Universal Express Inc fka USXP

[material evidence]

Feds Investigating Stock Deals Of Aspiring Cargo Carrier
October 25, 2004 5:27pm
Commuter/Regional Airline News


SEC Cites Universal's Failed Airline Deal

The Florida-based firm that wants to assemble the largest U.S. cargo carrier is being investigated by federal agencies for stock fraud.

Utah-based Alpine Air [ALPE] confirmed that it discovered the cases against Universal Express [USXP] and its chairman, Robert A. Altomare, as it was performing due diligence as it considered Altomare's offer for the regional cargo airline. Altomare is courting four other unidentified cargo carriers to assemble a company with nearly 200 cargo aircraft (CRAN, Oct. 18).

After losing more than $15.5 million over the last two years and having about $100,000 cash on hand, Altomare said he would pay more than $12 million for 80 percent of Alpine's stock. Furthermore, he said he would leverage Alpine's aircraft and those of other targeted carriers to raise up to $225 million in equipment trust certificates. The certificate sales, he said, would generate the cash for the deals. The deal remains on track for an undisclosed closing.

The U.S. Attorney in New York confirmed to CRAN last week that a criminal investigation is active and that no charges have been filed. In late June, the federal prosecutors asked a federal judge to put on hold a complaint filed by the U.S. Securities and Exchange Commission against Universal Express, Altomare and three other individuals until the possible criminal case is resolved. Based on early evidence in the SEC's civil complaint, the federal prosecutors launched a criminal probe to determine if Universal, Altomare and others committed "fraud, including securities fraud, and engaged in wrongful conduct by selling unrestricted Universal shares as part of capital-raising scheme for Universal and themselves without registering those shares with the SEC."

At the time of the June request, the federal prosecutors said they anticipated making a grand jury presentation in mid-October.

The SEC filed its complaint in March contending that beginning in April 2001 Universal had issued more than 500 million shares, issued a series of false press releases and made false and misleading statements. In the complaint, the SEC alleges that the shares - not properly registered with the SEC - were sold to re-sellers at a price substantially discounted from the prevailing trading price. These stock sales generated more than $9 million for Universal. The SEC claims that Altomare - Universal's only officer and board member - diverted about $1 million into his personal accounts or used the funds to cover personal expenses.

Last fall, Universal made an offer to buy North American Airlines, a passenger charter company. To fund the $1 million good faith deposit, an associate of Altomare agreed to wire $1 million to Universal in exchange for 40 million shares. "With Universal's stock trading at $0.05 at that time, Altomare and [co-defendant Mark] Neuhaus knew that Neuhaus could recover the entire $1 million cost of the deposit by selling 20 million shares even if the deal failed to cause a jump in the Universal's stock price."

According to the complaint, Universal talked North American CEO Dan McKinnon into permitting a public announcement of the pending sale despite confidentiality clauses in the sales agreement. The announcement drove up the price of the stock and Neuhaus proceeded to sell enough shares to cover the $1 million investment and earn an additional $1 million in profit.

The $35.6 million cash deal of North American was never completed. Universal made the $1 million deposit, which was 50 percent refundable if the deal was nixed. At the 45-day mark during a due diligence period, Universal was required to make a second $1 million payment and the sale was to close within 60 days. Universal never made the second payment, said Ken Kelly, an attorney with the New York firm of Epstein Becker & Green, who is representing North American. Altomare turned around and sued North American and McKinnon seeking the return of the full $1 million as well as $160 million in damages. In his complaint, Altomare contends he was denied full access to North American's books. In denying Altomare's claims, McKinnon countersued for libel and lost business, seeking $80 million in damages. While the suits are still pending, Kelly said North American has been dropped as a defendant.

In the SEC complaint, the government is seeking to bar Altomare for "acting as an officer or director" of any publicly traded company. It would further bar Universal from offering any additional stock. The SEC wants each defendant to "disgorge all ill-gotten gains."

While Altomare could not be reached for comment, he denies the charges in his SEC filings.

Twenty-two days before the SEC filed its civil case, Universal sued the SEC in federal court in Florida seeking damages for "naked shorting" of its stock and other matters. That case is still pending.

When asked by CRAN about the cases against Universal, Alpine investor relations representative Michael Dancy said that Alpine CEO Gene Mallette was aware of the issues. "It was part of the due diligence report. As you can imagine, there is always more than one point of view, particularly in regards to litigation. The SEC charges are very, very serious charges, but they are being vehemently disputed by Universal and Mr. Altomare.

"Notwithstanding all the information presented in the public form, the deal presented to Alpine is a very good deal. Until it is complete, there really is no deal. To protect the shareholders of the company, it is a cash deal. A stock swap was not part of the deal to mitigate any concerns that Alpine may have."

Unlike the North American deal, Dancy said there would not be any announcement about a deposit. He added that the deal is not consummated until all the monies are in escrow, and no money has yet been placed in escrow.

There will be a formal solicitation of Alpine shareholders, but until those papers are filed with SEC, neither side will disclose the full purchase price or the per share offer. The information is being withheld, Dancy said, to prevent a speculative purchase of Alpine's stock.

Once the deal is completed, Universal would own 80 percent of Alpine's stock; however, Alpine's remaining 20 percent would continue to be publicly traded. Mallette is the company's largest shareholder, owning 80 percent of the shares.

A key factor in Alpine's decision to go ahead with the deal, Dancy said, is Universal's ability to finance future Alpine purchases. Currently, Alpine could not use its own stock, trading at about 51 cents a share, as currency in an acquisition because of its low market value. It also did not want to borrow against its assets.

As Mallette approached other cargo airlines with buyout offers, Dancy said each would need to assess the benefit of building a relationship with Alpine and Universal. "Alpine weighed the benefits, and the benefits outweighed what has been presented in the public on Universal. There are a whole slew of companies that have been in discussions for a long time. They each have their reasons for considering such an acquisition."

<

http://www.hoovers.com/free/co/news/detail.xhtml?