business or the
operations of the Company or any Subsidiary;
(ii) (A) incur, pay or discharge any liability or
obligation (absolute, accrued, contingent or otherwise), (B) sell
or transfer any property, or (C) acquire or sell, lease, grant an
interest in or dispose of any assets or businesses, in each case,
other than in the ordinary course of business consistent with past
practice, or otherwise incur any Indebtedness;
(iii) other than business-related advances to employees in
the ordinary course of business, consistent with past practice,
(A) guarantee or assume any other obligation of any Person, or (B)
make any loan or advance to any Person;;
33
(iv) waive any right of value owed to, cancel any debt
owed to, or claims held by, the Company or any Subsidiary, except
in the ordinary course of business consistent with past practice;
(v) settle or compromise any Action (other than an
Action involving a claim for Taxes, which shall be governed by
clause (vi) below);
(vi) (A) make or rescind any Tax election, (B) settle or
compromise any Action relating to Taxes, (C) make a request for a
written ruling of any Governmental Authority relating to Company
Taxes, (D) enter into a written legally binding agreement with a
Governmental Authority relating to Company Taxes, or (E) except as
required by Law, change any of its methods of reporting income or
deductions for federal income Tax purposes from those previously
employed in the preparation of its federal income Tax Returns;
(vii) make any change in the methods of accounting or
accounting principles applied in the preparation of the financial
statements of the Company or any Subsidiary other than a change
which is required by reason of a concurrent change in Law or GAAP;
(viii) (A) adopt, terminate, amend in any respect (except
as required by this Agreement or applicable Law and, to the extent
required by applicable Law and if compliance therewith presents
options, only to the extent that the option chosen is the option
which the Company reasonably believes to be the least costly),
fund or secure any benefit plan or bonus, profit sharing, deferred
compensation, incentive, stock option or stock purchase plan,
program or commitment, paid time off for sickness or other plan,
program or arrangement for the compensation or benefit of its
employees, consultants or directors, (B) grant any general
increase (other than increases required under a Contract) in the
compensation of its employees (including any such increase
pursuant to any bonus, profit sharing or other compensation or
incentive plan, program or commitment) or any increase (other than
increases required under a Contract) in the compensation payable
or to become payable to any officer or director or (C) completely
or partially withdraw (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan;
(ix) amend, modify, terminate or breach any Material
Contract in any material respect, or enter into any Contract
which, had such Contract been entered into prior to the date
hereof, would qualify as a Material Contract;
(x) enter into, amend or modify any collective
bargaining agreements;
(xi) authorize, undertake, or enter into any commitment
with respect to, capital expenditure projects individually in
excess of $100,000 or in the aggregate in excess of $500,000 (or
the equivalent amount in such other currencies in which the
Company or any Subsidiary conducts business);
(xii) amend the articles or certificates of incorporation,
as applicable, or by-laws or other governing documents of the
Company or any Subsidiary;
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(xiii) issue, deliver, or agree (actually or contingently)
to issue or deliver (whether pursuant to any option or otherwise),
or grant or modify any option, warrant or other right to purchase
or otherwise acquire, any shares of the capital stock of the
Company or any Subsidiary, or any security convertible into or
exchangeable for, any shares of such capital stock, or issue or
agree to issue any bonds, notes, or other securities;
(xiv) split, combine or reclassify any shares of the
capital stock of the Company or any Subsidiary, retire, redeem or
otherwise acquire any shares of the capital stock of the Company
or any Subsidiary, or declare, set aside or make any dividend or
distributions of cash or other property in respect of the capital
stock of the Company or any Subsidiary, or agree to do any of the
foregoing;
(xv) fail to maintain in force, or make any change in
(except in the ordinary course of business), the insurance
coverage contemplated by Section 3.12 (or substantially equivalent
replacement coverage) as being maintained by the Company or any
Subsidiary;
(xvi) issue any communication to employees of the Company
or any Subsidiary with respect to compensation, benefits or
employment continuation or opportunity following the Closing,
except as required by Law;
(xvii) enter into any partnership or joint venture
agreement or arrangement or any similar agreement or arrangement;
(xviii) enter into any Contract which would require a
consent thereunder with respect to the consummation of the
transactions contemplated hereby;
(xix) enter into a voluntary recognition agreement or
other Contract with, or otherwise voluntarily recognize, any
employee association, labor union or other similar organization
with respect to any employees of the Company or any Subsidiary; or
(xx) agree, whether in writing or otherwise, to do any
of the foregoing.
5.2 NOTIFICATION OF CERTAIN MATTERS. The Sellers, on the one hand, or
Purchaser, on the other hand, will, in the event of, and promptly after the
occurrence of, or promptly after becoming aware of the occurrence of, or the
impending or threatened occurrence of, any event or condition which would
constitute a breach of any of the representations and warranties contained in
Article II, Article III or Article IV, or would result in the inability of any
condition contained in Articles VII or VIII to be satisfied or would otherwise
prevent it from consummating the transactions contemplated hereby, give detailed
written notice thereof to Purchaser or the Sellers, as the case may be, and each
of the Sellers or Purchaser, as the case may be, shall use its reasonable best
efforts to prevent or promptly to remedy such event, condition or breach. None
of the disclosures pursuant to this Section 5.2 or investigations enabled or
performed pursuant to Section 5.3 will be deemed to qualify, modify, or amend or
supplement the representations, warranties or covenants of any party.
35
5.3 ACCESS. Subject to the terms of the Confidentiality Agreement, the
Sellers shall afford Purchaser's employees, auditors, legal counsel and other
authorized representatives and advisors all reasonable opportunity and access
during normal business hours to inspect, investigate and audit the assets,
liabilities, Contracts, Books and Records, operations and business of the
Company and each Subsidiary and to interview the employees and officers of the
Company and each Subsidiary. The Sellers shall also permit Purchaser to meet
with the customers and other business partners of the Company and each
Subsidiary to discuss the business conducted between the Company and each
Subsidiary and such customers and business partners. At the request of
Purchaser, the Sellers shall execute or cause to be executed, such consents,
authorizations and directions as may be necessary to enable Purchaser and its
representatives to obtain access to all files and records maintained by
Governmental Authorities in respect of the Company, the Subsidiaries and their
respective businesses.
5.4 ISSUANCE OF PURCHASER SECURITIES. Purchaser shall not, without the
prior written consent of the Sellers, issue, deliver, or agree (actually or
contingently) to issue or deliver (whether pursuant to any option or otherwise),
or grant or modify any option, warrant or other right to purchase or otherwise
acquire, any shares of the capital stock of the Purchaser, or any security
convertible into or exchangeable for any shares of such capital stock, or issue
or agree to issue any bonds, notes, or other securities, except for issuances of
securities upon exercise of options, warrants or other securities outstanding as
of the date hereof.
5.5 STANDSTILL. From and after the date hereof unless and until this
Agreement shall have been terminated in accordance with its terms, the Purchaser
and the Sellers hereby agree and shall cause their respective directors,
officers, Affiliates, employees, attorneys, accountants, representatives,
consultants and other agents (collectively, "Representatives"), and the Sellers
shall cause the Company and each Subsidiary: (i) to immediately cease any
existing discussions or negotiations with any Person conducted heretofore,
directly or indirectly, with respect to any Business Combination; (ii) not to
directly or indirectly solicit, initiate, encourage or facilitate the submission
of proposals or offers from any Person other than the parties to this Agreement
or their Representatives relating to any Business Combination, or (iii) directly
or indirectly participate in any discussions or negotiations regarding, or
furnish any information to any Person other than the parties to this Agreement
or their Representatives in connection with, any proposed or actual Business
Combination, provided, however, that Purchaser's obligations under this Section
5.5 shall be subject to applicable Law and the exercise of its fiduciary duties
(in the good faith judgment of its board of directors based on the advice of
independent legal counsel). The Sellers shall immediately notify any Person who
contacts any Seller, the Company or any Subsidiary, and the Purchaser shall
immediately notify any Person who contacts the Purchaser, with respect to any
proposed Business Combination of the existence of this Agreement. Each party
shall also notify the other party regarding any contact between them or their
respective Representatives (and in the case of the Sellers, the Company and each
Subsidiary), and any other Person regarding such proposed Business Combination.
5.6 PURCHASER STOCKHOLDER APPROVAL.
(a) Purchaser shall, as soon as practicable following its receipt of
(x) all required information for inclusion in the Proxy
36
Statement (as hereinafter defined) from the Company and the Subsidiaries and (y)
the consent of J.H. Cohn with respect to the inclusion in the Proxy Statement of
the audited financial statements of the Company and the Subsidiaries prepared by
J.H. Cohn, file with the Securities and Exchange Commission (the "SEC") a proxy
statement in preliminary form or such other form, statement or report as may be
required under the federal securities laws (such proxy statement or such other
form, and any amendments or supplements thereto being the "Proxy Statement")
relating to a stockholders meeting (the "Stockholder Meeting") to be held by
Purchaser to obtain Stockholder Approval (as hereinafter defined). Purchaser
shall duly call, give notice of, convene and hold the Stockholder Meeting and
solicit proxies as promptly as reasonably practicable in accordance with
applicable law for the purpose of seeking Stockholder Approval. "Stockholder
Approval" shall mean (i) the affirmative vote of the holders of a majority of
the shares of the issued and outstanding voting stock of Purchaser in favor of
the transactions contemplated by this Agreement and (ii) the holders of less
than 20% of the Purchaser Common Stock issued in Purchaser's initial public
offering shall have exercised their conversion rights with respect to their
shares of Purchaser Common Stock in connection with such vote, all in accordance
with, and as required by, Purchaser's Amended and Restated Certificate of
Incorporation.
(b) Purchaser agrees that the Proxy Statement will comply in all
material respects with all of the requirements of the Exchange Act and Purchaser
will ensure that the Proxy Statement will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation or warranty is made by Purchaser with respect to information
supplied by the Company or the Sellers for inclusion in the Proxy Statement.
Purchaser shall promptly correct any information provided by it for use in the
Proxy Statement if and to the extent that such information becomes false or
misleading and shall take all steps necessary to cause the Proxy Statement as so
corrected to be filed with the SEC and disseminated to its stockholders, in each
case as and to the extent required by the Exchange Act. Purchaser shall give the
Sellers and their counsel a reasonable opportunity (but no more than 5 Business
Days) to review and comment on the Proxy Statement, and any amendments or
supplements thereto, prior to the filing of any such documents with the SEC and
Purchaser will give due consideration to the Sellers' comments. Purchaser will
provide to the Sellers and their counsel any comments that Purchaser or its
counsel may receive from the SEC or its staff, whether written or oral, with
respect to the Proxy Statement promptly after receipt of any such comments.
Purchaser will use its reasonable best efforts to respond to any comments
received from the SEC or its staff.
(c) The Sellers shall furnish to Purchaser all information concerning
the Sellers, the Company and the Subsidiaries, their respective directors,
officers and stockholders (including the directors of the Company to be elected
as directors of Purchaser effective as of the Closing) and such other matters as
may be reasonably necessary or advisable in connection with the Proxy Statement
or any other statement, filing, notice or application made by or on behalf of
the Sellers, the Company and/or Purchaser to any third party and/or any
Governmental Authority in connection with the Proxy Statement (including, if
required by the Exchange Act, copies of the unaudited consolidated balance
sheets and statements of operations and cash flows of the Company and the
Subsidiaries for periods other than those covered by the Company Audited
Financial Statements, which will be prepared from the books and records of the
Company and its Subsidiaries, and will present fairly the assets, liabilities,
income, losses, retained earnings, financial condition, results of operations
and cash flows of the Company and its Subsidiaries for
37
the periods and dates covered thereby, in conformity with GAAP, the Exchange Act
and the rules and regulations of the SEC), and will ensure that none of such
information (including any information included in the Seller Disclosure
Schedule, the Company Audited Financial Statements and any financial statements
with respect to the Company and the Subsidiaries for any periods after June 30,
2006) will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein in light of the circumstances under which they were made, not
misleading. If at any time prior to Closing, a change in such information which
would make the preceding sentence incorrect should occur, the Sellers will
promptly notify Purchaser of such change. Purchaser shall promptly correct any
such information in the Proxy Statement and shall take all steps necessary to
cause the Proxy Statement as so corrected to be filed with the SEC and
disseminated to its stockholders, in each case as and to the extent required by
the Exchange Act.
(d) The Sellers shall use their reasonable best efforts to obtain the
auditors' consents to the inclusion of the Company Audited Financial Statements
in the Proxy Statement, and to otherwise provide as soon as reasonably
practicable any information about the Company and the Subsidiaries required by
the Exchange Act reasonably sufficient to permit Purchaser to prepare and file
the Proxy Statement.
(e) Purchaser, through its board of directors, shall recommend to its
stockholders that they give the Stockholder Approval and, subject to applicable
Law and the exercise of its fiduciary duties (in the good faith judgment of its
board of directors based on the advice of independent legal counsel), shall not
withdraw or modify its recommendation.
5.7 NOTICE OF LITIGATION. Promptly after obtaining Knowledge of the
commencement of or the threatened occurrence of any Action against or with
respect to the Company, any Subsidiary or any capital stock of the Company, the
Sellers shall give detailed written notice thereof to Purchaser.
5.8 FULFILLMENT OF CONDITIONS TO PURCHASER'S OBLIGATIONS. The Sellers
agree to use their reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill the conditions contained in Article VII.
5.9 FULFILLMENT OF CONDITIONS TO COMPANY'S OBLIGATIONS. Purchaser
agrees to use their reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill the conditions contained in Article VIII.
5.10 GOVERNMENTAL CONSENTS(a) Purchaser and the Sellers shall, as
promptly as practicable following the execution and delivery of this Agreement
make or cause to be made all filings, notices, petitions, statements,
registrations, submissions of information, application or submission of other
documents required by any Governmental Authority in connection with the
transactions contemplated hereby. Each party will cause all documents that it is
responsible for filing with any Governmental Authority under this Section 5.10
to comply in all material respects with all applicable Laws. Each such party
shall furnish to the other such necessary information and reasonable assistance
as the other may request in connection with its preparation of such filings or
submissions. Each such party shall keep the other apprised of the status of any
communications with, and any inquiries or requests for additional information
from, any
38
Governmental Authority and shall comply promptly with any such inquiry or
request. Each such party shall use its best efforts to obtain any clearance
required under applicable Law for the consummation of the transactions
contemplated hereby.
(b) Any and all filing fees attributable to the filings made pursuant
to this Section 5.10 shall be borne 50% by the Sellers and 50% by Purchaser.
5.11 THIRD PARTY CONSENTS. The Sellers shall use their reasonable best
efforts to obtain all consents from third parties which are required by the
terms of any Contract or otherwise to be obtained in connection with the
transactions contemplated hereby. Purchaser shall use its reasonable efforts to
cooperate in obtaining any such consents, so long as Purchaser is not required
to make any payments with respect thereto.
5.12 PUBLICITY. No public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
consent of the other party (which consent shall not be unreasonably withheld or
delayed), except as such release or announcement may be required by Law, in
which case the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance and shall make a reasonable effort to take into account
such comments.
5.13 EQUITY COMPENSATION PLAN. Purchaser will submit to its
stockholders for approval, as part of the Proxy Statement, a proposed equity
compensation plan that would permit the granting of stock options, shares of
restricted stock and other awards to such persons (including, but not limited
to, management, directors and employees) in such amounts as may be determined by
the Compensation Committee of Purchaser's board of directors (as constituted
following the Closing). The pool of shares initially available for this plan
will equal 1,500,000 of the total shares of Purchaser common stock expected to
be outstanding immediately after the Closing.
ARTICLE VI.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
6.1 CONFIDENTIALITY.
(a) Each Seller agrees to hold confidential in accordance with
commercial business practice all Confidential Information obtained in the course
of its ownership of shares or participation in the ownership or management of
the Company or otherwise which is non-public, confidential or proprietary in
nature.
(b) Each Seller agrees that subject to any requirement of Law, such
Seller will keep such Confidential Information confidential and will not,
without the prior written consent of Purchaser, be disclosed by such Seller to
any Person. Each Seller agrees that Purchaser shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any breach of the provisions of this Section 6.1. Such remedies shall not be
deemed to be the exclusive remedies for a breach of this Section 6.1 by any
Seller but shall be in addition to all other remedies available at Law or
equity. It is further understood and agreed that failure or
39
delay by Purchaser in exercising any right, power or privilege under this
Section 6.1 shall not operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege under this Agreement. Each Seller hereby waives any
requirement that Purchaser post a bond in connection with any claim for
equitable relief.
6.2 FURTHER ASSURANCES. From and after the Closing Date, each party
shall, at any time and from time to time, make, execute and deliver, or cause to
be made, executed and delivered, for no additional consideration but at the cost
and expense of the requesting party (excluding any internal costs incurred, such
as having any of the following reviewed by counsel) such assignments, deeds,
drafts, checks, stock certificates, returns, filings and other instruments,
agreements, consents and assurances and take or cause to be taken all such
actions as the other party or its counsel may reasonably request for the
effectual consummation and confirmation of this Agreement and the transactions
contemplated hereby.
6.3 TAX RETURNS
(a) The Sellers shall prepare or cause to be prepared and file or
cause to be filed in a timely manner all Company Tax Returns for the Company and
its Subsidiaries for all taxable periods ending on or prior to the Closing Date
("Pre-Closing Tax Periods"). Any such Tax Returns filed between the date hereof
and the Closing Date for any Pre-Closing Tax Period shall be prepared, and each
item thereon treated, in a manner consistent with past practices (including,
without limitation, prior Tax elections and accounting methods or conventions),
except as required by a change in the applicable Law.
(b) Purchaser shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company and its Subsidiaries for all taxable
periods beginning before and ending after the Closing Date ("Straddle Periods")
which are filed after the Closing Date. All such Tax Returns with respect to
Pre-Closing Tax Periods with respect to which the Sellers have agreed to
indemnify the Purchaser Group pursuant to Section 9.2 shall be prepared and
filed in a manner that is consistent with past practices (including, without
limitation, prior Tax elections and accounting methods or conventions), except
as required by a change in the applicable Law.
(c) The Sellers shall pay or cause to be paid when due and payable all
unreserved Taxes of the Company and its Subsidiaries for any Pre-Closing Tax
Period and any pre-Closing portion of a Straddle Period; and (ii) Purchaser
shall pay or cause to be paid when due and payable, such Taxes for any Tax
periods commencing on or after the Closing Date and any post-Closing portion of
a Straddle Period.
(d) Purchaser and the Sellers agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to the Company and its Subsidiaries
(including, without limitation, access to books and records, employees,
contractors and representatives) as is reasonably necessary for the filing of
all Tax Returns, the making of any election related to Taxes, the preparation
for and conduct of any audit by any Tax authority, and the prosecution or
defense of any claim, suit or proceeding relating to any Tax Return. Such
cooperation and information shall include providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules, related work
papers and
40
documents relating to rulings or other determinations by Tax Authorities at the
sole cost of the requesting party. If reasonably requested by Purchaser, the
Sellers shall make a representative available on a basis mutually convenient to
both parties to provide explanations of any documents or information provided
hereunder. Purchaser and the Sellers shall retain all books and records with
respect to Taxes pertaining to the Company and it Subsidiaries in their
respective possession until the later of (i) the expiration of the statute of
limitations of the Tax periods to which such Tax Returns and other documents
relate, without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods prior to such
expirations, and (ii) six years following the due date (without extension) for
such Tax Returns. At the end of such period, each party shall provide the others
with at least ten days' prior written notice before destroying any such books
and records, during which period the parties receiving such notice can elect to
take possession, at their own expense, of such books and records. Purchaser and
the Sellers shall cooperate with each other in the conduct of any audit or other
proceeding related to Taxes involving the Company or any Subsidiary. Any
information provided or obtained under this Section 6.3 shall be kept
confidential except as may be otherwise necessary in connection with the filing
of Tax Returns or in conducting an audit or other proceeding.
(e) The Sellers will pay all applicable transfer Taxes, sales and/or
use Taxes, real property transfer or excise Taxes, recording, deed, stamp and
other similar Taxes, fees and duties imposed under applicable Law upon the
Sellers incurred in connection with the transfer of the Purchase Shares.
(f) For all Tax purposes, Purchaser and the Sellers agree that they
will report the transactions contemplated by this Agreement in a manner
consistent with the terms of this Agreement, and all parties agree to file their
Tax Returns accordingly.
6.4 CORPORATE INDEMNIFICATION.
(a) Following the Closing, Purchaser shall indemnify and hold
harmless, and provide advancement of expenses to, all current and former
directors, officers and employees of Purchaser (in all of their capacities) (i)
to the same extent such persons are indemnified or have the right to advancement
of expenses as of the date of this Agreement by the Purchaser pursuant to
Purchaser's certificate of incorporation, by-laws and indemnification
agreements, if any, in existence on the date hereof with any current or former
directors, officers and employees of Purchaser and (ii) without limitation to
clause (i), to the fullest extent permitted by Law, in each case for acts or
omissions occurring at or prior to the Closing Time (including for acts or
omissions occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby). Without limiting the
foregoing, Purchaser agrees that all rights to indemnification (including any
obligations to advance funds for expenses) and exculpation from liabilities for
acts or omissions occurring at or prior to the Closing Time now existing in
favor of the current or former directors, officers or employees of Purchaser as
provided in its certificate of incorporation, by-laws, indemnification
agreements or otherwise will survive the Closing and will continue in full force
and effect in accordance with their terms and such rights will not be amended,
or otherwise modified in any manner that would adversely affect the rights of
individuals who on or prior to the Closing Time were directors, officers,
employees or agents of Purchaser, unless such modification is required by Law.
41
(b) In the event that Purchaser or any of its successors or assigns
(i) consolidates with or merges into any other Person and is not the continuing
or surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, Purchaser shall cause proper provisions
to be made so that the successors and assigns of Purchaser assume the
obligations set forth in this Section 6.4.
(c) For six years after the Closing Time, Purchaser shall maintain in
effect the current policies of directors' and officers' liability insurance
maintained by Purchaser (provided that Purchaser may substitute therefor
policies with reputable and financially sound carriers of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous) covering acts or omissions occurring at or prior to the Closing
Time with respect to those persons who are currently covered by Purchaser's
directors' and officers' liability insurance policy (the "Purchaser Indemnified
Parties"), provided, however, that, if the Sellers elect, by giving written
notice to Purchaser at least 30 days prior to the Closing Time, then, in lieu of
the foregoing insurance, effective as of the Closing Time, Purchaser shall
purchase a directors' and officers' liability insurance "tail" or "runoff"
insurance program for a period of six years after the Closing Time with respect
to wrongful acts and/or omissions committed or allegedly committed at or prior
to the Closing Time (such coverage shall have an aggregate coverage limit over
the term of such policy in an amount not to exceed the annual aggregate coverage
limit under the Purchaser's existing directors and officers liability policy,
and in all other respects shall be comparable to such existing coverage).
(d) The obligations of Purchaser under this Section 6.4 shall not be
terminated or modified after the Closing Time in such a manner as to adversely
affect any Indemnified Party without the express written consent of such
Indemnified Party. The provisions of this Section 6.4 are (i) intended to be for
the benefit of, and will be enforceable by, each Purchaser Indemnified Party,
his or her heirs and his or her representatives and (ii) in addition to, and not
in substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
6.5 QUALIFICATION AS A "REORGANIZATION." From and after the date of
this Agreement, each party hereto shall (i) not take any actions or cause any
actions to be taken (other than actions contemplated by this Agreement) which
could reasonably be expected to prevent the acquisition from qualifying as a
"reorganization" under section 386(a) of the Code, and (ii) advise the other
parties promptly upon becoming aware of any circumstances that they believe
could reasonably be expected to prevent the acquisition from so qualifying.
6.6 INVESTOR RIGHTS AGREEMENT.
Purchase hereby acknowledges that, in connection with an equity financing
by the Company, the Company and certain holders of its Class A common stock are
party to an Investors Rights Agreement, dated October 2, 2006, and Purchaser
further acknowledges that in the event of the occurrence of the Closing ,
Purchaser shall become subject to, and shall comply with, its obligations
arising under Section 2.1(a) and Sections 2.2 though 2.10 thereof.
42
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
------------------------------------------------
The obligation of Purchaser to consummate the transactions contemplated
under this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by Purchaser,
in its sole discretion:
7.1 REPRESENTATIONS AND WARRANTIES. Each representation and warranty
contained in Articles II and III which is qualified as to materiality shall be
true and correct and each such representation and warranty that is not so
qualified shall be true and correct in all material respects, in each case as of
the date hereof and at and as of the Closing Time as if made at and as of such
time, except that the representations and warranties made by the Sellers which
address matters only as of a particular date shall remain true and correct as of
such date.
7.2 PERFORMANCE. The Sellers shall each have performed and complied in
all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by them prior to or at the Closing
Time.
7.3 NO MATERIAL ADVERSE EFFECT. Between the date of the execution of
this Agreement and the Closing Date, the Company and its Subsidiaries shall not
have suffered or experienced a Material Adverse Effect.
7.4 CERTIFICATES. Purchaser shall have received (a) a certificate of
the Sellers certifying to the fulfillment of the conditions specified in
Sections 7.1, 7.2, and 7.3 and (b) such other evidence with respect to the
fulfillment of said conditions as Purchaser may reasonably request.
7.5 NO INJUNCTION. There shall not be pending, threatened or in effect
any injunction or restraining order issued by a court of competent jurisdiction
in an Action against (i) the consummation of the transactions contemplated
hereby, or (ii) the right of the Company or any Subsidiary to operate their
respective businesses after Closing on substantially the same basis as currently
operated.
7.6 GOVERNMENT APPROVALS. The parties hereto shall have received all
approvals from any applicable Governmental Authority necessary to consummate the
transactions contemplated hereby, and the Company shall have taken all steps, if
any, necessary to give appropriate notice of the changes in ownership of the
Company contemplated by this Agreement to the FAA, DOT and all Foreign Aviation
Authorities which have issued to the Company or any Subsidiary any
authorization, certificate or permit to operate aviation services.
7.7 THIRD PARTY CONSENTS. The Sellers shall have obtained and
delivered to Purchaser all written consents, approvals, waivers, notices or
similar authorizations required to be obtained or given by the Sellers in order
to consummate the transactions contemplated hereby, in form and substance
reasonably satisfactory to Purchaser.
7.8 RESIGNATIONS. Purchaser shall have received the written
resignations of all directors of the Company, effective as of the Closing Time.
43
7.9 RELEASES. The Sellers and each of the Persons referred to in
Section 7.8 shall have executed and delivered to Purchaser a general release
with respect to events occurring prior to the Closing (each, a "Release") in
substantially the form of Exhibit 2.
7.10 LIENS. Evidence satisfactory to Purchaser of the release and
discharge of any Liens specified in the Seller Disclosure Schedule in respect of
Section 3.7.
7.11 STOCKHOLDER APPROVAL. Purchaser shall have received the
Stockholder Approval.
7.12 EMPLOYMENT AGREEMENT. Steven Santo and John Waters shall have each
executed and delivered an Employment Agreement, dated as of the Closing Date
(the "Employment Agreements"), in the forms attached hereto as Exhibits 3 and 4,
respectively.
7.13 STOCKHOLDERS AGREEMENT. The Sellers shall have entered into a
Stockholders Agreement, dated as of the Closing Date (the "Stockholders
Agreement"), in the form attached hereto as Exhibit 5.
7.14 ESCROW AGREEMENT. The Sellers and Escrow Agent shall have entered
into an Escrow Agreement, dated as of the Closing Date, (the "Escrow Agreement")
in the form attached hereto as Exhibit 6.
7.15 GOOD STANDING. Purchaser shall have received short-form good
standing certificates, or certificates of compliance relating to the Company and
each subsidiary, dated within five Business Days of the Closing Date, issued by
the Secretary of State of the State of Nevada and the jurisdiction of formation
of each Subsidiary.
ARTICLE VIII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS
--------------------------------------------------
The obligation of the Sellers to consummate the transactions contemplated
by this Agreement are subject to the fulfillment of each of the following
conditions, any or all of which may be waived in whole or in part by the
Sellers:
8.1 REPRESENTATIONS AND WARRANTIES. Each representation and warranty
contained in Article IV which is qualified as to materiality shall be true and
correct and each such representation and warranty that is not so qualified shall
be true and correct in all material respects, in each case as of the date hereof
and at and as of the Effective Time as if made at and as of such time, except
that the representations and warranties made by Purchaser which address matters
only as of a particular date shall remain true and correct as of such date.
8.2 PERFORMANCE. Purchaser shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Purchaser prior to or at the Closing Time.
44
8.3 NO MATERIAL ADVERSE EFFECT. Between the date of the execution of
this Agreement and the Closing Date, the Purchaser shall not have suffered or
experienced a Purchaser Material Adverse Effect.
8.4 CERTIFICATES. The Sellers shall have received (a) a certificate of
an executive officer of Purchaser, dated the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 8.1, 8.2 and 8.3; (b) a
certificate of the Secretary of Purchaser, dated the Closing Date, setting forth
the resolutions of the Board of Directors of Purchaser approving this Agreement
and all other documents contemplated hereby, and authorizing the transactions
hereby contemplated; and (c) such other evidence with respect to the fulfillment
of any of said conditions as the Sellers may reasonably request.
8.5 NO INJUNCTION. There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in an Action
against the consummation of the transactions contemplated hereby.
8.6 GOVERNMENT APPROVALS. The parties hereto shall have received all
approvals from any applicable Governmental Authority necessary to consummate the
transactions contemplated hereby.
8.7 THIRD PARTY CONSENTS. Purchaser shall have obtained and delivered
to the Sellers any written consents, approvals, waivers, notices or similar
authorizations required to be extended by Purchaser in order to consummate the
transactions contemplated hereby, in form and substance reasonably satisfactory
to the Sellers.
8.8 STOCKHOLDER APPROVAL. Purchaser shall have received the
Stockholder Approval.
8.9 EMPLOYMENT AGREEMENT. Purchaser shall have each executed and
delivered each of the Employment Agreements.
8.10 STOCKHOLDERS AGREEMENT. Purchaser and the Sellers shall have
entered into the Stockholders Agreement.
8.11 ESCROW AGREEMENT. Purchaser and Escrow Agent shall have entered
into the Escrow Agreement.
8.12 STOCK CERTIFICATES. Purchaser shall have received the Stock
Certificates, together with evidence satisfactory to Purchaser that Purchaser
has been entered in the corporate records of each relevant entity as the holder
of record of the Purchase Shares.
8.13 GOOD STANDING. Purchaser shall have received long-form good
standing certificates or certificates of compliance, where recognized (or the
equivalent thereto in the relevant jurisdiction) relating to the Company and
each Subsidiary, dated within five Business Days of the Closing Date, issued by
the appropriate official of the respective jurisdictions of incorporation or
organization, as the case may be, together with like certificates with respect
to each jurisdiction in which the Company or any Subsidiary carries on business
as listed in the Seller Disclosure Schedule in respect of Sections 3.1 and 3.2.
45
8.14 TRUST FUND. Purchaser shall have made appropriate arrangements
with Continental Stock Transfer & Trust Company to have the Trust Fund disbursed
to Purchaser immediately upon the Closing, subject to Purchaser's obligations
with respect to costs and expenses incurred by or on behalf of Purchaser in
connection with the transactions contemplated hereby.
8.15 PURCHASER COMMON STOCK. Holders of twenty percent (20%) or more of
the shares of Purchaser Common Stock issued in Purchaser's initial public
offering of securities and outstanding immediately before the Closing shall not
have exercised their rights to convert their shares into a pro rata share of the
Trust Fund in accordance with Purchaser's Amended and Restated Certificate of
Incorporation.
8.16 RESIGNATIONS. Sellers shall have received the written resignations
of all directors of the Purchaser, effective as of the Closing Time.
ARTICLE IX.
INDEMNIFICATION
---------------
9.1 SURVIVAL. All representations and warranties made herein (or in
the certificates to be delivered pursuant to Sections 7.4 or 8.4 hereof) by the
parties to this Agreement and their respective obligations, covenants and
agreements to be performed pursuant to the terms hereof, shall survive the
Closing Time, provided, that, the representations and warranties made herein (or
in such certificates) by the parties shall terminate on the date which is 30
days following the date on which Purchaser files its Form 10-K (or any
applicable successor form) for the fiscal year ending June 30, 2008 with the
SEC, except that the representations and warranties set forth in Sections 2.3
(Title to Purchase Shares), 2.6 (No Finder), 3.5 (Capitalization; Options) and
3.27 (No Finder) shall survive the Closing Time indefinitely. Notwithstanding
the foregoing, if written notice of any matter setting forth in reasonable
detail a claim for a breach of any representation or warranty is given to
Purchaser or the Sellers, as the case may be, in writing pursuant to this
Agreement prior to the end of the applicable survival period, any such
representation or warranty that would otherwise terminate shall be deemed to
survive solely with respect to such matter until such matter is resolved.
9.2 INDEMNIFICATION BY SELLERS.
(a) Each Seller, severally but not jointly, shall indemnify and hold
harmless any Purchaser Group Member from and against and shall pay to the
relevant Purchaser Group Member the amount of any and all Damages incurred by
such Purchaser Group Member arising directly or indirectly from or in connection
with any breach of any representation or warranty of such Seller contained in
Article II (including, without limitation, in any certificate provided in this
Agreement).
(b) Each Seller (it being understood that for the purpose of this
Section 9.2(b), "Sellers" shall be defined as Steven Santo, Camelot 27, LLC,
Jeffrey Kirby, John Waters, Kevin McKamey and Andiamo Aviation, LLC (provided,
however, in the event of the dissolution of Andiamo Aviation then from the
shares payable to Alfred Rapetti), jointly and severally, shall indemnify and
hold harmless each Purchaser Group Member from and against any and all
46
Damages incurred by such Purchaser Group Member arising directly or indirectly
from or in connection with:
(i) any breach or failure by any Seller to perform any
of their respective covenants or other obligations contained in
this Agreement (including, without limitation, in any certificate
provided in this Agreement);
(ii) any breach of any representation or warranty of any
Seller contained in Article III of this Agreement (including,
without limitation, in any certificate provided in this
Agreement); and
(iii) (x) any and all Taxes imposed upon or assessed
against the Company or any Subsidiary as a result of being a
member of any affiliated, consolidated, combined or unitary group
or on account of transferee or secondary liability for Taxes, in
either case for taxable periods or portions thereof ending on or
before the Closing Date; (y) any and all Taxes of the Company or
any Subsidiary for taxable periods or portions thereof ending on
or before the Closing Date, to the extent that such Taxes exceed
Taxes which are included as current liabilities (excluding any
reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the Company Audited
Financial Statements; and (z) any all Taxes imposed upon or
assessed against Purchaser, the Company or any Subsidiary or their
respective assets as a result of the transfer of the Purchase
Shares.
9.3 INDEMNIFICATION BY PURCHASER. Purchaser will indemnify and hold
harmless each Seller Group Member from and against and shall pay to the relevant
Seller Group Member the amount of any and all Damages incurred by such Seller
Group Member arising directly or indirectly from or in connection with:
(a) any breach or failure by Purchaser to perform any of its covenants
or other obligations in this Agreement; and
(b) any breach of any representation or warranty of Purchaser
contained in this Agreement.
9.4 LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding the other provisions of this Article IX, no
Purchaser Group Member shall be entitled to be indemnified pursuant to Sections
9.2(a) and 9.2(b)(ii), and no Seller Group Member shall be entitled to be
indemnified pursuant to Sections 9.3(b) unless and until the Damages incurred by
Purchaser Group Members or Seller Group Members, respectively, shall exceed an
aggregate of $500,000 for all claims thereunder (the "Threshold"), and upon
exceeding such aggregate amount, the Purchaser Group Members or Seller Group
Members, respectively, shall be entitled to be indemnified for all Damages
(including all Damages below such amount); provided, however, that Purchaser
Group Members shall be entitled to be indemnified for all Damages on a
dollar-for-dollar basis from the first dollar of Damages, without regard to the
Threshold, incurred as a result of any breach of the representations and
warranties set forth in Sections 2.1, 2.3, 2.6, 3.2, 3.3, 3.5, 3.16, 3.20, 3.21
and 3.27 or with respect to Taxes described in Section 9.2(a)(iii).
47
(b) Notwithstanding the other provisions of this Article IX, with
respect to any claim for Damages pursuant to Section 9.2(b), no Seller shall be
liable for a percentage of such Damages in excess of the percentage of the
Purchase Price allocated to such Seller as set forth on Exhibit 1 hereto.
(c) The maximum aggregate amount of indemnification pursuant to
Sections 9.2(a), 9.2(b)(ii) or 9.2(b)(iii) that may be received by Purchaser
Group Members shall not exceed the Escrow Amount (the "Cap") and, except as set
forth in the following sentence, the Escrow Amount shall be the sole source of
recourse for indemnification under such Sections. Notwithstanding the preceding
sentence, Purchaser Group Members shall be entitled to be indemnified for all
Damages, without regard to the Cap or the Escrow Amount, incurred as a result of
any breach of the representations and warranties set forth in Sections 2.3, 2.6,
3.5 or 3.27, provided, further, however, that in the event of any breach of
Sections 2.3, 2.6, 3.5 or 3.27, Purchaser Group Members shall seek
indemnification directly from the Sellers (it being understood that with respect
to Sections 3.5 and 3.27, "Sellers" shall be limited to Steven Santo, Camelot
27, LLC, Jeffrey Kirby, John Waters, Kevin McKamey and Andiamo Aviation, LLC
(provided, however, in the event of the dissolution of Andiamo Aviation then
from the shares payable to Alfred Rapetti) only after the entire Escrow Amount
shall have been exhausted, distributed and/or reserved in connection with other
pending claims by Purchaser Group Members.
9.5 TAX TREATMENT OF INDEMNITY PAYMENTS. It is the intention of the
parties to treat any indemnity payment made under this Agreement as an
adjustment to the Purchase Price for all federal, state, local and foreign Tax
purposes, and the parties agree to file their Tax Returns accordingly.
9.6 NOTICE OF CLAIMS. Any Purchaser Group Member or Seller Group
Member seeking indemnification hereunder (an "Indemnitee") shall give to the
party or parties obligated to provide indemnification to such Indemnitee (an
"Indemnitor") a notice ("Claim Notice") describing in reasonable detail the
facts giving rise to any claim for indemnification hereunder and shall include
in such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provision of this Agreement or
any other agreement, document or instrument executed hereunder or in connection
herewith upon which such claim is based.
9.7 THIRD PARTY CLAIMS. In the case of any third party Action as to
which indemnification is sought by an Indemnitee, the Indemnitor shall have 20
Business Days after receipt of a Claim Notice to notify the Indemnitee that it
elects to conduct and control such Action. If the Indemnitor elects to conduct
and control such Action, the Indemnitor shall promptly to reimburse the
Indemnitee for the full amount of any Damages resulting from such Action, except
fees and expenses of counsel for the Indemnitee incurred after the assumption of
the conduct and control of such Action by the Indemnitor. If the Indemnitor does
not give the foregoing notice, the Indemnitee shall have the right, at the sole
expense of the Indemnitor, to conduct, control, settle and compromise such
Action, and the Indemnitor shall cooperate with the Indemnitee in connection
therewith, provided, that the Indemnitee shall permit the Indemnitor to
participate in such conduct or settlement through counsel chosen by the
Indemnitor, but the fees and expenses of such counsel shall be borne by the
Indemnitor. If the Indemnitor gives the
48
foregoing notice, subject to the first and second sentences of this Section 9.7,
the Indemnitor shall have the right, at the sole expense of the Indemnitor, to
conduct and control such Action with counsel reasonably acceptable to the
Indemnitee, and the Indemnitee shall cooperate with the Indemnitor in connection
therewith, provided, that (x) the Indemnitor shall permit the Indemnitee to
participate in such conduct or settlement through counsel chosen by the
Indemnitee, but the fees and expenses of such counsel shall be borne by the
Indemnitee, and (y) the Indemnitor may not compromise or settle any such Action
without the consent of the Indemnitee (which consent will not be unreasonably
withheld or delayed) unless (i) there is no finding or admission of any
violation of Law by the Indemnitee or any violation by the Indemnitee of the
rights of any Person and such compromise or settlement will have no effect on
any other claims that may be made against the Indemnitee, (ii) the sole relief
provided is money Damages that are paid in full by the Indemnitor, (iii) the
Indemnitee shall have no liability with respect to any compromise or settlement
and (iv) such settlement includes an unconditional release in favor of the
Indemnitee by the third-party claimant from all liability with respect to such
claim. In the case of any third party Action as to which indemnification is
sought by the Indemnitee which involves a claim for Damages other than solely
for money Damages which could have a continuing effect on the business of the
Indemnitee, the Indemnitee and the Indemnitor shall jointly control the conduct
of such Action. The parties hereto shall use their reasonable best efforts to
minimize any Damages from claims by third parties and shall act in good faith in
responding to, defending against, settling or otherwise dealing with such
claims, notwithstanding any dispute as to liability under this Article IX.
9.8 EFFECT OF INVESTIGATION. The right to indemnification, payment of
Damages or for other remedies based on any representation, warranty, covenant or
obligation of any Seller contained in or made pursuant to this Agreement shall
not be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the date the Closing occurs, with
respect to the accuracy of inaccuracy of or compliance with, any such
representation, warranty, covenant or obligation. The waiver of any condition to
the obligation of Purchaser to consummate the transactions contemplated by this
Agreement, where such condition is based on the accuracy of any representation
or warranty, or on the performance of or compliance with any covenant or
obligation, shall not affect the right to indemnification, payment of Damages,
or other remedy based on such representation, warranty, covenant or obligation.
9.9 PAYMENT OF INDEMNIFICATION. For the purposes of this Article IX,
the number of shares of Purchaser Common Stock delivered by the Sellers in
satisfaction of any indemnification shall be based on the closing sale price of
Purchaser Common Stock as quoted on the Over-the-Counter Bulletin Board (or on a
national securities market on which Purchaser Common Stock is then quoted for
trading) on the trading day immediately preceding the Closing Date. Subject to
Section 9.4(c), in the event that the entire Escrow Amount shall have been
exhausted, distributed or reserved in connection with indemnification claims or
payments made pursuant to this Article IX, additional indemnification payments,
if any, shall be made with shares of Purchaser Common Stock held by the Sellers
unless the number of shares of Purchaser Common Stock is insufficient to satisfy
any indemnification liability of the Sellers, in which case the balance of such
liability shall be payable in cash. In addition, subject to Section 9.4(c),
Purchaser shall be entitled, if it so elects in its sole discretion, to set off
any claim for Damages
49
under this Article IX against the payments which may become payable to the
Sellers under Section 1.6 or 1.7 or any other sum due under this Agreement from
Purchaser to any Seller (provided that, if Purchaser withholds payment of any
such Damages to set off any pending indemnification claim and it is determined
pursuant to Section 9.2 that the amount withheld exceeds Purchaser's right to
indemnification, Purchaser shall pay to the Sellers a sum equal to the amount of
such excess). Purchaser shall exercise such right of set off by delivering
written notice of such exercise to the Sellers, which notice shall set forth the
amount being set off. Any such set off shall be applied proportionately among
the Sellers.
9.10 CLAIMS MANAGEMENT. In the event that any Purchaser Group Member
asserts a claim for Damages pursuant to this Article IX against any of the
Sellers following the Closing and in the event that one or more of the Sellers
(or their designees) is an officer or director of Purchaser at the time such
claim is asserted, then Purchaser shall establish a special committee of its
Board of Directors for the purpose of investigating, evaluating and managing all
aspects of such claim on behalf of the Purchaser, including, without limitation,
making all decisions regarding the prosecution, litigation, negotiation and
settlement thereof. Such special committee shall be comprised solely of
directors of the Purchaser other than those Sellers (or Affiliates of such
Sellers) who may have liability in connection with such claim, and such special
committee shall be authorized to retain its own legal and financial advisors in
connection with investigating, evaluating and managing such claim. All costs
incurred by such special committee (including reasonable professional fees and
expenses payable to such special committee's independent financial advisors and
legal counsel) in connection with investigating, evaluating and managing such
claim shall be advanced by the Company and shall be treated as Damages
hereunder.
ARTICLE X.
TERMINATION
-----------
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual consent of Purchaser and the Sellers; or
(b) by Purchaser, if there has been (i) a material breach by any
Seller of his representations and warranties contained in this Agreement or (ii)
a material violation by any Seller of any covenant or agreement contained in
this Agreement, provided, that written notice of such violation or breach shall
have been given to the Sellers, and such violation or breach shall not have been
cured within ten days of receipt of such notice; or
(c) the Sellers, if there has been (i) a material breach by Purchaser
of its representations and warranties contained in this Agreement or (ii) a
material violation by Purchaser of any covenant or agreement contained in this
Agreement, provided, that written notice of such violation or breach shall have
been given to Purchaser and such violation or breach shall not have been cured
within ten days of receipt of such notice; or
(d) by Purchaser, on the one hand, or the Sellers, on the other hand,
if (i) the Stockholder Approval is not received at the Stockholder Meeting (or
any adjournment thereof) or (ii) the Closing shall not have occurred by March 2,
2007 (unless the Closing shall have not
50
occurred on or before such date due to a material breach of the representations
and warranties or of a covenant by such party and/or the action or failure to
act of the party seeking to terminate this Agreement).
10.2 EFFECTS OF TERMINATION. In the event of a termination of this
Agreement pursuant to this Article X (i) all further obligations of the parties
under this Agreement shall terminate, (ii) no party shall have any right under
or in connection with this Agreement or the transactions contemplated hereby
against any other party, and (iii) each party shall bear its own costs and
expenses; provided, however, that the termination of this Agreement under this
Article X shall not relieve any party of liability for any material breach of
this Agreement prior to the date of termination, or constitute a waiver of any
claim with respect thereto.
ARTICLE XI.
MISCELLANEOUS
-------------
11.1 EXPENSES OF THE TRANSACTION. Each of the parties hereto agrees to
pay such party's own fees and expenses in connection with this Agreement and the
transactions contemplated hereby, including, without limitation, legal and
accounting fees and expenses. All such expenses incurred prior to the Closing
Time by the Company or any Subsidiary in connection with the transactions
contemplated hereby shall be for the account of the Sellers, and neither
Purchaser, the Company nor any Subsidiary shall have any liability for such
expenses following the Closing Time, provided, that such expenses will become
the liability of Purchaser in the event of the occurrence of the Closing.
11.2 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered (i) when
delivered personally or by private courier, (ii) when actually delivered by
registered or certified United States mail, return receipt requested, or (iii)
when sent by facsimile transmission (provided, that it is confirmed by a means
specified in clause (i) or (ii)), addressed as follows:
If to Purchaser to:
Ardent Acquisition Corp.
1415 Kellum Place
Suite 205
Garden City, NY 11530
Attention: Marc H. Klee
Facsimile: (516) 739-1034
Telephone: (516) 739-1017
with a copy to:
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, New York 10022
Attention: David H. Landau, Esq.
Facsimile: (212) 940-8776
Telephone: (212) 940-6008
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If to the Sellers to:
Avantair, Inc.
4311 General Howard Drive
Clearwater, Florida 33762
Attention: Steven Santo
Facsimile: (727)539-7007
Telephone: (727) 539-0071
with copies to:
DLA Piper
1251 Avenue of the Americas
New York, NY 10020
Attention: Doug Rappaport, Esq.
Facsimile: (212)835-6001
Telephone: (212)335-4947
or to such other address as such party may indicate by a notice delivered
to the other parties hereto.
11.3 NO MODIFICATION EXCEPT IN WRITING. This Agreement shall not be
changed, modified, or amended except by a writing signed by the party to be
affected by such change, modification or amendment, and this Agreement may not
be discharged except by performance in accordance with its terms or by a writing
signed by the party to which performance is to be rendered. In the event that
the parties contemplate any amendment to this Agreement following the Closing,
Purchaser shall establish a special committee of its Board of Directors for the
purpose of evaluating, negotiating, drafting and executing such amendment,
including, without limitation, making all decisions regarding the terms,
condition and execution thereof on behalf of Purchaser. Such special committee
shall be comprised solely of directors of the Purchaser other than the Sellers
(or Affiliates of the Sellers), and shall be authorized to retain its own legal
and financial advisors in connection with such amendment. All costs incurred by
such special committee (including reasonable professional fees and expenses
payable to such special committee's independent financial advisors and legal
counsel) in connection with such amendment shall be advanced by the Company.
11.4 ENTIRE AGREEMENT. This Agreement, together with the Schedules,
Appendices and Exhibits hereto, sets forth the entire agreement and
understanding among the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of every kind
and nature among them with respect to such subject matter.
11.5 SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to other persons or circumstances shall not be affected unless the provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
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11.6 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns. The Sellers shall not be
permitted to assign their respective rights, or delegate their respective
duties, under this Agreement without the prior written consent of Purchaser.
Purchaser shall not be permitted to assign its rights, or delegate its duties,
under this Agreement without the prior written consent of Sellers.
11.7 GOVERNING LAW.
(a) This Agreement shall be governed by, and construed in accordance
with, the Laws of the State of New York applicable to contracts made and to be
performed wholly within said State, without giving effect to the conflict of
laws principles thereof.
(b) Each of the parties hereto irrevocably and unconditionally submits
to the exclusive jurisdiction of the United States District Court for the
Southern District of New York or, if such court will not accept jurisdiction,
the Supreme Court of the State of New York, New York County or any court of
competent civil jurisdiction sitting in New York County, New York. In any
action, suit or other proceeding, each of the parties hereto irrevocably and
unconditionally waives and agrees not to assert by way of motion, as a defense
or otherwise any claims that it is not subject to the jurisdiction of the above
courts, that such action or suit is brought in an inconvenient forum or that the
venue of such action, suit or other proceeding is improper. Each of the parties
hereto also agrees that any final and unappealable judgment against a party
hereto in connection with any action, suit or other proceeding shall be
conclusive and binding on such party and that such award or judgment may be
enforced in any court of competent jurisdiction, either within or outside of the
United States. A certified or exemplified copy of such award or judgment shall
be conclusive evidence of the fact and amount of such award or judgment.
(c) EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES THE RIGHT TO A JURY
TRIAL IN CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT OR THE
ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT.
11.8 SPECIFIC PERFORMANCE. The parties agree that if any of the
provisions of this Agreement were not performed by Purchaser, on the one hand,
or the Sellers, on the other hand, in accordance with their specific terms or
were otherwise breached by such parties, irreparable damage would occur, no
adequate remedy at Law would exist and damages would be difficult to determine,
and that the non-breaching party will be entitled to specific performance of the
terms hereof. The parties waive any requirement for the posting of a bond in
connection with any Action seeking specific performance; provided, however, that
nothing herein will affect the right of any of the parties to seek recovery
against any party hereto, at Law, in equity or otherwise, with respect to any
covenants, agreements or obligations to be performed by such party or parties
after the Closing Date.
11.9 HEADINGS; REFERENCES. The headings appearing in this Agreement are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope and intent of this Agreement or any of the
provisions hereof. Any reference in this
53
Agreement (including in any Exhibit, Appendix or Schedule hereto) to a
"Section," "Article," or "Exhibit" shall mean a Section, Article or Exhibit of
or to this Agreement unless expressly stated otherwise.
11.10 INTERPRETATION. In this Agreement, (a) words used herein
regardless of the gender specifically used shall be deemed and construed to
include any other gender, masculine, feminine or neuter, as the context shall
require, and (b) all terms defined in the singular shall have the same meanings
when used in the plural and vice versa. Any statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
statute as from time to time amended, modified or supplemented, including (in
the case of statutes) by succession of comparable successor statutes. References
to a Person are also its predecessors and permitted successors and assigns.
11.11 THIRD PARTIES. Subject to Section 6.4(d), The provisions of this
Agreement are solely for the benefit of the parties hereto and shall not inure
to the benefit of any third party.
11.12 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which taken together shall constitute a single agreement. The parties
hereto agree that this Agreement or document, certificate or instrument
ancillary hereto may be executed by facsimile transmission and that the
reproduction of signatures by facsimile or similar device shall be treated as
binding as if originals, and each party agrees and undertakes to provide the
other parties with a copy of such Agreement, document, certificate or instrument
bearing original signatures forthwith upon demand by the other parties.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the day and year first above written.
ARDENT ACQUISITION CORP.
By:
------------------------------------
Name:
Title:
ANDIAMO AVIATION, LLC
---------------------------------------
By:
Title:
---------------------------------------
ALFRED RAPETTI
CAMELOT 27, LLC
---------------------------------------
By: Steven Santo
Title: Member
---------------------------------------
STEVEN SANTO
---------------------------------------
JEFFREY KIRBY
---------------------------------------
JOHN WATERS
---------------------------------------
KEVIN MCKAMEY
APPENDIX A
DEFINITIONS
DEFINITIONS. The following terms when used in the Agreement shall have the
respective meanings ascribed to them below:
"2007 EBITDA CALCULATION" has the meaning ascribed to such term in Section
1.6(a).
"2008 EBITDA CALCULATION" has the meaning ascribed to such term in Section
1.6(a).
"ACCOUNTING FIRM" has the meaning ascribed to such term in Section 1.6(d).
"ACCOUNTS RECEIVABLE" means: (i) all trade accounts receivable and other rights
to payment from customers of the Company or any Subsidiary and the full benefit
of all security for such accounts or rights to payment, including all trade
accounts receivable representing amounts receivable in respect of or services
rendered to customers of the Company or any Subsidiary; (ii) all other accounts
or notes receivable of the Company and the Subsidiaries and the full benefit of
all security for such accounts or notes; and (iii) any Action, remedy or other
right related to any of the foregoing.
"ACTION" shall mean any action, suit, claim, litigation, proceeding,
arbitration, audit, assessment, case, examination, executive action, filing,
information request, inquiry, investigation or hearing (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted or
heard by or before, any Governmental Authority.
"AFFILIATE" shall mean, with respect to a specified Person, any other Person
who, directly or indirectly, controls, is controlled by, or is under common
control with such specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"AGREEMENT" has the meaning ascribed to such term in the Preamble hereto and
includes this Appendix A and any other Appendices hereto.
"BOOKS AND RECORDS" shall mean all books of account, tax returns and other tax
records, personnel records, historic documents relating to Employee Benefit
Plans, sales and purchase records, production reports and records, and all other
documents, files, correspondence and other information of the Company or any
Subsidiary (whether in written, electronic or other form).
"BUSINESS COMBINATION" shall mean, with respect to any Person, any merger,
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other ownership
interests of such Person, or any sale, dividend or other disposition of any
portion of such Person's assets.
"BUSINESS DAY" shall mean a day (other than a Saturday or Sunday), on which
commercial banks are open for business in New York, New York.
"CAP" has the meaning ascribed to such term in Section 9.4(c).
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"CITIZEN OF THE UNITED STATES" has the meaning set forth in Section 40102(a)(15)
of 49 U.S.C. subtitle VII, as amended.
"CLAIM NOTICE" has the meaning ascribed to such term in Section 9.7.
"CLOSING" has the meaning ascribed to such term in Section 1.1.
"CLOSING CASH STATEMENT" has the meaning ascribed to such term in Section
1.5(a).
"CLOSING DATE" has the meaning ascribed to such term in Section 1.1.
"CLOSING TIME" has the meaning ascribed to such term in Section 1.1.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning ascribed to such term in the Recitals hereto.
"COMPANY AUDITED FINANCIAL STATEMENTS" has the meaning ascribed to such term in
Section 3.14(a).
"COMPANY COMMON STOCK" shall mean the common stock, $0.01 par value per share,
of the Company.
"COMPANY INTELLECTUAL PROPERTY" has the meaning ascribed to such term in Section
3.11(b).
"COMPANY PROPERTY" has the meaning ascribed to such term in Section 3.8(a).
"COMPANY TAX" means any Tax, if and to the extent that the Company or any
Subsidiary is or may be potentially liable under applicable Law, under Contract
or on any other grounds (including, but not limited to, as a transferee or
successor, under Code Section 6901 or Treasury Regulation Section 1.1502-6, as a
result of any Tax sharing or other agreement, or by operation of Law) for any
such Tax.
"COMPANY TAX RETURN" means any return, election, declaration, report, schedule,
information return, document, information, opinion, statement, or any amendment
to any of the foregoing (including, without limitation, any consolidated,
combined or unitary return) filed or required to be filed with any Governmental
Authority, if, in any manner or to any extent, relating to or inclusive of the
Company, a Subsidiary or any Company Tax.
"CONFIDENTIAL INFORMATION" shall mean trade secrets, confidential or proprietary
information, knowledge, or know-how pertaining primarily to the business of the
Company or any Subsidiary, or any confidential or proprietary information
concerning any supplier or customer of the Company or any Subsidiary, including,
without limitation, customer lists, research and development information and
materials, inventions, formulas, methods, techniques, processes, plans, product
designs, procedures, contracts, financial information and computer models. The
term Confidential Information shall not include (i) information that is
generally available to the public, other than as a result of a disclosure by the
receiving party or its directors, officers, stockholders, partners, Affiliates,
employees, agents or advisors in violation of this Agreement; (ii) information
which, prior to disclosure to the receiving party by or on behalf of the
disclosing
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party, was already in the receiving party's possession on a non-confidential
basis; (iii) information that was developed without the use of Confidential
Information; (iv) information that becomes available to the receiving party on a
non-confidential basis from a source other than the Sellers, the Company or any
Subsidiary or any of their advisors, agents or Affiliates, provided, that such
source is not known by the receiving party to be bound by a confidentiality
agreement with or other obligation of secrecy to the Company or any Subsidiary
or any other party; (v) information which is reasonably necessary for the
purpose of the disclosing party asserting its rights in a dispute among the
parties hereunder; or (vi) information reasonably related to any Tax Returns or
similar matters required to be prepared by the disclosing party or any of their
representatives and filed with any Governmental Authority, PROVIDED, that, with
respect to Confidential Information disclosed as a result of or in connection
with clauses (v) and (vi) herein, the disclosing party shall provide the
non-disclosing party with prompt written notice of such anticipated disclosure
so that the non-disclosing party may seek a protective order or other
appropriate remedy in connection with such disclosure, and if such protective
order or other remedy is not obtained, the disclosing party hereby agrees to
furnish only that portion of the Confidential Information which it is advised by
counsel is legally required and to exercise its reasonable efforts to obtain
assurance that confidential treatment will be accorded to the Confidential
Information .
"CONFIDENTIALITY AGREEMENT" means that certain confidentiality agreement, dated
June 14, 2006, by Purchaser and the Company.
"CONTRACTS" shall mean all legally binding leases, including, without
limitation, Real Property Leases, licenses, contracts, agreements, indentures,
promissory notes, guarantees, subcontracts, arrangements, commitments and
understandings of any kind, whether written or oral, to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of the
assets of the Company or any Subsidiary may be bound, and all rights arising
under any of them, provided that "Contracts" shall not include any purchase
order (whether with a customer or vendor) or commercial sales agreement arising
in the ordinary course of business.
"DAMAGES" shall mean losses, obligations, liabilities, settlement payments,
awards, judgments, fines, penalties, damages, deficiencies, Taxes and reasonable
expenses and costs, including reasonable attorneys' and auditors' fees (and any
reasonable experts' fees) and court costs, whether or not involving a third
party claim.
"DOJ" has the meaning ascribed to such term in Section 5.10(b).
"DOT" means the Department of Transportation of the United States or any
Governmental Authority succeeding to the functions of such Department of
Transportation.
"EBITDA" has the meaning ascribed to such term in Section 1.6(b)
"EBITDA CALCULATION" has the meaning ascribed to such term in Section 1.6(a)
"EMPLOYEE BENEFIT PLANS" has the meaning ascribed to such term in Section
3.21(a).
"EMPLOYEES" has the meaning ascribed to such term in Section 3.9(c).
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"ENVIRONMENT" shall mean soil, surface waters, ground waters, land, stream,
sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL CONDITION" shall mean any condition with respect to the
Environment on, under, about or mitigating from any Facility caused by a release
of Hazardous Substances or violation of Environmental Laws, whether or not yet
discovered, which could or does result in any Damages.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to the pollution of or
protection of the Environment, from contamination by, or relating to injury to,
or the protection of, real or personal property or human health or the
Environment, including, without limitation, all valid and lawful requirements of
courts and other Governmental Authorities pertaining to reporting, licensing,
permitting, investigation, remediation and removal of, emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pesticides, petroleum or petroleum products, pollutants, contaminants or
hazardous or toxic substances, materials or wastes, into the Environment, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, including,
without limitation, the Oil and Pollution Act of 1990, the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, and
the Clean Air Act of 1990.
"ENVIRONMENTAL REPORT" shall mean any report, study, assessment, audit, or other
similar document that addresses any issue of actual or potential noncompliance
with, actual or potential liability under or cost arising out of, or actual or
potential impact on business in connection with, any Environmental Law or any
proposed or anticipated change in or addition to any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder.
"ESCROW AMOUNT" shall mean 1,750,000 shares of Purchaser Common Stock.
"ESCROW AGENT" shall mean JPMorgan Chase Bank, N.A.
"ESCROW AGREEMENT" has the meaning ascribed to such term in Section 7.14.
"EXCHANGE ACT" shall mean the U.S. Securities Exchange Act of 1934, as amended,
or any successor law, and regulations and rules issued under that Act or any
successor law.
"FAA" shall mean the Federal Aviation Administration of the United States or any
Governmental Authority succeeding to the functions of such Federal Aviation
Administration.
"FAA REGULATIONS" means the Federal Aviation Regulations issued or promulgated
pursuant to Part A of subtitle VII of Title 49, United States Code, from time to
time.
"FACILITY" shall mean any facility that is now or has heretofore been owned,
leased or used by the Company or any Subsidiary.
A-4
"FCPA" has the meaning ascribed to such term in Section 3.19(d).
"FOREIGN AVIATION AUTHORITY" means any relevant foreign Governmental Authority
which is vested with the control and supervision of, or has jurisdiction over,
the operation of civil aircraft or other matters relating to civil aviation.
"FTC" has the meaning ascribed to such term in Section 5.10(b).
"GAAP" shall mean United States generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" shall mean:
(i) any international, foreign, provincial, United
States, federal, state, county, municipal or local government or
governmental or quasi-governmental organization or any component
part (including, but not limited to, any officer, official,
branch, court, arbitration panel, agency, department, regulatory
body, authority, tribunal, commission, instrumentality or agency)
of any government or governmental or quasi-governmental
organization,
(ii) any Person with any regulatory power or authority or
any governmental or quasi-governmental power or authority
(including, without limitation, any Person with any power or
authority to administer, assess, audit, calculate, collect,
impose, investigate, review or otherwise act with respect to any
Tax or any Tax-related matter), or
(iii) any Person acting for or on behalf of any of the
foregoing.
"GOVERNMENTAL PERMITS" shall mean all licenses, franchises, registrations,
permits, privileges, immunities, approvals and other authorizations from a
Governmental Authority.
"GROUP" has the meaning ascribed to such term in Section 3.21(a).
"HAZARDOUS SUBSTANCE" shall mean any substance whether solid, liquid or gaseous
in nature:
(iv) the presence of which requires or may hereafter
require notification, investigation, or remediation under any
Environmental Law;
(v) which is or becomes defined as "toxic", a "hazardous
waste", "hazardous material" or "hazardous substance" or
"pollutant" or "contaminant" under any present or future
Environmental Laws;
(vi) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any Governmental
Authority;
(vii) which contains gasoline, diesel fuel or other
petroleum hydrocarbons or volatile organic compounds;
A-5
(viii) which contains polychlorinated byphenyls (PCBs) or
asbestos or urea formaldehyde foam insulation; or
(ix) which contains or emits radioactive particles, waves
or materials, including radon gas.
"INDEBTEDNESS" of any Person means all obligations of such Person (i) for
borrowed money, or (ii) evidenced by notes, bonds, debentures or similar
instruments, or (iii) for the deferred purchase price of products, goods or
services (other than trade payables or accruals incurred in the ordinary course
of business), or (iv) under capital leases or (v) in the nature of guarantees of
any of the obligations described in clauses (i) through (iv) above of any other
Person.
"INDEMNITEE" has the meaning ascribed to such term in Section 9.6.
"INDEMNITOR" has the meaning ascribed to such term in Section 9.6.
"INTELLECTUAL PROPERTY" has the meaning ascribed to such term in Section
3.11(a).
"INVENTORY" means the consumable inventory of Company and each Subsidiary,
whenever located, including, without limitation, all finished goods, works in
progress, raw materials, spare parts and all other materials and supplies to be
used in or consumed by Company and/or any Subsidiary in the ordinary course of
business.
"KNOWLEDGE" shall mean, with respect to the Sellers, the actual knowledge, after
due inquiry and reasonable investigation, of the Sellers and the officers and
directors of the Company and each Subsidiary.
"LAW" shall mean any constitution, law, treaty, compact, directive, ordinance,
principle of common law, permit, authorization, variance, regulation, rule, or
statute, including, without limitation, all federal, foreign, international,
state, provincial, territorial and local laws related to Taxes, ERISA, Hazardous
Substances and the Environment, zoning and land use, intellectual property,
privacy, occupational safety and health, consumer protection, product quality,
safety, employment and labor matters.
"LICENSED INTELLECTUAL PROPERTY" has the meaning ascribed to such term in
Section 3.11(c).
"LIENS" shall mean all mortgages, charges, pledges, liens, security interests,
conditional sale agreements, encumbrances or similar restrictions.
"MAJOR CUSTOMERS" has the meaning ascribed to such term in Section 3.25.
"MATERIAL ADVERSE EFFECT" shall mean any event, condition or contingency that
has had, or is reasonably likely to have, a material adverse effect on the
business, assets, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiaries, taken as a whole,
provided, however, that Material Adverse Effect shall not include any such
effect or change resulting from or arising in connection with changes in general
economic conditions which do not disproportionately affect the Company and/or
the Subsidiaries, taken as a whole.
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"MATERIAL CONTRACT" has the meaning ascribed to such term in Section 3.10.
"NOTICE OF EBITDA DISAGREEMENT" has the meaning ascribed to such term in Section
1.6(c).
"NTSB" means the National Transportation Safety Board of the United States or
any Governmental Authority succeeding to the functions of such National
Transportation Safety Board.
"ORDER" shall mean any award, decision, injunction, decree, stipulation,
determination, writ, judgment, order, ruling, or verdict ordered, issued, made
or rendered by any court, administrative agency or other Governmental Authority.
"PERMITTED LIENS" shall mean Liens (i) for any current taxes or assessments not
yet delinquent or (ii) created by statute of carriers, warehousemen, vendors,
mechanics, laborers or materialmen incurred in the ordinary course of business
for sums not yet due.
"PERSON" shall mean any individual, firm, unincorporated organization,
corporation (including any not-for-profit corporation), general or limited
partnership, limited liability company, cooperative marketing association, joint
venture, estate, trust, association or other entity as well as any syndicate or
group that would be deemed to be a person under Section 13(a)(3) of the Exchange
Act.
"PRE-CLOSING TAX PERIODS" has the meaning ascribed to such term in Section
6.3(a).
"PROXY STATEMENT" has the meaning ascribed to such term in Section 5.6(a).
"PURCHASE PRICE" has the meaning ascribed to such term in Section 1.2.
"PURCHASE SHARES" has the meaning ascribed to such term in the Recitals hereto.
"PURCHASER" has the meaning ascribed to such term in the Preamble hereto.
"PURCHASER CLOSING CASH AMOUNT" has the meaning ascribed to such term in Section
1.5(a).
"PURCHASER COMMON STOCK" shall mean the common stock, par value $0.0001 per
share, of Purchaser.
"PURCHASER GROUP MEMBER" shall mean each of Purchaser, its Affiliates and their
respective directors, officers, employees, agents and attorneys and their
respective successors and assigns.
"PURCHASER INDEMNIFIED PARTY" has the meaning ascribed to such term in Section
6.4(c).
"PURCHASER MATERIAL ADVERSE EFFECT" shall mean any event, condition or
contingency that has had, or is reasonably likely to have, a material adverse
effect on the business, assets, liabilities, results of operations, condition
(financial or otherwise) or prospects of Purchaser, provided, however, that
Purchaser Material Adverse Effect shall not include any such effect or change
resulting from or arising in connection with changes in general economic
conditions which do not disproportionately affect the Purchaser.
"QUALIFIED PLAN" has the meaning ascribed to such term in Section 3.21(d).
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"REAL PROPERTY LEASE" has the meaning ascribed to such term in Section 3.8(a).
"RELATED AGREEMENTS" shall mean the Release, the Employment Agreements, the
Stockholders Agreement and the Escrow Agreement.
"RELEASE" shall have the meaning ascribed to such term in Section 7.9.
"REPRESENTATIVES" shall have the meaning ascribed to such term in Section 5.5.
"SEC" has the meaning ascribed to such term in Section 5.6(a).
"SEC REPORTS" has the meaning ascribed to such term in Section 4.5.
"SECURITIES ACT" means the U.S. Securities Act of 1933 as amended, or any
successor law, and regulations and rules issued under that Act or any successor
law.
"SELLERS" has the meaning ascribed to such term in the Preamble hereto.
"SELLER DISCLOSURE SCHEDULE" shall mean that certain schedule attached hereto as
Appendix B qualifying the representations and warranties contained in Article
III on a clause-by-clause basis in an appropriately cross-referenced manner.
"SELLER GROUP MEMBER" shall mean the Sellers, their respective Affiliates and
their respective agents and attorneys and their respective successors and
assigns.
"STOCK CERTIFICATES" has the meaning ascribed to such term in Section 1.2.
"STOCKHOLDER APPROVAL" has the meaning ascribed to such term in Section 5.6(a).
"STOCKHOLDER MEETING" has the meaning ascribed to such term in Section 5.6(a).
"STRADDLE PERIODS" has the meaning ascribed to such term in Section 6.3(b).
"SUBSIDIARY" has the meaning ascribed to such term in Section 3.2(a).
"TARGET NET PURCHASER CLOSING CASH AMOUNT" has the meaning ascribed to such term
in Section 1.5(b).
"TAX" means any tax, charge, deficiency, duty, fee, levy, toll or other amount
(including, without limitation, any net income, gross income, profits, gross
receipts, excise, property, sales, ad valorem, withholding, social security,
retirement, excise, employment, unemployment, minimum, alternative, add-on
minimum, estimated, severance, stamp, occupation, environmental, premium,
capital stock, disability, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording, registration or other
tax) assessed or otherwise imposed by any Governmental Authority or under
applicable Law, together with any interest, penalties or any other additions or
increases.
"THRESHOLD" has the meaning ascribed to such term in Section 9.4(a).
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"WARN" shall mean the Worker Adjustment and Retraining Notification Act of 1988,
as amended.
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ANNEX B
October 2, 2006
Avantair, Inc.
4311 General Howard Drive
Clearwater, Florida 33762
Attention: Steven Santo
Ardent Acquisition Corp.
1415 Kellum Place
Suite 205
Garden City, NY 11530
Attention: Barry Gordon
Re: Avantair, Inc./Acquisition by Ardent Acquisition Corp.
------------------------------------------------------
Gentlemen:
Reference is made to the Stock Purchase Agreement, dated October 2, 2006, (the
"Stock Purchase Agreement") between Ardent Acquisition Corp. ("Ardent") and the
stockholders (the "Seller") of Avantair, Inc. ("Avantair") set forth therein.
Immediately after the execution and delivery of the Stock Purchase Agreement by
Ardent and the Sellers, we purchased shares of Avantair's Class A Common Stock
(the "Common Stock") pursuant to that certain Stock Purchase Agreement, dated as
of October 2, 2006, (the "Class A Purchase Agreement") with Avantair. In
connection therewith, we hereby agree as follows:
1. We acknowledge that we have been provided with a copy of the final
execution version of the Stock Purchase Agreement.
2. If there is a Closing (as defined in the Stock Purchase Agreement), then
at the Closing we will sell to Ardent, and Ardent shall purchase from
us, all shares of Common Stock owned and/or controlled by us or our
affiliates, subsidiaries or parent entities in accordance with the terms
and conditions currently set forth in Article 1 of the Stock Purchase
Agreement.
3. We confirm that (in respect of us and our shares of Common Stock) each
representation and warranty contained in Article II of the Stock
Purchase Agreement is true and correct as of the date hereof. Promptly
after becoming aware of the occurrence of, or the impending or
threatened occurrence of, any event or condition which would constitute
a breach of any of such representations and warranties, we will give
detailed written notice thereof to Ardent and we shall use reasonable
best efforts to prevent or promptly to remedy such event, condition or
breach.
This agreement shall not be changed, modified, or amended except by a writing
signed by the parties hereto. This agreement shall be binding upon and inure to
the benefit of the parties
hereto and their respective heirs, executors, administrators, successors and
permitted assigns, provided, that we agree that shall not be permitted to assign
our respective rights, or delegate their respective duties, under this agreement
without the prior written consent of Ardent. This agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be performed wholly within said State,
without giving effect to the conflict of laws principles thereof. Each of the
parties hereto irrevocably and unconditionally submits to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York or, if such court will not accept jurisdiction, the Supreme Court of
the State of New York, New York County or any court of competent civil
jurisdiction sitting in New York County, New York. The parties agree that if we
do not perform any of the provisions of this agreement in accordance with their
specific terms or they were otherwise breached by such parties, irreparable
damage would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that Ardent will be entitled to specific performance
of the terms hereof. This agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
BRMR, LLC
/s/ Barry Rubenstein
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Name: Barry Rubenstein
Title: Chief Executive Officer
Berdan Holdings, LLC
/s/ Daniel Rosenthal
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Name: Daniel Rosenthal
Title: Member
Dalewood Associates, LP
/s/ Steven Levine
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Name: Steven Levine
Title: Director
Craig Effron
/s/ Craig Effron
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Name: Craig Effron
Title: Individual
Gracie Capital, LP
/s/ Daniel Nir
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Name: Daniel Nir
Title: Managing Member
Hummingbird Value Fund LP
/s/ Paul D. Sonkin
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Name: Paul D. Sonkin
Title: Managing Member
Hummingbird Microcap Value Fund, LP
/s/ Paul D. Sonkin
- ----------------------
Name: Paul D. Sonkin
Title: Managing Member
Hummingbird Concentrated Fund, LP
/s/ Paul D. Sonkin
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Name: Paul D. Sonkin
Title: Managing Member
Pleiades Investment Partners-R, LP
/s/ Kenneth Berkow
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Name: Kenneth Berkow
Title: Chief Financial Officer
Potomac Capital Partners, LP
/s/ Kenneth Berkow
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Name: Kenneth Berkow
Title: Chief Financial Officer
Potomac Capital International Ltd
/s/ Kenneth Berkow
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Name: Kenneth Berkow
Title: Chief Financial Officer
Andrew Rosen
/s/ Andrew Rosen
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Name: Andrew Rosen
Title: Individual
Seneca Capital, LP
/s/ Michael R. Anastasio
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Name: Michael R. Anastasio
Title: Chief Financial Officer
ARDENT ACQUISITION CORP. AVANTAIR, INC.
/s/ Barry J. Gordon /s/ John Waters
- ------------------------------------ ------------------------
Name: Barry J. Gordon Name: John Waters
Title: Chairman and Chief Executive Officer Title: Chief Financial Officer
ANNEX C
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARDENT ACQUISITION CORPORATION
Ardent Acquisition Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies as
follows:
A. The name of the Corporation is Ardent Acquisition Corporation.
The original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on September 14, 2004 and was
previously amended and restated on November 18, 2004.
B. Pursuant to Sections 216, 242 and 245 of the General Corporation
Law of the State of Delaware, this Amended and Restated Certificate of
Incorporation has been duly adopted by the majority of the stockholders of the
Corporation voting at a special meeting duly held, and restates and integrates
and further amends the provisions of the Certificate of Incorporation of the
Corporation.
C. The text of the Certificate of Incorporation of the Corporation
is hereby amended and restated in its entirety to read as follows:
FIRST. The name of the corporation is AVANTAIR, INC. (hereinafter
sometimes referred to as the "Corporation").
SECOND. The registered office of the Corporation is to be located at 615
S. DuPont Hwy., Kent County, Dover, Delaware. The name of its registered agent
at that address is National Corporate Research, Ltd.
THIRD. The purpose of the Corporation shall be to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law ("GCL").
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 76,000,000, of which 75,000,000
shares shall be Common Stock, par value of $.0001 per share, and 1,000,000
shares shall be Preferred Stock, par value of $.0001 per share.
A. PREFERRED STOCK. The Board of Directors is expressly granted
authority to issue shares of the Preferred Stock, in one or more series, and to
fix for each such series such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof as shall be
stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series (a "Preferred Stock
Designation") and as may be permitted by the GCL. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the voting power of all of the then outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, without a separate
vote of the holders of the Preferred Stock, or any series thereof, unless a vote
of any such holders is required pursuant to any Preferred Stock Designation.
B. COMMON STOCK. Except as otherwise required by law or as otherwise
provided in any Preferred Stock Designation, the holders of the Common Stock
shall exclusively possess all voting power and each share of Common Stock shall
have one vote.
FIFTH. [Reserved]
SIXTH. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. Election of directors need not be by ballot unless the by-laws of the
Corporation so provide.
B. The Board of Directors shall have the power, without the assent or
vote of the stockholders, to make, alter, amend, change, add to or repeal the
by-laws of the Corporation as provided in the by-laws of the Corporation.
C. The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the Corporation, whether or not the contract or act would otherwise be open to
legal attack because of directors' interests, or for any other reason.
D. In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this Certificate of Incorporation, and to any by-laws from time to
time made by the stockholders; provided, however, that no by-law so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
SEVENTH.
A. COMPLIANCE WITH U.S. CITIZENSHIP REQUIREMENTS. Notwithstanding
anything to the contrary contained in this Amended and Restated Certificate of
Incorporation, at no time shall shares of capital stock of the Corporation be
voted by, or at the direction of, Persons ("Non-U.S. Citizens") who are not
"citizens of the United States" as defined in 49 U.S.C. 40102(a)(15), as now in
effect or as it may hereafter from time to time be amended ("U.S. Citizens"),
unless such shares are registered on the separate stock record maintained by the
Corporation for the registration of ownership of voting stock by Non-U.S.
Citizens. In addition, except as otherwise consistent with applicable statutory,
regulatory and interpretive restrictions regarding foreign control of U.S. air
carriers, at least two-thirds of the directors or other managing officers of the
Corporation shall be U.S. Citizens and the Corporation shall be under the actual
control of U.S. Citizens.
B. BY-LAWS, ETC.
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1. The Board of Directors is hereby authorized to effect any and
all measures necessary or desirable (consistent with applicable law and the
provisions of this Amended and Restated Certificate of Incorporation) to fulfill
the purpose and implement the provisions of this Article SEVENTH, including
without limitation, amending the by-laws of the Corporation and establishing,
amending or eliminating procedures from time to time that are consistent with
the by-laws.
2. All shares of voting stock of the Corporation are subject to the
restrictions set forth in this Article SEVENTH.
3. A majority of the directors of the Corporation shall have the
exclusive power to determine all matters necessary to determine compliance with
this Article SEVENTH; and the good faith determination of a majority of the
directors on such matters shall be conclusive and binding for all the purposes
of this Article SEVENTH.
C. BENEFICIAL OWNERSHIP INQUIRY.
1. The Corporation may by notice in writing (which may be included
in the form of proxy or ballot distributed to stockholders of the Corporation in
connection with the annual meeting (or any special meeting) of the stockholders
of the Corporation, or otherwise) require a Person that is a holder of record of
equity securities of the Corporation or that the Corporation knows to have, or
has reasonable cause to believe has, Beneficial Ownership of equity securities
of the Corporation to certify in such manner as the Corporation shall deem
appropriate (including by way of execution of any form of proxy or ballot by
such Person) that, to the knowledge of such Person:
(a) all equity securities of the Corporation as to which
such Person has record ownership or Beneficial Ownership are owned and
controlled only by U.S. Citizens; or
(b) the number and class or series of equity securities of
the Corporation owned of record or Beneficially Owned by such Person
that are owned or controlled by Non-U.S. Citizens are as set forth in
such certificate.
As used in this Article SEVENTH, "Beneficial Ownership," "Beneficially
Owned," "Owned Beneficially" or "Beneficially Owns' refers to beneficial
ownership as defined in Rule 13d-3 (without regard to the 60-day provision in
paragraph (d)(1)(i) thereof) under the Securities Exchange Act of 1934, as
amended. As used in this Amended and Restated Certificate of Incorporation,
"Person" means an individual, partnership, corporation, business trust, joint
stock company, limited liability company, unincorporated association, joint
venture or other entity of whatever nature.
2. With respect to any equity securities identified by such Person
in response to Section C(1)(b) of this Article SEVENTH, the Corporation may
require such Person to provide such further information as the Corporation may
reasonably require in order to implement the provisions of this Article SEVENTH.
3. For purposes of applying the provisions of this Article SEVENTH
with respect to any equity securities of the Corporation, in the event of the
failure of any Person to provide the certificate or other information to which
the Corporation is entitled pursuant to this Section C, the Corporation shall
presume that the equity securities in question are owned or controlled by
Non-U.S. Citizens.
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EIGHTH. A. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
GCL is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the GCL, as so amended. Any repeal or modification of this paragraph A by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation with respect to events occurring
prior to the time of such repeal or modification.
A. The Corporation, to the full extent permitted by Section 145 of the
GCL, as amended from time to time, shall indemnify all persons whom it may
indemnify pursuant thereto. Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative, or
investigative action, suit or proceeding for which such officer or director may
be entitled to indemnification hereunder shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized hereby.
NINTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
(THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.)
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IN WITNESS WHEREOF, Ardent Acquisition Corporation has caused this
Amended and Restated Certificate of Incorporation to be executed by Barry J.
Gordon, its Chairman of the Board and Chief Executive Officer, thereunto duly
authorized, this day of , 200_.
ARDENT ACQUISITION CORPORATION
_____________________________________________
Barry J. Gordon
Chairman of the Board and Chief Executive
Officer
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