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 Section 240.14a-11(c) or
Section 240.14a-12
THE FLIGHT INTERNATIONAL GROUP, INC.
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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: n/a
(2) Aggregate number of securities to which transaction applies: n/a
(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):
(4) Proposed maximum aggregate value of transaction: $6,500,000
(5) Total fee paid: $1,300.00
[ ] Fee paid previously with preliminary materials.
[ ] 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.:
(3) Filing party:
(4) Date filed:
June 21, 2002
Dear Shareholder:
You are cordially invited to attend the Company's Special Meeting of
Shareholders to be held on July 3, 2002, 9:00 A.M., local time, at the 200 Park
Avenue, 42nd Floor, New York, NY 10166.
As set forth in the formal Notice of Special Meeting of Shareholders
and in the accompanying Proxy Statement, we are asking you to approve the sale
of substantially all of our assets and the assets of our wholly-owned active
subsidiaries to VTF Corporation.
The Board of Directors has approved the proposal and believes it is in
the best interests of all of our shareholders. We urge you to read the
accompanying Proxy Statement carefully. After the formal part of the meeting we
will have a discussion period for questions and comments of general interest to
shareholders.
We look forward to greeting personally those shareholders who are able
to attend the meeting; however, whether or not you plan to attend the meeting,
it is important that your shares be represented. Accordingly, you are requested
to sign, date and mail the enclosed proxy, at your earliest convenience, in the
envelope provided.
Thank you for your cooperation.
Very truly yours,
David E. Sandlin
Chairman of the Board and President
THE FLIGHT INTERNATIONAL GROUP, INC.
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD July 3, 2002
NOTICE IS HEREBY GIVEN of a Special Meeting of the Shareholders of The Flight
International Group, Inc. (the "Company") at 200 Park Avenue, 42nd Floor, New
York, NY 10166, on July [3], 2002, or at any adjournment of the meeting, to
consider and vote upon the following matters, as explained more fully in the
accompanying proxy statement:
1. The approval and adoption of the asset purchase agreement dated May
9, 2002 (the "Asset Purchase Agreement") pursuant to which the Company
and its active subsidiaries (collectively, the "Subsidiaries"), which
Subsidiaries are substantially all of the assets of the Company, will
sell substantially all of their assets (the "Asset Sale") to VTF
Corporation, and the transactions contemplated thereby; and
2. Any and all matters that may properly come before the meeting and
any adjournment thereof.
The Board of Directors has fixed the close of business on June 3, 2002,
as the record date for determining the shareholders entitled to vote at the
meeting, or any adjournment thereof, and only the holders of Common Stock of the
Company of record at such date will be entitled to notice of and to vote at the
meeting. Such shareholders may vote in person or by proxy.
Shareholders who attend the special meeting may revoke their proxy and
vote their shares in person.
You have the right to dissent to the proposed Asset Sale and, if you
comply with the procedural requirements of Article 13 of the Georgia Business
Corporation Code, you will be entitled to receive the fair value of your shares
if the Asset Sale is completed. See DISSENTER'S RIGHTS beginning on page 46 of
the attached proxy statement. A copy of Article 13 of the Georgia Business
Corporation Code is attached as Annex C.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT YOU
PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE MARK, DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
/s/ Ann P. Campbell
Secretary
Newport News,
Virginia, U.S.A.
June 21, 2002
TABLE OF CONTENTS
PAGE
General 1
Summary 2
Cautionary Statement Regarding Forward-Looking Statements 6
The Parties 7
The Flight International Group, Inc. 7
Description of Business 7
Description of Property 15
Legal Proceedings 17
Financial Statements 17
Selected Consolidated Financial Data of the Company 17
Management's Discussion and Analysis 18
Changes in and Disagreements with Accountants 36
Quantitative and Qualitative Disclosures About Market Risk 36
VTF Corporation 36
Special Factors 36
Background of the Asset Purchase Agreement 37
Recommendation of the Board of Directors 37
Reasons For The Sale Of Substantially All Of Our Assets 38
G-V's Opinion 40
Interests of Certain Persons in the Asset Purchase Agreement 42
Certain Effects of the Asset Sale 42
Plans for the Company after the Asset Sale 42
Conduct of the Business of the Company if the Asset Sale
is not completed 43
Accounting Treatment 43
Federal Income Tax Consequences 43
The Asset Purchase Agreement 43
The Asset Sale; Consideration 44
Representations and Warranties; Covenants 44
Conditions 44
Termination 45
Voting Agreements 45
Regulatory Approval 45
Fees and Expenses 45
Dissenters' Rights 46
Market for the Common Stock 48
Security Ownership of Certain Beneficial Owners and Management 49
Directors and Management 50
Where You Can Find More Information 52
Other Business 53
Annex A: Asset Purchase Agreement, dated May 9, 2002, by and between
The Company, the Subsidiaries and VTF
Annex B: Fairness Opinion of G-V Capital Corp.
Annex C: Sections of the Georgia Corporation Code
Relating to Dissenters' Rights
Annex D: Side Letter Agreement, dated May 9, 2002, by and between the
Company and Maritime Sales & Leasing, Inc.
THE FLIGHT INTERNATIONAL GROUP, INC.
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD July 3, 2002
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GENERAL
This Proxy Statement is mailed to holders ("Shareholders") of shares of the New
Common Stock, par value $.01 per share ("Common Stock"), of The Flight
International Group, Inc., a Georgia corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company (the
"Board") for use at the Special Meeting of Shareholders to be held on July 3,
2002 at 9:00 A.M. local time, at 200 Park Avenue, 42nd Floor, New York, New York
10166, and at any adjournments of the meeting (the "Special Meeting") for the
following purposes:
1. to consider and vote upon a proposal to approve the
asset purchase agreement, dated May 9, 2002 (the
"Asset Purchase Agreement") by and between the
Company, the Subsidiaries and VTF Corporation and
providing for the sale (the "Asset Sale") to VTF of
substantially all of our assets and the assets and
liabilities of our active wholly-owned subsidiaries,
which is substantially all of the Company's assets
and the transactions contemplated thereby; and
2. to transact such other business as may properly come
before the special meeting or any adjournment thereof.
Proxies for use at the Special Meeting are being solicited by the
Board. These proxy materials are first being mailed to Shareholders on or about
June 21, 2002. Proxies will be solicited primarily by mail. Certain officers,
directors, employees and agents of the Company, none of whom will receive
additional compensation for such efforts, may solicit proxies by telephone,
facsimile, electronic mail or other personal contact. The Company will bear the
cost of soliciting proxies, including postage, printing and handling, and will
reimburse the reasonable expenses of brokerage firms and others for forwarding
material to beneficial owners of shares of Common Stock.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the Special Meeting and a return envelope for the
proxy are enclosed. Shares represented by duly executed proxies will be voted in
accordance with Shareholders' instructions. If you sign the proxy, but do not
fill in a vote, your shares will be voted in accordance with the Board's
recommendations. Any proxy may be revoked by a Shareholder prior to its exercise
upon written notice to the Secretary of the Company, or by a Shareholder voting
in person at the Special Meeting.
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RECORD DATE AND VOTING RIGHTS
Shareholders of record at the close of business on June 3, 2002 (the "Record
Date") are entitled to notice of and to vote at the Special Meeting and any
adjournment(s) thereof. On the Record Date, the Company had outstanding and
entitled to vote at the Special Meeting 1,109,588 shares of Common Stock.
Shareholders as of the Record Date will be entitled to one vote for each share
held, with no shares having cumulative voting rights. The holders of a majority
of the outstanding shares of Common Stock, present in person or by proxy and
entitled to vote, will constitute a quorum at the Special Meeting. Shares of
Common Stock are counted for quorum purposes if they are represented for any
purpose at the Special Meeting other than solely to object to holding the
Special Meeting or transacting business at the Special Meeting. Abstentions and
broker non-votes count as present for purposes of establishing a quorum. Shares
of the Company held by the Company or its subsidiaries do not count toward a
quorum. A "broker non-vote" occurs with respect to a proposal when a broker is
not permitted to vote on that proposal without instruction from the beneficial
owner of the shares of the Common Stock and no instruction is given.
Assuming a quorum is present, approval of the Asset Purchase Agreement requires
the affirmative vote of the holders of a majority of all the votes entitled to
be cast on the proposal. The approval of any other matter coming before the
Special Meeting requires that a majority of the shares voting must vote in the
affirmative. Abstentions and broker non-votes will have the same effect as votes
against the Asset Purchase Agreement. Abstentions and broker non-votes will have
no effect on any other matter coming before the Special Meeting.
SUMMARY TERM SHEET
This summary highlights some of the information set forth in this proxy
statement. It does not contain all of the information that is important to you.
We urge you to read this entire proxy statement, including the annexes,
carefully.
In this proxy statement, the "Company," "we," "us" and "our" refer to
The Flight International Group, Inc. and its subsidiaries and predecessors.
- - THE PARTIES THE FLIGHT INTERNATIONAL GROUP, INC.
One Lear Drive
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
Tel: (757) 886-5500
Fax: (757) 874-5539
We are an aviation services company that
performs military training services using
specially modified commercial aircraft,
principally under contract with the United
States Department of Defense, other government
agencies and foreign countries, operating
through its direct and indirect subsidiaries.
In addition, with the use of these aircraft, we
have established a
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market for training and testing in the
aerospace industry. We also operate a fixed
base operation at the Newport News/Williamsburg
("NN/W") International Airport, a scheduled
cargo and charter passenger airline throughout
Alaska, and an Aircraft Modification, Repair
and Overhaul Center at the NN/W Airport. For
more information concerning us, see THE PARTIES
beginning on page 8.
VTF CORPORATION
VTF is a Delaware corporation formed solely for
the purpose of entering into the Asset Purchase
Agreement, and performing the transactions
contemplated by such agreement and related
transactions. VTF has not engaged in any
business activity other than those incident to
its formation and the execution, delivery and
performance of the Asset Purchase Agreement and
the related transactions. The mailing address
of VTF's principal office is 660 Madison
Avenue, New York, N.Y. 10021 and its telephone
number is (212) 668-0020.
- -THE ASSET PURCHASE
AGREEMENT On May 9, 2002 we entered into the Asset
Purchase Agreement with VTF, pursuant to which
we will sell substantially all of our assets
("Assets") to VTF and VTF will assume certain
liabilities ("Liabilities") in exchange for a
cash payment of $6,500,000, subject to
adjustment. For more information concerning the
Asset Purchase Agreement, see THE ASSET
PURCHASE AGREEMENT beginning on page 43.
- - CERTAIN U.S. FEDERAL
INCOME TAX CONSIDERATIONS Receipt of the consideration pursuant to the
Asset Purchase Agreement will be a taxable
event for federal income tax purposes. The
Company and each subsidiary will recognize
taxable income equal to the amount realized on
the sale in excess of the tax basis of their
respective assets. However, the Company's
consolidated tax return as of the year ended
April 30, 2001 reflects a net operating loss
carryforward of approximately $9,300,000, and a
capital loss carryforward of approximately
$2,400,000, which is available and sufficient
to offset the estimated taxable gain on sale.
See FEDERAL INCOME TAX CONSEQUENCES OF THE
PROPOSED TRANSACTIONS, beginning on page 43.
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- - PURCHASE PRICE The total purchase price for the Assets and
Liabilities is expected to be $6,500,000.
Payment of the purchase price will be in cash.
The purchase price is subject to adjustment
based on the combined level of indebtedness of
us and Maritime Sales & Leasing, Inc.
("Maritime") that is assumed by VTF at the
closing. If the combined indebtedness of us and
Maritime exceeds $34,800,000, the aggregate
purchase price for us and Maritime will be
reduced on a dollar for dollar basis. A copy of
the side letter agreement between us and
Maritime respecting the manner in which any
such purchase price reduction will be allocated
is attached hereto as Annex D.
- - PLANS FOR THE COMPANY
FOLLOWING THE ASSET SALE While we do not have any present plans or
proposals following the consummation of the
Asset Sale, we will consider various
alternatives for our business going forward,
including paying a dividend equal to some or
all of the sale proceeds to shareholders or
offering a cash redemption to some or all of
our shareholders and winding up the Company.
See PLANS FOR THE COMPANY AFTER THE ASSET SALE,
beginning on page 42.
- - VOTING AGREEMENT David E. Sandlin, our President, has entered
into an agreement with VTF whereby Mr. Sandlin
has agreed to vote his shares in favor of the
approval and adoption of the Asset Purchase
Agreement and all of the transactions
contemplated thereby. As of the date hereof,
Mr. Sandlin beneficially owns 36.33% of our
Common Stock.
- - RIGHTS OF SHAREHOLDERS
WHO OBJECT TO ASSET
PURCHASE AGREEMENT Under Georgia law you may dissent from the
Asset Purchase Agreement and obtain payment for
the fair value of your shares of our Common
Stock if the transaction is consummated. If you
wish to exercise dissenters' rights, you must
strictly follow the procedures set forth in
Article 13 of the Georgia Business Corporation
Code. Among other things, you must deliver to
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the Company before the vote is taken written
notice of your intent to demand payment for
your shares if the proposed action is
effectuated, and you must not vote your shares
in favor of the Asset Purchase Agreement. A
copy of the Georgia law provisions describing
these dissenters' rights is attached hereto as
Annex C.
- - CONDITIONS Each party's obligation to consummate the
transactions contemplated by the Asset Purchase
Agreement is subject to a number of customary
conditions, including the approval of the Asset
Purchase Agreement by our shareholders. In
addition to certain customary conditions, the
consent of certain regulatory authorities,
including the U.S. Department of Transportation
("DOT") and the Federal Aviation Administration
("FAA"), will be required prior to the closing
of the Asset Purchase Agreement. The closing of
the Asset Sale is further conditioned upon (i)
certain of our employees entering into
employment agreements and non-competition
agreements with VTF, (ii) VTF obtaining the
financing necessary to complete the Asset Sale,
(iii) the execution and delivery of a
non-competition agreement between us and VTF,
(iv) the execution and delivery of an escrow
agreement whereby $1,000,000 of the purchase
price will be held in escrow to secure any
indemnity claims against us (this amount will
be released to us nine months following the
Closing (net of the amount of any claims), (v)
VTF being satisfied with its due diligence
investigation of our assets, operations and
condition and (vi) the closing of an asset
purchase agreement by and between VTF and
Maritime. The outstanding capital stock of
Maritime is owned by our Chairman and
President, Mr. David E. Sandlin, and a
director, Mr. John Bone. See the sections
entitled INTERESTS OF CERTAIN PERSONS IN THE
ASSET SALE on page 42 and the ASSET
PURCHASE AGREEMENT on page 43.
- - RECOMMENDATION The Board believes that the transactions
contemplated by the Asset Purchase Agreement
present the best currently available
opportunity to enhance our shareholder value.
G-V Capital Corp. ("G-V") has delivered to the
Board its opinion, dated May 8, 2002, that the
consideration to be received by us from the
Asset Purchase Agreement is fair from a
financial point of view. G-V's opinion is based
on January 31, 2002 financial statements and
our audited financial statements for the years
5
ended April 30, 2001. A copy of these financial
statements is attached to this proxy statement
as Annex B. The Board considered this and a
variety of factors in evaluating the Asset
Purchase Agreement, some of which are set forth
in the Section entitled SPECIAL FACTORS on page
36.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference forward-looking
statements and information relating to the Company that are based on the
opinions of management as well as assumptions made by and information currently
available to the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts, including statements regarding the completion of the Asset
Purchase Agreement and related transactions. When used in this proxy statement,
the words "anticipate," "believe," "estimate," "expect," "plan," "intend,"
"project," "predict," "may," and "should" and similar expressions, are intended
to identify forward-looking statements. Such statements reflect the current view
of the Company with respect to future events, including the completion of the
Asset Purchase Agreement and related transactions, and are subject to numerous
risks, uncertainties and assumptions. Many factors could cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements, including, among others:
o competitive dynamics in the industries that the Company serves;
o economic conditions, including changes in inflation rates or interest
rates;
o customer demand;
o changes in the United States government's policies regarding services
that the Company provides;
o changes in the monetary, military or economic conditions in the United
States and certain other countries that could affect the Company's
sales in such countries; and
o changes in the regulatory requirements of the FAA or similar
regulators that could affect all aspects of the Company's business.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results could vary materially
from those described herein as anticipated, believed, estimated, expected,
planned or intended. Further, before or after the closing date of the Asset
Purchase Agreement, there may be unforeseen factors that cause material
improvements in the business or prospects of the Company beyond historical
levels or the levels expected by the board of directors or G-V. Even in the
event of such improvements, the Company will not receive additional
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consideration beyond the cash payment of $6,500,000 (subject to adjustment)
provided in the Asset Purchase Agreement.
THE PARTIES
THE FLIGHT INTERNATIONAL GROUP, INC.
The principal address of The Flight International Group, Inc. (the "Company") is
One Lear Drive, Newport News, VA 23602. The telephone number is (755) 886-5500.
The Company was incorporated in Georgia on May 7, 1982. The Company is an
aviation services company that performs military training services using
specially modified commercial aircraft, principally under contract with the
United States Department of Defense ("DOD"), other government agencies and
foreign countries, operating through its direct and indirect subsidiaries. In
addition, with the use of these aircraft, the Company has established a market
for training and testing in the aerospace industry. The Company also operates a
fixed base operation ("FBO") at the Newport News/Williamsburg International
Airport ("NN/W Airport"), a scheduled cargo and charter passenger airline
throughout Alaska, and an Aircraft Modification, Repair and Overhaul ("MRO")
Center at the NN/W Airport.
Flight International, Inc., a Georgia corporation ("FII"); Flight International
Aviation, Inc., a Georgia corporation ("FIA"); Flight International Sales and
Leasing, Inc., a Delaware corporation ("FSL"); and Flight Alaska, Inc., a
Delaware corporation ("FAI"), are each wholly-owned subsidiaries of the Company
which are active. Flight International of Florida Inc., a Florida corporation
("FIF"), is a wholly owned subsidiary of FII.
DESCRIPTION OF BUSINESS
The majority of the Company's revenues are derived from contracts with the
United States federal government. For the fiscal year ended April 30, 2001,
revenue from contracts with the United States government represented
approximately 64% of the Company's total consolidated revenues.
United States federal government contract awards are made through sealed
competitive bids, unless an exemption from full and open competition under
federal procurement laws is applicable. Under the regulations governing sealed
bidding, the qualified bidder with the lowest price and the price-related
factors most advantageous to the government is generally awarded the contract.
Under negotiated procurements, other evaluation factors such as experience,
quality of technical approach and management capability may weigh more heavily
than price in the selection process.
Typically, the Company's contracts with the DOD have been awarded competitively
pursuant to federal procurement laws and procedures. These agreements are
usually annual contracts having additional one-year option periods that may be
exercised by the DOD.
For each year of any government contract, including the base year and any option
year that the government has elected to exercise, all contract revenues are
contingent upon the availability of adequate funding.
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Typically, payments received under government contracts are based upon flight
hours at the price per flight hour as established in the contract. Flight hours
are measured from the time aircraft and personnel depart for a pre-designated
location to perform the assigned training or support mission through completion
of the mission and the return of the aircraft to the predetermined station.
Under most government contracts, it is necessary to attain a predetermined
mission success rate or other contract performance standard.
Minimum guaranteed contract payments under most government contracts are based
on an established number of flight hours that the government is required to
order during each year of the contract. The Company's price for "guaranteed"
flight hours is fixed in the contract, but the government may order more flight
hours than specified in the contract. Such "excess" hours are paid for at an
established contract price for excess hours.
For each contract year, the Company receives payment from the government for the
number of guaranteed flight hours specified in the contract at the applicable
contract rate. Payment to the Company for unflown guaranteed hours, if any, will
be determined in accordance with standard government reimbursement procedures
and will not be received until the end of the contract year.
The Company's DOD contracts generally are firm, fixed-price contracts under
which the Company bears the risk that the prices paid by the government will be
sufficient to cover actual costs incurred in performing under the contract, plus
the amount of profit expected in pricing its bid or proposal. The Company may,
however, file claims for equitable adjustment in the event certain
uncontrollable cost overruns, such as excessive jet fuel cost increases, occur.
The resolution of such claims is a negotiation between the parties and no
assurance can be given that all or any part of the relief will be granted.
In some instances, the Company may be selected as a "sole-source" provider to
perform its services. In this case, final pricing is negotiated between the
parties based on costs and profit margins acceptable to both. The Defense
Contract Audit Agency ("DCAA") has the right to audit the Company's books and
records. When firm, fixed-price contracts are awarded after a competitive bid,
prices are not normally subject to re-negotiation or retroactive adjustment and
therefore the chances of such an audit are greatly diminished. In the event a
contract is awarded to the Company on a sole-source basis, final prices and
costing are subject to full audit by the DCAA.
The government markets in which the Company conducts fleet operations are
moderately competitive. Price usually is a significant factor considered in
awarding contracts. Many firms, ranging in size from companies having
substantially smaller operations than the Company to affiliates of major
corporations having substantially greater resources than the Company, compete
directly with the Company for contracts awarded by the United States government
and the other fleet operations customers and potential customers of the Company.
Competitive factors other than price which affect the award of flight operations
contracts include the number of employees (for example, certain contracts are
available only to businesses with fewer than 1,500 employees), experience in the
field of aviation services and adequacy of resources, including maintenance
personnel, aircrews, repair facilities and aircraft.
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Competition is an even greater factor in the commercial segment of the flight
operations market where barriers to entry are lower than in the government
sector. This is due in part to the fact that aircraft may not require unique
modifications in order to perform the desired services. In this market the
Company competes with numerous companies, some of which also compete in the
market for military contracts. Price also can be a significant factor where, on
occasion, competitors are single aircraft operators engaged in the business on a
part-time basis.
In October 1999, the Company entered into an agreement with Geophysical &
Environmental Resources Corporation ("GERC"), an unrelated party, to form
Geoflight, LLC, ("GFL") a joint venture between GERC and the Company. GFL was
formed to provide remote sensing services to public and private customers using
an array of airborne sensing devices. Management believed this transaction would
position the Company to compete in the emerging market for private aerial
imaging and intelligence gathering services. No substantial investments were
made in GFL, nor did GFL have any operations in the fiscal year ended April 30,
2001.
In December 1999, the Company entered into an agreement with the United States
Bankruptcy Court for the District of Alaska (the "Court") to manage the
operations of Yute Air Alaska, Inc. ("Yute"). The Company managed the ongoing
operations of Yute until March 28, 2000, when the Court approved and ordered the
sale of selected assets of Yute to FAI. An asset purchase agreement was executed
on April 28, 2000 following successful transfer of Yute's Air Carrier Operating
Certificate and Certificate of Public Convenience and Necessity. The acquisition
represented the Company's desire to expand its services into the scheduled cargo
airline business. Total consideration for the transaction consisted of $373,282
in cash and $775,000 in additional long-term debt obligations.
Effective February 29, 2000, the Company completed, through Flight International
Services, Inc. ("FIS"), the acquisition of the assets and certain liabilities of
Flight Systems, Inc., in Myrtle Beach, South Carolina. The acquisition
represented the Company's desire to expand its services and capabilities in the
commercial aircraft maintenance and modification business. Total consideration
for the transaction consisted of $150,000 cash and 101,398 shares of Common
Stock of the Company and the assumption of approximately $468,000 in net
liabilities. Between March 1, 2000 and April 30, 2000 the Company made
additional investments in working capital in FIS.
By July 2000, management determined that an economic downturn was already having
substantial negative impact on commercial aviation. The Company failed to
realize its targets for revenue growth in this market segment. In October 2000,
with the downturn deepening, a decision was made to sell the assets of FIS and a
search was conducted for a likely buyer. In November 2000, the Company entered
into an agreement with Reliance Aviation Industries, Inc. ("Reliance") to sell
substantially all of the business of FIS in a stock sale transaction for
$600,000 for a promissory note payable over 48 months, beginning in May 2001.
Reliance subsequently defaulted in its obligations under the note and the
Company reclaimed tooling, inventory and equipment in the approximate value of
the remaining balance of the note payable. Losses from this discontinued
operation totaled $2,506,003 in fiscal 2001, consisting of a loss from
discontinued operations of $1,461,003 and a loss on disposal of discontinued
operations of $1,045,000.
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UNCERTAIN MILITARY AND POLITICAL CLIMATE
The Company is operating its business at a time of significant instability in
domestic and international security affairs. As it was in fiscal 2001, the
Company's business may be particularly sensitive to military and/or terrorist
attack, to changes in utilization and demand caused by actual and perceived risk
of such attacks, and shifts in government fiscal priorities to tax relief or
defense spending. While these world events and subsequent government responses
may have a near term negative impact, it is not known whether such events,
including terrorism and other heightened security concerns, will have any
long-term effect, positive or negative, on the Company's business.
FLEET COMPOSITION
As of January 31, 2002, the Company operated 47 aircraft. As of the date hereof,
the Company operates 46 aircraft. FII operates 22 Learjets, 5 Fairchild Metro
III's and 4 other prop aircraft. These aircraft are used in the conduct of fleet
operations for government and commercial customers. In addition, the Company
owns and operates electronic warfare equipment used in conjunction with its
fleet operations contracts.
FAI operates 4 twin-turboprop Casa 212s, one twin-prop Navajo Chieftain and 9
single-engine prop aircraft. The Company introduced a Twin turbine Beech KingAir
in March, 2002.
FIA provides a Cessna 172E in conjunction with its flight training programs and
has access to FII's twin engine fleet for multi-engine training opportunities.
The Company maintains an inventory of spare aircraft parts, equipment and
tooling used in support of the Company's fleet, as well as for the repair and
maintenance of third party aircraft. In addition to the aircraft listed above,
the Company currently holds two Jetstream J-31 turbo-prop aircraft for resale.
FLIGHT INTERNATIONAL, INC.
In August 1996, the Company was awarded the Commercial Air Services-Military
Operations Support contract ("CAS-MOS"), a derivative of the original government
contract awarded to the Company in 1980 and operated until September 1993. The
new contract began on October 1, 1996 and would have completed its final option
period in September 2001. After submitting a firm, fixed-price proposal in a
competitive-bid environment, the Company was notified that it was the sole
bidder for the follow-on contract that was to have been awarded by October 1,
2001. The Company was further notified that the bid exceeded the maximum funding
authorization for the requested services and the contract would require
re-bidding after the DOD revised the scope of the requested services to ensure
they would be within budget guidelines. To ensure the continuation of training
services, the DOD requested up to four additional 90-day extension periods
(referred to as option periods 5, 6, 7, and 8) to the current contract to allow
sufficient time for the re-bidding and award processes. The Company agreed to
the extensions and negotiated price increases in each of the four potential
option periods. On March 31, 2002, the Company completed the sixth and final
option period of the 1996 contract. The contract contributed 50.9% of the
Company's revenue in fiscal year 2001 and 51.6% for the nine months ended
January 31, 2002.
In April 2002, the Company was awarded the follow-on CAS-MOS contract and began
operations in an uninterrupted manner on April 1, 2002. The new contract is
again comprised of a base and four annual option periods through March 31, 2007.
The new contract substantially reduces the Company's risks associated with
fuel-cost fluctuations as fuel becomes government furnished. In addition,
10
market-associated cost increases for liability and hull insurance will be
reimbursable by the government under the new agreement. The Company also has
negotiated with its subcontractors to recover overhead and administrative costs,
further strengthening its position. Under new guidelines required of "large
contractors", the Company must now conform to "Cost Accounting Standards" as
outlined in the Federal Acquisition Regulations. During the period of conversion
to these standards, the government reserves the right to review overhead and
indirect costs and adjust the prices paid for the services provided based on
proven expenses in these areas. Since the government has accepted the risk of
fuel and insurance volatility, total funding for the Company's services may be
competing with these costs in out-years. No assurances can be made that activity
levels will remain at the base-year level in option periods, but any changes in
utilization in subsequent years would result in the renegotiation of rates
between the parties. Furthermore, there can be no assurance that the government
will exercise any of the options on the CAS-MOS contract to continue past the
base year.
In September 1999, the Company was awarded a Commercial Air Services contract to
provide Electronic Warfare ("EW") training and VIP transportation for the United
States Navy's 6th Fleet deployed in and around the Mediterranean Sea
("CAS-MED"). Based in Naples, Italy, the contract requires three Learjet
Series-30 aircraft, two of which require "multi-mission" configuration that
provide passenger transportation as well as required training services. The
contract, which consists of one base year and 4 option years, commenced on
October 1, 1999. In fiscal year 2001, the contract contributed 8% of the
Company's revenues. There can be no assurance that the government will exercise
its remaining options on the CAS-MED contract.
FII is a relatively small competitor in the European marketplace for EW
training, target tow and VIP transportation services. Management has attempted
to penetrate this marketplace using the CAS-MED contract as a springboard.
Competitors in this market include a number of large companies with significant
financial resources and no assurances can be given that the Company will
increase its market share.
FII performs contract flight services for the DOD, other government agencies and
commercial customers. The Company utilizes specially modified business jets,
propjets and piston-powered aircraft in conjunction with the training of
military aircrews, radar operators and weapons controllers in the techniques of
airborne target identification and interception.
Under the DOD contracts, FII's aircraft simulate aggressor aircraft, tow
airborne targets for air-to-air and surface-to-air missile and gunnery live
firing exercises and use airborne electronic countermeasures equipment and
techniques to disrupt ship, aircraft and land based communications and radar.
Contracts with the DOD generally provide for compensation based on flight hours
of usage. Flight crews are required to hold United States government security
clearances in connection with certain classified aspects of the services
provided.
In addition to its contracts with the DOD, a small portion of the Company's
revenues from fleet operations are generated from customers in the aerospace
industry that use specially configured aircraft for training and testing.
Typically, customers utilize aircraft and flight crews in connection with
product development. Many of these services are provided pursuant to purchase
orders rather than long-term contracts.
11
Seasonality is a significant factor in contract fleet operations (historically
representing a majority of FII's revenues) affecting both revenue and cash flow.
Revenues are lower during midsummer and winter months. To help mitigate these
effects, the Company requested and was granted the ability to bill the
government for a portion of its fixed operating expenses on a monthly basis
under the CAS-MOS contract. The Company anticipates that this method of
invoicing will reduce the negative impact caused by seasonality in the future.
In addition to offering contract fleet services, FII offers its aircraft and
equipment for lease or rental to DOD and other government customers. During the
fiscal year ended April 30, 2001 and the nine months ended January 31, 2002,
this part of the business remained strong, due principally to the extension of
the Company's contract with the U.S. Navy/Naval Weapons Center in China Lake,
California, to provide Metro III aircraft necessary to accomplish transportation
of naval personnel. This revenue stream was enhanced by the Navy's desire to
upgrade the Metro III fleet with additional avionics and structural
modifications.
FLIGHT ALASKA, INC.
On April 28, 2000, FAI began providing scheduled air cargo services from five
major hubs in Western Alaska to more than 60 villages throughout the state.
Flight Alaska's primary customer is the United States Postal Service. Mail in
Alaska is tendered to qualified air carriers serving the state through an
"equitable tender" system that provides each carrier with an equal share of the
mail for each market served. Through its acquisition of Yute and the transfer of
Yute's operating certificates, FAI was automatically qualified to receive an
equitable share. FAI has expanded its operations to every major hub in Alaska.
FAI utilizes a combination of single and twin engine reciprocating aircraft to
perform its mail and freight carriage services. The Company believes that the
single engine aircraft acquired in the Yute Air acquisition are well suited to
carry mail and freight to the small villages throughout Alaska. The twin-engine
aircraft are equipped to operate in all but the worst weather conditions.
Mail rates are set by the US Department of Transportation ("DOT") and are
updated periodically based on average industry costs. Management believes the
Company's ownership costs provide a competitive advantage and allow management
to spend more than its competitors on training and other safety investments. In
general, insurance costs in Alaska are double those experienced in the Company's
other operations. Through aggressive safety programs, management intends to
reduce its insurance costs in Alaska and further enhance its competitive
position.
In response to rapidly escalating fuel prices in 1999, Alaskan air carriers
petitioned the DOT for interim fuel cost adjustments. The DOT honored the
request and has instituted a quarterly adjustment decreasing the carrier's
exposure to fuel cost volatility.
FAI also provides charter freight and passenger services to government
organizations and businesses throughout the state. FAI has negotiated contracts
and agreements with several oil producers and oil-field support companies to
provide air transportation for passengers and freight on Alaska's North Slope.
In addition, management has negotiated aircraft storage and maintenance support
agreements with Phillips Petroleum to support that company's aviation
operations.
12
FAI also provides ground-handling services for other air carriers at its
regional hubs. Management believes that the Company is well positioned to
provide space and handling services to other carriers. While no assurances can
be given that these relationships will continue, FAI provides services for
Lynden Air Cargo and Lynden Projects in Dillingham, Alaska, and Alaska Central
Express in Bethel, Alaska.
In December 2001, FAI was granted authority by the DOT to carry passengers on a
scheduled basis. Management plans to develop scheduled-passenger operations in
underserved markets utilizing twin-engine aircraft capable of carrying both
passengers and freight.
FLIGHT INTERNATIONAL AVIATION, INC.
FIA operates a Fixed Base Operation ("FBO") at the NN/W Airport pursuant to an
agreement with the Peninsula Airport Commission that terminates in January 2004.
The Company offers a full range of aviation services customarily provided by
such a facility to third parties. These services include aircraft fueling,
maintenance services (including inspections and engine and airframe repairs),
aircraft modifications, avionics installation and replacement, charter, pilot
services and aircraft storage.
The competitive market for FBO services may be local, regional or national,
depending upon the particular type of service considered. Competition with
respect to fuel and maintenance generally arises from other FBOs located at the
same airport or within the vicinity of such airport. The availability of storage
hangars for aircraft is also an important competitive factor. Generally, pilots
with aircraft hangared at a facility will purchase fuel and a substantial
portion of their maintenance and avionics requirements at that facility. The
Company maintains three hangars at its Newport News FBO that are used for its
fleet of aircraft as well as third-party aircraft. Management does not believe
that revenues from its FBO are dependent on a single customer.
FLIGHT INTERNATIONAL, INC.
FII operates a Modification, Repair and Overhaul (MRO) Center, in conjunction
with its fleet operations at the NN/W Airport, pursuant to an agreement with the
Peninsula Airport Commission that terminates in January 2004. The MRO Center
consists of approximately 29,000 square feet of hangar space and 25,000 square
feet of maintenance, shop and office space.
FII intends to exploit the expertise it has developed maintaining its fleet of
aircraft to repair, modify and maintain customer aircraft. The airport is
strategically located in the highly traveled Eastern Seaboard corridor, with a
heavy concentration of corporate aviation. FII competes with other facilities,
particularly Learjet Service Centers, nationwide.
REGULATION
The Company's business is subject to regulation by the U.S. Federal Aviation
Administration ("FAA") and the Department of Transportation, under the
provisions of the Federal Aviation Act of 1958, as amended (the "Aviation Act").
The DOT is responsible for, among other things, evaluating and determining the
fitness of individuals and organizations to function as air carriers, and
maintaining jurisdiction over consolidations, mergers and acquisitions of air
carriers.
13
The FAA regulates aircraft and air carrier operations, including personnel
employed, equipment used, ground facilities, maintenance, communications and
other matters. More specifically, the FAA regulates the operation of aircraft in
commercial operations, including FII and FAI operations, under Federal Aviation
Regulation Part 135, and regulates MRO Centers, including those operated by FII
and, formerly by FIS, under Federal Aviation Regulation Part 145.
The FAA has the authority to suspend or revoke the approval of air carriers,
commercial operators, repair stations and pilot schools, or their licensed
personnel, for failure to comply with any FAA regulation, and can "ground"
aircraft if questions arise concerning their airworthiness. Management believes
the Company holds all operating, airworthiness and other FAA certificates
required for the conduct of its business, although these certificates may be
suspended or revoked for cause.
The FAA also has authority under the Noise Control Act of 1972, as amended, to
monitor and regulate aircraft engine noise. Management believes that the
aircraft operated by the Company are in compliance with regulations promulgated
by the FAA and that such aircraft also comply with regulations for aircraft
exhaust promulgated by the Environmental Protection Agency pursuant to the Clean
Air Act of 1979, as amended. In addition, the Company's operations may be
subject to local regulation with respect to noise control. Such authorities and
ordinances could restrict the Company's use of older Learjets, which produce
greater engine noise than newer models.
Because of the extensive use of radio and other communication facilities in its
aircraft operations, the Company is also subject to the Federal Communications
Commission Act of 1934, as amended (the "FCC Act"), and regulation thereunder by
the Federal Communications Commission ("FCC"). The Company believes it is in
compliance with all material requirements of the FCC Act and the FCC.
The Company maintains a fuel storage area at its FBO and handles materials that
are subject to federal, state and local regulations. The Company believes it is
in compliance with all such regulations and does not currently anticipate that
maintaining compliance will have a material effect on the capital expenditures,
earnings or competitive position of the Company. The Company believes the costs
and effects of compliance with such regulations are minor.
Compliance with the regulatory requirements applicable to the Company's business
imposes material burdens on the Company, including license requirements,
maintenance, training, record keeping and reporting obligations and limitations
on the manner in which the Company operates its aircraft. Further, the cost of
compliance with these requirements is significant. Management believes, however,
that the regulatory requirements applicable to the Company generally are no more
burdensome to the Company than to other businesses operating in the aviation
services industry.
As of January 31, 2002, the Company had 280 employees, including 202 full-time
employees. None of the Company's employees is covered by a collective bargaining
agreement.
14
DESCRIPTION OF PROPERTY
The Company's executive offices and corporate headquarters are located at One
Lear Drive, Newport News, Virginia 23602, where the Company has approximately
10,000 square feet of office space.
As of January 31, 2002, FIA's leasehold interests at the NN/W Airport represent
approximately 2.0% of the total assets of the Company. These leasehold interests
consist of three hangars totaling 29,000 square feet and approximately 25,000
square feet of maintenance shop and office space. The leasehold improvements are
amortized on a straight-line basis over the term of the land lease, which runs
through January 2004. There are no plans for additional improvements to the
property, and, in the opinion of management, the property is adequately insured.
As of January 31, 2002, FAI's leasehold interests in Bethel, Alaska, acquired in
June 2000, represent approximately 4.5% of the total assets of the Company.
These leasehold interests consist of a single hangar totaling 14,000 square feet
of hangar, shop and office space. These leasehold improvements are amortized on
a straight-line basis over the term of the land lease, which runs through June
2015. In the opinion of management, the property and its contents are adequately
insured.
FAI's leasehold interests in Anchorage, Alaska consist of a single hangar
totaling 5,800 square feet of hangar, shop and office space, leased from
Signature Aviation, which runs month-to-month. There are no plans for leasehold
improvements to this facility. In the opinion of management, the property and
its contents are adequately insured.
FAI's leasehold interests in Dillingham, Alaska consist of a single hangar
totaling 6,400 square feet of hangar, shop, office, and mail-storage space. The
leasehold runs month-to-month. There are no plans for additional improvements to
the property. In the opinion of management, the property and its contents are
adequately insured.
FAI's leasehold interests in Deadhorse, Alaska consist of a portable hangar
facility erected in December 2000. The land lease consists of 13,500 square feet
of land upon which the 8,000 square foot hangar was erected. The land lease runs
annually, with three option years. There are no plans for additional
improvements to the property. In the opinion of management, the property and its
contents are adequately insured.
FAI's leasehold interests in Aniak, Alaska consist of mail storage and office
space totaling 2,800 square feet. The leasehold improvements are amortized on a
straight-line basis over the term of the land lease, which runs through February
1, 2007. There are no plans for any improvements to the property. In the opinion
of management, the property and its contents are adequately insured.
The Company presently maintains or operates a fleet of 48 aircraft, of which 11
are owned and 37 are leased. The Company also owns, subject to a Deed of Trust
and Security Interest Lien to Vbank, formerly First Union National Bank, certain
buildings, hangars and maintenance facilities. As of January 31, 2002, the
indebtedness to Vbank was approximately $711,000. The indebtedness to Vbank
provides for complete amortization thereof through graduated payments through
November 2003, at which time the entire obligation will be satisfied.
15
A majority of the Company's assets are pledged as collateral on its debt and
capital lease obligations. The Company leases the land underlying its
maintenance and headquarters building and hangars through the year 2004,
pursuant to a lease agreement with the Peninsula Airport Commission of Newport
News, Virginia.
LEGAL PROCEEDINGS
Except as described below, there are no material legal proceedings to which the
Company is a party or to which any of its assets or properties are subject. The
Company is subject to normal litigations in the ordinary course of business.
Stephen Wyche, et al. vs. Flight International, Inc. A former employee filed
suit against the Company in the United States District Court for Eastern
Virginia alleging violations of the Fair Labor Standards Act, the Virginia
Payment of Wage Law, and the Civil Rights Act of 1964, as amended, as well as
embezzlement and fraud. The former employee sought judgment in the amount of
$3,000,000. The Company was awarded full summary judgment in this matter, which
was dismissed in July 2000. The Company was awarded damages as a result of the
costs incurred in defending this lawsuit.
Charles T. Myers, Flight Systems, Inc., Aviation Technologies, Inc. and George
Kosko v. Flight International Group, Inc. The plaintiffs alleged that the
Company breached a certain Asset Purchase Agreement by failing to pay various
liabilities incurred by Aviation Technologies Group, Inc. following the
Company's acquisition of Flight Systems, Inc. It is also alleged that the
Company failed to pay loans made to it by Flight Systems, Inc. The Plaintiffs
have also asserted an unjust enrichment claim based on the same facts. The
co-plaintiff in that case, George Kosko, is an attorney who represented Charles
Myers in the asset purchase process. Mr. Kosko is suing to recover attorneys
fees that he contends the Company owes him for work he did representing Mr.
Myers and his companies in negotiating the Asset Purchase Agreement. The Company
has answered the Complaint, discovery is ongoing and the Company is defending
the case vigorously. The Company believes that an unfavorable outcome is
unlikely. The Company believes it has paid all that it owed to the Plaintiffs
and it has pending viable counterclaims. Management believes that the value of
the counterclaims could well outweigh the collective value of all claims made in
the Complaint, but there can be no assurance thereof.
The claim by Mr. Kosko for attorney fees is $84,917. The Company has offered the
amount that was asserted to be due Mr. Kosko at the time of closing, which was
approximately $50,000. The Company has continued to offer that amount to Kosko.
The demand made by Mr. Myers and his related companies is $220,733. Counsel does
not believe that Mr. Myers and his related companies will be able to recover
that amount based upon the facts as known at this juncture in the litigation.
BB&T of South Carolina v. Aviation Technologies, Inc. and Charles T. Myers v.
Flight International Group, Inc. This is a case brought against Myers and his
related companies relating to $26,838 of indebtedness they admittedly owe BB&T.
Mr. Myers and his related company, Aviation Technologies Group, filed a third
party complaint against The Flight International Group arguing that it is
responsible for this debt due to the sale. Counsel does not believe that Mr.
Myers and his related companies will be able to recover that amount based upon
the facts as known at this juncture in the litigation.
16
FINANCIAL STATEMENTS
See pages F-1 to F-25 attached hereto.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries as of and for each of the five years ended April
30, 2001, 2000, 1999, 1998 and 1997 and as of and for the nine months ended
January 31, 2002 and 2001. No pro forma data for the Company giving effect to
the proposed merger is provided because the Company does not believe such
information is material to shareholders in evaluating the proposed merger since
the proposed merger consideration is all cash.
The financial information for the Company, as of and for each of the five years
ended April 30, 2001, 2000, 1999, 1998 and 1997 has been derived from the
consolidated financial statements of the Company, which have been audited by BDO
Seidman, LLP. The financial information for the Company as of and for the nine
months ended January 31, 2002 and 2001 has been derived from the unaudited
consolidated financial statements of the Company which, in the opinion of the
Company's management, include all adjustments necessary for a fair presentation
of the Company's financial position and results of operations. All such
adjustments are of a normal recurring nature. The results of operations for the
nine months ended January 31, 2002 are not necessarily indicative of the results
that may be achieved for the full year, and cannot be used to indicate financial
performance for the entire year. The following financial information should be
read in conjunction with "Management's Discussion and Analysis" and the
Consolidated Financial Statements of the Company and the notes thereto included
in this proxy statement.
As of or for the
As of or for the Year Ended April 30, Nine Months Ended January 31,
---------------------------------------------------------------------- ----------------------------
2001 2000 1999 1998 1997 2002 2001
------------- ------------- ------------- ------------- ------------- ------------- -------------
(Unaudited)
Statements of Operations
Data:
Net revenues $37,400,960 $28,984,109 $ 25,313,924 $22,060,399 $ 19,035,036 $32,996,069 $26,457,838
Operating costs and
expenses 37,271,322 27,300,578 24,173,464 20,935,929 17,993,588 33,211,988 27,164,506
Income (loss) from
continuing operations
before taxes (975,016) 1,335,849 809,411 758,883 664,890 (1,000,641) (1,582,316)
Loss from discontinued
operations (1,460,721) (457,568) - - - - (1,460,721)
Loss on disposal of
subsidiary (1,045,282) - - - - - (1,045,282)
Net income (loss) (3,481,019) 878,281 809,411 725,883 664,890 (1,000,641) (4,088,319)
Basic and diluted earning (loss)
per share data:
Continuing operations (0.88) 1.29 0.80 0.72 0.66 (0.90) (1.43)
Discontinued operations (2.26) (0.44) 0.00 0.00 0.00 0.00 (2.26)
Balance sheet data:
Current assets 10,192,369 13,274,490 7,303,060 7,675,340 5,668,447 12,174,283 8,692,661
Total assets 21,025,793 20,130,977 11,915,382 11,793,619 9,963,368 22,883,898 20,059,252
Current liabilities 13,458,831 11,043,809 5,683,068 4,866,982 3,512,276 16,325,255 13,720,571
Long-term debt and
other liabilities 6,183,735 3,889,912 3,018,730 4,512,907 4,772,802 6,176,057 6,013,277
Shareholders' equity (deficit) 933,202 4,413,723 3,213,584 2,404,173 1,678,290 (67,439) 325,404
Other data:
Book value per share 0.84 3.98 3.17 2.38 1.66 N/A 0.32
Significant Accounting Policies and Estimates
The Company's significant accounting policies are more fully described
in its Summary of Accounting Policies to the Company's consolidated financial
statements. The preparation of financial statements in conformity with
accounting principles generally accepted within the United States requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying financial statements and related
notes. In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company does not believe there is a
great likelihood that materially different amounts would be reported related to
the accounting policies described below; however, application of these
accounting policies involves the exercise of judgment and the use of assumptions
as to future uncertainties and, as a result, actual results could differ from
these estimates.
The Company recognizes contract revenue as hours are flown, at the
average rate per flight hour, over the term of each contract. Certain contracts
provide for a guaranteed minimum number of flight hours per contract year.
Contract revenue for such guaranteed but unflown hours, if any, is recognized at
the end of the contract year. The Company recognizes maintenance revenue at the
time of completion.
The Company's inventories are recorded as follows:
Aircraft parts, which consist of rotables and repairable and expendable
aircraft components, are recorded using the specific identification method at
the lower of cost or market for rotables and repairable aircraft components, and
the lower of average cost or market for expendable components.
Targets and cable, which are special equipment required to perform
target tow missions, are recorded at the lower of average cost or market.
Fuel, which includes Jet A and Avgas, both of which are consumed in the
performance of contracts and sold commercially, is recorded at the lower of
average cost or market.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Nine Months Ended January 31, 2002 Compared to the Nine Months Ended January 31,
2001
Revenue
For the nine months ended January 31, 2002, revenues from continuing operations
totaled $32,996,069. This represents an increase of 24.7% over the same period
last year. In fiscal year 2001, the Company's revenues were generated from three
sources. Fleet Operations of owned or leased aircraft accounted for 89.9% of
total revenue, while the MRO Center produced 6.1% of sales and the FBO provided
4.0% of total revenues.
17
A period over period revenue comparison for each source is outlined in the
following table. While Fleet Operations and FBO revenues showed substantial
increases, MRO Center revenues decreased as displayed below (in thousands):
9 Months Ended 9 Months Ended
January 31, 2002 January 31, 2001 % Increase (Decrease)
---------------- ---------------- --------------------
Fleet Operations $ 29,702 $ 22,681 31.0%
MRO Center $ 2,022 $ 2,583 (21.7)%
Newport News FBO $ 1,271 $ 1,194 6.4%
The increase in Fleet Operations revenues is due to continued expansion of
flying hours in the CAS-MOS contract, continued rapid growth in revenues
attributable to Flight Alaska, and increases in small purchase order flight
services in Australia and Europe.
MRO Center revenues were down due to the absence of Service Life Extension
Program ("SLEP") revenues that provided over $750,000 in fiscal year 2001. Much
of the Lear Series 30 fleet, including the Company's own, is still below the
20,000-hour useful life limit the Service Life Extension Program increases.
Revenues from this product line are expected to be volatile over the next few
years.
FBO revenues increased due to growth in the overall market associated with
additional passenger airline service at the NN/W Airport.
Cost of Services
Cost of services from continuing operations includes the direct operating
expenses of aircraft utilized and maintained by the Company and costs of goods
sold for the MRO Center. Types of expenses incurred include the following:
lease, fuel, insurance, maintenance, pilots and equipment. Also included are the
costs of operating the FBO at the NN/W Airport, the repair parts, outside
services and direct labor for the MRO Center.
For the nine-month period ended January 31, 2002, there was a 25.2% increase in
cost of services from continuing operations compared to the same period last
year. The major factors contributing to the increase in cost of services were
expenses related to the cost of fuel, contracted operations (wet lease)
expenses, and labor expenses which all increased in excess of the growth rate in
revenues. The overall gross margin decreased to 11.3% from 11.6% for the same
period last year.
The Company has worked to decrease its exposure to volatile fuel prices by
performing as many services as possible on an "ACMI" basis. Under an ACMI
arrangement, the Company is responsible for aircraft ownership, crew,
maintenance and insurance expenses. The customer is responsible for cost of
fuel, ground handling, landing and air traffic control fees (if any), and any
and all crew accommodation expenses. Due to existing fixed-price contracts and
the Company's common-carriage operations, it is neither practical nor possible
to perform all the Company's services on an ACMI basis and the Company is not
able to eliminate this exposure completely. During the nine months ended January
31, 2002, fuel prices remained at levels significantly above those prices
forecasted in the Company's long-term, fixed-price bids and adversely affected
profitability. Beginning in April 2002, the Company's CAS-MOS operations will be
conducted on an ACMI basis. Management estimates that fuel cost savings
associated with government supply of fuel on the CAS-MOS contract will reduce
fuel expenditures substantially.
Contracted operations expense rose in the nine-month period ended January 31,
2002 due principally to increases in flight activity. During the period, the
Company supported an additional product line for its DOD customers by providing
a contracting vehicle for aerial refueling services to several branches of the
18
military. A new subcontractor, Omega Air, provides commercial aerial refueling
services for the Navy and Marine Corps. Costs associated with the additional
services were responsible for $1,100,000 of the $1,700,000 increase in
contracted operations. An additional $150,000 of the increase is explained by a
5% price increase built into the CAS-MOS contract for the Company's remaining
subcontractors. Finally, the change in invoicing procedures for fixed cost
charges resulted in an additional $450,000 of expense as the same procedures
were used by the subcontractors flying guaranteed hours.
The Company's labor expenses showed significant increases in the nine-month
period ended January 31, 2002. Due to increasing pilot attrition rates, the
Company elected to increase pilot wages to bring them closer to prevailing
market wages. Management estimates the effect of these pay changes to be
$250,000 annually. Management has determined that, in general, the Company's
wage scales are significantly below market rate for staff and management
personnel. For this reason, management anticipates labor expenses to continue to
increase during the current year.
Hull, liability, and passenger insurance costs decreased during the nine-month
period ended January 31, 2002. The Company appointed a new aviation insurance
broker who negotiated significant rate reductions and a partial refund in May,
2001. During the nine-month period ended January 31, 2002, insurance costs
reductions were offset by activity levels increased. Management believes that
the events of September 2001 will result in significant industry-wide rate
increases for fiscal 2003. Where 80% increases have been "normal" in
post-September insurance renewals, management's negotiations have limited the
rate increase for fiscal 2003 to 30%. Management also believes that requests for
"equitable adjustment" will be received in favorable light by the Company's
long-term, fixed-price customers.
Depreciation and Amortization
Aircraft and engines are depreciated as follows: aircraft are depreciated on a
straight-line basis over 12 years, while engines are depreciated based on hours
flown down to a core value. In addition, a reserve is recorded to cover the cost
of major periodic inspections on engines. Electronic warfare equipment is
depreciated on a straight-line basis over five years. All other property and
equipment is depreciated over its estimated useful life or lease term, if
applicable.
Depreciation and amortization of $1,163,788 for the nine months ended January
31, 2002 reflects an increase of 26.9% compared to the same period last year.
The $246,461 increase is due primarily to increases in flying activities and
engine utilization during the period.
General, Corporate and Administrative
General, corporate and administrative expenses from continuing operations
consist principally of facility costs associated with the Company's hangars and
corporate headquarters, and labor costs associated with the administrative and
sales staff. General, corporate and administrative expenses from continuing
operations aggregated $2,934,098 for the nine months ended January 31, 2002, a
decrease of 3.4% over the same period last year. The small decrease is
attributable to the fact that bad debt expense dropped by approximately $500,000
for the period ended January 31, 2002. Other G&A expenses increased at a rate
less than the rate of revenue growth.
19
Interest Expense
Net interest expense decreased to $784,722 from $875,648 for the same nine-month
period last year, or 10.4%. The decrease in interest expense is principally due
to falling interest rates associated with the Company's variable-rate short term
borrowings. See "Liquidity and Capital Resources" below.
Income Tax Expense
Income tax expense varies from statutory tax rates principally because of the
utilization of net operating loss carry forwards. For further discussion see
Note 7 to the Consolidated Financial Statements included herein.
Net Income
The consolidated net earnings for the nine months ended January 31, 2002 were
($1,000,641), a loss of ($.90) per share compared to a net loss of ($4,088,319)
or ($3.69) per share, for the nine months ended January 31, 2001. Net income on
continuing operations for the first nine months of fiscal 2001 were ($1,582,316)
or a loss of ($1.43) per share. The weighted average number of shares was
1,109,588 and 1,109,576, respectively.
Year Ended April 30, 2001 Compared to the Year Ended April 30, 2000
Revenues
For the year ended April 30, 2001, revenues from continuing operations totaled
$37,400,960. This represents an increase of 29.0% over the prior year. In fiscal
year 2001, the Company's revenues were generated from three sources. Fleet
Operations of owned or leased aircraft accounted for 86.5% of total revenue,
while the MRO Center produced 9.1% of sales and the FBO provided 4.4% of total
revenues.
A year-over-year revenue comparison for each source is outlined in the
following table. While Fleet Operations and the MRO Center showed substantial
increases, Fixed Base Operations revenues decreased as displayed below (in
thousands):
12 Months Ended 12 Months Ended
April 30, 2001 April 30, 2000 % Increase (Decrease)
--------------- --------------- ---------------------
Fleet Operations $ 32,341 $25,772 25.4%
MRO Center $ 3,430 $ 1,510 127.2%
Newport News FBO $ 1,630 $ 1,702 (4.4)%
The increase in Fleet Operations revenues is due to continued expansion of
flying hours in the CAS-MOS contract, the addition of FAI's revenue stream, and
an increase in compensation associated with an extension of the Company's
contract with the US Navy to supply and maintain five Metro III aircraft for
charter passenger service at China Lake, California. Included in the extension
of the China Lake Contract were revenues for modifying the Metro III fleet to
new DOD safety and operating standards. At the end of fiscal 2001, the Company
20
deployed additional assets to Australia in support of an interim flight training
services agreement to provide EW training for the Royal Australian Navy. As a
subcontractor to Raytheon Australia, the Company will also participate in the
modification of Lear 35 during fiscal 2003. In addition, the Company's efforts
to grow European sales met with success as sales to NATO and several
NATO-related customers also increased.
MRO Center revenues were up due to the performance of several large aircraft
modification and refurbishment programs during the year ended April 30, 2001.
During this period, several customers brought high-time aircraft for Service
Life Extension Program services. Management also took steps during 2001 to place
all maintenance-related revenues under its MRO business line. In the past, parts
sales to government agencies were classified as Fleet Operations revenue.
Management reclassified approximately $500,000 from Fleet Operations to
Commercial Maintenance during fiscal 2001.
FBO revenues decreased due to continued market share erosion and a softening of
the overall general aviation activities during the year.
Cost of Services
Cost of services from continuing operations includes the direct operating
expenses of aircraft utilized and maintained by the Company. Types of expenses
incurred include the following: lease, fuel, insurance, maintenance, pilots and
equipment. Also included are the costs of operating the FBO at the NN/W Airport,
the costs of goods sold and direct labor for the MRO Center.
For the year ending April 30, 2001, there was a 30.6% increase in cost of
services from continuing operations. The major factor contributing to the
increase in cost of services was expenses related to the cost of fuel, aircraft
hull and liability insurance expenses, and general increases in operational
activities associated with growth in CAS-MOS and Flight Alaska business lines.
The overall gross margin declined to 15% from 16% in the prior year.
The Company has worked to decrease its exposure to volatile fuel prices by
performing as many services as possible on an "ACMI" basis. Under an ACMI
arrangement, the Company is responsible for aircraft ownership, crew,
maintenance and insurance expenses. The customer is responsible for cost of
fuel, ground handling, landing and air traffic control fees (if any), and any
and all crew accommodation expenses. Due to existing fixed-price contracts and
the Company's common-carriage operations, it is neither practical nor possible
to perform all the Company's services on an ACMI basis and the Company is not
able to eliminate this exposure completely. During fiscal year 2001, fuel prices
were extremely volatile increasing over 30% from the prior year and adversely
affected profitability. Management subsequently requested an equitable fuel
adjustment for the same period from the DOD and that request is currently being
reviewed. In anticipation of a partial reimbursement, management recorded a
credit of $240,000 for fiscal year 2001. No assurance can be made that all or
part of this equitable fuel adjustment request will be honored.
21
Depreciation and Amortization
Aircraft and engines are depreciated as follows: aircraft are depreciated on a
straight-line basis over 12 years, while engines are depreciated based on hours
flown down to a core value. In addition, a reserve is recorded to cover the cost
of major periodic inspections on engines. Electronic Warfare equipment is
depreciated on a straight-line basis over five years. All other property and
equipment is depreciated over its estimated useful life or lease term, if
applicable.
Depreciation and amortization of $1,281,940 for the fiscal year ended April 30,
2001 reflects an increase of 62.4% compared to fiscal year 2000. The $492,423
increase is due primarily to depreciation on an additional aircraft and
equipment ($125,000), increased activity levels for fleet aircraft that
increased engine depreciation expenses ($70,000), and depreciation associated
with the assets acquired in Alaska ($288,000).
General, Corporate and Administrative
General, corporate and administrative expenses from continuing operations
consist principally of facility costs associated with the Company's hangars and
corporate headquarters, and labor costs associated with the administrative and
sales staff. General, corporate and administrative expenses from continuing
operations aggregated $4,537,730 for the year ended April 30, 2001, an increase
of 71.5% over the prior twelve-month period. The increase was a result of
expenses associated with continuing implementation of new accounting software
systems, administrative and traffic related expenses associated with the
Company's Alaska operations, additional legal fees associated with the Company's
divestitures during the year and an increase in bad debt expense of
approximately $947,000.
Interest Expense
Interest expense increased to $1,104,654 from $347,682 for the prior
twelve-month period, or 217.7%. The increase in interest expense is principally
due to an increase in short-term borrowings to fund the working capital
requirements of the additional business enterprises that began or were acquired
during the fiscal year and interest on the additional fixed assets added during
fiscal 2001. The Company had capitalized interest of approximately $166,000
related to assets held for resale in fiscal 2000. See "Liquidity and Capital
Resources" below.
Income Tax Expense
Income tax expense varies from statutory tax rates principally because of the
utilization of net operating loss carry forwards. For further discussion see
Note 7 to the Consolidated Financial Statements included herein.
Net Income
The consolidated net loss on continuing operations for the year ended April 30,
2001 was ($975,016), or a loss of ($.88) per share and the consolidated net loss
after discontinued operations was ($3,481,019) or a loss of ($3.14) per share
compared to a net profit of $878,281 or $0.85 per share, for the year ended
April 30, 2000. The weighted average number of shares was 1,109,578 and
1,029,656, respectively.
22
Year Ended April 30, 2000 Compared to the Year Ended April 30, 1999
Revenues
For the year ended April 30, 2000, revenues from continuing operations totaled
$28,984,109. This represents an increase of 14.5% over the prior year. In fiscal
year 2000, the Company's revenues were generated from three sources. Fleet
Operations of owned or leased aircraft accounted for 87.3% of total revenue,
while the MRO Centers (Commercial Maintenance) produced 6.9% of sales and the
FBO provided 5.8% of total revenues.
A year-over-year revenue comparison for each source is outlined in the following
table. While Fleet Operations showed substantial increases, Commercial
Maintenance and Fixed Base Operations revenues decreased as displayed below (in
thousands):
12 Months Ended 12 Months Ended
April 30, 2000 April 30, 1999 % Increase (Decrease)
--------------- --------------- ---------------------
Fleet Operations $25,772 $20,875 23.5 %
Commercial Maintenance $ 1,510 $ 2,667 (43.4)%
Newport News FBO $ 1,702 $ 1,772 (4.0)%
The increase in Fleet Operations revenues is due to continued expansion of
flying hours in the CAS-MOS contract, the addition of the CAS-MED contract in
October 1999, and an increase in compensation associated with an extension of
the Company's contract with the US Navy to supply and maintain five Metro III
aircraft for charter passenger service at China Lake, California. Included in
the extension of the China Lake Contract were revenues for modifying the Metro
III fleet to new DOD safety and operating standards.
Commercial Maintenance revenues were down due to the Company's requirement to
procure and ready three additional Lear 30 Series aircraft for operations in
conjunction with the award of the CAS-MED contract. The addition of FIS in March
2000 accounted for 20% of the Commercial Maintenance revenues for fiscal year
2000. Without these revenues, Commercial Maintenance revenues would have
decreased by more than 34% as a result of the required expansion of fleet
operations assets.
FBO revenues decreased due to increased competition at the NN/W Airport that
resulted in the loss of some fuel sales market share.
Cost of Services
Cost of services from continuing operations includes the direct operating
expenses of aircraft utilized and maintained by the Company. Types of expenses
incurred include the following: lease, fuel, insurance, maintenance, pilots and
equipment. Also included are the costs of operating the FBO at the NN/W Airport
and the costs of goods sold and direct labor for the MRO Centers.
23
For the year ending April 30, 2000, there was a 14.2% increase in cost of
services from continuing operations. The major factor contributing to the
increase in cost of services was expenses related to the cost of fuel, some
non-recurring expenses associated with start-up of the CAS-MED contract and the
Flight Systems acquisition. The overall gross margin increased to 16.0% from
15.8% in the prior year.
The Company has worked to decrease its exposure to volatile fuel prices by
performing as many services as possible on an "ACMI" basis. Under an ACMI
arrangement, the Company is responsible for aircraft ownership, crew,
maintenance and insurance expenses. The customer is responsible for cost of
fuel, ground handling, landing and air traffic control fees (if any), and any
and all crew accommodation expenses. Due to existing fixed-price contracts and
the Company's common-carriage operations, it is neither practical nor possible
to perform all the Company's services on an ACMI basis and the Company is not
able to eliminate this exposure completely. During fiscal year 2000, fuel prices
increased over 100% and adversely affected profitability. During fiscal year
2000, actual fuel expense was $2,545,580 versus $2,217,290 in the prior year,
which reflects both an increase in fuel price and flight activity.
During fiscal year 2000, the Company recognized approximately $300,000 in
expense reimbursement for federal excise taxes paid in prior years for fuel used
in connection with the CAS-MOS contract. The expense was initially recognized in
fiscal years 1997, 1998 and 1999. This tax reimbursement is shown as an offset
to fiscal year 2000 fuel expense.
Depreciation and Amortization
Aircraft and engines are depreciated as follows: aircraft are depreciated on a
straight-line basis over 12 years, while engines are depreciated based on hours
flown down to a core value. In addition, a reserve is recorded to cover the cost
of major periodic inspections on engines. EW equipment is depreciated on a
straight-line basis over five years. All other property and equipment is
depreciated over its estimated useful life or lease term, if applicable.
Depreciation and amortization of $884,611 for the fiscal year ended April 30,
2000 reflects an increase of 47.3% compared to fiscal year 1999. The $284,000
increase is due primarily to fully depreciating an aircraft engine which
required overhaul prematurely ($105,000), the addition of depreciation for two
months at FIS ($95,000), increases in assets associated with additional
aircraft, equipment and facilities required for expansion of the CAS-MOS and
CAS-MED contracts, and GeoFlight equipment.
General, Corporate and Administrative
General, corporate and administrative expenses from continuing operations
consist principally of facility costs associated with the Company's hangars and
corporate headquarters, and labor costs associated with the administrative and
sales staff. General, corporate and administrative expenses from continuing
operations aggregated $2,645,932 for the year ended April 30, 2000, an increase
of 14.0% over the prior twelve-month period. The increase was a result of
additions of personnel responsible for the Company's new activities, expenses
associated with implementation of new accounting software systems, and
additional legal fees associated with the Company's expansion during the year.
24
Interest Expense
Interest expense increased to $347,682 from $331,049 for the prior twelve-month
period, or 5.1%. The increase in interest expense is principally due to an
increase in short-term borrowings to fund the working capital requirements of
the new contracts and business enterprises that began or were acquired during
the fiscal year. In addition, the Company capitalized interest of approximately
$166,000 related to assets held for resale. See "Liquidity and Capital
Resources" below.
Income Tax Expense
Income tax expense varies from statutory tax rates principally because of the
utilization of net operating loss carry forwards. For further discussion see
Note 7 to the Consolidated Financial Statements included herein.
Net Income
The consolidated net profit from continuing operations for the year ended April
30, 2000 was $1,335,849, a profit of $1.29 per share compared to $809,411 or
$0.80 per share, for the year ended April 30, 1999. The weighted average number
of shares was 1,029,656 and 1,013,976, respectively.
In the fourth quarter of fiscal year 2000, the Company recorded net adjustments
which increased net income by approximately $400,000, reflecting an adjustment
for approximately $825,000 of unrecorded contracts revenues earned during the
third quarter and a deferral of a portion of a gain related to a sale-leaseback
transaction ($425,000).
Year Ended April 30, 1999 Compared to the Year Ended April 30, 1998
Revenues
For the year ended April 30, 1999, revenues totaled $25,313,924. This represents
an increase of 15% over the prior year. Company revenue is generated from three
sources. Flight operations of owned or leased aircraft accounts for 82% of total
revenue, followed by the maintenance and repair facility at 11% and the FBO at
7% of total revenue.
While flight operations and the FBO showed substantial increases, the
maintenance and repair facility revenue increased to a greater extent, as
displayed below (in thousands):
12 Months Ended 12 Months Ended
April 30, 1999 April 30, 1998 % Increase
--------------- --------------- ----------
Flight Operations $20,875 $18,585 12%
Commercial Maintenance $ 2,667 $ 1,853 44%
Newport News FBO $ 1,772 $ 1,622 9%
25
The increase in flight operations is primarily due to a 10% increase in revenues
from the CAS-MOS contract. Other contract flying also increased by more than
20%. Maintenance revenue increased due to a large mid year project involving the
rebuilding of a damaged Learjet. FBO revenues increased following a pattern of
increased traffic through the NN/W Airport.
Cost of Services
Cost of services includes the direct operating expenses of aircraft owned and
leased by the Company. Types of expenses incurred include the following: lease,
fuel, insurance, maintenance, pilots and equipment. Also included are the costs
of operating the FBO at the NN/W Airport. The costs for the aircraft repair
facility are also included in cost of services.
For the year ending April 30, 1999 there was a 17% increase in cost of services.
The major factor contributing to the increase in cost of services was expenses
related to the CAS-MOS contract. The overall gross margin declined to 16% from
18% in the prior year.
Depreciation and Amortization
Aircraft and engines are depreciated as follows: aircraft are depreciated on a
straight-line basis over 12 years. Engines are depreciated based on hours flown
down to a core value. In addition, a reserve is recorded to cover the cost of
major periodic inspections on engines. EW equipment is depreciated on a straight
line basis over five years. All other property and equipment is depreciated over
its estimated useful life or lease term, if applicable.
Depreciation and amortization of $600,658 for the fiscal year ended April 30,
1999 reflects an increase of 5% compared to fiscal year 1998. This change is
primarily due to an engine purchase completed during the year.
General, Corporate and Administrative
General, corporate and administrative expenses consist principally of facility
costs associated with the three hangars and corporate headquarters building, and
labor costs associated with the administrative and sales staff. General,
corporate and administrative expenses aggregated $2,320,463 for the year ended
April 30, 1999, an increase of 7% over the prior twelve-month period. The
increase is not due to one particular event but more of an overall increase in
all aspects of general and administrative costs.
Interest Expense
Interest expense decreased to $331,049 from $365,540 for the prior twelve month
period, or 9%. The decrease in interest expense is principally due to the pay
down of long term debt as well as more favorable rates of interest on the line
of credit with Crestar Bank.
Income Tax Expense
Income tax expense varies from statutory tax rates principally because of the
utilization of net operating loss carry forwards.
26
Net Income
The consolidated net profit for the year ended April 30, 1999 was $809,411, a
profit of $.80 per share compared to a net profit of $725,883, or $.72 per
share, for the year ended April 30, 1998. The weighted average number of shares
was 1,013,976 for both years.
Liquidity and Capital Resources
NINE MONTHS ENDED JANUARY 31, 2002
Continued growth in the first nine months of fiscal 2002 once again necessitated
the need to increase short term borrowings.
Cash from Operations
Net losses, non-operating items and the effect of depreciation and reserves
generated $24,183 in the first nine months versus absorbing $2,485,626 in the
same period the prior year. Changes in working capital accounts provided
$2,351,824 in the first nine months of fiscal 2002 while providing $4,595,121
for the same period in the prior year. The recognition of deferred revenue
effectively absorbed $138,964 in the first nine months of fiscal year 2002
versus $167,969 for the same period in the prior fiscal year. On a net basis,
the Company's operating activities provided $2,376,007 for the nine months
ending January 31, 2002, versus $2,109,495 in the comparable prior year period.
Cash to Investing Activities
In July 2001, the Company purchased two J-31 aircraft from Maritime Sales and
Leasing and made subsequent improvements to these aircraft. During the nine
month period, these aircraft investments and investment in other Property, Plant
and Equipment absorbed $2,508,568 while investments in the same period for the
prior year absorbed $4,317,877.
Cash from Financing Activities
In the nine month period ended January 21, 2002, financing activities generated
an additional $198,619 versus $2,443,572 for the same period in the prior year.
During the period, the Company retired $1,105,628 of long-term debt, while
financing the additional assets held for resale with additional long-term debt
of $1,300,000.
For the nine months ending January 31, 2002, the Company realized a net increase
in cash and cash equivalents of $249,875.
FISCAL YEAR ENDED APRIL 30, 2001
The Company's growth plan resulted in a significant number of financing
transactions in fiscal year 2001. During that year, the Company continued to
fund its growth and operations primarily through short and long-term borrowings.
27
Cash from Operations
Net losses, non-operating items and the effect of depreciation and reserves
absorbed $1,697,706 in fiscal year 2001 versus providing $1,464,375 in 2000.
Changes in working capital accounts provided $2,117,807 in fiscal year 2001
while absorbing $1,064,836 in the prior year. The recognition of deferred
revenue effectively absorbed $351,932 in fiscal year 2001 versus $1,219,567 in
fiscal year 2000. On a net basis, the Company's operating activities provided
$420,101 for the fiscal year ending April 30, 2001, while absorbing $328,047 in
the comparable prior year period.
Cash to Investing Activities
In February 2001, the Company sold one Learjet 20 to The Aviation Company (an
affiliate of our Chairman and President, David E. Sandlin) for $500,000 and
subsequently leased the aircraft back at market rates. In addition, the Company
sold two J-31 aircraft from its asset inventory to Decker Aviation for
$1,225,000.
Proceeds from these sales were offset by the acquisition of additional property
and equipment which absorbed $5,128,533, additional investment assets held for
resale absorbed $320,592, and investment in other long term assets consumed
$257, 500. On a net basis, investment activities resulted in the absorption of
$4,035,625 in the fiscal year ended April 30, 2001.
Cash from Financing Activities
In fiscal year 2001, the Company utilized a combination of short and long-term
borrowing to fund its expansion needs. Net proceeds from long-term debt and
notes payable provided $5,273,504. Net proceeds from lines of credit provided an
additional $2,748,662 in cash to fund increased working capital requirements
that accompanied the expansion. Repayment of scheduled long-term debt and notes
payable absorbed $4,354,697 including $156,167 on the sale/lease back
transaction with The Aviation Company. During the fiscal year, short and
long-term financing activities provided a total of $3,631,694.
For fiscal year 2001, the Company realized a net increase in cash and cash
equivalents of $16,170.
On February 25, 1998, the Company entered into a line of credit with SunTrust
Bank ("SunTrust") for its short term financing needs. The agreement provided for
up to $2,750,000 in credit. The loan was represented by a demand note which
could have been payable at any time upon the demand of SunTrust. The Company was
obligated to pay interest to SunTrust at prime rate plus one-half percent of the
average balance outstanding. The line was secured by the Company's accounts
receivable and an assignment of the CAS-MOS contract.
On August 1, 1999, the Company entered into an agreement with Wachovia Bank,
N.A. ("Wachovia") to provide $1,300,000 in "floor-plan" debt, at an interest
rate of prime plus 1%, to facilitate the purchase of a Learjet 35 that the
Company intended to refurbish and sell. In a related transaction dated August
15, 1999, the Company refinanced one of its owned Learjet aircraft to secure
$500,000 of additional working capital to cover refurbishment investments on
this aircraft. These aircraft provide security for the debt.
28
On September 23, 1999, the Company entered into an agreement with Harbor Bank
for an 8% fixed-rate term-loan, the proceeds of which were used to refurbish the
Company's hangar and office facilities at NN/W Airport. In addition to the term
note, the Company also negotiated a $500,000 line of credit at an interest rate
of prime plus .5% to fund the acquisition, repair and sale of spare parts to
third parties. These loans were subsequently retired on September 6, 2000 by a
Wachovia Loan and Security Agreement dated August 28, 2000.
On October 1, 1999, the Company entered into an agreement with Wachovia to
provide $900,000 in term debt at an interest rate of prime plus 1% to facilitate
the purchase of two Jetstream 31 aircraft. While initially intended for fleet
operations, these aircraft were sold and the debt financing retired.
On October 15, 1999, the Company entered into an agreement with First Commercial
Bank to provide $225,000 in term debt at an interest rate of prime plus .75% to
facilitate the purchase of one Piper Navajo and one Piper Aztec for use in the
Company's GFL operation.
On February 29, 2000, the Company assumed, as part of FIS's purchase of Flight
Systems, Inc., a short-term demand note payable to a South Carolina bank in the
amount of $123,127 at an interest rate of prime plus .25%. This loan was
subsequently retired on September 6, 2000 by a Wachovia Loan and Security
Agreement dated August 28, 2000.
On February 29, 2000, as part of the FIS acquisition, the Company entered into
an agreement with a shareholder for a non-interest bearing stockholder note
payable maturing February 28, 2001 in the amount of $168,953. Net advances from
February 29, 2000 to April 30, 2000 increased the balance to $238,585. Following
a complete reconciliation of accounts between December 15, 1999 and February 29,
2001, the Company concluded that it believes that the basis for this note was
misrepresented by the shareholder. The disposition of this note is part of the
basis of current litigation and no action has been taken to reduce the current
liability of approximately $203,000 until the outcome of the litigation is
known.
In April 2000, the Company entered into an agreement with Wachovia to provide
$240,000 in long-term debt at an interest rate of LIBOR plus 3% to purchase the
assets of Perry Avionics in Myrtle Beach, South Carolina. The assets acquired in
the transaction provide security for the 3-year loan.
In April 2000, the Company entered into an agreement with Wachovia to provide
$775,000 in long-term financing at an interest rate of LIBOR plus 3% to
facilitate the purchase of selected assets of Yute. The aircraft, spare parts
and equipment acquired provide security for the 5-year loan.
On June 5, 2000, the Company entered into an agreement with the Alaska
Industrial Development and Export Authority to purchase a hangar in Bethel,
Alaska for $1,100,000. The purchase was financed in total by AIDEA and is
payable over 15 years at an interest rate of 9.25%. The loan is secured by the
hangar facilities.
On September 5, 2000, the Company entered into a new Loan and Security Agreement
with Wachovia for all its short-term financing needs. The new agreement provides
for up to $5,500,000 in credit and is represented by a term note. The Company is
obligated to pay Wachovia interest at LIBOR plus 2.5% on the average outstanding
balance plus 25 basis points on any unused portion of the line. The line may be
reduced at the discretion of the Company, without penalty. This instrument,
29
which replaces current short-term financing of $4,123,127 at BB&T, SunTrust,
Harbor, and Wachovia Banks collectively, represents more favorable pricing,
terms and conditions to the Company. The new line is secured by the Company's
accounts receivable, inventory held for resale, intangible assets and an
assignment of its CAS-MOS and CAS-MED contracts. In August 2001 and January 2002
the line was increased to provide additional working capital to fund the
continued revenue growth of the Company. Currently, the credit line is
authorized to $7,250,000 and carries a rate of Prime plus one-half percent.
In February 2001, the Company determined it had operational need for an aircraft
that previously was shown as an asset held for resale. Bank financing in the
amount of $2,100,000 in term debt at a rate of LIBOR plus 3% was secured from
Wachovia Bank for the asset which had a cost of $2,500,000.
In July 2001, the Company purchased two Jetstream 31 aircraft from Maritime
Sales and Leasing Inc. (an affiliate of our Chairman and President, David E.
Sandlin and a director, John Bone) with the intent to prepare them for resale.
The two aircraft were acquired for $1,300,000 and were financed with an equal
amount of term debt at a rate of 8.55% by Wachovia Bank.
The Company operates in a capital-intensive industry. Typically, major expenses
are incurred in connection with the initiation of a new contract. These costs
can consist of acquisition of additional aircraft, equipment and training, and
these costs can be reduced through leasing arrangements and advance payments
from customers, if obtainable. The Company believes that it will be able to
arrange through available means the financing of these initial contract costs
when necessary, although no assurance can be given.
Contractual obligations and commercial commitments of the Company as of January
31, 2002 are approximately as follows:
SCHEDULE OF CONTRACTUAL OBLIGATIONS:
Payments due by period
-----------------------------------------------------------------------------------
Less than
Total 1 year 1-3 years 4-5 years After 5 years
-----------------------------------------------------------------------------------
Long-term debt $ 7,404,000 $ 1,457,000 $ 3,853,000 $ 1,244,000 $ 850,000
Capital leases 490,000 253,000 237,000 - -
Operating leases 18,507,000 4,917,000 8,899,000 4,691,000 -
-----------------------------------------------------------------------------------
Total contractual cash obligations $ 26,401,000 $ 6,627,000 $ 12,989,000 $ 5,935,000 $ 850,000
===================================================================================
SCHEDULE OF COMMERCIAL COMMITMENTS:
Amount of commitment expiration per period
-----------------------------------------------------------------------------------
Less than
Total 1 year 1-3 years 4-5 years After 5 years
-----------------------------------------------------------------------------------
Line of credit * $ 7,250,000 $ 7,250,000 $ - $ - $ -
*The Company has a line of credit agreement with a bank. The Company may borrow
up to 85% of net eligible accounts receivable on government contracts.
Borrowings under the line of credit may not exceed $7,250,000. At January 31,
2002, the Company had borrowings outstanding under the line of approximately
$4,950,000.
The Company believes that it will be able to refinance debt as necessary as it
becomes due. In addition, the Company believes that current levels of cash
together with cash from operations and funds available under its borrowing
arrangements will be sufficient to meet its capital requirements for the next
twelve months.
30
Business Trends and Results of Subsidiary Operations
General
On a consolidated basis, the Company's profitability was adversely impacted
during fiscal 2001 by the losses associated with the sale and disposal of its
FIS subsidiary in Myrtle Beach, South Carolina. In July 2000, the aviation
industry entered an economic downturn that resulted in a significant reduction
in revenue stream from the existing customers. In addition, the Company's source
of growth revenues was interrupted as the commercial aircraft modification
market also turned down. By the end of August 2000, management determined that
the original business plan was no longer attainable and made a decision to sell
the FIS business. A qualified buyer was found and the FIS business was sold on
November 6, 2000. Losses from this operation during the year totaled $1,461,003
while losses on the disposal of this operation were $1,045,000 in fiscal 2001.
Productivity Growth
The Company has embarked on a long-term effort to decrease its exposure to the
cyclical nature of, and narrow margins that are prevalent in, its DOD-based
contracts. In an effort to achieve these goals, the Company has expanded
operations in areas where it has developed expertise and unique capabilities
with the specific intent of attracting a non- or counter-cyclical customer base.
Management believes that aircraft and facility utilization are the major
components of the Company's financial success. The Company's DOD contracts tend
to be characterized by "fixed-rate per aircraft hour" price schedules and the
flying tends to peak in late spring, late summer and early fall. Where excess
capacity exists currently, the Company is instituting revenue management
techniques where possible and appropriate to enhance total revenues and increase
asset utilization rates. In addition to these efforts, management has
successfully reached its objective of modifying its long-term contracts to
permit the invoicing of typical fixed costs on a periodic basis rather than
entirely based on flight hours.
Fuel Prices
Since April 1999, the cost of jet fuel has increased from $.50 to over $1.28 per
gallon. Crude oil prices have increased from under $10.00 per barrel in February
1999 to over $32.00 per barrel in August 2000. While the core rate of inflation
has remained fairly stable during this period, the Company is vulnerable to
dramatic fluctuations in oil prices. The meteoric rise in fuel costs in 2001
also severely impacted the Company's profitability. The cost of jet fuel peaked
in fiscal 2001 at $1.28 per gallon. Management estimates that the negative
impact of fuel increases on Company-wide profitability exceeded $750,000 in
fiscal 2001. To mitigate this exposure, the Company attempts to negotiate
contracts that have frequent fuel price cost adjustments, or passes the risk to
the customer altogether. The Company has achieved moderate success in these
efforts. In March 2002, as a condition of the follow-on CAS-MOS contract,
aviation fuel became a government furnished item. Management believes that the
substantial risk reduction and immediate savings as a result of this change will
result in substantial cost savings.
Risk Management
Despite an insurance loss rate under 4% during the prior five years, the Company
experienced a significant increase in hull and liability insurance premiums in
fiscal years 1999 and 2000. Underlying these increases in premiums were general
industry trends based on liability loss experience, particularly in Alaska. In
an effort to bring premiums in line with our loss experience, the Company
initiated negotiations with alternative underwriters. In December 2000, the
Company selected Willis of New York, Inc. as its aviation broker and completed a
thorough review of coverages. Management estimates that suggestions by the
broker on coverage modifications and extensive negotiations with underwriters
resulted in a $400,000 savings in fiscal 2001. Subsequent events of September
11, 2001 have put significant upward pressure on renewal premium rates. During
renewal negotiations just completed, the Company's premiums increased 30% over
2001 rates, which management believes is appreciably below industry averages.
while industry-average rate increases have exceeded 80%. Management credits its
broker and risk management staff with the successful differentiation of the
Company's operations from the industry in general as the impetus for these
favorable outcomes.
Flight International, Inc.
Revenues for FII grew to $30,084,610 in fiscal year 2001 from $27,448,603 in the
prior year, an increase of 9.6%. Net income declined to a loss of ($452,171)
from a profit of $2,052,463 (when Alaska operations are excluded) in the prior
year.
31
Annual revenues from the CAS-MOS contract have been approximately $19.0 million,
$16.8 million and $15.2 million, for the fiscal years ended April 30, 2001,
April 30, 2000 and April 30, 1999. For the nine month periods ending January 31,
2002 and 2001, revenues were $17.0 and $14.8 respectively. This contract
currently represents 57.5% of the Company's total revenues, up from 56.7% in
fiscal year 2000.
Total revenues at FII continued their high growth rates in fiscal year 2001. A
small portion of this growth was derived from the 2% price inflator built into
the CAS-MOS contract. A larger portion of the increase came as a direct result
of increased aircraft utilization on the CAS-MOS contract. In addition, the
one-year extension to the China Lake contract that included significant revenues
for the modification of the aircraft utilized in the performance of that
contract continued into fiscal 2001. The revenue stream from the China Lake
contract is not expected to remain at the levels experienced in 2000 and 2001,
even if the Company is the successful bidder for the contract in October 2000.
The Company's new CAS-MOS contract requires a restructuring of FII's aircraft
fleet. Three additional Lear Series 30 aircraft with "multi-mission" capability
were acquired in anticipation of being placed into service as the Company was
the sole bidder during the latest competitive bidding process. For the last
seven months of the last fiscal year, the Company had more aircraft than
necessary while the restructuring process took place. During this same period,
FII also employed contract aircraft to enable it to maintain adequate
reliability during the initial contract start-up period and the Metro III
modification program. These additional aircraft, while essential for customer
satisfaction reasons, served to further depress FII's gross margin. Management
believes costs for the CAS-MED contract will drop commensurate with the
anticipated decrease in revenues. Similarly, the costs associated with the China
Lake contract should decrease in future years if the contract is awarded for the
next five-year period. No assurances can be given that the China Lake contract
will be awarded to the Company for the government's 2002 fiscal year and beyond.
Flight Alaska, Inc.
Nine-months Ended January 31, 2002
For the nine-months ended January 31, 2002, Flight Alaska realized revenues of
$7,025,478 compared with $4,269,404 for the same period the prior year. The
growth in revenues can be attributed to expansion opportunities in Nome, Alaska,
where the Company opened an additional hub and the deployment of two of the
Company's learjets for services along the Aleutian Chain. Mail revenues continue
to grow based on additional service to more villages and service to an
additional hub.
Services provided to oil service companies in Deadhorse, Alaska slowed during
the latest period although the Company did provide logistical support for
Anadarko Petroleum. Passenger and cargo services on the North Slope were
reduced, as Phillips Petroleum placed its own CASA 212 on line in October of
2001. Management anticipates growth on the North Slope will also slow
temporarily as cyclical oil prices have moved downward since peaking in the fall
of 2001.
In March 2000, Flight Alaska was awarded a five-year contract to supply smoke
jumper logistics support for the US Department of the Interior (DOI.) This
contract, which has operations running through September 2005, calls for a CASA
212 aircraft from May through September. In March, 2001, the DOI notified the
Company that it would be calling up the aircraft earlier than expected. The
Company believes the early exercise of this option year increased revenues by
$90,000 during the period.
32
In May 2001, the Company began providing logistical support services for Bristol
Environmental Engineering who had been awarded a contract from the DOD for
hazardous waste clean up on Amchitka Island. During the summer of 2001, the
Company generated $2,000,000 in revenues on this agreement. No assurances can be
made that this revenue stream will continue into the future. In the event the
project is discontinued, management plans to deploying the Lear 35 aircraft used
to provide these services to new projects suitable to this aircraft type.
Fiscal Year 2001
On May 1, 2000, the Company established a separate subsidiary to better manage
its growing operations in Alaska. As a part of FII in 1999, the Alaska
operations received minimal oversight and limited direct marketing effort.
During 2000, and particularly following the acquisition of Yute Air, a local
management team, assembled through combination of the two subsidiaries,
accelerated the revenue growth rate of the Company's Alaska division. In fiscal
year 2000, the operating results of the Alaska division were reported as part of
FII. Had they been reported separately, the division would have stated revenues
of $1,100,000 and costs of $1,950,000.
In late August 2000, FAI negotiated a contract with Phillips Alaska, Inc. To
support these operations, and additional operations on the North Slope of
Alaska, the Company constructed a minimal hangar in Deadhorse, Alaska, large
enough to accommodate two Casa 212 and one single-engine aircraft. The total
cost of procurement and construction was approximately $200,000 and the
structure can be economically disassembled and sold should the Company's
commitment to North Slope operations change.
Revenues for fiscal year 2001 totaled $5,734,360 versus $1,100,000 for Alaska
operations during the same period in the prior year for an increase of 421%.
In April 2001, the Company entered into an agreement with Bristol Environmental
Engineering to provide logistics support services from Anchorage, Alaska to
Amchitka Island in the Aleutian Chain. These services were provided
predominantly by two of the Company's Lear 35 fleet. No assurances can be given
that this contract will continue in the future.
The Company continued its services to a number of oil service companies during
fiscal 2001. The majority of these services were provided to Phillips Petroleum.
During this period, Flight Alaska expanded its North Slope operations to
coincide with the opening of the National Petroleum Reserve for exploration. The
Company expanded services to include freight, mail and passenger flights from
Deadhorse, Alaska to surrounding village communities. To ensure adequate working
space for aircraft based on the North Slope, the Company erected a 110' X 70'
portable hangar at the Deadhorse airport.
MRO Center
The Company's management believes that the MRO sector of the aviation
maintenance marketplace has entered a consolidation phase that will ultimately
result in fewer competitors and higher yields throughout the industry. Over the
past five to ten years, this industry sector has been characterized by increased
labor-cost pressure and decreased profit margins, particularly in the airline
maintenance segment. During the past year, the industry has been confronted with
increasing liability insurance costs that are accelerating the inevitable
consolidation.
33
In fiscal year 2000, the Company realized a need for better production planning
and control capabilities in its MRO Centers. In May 2000, the Company entered
into an agreement with Continuum Applied Technology, Inc. to acquire that
company's production planning and tracking system for use in its MRO Centers.
The software will enable management to better manage its labor force, plan
maintenance projects, and control labor and materials expenses. The software was
initially deployed in its discontinued operations and is scheduled for
implementation in the coming months. The investment in software and hardware
required was approximately $150,000.
In fiscal year 2001, the market for air carrier heavy maintenance that had been
the mainstay of business activities for FIS turned steeply downward. In
addition, the Company's agreement with Bombardier to modify up to twenty-four
Lear 45 aircraft was terminated after the completion of the fifth aircraft when
Bombardier Aerospace determined that the economic conditions were significantly
reducing the demand for the modifications. With these two sources of income
declining precipitously, the Company determined that the value of FIS was
significantly below its liquidation value. A suitable buyer was found and the
operations in Myrtle Beach were disposed of effective November 6, 2000.
MRO work continued in the Company's Newport News, Virginia hangar facilities.
Revenues from continuing operations grew for the fiscal year 2001 more than
doubling to $3,430,000 from a restated $1,510,000 in the prior year. This
revenue growth was attributable to increased sales in accessory overhaul, sheet
metal and hangar refurbishment work associated with the Company's Service Life
Extension Program for Learjet Series 20 and 30 aircraft. As the fleet of
Learjets ages, management anticipates continued growth in the market for SLEP
services from $1,000,000 in fiscal 2001 although the growth rate will be
volatile in the next few years.
In the nine-months ended January 31, 2002, the MRO Centers revenues totaled
$2,022,000 versus $2,583,000 for the same period a year earlier. Airframe SLEP
activities decreased during the period contributing the majority of the
decrease.
In January, 2002, the Company entered into an agreement with Raytheon Aircraft
of Australia to produce a Lear 35 aircraft capable of a full range of Electronic
Warfare training activities. The aircraft is scheduled for completion in
February 2003. The revenues associated with this project will be recognized
almost entirely in fiscal year 2003. Management anticipates total revenues
associated with this project to be approximately $3,000,000 in fiscal 2003.
Fixed Base Operation
FIA was confronted with increased competition in fiscal year 2000, which placed
margin pressure on its main revenue stream - fuel sales. In conjunction with the
increased competition, two of the Company's airline customers renegotiated fuel
service agreements placing even greater pressure on margins. Correspondingly,
revenues decreased slightly to $1,702,113 in fiscal year 2000 from $1,772,000 in
fiscal year 1999. Net profits for the subsidiary were $69,609 in fiscal year
2001, versus a net profit of $183, 386 for the previous year.
34
Management believes that the full service capability offered by the Company
places FIA in an excellent position to compete effectively in the future. In
July 2000, the Company found that government contract fuel being supplied
through FIA's competitor at the NN/W Airport was below the price the Company
could procure from FIA's suppliers. The fueling services provided on an
inter-company basis were discontinued in July and management made all necessary
changes to keep the subsidiary's cost structure in line.
During fiscal year 2001, FIA continued to see market share and margin erosion as
many of the competitive factors that affected 2000 continue in 2001. In
addition, high fuel prices and shrinking economic growth rates combined to
reduce the Company's sales throughout 2001. During this period, the Company
renegotiated a number of its contracts with customers serving the NN/W Airport.
Many of these agreements were in the form of "Into-Plane" agreements that reduce
the Company's operational risk of inventory shrinkage as the customers own their
own fuel inventory.
For the nine-months ended January 31, 2002, FIA revenues totaled $1,271,955
versus $1,194, 533 for the same period in the prior year. This 6.4% increase can
be attributed to increased commercial airline activities at the NN/W Airport. In
addition, margins on the Company's fuel sales reversed a two-year downward trend
as jet fuel prices eased in conjunction with the economic slowdown.
In January 2002, the Company was awarded the Defense Fuels Supplier contract for
the NN/W Airport. In doing so, the Company has negotiated an into-plane rate
with the DOD that ensures compensation for fueling the Company's own aircraft
used in FII's training services with the Navy. Management believes that this
contract will increase revenues by $600,000 annually. No assurances can be
provided that this contract will be re-awarded to the Company when it comes up
for renewal in April 2005.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes on its variable
rate debt instruments. If interest rates increased by 10%, the expected impact
on net income would be immaterial.
VTF CORPORATION
VTF is a Delaware corporation formed solely for the purpose of entering into the
Asset Purchase Agreement, and performing the transactions contemplated by such
agreement. VTF has not engaged in any business activity other than those
incident to its formation and the execution, delivery and performance of the
Asset Purchase Agreement and the transactions contemplated thereby and related
transactions. VTF's sole shareholder is Veritas Capital Fund, L.P. ("Veritas").
The mailing address of VTF's principal office is 660 Madison Avenue, New York,
N.Y. 10021 and its telephone number is (212) 668-0020. Veritas is not a party to
the Asset Purchase Agreement nor has it guaranteed the obligations of VTF under
the Asset Purchase Agreement.
35
SPECIAL FACTORS
BACKGROUND OF THE ASSET PURCHASE AGREEMENT AND RELATED TRANSACTIONS
The decision of the Board to approve and recommend the Asset Purchase Agreement
was the result of an extended evaluation process. During the last few years, the
Board and management of the Company have, from time to time, evaluated and
considered a number of alternatives, including strategic partnerships, merger
and acquisition transactions.
In November, 2001, our management began preliminary discussions with
representatives of The Veritas Capital Fund, L.P. ("Veritas") when Veritas
contacted us regarding the possible sale of our business. On December 3, 2001,
after management consulted with our Board members and legal counsel, a
non-binding letter of intent was executed pursuant to which we agreed to sell
our business for $6,500,000 (subject to adjustment based on the amount of
indebtedness assumed by Veritas), to Veritas or one of its subsidiaries or
affiliates, in a structure which was to be determined prior to drafting the
definitive agreements. The Company and Veritas determined to structure the
transaction as a sale of substantially all of the Assets and Liabilities of the
Subsidiaries to VTF. Since the Company is a holding company, the sale of the
Assets and Liabilities represents a sale of substantially all the assets and
liabilities of the Company on a consolidated basis. The letter of intent was
subject to several conditions, including the satisfactory completion of due
diligence by Veritas. Shortly thereafter, the Company engaged G-V to review the
terms of the Asset Purchase Agreement to determine if the terms thereof are fair
to the Company and our Shareholders from a financial point of view.
In early January, 2002, VTF's attorneys prepared and distributed a
preliminary draft of the Asset Purchase Agreement. Over the last several months,
the parties and their legal and financial advisors have conducted due diligence
and negotiated the terms of the Asset Purchase Agreement and ancillary documents
to be delivered at the closing of the Asset Purchase Agreement. During the week
of May 7, 2002, the Asset Purchase Agreement was finalized and the parties
executed the agreement on May 9, 2002.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; REASONS FOR THE SALE OF SUBSTANTIALLY
ALL OF THE COMPANY'S ASSETS
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
On February 12, 2002, the Board held a meeting, at which all directors were
present. The Board considered the Asset Purchase Agreement and preliminary
report of G-V and unanimously concluded that the terms and provisions of the
Asset Purchase Agreement and related transactions are advisable and fair to and
in the best interests of the public shareholders, approved and adopted the Asset
Purchase Agreement (substantially in the form presented) and related
transactions, and recommended that the shareholders approve and adopt the same.
The Board then authorized and directed the officers of the Company to assist VTF
in its continuing due diligence investigation and finalize the terms of the
Asset Purchase Agreement and related documents.
Accordingly, our Board recommends that you vote "FOR" the approval of the sale
of substantially all of our assets pursuant to the Asset Purchase Agreement.
36
REASONS FOR THE SALE OF SUBSTANTIALLY ALL OF OUR ASSETS
In reaching its determination that the sale of substantially all of our assets
is fair to, and in the best interests of, the Company and our Shareholders, and
in recommending that our Shareholders vote to approve the Asset Purchase
Agreement and the sale of substantially all of our assets, the Board consulted
with our senior management and our financial and legal advisors and considered
the following factors:
OPINION OF G-V
The Board received G-V's opinion dated May 8, 2002 to the
effect that, as of the date of its opinion and based upon and
subject to the matters stated in its opinion, the
consideration to be received by the Company in the Asset
Purchase Agreement was fair from a financial point of view.
The full text of G-V's written opinion, which sets forth the
assumptions made, matters considered and limitations on the
review undertaken by G-V, is attached as Annex B to this proxy
statement and is incorporated herein by reference.
Shareholders are urged to, and should, read G-V's opinion
carefully. In addition, the presentation of and the factors
considered by G-V in its fairness opinion supported the Board.
The Board believes that the purchase price VTF has agreed to
pay represents the highest price that VTF would be willing to
pay in acquiring the assets it seeks to acquire.
TERMS OF THE ASSET PURCHASE AGREEMENT
The Board considered the terms and conditions of the Asset
Purchase Agreement, the proposed closing date, the fact that
the consideration is to be paid in cash at closing and the
belief that the Asset Purchase Agreement and related
transactions can be rapidly consummated without significant
regulatory obstacles. The Board also considered the indemnity
holdback amount and the fact that the Asset Sale is subject to
VTF obtaining the necessary financing.
LACK OF OTHER POTENTIAL BUYERS
The Board believed that it was not likely that any party other
than VTF would propose and complete a transaction on terms
more favorable to the Company and its public Shareholders.
REGULATORY APPROVALS
The Board has been advised that the approvals of the DOT, FAA,
DOD and other stakeholders are required to consummate the
transactions described in the Asset Purchase Agreement and the
Company expects to obtain such approval prior to or shortly
following closing.
37
AVAILABILITY OF DISSENTERS' RIGHTS
The Board considered the fact that Georgia law entitles
shareholders, who do not vote in favor of the Asset Purchase
Agreement and related transactions and who file a written
notice of intent with the Company to obtain the "fair value"
of their shares, as determined in accordance with Georgia's
statutory procedure, if the transactions described in the
Asset Purchase Agreement are completed. Relevant sections of
Georgia law regarding these rights are attached as Annex C.
CONFLICTS OF INTERESTS
The Board considered the conflicts of interests of two of the
members of the Board and considered the fact that David E.
Sandlin, a Board member and the Company's Chairman and
President, and John Bone, a director, together own all the
capital stock of Maritime and the sale of Maritime to VTF is a
condition to the closing of the transactions described in the
Asset Purchase Agreement.
TAXATION OF THE TRANSACTIONS
The transaction has been structured as a taxable sale of
certain assets of the Company and Subsidiaries. Taxable gain
will be recognized; however, it is anticipated that the
Company will have available sufficient loss carryforwards to
completely offset the gain, with no federal income tax
liability due as a result of the sale.
HISTORICAL LACK OF SIGNIFICANT CAPITAL RESOURCES
For the past several years, the Company has suffered cash flow
problems and has had to rely on debt financing to fund its
operations.
The Board believed that each of the above factors generally supported its
determination. The Board did, however, consider the potential adverse effects of
other factors on the proposed Asset Sale. These included the following:
OUR OPERATIONS SUBSEQUENT TO THE ASSET SALE
The assets to be sold constitute substantially all of our
assets and the sale of these assets will leave the Company
with very few remaining assets and very little revenue.
Furthermore, we have no immediate plans to replace them with
other assets or operations.
38
HOLDBACK OF SALE PROCEEDS
$1,000,000 of the sale proceeds will be held back for up to
nine months and will be subject to indemnity claims asserted
by VTF. These holdbacks will be held by an independent escrow
agent and currently, the Company believes substantially all of
the funds held in escrow will be released following the nine
month escrow period, but there can be no assurance thereof.
While the Board reviewed with G-V its various financial analyses and reviewed
with the officers of G-V its historical and projected results, the Board did not
independently generate its own separate financial analysis of the Asset Purchase
Agreement. The Board has been advised by BDO Seidman, the Company's independent
auditors, that the sale of the Assets and Liabilities of the Subsidiaries to VTF
should not result in taxes payable because of the Company's substantial net
operating losses available to offset taxable income.
Because of the variety of the factors considered, the Board did not make
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching any determination. In addition,
individual members of the Board may have given different weight to different
factors and therefore may have viewed certain factors more positively or
negatively than others.
G-V'S OPINION
The Board engaged G-V to render an opinion as to the fairness, from a financial
point of view, of the Asset Purchase Agreement to the public shareholders. G-V
is an investment banking firm that provides financial advisory services in
connection with mergers and acquisitions, private placements and valuations for
corporate and other purposes. G-V personnel have worked on transactions similar
to the Asset Purchase Agreement and related transactions in which they have
provided investment banking-related and valuation advice for companies. The
Board considered a number of investment banking firms and chose G-V because of
G-V's reputation and reasonable fee.
In connection with the preparation and delivery of its opinion to the Board, G-V
performed a variety of financial and comparative analyses, as described below.
In arriving at its opinion, G-V did not attribute any particular weight to any
analysis or factor considered by it, but, rather, made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly, G-V
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, G-V made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. Any estimates or
projections contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein.
In arriving at its opinion, G-V did not ascribe a specific range of values to
the assets to be sold, but, rather, made its determination as to the fairness,
from a financial point of view, of the consideration to be received by the
Company in the Asset Sale on the basis of the financial and comparative
analyses described below.
39
In arriving at its opinion, G-V reviewed and analyzed, among other factors:
o the April 25, 2002 draft of the Asset Purchase Agreement and the
specific terms of the proposed transaction (which was substantially
identical to the final version);
o the Company's financial statements for (i) the fiscals years ended
April 30, 1995, 1996, 1997, 1998, 1999, 2000 and 2001 and (ii) the
nine months ended January 31, 2002 and such other publicly available
information concerning the Company that G-V believed to be relevant to
its analysis;
o financial and operating information with respect to the business,
operations and prospects of the Company and the assets to be sold;
o a comparison of the historical financial results and present financial
condition of the Assets to be sold with those of other companies G-V
deemed relevant; and
o a comparison of the financial terms of the proposed transaction with
the financial terms of certain other recent transactions that G-V
deemed relevant.
G-V also conducted discussions with the Company's management concerning our
industry, businesses, operations, assets, financial conditions and prospects,
and undertook such other studies, analyses and investigations as G-V deemed
appropriate.
In arriving at its opinion, G-V assumed and relied upon the accuracy and
completeness of the financial and other information it used without assuming any
responsibility for independent verification of such information, and G-V further
relied upon the assurances of our management that it was not aware of any facts
or circumstances that would make such information inaccurate or misleading.
In arriving at its opinion, G-V did not conduct a physical inspection of the
Company's properties and facilities and did not make or obtain any evaluations
or appraisals of the assets or liabilities of the Company.
The following is a summary of all material financial and comparative analyses
performed by G-V and presented to the Board.
1. Comparable Transaction Analysis. G-V reviewed certain publicly available
information regarding the terms and financial characteristics of four selected
business combination transactions for similar businesses that were announced or
took place during the past four years.
2. Discounted Cash Flow Analysis. Using a discounted cash flow analysis, G-V
calculated the net present value of the assets proposed to be sold based on the
Company's revenue estimate through fiscal year 2003, and escalated by 10%
thereafter. In estimating a discount rate, G-V considered a number of factors
including the risk inherent in business, the Company's lack of liquidity and
lack of control.
40
3. Comparable Company Analysis. G-V selected twelve publicly traded companies in
similar lines of business to the Company. In undertaking this analysis, G-V
reviewed historical and projected multiples of revenue, EBITDA and earnings per
share.
4. Premium Paid Analysis. For this analysis, G-V selected twelve transactions
involving publicly-traded companies in similar lines of business and analyzed
one day, one week and four weeks premiums paid as compared to the most recent
available information concerning the price of the Company's common stock. This
analysis indicated an average premium of 86% over prices paid or implied in
recent Company stock transactions or valuation measures as compared to average
premiums of 25.8%, 27.6% and 32.1% over the one day, one week, four week
analysis of the twelve transactions reviewed.
Pursuant to an engagement agreement with G-V Capital, we have agreed to pay G-V
$40,000, including an initial retainer of $10,000 and the balance at the closing
of the Asset Sale. In addition, we have agreed to indemnify G-V for certain
liabilities incurred by G-V in connection with its engagement.
G-V has concluded that the cash consideration to be received if the transactions
contemplated by the Asset Purchase Agreement are approved and consummated, is
fair to the shareholders of the Company from a financial point of view.
INTERESTS OF CERTAIN PERSONS IN THE ASSET PURCHASE AGREEMENT AND RELATED
TRANSACTIONS
In considering the recommendation of the Board with respect to the Asset
Purchase Agreement, Shareholders should be aware that certain members of the
Board have interests in the Asset Sale and related transactions that are
different from your interests as a Shareholder or that may present actual,
potential or the appearance of potential conflicts of interest in connection
with the Asset Sale and related transactions because they have an ownership
interest in Maritime, the entity to be acquired by VTF simultaneously with the
closing of the Asset Sale. The Board was aware of these potential or actual
conflicts of interest and considered them in making its recommendation. All
members of the Board who are disinterested in the matter personally voted in
favor of approving the Asset Purchase Agreement.
CERTAIN EFFECTS OF THE ASSET SALE AND RELATED TRANSACTIONS
If the Asset Purchase Agreement and the related transactions are completed, the
Company will cease to have any active business.
PLANS FOR THE COMPANY AFTER THE ASSET SALE
While we do not have any present plans or proposals following the consummation
of the Asset Sale, we will consider various alternatives for our business going
forward, including paying a dividend equal to some or all of the sale proceeds
to shareholders, offering a cash redemption to some or all of our shareholders
and winding up the Company.
41
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE TRANSACTIONS DESCRIBED IN THE
ASSET PURCHASE AGREEMENT ARE NOT CONSUMMATED
If the transactions contemplated by the Asset Purchase Agreement are not
completed, the Company expects to continue to operate its business as it is
being operated presently. However, management expects to continue to pursue
strategic alternatives to maximize shareholder value. The Company cannot provide
any assurances that it will continue to be able to obtain the financing
necessary to sustain our long-term operations.
ACCOUNTING TREATMENT
Upon consummation of the sale, the Company will recognize a gain related to the
excess of the purchase price over the book value of the net assets (liabilities)
sold.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED TRANSACTION
The sale of assets by the Company and Subsidiaries:
Receipt of the consideration pursuant to the Asset Purchase Agreement will be a
taxable event for federal income tax purposes. The Company will recognize
taxable income equal to the amount realized on the sale in excess of the tax
basis of the assets transferred. The amount realized by the Company will consist
of the cash received plus the amount of liabilities assumed by VTF.
Although the Company will recognize a gain on the sale of the assets to VTF, the
available federal income tax net operating and net capital loss carryforwards,
as currently reflected on the Company's consolidated federal income tax returns,
are in excess of the estimated amount of the gain. As a result, management
anticipates that the Company will not incur any federal income tax liability
upon the sale of the assets. The availability and amount of tax loss
carryforwards are subject to audit and adjustment by the Internal Revenue
Service. In the event that the loss carryforwards are adjusted by the Internal
Revenue Service, the Company may incur a tax liability.
Sale of the assets by the Company will also not have any direct federal income
tax effect to a shareholder of the Company; however, a shareholder may incur tax
if the Company pays a dividend or agrees to repurchase a shareholder's shares.
This summary does not address the income tax consequences to the shareholders of
a dividend or share repurchase, and each shareholder is advised to consult with
their own tax advisor regarding these types of transactions.
The Company and the Subsidiaries file income tax returns in several states.
Because state income tax laws do not necessarily follow federal law, and because
state laws themselves differ, the state income tax consequences of the sale will
vary state by state. The tax loss carryforwards may not completely offset state
taxable income, and state income tax may be incurred on the sale. However, it is
not anticipated that the sale will result in a material amount of state income
taxes.
42
THE ASSET PURCHASE AGREEMENT/TERMS OF THE TRANSACTION
The following is a summary of the material provisions of the Asset Purchase
Agreement, a copy of which is attached as Annex A to this proxy statement
(without exhibits and schedules). The summary is qualified in its entirety by
reference to the full text of the Asset Purchase Agreement. Any Shareholder that
would like a copy of the Asset Purchase Agreement with exhibits and schedules
should contact the Company.
THE ASSET SALE; CONSIDERATION
The sale of the Assets and Liabilities represents substantially all of the
assets and obligations of each Subsidiary. The total purchase price for the
Assets and Liabilities is expected to be $6,500,000. Payment of the purchase
price will be in cash. The purchase price is subject to adjustment based on the
combined level of indebtedness of the Company and Maritime that is assumed by
VTF at the closing. If the combined indebtedness of the Company and Maritime
exceeds $34,800,000, the aggregate purchase price for the Company and Maritime
will be reduced on a dollar for dollar basis. A copy of the side letter
agreement between the Company and Maritime respecting the manner in which any
such purchase price reduction will be allocated is attached hereto as Annex D.
REPRESENTATIONS AND WARRANTIES; COVENANTS
The Company, the Subsidiaries and VTF each made to one another a number of
representations and warranties that are customary in asset purchase agreements.
Certain of the Company's and Subsidiaries' representations and warranties
include: (i) the organization, good standing, corporate power and foreign
qualification of the Company, (ii) the due authorization in relation to the
Asset Purchase Agreement and the related transaction documents, (iii) with
respect to the Company's ownership of its properties, (iv) the accuracy of the
Company's financial statements, (iv) the contracts being assigned and assumed by
VTF, (v) the absence of violations of or defaults under organizational documents
and material agreements, (vi) that governmental filings and third party
consents required in connection with the Asset Purchase Agreement and related
transaction documents have been obtained or will be obtained at or following the
closing, (vii) tax and environmental matters and (viii) the absence of any
material adverse change.
The Company has also made certain covenants to VTF in the Asset Purchase
Agreement, including (i) providing VTF access to our books and records and
personnel, (ii) that the Company continues to conduct its business in the
ordinary course, consistent with its past practices, (iii) that the Company
provides updated financial information to VTF, (iv) that the
Company maintains its relationships with its customers and suppliers, (v) that
VTF be permitted access to the Company's employees for the purpose of
negotiating their employment with VTF following the closing, (vi) using best
efforts to assist with transferring the contracts purchased by VTF and (vii)
that the Company prepare and file this proxy statement with the SEC and hold a
meeting to obtain the necessary shareholder approval for the Asset Sale.
CONDITIONS
Each party's obligations to consummate the transactions contemplated by the
Asset Purchase Agreement are subject to a number of customary conditions,
including the approval of the Asset Purchase Agreement by our Shareholders. In
43
addition to certain customary conditions, the consent of certain regulatory
authorities, including the DOT and the FAA, will be required. The closing of the
Asset Sale is further conditioned upon (i) certain of our employees entering
into employment agreements and non-competition agreements with VTF, (ii) VTF
obtaining the financing necessary to complete the Asset Sale, (iii) the
execution and delivery of a non-competition agreement between VTF and the
Company, (iv) the execution and delivery of an escrow agreement whereby
$1,000,000 of the purchase price will be held in escrow to secure any indemnity
claims of VTF (this amount will be released to us nine months following the
Closing (net of the amount of any claims)), (v) the satisfactory completion of a
due diligence investigation by VTF of the Company's assets, operations and
condition, (vi) the delivery of phase 1 environmental audits of certain of our
facilities in substance satisfactory to VTF and (vi) the closing of an asset
purchase agreement by and between VTF and Maritime. The closing of the Asset
Sale is also conditioned upon our delivery of the updated disclosure schedules
and the Company's representation that there has been no material adverse change
in our business between April 30, 2001 and the consummation of the Asset Sale.
TERMINATION
The Asset Purchase Agreement may be terminated: (i) if the closing of the
transactions contemplated therein does not occur prior to September 30, 2002,
(ii) by either party due to a material breach by the other, (iii) if the
indebtedness assumed by VTF pursuant to the Asset Purchase Agreement together
with the indebtedness assumed by VTF through its acquisition of Maritime exceeds
$41,300,000, (iv) by VTF if the proposed disclosure schedules provided by the
Company are not satisfactory to VTF and (v) by either party if conditions to
such party's obligations described in the Asset Purchase Agreement are not met.
VOTING AGREEMENT
David E. Sandlin, our Chairman and President, has entered into an agreement with
VTF whereby Mr. Sandlin has agreed to vote his shares in favor of the approval
and adoption of the Asset Purchase Agreement and all of the transactions
contemplated thereby. Mr. Sandlin beneficially owns 36.33% of the Company's
Common Stock. This voting agreement terminates the earlier of the date the Asset
Purchase Agreement is terminated or the transactions contemplated thereby are
consummated.
REGULATORY APPROVAL
The consent of certain regulatory authorities, including the U.S. Department of
Transportation ("DOT") and the Federal Aviation Administration ("FAA") will be
required in connection with the Asset Purchase Agreement. The Company does not
anticipate any significant delays in obtaining the required regulatory
approvals.
FEES AND EXPENSES
Whether or not the Asset Sale and related transactions are consummated and
except as otherwise provided herein, all fees and expenses incurred in
connection with the Asset Purchase Agreement and related transactions will be
paid by the party incurring such fees and expenses, except that if the Asset
Purchase Agreement is terminated due solely to the failure of VTF to obtain the
necessary financing, then VTF shall pay $200,000 of the Company's reasonable
transaction expenses.
44
THE BOARD BELIEVES THAT THE ASSET PURCHASE AGREEMENT IS ADVISABLE AND FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY AND THE PUBLIC SHAREHOLDERS AND
RECOMMENDS APPROVAL OF THE ASSET PURCHASE AGREEMENT AND ASSET SALE BY THE
COMPANY'S SHAREHOLDERS. A COPY OF THE ASSET PURCHASE AGREEMENT IS ATTACHED
HERETO AS ANNEX A.
DISSENTER'S RIGHTS
THE COMPANY SHAREHOLDERS DISSENTERS' RIGHTS
If the Asset Sale is consummated, the Shareholders who dissent will be entitled,
upon compliance with Article 13 of the Georgia Business Corporation Code, to
receive the value of their shares in cash. The procedures relating to the
exercise of dissenters' rights under the Georgia Code are summarized below. The
provisions for exercising dissenters' rights are complex and must be complied
with precisely. Accordingly, any Shareholder intending to dissent from the
proposed sale should carefully review Article 13 of the Georgia Code, which is
attached to this document as Annex C, and should consult legal counsel.
ELIGIBILITY
Any Shareholder entitled to vote on the Asset Sale has the right to dissent from
the sale and receive payment from the Company of the fair value of his or her
shares of the Common Stock upon compliance with Article 13 of the Georgia
Business Corporation Code. Except as provided in the following sentence, a
Shareholder may not dissent as to fewer than all of the shares that he or she
beneficially owns, regardless of the number of accounts maintained for the
benefit of the Shareholder. A record holder who is a nominee or fiduciary may
not dissent on behalf of any beneficial owner as to fewer than all of the shares
of the beneficial owner that the nominee or fiduciary holds of record.
Any Shareholder intending to assert dissenters' rights may not vote in favor of
the Asset Purchase Agreement and must deliver to the Company before the vote is
taken a written notice of the Shareholder's intent to demand payment for his or
her shares of the Common Stock. Objection notices should be forwarded to the
following address: The Flight International Group, Inc., One Lear Drive, Newport
News, Virginia 23602. The objection notice must state that the Shareholder
intends to demand payment for his or her shares of the Common Stock if the sale
is consummated. A vote against approval of the sale will not, in and of itself,
constitute an objection notice satisfying the requirements of Article 13 of the
Georgia Code.
DISSENTERS' NOTICE
If the sale is approved, the Company must deliver a dissenters' notice to each
Shareholder who has complied with the conditions specified above. The Company
must deliver the dissenters' notice within 10 days after the Shareholders
authorize the sale. This notice will: (a) state where dissenting Shareholders
must send the payment demand and deposit their Common Stock certificates; (b)
set a date by which (x) the Company must receive the payment demand, which may
not be fewer than 30 or more than 60 days after the date the dissenters' notice
is delivered and (y) the certificates must be deposited as instructed in the
dissenters' notice; and (c) be accompanied by a copy of Article 13 of the
Georgia Code.
45
DUTY TO DEMAND PAYMENT
Within the time prescribed in the dissenters' notice, a Shareholder electing to
dissent must make a demand for payment, certify whether he or she - or the
beneficial Shareholder on whose behalf he or she is asserting dissenters' rights
- - acquired beneficial ownership of the shares of the Common Stock before the
date required to be set forth in the dissenters' notice, and deposit his or her
certificates in accordance with the terms of the dissenter's notice. Upon filing
the payment demand and depositing the certificates, the Shareholder will retain
all other rights of a Shareholder until these rights are canceled or modified by
the consummation of the sale. Failure to comply substantially with these
procedures will cause the Shareholder to lose his or her dissenters' rights to
payment for the shares.
OFFER OF PAYMENT
Within 10 days of the later of the date the sale is consummated or of receipt of
a payment demand, the Company must offer to pay to each dissenting Shareholder
who has substantially complied with the requirements of Article 13 of the
Georgia Code the amount that the Company estimates to be the fair value of the
shares of the Common Stock, plus accrued interest. The offer of payment must be
accompanied by:
o the Company's balance sheet as of the end of a fiscal year ending not
more than 16 months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
o a statement of the Company's estimate of the fair value of the shares
and an explanation of how the interest was calculated;
o notification of rights to demand additional payment; and
o a copy of Article 13 of the Georgia Code.
If the sale is not consummated within 60 days after the date set for demanding
payment and depositing certificates, the Company, within the 60-day period, must
return the deposited certificates. If, after returning deposited certificates
and releasing transfer restrictions, the sale is consummated, the Company must
send a new dissenters' notice and repeat the payment demand procedure.
PROCEDURE IF DISSATISFIED WITH PAYMENT OR OFFER
If the dissenting Shareholder believes that the amount offered by the Company is
less than the fair value of his or her shares or that the interest due is
calculated incorrectly, or if the Company fails to make payment or offer payment
(or, if the sale has not been consummated, the Company does not return the
deposited certificates), within 60 days after the date specified in the
dissenters' notice, then the dissenting Shareholder may within 30 days after (a)
the Company offered payment for the shares or failed to pay for the shares or
(b) the Company failed to return deposited certificates timely, notify the
46
Company in writing of his or her own estimate of the fair market value of the
shares, including interest due, and demand payment of the estimate, less any
payment previously received. Failure to notify the Company in writing of any
demand for additional payment within 30 days after the Company offered payment
for the shares will constitute a waiver of the right to demand payment.
If the Company and the dissenting Shareholder cannot agree on a fair price
within 60 days after the Company receives a demand for payment of the estimate,
the Company must institute judicial proceedings to fix the fair value of the
shares and the accrued interest. The Company must make all dissenters whose
demands for payment remain unsettled parties to the proceeding and all of those
parties must be served with a copy of the petition. The court may, in its
discretion, appoint an appraiser to receive evidence and recommend a decision on
the question of fair value. The court is required to issue a judgment for the
amount that the court finds to be the fair value of the shares, plus interest.
If the Company does not institute such proceeding within the 60-day period, the
Company must pay each dissenting Shareholder whose demand remains unsettled the
respective amount demanded by each Shareholder.
The court will assess certain costs and expenses of such proceeding (including
reasonable compensation for, and the expenses of, the appraiser) against the
Company. The court may assess, however, the costs and expenses as it deems
appropriate against any or all of the dissenting Shareholders if it finds that
their demand for additional payment was arbitrary, vexatious or otherwise not in
good faith. The court may award fees and expenses of counsel and experts in
amounts the court finds equitable (a) against the Company if the court finds
that the Company did not comply substantially with the relevant requirements of
Article 13 of the Georgia Code or (b) against either the Company or any
dissenting Shareholder, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good faith.
MARKET FOR THE COMMON STOCK
The Company became a reporting company under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in 1984, at the time of its initial
public offering of securities. Thereafter, it filed reports pursuant to the
requirements of Sections 13 and 15(d) of the Exchange Act. It has filed all
required filings reflective of all periods from and after February 1, 1995 but
has not made any filings since its Form 10-KSB for the fiscal year ended April
30, 2000.
The shares of Common Stock of the Company, which are registered under the
Exchange Act, currently do not trade.
The Company believes that since April 30, 1993, virtually no public trading has
taken place with respect to the Common Stock and its predecessor class of common
stock. There is no established public trading market currently for the New
Common Stock, and, therefore, no bid information is available.
The approximate number of holders of record of Common Stock as of May 7, 2002 is
762. The Company has no other class of securities authorized. On December 10,
1996, the shareholders of the Company approved an amendment to the Company's
Amended Certificate of Incorporation to increase the number of authorized shares
of Common Stock from 1,000,000 to 10,000,000 shares.
47
There have been no cash dividends declared in the past five fiscal years, and
the Company does not anticipate awarding cash dividends in the foreseeable
future, except as one possible action following consummation of the transactions
contemplated by the Asset Purchase Agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 1, 2002 regarding the
beneficial ownership of the Company's Common Stock of (i) each person known by
the Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each director of the Company, and (iii) all directors and executive
officers of the Company as a group. Except as otherwise specified, the named
beneficial owner has sole voting and investment power.
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership (1) Percent of Class
- ---------------------------------------- ------------- ----------------
David E. Sandlin 403,000 36.33%
c/o The Flight International Group, Inc.
One Lear Drive,
Newport News, Virginia 23602
Robert C. Dynan 7,500 *
c/o The Flight International Group, Inc.
One Lear Drive,
Newport News, Virginia 23602
Ann P. Campbell 9,000 *
c/o The Flight International Group, Inc.
One Lear Drive,
Newport News, Virginia 23602
C. Lofton Fouts, Jr. 5,000 *
9027 High St., Kensington Gardens
Douglasville, GA 30135
John R. Bone 175,000 15.77%
3 East Broad St.
Newman, GA 30263
Vice Admiral Richard M. Dunleavy (Ret.) 5,000 *
2220 Sandfiddler Road
Virginia Beach, VA 23456
48
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership (1) Percent of Class
- ---------------------------------------- ------------- ----------------
Maritime Sales & Leasing, Inc. 108,993 9.82%
3 East Broad Street,
Newnan, Georgia 30623
Charles T. Myers 101,398 9.14%
4497 Carriage Run
Murrells Inlet, South Carolina 29576
Flight Partners Limited., L.P. ("FPP") 60,048 5.41%
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, NY 10017
Attention: Mr. T. J. Maloney
SouthTrust Bank of Alabama, N.A. 107,408 9.68%
112 N. 20th Street, 3rd Floor
Birmingham, AL 35203
Attention: Mr. Ronald Downey
LeasePlan USA, Inc. 61,346 5.53%
180 Interstate North Parkway, Suite 400
Atlanta, GA 30339
Attention: John Stasiowski, Vice President
ALL DIRECTORS AND
EXECUTIVE OFFICERS
AS A GROUP (6 individuals) 738,478 66.56%
* Represents less than a one percent interest.
(1) Includes currently exercisable options to purchase shares of common
stock, namely: Sandlin (173,000), Campbell (9,000), Bone (5,000),
Dunleavy (5,000), Dynan (7,500) and Fouts (5,000).
DIRECTORS AND MANAGEMENT
The current officers and directors will serve for terms of one year or until
their respective successors are elected and qualified. The current officers and
directors are:
Name Age Date of Election Position
- ---------------- --- ---------------- --------------------
David E. Sandlin 58 March 30, 1994 Chairman, President,
Chief Executive Officer,
Director
49
Name Age Date of Election Position
- ---------------- --- ---------------- --------------------
Robert C. Dynan 45 April 3, 2000 Executive Vice President
Matthew J. Nowicki 43 June 3, 2002 Chief Financial Officer
and Treasurer
Ann P. Campbell 62 April 13, 1993 Corporate Secretary
C. Lofton Fouts, Jr. 70 February 13, 1995 Director
John R. Bone 51 February 13, 1995 Director
Vice Admiral Richard M. 69 May 24, 1995 Director
Dunleavy (Ret.)
The Board is required to remain at six (6) members until changed by vote of
shareholders. The members of the Board need not be shareholders of the Company.
Further, three members of the Board may be, but are not required to be,
officers, employees, consultants or independent contractors engaged, employed or
retained by the Company or its subsidiaries and/or affiliates. Messrs. Sandlin
and Bone represent these directors. The Company has been seeking to replace
Wayne M. Richmon, a former director who resigned from the Board and as Chief
Financial Officer in September 1999. The remaining three directors must be
individuals who are not directly or indirectly engaged, employed or retained by
the Company or its subsidiaries or affiliates. Messrs. Fouts and Dunleavy
represent two of these three directors. James N. Lingan was the third of these
"independent" directors until his death in March 1998. The Board had attempted
to seek a replacement for Mr. Lingan.
Each director and executive officer's business experience during the past five
years is described below:
David E. Sandlin. Mr. Sandlin has been Chairman, President and a Director of the
Company since March 30, 1994, and was formerly President of Flight International
Sales and Leasing, Inc. Mr. Sandlin has been involved in aircraft marketing and
management since 1978. He has worked in various capacities for Cessna and
Dassault and has extensive experience with Learjets. In 1990 he founded DESCO
Aviation Consultants International ("DESCO") and is an officer, director and 50%
shareholder of Maritime Sales & Leasing, Inc. ("Maritime"), a major lessor of
turbine aircraft. Maritime has leased a total of 20 aircraft to FII and two to
FAI.
Matthew J. Nowicki. Mr. Nowicki was appointed Chief Financial Officer and
Treasurer of the Company in June, 2002. Prior to joining the Company, Mr.
Nowicki was Controller of CMS Information Services, Inc., an information
technology company. From February, 1999 until January, 2000, he served as
Director of Finance and Accounting for EG&G Services, Logistics Division. From
1989-2000, Mr. Nowicki held various accounting and financial positions for
various divisions of EG&G, Inc., including Controller and Senior Accountant. Mr.
Nowicki received his BS in accounting from the University of Central Florida in
1993, and is a licensed CPA in the State of Virginia.
50
Robert C. Dynan. Mr. Dynan has been Executive Vice President of the Company
since August, 2001. Mr. Dynan has worked with aviation-related businesses since
1976. From 1991 to 1998, he served in various management capacities for Mesa Air
Group, Inc., including Vice President of Customer Service for its Air Midwest
and WestAir subsidiaries. In April, 1994 he was appointed President of Mesa's
Liberty Express division and was elected President of Mesa Airlines, Inc. in
January 1998. In October 1998, he was elected President and Chief Operating
Officer of Northern Air Cargo, Inc. In January 2000 he served as a consultant on
the Company's Yute Air acquisition and formally joined Flight International as
CFO and Treasurer in April, 2000. Mr. Dynan received his undergraduate degree in
Aviation Management from Auburn University and his Masters of Business
Administration degree from the Harvard Graduate School of Business.
Ann P. Campbell. Ms. Campbell, Corporate Secretary, joined the Company in 1987
as Secretary to the Chief Financial Officer of the Company. Since that time, she
has served as Executive Secretary to the Chief Operating Officer and President,
and Assistant to the Chairman. Prior to her tenure at the Company, Ms. Campbell
has over fifteen years experience as a legal secretary and currently serves as
Executive Secretary to the Chairman and the Executive Vice President.
C. Lofton Fouts, Jr. Mr. Fouts, Director, has been involved in the aviation
industry for 29 years. He wrote the original Piper Flite Center training
syllabus, the first standardized flight program used nationwide in the general
aviation industry. In 1988, Mr. Fouts formed Lofton Fouts & Associates, Inc., a
general aviation consulting business specializing in sales, acquisitions and
mergers of fixed base operations and related aviation businesses.
John R. Bone. Mr. Bone, Director, is President of Global Jet, a corporate
aircraft sales and brokerage firm, and is an officer, director and 50%
shareholder of Maritime. Mr. Bone studied aeronautical engineering at Northrup
University. He is an A&P mechanic, has worked as Chief Pilot for major U.S.
companies and currently is a pilot with a major United States airline. Global
Jet, with Mr. Bone, has been instrumental in developing the fleet of Learjets
for Phoenix Air Group, a competitor of FII.
Vice Admiral Richard M. Dunleavy (Ret.). Admiral Dunleavy, Director, was
formerly Assistant Chief of Naval Operations (Air Warfare). Admiral Dunleavy
joined the Staff of the Chief of Naval Operations in 1976. From 1978 to 1979 he
was Commanding Officer of the USS Ponchatoula and assumed command of the USS
Coral Sea in 1979. In 1981, he was selected as Commander of U.S. Naval Forces in
the Philippines and later became Commander, Carrier Group FOUR/Commander
Striking Force Atlantic. From 1986 to 1989 he was Commander, Naval Air Force,
U.S. Atlantic Fleet. Admiral Dunleavy's military awards include a Distinguished
Service Medal, three Legions of Merit, eight Air Medals and four Navy
Commendation Medals.
WHERE YOU CAN FIND MORE INFORMATION
Until all periods up to and including April 30, 2000, the Company filed annual,
quarterly and current reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at 75 Park Place, New York, New York 10007 and 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
51
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, most of the documents filed by us with the SEC
are available through the SEC's Electronic Data Gathering and Retrieval System
at the SEC's Internet site at http://www.sec.gov.
Shareholders should rely only on the information contained in this proxy
statement. No person is authorized to give any information or to make any
representations other than the information and representations contained in this
proxy statement, and, if given or made, such information or representations
should not be relied upon as having been authorized. This proxy statement does
not constitute the solicitation of a proxy in any jurisdiction where, or to any
person to whom, it is unlawful to make such a solicitation. This proxy statement
is dated June 21, 2002. Shareholders should not assume that the information
contained in this proxy statement is accurate as of any later date, and the
mailing and delivery of this proxy statement shall not, under any circumstances,
create any implication to the contrary.
OTHER BUSINESS
The Board knows of no other matters to be presented at the Special Meeting of
Shareholders. However, if any other matters properly come before the meeting, or
any adjournment thereof, it is intended that proxies in the accompanying form
will be voted in accordance with the judgment of the persons named therein.
INFORMATION INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference and to be a part
hereof from the date of filing of such documents:
Annual Report on Form 10-KSB for the fiscal year ended April 30, 2000;
and
All documents filed by the Company with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement and prior to the completion of the vote at the Special
Meeting.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this proxy statement to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be, incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this proxy statement.
This proxy statement incorporates, by reference, documents that are not
presented herein or delivered herewith. Copies of any such documents, other than
exhibits to such documents which are not specifically incorporated by reference
herein, are available without charge to any person, including any shareholder,
to whom this proxy statement is delivered, upon written or oral request to Ann
Campbell, the Company's Corporate Secretary at the address and telephone number
for the Company set forth herein.
52
COST OF SOLICITATION
Proxy solicitation, other than by mail, may be made personally or via telephone
by officers and employees of the Company who will not be additionally
compensated therefor. The Company will request brokers, dealers, banks or voting
trustees, or their nominees, who hold stock in their names for others or hold
stock for others who have the right to give voting instructions, to forward
proxy materials to their principals and request authority for the execution of
the proxy card and will reimburse such institutions for their reasonable
expenses in so doing. The total cost of soliciting proxies will be borne by the
Company.
It is important that your shares be represented at the meeting. If you are
unable to be present in person, you are respectfully requested to sign the
enclosed proxy and return it in the enclosed stamped and addressed envelope as
promptly as possible.
By Order of the Board of Directors,
Ann P. Campbell
Secretary
Newport News, Virginia
June 21, 2002
THE FLIGHT INTERNATIONAL GROUP, INC.
PROXY - SPECIAL MEETING OF SHAREHOLDERS
July 3, 2002
THE FLIGHT INTERNATIONAL GROUP, INC.
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
--------------------
PROXY
--------------------
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE FLIGHT INTERNATIONAL GROUP,
INC.'S BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
JULY 3, 2002 FOR SHAREHOLDERS OF RECORD ON JUNE 3, 2002.
The undersigned, being a holder of shares of New Common Stock, par value $.01
per share, of The Flight International Group, Inc., a Georgia corporation (the
"Company"), hereby designates David E. Sandlin or Ann P. Campbell his proxy,
with full power of substitution in the premises, to vote at a special meeting of
shareholders of the Company to be held at 200 Park Avenue, 42nd Floor, New York,
New York 10166, on July 3, 2002, at 9:00 a.m., or at any adjournment thereof, as
follows:
1. Approval of the Asset Purchase Agreement and Asset
Sale as described in the accompanying Proxy
Statement.
/ / / / / /
FOR AGAINST ABSTAIN
2. In their discretion, the Proxies are authorized to
vote upon such other business as may properly come
before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). THE FAILURE TO FILL IN THE CHOICES INDICATED
ABOVE WILL AUTHORIZE THE PROXIES TO VOTE FOR THE PROPOSALS TO BE BROUGHT BEFORE
THE MEETING.
(Please Date and Sign on Reverse Side)
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign full
corporate name by president or other authorized officer. If a partnership or
other entity, please sign in entity name by authorized person. It is understood
that this proxy may be revoked at any time insofar as it has not been exercised
and that the shares may be voted in person if the undersigned attends the
meeting.
NUMBER OF SHARES:_______________________________
DATED:__________________________________________
________________________________________________
SIGNATURE OF STOCKHOLDER
________________________________________________
SIGNATURE IF HELD JOINTLY
PLEASE ENTER YOUR SOCIAL SECURITY NUMBER OR
FEDERAL EMPLOYER IDENTIFICATION NUMBER HERE:
SOCIAL SECURITY OR
FEI NO.__________________________________________
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JANUARY 31, 2002 AND 2001
AND FOR THE YEARS ENDED APRIL 30, 2001, 2000 AND 1999
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Stockholders' Equity (Deficit) 6
Statements of Cash Flows 7 - 8
SUMMARY OF ACCOUNTING POLICIES 9 - 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13 - 24
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Flight International Group, Inc.
We have audited the accompanying consolidated balance sheets of The Flight
International Group, Inc. and subsidiaries as of April 30, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the three years in the period ended April
30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present
fairly, in all material respects, the financial position of The Flight
International Group, Inc. and subsidiaries as of April 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended April 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.
Richmond, Virginia BDO Seidman, LLP
January 22, 2002
F-3
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JANUARY 31, April 30,
-----------------------------------
2002 2001 2000
---- ---- ----
(Unaudited)
Current assets
Cash $ 249,875 $ 183,817 $ 167,647
Accounts receivable, net (Note 3) 6,453,286 6,329,370 5,701,100
Inventories (Notes 4, 6 and 7) 3,056,064 2,827,982 3,123,887
Costs in excess of billings 103,920 154,401 722,259
Prepaid expenses and other 191,122 78,320 202,412
Deposits 435,479 487,979 706,173
Note receivable - current portion (Note 2) 150,660 130,500 -
Assets held for sale 1,533,877 - 2,651,012
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 12,174,283 10,192,369 13,274,490
- -------------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Notes 5, 6, 7 and 9) 9,593,261 9,728,393 5,313,631
- -------------------------------------------------------------------------------------------------------------------------
Other long-term assets, net of amortization of
approximately $126,000, $90,000, $42,000 752,710 635,531 580,308
Note receivable, less current portion (Note 2) 363,644 469,500 -
Goodwill, net of amortization of approximately
$11,000 (Note 1) - - 962,548
- -------------------------------------------------------------------------------------------------------------------------
Total other assets 1,116,354 1,105,031 1,542,856
- -------------------------------------------------------------------------------------------------------------------------
Total assets $22,883,898 $21,025,793 $20,130,977
- -------------------------------------------------------------------------------------------------------------------------
F-4
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
JANUARY 31, April 30,
------------------------------------
2002 2001 2000
---- ---- ----
(Unaudited)
Current liabilities
Accounts payable $ 5,541,326 $ 3,606,365 $ 2,272,191
Deferred gain - current portion (Note 13) - 141,531 283,060
Accrued fuel expense (Note 16) 780,809 926,053 1,010,682
Accrued expenses and other liabilities 3,278,447 2,266,506 2,257,375
Notes payable (Note 6) 4,950,173 4,945,926 3,900,391
Long-term debt due currently (Note 7) 1,571,689 1,369,639 1,081,525
Note payable stockholder (Note 13) 202,811 202,811 238,585
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 16,325,255 13,458,831 11,043,809
Deferred gain, less current portion (Note 13) - - 141,531
Accrued engine reserves (Note 16) 450,025 450,025 642,002
Long-term debt, less current maturities (Note 7) 6,176,057 6,183,735 3,889,912
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 22,951,337 20,092,591 15,717,254
- --------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 10 and 11)
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.01 par value, 10,000,000 shares
authorized; 1,109,588, 1,109,588 and 1,109,422
issued and outstanding (Note 15) 11,097 11,097 11,095
Additional paid-in capital 1,329,016 1,329,016 1,328,520
Retained earnings (deficit) (1,407,552) (406,911) 3,074,108
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (67,439) 933,202 4,413,723
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $22,883,898 $21,025,793 $20,130,977
- --------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-5
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
January 31, Year Ended April 30
------------------------------ ------------------------------------------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Revenues (Note 12) $32,996,069 $26,457,838 $37,400,960 $28,984,109 $25,313,924
- -----------------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Costs of services (Note 13) 29,253,067 23,377,287 31,803,584 24,357,200 21,322,103
Gain on disposal of assets
(Note 13) (138,964) (167,969) (351,932) (492,071) (69,760)
Depreciation and amortization 1,163,787 917,327 1,281,940 789,517 600,658
General, corporate and
administrative 2,934,098 3,037,861 4,537,730 2,645,932 2,320,463
- -----------------------------------------------------------------------------------------------------------------------------
Total operating costs and
expenses 33,211,988 27,164,506 37,271,322 27,300,578 24,173,464
- -----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (215,919) (706,668) 129,638 1,683,531 1,140,460
Interest expense, net 784,722 875,648 1,104,654 347,682 331,049
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before taxes (1,000,641) (1,582,316) (975,016) 1,335,849 809,411
Loss from discontinued
operations (Note 2) - (1,460,721) (1,460,721) (457,568) -
Loss on disposal of subsidiary
(Note 2) - (1,045,282) (1,045,282) - -
Net income (loss) $(1,000,641) $(4,088,319) $(3,481,019) $ 878,281 $ 809,411
- -----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss)
per share data:
Continuing operations $ (.90) $ (1.43) $ (.88) $ 1.29 $ .80
Discontinued operations
(Note 2) - (2.26) (2.26) (.44) -
- -----------------------------------------------------------------------------------------------------------------------------
$ (.90) $ (3.69) $ (3.14) $ .85 $ .80
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares - basic 1,109,588 1,109,576 1,109,578 1,029,656 1,013,976
Weighted average number of
shares - diluted 1,109,588 1,109,576 1,109,578 1,039,217 1,013,976
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-6
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Stock Retained
-------------------------------------- Paid-in Earnings
Shares Amount Capital (Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1998 1,013,976 $10,140 $1,007,617 $ 1,386,416
Net income - - - 809,411
Balance, April 30, 1999 1,013,976 10,140 1,007,617 2,195,827
Shares issued in acquisition (Note 1) 101,398 1,014 353,886 -
Shares redeemed (Note 15) (5,952) (59) (32,983) -
Net income - - - 878,281
- ---------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2000 1,109,422 11,095 1,328,520 3,074,108
Shares issued - exercise
of options 166 2 496 -
Net loss - - - (3,481,019)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2001 1,109,588 11,097 1,329,016 (406,911)
Net loss - unaudited - - - (1,000,641)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2002 - unaudited 1,109,588 $11,097 $1,329,016 $(1,407,552)
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-7
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
January 31, Year Ended April 30
----------------------------- ----------------------------------------------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Operating activities
Net income (loss) $(1,000,641) $(4,088,319) $(3,481,019) $ 878,281 $ 809,411
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Loss on disposal of subsidiary - 1,045,282 1,045,282 - -
Depreciation and amortization 1,163,788 917,327 1,281,940 884,611 600,658
Engine reserve - (191,977) (191,977) 193,553 (296,178)
Gain on sale of assets (138,964) (167,969) (351,932) (492,071) (69,759)
Net cash provided (absorbed) by
Accounts receivable (123,916) 671,080 (1,337,356) (1,684,436) 472,055
Inventories (228,082) (142,399) (47,010) (256,692) (798,854)
Costs in excess of billings 50,481 571,648 567,858 (288,343) (111)
Prepaid expenses and other
assets (148,317) 179,441 375,987 (211,696) 682,974
Accounts payable 1,934,961 3,389,382 2,534,382 1,093,011 105,206
Accrued expenses and other
liabilities 866,697 (74,499) 23,448 283,321 275,736
Deferred revenue - - - (727,586) (950,802)
Income taxes payable - - - - (20,000)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by
operating activities 2,376,007 2,108,997 419,603 (328,047) 810,336
- -------------------------------------------------------------------------------------------------------------------------------
Investing activities
Proceeds from sale of assets held
for resale - 1,225,000 1,225,000 - -
Proceeds from sale of property
and equipment - - 500,000 1,700,000 -
Purchase of property and
equipment (995,387) (4,964,785) (5,182,533) (1,710,923) (1,103,201)
Investment in assets held for sale (1,533,877) (320,592) (320,592) (2,651,012) -
Investment in other long-term
assets (65,000) (257,500) (257,500) - -
Payments received on note
receivable 85,696 - - - -
Acquisitions - - - (1,298,281) -
- -------------------------------------------------------------------------------------------------------------------------------
Net cash absorbed by investing
activities (2,508,568) (4,317,877) (4,035,625) (3,960,216) (1,103,201)
- -------------------------------------------------------------------------------------------------------------------------------
CONTINUED...
F-8
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Nine Months Ended
January 31, Year Ended April 30
----------------------------- ----------------------------------------------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
Financing activities
Proceeds from lines of credit,
net $ 4,247 $ 2,459,880 $ 2,748,662 $1,116,760 $ 629,409
Repayment of long-term debt
and notes payable (1,105,628) (3,952,974) (4,354,697) (1,024,774) (856,260)
Proceeds from long-term debt
and notes payable 1,300,000 3,973,504 5,273,504 4,215,000 495,000
Net shareholder advances - (35,775) (35,775) 69,632 -
Proceeds from exercise of
stock options - 498 498 - -
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 198,619 2,445,133 3,632,192 4,376,618 268,149
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 66,058 236,253 16,170 88,355 (24,716)
Cash and cash equivalents,
beginning of period 183,817 167,647 167,647 79,292 104,008
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 249,875 $ 403,900 $ 183,817 $ 167,647 $ 79,292
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-9
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Flight International Group, Inc. and Subsidiaries
(the "Company") is an aviation services company that performs military training
services using specially modified commercial aircraft, principally under
contracts with the United States Department of Defense, other government
agencies and foreign countries. In addition, the Company has established a
market for training and testing in the aerospace industry. The Company also
operates a fixed base operation ("FBO") at the Newport News/Williamsburg
International Airport.
The Company provided commercial airplane maintenance at its Myrtle Beach,
South Carolina location until the subsidiary was sold November 30, 2000. The
Company also provides flight services at its subsidiary in Alaska, which
includes mail service for the United States Postal Service and corporate and
private charter services.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Inventories - Aircraft parts - Aircraft parts include rotables and
repairable and expendable aircraft components. Rotables and repairables are
recorded using the specific identification method and are valued at the lower of
cost or market. Expendables are recorded at the lower of average cost or market.
Targets and cable - Targets and cable are special equipment required to
perform target tow missions and are recorded at the lower of average cost or
market.
Fuel - Fuel includes Jet A and Avgas, both of which are consumed in the
performance of contracts and sold commercially. Fuel is recorded at the lower of
average cost or market.
Costs in Excess of Billings - Costs in excess of billings consists of the
cost of parts and labor of customer maintenance work orders in process.
Completed work orders are included in accounts receivable.
Property and Equipment - Property and equipment are recorded at cost. The
cost of improvements are capitalized, while the cost of replacements,
maintenance and repairs which do not improve or extend the life of the
respective assets are expensed.
Depreciation and amortization of property and equipment are provided, for
financial reporting purposes, as follows:
Aircraft and Engines - Aircraft are depreciated on a straight-line basis
over 12 years. Engines are depreciated based on hours flown down to a core
value.
Electronic Warfare Equipment - Substantially all electronic warfare
equipment and related aircraft modifications are utilized to train military
aircrews, radar operators and weapons controllers in the techniques of airborne
target identification and intercept. Such equipment and related aircraft
modifications are carried at the lower of cost or market value and are
depreciated on a straight-line basis over 5 years.
F-10
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Other equipment - All other property and equipment is depreciated on a
straight-line basis over its estimated useful life or lease term, as applicable.
Estimated useful lives are as follows: leasehold interests and improvements,
primarily in the airport buildings - 49 months (remaining lease term);
equipment, office furniture, and fixtures - 5 years.
Goodwill - Goodwill was stated at the excess amount of the purchase price
over net assets acquired, net of accumulated amortization. Goodwill at April 30,
2000 was related to the Company's Myrtle Beach, South Carolina subsidiary. The
subsidiary was sold by the Company to an outside party effective November 30,
2000 and the remaining net goodwill was written-off as a result of the disposal.
Assets Held for Sale - Assets held for sale represents costs related to the
acquisition and refurbishment of airplanes to be later sold. The assets are
stated at the lower of cost or market. During the year ended April 30, 2001, one
plane was put into service by the Company and therefore transferred to property
and equipment.
Other Long-Term Assets - Other long-term assets includes costs incurred in
developing proprietary airplane maintenance and modification certifications.
These costs total approximately $680,000, $615,000 and $443,000 at January 31,
2002, and April 30, 2001 and 2000, respectively, and are being amortized on a
straight line basis over 15 years, the estimated lives of the certifications.
The Company also is licensed through its Alaska subsidiary to carry mail for the
U.S. Postal Service. The license was acquired at a cost of approximately
$100,000 and has no expiration date and is not being amortized.
Asset Impairments and Disposals - Under the provisions of FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews the carrying values of its
long-lived and identifiable intangible assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable.
Fair Value of Financial Instruments - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, and trade receivables. The Company
places its cash and cash equivalents with high credit qualified financial
institutions.
The following details the fair values of financial instruments for which it
is practicable to estimate the value:
Cash and cash equivalents - The carrying amounts approximate fair value
because of the short maturity of these instruments.
Debt - The aggregate fair value of the Company's long-term debt
obligations, which is based upon quoted market prices and rates currently
available to the Company for debt with similar terms and maturities,
approximates the carrying amount.
Revenue Recognition - Contract Revenue - The Company recognizes contract
revenue as hours are flown, at the average rate per flight hour, over the term
of each contract. Certain contracts provide for a guaranteed minimum number of
flight hours per contract year. Contract revenue for such guaranteed but unflown
hours, if any, is recognized at the end of the contract year.
Maintenance Revenue - The Company recognizes maintenance revenue at the
time of completion.
F-11
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly-liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
Earnings Per Share - Basic earnings per share is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilutive effect of stock options that could share in earnings of the
Company.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board finalized FASB Statements No. 141, Business Combinations (SFAS
141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141
requires the use of the purchase method of accounting and prohibits the use of
the pooling-of-interests method of accounting for business combinations
initiated after June 30, 2001. SFAS 141 also requires that the Company recognize
acquired intangible assets apart from goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company
reclassify the carrying amounts of intangible assets and goodwill based on the
criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The Company does not expect
the adoption of SFAS 141 and 142 to have a material effect on its financial
statements.
F-12
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes FASB Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", and the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". This statement also amends ARB No. 51, "Consolidated
Financial Statements", to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. This statement requires
that one accounting model be used for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired. This statement also
broadens the presentation of discontinued operations to include more disposal
transactions. SFAS 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. The Company does not
expect the adoption of SFAS 144 to have a material impact on its financial
position and results of operations.
F-13
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ACQUISITIONS - The Company acquired the assets of Flight Systems, Inc.
on March 1, 2000. The purchase price was composed of $150,000 of cash plus
101,398 shares of Company stock and assumption of liabilities. The shares were
valued at $3.50 per share. The operations which are located in Myrtle Beach,
South Carolina were immediately reincorporated into Flight International
Services, Inc. ("FIS") a newly formed wholly owned subsidiary of the Company.
Approximately $973,000 of goodwill was recorded on FIS related to the
acquisition, and was being amortized evenly over a 15 year period until the
disposal of FIS as discussed in Note 2 to these financial statements. During
April 2000, FIS acquired approximately all of the fixed assets of an avionics
company for approximately $240,000.
In April 2000, the Company acquired substantially all assets of YUTE Alaska
through a newly formed entity Flight Alaska, Inc. ("FAI"). The acquisition was
part of a bankruptcy liquidation. The asset purchase was financed by FAI in part
with long-term debt totaling $775,000.
A summary of the acquisitions of FIS and FAI during the year ended April 30,
2000 is as follows:
FIS FAI
- ------------------------------------------------------------------------------
Fair value of assets acquired $ 785,000 $1,221,000
Goodwill recorded 973,000 -
Liabilities assumed/incurred 1,253,000 73,000
Cash paid 150,000 1,148,000
Fair value of stock issued for acquisition 355,000 -
NOTE 2 - DISPOSAL OF SUBSIDIARY - The Company disposed of its subsidiary FIS
effective November 30, 2000 for a $600,000 note receivable. The note matures
April 2005 and is due in equal monthly installments of principal and interest at
9% of $14,934 beginning May 2001. The sale was closed in April 2001. As a
condition of the sale all outstanding FIS debt to banks and shareholders were
not assumed by the buyer. As a result of the sale, the Company recorded a loss
on disposal of the subsidiary of approximately $1,045,000. Operating results of
FIS were as follows:
May 1, 2000 March 1, 2000
Through Through
For the Periods November 30, 2000 April 30, 2000
- ------------------------------------------------------------------------------
Revenues $ 3,327,493 $ 537,132
Net loss from discontinued operations (1,460,721) (457,568)
Net loss on disposal of subsidiary (1,045,282) -
Net loss from disposed subsidiary (2,506,003) (457,568)
- ------------------------------------------------------------------------------
Net loss per share (basic and diluted):
Discontinued operations $ (1.32) $ (.44)
Loss on disposal of subsidiary $ (.94) $ -
- ------------------------------------------------------------------------------
F-14
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 - ACCOUNTS RECEIVABLE - The balance of accounts receivable is comprised
of the following:
April 30,
JANUARY 31, ----------------------------------
2002 2001 2000
----------- ----------- ----------
(Unaudited)
Flight operations contracts
and programs $5,778,825 $5,722,238 $5,063,132
Commercial 662,755 856,535 551,426
Other receivables 628,087 362,317 106,229
----------- ----------- ----------
7,069,667 6,941,090 5,720,787
Less: allowance for
doubtful accounts (616,381) (611,720) (19,687)
----------- ----------- ----------
$6,453,286 $6,329,370 $5,701,100
=========== =========== ==========
Accounts receivable from flight operations contracts and programs consist of the
following:
JANUARY 31, April 30,
2002 2001 2000
----------- ----------- ----------
(Unaudited)
U.S. Government
Amounts billed $4,096,156 $3,968,879 $2,053,128
Services provided,
not billed 545,539 978,520 2,129,655
----------- ----------- ----------
4,641,695 4,947,399 4,182,783
----------- ----------- ----------
Commercial Customers
Amounts billed 1,090,525 774,839 770,679
Services provided,
not billed 46,605 - 109,670
----------- ----------- ----------
1,137,130 774,839 880,349
----------- ----------- ----------
Total flight operations
contracts and programs $5,778,825 $5,722,238 $5,063,132
=========== ========== ==========
Accounts receivable are billed in accordance with the terms of the contracts
under which they arise.
F-15
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - INVENTORIES - Inventories are compromised of:
April 30,
JANUARY 31, ----------------------------------
2002 2001 2000
----------- ----------- ----------
(Unaudited)
Aircraft parts $2,810,947 $2,579,701 $2,928,592
Targets and cable 216,125 224,073 183,308
Fuel 28,992 24,208 11,987
----------- ----------- -----------
$3,056,064 $2,827,982 $3,123,887
=========== =========== ===========
NOTE 5 - PROPERTY AND EQUIPMENT - Property and equipment consist of the
following:
April 30,
JANUARY 31, ------------------------------------
2002 2001 2000
----------- ----------- -----------
(Unaudited)
Aircraft and engines $ 7,711,502 $ 6,868,259 $ 3,220,532
Electronic warfare equipment 963,147 963,147 519,147
Buildings and leasehold
improvements 3,468,743 3,430,650 2,246,378
Office furniture and fixtures 856,364 787,009 287,392
Other equipment 1,489,559 1,428,499 1,839,260
----------- ----------- -----------
14,489,315 13,477,564 8,112,709
Accumulated depreciation
and amortization (4,896,054) (3,749,171) (2,799,078)
----------- ----------- -----------
Property and equipment, net $ 9,593,261 $ 9,728,393 $ 5,313,631
=========== =========== ===========
NOTE 6 - NOTES PAYABLE - In August 2000, the Company entered into a $5,500,000
line of credit agreement with a bank in Newport News, Virginia, which was
subsequently increased to $6,000,000 as of July 2001. The initial term of the
agreement ran through August 31, 2001. Under the agreement, the Company may
obtain advances up to 85% of amounts billed by the Company on government
contracts. The Company pays interest at a variable rate. Outstanding advances at
January 31, 2002 and April 30, 2001 were approximately $4,950,173 and
$4,946,000, respectively. Under the agreement, the Company must maintain certain
net worth ratios. The Company was not in compliance with these ratios at April
30, 2001. However, an amendment to the line of credit deleted the net worth
requirement as of May 1, 2001 and waived any default by the Company for the year
ended April 30, 2001. The agreement was also amended December 1, 2001 to include
virtually all equipment of the Company as collateral and to extend the maturity
of the line of credit to August 31, 2002 with interest on outstanding advances
at a rate of prime plus .5%. In January 2002, the line of credit limit was
increased to $7,250,000. The Company believes it will be able to refinance the
debt as it becomes due.
F-16
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 - NOTES PAYABLE (CONTINUED)
During the year ended April 30, 1998 the Company entered into a $2,000,000 asset
based borrowing agreement with a bank in Newport News, Virginia, which was
subsequently increased to $2,700,000. Under the terms of the agreement, the
Company could obtain advances up to 85% of amounts billed by the Company on
government contracts. The Company paid interest at prime plus .50% on
outstanding advances. Outstanding advances at April 30, 2000 were approximately
$2,024,000. The line of credit was paid off in August 2000 with additional
financing.
During the year ended April 30, 2000, the Company entered into a $500,000
commercial line of credit agreement with a bank in Newport News, Virginia,
maturing September 1, 2000. The line of credit was paid off in January 2001.
During the year ended April 30, 2000, the Company entered into a loan agreement
for $1,300,000 with a bank in Newport News, secured by aircraft. The loan was
paid off in February 2001.
NOTE 7 - LONG-TERM DEBT - Long-term debt consists of the following:
April 30,
JANUARY 31, ----------------------------
2002 2001 2000
----------- ----------- ------------
(Unaudited)
Note payable to a bank with interest payable at the
monthly LIBOR Index plus 3%, due in equal monthly installments
of principal and interest of $17,500, beginning May 1, 2001
through April 1, 2004, secured
by aircraft. $1,942,500 $2,100,000 $ -
Note payable to a state authority with interest payable of
9.25%, due in equal monthly installments of $11,321 through
June 1, 2015, secured by real property located
in Anchorage, Alaska. 1,016,231 1,071,732 -
Note payable to a bank with interest payable at 8.5%, due
in graduated monthly installments of principal and
interest, beginning at $19,000 and ending at
$37,000, through November 1, 2003, secured by a first
mortgage deed of trust on leasehold improvements and
assignment of leases on certain real property
located in Newport News, Virginia. 711,369 951,800 1,238,041
Note payable to a bank with interest payable at
8.55%, due in monthly installments of $11,898,
maturing July 2006, secured by aircraft. 708,626 - -
F-17
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 - LONG-TERM DEBT (CONTINUED)
April 30,
JANUARY 31, ----------------------------
2002 2001 2000
----------- ----------- -------------
(Unaudited)
Note payable to a bank with interest payable at 9.25%,
due in equal monthly principal installments of $15,938
plus interest through January 15, 2005, secured by aircraft. $ 573,750 $ 733,125 $ 908,438
Note payable to a bank with interest payable at the LIBOR
Index plus 3%, due in monthly installments
of $16,500 beginning June 1, 2000 through
May 1, 2005, secured by aircraft. 525,674 640,152 775,000
Note payable to a bank with interest payable at
8.55%, due in monthly installments of $8,725,
maturing July 2006, secured by aircraft. 519,462 - -
Note payable to a related party with interest at 8.5%,
due with one payment of $25,000 on June 15, 2001 and
thereafter in equal monthly installments of
principal and interest of $9,775 through June 15, 2006, secured by
aircraft. 445,657 500,000 -
Capital lease obligation, due in quarterly installments
of principal and interest of $50,500, through March 31,
2004, secured by computer equipment (Note 9). 343,541 433,971 -
Note payable to a bank with interest payable at Prime rate
plus 1.00%, due in equal monthly installments of principal
of $5,952 plus interest maturing on August 15,
2006, secured by aircraft. 327,392 386,912 452,384
Note payable to a company with interest payable of 18.5%,
due in equal bi-annual installments of principal and
interest of $27,500 due June 1, 2009, unsecured. 208,101 226,677 -
Note payable to a bank with interest payable at the Prime
rate plus 0.75%, due in equal monthly installments of
principal and interest of $1,875 through
October 15, 2004, secured by aircraft. 176,250 193,125 215,625
F-18
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 - LONG-TERM DEBT (CONTINUED)
April 30,
JANUARY 31, ----------------------------
2002 2001 2000
----------- ----------- -------------
(Unaudited)
Note payable to a bank with interest payable at the
LIBOR Index rate plus 3%, due in monthly installments
of principal of $6,668 plus interest through
October 10, 2003, secured by aircraft $ 133,985 $ 199,994 $ -
Note payable to a bank with interest payable at prime
plus .25%, due in equal monthly installments of
principal and interest of $3,472 through November 2003,
secured by equipment. 72,916 107,639 -
Note payable to an insurance company, with
interest payable at 8.7%, due in monthly
installments of $3,503, maturing September 2002. 36,912 - -
Note payable to a bank with interest payable at 8%,
due in equal monthly installments of principal and
interest of $376, maturing on March 1, 2003,
secured by a vehicle. 5,380 8,247 11,085
Note payable to a bank with interest payable at 8.22%,
due in equal monthly installments of principal and
interest of $13,602 through February 2002, secured by
certain property and equipment. Refinanced during the year ended
April 30, 2001. - - 288,948
Note payable to a bank with interest payable at 8%, due
in equal monthly installments of principal and interest of
$12,452, maturing August 2000, collateralized by inventory. - - 205,416
Note payable to a bank with interest payable at the monthly
LIBOR Index plus 3.00%, graduated monthly installments
of principal and interest, beginning at $8,000
and ending at $12,000, through September 1, 2004, secured
by aircraft. Refinanced during the year ended April 30, 2001. - - 876,500
------------ ----------- -----------
7,747,746 7,553,374 4,971,437
Current maturities 1,571,689 1,369,639 1,081,525
------------ ----------- -----------
Long-term debt, net $6,176,057 $6,183,735 $3,889,912
============ =========== ===========
F-19
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 - LONG-TERM DEBT (CONTINUED)
At January 31, 2002, aggregate principal payments due for long-term debt for the
next five fiscal years and thereafter were as follows:
2002 $1,571,689
2003 1,544,703
2004 2,537,198
2005 497,820
2006 746,483
Thereafter 849,853
----------
$7,747,746
==========
NOTE 8 - INCOME TAXES - Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The sources of estimated temporary differences and their effect on net deferred
tax assets (liabilities) are summarized as follows:
April 30,
--------------------------------------------
2001 2000
------------ ------------
Deferred gain $ 54,000 $ 161,000
Engine reserve 227,000 244,000
Allowance for bad debts 232,000 7,000
Vacation expense 87,000 83,000
Net operating loss carryforwards 3,500,000 2,432,000
Basis difference of property and equipment (40,000) -
------------ ------------
Net deferred tax asset 4,060,000 2,927,000
Valuation allowance (4,060,000) (2,927,000)
$ - $ -
The Company has recorded a valuation allowance for the deferred tax asset due to
uncertainty of its realization.
As of April 30, 2001, the cumulative net operating loss available for federal
income tax purposes was estimated at approximately $9.3 million which will
expire primarily during years ended 2011, 2019 and 2021.
F-20
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9 - LEASE COMMITMENTS - The Company leases various aircraft and engines
under operating leases for use on its contracts. Total lease expense for these
aircraft was approximately $9,081,000, $6,467,000, $11,488,000, $9,719,000 and
$7,272,000 for the nine months ended January 31, 2002 and 2001 and years ended
April 30, 2001, 2000 and 1999, respectively. Such lease expenses included
approximately $6,839,000, $7,028,000 and $4,160,000 for the years ended April
30, 2001, 2000 and 1999, and $5,199,000 and $3,363,000 for the nine months ended
January 31, 2002 and 2001, respectively, for contingent rentals based on hours
flown. See discussion of related party lease commitments at Note 12.
The Company leases various office facilities and airport property under lease
arrangements with terms expiring through May 2004. Other operating leases are
for office machines and aircraft maintenance equipment. The lease expense for
these operating leases was $423,000, $391,000 and $369,000 for the years ended
April 30, 2001, 2000 and 1999, and $460,000 and $317,000 for the nine months
ended January 31, 2002 and 2001. Such lease expenses included approximately
$43,000, $78,000, $95,000, $105,000 and $102,000 for the nine months ended
January 31, 2002 and 2001 and years ended April 30, 2001, 2000 and 1999,
respectively, for contingent rentals based on revenue.
The Company has a capital lease obligation with a finance company related to
computer equipment. Property and equipment at January 31, 2002 includes the
leased equipment of approximately $391,000, net of amortization of approximately
$195,000.
Future minimum lease payments as of January 31, 2002 reflect renewals related to
the new CAS-MOS contract which began April 1, 2002. Future minimum lease
payments on capital and operating leases for each of the next five years were as
follows:
(Unaudited)
January 31, April 30,
2002 2001
-------------------------------- --------------------------
Capital Operating Capital Operating
------- --------- ------- ----------
2002 $ - $ - $246,955 $3,301,000
2003 252,500 4,917,000 202,000 1,685,000
2004 194,520 4,699,000 187,040 1,627,000
2005 43,020 4,200,000 - 1,190,000
2006 - 3,546,000 - 873,000
2007 - 1,145,000 - -
- ----------------------------------------------------------------------------------------------------------------
Total minimum lease payments 490,040 18,507,000 635,995 8,676,000
Amounts representing interest 146,499 - 202,024 -
- ----------------------------------------------------------------------------------------------------------------
$343,541 $18,507,000 $433,971 $8,676,000
- ----------------------------------------------------------------------------------------------------------------
F-21
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 10 - CLAIMS, CONTINGENCIES, AND COMMITMENTS - On February 4, 1994, the
Company filed voluntary petitions in the United States Bankruptcy Court for the
Eastern District of Virginia (the "Bankruptcy Court") for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Code"). On December 8,
1994, the Bankruptcy Court entered an order confirming the Company's joint plan
of reorganization (the "Plan"), and the Plan became effective on December 28,
1994 (the "Effective Date"). For accounting purposes, the effective date was
deemed to be December 31, 1994.
Pursuant to the Plan, a total of 1,000,000 shares of new common stock were
authorized and 998,976 shares were issued. The 9,899,713 shares of common stock
previously outstanding were retired. Of the new shares of common stock issued,
51,000 shares are being held by the Company to satisfy the remaining claims of
the unsecured creditors.
The Company has not satisfied its quarterly and annual Securities and Exchange
Commission (SEC) filing requirements for the year ended April 30, 2001 or the
nine months ended January 31, 2002.
As a result of a state sales and use tax audit, the Company has been assessed a
liability of approximately $280,000 for periods ended December 31, 2000 and
prior and a lien has been placed on certain real property owned by the Company.
The Company is currently examining the results of the audit and plans to contest
a portion of the assessment. The Company has accrued approximately $240,000 of
the assessment as of April 30, 2001.
The Company is involved in litigation with a shareholder of the Company and
former employee of FIS who was also the principle owner of Flight Systems, Inc.
("Flight Systems") whose assets were purchased by FIS as discussed in Note 1 to
these financial statements. The shareholder, his attorney, and Flight Systems
allege that the Company has failed to satisfy certain liabilities due to them
individually and collectively as a result of the Company's acquisition of Flight
Systems. The attorney claims the Company owes approximately $85,000 for services
rendered. The shareholder and Flight Systems collectively claim approximately
$221,000 of unpaid liabilities including shareholder loans payable. The Company
plans to defend the litigation vigorously and believes it is possible that it
may assert counter claims that outweigh the litigation claims. As of January 31,
2002 and April 30, 2001, the Company has liabilities recorded of approximately
$54,000 and $203,000 related to the attorney fees and shareholder payables,
respectively.
NOTE 11 - EMPLOYEE BENEFIT PLANS - The Company sponsors a defined contribution
pension plan covering all eligible employees. Employees become eligible to
participate upon completing one year of service in a job classification not
subject to a collective bargaining agreement. One year of service is defined as
any consecutive 12 month period in which the employee works 1,000 hours.
Participants may elect to have 1% to 60% of their compensation contributed to
the Plan, up to the maximum allowed by law. Contributions to the Plan are
matched by the Company at the rate of 50% of the first 6% of employees'
contributions. All employee contributions, rollover contributions, and earnings
thereon are 100% vested. Company contributions vest at a rate of 20% per year.
The participant may designate his contribution and employer matching
contributions to be invested in any combination of fifteen money market, stock
or bond funds maintained by the Trustee. After a participant dies or retires,
the participant or his beneficiary is entitled to receive the entire vested
balance of his account. Participants age 50 and over are eligible to make
"catchup" contributions up to the maximum allowed by law.
F-22
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company reserves the right to amend or terminate the Plan at any time. If
the Plan is terminated, each participant is then vested with the amount in their
account. The Company contributed approximately $130,000, $72,000 and $59,000 to
the plan for the years ended April 30, 2001, 2000 and 1999, respectively, and
$79,000 and $66,000 for the nine months ended January 31, 2002 and 2001,
respectively.
NOTE 12 - TRANSACTIONS WITH MAJOR CUSTOMER - Revenues from all U.S. government
contracts included in Flight operations are approximately as follows:
Total Revenue Amount Percent
-------------- ------ --------
Nine months ended January 31, 2002 $22,633,000 68.6%
Nine months ended January 31, 2001 $19,926,000 75.3%
Year ended April 30, 2001 $23,893,000 64%
Year ended April 30, 2000 $23,643,000 80%
Year ended April 30, 1999 $19,444,000 77%
NOTE 13 - RELATED PARTIES - The Company had a note payable on advances from a
stockholder of $202,811 at January 31, 2002 and April 30, 2001 and $238,585 as
of April 30, 2000. See further discussion at Notes 2 and 10.
The Company has entered into lease agreements with Maritime Sales and Leasing
("MSL") for certain aircraft which require future minimum lease payments at
January 31, 2002 for each of the next five years are as follows: 2003 -
$2,986,000; 2004 - $2,986,000; 2005 - $2,775,000; 2006 - $2,277,000 and 2007 -
$1,575,000. David Sandlin, President and CEO of the Company, is also an owner of
MSL.
During the year ended April 30, 2000, the Company entered into a sale/leaseback
transaction with MSL to sell a plane and two engines. Total proceeds from the
sale were $1,700,000, however due to the terms of leaseback, the Company is
amortizing approximately $566,000 of the $916,000 gain realized on the
transaction over the 2 year term of the lease. The remaining deferred gain as of
April 30, 2001, and 2000 was $141,531, $424,591, respectively.
During 1996, the Company entered into a lease with the Aviation Company. David
Sandlin has an ownership interest in the Aviation Company. The single aircraft
lease calls for payments of $500 per hour flown. Approximately $22,000, $3,000
and $67,000 of lease expense was incurred for the years ended April 30, 2001,
2000 and 1999, respectively, and $132,800 and $0 for the nine months ended
January 31, 2002 and 2001, respectively.
In February 2001, the Company entered into a sale/leaseback transaction with the
Aviation Company to sell a plane and two engines for $500,000. The Company
recognized the entire gain of approximately $113,000 related to the transaction
based on the present value of the lease payments over the five year term.
Total rent expense on all related party leases were approximately as follows:
Nine months ended January 31, 2002 $3,616,000
Nine months ended January 31, 2001 $3,164,000
Year ended April 30, 2001 $5,725,000
Year ended April 30, 2000 $4,942,000
Year ended April 30, 1999 $3,085,000
F-23
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - The Company made
interest payments of approximately $1,030,000, $520,000 and $355,000 for the
years ended April 30, 2001, 2000 and 1999, respectively, including interest
capitalized of approximately $111,000 and $90,000 for the years ended April 30,
2001 and 2000, respectively. The Company made interest payments of approximately
$845,000 and $910,000 for the nine months ended January 31, 2002 and 2001,
respectively.
During the year ended April 30, 2001, the Company transferred approximately $1.7
million of costs related to aircraft and engines classified as held for sale at
April 30, 2000 to property and equipment.
NOTE 15 - STOCKHOLDERS' EQUITY - During the year ended April 30, 2000, the
Company redeemed 5,950 shares of stock in satisfaction of an outstanding
receivable of approximately $33,000.
In August 1998, the Company implemented a stock option plan to provide incentive
to employees, directors, and consultants. The initial term of the plan is 10
years and a total of 500,000 shares are available for grant. Under the new plan,
38,000 options previously issued to an officer of the Company at an exercise
price of $2.00 were replaced by 45,000 options at $3.12 in 1999. The following
table summarizes all option activity:
Year Ended April 30, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding at
beginning of year 153,350 $3.25 74,650 $3.07 38,000 $2.00
Options granted 90,500 4.26 92,000 3.37 74,650 3.07
Options exercised (166) 3.00 - - - -
Options forfeited (cancelled) - - (13,300) 3.10 (38,000) 2.00
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 243,684 $3.63 153,350 $3.25 74,650 $3.07
- ------------------------------------------------------------------------------------------------------------------------
As of April 30, 2001, 155,012 options are vested and exercisable at a weighted
average price per share of $3.42. The weighted average remaining life of options
outstanding is approximately eight years. The Company applies APB Opinion 25 and
related interpretations in accounting for stock options. Accordingly, no
compensation cost has been recognized. For the purposes of computing the
proforma amounts, the fair value of each option on the date of grant is
estimated using the Black-Scholes option pricing model with the following
assumptions: no dividend yield, no expected volatility, risk-free interest rate
of approximately 6%. The options granted during the year ended April 30, 2001
have substantially no fair value under the Black-Scholes method and therefore,
no material effect on net loss or loss per share. Proforma net income and basic
and diluted earnings per share under the provisions of SFAS 123 for the effect
of options granted and outstanding for the years ended April 30, 2000 and 1999
are $735,494 and $.71 and $715,575 and $.71, respectively with no proforma
effect for the year ended April 30, 2001. No options were granted during the
nine months ended January 31, 2002.
F-24
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 16 - ACCOUNTING ESTIMATES - During the year ended April 30, 2001, the
Company changed its method for estimating certain reserves for airplane engine
overhauls which resulted in a decrease of approximately $275,000 in accrued
engine reserves and related engine reserve expense as of and for the year ended
April 30, 2001.
The Company makes significant estimates related to its unbilled fuel liability.
The Company accrues its fuel liability based on actual usage throughout the
year. At the end of the year the Company adjusts the liability based on actual
invoices received and expected future invoices. The Company decreased its
accrued fuel and related fuel expense as of and for the years ended April 30,
2001, 2000 and 1999 by approximately $250,000, $135,000 and $95,000,
respectively, based on its estimates.
In addition, the Company and the U.S. Government have agreed in principal to an
equitable fuel cost adjustment related to the fluctuation of actual fuel prices
compared to the rate included in one of its contracts. A final settlement has
not been reached, however the Company had accrued approximately $160,000 and
$240,000 as of January 31, 2002 and April 30, 2001 as a reduction to fuel
expense and an other receivable for the same amount.
NOTE 17 - SUBSEQUENT EVENT - In November 2001, the Company entered into a letter
of intent with a third party to sell virtually all operations and related net
assets of the Company. Consummation of the transaction is subject to various
conditions, including negotiation and execution of a definitive agreement and
approval by the Company's Board of Directors and shareholders. If the above
transactions are satisfied, it is anticipated that it would close by the end of
2002.
F-25
ANNEX A
ASSET PURCHASE AGREEMENT
BY AND AMONG
VTF CORPORATION
AS PURCHASER
AND
THE FLIGHT INTERNATIONAL GROUP, INC.
FLIGHT INTERNATIONAL, INC.
FLIGHT INTERNATIONAL AVIATION, INC.
FLIGHT INTERNATIONAL SALES AND LEASING, INC.
FLIGHT ALASKA, INC.
AND
FLIGHT INTERNATIONAL OF FLORIDA, INC.
AS SELLERS
DATED AS OF MAY 9, 2002
TABLE OF CONTENTS
ARTICLE I DEFINITIONS............................................................................................1
ARTICLE II ASSETS ACQUIRED; LIABILITIES ASSUMED.................................................................10
Section 2.1 Purchase and Sale of Assets......................................................................10
Section 2.2 Excluded Assets..................................................................................12
Section 2.3 Assumed Liabilities..............................................................................12
Section 2.4 Excluded Liabilities.............................................................................13
Section 2.5 Contested Obligations............................................................................14
ARTICLE III PURCHASE PRICE AND PAYMENT TERMS....................................................................15
Section 3.1 Purchase of the Asset by Purchaser; Total Purchase Price.........................................15
Section 3.2 Payment of Purchase Price........................................................................15
Section 3.3 Escrow Agreement; Initial Escrow Amount..........................................................15
Section 3.4 Transfer Taxes...................................................................................15
Section 3.5 Allocation of Purchase Price.....................................................................16
ARTICLE IV THE CLOSING..........................................................................................16
Section 4.1 Closing Date.....................................................................................16
Section 4.2 Relinquishment of Control........................................................................16
Section 4.3 Closing Date Deliveries..........................................................................16
Section 4.4 Further Assurances...............................................................................16
Section 4.5 Financing........................................................................................17
ARTICLE V CERTAIN COVENANTS.....................................................................................17
Section 5.1 Access to Books and Records and Personnel........................................................17
Section 5.2 Post-Closing Access..............................................................................17
Section 5.3 Notice of Certain Events.........................................................................18
Section 5.4 Conduct of Business by the Sellers...............................................................18
Section 5.5 Regulatory Matters...............................................................................21
Section 5.6 Updated Financial Information....................................................................22
Section 5.7 Transaction Proposals............................................................................22
Section 5.8 Customers and Suppliers..........................................................................22
Section 5.9 Arrangements with Employees......................................................................23
Section 5.10 Purchaser's Governmental Approvals..............................................................23
Section 5.11 Transfer of Purchased Contracts; Third Party Consents...........................................23
Section 5.12 Provisions Respecting Government Contracts......................................................23
Section 5.13 COBRA...........................................................................................25
Section 5.14 Preparation of the Proxy Statement..............................................................25
Section 5.15 Shareholder Meeting.............................................................................25
Section 5.16 Sellers Representative Agreement................................................................26
Section 5.17 Noncompetition..................................................................................26
Section 5.18 Nondisclosure of Proprietary Data...............................................................27
Section 5.19 Refund Claims and Warranty Claims...............................................................28
Section 5.20 Satisfaction of Warranty and Refund Claims......................................................28
Section 5.21 Change Orders...................................................................................28
Section 5.22 Bulk Sales Law..................................................................................29
i
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE SELLERS........................................................29
Section 6.1 Organization and Standing of each Seller.........................................................29
Section 6.2 Authorization and Binding Obligation of each Seller..............................................29
Section 6.3 Non-Contravention................................................................................30
Section 6.4 Indebtedness.....................................................................................30
Section 6.5 Ability to Perform Obligations...................................................................30
Section 6.6 Dividends and Other Distributions................................................................30
Section 6.7 Accounting Records...............................................................................30
Section 6.8 Financial Statements; Changes; Contingencies.....................................................31
Section 6.9 The Assets.......................................................................................31
Section 6.10 Accounts Receivable.............................................................................32
Section 6.11 Inventory.......................................................................................32
Section 6.12 Intangible Personal Property....................................................................32
Section 6.13 Real Property...................................................................................34
Section 6.14 Tangible Personal Property......................................................................34
Section 6.15 Necessary Properties............................................................................35
Section 6.16 Insurance.......................................................................................35
Section 6.17 Accounts Payable................................................................................36
Section 6.18 Tax Matters.....................................................................................36
Section 6.19 Litigation......................................................................................37
Section 6.20 Labor Relations.................................................................................38
Section 6.21 Employee Benefits...............................................................................38
Section 6.22 Certain Interests...............................................................................39
Section 6.23 Governmental Approvals; Compliance with Laws....................................................39
Section 6.24 Customers.......................................................................................39
Section 6.25 Suppliers.......................................................................................40
Section 6.26 Environmental Matters...........................................................................40
Section 6.27 Brokers, Finders................................................................................41
Section 6.28 Material Contracts..............................................................................41
Section 6.29 Absence of Undisclosed Changes..................................................................43
Section 6.30 Government Contracts............................................................................43
Section 6.31 Clearances......................................................................................45
Section 6.32 Disclosure; Due Diligence.......................................................................45
Section 6.33 SEC Reports.....................................................................................45
Section 6.34 Information.....................................................................................45
Section 6.35 Customer Warranties and Return Policies.........................................................46
Section 6.36 Products Liability..............................................................................46
Section 6.37 Federal Reserve Board Regulations...............................................................46
Section 6.38 No Controlling Shareholder......................................................................46
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................................................47
Section 7.1 Organization and Standing of Purchaser...........................................................47
Section 7.2 Authorization and Binding Obligation of Purchaser................................................47
Section 7.3 Ability to Perform Obligations...................................................................47
Section 7.4 Brokers, Finders.................................................................................47
Section 7.5 U.S. Persons.....................................................................................47
ii
ARTICLE VIII TERMINATION........................................................................................48
Section 8.1 Termination of Agreement.........................................................................48
Section 8.2 Effect of Termination............................................................................49
Section 8.3 Expenses.........................................................................................49
ARTICLE IX CLOSING CONDITIONS OF PURCHASER......................................................................49
Section 9.1 Representations, Warranties and Covenants of the Sellers.........................................49
Section 9.2 Deliveries to Be Made by the Sellers at the Closing..............................................50
Section 9.3 Shareholder Approval.............................................................................51
Section 9.4 Third Party Consents.............................................................................51
Section 9.5 CAS-MOS Contract.................................................................................51
Section 9.6 Orders; Illegality...............................................................................51
Section 9.7 Absence of Investigations and Proceedings........................................................51
Section 9.8 Governmental Approvals...........................................................................52
Section 9.9 Absence of Certain Changes.......................................................................52
Section 9.10 Financing.......................................................................................52
Section 9.11 Due Diligence...................................................................................52
Section 9.12 Environmental Audits............................................................................52
Section 9.13 Release of Liens................................................................................52
Section 9.14 Employment Agreement............................................................................52
Section 9.15 Non-Competition Agreement.......................................................................53
Section 9.16 Transfer Taxes..................................................................................53
Section 9.17 Maritime Transaction............................................................................53
Section 9.18 Retention of Key Employees......................................................................53
Section 9.19 Escrow Agreement................................................................................53
Section 9.20 Sellers Representative Agreement................................................................53
ARTICLE X CLOSING CONDITIONS OF THE SELLERS.....................................................................53
Section 10.1 Representations, Warranties and Covenants of Purchaser..........................................53
Section 10.2 Deliveries to be Made by Purchaser at the Closing...............................................54
Section 10.3 Shareholder Approval............................................................................54
Section 10.4 Orders; Illegality..............................................................................55
Section 10.5 Escrow Agreement................................................................................55
Section 10.6 Absence of Investigations and Proceedings.......................................................55
Section 10.7 Governmental Approvals..........................................................................55
ARTICLE XI INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES..........................................55
Section 11.1 Indemnification by the Sellers..................................................................55
Section 11.2 Indemnification by Purchaser....................................................................56
Section 11.3 Cooperation.....................................................................................57
Section 11.4 Limitations on Indemnification..................................................................57
Section 11.5 Notice to Indemnifying Party....................................................................57
Section 11.6 Defense by Indemnifying Party...................................................................57
Section 11.7 Survival of Representations and Warranties......................................................58
Section 11.8 Survival of Representations and Covenants of Purchaser..........................................59
ARTICLE XII CONFIDENTIALITY.....................................................................................59
Section 12.1 Confidentiality of the Sellers..................................................................59
Section 12.2 Confidentiality of Purchaser....................................................................60
iii
ARTICLE XIII MISCELLANEOUS......................................................................................61
Section 13.1 Change Corporate Name...........................................................................61
Section 13.2 Expenses........................................................................................61
Section 13.3 Notices and Other Communications................................................................61
Section 13.4 Counterparts....................................................................................62
Section 13.5 Written Agreement to Govern.....................................................................62
Section 13.6 Assignability...................................................................................62
Section 13.7 No Waiver of Rights.............................................................................62
Section 13.8 Subject Headings................................................................................62
Section 13.9 Further Assurances..............................................................................62
Section 13.10 Schedules and Exhibits.........................................................................63
Section 13.11 Severability...................................................................................63
Section 13.12 Publicity and Reports..........................................................................63
Section 13.13 Parties in Interest; Joint and Several Liability of the Sellers................................64
Section 13.14 Specific Performance...........................................................................64
Section 13.15 GOVERNING LAW; CONSENT TO JURISDICTION.........................................................64
iv
SCHEDULES AND EXHIBITS
Schedule 1.......................Permitted Encumbrances
Schedule 2.2.....................Excluded Assets
Schedule 2.3.4...................Affiliate Trade Payables
Schedule 3.5.....................Allocation of Purchase Price
Schedule 5.4.....................Conduct of Business
Schedule 6.1.....................Organization
Schedule 6.3.....................Non-Contravention
Schedule 6.4.....................Indebtedness
Schedule 6.8.....................Financial Statements
Schedule 6.10....................Accounts Receivable
Schedule 6.11....................Inventory
Schedule 6.12....................Intangible Personal Property
Schedule 6.13....................Real Property
Schedule 6.14....................Tangible Personal Property
Schedule 6.16....................Insurance
Schedule 6.18....................Tax Matters
Schedule 6.19....................Litigation
Schedule 6.20....................Labor Relations
Schedule 6.21....................Employee Benefits; ERISA
Schedule 6.22....................Certain Interests
Schedule 6.23....................Governmental Approvals; Compliance with Laws
Schedule 6.24....................Customer
Schedule 6.25....................Suppliers
Schedule 6.26 ...................Environmental Matters
Schedule 6.28....................Material Contracts
Schedule 6.29....................Undisclosed Changes
Schedule 6.30....................Government Contracts
Schedule 6.31....................Clearances
Schedule 6.33....................SEC Reports
Schedule 6.35....................Customer Warranties and Return Policies
Schedule 6.36....................Product Liability
Schedule 13.3....................Notice Addresses
Exhibit A........................Form of Escrow Agreement
Exhibit B........................Form of Assignment and Assumption Agreement Sellers' Assumed
Exhibit C........................Sellers' Assumed Indebtedness Schedule
Exhibit D........................Form of Sellers Representative Agreement
Exhibit E........................Form of Affidavit of Non-Foreign Status (Entity)
Exhibit F........................Term Sheet For Sandlin Employment Agreement
Exhibit G........................Term Sheet For Bone Employment and Non-
Competition Agreement
Exhibit H........................Form of Opinion of Purchaser's Counsel
v
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made this 9th day of May, 2002, by and
among VTF CORPORATION, a Delaware corporation (together with its successors or
assigns, "Purchaser"), THE FLIGHT INTERNATIONAL GROUP, INC., a Georgia
corporation ("FIG"), FLIGHT INTERNATIONAL, INC., a Georgia corporation ("FII"),
FLIGHT INTERNATIONAL AVIATION, INC., a Georgia corporation ("FIA"), FLIGHT
INTERNATIONAL SALES AND LEASING, INC., a Delaware corporation ("FIS"), FLIGHT
ALASKA, INC., a Delaware corporation ("FAI"), and FLIGHT INTERNATIONAL OF
FLORIDA, INC., a Florida corporation ("FIOF", and together with FIG, FII, FIA,
FIS and FAI, each is individually referred to herein as a "Seller" and are
collectively referred to herein as the "Sellers").
RECITALS
1. The Sellers operate in the aerospace and aviation services
industries and individually or collectively (i) perform military training
services for the United States Department of Defense, other government agencies
and foreign countries, (ii) provide training and testing in the aerospace
industry and (iii) operate a fixed base operation at the Newport
News/Williamsburg International Airport, a scheduled cargo and charter passenger
airline throughout Alaska, and aircraft modification, repair and overhaul
centers, together with other activities ancillary or related thereto
(collectively, the "Business").
2. The Sellers desire to sell to Purchaser, and Purchaser desires
to purchase from the Sellers, all of their respective assets related to the
Business, and the Purchaser is willing to assume certain liabilities of the
Sellers in connection therewith.
3. As a condition and inducement to Purchaser's willingness to
enter into this Agreement, concurrently with the execution and delivery of this
Agreement, Purchaser and David E. Sandlin are entering into a Voting Agreement,
dated as of the date of this Agreement, pursuant to which Mr. Sandlin has agreed
to vote his shares of FIG capital stock in favor of the proposal to approve the
transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of and subject to the mutual
undertakings and agreements hereinafter set forth, Purchaser and the Sellers
agree as follows:
ARTICLE I
DEFINITIONS
"Adjustment Amount" shall mean the amount by which the Assumed
Indebtedness exceeds $34,800,000; provided that the Adjustment Amount shall be
reduced on a dollar-for-dollar basis by the Maritime Adjustment Amount. If the
Assumed Indebtedness is equal to or less than $34,800,000, the Adjustment Amount
shall be zero.
1
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, directly or indirectly controlled by, or
under direct or indirect common control with, such Person; or if such Person is
a partnership, any general partner of such Person or a Person controlling any
such general partner. For purposes of this definition, "control" (including
"controlled by" and "under common control with") shall mean the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such Person whether through the ownership of voting securities or by contract
or otherwise.
"Agreement" shall mean this Asset Purchase Agreement, as the same may
be amended or otherwise modified from time to time in accordance with its terms.
"April 30 Balance Sheet" shall have the meaning set forth in Section
6.8.1.
"Assets" shall have the meaning set forth in Section 2.1.
"Associate" of a Person shall mean: (i) a corporation or organization
(other than the Sellers) of which such Person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity; and (iii) any relative or spouse of such Person or any
relative of such spouse.
"Assumed Indebtedness" shall mean the combined Indebtedness of Maritime
and its Subsidiaries and the Sellers assumed or incurred, directly or
indirectly, by Purchaser or one or more of its Subsidiaries on the Closing Date,
as set forth on the Sellers' Assumed Indebtedness Schedule.
"Assumed Liabilities" shall have the meaning set forth in Section 2.3.
"Audited Financial Statements" shall have the meaning set forth in
Section 6.8.1.
"Base Purchase Price" shall have the meaning set forth in Section 3.1.
"Best Efforts" shall mean the commercially reasonable efforts that a
Person desirous of achieving a result would use in similar circumstances to
insure that such result is achieved as reasonably expeditiously as possible.
"Bone" shall mean John R. Bone.
"Bone Employment and Non-Competition Agreement" shall have the meaning
set forth in Section 9.15.
"Business" shall have the meaning set forth in the Recitals hereto.
"Closing" shall have the meaning set forth in Section 4.1.
"Closing Date" shall have the meaning set forth in Section 4.1.
2
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Contracts" shall mean all contracts, agreements and legally binding
commitments relating to the Business or the Assets or to which any of the
Sellers is a party or has an interest, whether oral or written, including, but
not limited to, purchase, sale or other commitments, Customer Contracts,
Government Contracts, distributorship, franchise or similar agreements, patent
or trademark licensing agreements (either as licensor or licensee), lease or
sublease agreements (either as lessor or lessee), aircraft leases, equipment
leases, employment agreements (including, but not limited to, agreements entered
into by employees of any of the Sellers relating to the transfer and/or
safeguarding of intellectual property rights), consulting agreements and union
or collective bargaining agreements, guarantees, loan agreements,
non-competition agreements, severance agreements, letters of credit, joint
venture or partnership agreements and supply or requirements contracts.
"Customer Contracts" shall mean all agreements, service contracts,
purchase orders, sales confirmations or similar commitments entered into by any
of the Sellers, which provide for obligations to deliver Services and/or
Products, the rights to be paid for those Services and/or Products and the
obligations and rights that are ancillary to those obligations and rights.
"Customer Lists" shall mean all lists (including name, and to the
extent known to any Seller, current address and telephone number) of Persons
which have purchased Services and/or Products from the Business since January 1,
1999.
"Dollars" or "$" shall mean United States dollars.
"Encumbrance" in respect of any property or assets, shall mean any
encumbrance or title defect of whatever kind or nature, regardless of form,
whether or not registered or registrable and whether or not consensual or
arising by Law, including any lien, mortgage, pledge, security interest,
assignment, lease, option, easement, servitude, right-of-way, conditional sales
contract, encroachment, restrictive covenant, right of first refusal, right of
use or any other right of any kind or nature whatsoever (or any agreement to
grant or furnish any of the foregoing) which affects ownership or possession of,
or title to, or any interest in, or the right to use or occupy such property or
assets.
"Environmental Law" shall mean any Federal, state or local law, rule,
regulation, order, treaty, statute or permit of or issued by any Governmental
Authority, as amended from time to time, relating to the protection of human
health, safety, the environment, natural resources and wildlife, including, but
not limited to those relating to (i) the protection or use of surface water,
groundwater, rivers and other bodies of water; (ii) the protection of ambient
and indoor air quality; (iii) the management, manufacture, possession, presence,
use, generation, transportation, distribution, treatment, storage, disposal,
release, threatened release, abatement, removal, remediation of, or exposure to,
any Hazardous Substance; or (iv) the prevention, mitigation, or remediation of
environmental pollution in any form.
"Environmental Permits" shall have the meaning set forth in Section
6.26.4.
3
"Environmental Reports" shall have the meaning set forth in Section
6.26.9.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as any of the Sellers, (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with any of the Sellers, or (iii) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
any of the Sellers, any corporation described in clause (i) above or any
partnership or trade or business described in clause (ii) above.
"Escrow Agent" shall mean the escrow agent set forth in the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement described in Section
3.3 to be entered into by Purchaser, the Representative and the Escrow Agent,
substantially in the form of Exhibit A hereto.
"Escrow Fund" shall mean the Initial Escrow Amount and all interest and
earnings thereon.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Excluded Liabilities" shall have the meaning set forth in Section 2.4.
"FAI" shall have the meaning set forth in the Preamble hereto.
"FIA" shall have the meaning set forth in the Preamble hereto.
"FIG" shall have the meaning set forth in the Preamble hereto.
"FIG Board Recommendation" shall have the meaning set forth in Section
5.14.
"FII" shall have the meaning set forth in the Preamble hereto.
"Final Proposed Schedules" shall have the meaning set forth in Section
13.10.
"FIOF" shall have the meaning set forth in the Preamble hereto.
"FIS" shall have the meaning set forth in the Preamble hereto.
"GAAP" shall mean United States generally accepted accounting
principles.
"Goodwill" shall have the meaning set forth in Section 2.1.7.
4
"Government Bid" shall have the meaning set forth in Section 6.30.1.
"Government Contract" shall mean any prime contract, subcontract,
teaming agreement or arrangement, joint venture, basic ordering agreement,
letter contract, purchase order, delivery order, Government Bid, change order,
or other contractual commitment of any kind relating to the Business or to which
any of the Sellers is a party or has an interest, including, but not limited to,
any Contract between any Seller and (i) any Governmental Authority, (ii) any
prime contractor of any Governmental Authority, or (iii) any subcontractor with
respect to any contract described in clauses (i) or (ii) above.
"Government Contract Novations" shall mean, with respect to any
Government Contract, an instrument reasonably satisfactory in form and substance
to Purchaser pursuant to which all of each Seller's rights, claims, benefits and
liabilities thereunder shall have been validly conveyed, transferred, assigned
and novated to Purchaser by all parties thereto.
"Governmental Approvals" shall have the meaning set forth in Section
2.1.8.
"Governmental Authority" shall mean any Federal, state, regional,
municipal, or local government, or other political subdivision thereof, U.S. or
foreign, or any entity, authority, agency, court, representative or Person
exercising executive, legislative, judicial, regulatory or administrative
functions on behalf of such governmental entity or subdivision.
"Hazardous Substance" shall mean all substances, wastes, pollutants,
contaminants and materials regulated, or defined or designated as hazardous,
dangerous, or toxic, pursuant to any Environmental Law or any other law, rule,
regulation, order, decree, or ordinance having the force of law, of any
Governmental Authority, including, without limitation, all hazardous substances,
oils, pollutants or contaminants as such terms are defined in the National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations promulgated thereunder, as the same have
been and may hereafter be amended from time to time.
"Indebtedness" shall mean, with respect to any Person, any obligations
(including, without limitation, principal, accrued interest, reimbursement or
indemnity obligations, prepayment penalties and fees) with respect to
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing
capital lease obligations or the balance deferred and unpaid of the purchase
price of any property, except such balance that constitutes a trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit) would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP, together with any guarantee of any item that would
constitute Indebtedness under the foregoing provision. The amount of any
Indebtedness outstanding as of any date shall be the principal amount or accrued
value thereof, plus accrued interest and other obligations, as of such date or,
in the case of any guarantee or other contingent obligation, the maximum
liability that may arise under such guarantee or contingent obligation.
5
"Indemnifiable Claim" shall mean any Loss for or against which any
party is entitled to indemnification under this Agreement.
"Indemnified Party" shall have the meaning set forth in Section 11.5.
"Indemnifying Party" shall have the meaning set forth in Section 11.5.
"Initial Escrow Amount" shall mean $1,000,000, which shall be deposited
by Purchaser with the Escrow Agent on the Closing Date pursuant to Section 3.3.
"Intangible Personal Property" shall have the meaning set forth in
Section 2.1.5.
"Interim Balance Sheet" shall have the meaning set forth in Section
6.8.1.
"Inventory" shall mean all inventories, including, without limitation,
inventories of raw materials, scrap, spare parts, work in progress, materials,
supplies, finished goods and consigned goods, owned by any of the Sellers or in
which any of the Sellers has any interest (including the right to use) or
otherwise relating to the Business, whether located on the premises of any of
the Sellers, in transit to or from such premises, in storage facilities or
otherwise.
"IRS" shall mean the Internal Revenue Service.
"Labor Agreements" shall mean, collectively, (i) all employment
agreements, collective bargaining agreements or other labor agreements to which
any of the Sellers is a party or by which any of the Sellers or any of their
respective properties is bound; (ii) all pension, profit sharing, deferred
compensation, bonus, stock option, stock purchase, savings, retainer,
consulting, retirement, welfare or incentive plans or contracts (including ERISA
Plans) to which any of the Sellers is a party or by which any of the Sellers or
their respective assets or properties is bound; and (iii) all plans or
agreements under which "fringe benefits" (including, but not limited to,
hospitalization plans or programs, medical insurance, vacation plans or
programs, sick plans or programs and related benefits) are afforded to any
employees of any of the Sellers.
"Law" or "Laws" shall mean all constitutions, treaties, laws, statutes,
codes, regulations, rules, ordinances or other binding actions or requirements
of any Governmental Authority, whether domestic, foreign or international.
"Leased Real Property" shall have the meaning set forth in Section
6.13.
"Liabilities and Costs" shall mean all indebtedness, claims,
liabilities, obligations, responsibilities, losses, diminutions in value,
damages, judgments, personal injury, death, punitive damages, economic damages,
treble damages, intentional, willful or wanton injury, damage or threat to the
environment, natural resources or public health or welfare, costs and expenses
(including, without limitation, reasonable attorney, expert, engineering and
consulting fees and costs and any fees and costs associated with any
investigation, feasibility, or remedial action studies), fines, penalties and
monetary sanctions, and interest, whether accrued, absolute or contingent, and
whether or not of a kind required by GAAP to be set forth on a financial
statement or in notes thereto.
6
"Loss" or "Losses" shall mean all damages, awards, judgments, payments,
diminutions in value and other Liabilities and Costs, however suffered or
characterized, all interest thereon, all costs and expenses of investigating any
claim, lawsuit or arbitration and any appeal therefrom, all reasonable
attorneys' fees incurred in connection therewith, whether or not such claim,
lawsuit or arbitration is ultimately defeated and, subject to Article XI hereof,
all amounts paid incident to any compromise or settlement of any such claim,
lawsuit or arbitration.
"Maritime" shall mean Maritime Sales & Leasing, Inc., a Delaware
corporation.
"Maritime Adjustment Amount" shall mean the amount by which the cash
purchase price being paid by Purchaser pursuant to the Maritime Purchase
Agreement is reduced on account of Assumed Indebtedness, as set forth in the
certificate executed by each Seller, Maritime and each shareholder of Maritime
and delivered pursuant to Section 9.2.11.
"Maritime Purchase Agreement" shall have the meaning set forth in
Section 9.17.
"Material Adverse Effect" shall mean any change in or effect that,
either individually or in the aggregate with all other changes or effects, (i)
is or would be materially adverse to (y) the assets, results of operations,
condition (financial or otherwise) or prospects of the Business, taken as a
whole, or (z) the value or utility of the Assets, taken as a whole, or (ii)
would materially impair the ability of Purchaser or the Sellers to consummate
the transactions contemplated by this Agreement.
"Material Contract" shall have the meaning set forth in Section 6.28.1.
"Material Tangible Personal Property" shall have the meaning set forth
in Section 6.14.
"Monthly Financial Statements" shall have the meaning set forth in
Section 5.6.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding five
years was, contributed to by any of the Sellers or an ERISA Affiliate.
"Occurrence" shall have the meaning set forth in Section 6.36.3.
"Order" shall mean any decree, order, judgment, writ, award,
injunction, rule or consent of or by a Governmental Authority.
"Owned Real Property" shall have the meaning set forth in Section 6.13.
"Permitted Encumbrances" shall mean (i) Encumbrances for Taxes on
property not yet due and payable or which are being diligently contested in good
faith and by appropriate proceedings diligently conducted, and for which any of
the Sellers have recorded full and adequate reserves as required by GAAP; (ii)
Encumbrances imposed by Law, such as carrier's, warehousemen's and mechanic's
liens and other similar liens, which arise in the ordinary course of the
Business with respect to obligations not yet due or being diligently contested
in good faith by appropriate proceedings and for which any of the Sellers shall
7
have recorded full and adequate reserves as required by GAAP; (iii) Encumbrances
arising out of pledges or deposits under workmen's compensation laws,
unemployment insurance, old age pensions, or other social security benefits
other than any lien imposed by ERISA; (iv) Encumbrances incurred or deposits
made in the ordinary course of the Business to secure surety bonds, provided
that such Encumbrances shall extend only to cash collateral for such surety
bonds; and (iv) Encumbrances, set forth on Schedule 1.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust, bank, unincorporated organization or
government or any department, agency or political subdivision thereof or other
legal entity.
"Plan" shall have the meaning given in ERISA ss.3(3) (other than a
Multiemployer Plan) in respect of which any of the Sellers or any ERISA
Affiliate is, or within the immediately preceding five years was, an "employer"
as defined in Section 3(5) of ERISA.
"Prepaid Items" shall have the meaning set forth in Section 2.1.6.
"Products" shall mean products, technology and services manufactured,
sold, licensed, under development or otherwise exploited or provided by any of
the Sellers, including replacement parts or components sold by any of the
Sellers for other products.
"Projections" shall have the meaning set forth in Section 6.8.1.
"Proxy Statement" shall have the meaning set forth in Section 5.14.1.
"Purchased Contracts" shall have the meaning set forth in Section
2.1.3.
"Purchased Records" shall have the meaning set forth in Section 2.1.4.
"Purchaser" shall have the meaning set forth in the Preamble hereto.
"Purchaser Documents" shall mean all other agreements, instruments,
certificates and other documents to be executed and delivered by or on behalf of
Purchaser in connection with this Agreement.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 11.1.
"Real Property" shall have the meaning set forth in Section 2.1.9.
"Recall" shall have the meaning set forth in 6.36.1.
"Receivables" shall have the meaning set forth in Section 2.1.2.
"Refund Claims" shall have the meaning set forth in Section 5.19.
"Representative" shall mean FIG, as representative of the Sellers under
the Sellers Representative Agreement, or any successor representative or
representatives appointed under the Sellers Representative Agreement.
8
"Restrictive Covenants" shall mean the covenants and agreements of the
Sellers contained in Sections 5.17, 5.18 and 12.1.
"Sandlin" shall mean David E. Sandlin.
"Sandlin Employment Agreement" shall have the meaning set forth in
Section 9.14.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Reports" shall have the meaning set forth in Section 6.33.1.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Sellers" shall have the meaning set forth in the Preamble hereto.
"Seller Documents" shall mean all other agreements, instruments,
certificates and other documents to be executed and delivered by or on behalf of
any Seller, David E. Sandlin or John R. Bone in connection with this Agreement.
"Seller Financial Statements" shall have the meaning set forth in
Section 6.8.1.
"Sellers' Assumed Indebtedness Schedule" shall have the meaning set
forth in Section 3.2.1.
"Sellers' Incomplete Schedules" shall have the meaning set forth in
Section 13.10.
"Sellers Indemnified Parties" shall have the meaning set forth in
Section 11.2.
"Sellers' Knowledge" shall mean the knowledge of any officer of any
Seller after reasonable investigation.
"Sellers Representative Agreement" shall have the meaning set forth in
Section 5.16.
"Services" shall mean services provided or sold by any of the Sellers
in the operation of the Business, or which any of the Sellers is a
sub-contractor for, or has sub-contracted to, another Person.
"Shareholder Meeting" shall have the meaning set forth in Section 5.15.
"Subsidiary" or "Subsidiaries" shall mean, with respect to any Person,
any corporation, partnership, joint venture or other legal entity of which such
Person, as the case may be (either alone or together with any other subsidiary),
owns, directly or indirectly, stock or other equity interests the holders of
which are generally entitled to more than 50% of the vote for the election of
the board of directors or other governing body of such corporation or other
legal entity.
"Tangible Personal Property" shall have the meaning set forth in
Section 2.1.1.
9
"Taxes" shall have the meaning set forth in Section 2.4.2.
"Tax Returns" shall mean, collectively, all Federal, state, foreign and
local tax reports, returns, information returns and other related documents
required to be filed by any relevant taxing authority.
"Total Purchase Price" shall have the meaning set forth in Section 3.1.
"Transaction Proposal" shall have the meaning set forth in Section 5.7.
"Unaudited Interim Financial Statements" shall have the meaning set
forth in Section 6.8.1.
"U.S. Government" shall mean any Governmental Authority of the Federal
government of the United States of America.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act.
"Warranty Claims" shall have the meaning set forth in Section 5.19.
"Warranty Work" shall have the meaning set forth in Section 5.20.
ARTICLE II
ASSETS ACQUIRED; LIABILITIES ASSUMED
Section 2.1 Purchase and Sale of Assets. Subject to the terms and
conditions set forth in this Agreement and in reliance upon the representations
and warranties of the Sellers and Purchaser herein set forth, at the Closing,
the Sellers shall sell, transfer, convey, assign and deliver to Purchaser, and
Purchaser shall purchase from the Sellers, all of each Seller's right, title and
interest, as of the Closing Date, in and to the Assets. The Assets shall be
conveyed free and clear of all liabilities, obligations and Encumbrances, other
than the Assumed Liabilities and Permitted Encumbrances. For purposes of this
Agreement, the term "Assets" shall mean all of the goodwill, assets, properties
and rights of every nature, kind and description, whether tangible or
intangible, real, personal or mixed, wherever located and whether or not carried
or reflected on the books and records of the Sellers, which are used in, or
which were acquired in connection with, the operation of the Business, excepting
only the Excluded Assets and any of the foregoing which relate exclusively to
the Excluded Assets. The Assets shall include, but not be limited to, the
following:
2.1.1 all furniture, fixtures, equipment, machinery, aircraft, aircraft
engines, aircraft components, electronic warfare equipment, trucks, boats,
automobiles, tools, supplies, spare parts, computer hardware, construction in
progress and other tangible assets which are owned by any of the Sellers or in
which any of the Sellers has an interest or which are used or useful in the
operation of the Business or relate to the Assets, including, without
limitation, any equipment or other tangible assets subject to a lease between
any Seller and any other Seller, and those items described on Schedule 6.14 (the
"Tangible Personal Property");
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2.1.2 all accounts, notes, accounts receivable, contract rights, drafts
and other forms of claims, demands, instruments, receivables and rights to the
payment of money or other forms of consideration, whether for goods sold or
leased, services performed or to be performed, or otherwise, which are owned by
any of the Sellers or in which any of the Sellers has an interest, together with
all guarantees, security agreements and rights and interests securing the same,
including, without limitation, that certain note receivable due April 2005 in
the original principal amount of $600,000 made by Reliance Aerotech Atlantic,
Inc. in favor of FIG (the "Receivables");
2.1.3 all of the rights and benefits accruing under all Contracts,
including all Government Contracts, and all Contracts entered into by any Seller
after the date hereof and until the Closing Date in compliance with the terms of
this Agreement (the "Purchased Contracts");
2.1.4 all operating data, files, general records, Customer Lists,
employee records, correspondence and other written records of each Seller to the
extent relating to the Business or the Assets, wherever located (the "Purchased
Records");
2.1.5 all of the intellectual property rights, marketing rights,
proprietary rights and other intangible properties which are owned by any of the
Sellers or in which any of the Sellers has an interest or which are used or
useful in the operation of the Business or relate to the Assets, including,
without limitation, (i) the rights to the corporate names of the Sellers; (ii)
trademarks, service marks, trade names, and each registration and application
for any of the foregoing; (iii) statutory, common law and registered copyrights,
and each registration and application therefor; (iv) patents and associated
inventions, industrial models, processes and designs, technical information,
know-how and operating, maintenance or other manuals and each registration and
application for any of the foregoing; (v) "software" and associated
documentation; (vi) trade secrets, including related processes or items of
know-how or other technical data; and (vii) those items described on Schedule
6.12 (the "Intangible Personal Property");
2.1.6 all prepaid and deferred items that relate to the Business or the
Assets, including all prepaid rentals and unbilled charges, fees and deposits
(the "Prepaid Items");
2.1.7 all of the goodwill of the Business as a going concern (the
"Goodwill");
2.1.8 all of the Sellers' respective rights to the authorizations,
certificates, consents, clearances, approvals, waivers, carrier licenses,
exceptions, variances, franchises, permissions, permits, filings, publications,
declarations, notices, licenses, rights or other forms of required permission
from, of or with any Governmental Authority, which shall include, without
limitation, each environmental and operating permit and license that is required
for the ownership, use and operation of any facility owned or leased by any of
the Sellers, or the conduct by the Sellers of the Business (the "Governmental
Approvals");
2.1.9 all real property owned or leased by any of the Sellers or in
which any of the Sellers has any interest or estate (including the right to
use), together with all buildings, fixtures, trade fixtures, plant and other
improvements located thereon and attached thereto; all of any Seller's rights
arising out of ownership or use thereof (including air, water, oil and mineral
rights); and all subleases, franchises, licenses, permits, easements and
rights-of-way which are appurtenant thereto (the "Real Property");
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2.1.10 all cash and cash equivalents;
2.1.11 all of the Inventory relating to the Business;
2.1.12 all rights and claims against third parties arising out of,
relating to or in respect of the Business and/or the Assets, including, without
limitation, all causes of action, rights of recovery and rights of set-off of
any kind, all rights under express or implied warranties from suppliers to any
Seller and all other interests in or claims, rebates, refunds or payments from
or against vendors; and
2.1.13 all other properties, tangible or intangible, not otherwise
referred to above, which are owned by any of the Sellers or in which any of the
Sellers has an interest or which are used or useful in the operation of the
Business or relate to the Assets, other than those, if any, which constitute
Excluded Assets or relate exclusively to the Excluded Assets.
Section 2.2 Excluded Assets. Anything to the contrary set forth in
Section 2.1 notwithstanding, the Assets shall exclude: (i) the Total Purchase
Price and each Seller's respective rights under this Agreement and the other
Purchaser Documents; (ii) any shares of capital stock of FII, FIA, FIS, FAI and
FIOF; (iii) the corporate minute books and stock records of FIG, FII, FIA, FIS,
FAI and FIOF; and (iv) the assets described on Schedule 2.2 (collectively
"Excluded Assets").
Section 2.3 Assumed Liabilities. Pursuant to an Assignment and
Assumption Agreement, substantially in the form attached hereto as Exhibit B,
and as further consideration for the purchase and sale of the Assets, Purchaser
shall, from and after the Closing Date, assume, perform, discharge and pay when
due those obligations and liabilities of the Sellers relating to the Business
which are specifically set forth in this Section 2.3, but only to the extent
specifically set forth in this Section 2.3 and subject to any contrary
provisions which may be contained in Section 2.4:
2.3.1 the obligations of the Sellers for Indebtedness reflected on the
Sellers' Assumed Indebtedness Schedule and included in the calculation of the
Adjustment Amount in an amount not to exceed the outstanding principal amount
reflected on the Sellers' Assumed Indebtedness Schedule, together with interest
accruing thereon from and after the Closing, but not to the extent arising out
of any breach or default thereof prior to the Closing;
2.3.2 all unpaid or unperformed obligations or liabilities of each
Seller under the Purchased Contracts assigned to Purchaser hereunder arising
from and after the Closing, but not to the extent arising out of any breach or
default thereof or other activities prior to the Closing;
2.3.3 all unpaid or unperformed obligations or liabilities of each
Seller under the Governmental Approvals assigned to Purchaser hereunder arising
from and after the Closing, but not to the extent arising out of any breach or
default thereof or other activities prior to the Closing;
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2.3.4 all trade payables of the Sellers to third-parties who are not
Affiliates of any Seller or Associates of any Seller and that were incurred in
the ordinary course of the Business, consistent with past practice, or that are
listed on Schedule 2.3.4;
The items listed above in Sections 2.3.1 through 2.3.4 are collectively
referred to as the "Assumed Liabilities".
Section 2.4 Excluded Liabilities. Except to the extent expressly
assumed by Purchaser pursuant to Section 2.3, Purchaser shall not assume or be
liable for any liabilities or obligations of any Seller, whether the same are
direct or indirect, fixed, contingent or otherwise, known or unknown, whether
existing on the Closing Date or arising thereafter as a result of any act,
omission or circumstance taking place prior to the Closing. The liabilities not
specifically assumed by Purchaser pursuant to Section 2.3 hereof shall be
referred to herein collectively as the "Excluded Liabilities." Excluded
Liabilities shall include, but not be limited to, the following:
2.4.1 the obligations and liabilities of each Seller arising under this
Agreement;
2.4.2 the obligations of each Seller for any and all taxes imposed by
any Federal, state, or local, or any foreign taxing authority, including,
without limitation, all income, gross receipts, sales, capital gains, windfall
profits, severance, stamp, use, personal property, use and occupancy, business
occupation, mercantile, ad valorem, value added, transfer, license, withholding,
payroll, employment, excise, real estate, environmental, capital stock,
franchise, alternative or add-on, minimum, estimated or other tax or customs
duty of any kind whatsoever (including interest, penalties and additions to tax
or additional amounts relating to Taxes thereto) (collectively, "Taxes") arising
from the operations of any Seller or the Business prior to Closing. For purposes
of this definition, any interest, penalties, additions to tax or additional
amounts that relate to Taxes for any period, or a portion of any period, ended
on or before the Closing Date shall include any interest, penalties, additions
to tax or additional amounts relating to Taxes for such periods, regardless of
whether such items are incurred, accrued, assessed or similarly charged on,
before or after the Closing Date;
2.4.3 the obligations of any Seller for Taxes imposed by any
Governmental Authority on or arising out of the sale or transfer of the Assets
pursuant to this Agreement;
2.4.4 the obligations of any Seller for fees or expenses incurred in
connection with the negotiation, preparation or approval of this Agreement
and/or the sale of the Assets pursuant hereto, including, without limitation,
the fees and expenses of counsel, independent auditors, brokers, bankers,
investment bankers and other advisers, except as otherwise expressly provided
herein;
2.4.5 all liabilities or obligations of any nature to any past or
present shareholder of any Seller or other Affiliate or Associate of any Seller
or any severance, "parachute" or similar payment to any officer, director,
employee or consultant of any Seller arising by virtue of the transactions
contemplated by this Agreement;
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2.4.6 all liabilities arising from the ownership and operation of the
Business prior to the Closing, including, without limitation, all liabilities in
respect of Indebtedness, unless such Indebtedness is reflected on the Sellers'
Assumed Indebtedness Schedule and included in the calculation of the Adjustment
Amount;
2.4.7 all unpaid or unperformed wages, salaries, payroll taxes, sick
pay, fringe benefits and other employee benefits of any employees of the
Sellers;
2.4.8 all liabilities arising from the operation of any successor
liability Laws, including, without limitation, "bulk sales" statutes, to the
extent that non-compliance therewith or the failure to obtain necessary
clearances would subject Purchaser or the Assets to the claims of any creditors
of any Seller, or would subject any of the Assets to any Encumbrances or other
restrictions;
2.4.9 all liabilities or obligations of any Seller not related to the
operation of the Business;
2.4.10 all liabilities or obligations of each Seller which pertain
solely to the Excluded Assets;
2.4.11 all liabilities or obligations of any Seller in respect of
litigation of any kind or nature arising as a result of any act, omission or
circumstance taking place prior to the Closing, including, without limitation,
any adverse claim, dispute, governmental investigation, suit, action (including,
without limitation, nonjudicial real or personal property foreclosure actions),
arbitration, legal, administrative or other proceeding of any nature, domestic
or foreign, criminal or civil, at law or in equity, by or against or otherwise
affecting any Seller, the Business or the Assets, including, without limitation,
all Liabilities and Costs and other obligations arising in connection with the
litigation set forth on Schedule 6.19;
2.4.12 all liabilities or obligations of any Seller arising in
connection with the adoption, maintenance or termination of any Plan, including,
without limitation, any Plan listed on Schedule 6.21; and
2.4.13 all liabilities or obligations of any Seller relating to the
accrual of employee bonuses or other compensation, or compensation payable as a
result of the transactions contemplated by this Agreement.
Section 2.5 Contested Obligations. Nothing contained in this Agreement
shall require Purchaser to pay or discharge any debts, obligations or
liabilities expressly assumed hereby so long as Purchaser shall in good faith
contest the amount or validity thereof.
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ARTICLE III
PURCHASE PRICE AND PAYMENT TERMS
Section 3.1 Purchase of the Asset by Purchaser; Total Purchase Price.
Subject to the terms and conditions of this Agreement, Purchaser shall purchase
the Assets and assume the Assumed Liabilities from the Sellers and pay to the
Representative, on behalf of the Sellers, the Total Purchase Price. The "Total
Purchase Price" shall consist of $6,500,000 (the "Base Purchase Price"), minus
the Adjustment Amount, if any.
Section 3.2 Payment of Purchase Price.
3.2.1 On the Closing Date, the Sellers shall prepare and deliver to
Purchaser a schedule in the form attached hereto as Exhibit C listing the amount
and detailing each category of Assumed Indebtedness as of the Closing Date (the
"Sellers' Assumed Indebtedness Schedule"). The Sellers' Assumed Indebtedness
Schedule will be prepared and certified by the Chief Executive Officer and the
Chief Financial Officer of each Seller and Maritime and by the shareholders of
Maritime.
3.2.2 At the Closing, Purchaser shall deliver:
(a) to the Representative, on behalf of the Sellers, the Base Purchase
Price, minus the Adjustment Amount, if any, and minus the Initial Escrow Amount,
by wire transfer of immediately available funds in the City of New York to an
account specified by the Representative not later than 5 days prior to the
Closing Date; and
(b) to the Escrow Agent, the Initial Escrow Amount to be held by the
Escrow Agent pursuant to the Escrow Agreement by wire transfer of immediately
available funds in the City of New York to an account specified by the Escrow
Agent.
Section 3.3 Escrow Agreement; Initial Escrow Amount. Purchaser shall
deposit the Initial Escrow Amount in escrow with the Escrow Agent for the
purpose of satisfying any liabilities of the Sellers to the Purchaser
Indemnified Parties pursuant to Article XI whereby the Sellers have agreed to
indemnify the Purchaser Indemnified Parties against certain Losses. The
Purchaser Indemnified Parties shall be entitled to disbursements from the Escrow
Fund in respect of their Indemnifiable Claims in accordance with the procedures
set forth in the Escrow Agreement. The Initial Escrow Amount, less the aggregate
amount of all pending and resolved Indemnifiable Claims of the Purchaser
Indemnified Parties, shall be paid to the Representative, on behalf of the
Sellers, by the Escrow Agent on the business day following the nine-month
anniversary of the Closing Date, in accordance with the provisions of the Escrow
Agreement. The remaining portion of the Escrow Fund shall be disbursed by the
Escrow Agent in accordance with the provisions of the Escrow Agreement.
Section 3.4 Transfer Taxes. All Taxes and other governmental charges
(including, without limitation, charges for or in connection with the recording
of any instrument or document as provided in this Agreement) payable in
connection with the transfer of the Assets or the assumption of Assumed
Liabilities, as contemplated by this Agreement, shall be paid by the Sellers.
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Section 3.5 Allocation of Purchase Price. It is understood that the
total consideration to be received by the Sellers for the transfer of the Assets
to Purchaser and the Restrictive Covenants shall be the Total Purchase Price,
plus Purchaser's assumption of the Assumed Liabilities. Such total
consideration, including the Total Purchase Price, shall be reported on IRS Form
8594 as allocated on Schedule 3.5. Each party hereto further agrees that said
party shall not file any Tax Return (or treat any item or items thereon) nor
make any other statement or submission to the IRS, any comparable state agency,
or any other Governmental Authority, which Tax Return, item, statement or
submission is inconsistent in whole or in part with the foregoing allocation.
ARTICLE IV
THE CLOSING
Section 4.1 Closing Date. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Winston & Strawn, 200 Park Avenue, New York, New York, as soon as
practicable, but in no event later than 5 business days, after the satisfaction
or waiver of the conditions set forth in Articles IX and X (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions), or at such other time and
place as the Purchaser and the Sellers may agree. The date of the Closing is
herein referred to as the "Closing Date."
Section 4.2 Relinquishment of Control. At the Closing, the Sellers
shall turn over actual possession and control of all of their respective Assets
to Purchaser by taking such action that may be required or reasonably requested
by Purchaser to effect such transfer of possession and control.
Section 4.3 Closing Date Deliveries. At the Closing, Purchaser and the
Sellers shall deliver or cause to be delivered to each other the deliveries
required by Articles IX and X hereof.
Section 4.4 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties agrees to use its Best Efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper, or advisable under applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including using its
Best Efforts to defend any lawsuits or other legal proceedings, whether judicial
or administrative, whether brought derivatively or on behalf of third parties
(including any Governmental Authority), challenging this Agreement. In addition,
each Seller shall provide such information and assistance as Purchaser shall
reasonably request or require in connection with the financing of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, each Seller shall use its Best Efforts to cause its accountants,
attorneys, advisors, employees and other representatives to cooperate with
Purchaser in order to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, by executing and
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delivering any bill of sales or other documents or applications required by the
Federal Aviation Administration. In case at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement, including obtaining any Government Contract Novations, the
proper officers and directors of the Sellers and Purchaser shall take all such
necessary action.
Section 4.5 Financing. Purchaser shall use its Best Efforts to obtain
the financing necessary to permit Purchaser to consummate the transactions
contemplated by this Agreement.
ARTICLE V
CERTAIN COVENANTS
Section 5.1 Access to Books and Records and Personnel. Upon reasonable
prior notice during normal business hours, the Sellers shall at all times prior
to the Closing Date make the facilities, books, accounts, Inventory, equipment,
records (financial and other), technical information and data, Customer Lists,
Contracts and such other documents and information regarding the Business
available for examination, audit and inspection, including access for the
purposes of conducting accounting and environmental audits, by Purchaser and its
officers, employees, financial advisors, financing sources, consultants,
accountants, attorneys and authorized representatives. The Sellers shall furnish
Purchaser as promptly as practicable with such documents or copies thereof, and
other information concerning the Business, including, without limitation, all
pertinent financial and operating data or other periodic financial information,
a complete list of all aircraft, identifying each by manufacturer, model, year,
airframe serial number, FAA tail or N-Number, engine manufacturer and serial
number and propeller serial number, if applicable, and such other required
information requested by Purchaser regarding aircraft owned or operated by any
Seller, and any additional related information as Purchaser shall, from time to
time, reasonably request. In addition, the Sellers shall give Purchaser and its
representatives access at mutually agreed upon times and places to such
officers, managers, employees, accountants, advisors and other non-legal
representatives of the Sellers as Purchaser shall reasonably request. No
investigation by Purchaser shall, however, diminish or obviate in any way, or
affect Purchaser's right to rely upon, any of the representations, warranties,
covenants or agreements of the Sellers contained in this Agreement or any of the
other Seller Documents.
Section 5.2 Post-Closing Access. It is recognized that the Sellers may
need tax, financial or other data after the Closing Date with respect to the
Assets or the Business (or any combination thereof) covering the fiscal periods
prior to the Closing Date for the purpose of preparing Tax Returns for such
periods. Purchaser will render reasonable cooperation and will afford reasonable
access during normal business hours to all books, records, data and personnel
concerning the Assets and the Business with respect to periods prior to and
including the Closing Date to the Sellers and their auditors, accountants,
counsel or other authorized representatives for such purpose.
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Section 5.3 Notice of Certain Events. On or prior to the Closing Date,
each Seller shall promptly notify Purchaser in writing upon any such Seller
becoming aware of the occurrence of any of the following:
5.3.1 the commencement of any proceeding or litigation at law or in
equity or before any Governmental Authority involving any Seller or the
Business;
5.3.2 a violation by any Seller (or notice of potential violation) of
any Environmental Law or other Law that could have an adverse effect on the
Business or the Assets or that could impair the ability of Purchaser or the
Sellers to consummate the transactions contemplated by this Agreement;
5.3.3 the commencement or threat of any actions, suits, claims,
investigations or proceedings against, relating to or involving or otherwise
affecting any party hereto involving at least $50,000;
5.3.4 any fact or circumstance which would make any representation or
warranty set forth herein untrue or inaccurate in any material respect as of the
Closing Date or as of the date of this Agreement;
5.3.5 any condition set forth in this Agreement to be unsatisfied as of
the Closing Date;
5.3.6 any Transaction Proposal, including, without limitation, the
terms proposed and the identity of the offeror;
5.3.7 material damage to any of the Assets in an amount in excess of
$50,000;
5.3.8 any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
5.3.9 any occurrence, event or circumstance affecting or relating to
the Assets or the Business that is outside the ordinary course of the Business
and that involves at least $50,000; or
5.3.10 any event which has had or might reasonably be expected to have
a Material Adverse Effect or which if known as of the date hereof would have
been required to be disclosed to Purchaser;
provided, however, that no such notification shall affect the representations or
warranties of any party or the conditions to any party's obligations hereunder.
Section 5.4 Conduct of Business by the Sellers. Between the date of
this Agreement and the Closing Date, the Sellers shall cause the Business to be
operated only in the ordinary course and consistent with past practice. The
Sellers will use their respective Best Efforts to (i) preserve intact the
Business and the business organization of each Seller, (ii) maintain in effect
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all material licenses, permits, and approvals of Governmental Authorities which
are necessary for the conduct of the Business, (iii) maintain, preserve and keep
the Assets in good condition and repair, normal wear and tear excepted, (iv)
keep available the services of the Sellers' present management and workforce,
and (v) maintain good business relationships with lenders, suppliers, customers,
lessors and others having business dealings with any of the Sellers. Except as
otherwise contemplated by or permitted by this Agreement, or as otherwise
consented to or approved by Purchaser in writing, which consent shall not be
unreasonably withheld, each Seller shall not:
5.4.1 amend its Articles of Incorporation, Bylaws or other
organizational documents or take any corporate or other action if any such
amendment or action would have an adverse effect on the ability of any of the
Sellers to consummate the transactions contemplated by this Agreement or
otherwise adversely affect the Business or the value, utility or transferability
of the Assets;
5.4.2 purchase, redeem or agree to purchase or redeem any shares of its
capital stock, options, warrants or rights to purchase shares of capital stock
or securities of any kind convertible or exchangeable for shares of capital
stock;
5.4.3 except as set forth on Schedule 5.4, increase the compensation or
rate of compensation payable or to become payable to any of the present or
former employees, directors, consultants or officers of any Seller, nor make any
increase in compensation or rate of compensation or benefits payable or to
become payable to employees, directors, consultants or officers of any Seller
who are parties to separation, severance, or employment agreements with any
Seller, nor enter into any separation, severance, "change in control" or similar
agreements with any of its present or former employees, officers, consultants or
directors, nor enter into any written or oral employment agreement;
5.4.4 except as set forth on Schedule 5.4, set aside or pay to any
present or former officer, director, consultant or employee of any Seller any
bonus, profit-sharing, severance, retirement, insurance, death, fringe benefit,
or other extraordinary compensation, nor adopt, amend, fund or commit itself to
fund any employee benefit plan or account related to any Plan with or for the
benefit of any of the present or former employees, consultants, directors or
officers of any Seller;
5.4.5 acquire any business entity or all or substantially all of the
assets of a business entity or make any other investment outside the ordinary
course of the Business;
5.4.6 except as set forth on Schedule 5.4, make any capital
expenditures, the aggregate amount of which are in excess of $50,000, other than
(i) emergency repairs, and (ii) those scheduled in the Sellers' capital
expenditure budget for 2002, a copy of which has been provided to Purchaser;
5.4.7 other than trade payables incurred in the ordinary course of the
Business, create or incur any Indebtedness or other Liabilities and Costs
(absolute or contingent) in excess of $50,000 in the aggregate;
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5.4.8 make any loan, advance, guaranty or other extension of credit to
any Person or enter into any commitment to make any loan, advance, guaranty or
other extension or credit, other than to any Seller and other than in the
ordinary course of the Business pursuant to existing credit facilities, or enter
into any other transaction with any Affiliate or Associate of any Seller or any
employee of any Seller (other than any such transaction between one or more of
the Sellers);
5.4.9 create or incur any Encumbrance or fail to take action to
discharge any involuntary Encumbrance, against or in respect of any Assets which
have a value, individually or collectively, in excess of $50,000, except for
Permitted Encumbrances;
5.4.10 amend, terminate, fail to renew or renegotiate any Material
Contract in any manner adverse to any Seller or default (or take or omit to take
any action that, with or without the giving of notice or passage of time or
both, would constitute a default) in any of its obligations under any Material
Contract or enter into any new Material Contract or take any action that would
jeopardize the continuance of its lender, supplier or customer relationships;
5.4.11 pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
in excess of $50,000, other than the payment, discharge or satisfaction, in the
ordinary course consistent with past practices of the Business or in accordance
with their terms, of liabilities reflected or reserved against in the Interim
Balance Sheet, or incurred since January 31, 2002 in the ordinary course of the
Business consistent with past practices of the Business and in accordance with
the Seller's representations, warranties and covenants contained in this
Agreement;
5.4.12 directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or other extension of credit or the
availability of any funds thereunder or under any other agreement or
understanding, other than through the use thereof in the ordinary course of the
Business or as expressly permitted by this Agreement;
5.4.13 institute, settle, or agree to settle any claims, actions, or
proceedings involving an expenditure in excess of $50,000 in the aggregate, or
involving any contingent or non-monetary obligation having value in excess of
$50,000 in the aggregate, before any court or other Governmental Authority;
5.4.14 dispose of or permit to lapse any rights to the use of any
Intangible Personal Property utilized in the Business or disclose any Intangible
Personal Property utilized in the Business that is not a matter of public
knowledge;
5.4.15 fail to maintain such liability, casualty, property, loss, and
other insurance coverage upon the Assets and Products and Services relating to
the Business and with respect to the conduct of the Business, on such terms, in
such amounts, and with such insurance carriers and to such extent and covering
such risks as are maintained on the date hereof;
5.4.16 dispose of any Assets other than the Excluded Assets, except for
dispositions of obsolete or unused property and the sale of Inventory in the
ordinary course of the Business consistent with past practice;
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5.4.17 compromise or otherwise settle any claims relating to, or adjust
any assertion or claim of a deficiency in, Taxes (or interest thereon or
penalties in connection therewith), or file any appeal from an asserted
deficiency, except in a form previously approved by Purchaser in writing, or
file or amend any Tax Return, in any case before furnishing a copy to Purchaser
and affording Purchaser an opportunity to consult with respect thereto;
5.4.18 make any Tax election or make any change in any method or period
of accounting or in any accounting policy, practice or procedure;
5.4.19 introduce any new method of management or operation;
5.4.20 terminate or fail to renew or preserve any Governmental
Approvals;
5.4.21 fail to use its Best Efforts to collect Receivables and pay
accounts payable in the ordinary course consistent with past practices of the
Business;
5.4.22 declare, issue, make or pay any dividend or other distribution
of assets, whether consisting of money, other personal property, real property
or other thing of value, to its shareholders (other than dividends or
distributions solely to any of the Sellers);
5.4.23 deviate from past practice in the ordinary course of the
Business with respect to maintenance of Inventory;
5.4.24 fail to comply, in all material respects, with all applicable
Laws and Orders, including, without limitation, all Governmental Approvals;
5.4.25 make extraordinary payments to any Person;
5.4.26 except as set forth on Schedule 5.4, enter into any transaction
with any Affiliate or Associate of any Seller;
5.4.27 take any action required to be disclosed in Section 5.3; or
5.4.28 authorize any of, or commit or agree to take any of, the
foregoing actions.
In addition to the foregoing, none of the Sellers shall take any action that
would, or that could reasonably be expected to, result in (i) any of the
representations and warranties of the Sellers set forth in this Agreement
becoming untrue or (ii) any of the conditions to the consummation of the
transactions contemplated by and set forth in this Agreement not being
satisfied.
Section 5.5 Regulatory Matters. Each of the Sellers and Purchaser will
make, or cause to be made, all other necessary governmental and regulatory
filings, as soon as practicable after the date hereof, in order to facilitate
prompt consummation of the transactions contemplated by this Agreement. In
addition, each of the Sellers and Purchaser will use its respective Best
Efforts, and will cooperate fully with each other (i) to comply as promptly as
practicable with all governmental requirements applicable to the transactions
contemplated by this Agreement and (ii) to obtain as promptly as practicable all
21
necessary Governmental Approvals and consents of all third parties necessary for
the consummation of the transactions contemplated by this Agreement. Each of the
Sellers and Purchaser shall use its respective Best Efforts to provide such
information and communications to Governmental Authorities as such Governmental
Authorities may request.
Section 5.6 Updated Financial Information. From the date hereof until
the Closing Date (or the earlier termination of this Agreement), as soon as
internally available and in any event within 25 days after the end of each
calendar month, FIG shall deliver to Purchaser complete copies of monthly
consolidated financial statements of the Sellers (including a balance sheet,
statement of income and statement of cash flows) ("Monthly Financial
Statements") for the preceding month. Each of the Sellers represents and
covenants that, except for normal interim and year-end audit adjustments, the
Monthly Financial Statements referred to in the preceding sentence shall be
prepared in accordance with GAAP consistently applied (except for changes
required by GAAP), and shall fairly present in all material respects the
consolidated financial condition and results of operations of the Sellers and
the Business as of the dates indicated and for the periods then ended.
Section 5.7 Transaction Proposals. From the date hereof until the
Closing Date (or the earlier termination of this Agreement), none of the Sellers
shall authorize or permit its officers, directors, consultants, employees,
shareholders, Affiliates, investment bankers, attorneys, advisors, auditors,
representatives or agents to, directly or indirectly, (i) solicit, initiate or
encourage the submission of inquiries, proposals or offers from any Person or
group of Persons relating to any acquisition or purchase of any assets of, or
any equity interest in, any of the Sellers, or any tender or exchange offer,
merger, consolidation, business combination, recapitalization, restructuring,
spin-off, liquidation, dissolution or similar transaction involving, directly or
indirectly, any of the Sellers, or any of their respective assets, other than
transactions contemplated by this Agreement (each a "Transaction Proposal"),
(ii) participate in any discussions or negotiations regarding any Transaction
Proposal or furnish information about any of the Sellers to any Person except to
(x) lenders and other parties to agreements with any of the Sellers (for the
specific purpose set forth in such agreements, which in no event shall include a
Transaction Proposal) and (y) Purchaser or its representatives, (iii) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to make or enter into a Transaction
Proposal, or (iv) accept, approve or authorize, or enter into any agreement
concerning any Transaction Proposal or dispose of any equity interest in any of
the Sellers. The Sellers shall, as applicable, use their respective Best Efforts
to cause their respective shareholders, Affiliates, agents, officers, directors,
investment bankers, advisors, representatives and Affiliates to abide by the
terms of this Section 5.7. In the event that any of the Sellers receives or
becomes aware of any Transaction Proposal, it shall promptly notify Purchaser in
writing of such communication and keep Purchaser informed of any subsequent
developments in connection therewith.
Section 5.8 Customers and Suppliers. Each Seller shall, promptly
following the request thereof by Purchaser, seek and use its Best Efforts to
arrange such meetings and telephone conferences with all material customers and
suppliers of such Seller as may be necessary and appropriate for Purchaser to
conduct a comprehensive review of such Seller's relations with its customers and
suppliers.
22
Section 5.9 Arrangements with Employees. From the date hereof until the
Closing Date, the Sellers shall use their respective Best Efforts to retain key
employees of the Business and permit Purchaser to approach and negotiate with
any or all employees of the Sellers, including, without limitation, managerial
personnel, in an effort to persuade them to continue in the employ of the
Sellers pending the Closing and thereafter to become employees of Purchaser
following the Closing, to the extent so requested by Purchaser. The Sellers
shall use their respective Best Efforts to assist Purchaser in such
negotiations. Notwithstanding the foregoing, Purchaser shall not assume or be
liable or responsible for any liabilities or obligations (i) arising under the
WARN Act (or any similar Federal, state or local Law), if any, in connection
with the termination of employees by any Seller so long as Purchaser provides
the Sellers with written notice of its intent to terminate such employees at
least 70 days prior to the Closing, (ii) arising out of or resulting from
layoffs of any Seller's employees prior to the Closing and/or upon the
consummation of the transactions contemplated by this Agreement, and (iii)
associated with the termination and severance of all employees of the Sellers
other than employees of the Sellers immediately prior to the Closing employed by
Purchaser following the Closing Date, including any obligation imposed on the
Sellers or Purchaser to provide such employees with continued health, disability
or life insurance or other benefits (whether covered by insurance or not).
Section 5.10 Purchaser's Governmental Approvals. From and after the
date hereof, Purchaser and the Sellers shall cooperate and use their respective
Best Efforts to enable Purchaser to obtain all (and will promptly prepare all
registrations, filings and applications, requests and notices preliminary to
all) Governmental Approvals (including all non-assignable Governmental
Approvals) from the relevant Governmental Authorities needed by Purchaser to own
the Assets and operate the Business after the Closing Date or to consummate the
transactions contemplated by this Agreement. Each party shall bear its own costs
and expenses incurred in connection with the compliance of its obligations under
this Section 5.10.
Section 5.11 Transfer of Purchased Contracts; Third Party Consents. To
the extent that any consent, approval or waiver of a third party with respect to
any Purchased Contract, license, permit or certificate is required in connection
with the transactions contemplated by this Agreement, the Sellers shall use
their respective Best Efforts to obtain such consent, approval or waiver prior
to the Closing Date and in the event that any such consent, approval or waiver
is not obtained (but without limitation of Purchaser's rights under Section
9.4), the Sellers shall cooperate with Purchaser to ensure that Purchaser
obtains the benefits of each such Purchased Contract, license, permit or
certificate. All costs, transfer fees and other expenses incurred by the parties
in the process of obtaining such consents, approvals or waivers, whether
incurred before or after the Closing Date, shall be borne by the Sellers.
Section 5.12 Provisions Respecting Government Contracts.
5.12.1 This Section 5.12 sets forth the procedures that the parties
will use with respect to the assignment of all Government Contracts and any
claim, right or benefit arising thereunder or resulting therefrom.
23
5.12.2 With respect to any Government Contract or any claim, right and
benefit arising thereunder or resulting therefrom, each of the Sellers and
Purchaser will use its Best Efforts to obtain the written consent of the other
parties to such Government Contract for the assignment or novation thereof to
Purchaser, or written confirmation from such parties reasonably satisfactory in
form and substance to Purchaser that such consent is not required. As soon as
practicable following the date hereof, with respect to each Government Contract,
the Seller party thereto shall submit to the other parties thereto documentation
reasonably satisfactory in form and substance to Purchaser and such Seller shall
seek the written waiver or approval of the other contracting party or parties
thereto to the transfer and assignment of all of such Seller's claims, rights,
benefits and liabilities thereunder to Purchaser at the Closing. In this regard,
each Seller and Purchaser shall take all actions required or customary under the
applicable Federal Acquisition Regulations (as supplemented by any individual
agency regulation) and each Seller shall continue to participate fully in, and
cooperate fully with, such efforts following the Closing Date.
5.12.3 If such novation, consent, waiver or confirmation is not
obtained with respect to any such Government Contract, each of the Sellers and
Purchaser will cooperate in an arrangement reasonably satisfactory to Purchaser
and the Sellers under which Purchaser would obtain, to the extent practicable,
the claims, rights and benefits and assume the corresponding obligations
thereunder in accordance with this Agreement, including subcontracting,
sublicensing or subleasing to Purchaser, or under which the Sellers would
enforce for the benefit of Purchaser, with Purchaser assuming and indemnifying
Sellers with respect to the Sellers' obligations, any and all claims, rights and
benefits of the Sellers against a third party thereto. Each Seller will promptly
pay to Purchaser when received all monies received by such Seller in connection
with any such arrangement.
5.12.4 No instrument that any Governmental Authority requires any
Seller or Purchaser to execute in connection with any novation or assignment
contemplated by this Section 5.12 (including, without limitation, a novation
agreement as contemplated by Federal Acquisition Regulation 48 C.F.R. Section
42.1204) shall alter the provisions of this Agreement concerning the allocation
of assets and liabilities between Purchaser and the Sellers. As to any liability
allocated by the provisions of this Agreement to any Seller, the Sellers shall,
jointly and severally, indemnify Purchaser against, and hold Purchaser harmless
from, any claims by any Governmental Authority against Purchaser for
satisfaction of such liabilities pursuant to any such novation instrument. As to
any liability allocated by the provisions of this Agreement to Purchaser,
Purchaser shall indemnify each Seller against, and hold each Seller harmless
from, any claims by any Governmental Authority against such Seller for
satisfaction of such liabilities pursuant to such novation instrument.
24
Section 5.13 COBRA. To the extent required by Law, each Seller shall
have the responsibility for providing health care continuation coverage to any
of its employees terminated on or before the Closing Date, any of its employees
who decline offers of employment by Purchaser following the Closing and to
former employees presently receiving continuation coverage. If any Seller ceases
to maintain any group health plan it shall reimburse Purchaser for costs
incurred by Purchaser in providing continuation coverage to persons described in
the preceding sentence.
Section 5.14 Preparation of the Proxy Statement.
5.14.1 As soon as reasonably practicable following the date of this
Agreement (and, in any event, no later than five (5) business days after the
date hereof), FIG shall prepare a proxy statement relating to a special meeting
of FIG's shareholders to be held in connection with this Agreement and related
transactions (together with any amendments thereof or supplements thereto, in
each case in the form or forms mailed to the FIG's shareholders, the "Proxy
Statement") and, following approval by Purchaser, which shall not be
unreasonably conditioned, withheld or delayed, shall file the Proxy Statement
with the SEC. The Proxy Statement shall include a recommendation of the Board of
Directors of FIG (the "FIG Board Recommendation") that its shareholders vote in
favor of this Agreement and the transactions contemplated hereby. FIG shall use
its Best Efforts to have the Proxy Statement cleared by the SEC as promptly as
practicable after such filing. FIG shall use its Best Efforts to cause the Proxy
Statement to be mailed to FIG's shareholders as promptly as practicable (and, in
any event, within seven (7) business days) after the Proxy Statement is cleared
by the SEC.
5.14.2 If at any time prior to the consummation of the transactions
contemplated by this Agreement any event shall occur that is required by Law to
be set forth in an amendment of or a supplement to the Proxy Statement, FIG
shall prepare and file with the SEC such amendment or supplement as soon
thereafter as is reasonably practicable. Purchaser and FIG shall cooperate with
each other in the preparation of the Proxy Statement, and FIG shall notify
Purchaser of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional requests by the SEC for any amendment or supplement thereto or
for additional information, and shall provide to Purchaser promptly copies of
all correspondence between FIG or any representative of FIG and the SEC with
respect to the Proxy Statement. FIG shall give Purchaser and its counsel the
opportunity to review the Proxy Statement and all responses to requests for
additional information by, and replies to comments of, the SEC before their
being filed with, or sent to, the SEC. Each of FIG and Purchaser shall use its
Best Efforts after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC.
Section 5.15 Shareholder Meeting. Unless an Order has been entered
preventing it from doing so, FIG shall, through its board of directors, take all
action necessary, in accordance with and subject to the Georgia Business
Corporation Code and its Amended and Restated Articles of Incorporation and
Bylaws, to convene a special meeting of its shareholders not earlier than ten
(10) calendar days after the date the Proxy Statement is first mailed to
shareholders, but in no event later than fifty (50) calendar days after the
Proxy Statement is first mailed to shareholders, to consider and vote upon the
adoption and approval of this Agreement and the transactions contemplated hereby
(such special shareholder meeting, the "Shareholder Meeting"). FIG shall include
in the Proxy Statement the FIG Board Recommendation.
25
Section 5.16 Sellers Representative Agreement. Each Seller has executed
the Sellers Representative Agreement, substantially in the form of Exhibit D
(the "Sellers Representative Agreement"), irrevocably appointing the
Representative to act on its behalf in connection with the transactions
contemplated by this Agreement, including, without limitation, the execution and
delivery of all bills of sale, tax certifications and other certificates and
documents to be delivered to Purchaser in connection herewith, and a
fully-executed copy of such Sellers Representative Agreement has been delivered
to Purchaser. Each Seller shall indemnify and hold harmless each other Seller,
the Representative and Purchaser for any actions taken by such Seller that are
in violation of or inconsistent with the terms of the Sellers Representative
Agreement.
Section 5.17 Noncompetition.
5.17.1 Restrictions on Competitive Activities. Each Seller, on behalf
of itself and its Affiliates (including its officers and members of its board of
directors, but excluding Richard Dunleavy and C. Lofton Fouts, Jr.), agrees that
after the Closing Purchaser shall be entitled to the goodwill and going concern
value of the Business. For these and other reasons and as an inducement to
Purchaser to enter into this Agreement, each Seller agrees that for a period of
three years after the date hereof neither such Seller nor any of its Affiliates
will, directly or indirectly, for its own benefit or as agent for another, carry
on or participate in the ownership, management or control of, or the financing
of, or be employed by, or consult for or otherwise render services to, or allow
its name or reputation to be used in or by any other present or future business
enterprise that competes with Purchaser, anywhere in the world, in the
performance of services for the United States Department of Defense or other
government agencies or that otherwise competes with the Products or Services of
the Business as of the Closing Date in each state of the United States and in
each foreign jurisdiction in which the Business is conducted or the Products or
Services are sold as of the Closing Date. With respect to an Affiliate of any
Seller, the restrictions set forth above may be expanded, limited, qualified or
otherwise modified in any employment agreement, non-competition agreement or any
other agreement entered into by such Affiliate and Purchaser or its Affiliates.
With respect to an Affiliate of any Seller, in the event of a conflict between
the non-competition provisions contained in any such other agreement and this
Agreement, the terms of such other agreement shall control.
5.17.2 Exceptions. Nothing contained herein shall limit the right of a
Seller (or any of its Affiliates) as an investor to hold and make investments in
securities of any corporation or other Person that is registered on a national
securities exchange or admitted to trading privileges thereon or actively traded
on the National Association of Securities Dealers Automated Quotation System or
in a generally recognized over-the-counter market, provided that the equity
interest therein held by such Seller and its Affiliates does not exceed in the
aggregate 5% of the outstanding shares or interests in such corporation or other
Person.
26
5.17.3 Restrictions on Interference with Employees, Customers and
Suppliers. To protect Purchaser against any efforts by any Seller to cause its
(i) employees to terminate their employment with Purchaser, each Seller agrees
that for a period of three years following the Closing Date, such Seller and its
Affiliates will not directly or indirectly (a) induce any employees of the
Business to leave Purchaser's employ or to accept any other employment or
position, or (b) assist any other entity in hiring any such employee, (ii)
customers to terminate their relationship with Purchaser, each Seller agrees
that for a period of three years following the Closing Date, such Seller and its
Affiliates will not directly or indirectly (a) induce any customers of the
Business to cease doing business with Purchaser, or (b) assist any other entity
in selling to such customers, and (iii) suppliers to terminate their
relationship with Purchaser, each Seller agrees that for a period of three years
following the Closing Date, such Seller and its Affiliates will not directly or
indirectly (a) induce any suppliers of the Business to stop supplying Purchaser,
or (b) assist any other entity in using such suppliers. With respect to an
Affiliate of any Seller, the restrictions set forth above may be expanded,
limited, qualified or otherwise modified in any employment agreement,
non-competition agreement or any other agreement entered into by such Affiliate
and Purchaser or its Affiliates. With respect to an Affiliate of any Seller, in
the event of a conflict between the non-interference provisions contained in any
such other agreement and this Agreement, the terms of such other agreement shall
control.
5.17.4 Special Remedies and Enforcement. The Sellers recognize and
agree that a breach by any of them of any of the covenants set forth in Sections
5.17.1, 5.17.2 and 5.17.3 could cause irreparable harm to Purchaser, that
remedies at law in the event of such breach would be inadequate, and that,
accordingly, in the event of any such breach a restraining order or injunction
or both may be issued against them, in addition to any other rights and remedies
which are available. If any provision of Sections 5.17.1, 5.17.2 or 5.17.3 is
more restrictive than permitted by the Laws of the jurisdiction in which
enforcement thereof is sought, such provision shall be limited to the extent
required to permit enforcement under such Laws. Without limiting the generality
of the foregoing, the parties intend that the covenants contained in Sections
5.17.1, 5.17.2 and 5.17.3 shall be construed as a series of separate covenants,
one for each state or jurisdiction referred to therein. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms. If, in
any judicial proceeding, a court shall refuse to enforce any of the separate
covenants deemed included in this Section 5.17, then such unenforceable covenant
shall be deemed eliminated from these provisions for the purpose of those
proceedings to the extent necessary to permit the remaining separate covenants
to be enforced.
For purposes of this Section 5.17, the term "Purchaser" shall mean
Purchaser and any of its Affiliates.
Section 5.18 Nondisclosure of Proprietary Data. After the Closing, none
of the Sellers nor any of their Affiliates or representatives shall, at any
time, make use of, divulge or otherwise disclose, directly or indirectly, any
Intangible Personal Property or other proprietary data (including, but not
limited to, any Customer List, Contract, record or financial information)
concerning the Sellers, the Business or the Assets that any Seller or any
Affiliate, Associate or representative of any Seller may have learned as a
shareholder, employee, officer, director or representative of any of the
Sellers. In addition, none of the Sellers nor any of their Affiliates or
27
representatives shall make use of, divulge or otherwise disclose, directly or
indirectly, to Persons other than Purchaser, any confidential information
concerning the Sellers or the Business and which may have been learned in any
such capacity. The provisions of this Section 5.18 shall be in addition to, and
not in lieu of, the terms and provisions of Section 12.1.
Section 5.19 Refund Claims and Warranty Claims. Certain of the Customer
Contracts grant or will grant the customer or another Person a right to reduce
the contract price or receive a refund for Products sold and shipped or Services
performed. Such claims by customers and other Persons under Contracts that
constitute or include the Customer Contracts are referred to in this Agreement
as "Refund Claims." Certain of the Customer Contracts also confer warranty and
similar rights on customers or other Persons. Such claims under such rights are
referred to in this Agreement as "Warranty Claims." Subject to Section 5.20,
from and after the Closing, (a) the Sellers shall have full responsibility for
all Refund Claims, Warranty Claims, product liability claims and other claims
(i) under all Customer Contracts that were or are completed or performed before
the Closing and (ii) with respect to all Products shipped or Services performed
by any Seller before the Closing and (b) Purchaser shall have full
responsibility for all Refund Claims, Warranty Claims, product liability claims
and other claims (i) under all Customer Contracts entered into or performed by
Purchaser on or after the Closing and (ii) with respect to all Products shipped
or Services performed by Purchaser on or after the Closing.
Section 5.20 Satisfaction of Warranty and Refund Claims. Purchaser
shall perform, at its actual cost, as an independent contractor for the Sellers,
all warranty work necessary to satisfy all valid Warranty Claims for which any
Seller is responsible pursuant to Section 5.19 ("Warranty Work"). The Sellers
shall jointly and severally bear the costs of Warranty Work. In addition, the
Sellers shall jointly and severally bear the full amount of any Refund Claims
for which any Seller is responsible pursuant to Section 5.19. Purchaser shall
use its Best Efforts to consult with the Representative prior to honoring any
Refund Claim for which it intends to seek reimbursement from the Representative
or any Seller. The Representative shall be given reasonable access to
Purchaser's relevant records and personnel to enable it to verify the costs of
Warranty Work and the amount of any Refund Claims. Within thirty (30) days of
receipt thereof, the Representative, on behalf of the Sellers, shall pay any
invoice issued by Purchaser in respect of Warranty Claims or Refund Claims.
Purchaser shall perform the Warranty Work competently and in a timely manner and
shall bear full responsibility for any defects or claimed defects in any
Warranty Work. Following the Closing, Purchaser shall, in general, respond to
and deal with customers bringing any Warranty Claims or Refund Claims for which
any Seller is responsible pursuant to Section 5.19 in a manner consistent with
the practices of the Sellers prior to the Closing.
Section 5.21 Change Orders. Notwithstanding Sections 5.19 and 5.20, if
Purchaser authorizes any change orders or amendments to any Contract that affect
the obligations of Purchaser or any Seller under that Contract, the Sellers
shall not be required to participate in or bear any cost respecting any Refund
Claim or Warranty Claim connected with that change order or amendment.
28
Section 5.22 Bulk Sales Law. Prior to and after the Closing Date, the
Sellers shall comply with all bulk sale and other similar Laws applicable to the
transactions contemplated by this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, hereby represent, warrant and agree
for the benefit of Purchaser as of the date hereof and as of the Closing Date as
follows:
Section 6.1 Organization and Standing of each Seller. Each Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation as set forth on Schedule 6.1 and has
all necessary corporate power and authority to own its properties and assets and
to carry on the Business as the same has been and is currently conducted. Each
Seller is duly qualified to transact business in all jurisdictions where the
nature of its business or the ownership or leasing of its property requires such
qualification, except to the extent the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect. Each Seller has the
power and authority to hold all material rights, privileges, franchises,
immunities, licenses and permits (governmental and otherwise) and Governmental
Approvals necessary to carry on and conduct the Business as the same has been
and is currently conducted. FII, FIA, FIS, FAI and FIOF are the only
Subsidiaries of FIG that have assets or conduct operations.
Section 6.2 Authorization and Binding Obligation of each Seller. Each
Seller has the necessary corporate power and authority to enter into and perform
this Agreement and each of the other Seller Documents to be delivered by it
pursuant hereto (to the extent a party thereto), subject only to any required
approval by the shareholders of FIG and the terms and conditions hereof. All
corporate or other action on the part of each Seller and the directors,
officers, and shareholders of each Seller necessary for the authorization,
execution and delivery of this Agreement and the other Seller Documents and for
the performance of its respective obligations hereunder and thereunder, as the
case may be, have been taken (other than, as of the date of this Agreement, with
respect to the approval and adoption of this Agreement and the transactions
contemplated hereby, by the holders of shares representing a majority of the
votes entitled to be cast by holders of outstanding shares of common stock of
FIG, which approval and adoption shall have occurred at or prior to the
Closing). This Agreement and the other Seller Documents, and the transactions
contemplated hereby and thereby, have been unanimously approved by the Board of
Directors of each Seller. Each of this Agreement and the other Seller Documents
to be delivered by each Seller pursuant hereto, when executed and delivered,
shall constitute a valid and legally binding obligation of the Seller party
thereto, enforceable against such party in accordance with its terms, except as
may be limited by (i) bankruptcy, insolvency, or other similar laws affecting
the enforcement of creditors' rights generally and (ii) general principles of
equity (whether enforcement is sought at law or in equity). The transactions
contemplated by this Agreement and the other Seller Documents (a) are not
subject to the provisions of Sections 14-2-1111 and 14-2-1132 of the Georgia
Business Corporation Code and (b) are not subject to any other anti-takeover or
similar Law. Richard Dunleavy and C. Lofton Fouts, Jr. are, and at all times
prior to the Closing will be, "qualified directors" within the meaning Section
14-2-862 of the Georgia Business Corporation Code.
29
Section 6.3 Non-Contravention. Except as set forth on Schedule 6.3,
neither the execution and the delivery by any Seller of this Agreement or the
other Seller Documents (to the extent a party thereto), the performance by the
Sellers of their respective obligations hereunder or thereunder, nor the
performance or consummation by the Sellers of the transactions contemplated
hereby or thereby will (i) violate or conflict with any provision of the
Articles of Incorporation, By-laws or other organizational documents of any
Seller, (ii) violate or conflict with any Law or Order to which any Seller, any
Asset or the Business is subject or bound which violation or conflict could have
an adverse effect (other than a de minimis effect) on the Business or the Assets
or could impair the ability of Purchaser or the Sellers to consummate the
transactions contemplated by this Agreement, (iii) require the approval of or a
filing or registration with any Governmental Authority, (iv) whether after
notice or lapse of time or both, violate, breach or conflict with any provision
of, result in the loss of a material benefit under, or permit the termination or
acceleration of any Material Contract, (v) require any authorization, consent or
approval of, exemption or other action by, or notice to, any party to any
Material Contract or (vi) result in the creation or imposition of any
Encumbrance upon any of the Assets. On or prior to the Closing, the Sellers will
have obtained all consents, waivers and approvals required under the Material
Contracts listed on Schedule 6.3 as a result of the transactions contemplated by
this Agreement, and the same shall be in full force and effect.
Section 6.4 Indebtedness. Schedule 6.4 sets forth the outstanding
Indebtedness of each of the Sellers as of the date hereof. Except as set forth
on Schedule 6.4, none of the Sellers is in conflict with or in default or
violation of (with or without the giving of notice or lapse of time or both) any
of the terms of such Indebtedness nor has any event or condition occurred which
would give the holders of such Indebtedness the right to accelerate the maturity
of or require repayment of such Indebtedness prior to its stated maturity.
Section 6.5 Ability to Perform Obligations. None of the Sellers is a
party to, subject to, or bound by any agreement, Law or Order that could prevent
or materially impair (i) the performance of its obligations under this
Agreement, (ii) the value or utility of any of the Assets to be conveyed
hereunder, (iii) the sale, conveyance, transfer and delivery of, or the right to
sell, convey, transfer and deliver, any of the Assets, or (iv) the carrying on
of, or the right to carry on, the Business as currently constituted and
conducted and as proposed to be conducted.
Section 6.6 Dividends and Other Distributions. Since April 30, 2001,
none of the Sellers has (i) amended its organizational documents, (ii) declared,
set aside, made or paid any dividend or other distribution of assets or
securities, whether consisting of money, property or any other thing of value,
or (iii) purchased or redeemed any shares of its capital stock.
Section 6.7 Accounting Records. The accounting records of the Sellers
that have been furnished to Purchaser accurately and validly reflect, in all
material respects, the consolidated operations and financial position of the
Sellers and the Business for the periods covered thereby.
30
Section 6.8 Financial Statements; Changes; Contingencies.
6.8.1 Financial Statements. Copies of (i) the audited consolidated
balance sheets of the Sellers as of April 30, 2001 (the "April 30 Balance
Sheet") and April 30, 2000 and 1999, and the related consolidated statements of
income and cash flow for the fiscal years ended April 30, 2001, 2000, and 1999,
and the notes thereto (collectively, the "Audited Financial Statements"), and
(ii) unaudited consolidated balance sheet of the Sellers as of January 31, 2002
(the "Interim Balance Sheet") and the related consolidated statements of income
and cash flow for the nine month period then ended, and the notes thereto
(collectively, the "Unaudited Interim Financial Statements" and, together with
the "Audited Financial Statements", the "Seller Financial Statements"), duly
certified by the Chief Financial Officer of FIG, have been furnished to
Purchaser. The Seller Financial Statements include all Assets and operations of
the Business for the periods covered thereby. Except as set forth on Schedule
6.8, the Seller Financial Statements (a) have been prepared in accordance with
GAAP applied on a consistent basis during the periods covered thereby, (b)
fairly and accurately present the consolidated financial position of the Sellers
and the Business as of such dates and the consolidated results of the operations
of the Sellers and the Business for the periods covered thereby, (c) contain and
reflect all necessary adjustments and accruals for a fair and accurate
presentation of the Sellers' and the Business' consolidated financial condition
and the consolidated results of operations of the Sellers and the Business for
the periods covered thereby, (d) contain and reflect adequate provisions for all
reasonably anticipated liabilities for all Taxes, with respect to the periods
covered thereby and all prior periods, and (e) do not reflect items resulting
directly from the transactions contemplated by this Agreement. The projections,
dated April 19, 2002, provided to Purchaser ("Projections") were prepared in
good faith by the Sellers based on reasonable assumptions.
6.8.2 No Material Adverse Changes. Since April 30, 2001, whether or not
in the ordinary course of the Business, there has not been, occurred or arisen:
(i) any change in or event affecting any of the Sellers, the Assets or the
Business that has had or may reasonably be expected to have a Material Adverse
Effect; (ii) any strike or other labor dispute affecting any of the Sellers or
the Business; or (iii) any casualty, loss, damage or destruction (whether or not
covered by insurance) of any material Asset. Since January 31, 2002, there has
not been, occurred or arisen any agreement, condition, action, omission or event
which would be prohibited (or require consent) under Section 5.4 had it existed,
occurred or arisen after the date of this Agreement.
6.8.3 Absence of Undisclosed Liabilities. As of April 30, 2001 and
January 31, 2002, none of the Sellers had any Liabilities and Costs which were
required to be but were not reflected on the April 30 Balance Sheet or the
Interim Balance Sheet, respectively. Since January 31, 2002, none of the Sellers
had any Liabilities and Costs which were required to be but were not reflected
on the Monthly Financial Statements.
Section 6.9 The Assets. All of the Assets used or required in
connection with the operation of the Business are either owned by a Seller or
are used by a Seller pursuant to a valid and enforceable leasehold interest, in
each case free and clear of all Encumbrances other than Permitted Encumbrances
and Encumbrances that will be released as of the Closing. This Agreement will at
the Closing vest good and marketable title to, or the valid and enforceable
right to receive and/or use, each such Asset in Purchaser, free and clear of all
Encumbrances other than Permitted Encumbrances.
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Section 6.10 Accounts Receivable. Except as set forth on Schedule 6.10,
all Receivables accrued on the April 30 Balance Sheet and all Receivables that
have arisen since April 30, 2001 (i) resulted from valid sales in the ordinary
course of the Business of the Sellers and represent fully completed bona fide
transactions that require no further act on the part of the Sellers to make such
Receivables payable by the account debtors; (ii) were, and are, not subject to
any claim, counterclaim, offset or deduction to Sellers' Knowledge; (iii)
represent valid obligations owing to the Sellers by account debtors that are not
Affiliates of the Sellers, which are enforceable in accordance with their
respective terms; (iv) are not more than 60 days' past due; and (v) were, and
are, owned by the Sellers free and clear of all Encumbrances other than
Permitted Encumbrances. This Agreement will at the Closing vest good and
marketable title to the Receivables in Purchaser, free and clear of all
Encumbrances other than Permitted Encumbrances.
Section 6.11 Inventory. All Inventory of the Sellers consists of items
of a quality and quantity useable and saleable in the ordinary course of the
Business without mark-down or discount, is of good merchantable quality and is
fit for the particular purpose for which it is intended. The value of obsolete,
damaged or excess Inventory and of Inventory below standard quality has been
written down on the April 30 Balance Sheet or, with respect to Inventory
purchased since April 30, 2001, on the books and records of the Sellers and in
the Interim Financial Statements or the Monthly Financial Statements, to
ascertainable market value, or adequate reserves have been provided therefor, in
accordance with GAAP. All such Inventory is owned by the Sellers free and clear
of all Encumbrances, other than Permitted Encumbrances, and is located on
property owned or leased by a Seller (each such location being listed on
Schedule 6.11) or is in transit to one of such locations. No items included in
such Inventory are held by the Sellers on consignment from others or held by
others on consignment from the Sellers. This Agreement will at the Closing vest
good and marketable title to the Inventory in Purchaser, free and clear of all
Encumbrances other than Permitted Encumbrances.
Section 6.12 Intangible Personal Property. Schedule 6.12 sets forth, as
of the date hereof, (i) a true and accurate identification of each registered
and unregistered fictitious business name, trademark, service mark, trade name,
Internet domain name and slogan, and each registration and application for any
of the foregoing, constituting a part of the Intangible Personal Property; (ii)
a true and complete schedule of each statutory, common law and registered
copyright, and each registration and application therefor constituting a part of
the Intangible Personal Property; (iii) a true and complete schedule of each
patent and associated invention, industrial model, process and design, technical
information, know-how and operating, maintenance or other manual and each
registration and application for any of the foregoing, constituting a part of
the Intangible Personal Property; (iv) each item of "software" and associated
documentation constituting a part of the Intangible Personal Property; (v) a
true and complete list, without extensive or revealing descriptions, of each
trade secret constituting a part of the Intangible Personal Property, including
each related process or item of know-how or other technical data, and including
as to each such trade secret, the specific location of each writing, computer
32
program or other tangible medium containing its complete description,
specifications, source codes, charts, procedures, manuals and other descriptive
material relating to it; and (vi) a true and complete list of each material
Contract to which any Seller is a party either as licensee or licensor relating
to any item of the Intangible Personal Property. Except as indicated on Schedule
6.12, the Sellers' transfer to Purchaser of all of their right, title and
interest in and to all items of the Intangible Personal Property will not
adversely affect in any material respect the current value or usefulness thereof
in the possession of Purchaser. Without representation as to title, the Sellers
shall provide to Purchaser, for no additional consideration, the practical
benefits of any Intangible Personal Property that is currently used in the
operation of the Business but is not included in the Assets being conveyed to
Purchaser pursuant to this Agreement. Except as indicated on Schedule 6.12:
6.12.1 one or more of the Sellers is the owner of all right, title and
interest in and to each item of the Intangible Personal Property, free and clear
of all Encumbrances;
6.12.2 all patents, copyrights and other state and Federal
registrations and all applications therefor listed on Schedule 6.12 are valid
and in full force and effect and are not subject to claims of any other Person;
6.12.3 there are no pending claims, actions, judicial or other
adversary proceedings, disputes or disagreements involving any Seller concerning
any item of the Intangible Personal Property, and, to the Sellers' Knowledge, no
such action, proceeding, dispute or disagreement is threatened;
6.12.4 the Sellers have the right and authority to use each item of the
Intangible Personal Property in perpetuity; such use has not and will not
conflict with, infringe upon, or violate any patent or other proprietary right
of any other Person, and none of the Sellers has infringed and are not now
infringing upon any proprietary right belonging to any other Person;
6.12.5 with respect to each trade secret comprising a part of the
Intangible Personal Property, such trade secret is valid and protectible, and
such trade secret's documentation is current, accurate, and sufficient in detail
and content to identify and explain it, and to allow its full and proper use
without reliance on the special knowledge or memory of others; 6.12.6 each
Seller has taken all reasonable security measures to protect the secrecy,
confidentiality and value of its trade secrets; and
6.12.7 all trade secrets of the Sellers are presently valid and
protectible, and are not part of the public knowledge or literature, nor to the
Sellers' Knowledge have they been used, divulged or appropriated for the benefit
of any Person other than the Sellers or to the detriment of the Sellers.
This Agreement will at Closing vest good and marketable title to, or a
valid and enforceable right to receive and/or use, the Intangible Personal
Property in Purchaser, free and clear of all Encumbrances other than Permitted
Encumbrances.
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Section 6.13 Real Property. Schedule 6.13 contains a true and complete
list and brief description of all Real Property which the Sellers own,
beneficially or of record, use, have the right to use or require in the
operation of the Business. For purposes of this Section (i) "Owned Real
Property" shall mean all Real Property which any Seller owns, beneficially or of
record, as set forth on Schedule 6.13 and (ii) "Leased Real Property" shall mean
all Real Property which any Seller uses or has the right to use pursuant to a
leasehold interest or license, as set forth on Schedule 6.13.
6.13.1 The Sellers have no Owned Real Property.
6.13.2 The Sellers have the right to occupy all Leased Real Property
used in connection with the operation of the Business pursuant to valid and
enforceable lease agreements, true and complete copies of which have been
previously provided to Purchaser and are listed in Schedule 6.13. Each of the
Sellers has complied with the terms of the lease agreements set forth in
Schedule 6.13 to which it is a party, and no event or condition has occurred and
is continuing (without regard to notice or lapse of time, or both) that would
constitute a breach or default of any such lease agreement or give any party
thereto the right to declare a default thereunder. This Agreement will at
Closing vest a valid and enforceable leasehold interest to the Leased Real
Property in Purchaser, free and clear of all Encumbrances other than Permitted
Encumbrances.
6.13.3 The use, operation and maintenance by the Sellers of the Real
Property as currently used, operated and maintained by the Sellers, and the
conduct of the Business as currently conducted by the Sellers, does not violate
and has not violated any local zoning or similar land use laws or any other
applicable Law or Order. The current use of the Real Property is not dependent
on a nonconforming use and is not in violation of any local zoning or similar
land use law or other governmental regulation.
6.13.4 The Real Property is adequately serviced by all utilities
necessary for the effective operations of the Business and has not, during the
last two years, experienced any material interruption in the delivery of
adequate quantities of any utilities (including, without limitation,
electricity, natural gas, potable water, water for cooling or similar purposes
and fuel oil, but excluding any electricity interruption due to storm damage) or
other public services, including, without limitation, sanitary and industrial
sewer services, required by the Sellers in the operation of the Business.
6.13.5 No condemnation or eminent domain proceedings have been
initiated by service of process on any of the Sellers which relate to the Real
Property, and no such proceedings, to the Sellers' Knowledge, have been filed by
any relevant Governmental Authority with respect to the Real Property.
Section 6.14 Tangible Personal Property. Schedule 6.14 sets forth (i) a
description, including the location, of each item of the Tangible Personal
Property owned by any of the Sellers having either a depreciated book value or
estimated fair market value in excess of $50,000, or not owned by any of the
Sellers but in the possession of or used by any Seller in the operation of the
Business and having rental payments therefor or an economic value to the
34
Business in excess of $50,000 per year (the "Material Tangible Personal
Property"); and (ii) a description of the owner of, and any Contract relating to
the use of, each such item of Material Tangible Personal Property not owned by
any Seller and the circumstances under which such property is used. Except as
disclosed on Schedule 6.14:
6.14.1 the Sellers have good and marketable title to or a valid and
enforceable leasehold interest in each item of the Tangible Personal Property,
free and clear of all Encumbrances other than Permitted Encumbrances;
6.14.2 each item of the Tangible Personal Property is in good operating
condition and repair, ordinary wear and tear excepted, usable in the ordinary
course of the Business, and the operation thereof as conducted during the
twelve-month period prior to the date hereof, as presently conducted and as
proposed to be conducted is not in any material respect in violation of any
applicable building code, zoning ordinance or other Law, including, without
limitation, applicable Environmental Laws;
6.14.3 no item of the Tangible Personal Property has been furnished to
any Seller by a customer or other Person other than in connection with a bona
fide sale or lease transaction; and
6.14.4 during the past three years, there has not been any significant
interruption in the operations of the Business.
This Agreement will at Closing vest good and marketable title to, or a
valid and enforceable right to receive and/or use, the Tangible Personal
Property in Purchaser, free and clear of all Encumbrances other than Permitted
Encumbrances.
Section 6.15 Necessary Properties. The Assets include all of the
assets, real properties, tangible personal properties, Contracts, Governmental
Approvals and intangible properties necessary for the conduct of the Business as
conducted during the twelve-month period prior to the date hereof and as
presently conducted.
Section 6.16 Insurance. The Sellers are, and at all times since January
1, 1998 have been, insured with reputable insurers against all risks normally
insured against by companies in similar lines of business, and all of the
insurance policies and bonds maintained by them are in full force and effect.
Schedule 6.16 lists all insurance policies and bonds that are material to the
Sellers or the Business. None of the Sellers is in material default under any
such policy or bond. Schedule 6.16 summarizes all insurance claims made by the
Sellers since January 1, 2000. None of the Sellers has received any notice or
other indication from any insurer or agent of any intent to cancel or not to
renew any of such insurance policies. The Sellers have complied with and
implemented in all material respects all outstanding (i) requirements of and
recommendations of any insurance company that has issued a policy with respect
to any of the material Assets or Business of the Sellers and (ii) requirements
and recommendations of any Governmental Authority with respect to any such
insurance policy.
35
Section 6.17 Accounts Payable. All of the accounts payable reflected on
the April 30 Balance Sheet and all accounts payable that have arisen since April
30, 2001 arose from bona fide purchases of goods and services in the ordinary
course of the Business.
Section 6.18 Tax Matters.
For the purposes of this Section 6.18 and Section 2.4.2, the Sellers
shall be deemed to include any predecessor of the Sellers or any person or
entity from which any Seller incurs a liability for Taxes as a result of
transferee liability or by virtue of the application of IRS Regulation Section
1.1502-6 or otherwise. Except as stated in Schedule 6.18:
6.18.1 The Sellers have duly and timely filed (and prior to the Closing
Date will duly and timely file) all Tax Returns due on or prior to the Closing
in all jurisdictions (whether Federal, state, local or foreign) in which any
such returns were due. All such Tax Returns were prepared in accordance with
applicable Law and were true, complete and correct in all material respects. All
Taxes shown as due and payable on such Tax Returns have been paid, and there is
no current liability for any Taxes due and payable in connection with any such
Tax Returns. All Taxes not yet due and payable have been fully accrued on the
books of the Sellers, and adequate reserves have been established therefor. Any
charges, accruals and reserves for Taxes provided for in the Seller Financial
Statements and Monthly Financial Statements are adequate. There are no existing
Encumbrances for Taxes upon any of the Assets, except for Permitted
Encumbrances. The Sellers have filed a consolidated return for federal tax
purposes on behalf of itself and other members of the affiliated group (within
the meaning of Section 1504 of the Code) of which it is the parent corporation
since at least the date on which it was incorporated. The Sellers have provided
the Purchaser with a copy of all Tax Returns, including, but not limited to, all
consolidated federal Tax Returns filed by the Sellers for their past five
completed fiscal years;
6.18.2 The Sellers have: (i) withheld all required amounts from their
employees, agents, contractors and nonresidents and remitted such amounts to the
proper agencies; (ii) paid all employer contributions and premiums; and (iii)
filed all Federal, state, local and foreign Tax Returns with respect to employee
income tax withholding, and social security and unemployment taxes and premiums,
all in compliance with the withholding tax provisions of the Code and other
applicable Laws;
6.18.3 None of the Assets is tax exempt use property under Code Section
168(h);
6.18.4 None of the Sellers has (nor has any Seller previously had) any
permanent establishment in any foreign country and none of the Sellers engages
(nor has any Seller previously engaged) in a trade or business within the
meaning of the Code relating to the creation of a permanent establishment in any
foreign country;
6.18.5 Neither the Code nor any other provision of Law requires
Purchaser to withhold any portion of the Total Purchase Price;
36
6.18.6 There is no Tax sharing or other Tax-related agreement in effect
among or between the Sellers and any other Person. None of the Sellers is
subject to any partnership, joint venture or other arrangement which is treated
as a partnership for Federal or state income Tax purposes;
6.18.7 Except as set forth on Schedule 6.18, none of the Sellers has
ever been a member of any consolidated, combined or unitary group for Federal,
state, local or foreign Tax purposes;
6.18.8 The Federal income Tax Returns of each Seller have been examined
by the IRS, or have been closed by the applicable statute of limitations, for
all periods through April 30, 1999; the state income Tax Returns of each Seller
have been examined by the relevant agencies or such returns have been closed by
the applicable statute of limitations for all periods through the date set forth
opposite such state as set forth on Schedule 6.18; no deficiencies or
reassessments for any Taxes have been proposed, asserted or assessed against any
Seller by any Federal, state, local or foreign taxing authority;
6.18.9 None of the Sellers has executed or filed with any taxing
authority (whether Federal, state, local or foreign) any agreement or other
document waiving, extending or having the effect of extending the period for
assessment, reassessment or collection of any Taxes, and no power of attorney
granted by any Seller with respect to any Taxes is currently in force;
6.18.10 No Federal, state, local or foreign Tax audits or other
administrative proceedings, discussions or court proceedings are presently
pending with regard to any Taxes or Tax Returns of the Sellers and no additional
issues are being asserted against the Sellers in connection with any existing
audits of the Seller; and
6.18.11 There is no agreement, plan, arrangement or other Contract
covering any employee or former employee of the Sellers that, individually or
collectively, could give rise to the payment by any of the Sellers of any amount
that would not be deductible by reason of Code section 280G.
Section 6.19 Litigation. Schedule 6.19 sets forth an accurate and
complete description of every pending or, to the Sellers' Knowledge, threatened
adverse claim, dispute, governmental investigation, suit, action (including,
without limitation, nonjudicial real or personal property foreclosure actions),
arbitration, legal, administrative or other proceeding of any nature, domestic
or foreign, criminal or civil, at law or in equity, by or against or otherwise
affecting any Seller, the Business, any of the Assets or the transactions
contemplated by this Agreement. The Sellers have delivered to Purchaser true and
complete copies of all relevant court papers and other documents relating to the
matters referred to on Schedule 6.19. Except as disclosed on Schedule 6.19:
6.19.1 no such matter or matters, if decided adversely to any Seller,
could reasonably be expected to result, individually or in the aggregate, in
liability in excess of $50,000 or have an adverse effect on the Business, the
Assets or the transactions contemplated by this Agreement;
37
6.19.2 none of the Sellers is in default with respect to any Order by
which it is bound or to which its property or any Assets is subject and there
exists no Order enjoining or requiring any Seller to take any action of any
kind;
6.19.3 neither the Sellers nor, to the Sellers' Knowledge, any officer
or director of any Seller, has been permanently or temporarily enjoined by any
Order from engaging in or continuing any conduct or practice in connection with
the operation or the management of the Business or the Assets; and
6.19.4 to the Sellers' Knowledge, no basis exists for any claim,
investigation, suit or proceeding which, if decided adversely to any Seller,
could result in liability in excess of $50,000 or have a Material Adverse
Effect.
Section 6.20 Labor Relations. None of the Sellers is a party to or is
subject to any collective bargaining agreement, and there are no strikes or
other labor disputes against the Sellers pending or, to the Sellers' Knowledge,
threatened. The Sellers have complied in all material respects with all Labor
Agreements and all Laws relating to the employment of labor, including those
related to wages, hours, collective bargaining, occupational safety, and the
payment of social security and other payroll related Taxes, and none of the
Sellers has received any notice alleging a failure to comply in any material
respect with any Law or Order relating to the employment of labor. No material
controversies, disputes or proceedings are pending or, to the Sellers'
Knowledge, threatened against any Seller with respect to any of their employees.
As of the date hereof, to the Sellers' Knowledge, there are no activities or
proceedings of any labor union to organize non-unionized employees. All payments
due from any of the Sellers for which any claim may be made against any of the
Sellers on account of wages and employee health and welfare insurance and other
benefits have been paid or accrued as a liability on the financial statements of
the Sellers, except as disclosed on Schedule 6.20. Except as disclosed on
Schedule 6.20, no present or former employee, officer, consultant or director of
any Seller will have as of the Closing Date any claim against any Seller or
Purchaser for any matter, including without limitation (i) overtime pay for work
done through the Closing Date, (ii) wages or salary for work done through the
Closing Date, (iii) vacation time off or pay in lieu of vacation time off for
the period through the Closing Date, (iv) any violation of any Law relating to
minimum wages or maximum hours, workplace conditions, or any other matter, or
(v) injuries or other damages which are not fully covered by the insurance
policies of the Sellers. Except as disclosed on Schedule 6.20, there are no
employment agreements, severance agreements, indemnity agreements, change of
control agreements or similar agreements covering the present or former
employees, officers, directors or consultants of any Seller.
Section 6.21 Employee Benefits.
6.21.1 Neither the Sellers nor any ERISA Affiliate maintains or
contributes to any Plan other than the Plans listed on Schedule 6.21 hereto, and
no ERISA Affiliate maintains or contributes to any Multiemployer Plan.
38
6.21.2 Each Plan which is intended to be qualified under Section 401(a)
of the Code has been determined by the IRS to be so qualified, and each trust
related to any such Plan has been determined to be exempt from Federal income
tax under Section 501(a) of the Code and there has been no event or occurrence
since the date of the most recent favorable determination letter that would
adversely affect the tax-qualification status of any such Plan. Except as
disclosed on Schedule 6.21, neither the Sellers nor any ERISA Affiliate
maintains or contributes to any employee welfare benefit plan within the meaning
of Section 3(1) of ERISA which provides benefits to employees after termination
of employment other than as required by Section 601 of ERISA.
6.21.3 Neither the Sellers nor any ERISA Affiliate has breached, in any
material respect, any of the responsibilities, obligations or duties imposed on
it by ERISA or regulations promulgated thereunder with respect to any Plan.
Neither the Sellers nor any ERISA Affiliate nor any fiduciary of any Plan which
is not a Multiemployer Plan has engaged in a nonexempt "prohibited transaction"
described in Section 406 of ERISA or Section 4975 of the Code.
6.21.4 Neither the Sellers nor any ERISA Affiliate has ever contributed
to a Multiemployer Plan or a Plan subject to Title IV or ERISA or under Section
412 of the Code.
6.21.5 None of the Sellers has incurred any Liabilities and Costs with
respect to post-retirement health care benefits for employees or former
employees of the Business other than as required by Section 601 of ERISA.
Section 6.22 Certain Interests. Except as set forth on Schedule 6.22,
no Affiliate of any Seller nor any officer or director of any Seller nor
Associate of any such Person has any interest in any property or Asset of the
Business. Each of the transactions and agreements set forth on Schedule 6.22
were entered into on an arms-length basis on terms no less favorable to the
applicable Seller then would have been available from an unaffiliated
third-party. Except as set forth on Schedule 6.22 or as otherwise expressly set
forth herein, neither the Purchaser nor any of its Affiliates will have any
liabilities or obligations to any Seller or any Affiliate or Associate of any
Seller following the Closing.
Section 6.23 Governmental Approvals; Compliance with Laws. The Sellers
possess all Governmental Approvals, including, without limitation, all
Environmental Permits, necessary to operate the Business. All such Governmental
Approvals are in full force and effect, the Sellers are in compliance in all
material respects with their requirements, and no proceeding is pending or, to
the Sellers' Knowledge, threatened to revoke or amend any of them. Schedule 6.23
hereto contains a complete list of all material Governmental Approvals held by
the Sellers. The operations of the Business comply in all material respects with
all applicable Laws, including, without limitation, all Environmental Laws and
export control Laws. None of the Sellers is subject to any investigation,
judicial or administrative proceeding, or Order of or by a Governmental
Authority.
39
Section 6.24 Customers. No material customer has decreased materially
or, to the Sellers' Knowledge, threatened or expressed an intention to decrease
materially its purchases of Services or Products from any Seller since January
1, 1999. Since January 1, 1999, to the Sellers' Knowledge, there has been no
termination, cancellation, or limitation of, or any material modification or
change in, the business relationship of the Sellers with any customer. The
consummation of the transactions contemplated hereby will not, to the Sellers'
Knowledge, adversely affect the relationship between the Business and any
material customer.
Section 6.25 Suppliers. No material supplier of materials or services
to any of the Sellers has decreased materially or, to the Sellers' Knowledge,
threatened or expressed an intention to decrease or limit materially, except
upon the request of any of the Sellers, its provision of such materials or
services to any Seller since January 1, 1999. Since January 1, 1999, to the
Sellers' Knowledge, there has not occurred any termination, cancellation, or
limitation of, or any material modification or change in, the business
relationships of the Sellers with any supplier of materials or services. The
consummation of the transactions contemplated hereby will not, to the Sellers'
Knowledge, adversely affect the relationship between the Business and any
material supplier.
Section 6.26 Environmental Matters. For purposes of Section 6.26.1
through 6.26.9, inclusive, the term "Business" shall be deemed to include any
predecessor to the Business and any Persons from which the Business has assumed
liabilities by contract, operation of Law, or otherwise. Except as disclosed on
Schedule 6.26:
6.26.1 The Sellers, and the operation of the Business, are in
compliance in all material respects with all applicable Environmental Laws and
none of the Sellers has received a notice, demand, letter, claim or request for
information indicating that any Seller or the Business is or may be in violation
of or liable under any Environmental Law;
6.26.2 There is no civil, criminal, or administrative action, suit,
demand, claim, notice of violation, investigation, or proceeding pending against
any Seller or otherwise relating to the Assets or the Business or, to the
Sellers' Knowledge, threatened against any Seller, the Assets or the Business
relating in any way to Environmental Laws;
6.26.3 To the Sellers' Knowledge, there are no facts or circumstances
that material capital expenditures will likely be required within five years of
the Closing Date to conduct the Business as it is currently conducted and to
maintain compliance with all current and any currently pending or proposed
Environmental Laws. None of the Sellers has actual or potential liability for
indemnity or similar obligations with respect to any third party under any
Environmental Law;
6.26.4 The Sellers possess all Governmental Approvals required under
applicable Environmental Laws ("Environmental Permits") to operate the Business
in compliance with such Environmental Laws, and all such Environmental Permits
are currently maintained in full force and effect. None of the Sellers has
received notice or other communication, and to the Sellers' Knowledge, there are
no facts or circumstances, that any such Environmental Permits may be suspended,
revoked or modified by any Governmental Authority. Schedule 6.26 contains a true
and complete listing of all material Environmental Permits held by the Sellers;
40
6.26.5 No Hazardous Substances handled during the operation of the
Business have been placed, stored, buried, released, dumped or disposed of on
the properties of the Business or any Seller, nor to the Sellers' Knowledge, at
any offsite location, including any storage, treatment or disposal facility. No
cleanup has occurred at any property owned or operated by any Seller that could
reasonably be expected to result in the assertion or creation of an Encumbrance
on such property by any Governmental Authority with respect thereto, nor has any
such assertion of an Encumbrance been made by any Governmental Authority;
6.26.6 None of the Sellers has received a written notice or other
written communication from any Governmental Authority or other Person seeking
information in connection with, or advising it that it is responsible for, or
potentially responsible for, costs with respect to a release, a threatened
release or a clean-up of Hazardous Substances generated, stored, treated,
disposed of or transported by or for any Seller or the Business;
6.26.7 There is not at, on or in any property owned or operated by any
Seller (i) any friable asbestos-containing material; (ii) any poly-chlorinated
biphenyls or lead-based paint in concentrations that could impose regulatory
obligations on any Seller; or (iii) other than naturally occurring radioactive
materials that are present at the property such as radon, any radioactive
material, including but not limited to, any source, special nuclear or byproduct
material as defined in 42 U.S.C. ss. 2011 et seq., as amended or hereafter
amended;
6.26.8 There are no underground storage tanks or regulated surface
impoundments at, on or in any property operated by any Seller; and
6.26.9 There are no environmental reports, studies, assessments, and
sampling data ("Environmental Reports") within any Seller's possession that have
been issued since January 1, 1997 by or for any Seller, or by any Governmental
Authority, relating to the Business or any of the Assets.
Section 6.27 Brokers, Finders. Neither this Agreement nor the sale and
purchase of the Assets nor any other transactions contemplated by this Agreement
was induced by or procured through or otherwise involved in any way any Person
acting on behalf of or representing any Seller as broker, finder, investment
banker, financial advisor or in any similar capacity.
Section 6.28 Material Contracts.
6.28.1 Schedule 6.28 lists each Purchased Contract to which any of the
Sellers is a party or to which any Seller or any of the Assets is subject or
bound that (a) is a Customer Contract that provides for payments to or
performance by any of the Sellers, individually or collectively, in an amount
equal to or in excess of $50,000 in the aggregate, (b) represents a Contract
upon which any of the Sellers is substantially dependent or the absence of which
could have a Material Adverse Effect, (c) is a supplier, vendor or other
Contract that provides for payments by the Sellers, individually or
collectively, in excess of $50,000 per annum, (d) limits or restricts the
ability of any Seller or, after the Closing, Purchaser or its Affiliates to
compete or otherwise to conduct its business in any manner or place, (e)
provides for a guaranty or indemnity by any Seller in an amount in excess of
$50,000, (f) grants a power of attorney, agency or similar authority to another
41
Person, (g) has an unexpired term as of the date hereof in excess of two years
and cannot be terminated by Purchaser after the Closing in accordance with its
terms upon not more than 30 days' notice without penalty or cost, (h) provides
for the sale of assets or the provision of Services outside the ordinary course
of the Business, (i) grants any preferential right to purchase any Assets having
a value, individually or collectively, in excess of $50,000, (j) relates to a
joint venture, partnership or similar arrangement involving any Seller, the
Business or any Asset, (k) represents a Contract for the employment of any
director, officer, consultant or employee or a Contract, program or policy
providing for benefits or compensation to any director, officer, consultant or
employee, (l) is a Contract to which any Affiliate of any Seller, any officer or
director of any Seller, or any Associate of any such Person, is directly or
indirectly a party, (m) is a Government Contract or (n) governs or evidences any
Indebtedness (each of the Contracts described under clauses (a) through (n)
being a "Material Contract"). True and complete copies of each Material
Contract, including all amendments and supplements thereto, have been furnished
to Purchaser. Except as set forth on Schedule 6.28, each Material Contract is
valid and enforceable; each Seller party thereto has duly performed in all
material respects all of its obligations thereunder to the extent that such
obligations to perform have accrued; and no breach or default, alleged breach or
default, or event which would (with the passage of time, notice or both)
constitute a breach or default thereunder by any Seller or, to the Sellers'
Knowledge, any other party or obligor with respect thereto, has occurred or as a
result of this Agreement or the performance hereof will occur. The consummation
of the transactions contemplated by this Agreement will not (and will not give
any Person a right to) terminate or modify any rights of, or accelerate or
augment any obligation of, any Seller or Purchaser under any Material Contract.
6.28.2 With respect to each Material Contract (a) each Seller party
thereto has complied in all material respects with all requirements of all Laws
or agreements pertaining to such Material Contract; (b) all representations and
certifications executed, acknowledged or set forth in such Material Contract
were complete and correct in all material respects as of the dates they were
made (or deemed made), and each Seller party thereto has complied in all
material respects with all such representations and certifications; (c) neither
any party with whom any Seller has contracted nor any other Person has notified
Seller, either in writing or, to the Sellers' Knowledge, orally, that any Seller
has breached or violated any Law, Order, certification, representation, clause,
provision or requirement pertaining to such Material Contract; (d) none of the
Sellers nor, to the Sellers' Knowledge, any third party has terminated or
threatened to terminate any such Material Contract for any reason and no cure
notice or show cause notice is in effect pertaining to such Material Contract;
and (e) no material cost incurred by any Seller pertaining to such Material
Contract has been formally questioned or challenged or is the subject of any
investigation.
6.28.3 With respect to the Business there exist (i) no outstanding
material disputes against any of the Sellers, either by any party with whom any
of the Sellers has contracted or by any prime contractor, subcontractor, vendor
or other third party, arising under or relating to any Purchased Contract; and
(ii) no material disputes between any of the Sellers and any party with whom any
of the Sellers has contracted, any prime contractor, subcontractor or vendor
arising under or relating to any Purchased Contract. None of the Sellers has any
interest in any pending or potential claim against any party with whom any of
the Sellers has contracted or any prime contractor, subcontractor or vendor
arising under or relating to any Purchased Contract.
42
Section 6.29 Absence of Undisclosed Changes. Since April 30, 2001,
other than as set forth on Schedule 6.29 or in the Interim Financial Statements,
and other than the transactions contemplated by this Agreement, there has not
been any entry by any Seller into any commitment or transaction material to the
Sellers taken as a whole other than in the ordinary course of the Business. In
addition, since April 30, 2001, other than as set forth on Schedule 6.29 or in
the Interim Financial Statements, and other than the transactions contemplated
by this Agreement, (i) none of the Sellers has incurred any Liabilities and
Costs except Liabilities and Costs incurred in the ordinary course of the
Business consistent with the past practices of the Sellers, (ii) the Sellers
have conducted their businesses only in the ordinary course of the Business
consistent with the past practices of the Sellers and have not taken any of the
actions proscribed by Section 5.4 and (iii) there has not been (a) any change by
any Seller in their accounting methods, principles and practices, (b) any
reevaluation by any Seller of any assets (including, without limitation, any
write down of inventory or write-off of accounts receivable) other than as
required by GAAP, (c) any declaration, setting aside or payment of any dividend
or distribution in respect of any capital stock of any Seller or any redemption,
purchase or other acquisition of any of its securities, or (d) any increase in
or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the rate of compensation payable or to
become payable to any officer or key employee of any Seller.
Section 6.30 Government Contracts.
6.30.1 In addition to the representations and warranties in Section
6.28, with respect to each and every Government Contract referred to in Section
6.28.1 or bid which, if accepted, would result in a Government Contract (a
"Government Bid"): (i) each Seller has complied with all material terms and
conditions of such Government Contract or Government Bid, including all clauses,
provisions and requirements incorporated expressly by reference or by operation
of Law therein; (ii) each Seller has complied with all requirements of all
material Laws or agreements pertaining to such Government Contract or Government
Bid; (iii) all representations and certifications executed, acknowledged or set
forth in or pertaining to such Government Contract or Government Bid were
complete and correct in all material respects as of the dates they were made (or
deemed made), and each Seller has complied in all material respects with all
such representations and certifications; (iv) all Cost or Pricing Data (as
defined in Federal Acquisition Regulation ss. 15.401) and other information
submitted by the Sellers or any Seller's subcontractors in support of the
negotiation of Government Contracts or Government Bids, or modifications
thereto, or in support of requests for payments thereunder, was, as of the date
of price agreement or payment submission current, accurate and complete; (v)
neither the U.S. Government nor any prime contractor, subcontractor or other
Person has notified any Seller, either in writing or, to the Sellers' Knowledge,
orally, that any of the Sellers has breached or violated any Law, Order,
certification, representation, clause, provision or requirement pertaining to
such Government Contract or Government Bid; (vi) the Sellers have not terminated
43
any such Government Contract nor have they been notified by the U.S. Government,
any prime contractor, subcontractor or any other Person that any such Government
Contract has been terminated for any reason and no cure notice or show cause
notice is currently in effect pertaining to any such Government Contract or
Government Bid; (vii) no material cost incurred by any Seller pertaining to such
Government Contract or Government Bid has been formally questioned or
challenged, is the subject of any investigation or has been disallowed by the
U.S. Government; and (viii) no money due to any of the Sellers pertaining to
such Government Contract or Government Bid has been withheld or offset nor has
any claim been made to withhold or offset money, and the Sellers are entitled to
all progress payments received with respect thereto.
6.30.2 (i) None of the Sellers nor, to the Sellers' Knowledge, any of
their respective directors, officers or employees is (or during the last three
years has been) under administrative, civil or criminal investigation,
indictment or information by any Governmental Authority, or any audit or
investigation of any Seller with respect to any alleged irregularity,
misstatement or omission arising under or relating to any Government Contract or
Government Bid; and (ii) during the last three years, none of the Sellers has
conducted or initiated any internal investigation or made a voluntary disclosure
to the U.S. Government with respect to any alleged irregularity, misstatement or
omission arising under or relating to a Government Contract or Government Bid.
There exists no irregularity, misstatement or omission arising under or relating
to any Government Contract or Government Bid that has led to any of the
consequences set forth in clause (i) or (ii) of the immediately preceding
sentence or any other damage, penalty assessment, recoupment of payment or
disallowance of cost.
6.30.3 There exist (i) no outstanding material disputes with any of the
Sellers, either by the U.S. Government or by any prime contractor,
subcontractor, vendor or other third party, arising under or relating to any
Government Contract or Government Bid; and (ii) no material disputes between any
of the Sellers and the U.S. Government under the Contract Disputes Act of 1978
or any other Federal statute or between any of the Sellers and any prime
contractor, subcontractor or vendor arising under or relating to any Government
Contract or Government Bid. None of the Sellers has any interest in any pending
or potential claim against the U.S. Government or any prime contractor,
subcontractor or vendor arising under or relating to any Government Contract or
Government Bid. Schedule 6.30 identifies each Government Contract which is
currently under audit by the U.S. Government or any other Person that is a party
to such Government Contract.
6.30.4 All material test and inspection results provided by any Seller
to the U.S. Government pursuant to any Government Contract or to any other
Person pursuant to a Government Contract or as a part of the delivery to the
U.S. Government or to any other Person pursuant to a Government Contract of any
article designed, engineered or manufactured in the Business, or any Service
provided by any Seller, were complete and correct in all material respects as of
the date so provided. The Sellers have provided all material test and inspection
results to the U.S. Government and each other Person who is required to receive
such information under applicable Law and the terms of the Government Contracts.
44
Section 6.31 Clearances. Except to the extent disclosure is prohibited
by the Industrial Security Manual, or any manual relating to clearances that may
not be disclosed, Schedule 6.31 sets forth listings (including an indication of
the type of clearance) of all facility security clearances held by any Seller
and all personnel security clearances held by any officer, director, employee,
consultant or agent of any of the Sellers. Except as set forth on Schedule 6.31,
there are no facility security clearances or personnel security clearances
required under applicable Law in connection with the operation of the Business.
Section 6.32 Disclosure; Due Diligence. No representation or warranty
made by any Seller contained in this Agreement and in documents delivered to
Purchaser by any Seller, nor any writing, certificate, exhibit, list or other
instrument required to be furnished by any Seller to Purchaser pursuant hereto,
contains or will contain any material untrue statement of fact or omits or will
omit any fact necessary in order to make the statements and information
contained herein or therein not materially misleading.
Section 6.33 SEC Reports.
6.33.1 Except as set forth in Schedule 6.33, FIG has filed with the SEC
all forms, reports, schedules, registration statements, proxy statements and
other documents (as they have been amended since the time of their filing, and
including any documents filed as exhibits thereto, collectively, the "SEC
Reports") required to be filed by FIG with the SEC since May 1, 1999. As of
their respective dates, except as specifically set forth in Schedule 6.33, the
SEC Reports (including, without limitation, any financial statements or
schedules included or incorporated by reference therein) complied in all
material respects with the requirements of the Exchange Act, or the Securities
Act, and the rules and regulations of the SEC promulgated thereunder applicable,
as the case may be, to such SEC Reports. None of FII, FIA, FIS, FAI or FIOF is
required to file any form, report or other document with the SEC.
6.33.2 The Sellers have heretofore furnished to Purchaser a complete
and correct copy of any amendments or modifications which have not yet been
filed with the SEC to agreements, documents or other instruments which
previously had been filed by FIG with the SEC pursuant to the Securities Act and
the rules and regulations promulgated thereunder or the Exchange Act and the
rules and regulations promulgated thereunder.
Section 6.34 Information. None of the information supplied by the
Sellers for inclusion or incorporation by reference in the Proxy Statement will
at the time the Proxy Statement is filed with the SEC or, at the date it or any
amendment or supplement thereto is mailed to shareholders, at the time of the
Shareholder Meeting or on the Closing Date, 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 made therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
will comply with the provisions of the Exchange Act and the rules and
regulations thereunder, except that no representation is made by the Sellers
with respect to statements made therein based on information supplied by
Purchaser in writing specifically for inclusion in the Proxy Statement.
45
Section 6.35 Customer Warranties and Return Policies. Set forth on
Schedule 6.35 are warranties given and return policies offered by the Sellers to
any customers of the Business, together with an historical summary of all
warranty and return claims made against any Seller since January 1, 1999. There
are not pending or, to the Sellers' Knowledge, threatened, any claims under or
pursuant to any warranty or return policy, whether expressed or implied, on
Services supplied or Products sold prior to the date of this Agreement by any
Seller that are not disclosed or referred to in the Interim Balance Sheet and
which are not fully reserved against.
Section 6.36 Products Liability.
6.36.1 Claims. Except as disclosed on Schedule 6.36 (i) there is no
claim now pending or, to the Sellers' Knowledge, threatened by or before any
Governmental Authority alleging any defect in any Product shipped, sold or
delivered by the Business or alleging, with respect thereto, the failure of any
Seller to warn or any breach by any Seller of any express or implied warranties
or representations, nor is there any valid basis for any such claim; (ii) to the
Sellers' Knowledge, there has not since January 1, 1999 been any product recall
or post-sale warning or similar action (collectively "Recalls") conducted with
respect to any Product shipped, sold or delivered by the Business, or any
investigation by any Governmental Authority concerning whether to undertake or
not undertake any Recalls; and (iii) since January 1, 1997, there have been no
material defects in, failures to warn, or breaches of express or implied
warranties or representations with respect to, any Product shipped, sold or
delivered by any of the Sellers with respect to the Business.
6.36.2 Compliance With Standards. All testing procedures used and
product specifications disclosed to customers by the Sellers comply in all
material respects with all applicable Laws and Orders.
6.36.3 Occurrences. Except as disclosed on Schedule 6.36, there have
been no Occurrences within the last five years. For purposes of this Section
6.36.3, "Occurrence" shall mean any occurrence which is caused or allegedly
caused by any defect in, or failure to warn or any breach of express or implied
warranties or representations with respect to, a Product shipped, sold or
delivered by any of the Sellers with respect to the Business which results or is
alleged to have resulted in injury or death to any Person or damage to or
destruction of property (including damage to or destruction of the Product
itself) or other consequential damages.
Section 6.37 Federal Reserve Board Regulations. None of the Sellers
owns any "margin security," as such term is defined in Regulation U of the Board
of Governors of the Federal Reserve System.
Section 6.38 No Controlling Shareholder. FIG is a "person" and its own
"ultimate parent entity" for purposes of, and as defined under, the HSR Act.
46
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, warrants and agrees for the benefit of the
Sellers as of the date hereof and as of the Closing Date as follows:
Section 7.1 Organization and Standing of Purchaser. Purchaser is duly
organized, validly existing and in good standing under the laws of the state of
its organization, and has all the power and authority necessary to execute this
Agreement and consummate the transactions contemplated hereby. As of the date of
this Agreement, all of the issued and outstanding capital stock of VTF
Corporation is owned by The Veritas Capital Fund, L.P.
Section 7.2 Authorization and Binding Obligation of Purchaser.
Purchaser has full power and authority to enter into and perform this Agreement
and all other Purchaser Documents. All action on the part of Purchaser and the
directors and officers of Purchaser necessary for the authorization, execution
and delivery of this Agreement and all Purchaser Documents and for the
performance of all of Purchaser's obligations hereunder and thereunder, as the
case may be, have been taken, and each of this Agreement and each of the other
Purchaser Documents to be delivered by it pursuant hereto, when executed and
delivered, shall constitute a valid and legally binding obligation of Purchaser,
enforceable in accordance with their respective terms, except as may be limited
by (i) bankruptcy, insolvency, or other similar laws affecting the enforcement
of creditors' rights generally and (ii) general principles of equity (whether
enforcement is sought at law or in equity).
Section 7.3 Ability to Perform Obligations. Neither the execution and
delivery by Purchaser of this Agreement or the other Purchaser Documents, the
performance by Purchaser of its obligations hereunder or thereunder, nor the
performance or consummation by Purchaser of the transactions contemplated hereby
or thereby will (i) violate or conflict with any provision of the organizational
documents of Purchaser, (ii) violate or conflict with any Law or Order to which
Purchaser is subject or (iii) require the approval of or a filing or
registration with any Governmental Authority, which, in any event, would impair
the ability of Purchaser to perform its obligations under this Agreement.
Section 7.4 Brokers, Finders. Neither this Agreement nor the sale and
purchase of the Assets or any other transaction contemplated by this Agreement
was induced by or procured through or otherwise involved in any way any Person
acting on behalf of or representing Purchaser as broker, finder, investment
banker, financial advisor or in any similar capacity.
Section 7.5 U.S. Persons. Purchaser is controlled by United States
interests and is not subject to foreign ownership, control or interest under
applicable U.S. government contracting guidelines.
47
ARTICLE VIII
TERMINATION
Section 8.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby may be
terminated by Purchaser or the Representative, on behalf of the Sellers, if the
Closing does not occur on or before the close of business on September 30, 2002;
provided that the party seeking to terminate this Agreement pursuant to the
preceding sentence shall not be, on the date of such termination, in breach of
its representations, warranties or covenants under this Agreement. In addition,
this Agreement and the transactions contemplated hereby may be terminated at any
time before the Closing as follows:
8.1.1 Mutual Consent. By mutual consent in writing of Purchaser and the
Representative, on behalf of the Sellers.
8.1.2 Conditions to Purchaser's Performance Not Met. By Purchaser by
written notice to the Sellers if (i) any event occurs or condition exists which
would render impossible the satisfaction of one or more conditions to the
obligations of Purchaser to consummate the transactions contemplated by this
Agreement as set forth in Article IX, (ii) the shareholders of FIG shall not
have duly approved the transactions contemplated by this Agreement on or before
August 31, 2002, (iii) the condition set forth in Section 9.10 shall not have
been satisfied as of September 30, 2002 or (iv) the conditions set forth in
Sections 9.5 or 9.11 are not satisfied.
8.1.3 Conditions to the Sellers' Performance Not Met. By the
Representative, on behalf of the Sellers, by written notice to Purchaser if any
event occurs or condition exists which would render impossible the satisfaction
of one or more conditions to the obligations of the Sellers to consummate the
transactions contemplated by this Agreement as set forth in Article X.
8.1.4 The Sellers' Material Breach. By Purchaser if there has occurred
a material misrepresentation or other material breach by any of the Sellers of
its representations, warranties or covenants set forth herein or in any other
Seller Document; provided, however, that if such breach is susceptible to cure,
the breaching party or parties shall have twenty (20) calendar days after
receipt of written notice (which notice includes a summary description of such
breach) from Purchaser of its intention to terminate this Agreement if such
breach continues in which to cure such breach.
8.1.5 Purchaser's Material Breach. By the Sellers, if there has
occurred a material misrepresentation or other material breach by Purchaser of
its representations, warranties or covenants set forth herein or in any other
Purchaser Document; provided, however, that if such breach is susceptible to
cure, Purchaser shall have twenty (20) calendar days after receipt of written
notice (which notice includes a summary description of such breach) from the
Representative of its intention to terminate this Agreement if such breach
continues in which to cure such breach.
48
8.1.6 Assumed Indebtedness. By Purchaser if the Assumed Indebtedness
minus the Maritime Adjustment Amount exceeds $41,300,000.
8.1.7 Final Proposed Schedules. By Purchaser pursuant to Section 13.10.
Section 8.2 Effect of Termination. In the event that this Agreement
shall be terminated pursuant to Section 8.1, all further obligations of the
parties under this Agreement shall terminate; provided that the obligations of
the parties contained in Sections 8.3 and 13.2 and Articles XI and XII shall
survive any such termination. A termination under Section 8.1 shall not relieve
any party of any liability for a breach of, or for any misrepresentation under,
this Agreement, or be deemed to constitute a waiver of any available remedy
(including specific performance if available) for any such breach or
misrepresentation.
Section 8.3 Expenses. Without limiting the rights and remedies of any
party with respect to a breach of any other party's representations, warranties
or covenants under this Agreement or any other document delivered in connection
herewith, in the event the transactions contemplated by this Agreement shall not
be consummated, the parties hereto shall bear their own respective expenses, as
provided in Section 13.2. Notwithstanding the foregoing, in the event that (i)
all of the conditions to the obligations of Purchaser to consummate the
transactions contemplated by this Agreement, as set forth in Article IX, are
satisfied except the conditions set forth in Section 9.10, (ii) the Sellers have
not breached any of their respective representations, warranties or covenants
under this Agreement and (iii) Purchaser terminates this Agreement pursuant to
Section 8.1.2(iii), Purchaser shall reimburse the Sellers for expenses
reasonably incurred by the Sellers in connection with the transactions
contemplated by this Agreement in an amount not to exceed $200,000.
ARTICLE IX
CLOSING CONDITIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing Date of each of the following conditions, any one or more of which
may be waived (but only in writing) by Purchaser (provided that no such waiver
shall be deemed to have cured any breach of any representation, warranty or
covenant made in this Agreement):
Section 9.1 Representations, Warranties and Covenants of the Sellers.
(i) All of the representations and warranties made by the Sellers in this
Agreement and in the other Seller Documents which they have executed and
delivered in connection with this Agreement, shall be true and correct, in the
case of any representation or warranty contained in Sections 6.2, 6.5, 6.6,
6.27, 6.37 or 6.38 or any representation or warranty that is qualified as to
materiality, in all respects, and in the case of any other representation or
warranty, in all material respects, as of the date hereof and as of the Closing
Date as though made at and as of the Closing Date, except to the extent such
representations and warranties expressly speak as of an earlier date; (ii) the
Sellers shall have performed and complied with all agreements and covenants
required by this Agreement to be performed by them on or prior to the Closing
Date; and (iii) with respect to clauses (i) and (ii), at the Closing there shall
be delivered to Purchaser a certificate signed by the Chief Executive Officer of
each Seller to the foregoing effect.
49
Section 9.2 Deliveries to Be Made by the Sellers at the Closing. At the
Closing, the Sellers shall deliver or cause to be delivered to Purchaser the
following in form and substance reasonably satisfactory to Purchaser:
9.2.1 All bills of sale, note endorsements and other documents and
instruments of sale, assignment, conveyance and transfer as Purchaser or its
counsel may reasonably deem necessary or desirable to sell, assign, convey and
transfer to, and to vest, perfect and confirm in Purchaser good, marketable and
indefeasible title in and to the Assets, including any documents of conveyance
requested by the Federal Aviation Administration;
9.2.2 The Assets;
9.2.3 Copies of resolutions of the board of directors and shareholders
of each Seller authorizing and approving the execution and delivery of this
Agreement and the Seller Documents and the performance by each Seller of its
obligations hereunder and thereunder, certified by the Secretary of such Seller;
9.2.4 An incumbency certificate dated the Closing Date for each Seller
executed by the Secretary of such Seller which shall identify the names and
titles and bear the signatures of the officers of such Seller individually
authorized to execute and deliver this Agreement and the Seller Documents;
9.2.5 A certificate executed by each Seller certifying that all of such
Seller's representations and warranties in this Agreement are true and complete
as of the Closing Date (to the extent required pursuant to Section 9.1) and
confirming that all conditions set forth in this Article IX have been satisfied
and that such Seller has complied with its covenants and other obligations to be
performed on or prior to the Closing Date under this Agreement and the Seller
Documents, to the extent not waived in writing by Purchaser;
9.2.6 An opinion of counsel to the Sellers, dated as of the Closing
Date, in form and substance satisfactory to Purchaser in its sole discretion;
9.2.7 Good standing certificates for each Seller, dated as of a date
within 10 days of the Closing Date, from the jurisdiction of its incorporation
and each other jurisdiction in which it is required to be qualified to do
business, and "bring-down" certificates from each such jurisdiction or any
independent service company dated the Closing Date;
9.2.8 Copies of the charter and by-laws of each Seller, in each case
certified by the Secretary of the such Seller;
9.2.9 An affidavit of non-foreign status from each Seller, in the form
of Exhibit E;
50
9.2.10 A certificate executed by each Person to whom any Seller has any
Assumed Indebtedness outstanding as of the Closing Date, certifying the
aggregate amount of such Assumed Indebtedness as of the Closing Date, after
giving effect to the transactions contemplated by this Agreement;
9.2.11 If applicable, a certificate executed by each Seller and
Maritime and each shareholder of Maritime allocating the amount by which the
Assumed Indebtedness exceeds $34,800,000 to the Adjustment Amount and the
Maritime Adjustment Amount, in form and substance satisfactory to Purchaser;
9.2.12 The results of a Uniform Commercial Code, tax and judgment lien
search, conducted as of a recent date, demonstrating that the Assets are not
subject to any Encumbrances other than Permitted Encumbrances;
9.2.13 An opinion of counsel or of a qualified title search company as
listed by the Federal Aviation Administration and published on Advisory Circular
(AC) Form 4050-55, indicating clear title in the Sellers to all aircraft
(including air frames, engines and propellers) listed on Schedule 6.14, other
than Permitted Encumbrances; and
9.2.14 All other documents expressly provided in this Agreement to be
delivered to Purchaser at or before the Closing and not delivered to Purchaser
before the Closing.
Section 9.3 Shareholder Approval. The shareholders of FIG shall have
duly approved the transactions contemplated by this Agreement, pursuant to the
requirements of the FIG's articles of incorporation and applicable law.
Section 9.4 Third Party Consents. There shall have been obtained all
consents, approvals and waivers (other than Government Contract Novations, which
shall be sought after the Closing) from parties to Purchased Contracts and
others that are required in connection with the transactions contemplated by
this Agreement and the Seller Documents, including, without limitation, those
set forth on Schedule 6.3, and the same shall be in full force and effect.
Section 9.5 CAS-MOS Contract. Purchaser shall have been provided with
the terms and conditions associated with the redetermination of billing prices
in accordance with clauses C-24 and C-25 of the Commercial Air Services Military
Operations Support Agreement, dated April 1, 2002 (as amended or modified),
together with all supporting documentation and information regarding such
agreement, and such terms, conditions, documentation and information are
satisfactory to Purchaser in its sole discretion.
Section 9.6 Orders; Illegality. There shall not be in effect any Law or
Order of a Governmental Authority which enjoins, prohibits, makes illegal or
materially restricts or otherwise prevents the consummation of the transactions
contemplated hereby.
Section 9.7 Absence of Investigations and Proceedings. There shall be
no decree, judgment, Order or litigation at law or in equity, no arbitration
proceedings, and no proceeding before or by any Governmental Authority pending,
or to the Sellers' Knowledge, threatened, to which any of the Sellers, Maritime
or Purchaser is or may be a party that could reasonably be expected to adversely
51
affect, in any material respect, the Business or the Assets or which challenges
the transactions contemplated by this Agreement or the Maritime Purchase
Agreement. No proceeding or formal investigation by any Governmental Authority
shall be pending, or, to the Sellers' Knowledge, threatened, with the object of
challenging or preventing consummation of the transactions contemplated by this
Agreement or the Maritime Purchase Agreement and no other proceedings shall be
pending with such object or to collect damages from Purchaser on account
thereof.
Section 9.8 Governmental Approvals. All Governmental Approvals
necessary in connection with the consummation of the transactions contemplated
by this Agreement, including, without limitation, those set forth on Schedule
6.23, shall have been obtained and shall be in full force and effect.
Section 9.9 Absence of Certain Changes. Between the date of this
Agreement and the Closing Date, there shall have been no events, occurrences or
conditions that have had or could reasonably be expected to have a Material
Adverse Effect.
Section 9.10 Financing. Purchaser shall have obtained the financing, on
commercially reasonable terms, necessary to permit Purchaser to consummate the
acquisition of the Assets, the assumption of the Assumed Liabilities and the
transactions contemplated by this Agreement and the Maritime Purchase Agreement.
Section 9.11 Due Diligence. Purchaser shall have made such
investigations of the Sellers, the Assets and the Business as Purchaser in its
sole discretion deems necessary or desirable, including, without limitation,
operational results of the Sellers, and Purchaser in each case shall have
determined that the results of such due diligence, including the results of any
audit conducted by or on behalf of Purchaser, are satisfactory to Purchaser in
its sole discretion.
Section 9.12 Environmental Audits. Purchaser shall have received "Phase
I" environmental assessment reports of the environmental condition of the Real
Property specified by Purchaser which confirm the correctness of the warranties,
representations and covenants of the Company in Section 6.26 hereof and which
disclose no condition which could reasonably be expected to have a Material
Adverse Affect or could subject the Sellers or Purchaser to liability or
remediation costs in excess of $50,000.
Section 9.13 Release of Liens. The Sellers shall have received Uniform
Commercial Code termination statements and mortgage releases sufficient to
release all Encumbrances and security interests (except for Permitted
Encumbrances or Encumbrances relating to Assumed Liabilities) on the Assets
(concurrently with the other transactions occurring at the Closing) and shall
have transmitted the same for filing and/or recordation or delivered such
documents to Purchaser.
Section 9.14 Sandlin Employment Agreement. David E. Sandlin shall have
executed and delivered to Purchaser or one or more of its Affiliates an
employment and non-competition agreement (the "Sandlin Employment Agreement"),
between Sandlin and Purchaser or one or more of its Affiliates, containing the
terms set forth in Exhibit F and otherwise in form and substance satisfactory to
Purchaser, Sandlin and the Sellers.
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Section 9.15 Bone Employment and Non-Competition Agreement. John R.
Bone shall have executed and delivered to Purchaser or one or more of its
Affiliates an employment and non-competition agreement (the "Bone Employment and
Non-Competition Agreement"), between Bone and Purchaser or one or more of its
Affiliates, containing the terms set forth in Exhibit G and otherwise in form
and substance satisfactory to Purchaser, Bone and the Sellers.
Section 9.16 Transfer Taxes. The Sellers shall have paid or caused to
be paid all Taxes required to be paid in connection with the sale and delivery
to Purchaser of the Assets to the extent due and payable or prior to the
Closing.
Section 9.17 Maritime Transaction. The transactions contemplated by the
Asset Purchase Agreement, dated as of May 9, 2002, by and between Purchaser and
Maritime (the "Maritime Purchase Agreement") shall have been consummated
concurrently with the consummation of the transactions contemplated hereby.
Section 9.18 Retention of Key Employees. Purchaser shall have been
given the opportunity to approach and negotiate with all employees of the
Sellers in an effort to persuade them to become an employee of the Purchaser
following the Closing, and Purchaser, in its sole discretion, shall be satisfied
with the arrangements made to ensure that following the Closing, the Purchaser
will retain the services of the Sellers' key employees.
Section 9.19 Escrow Agreement. The Representative and the Escrow Agent
shall have executed and delivered the Escrow Agreement.
Section 9.20 Sellers Representative Agreement. Each Seller and the
Representative shall have executed and delivered the Sellers Representative
Agreement, and a fully-executed copy thereof shall have been furnished to
Purchaser.
ARTICLE X
CLOSING CONDITIONS OF THE SELLERS
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement are subject to the satisfaction at or prior to
the Closing Date of each of the following conditions, any one or more of which
may be waived (but only in writing) by the Representative on behalf of the
Sellers (provided that no such waiver shall be deemed to have cured any breach
of any representation, warranty or covenant made in this Agreement):
Section 10.1 Representations, Warranties and Covenants of Purchaser.
(i) All of the representations and warranties made by Purchaser in this
Agreement and in the other Purchaser Documents, or otherwise in connection with
the transactions contemplated hereby, shall be true and correct, in the case of
any representation or warranty that is qualified as to materiality, in all
respects, and in the case of any representation or warranty that is not so
53
qualified, in all material respects, as of the date hereof and as of the Closing
Date as though made at and as of the Closing Date, except to the extent such
representations and warranties expressly speak as of an earlier date; (ii)
Purchaser shall have performed and complied with all agreements and covenants
required by this Agreement to be performed by it on or prior to the Closing
Date; and (iii) with respect to clauses (i) and (ii), at the Closing there shall
be delivered to the Seller a certificate signed by a duly authorized officer of
Purchaser to the foregoing effect.
Section 10.2 Deliveries to be Made by Purchaser at the Closing. At the
Closing, Purchaser shall deliver or cause to be delivered to the Representative,
on behalf of the Sellers, the following:
10.2.1 The portion of the Total Purchase Price due at Closing, as
provided in Sections 3.2 and 3.3;
10.2.2 An opinion of Purchaser's counsel, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit H;
10.2.3 A copy of the resolutions of the Board of Directors or other
governing body of Purchaser authorizing the execution and delivery of this
Agreement, the Purchaser Documents and the performance by Purchaser of its
obligations hereunder and thereunder, certified by the Secretary or any
Assistant Secretary of Purchaser;
10.2.4 A certificate by a duly authorized officer of Purchaser to the
effect that the representations and warranties in this Agreement are true and
complete in all material respects as of the Closing Date and confirming that all
conditions set forth in this Article X have been satisfied and that Purchaser
has complied with its covenants and other obligations to be performed on or
prior to the Closing Date under this Agreement;
10.2.5 An incumbency certificate, dated the Closing Date, for Purchaser
executed by the Secretary or any Assistant Secretary of Purchaser, which shall
identify the name and title and bear the signature of each officer of Purchaser
individually authorized to execute and deliver this Agreement and the Purchaser
Documents;
10.2.6 Good standing certificates for Purchaser, dated as of a date
within 10 days of the Closing Date, from its jurisdiction of organization and
each other jurisdiction in which it is required to be qualified to do business,
and "bring-down" certificates from each such jurisdiction or an independent
service company dated the Closing Date;
10.2.7 All other documents expressly provided in this Agreement to be
delivered to the Sellers at or before the Closing and not delivered to the
Sellers before the Closing.
Section 10.3 Shareholder Approval. The shareholders of FIG shall have
duly approved the transactions contemplated by this Agreement, pursuant to the
requirements of FIG's articles of incorporation and applicable law.
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Section 10.4 Orders; Illegality. There shall not be in effect any Law
or Order of a Governmental Authority which enjoins, prohibits, makes illegal or
materially restricts or otherwise prevents the consummation of the transactions
contemplated hereby.
Section 10.5 Escrow Agreement. Purchaser and the Escrow Agent shall
have executed and delivered the Escrow Agreement.
Section 10.6 Absence of Investigations and Proceedings. No proceeding
or formal investigation by any Governmental Authority shall be pending, or, to
the best of Purchaser's knowledge, threatened, with the object to challenging or
preventing the consummation of the transactions contemplated by this Agreement.
Section 10.7 Governmental Approvals. All Governmental Approvals
necessary in connection with the consummation of the transactions contemplated
by this Agreement shall have been obtained and shall be in full force and
effect.
ARTICLE XI
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 11.1 Indemnification by the Sellers. The Sellers, jointly and
severally, agree to indemnify and hold harmless Purchaser, its Affiliates and
their respective shareholders, directors, officers, employees, agents,
successors in interest, assigns and representatives (collectively, the
"Purchaser Indemnified Parties") from and against any and all Losses which may
be incurred or suffered by any such party and which, directly or indirectly,
arise out of or result from:
11.1.1 any inaccuracy in or breach of any of the representations and
warranties made by any Seller in or pursuant to this Agreement or in the other
Seller Documents;
11.1.2 any inaccuracy in the Sellers' Assumed Indebtedness Schedule;
11.1.3 the Excluded Liabilities;
11.1.4 any breach or nonperformance of any of the covenants or
agreements made by any Seller in or pursuant to this Agreement or in the other
Seller Documents;
11.1.5 any matter as to which any Seller in other provisions of this
Agreement or in the other Seller Documents has expressly agreed to indemnify
Purchaser;
11.1.6 any third party claim or demand regarding the conduct of the
Business prior to the Closing;
11.1.7 any violation of an applicable Law or Order prior to the Closing
by any Seller, including, without limitation, any Environmental Law;
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11.1.8 the generation, use, transportation, treatment, storage, release
or disposal, prior to the Closing, of Hazardous Substances by, or at any
property or facility of, any Seller, or at any offsite location, at any time
prior to the Closing;
11.1.9 the presence of Hazardous Substances at any property or facility
of any Seller arising from pre-Closing operations, whether or not discovered,
prior to the Closing;
11.1.10 the failure of the Sellers to pay the costs of any Warranty
Work and the amount of any Warranty Claims or Refund Claims for which any Seller
is responsible pursuant to Sections 5.19 and 5.20;
11.1.11 the invalidity, unenforceability of, or claims of material
breach or default arising under, any Contract based on facts, occurrences or
circumstances arising upon or prior to the Closing; or
11.1.12 any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation,
reasonable legal fees and expenses, incurred in enforcing the indemnity provided
by this Section 11.1.
Section 11.2 Indemnification by Purchaser. Purchaser agrees to
indemnify and hold harmless the Sellers from and against any Losses of the
Sellers, their respective Affiliates and their respective shareholders,
directors, officers, employees, agents, successors in interest, assigns and
representatives (collectively, the "Sellers Indemnified Parties") which may be
incurred, directly or indirectly, by any such party as a result of, or based
upon or arising from:
11.2.1 any inaccuracy in or breach of any of the representations and
warranties made by Purchaser in or pursuant to this Agreement or in the other
Purchaser Documents;
11.2.2 the Assumed Liabilities;
11.2.3 any breach or nonperformance of any of the covenants or
agreements made by Purchaser in or pursuant to this Agreement or in the other
Purchaser Documents;
11.2.4 any matter as to which Purchaser in other provisions of this
Agreement or in the other Purchaser Documents has agreed to indemnify the
Sellers;
11.2.5 any third party claim or demand against any Sellers Indemnified
Party regarding the conduct of the Business following the Closing (other than a
claim based on any action taken by any Sellers Indemnified Party following the
Closing as an employee, representative or agent of Purchaser or its Affiliates
or otherwise);
11.2.6 any violation of Law following the Closing by Purchaser (except
for any violation of Law with respect to which the Sellers or any other
Indemnified Party are obligated to provide indemnity under this Agreement); and
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11.2.7 any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including, without limitation, legal
fees and expenses, incurred in enforcing the indemnity provided by this Section
11.2.
Section 11.3 Cooperation. The parties shall cooperate in the defense of
all third party claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make available to the
party controlling such defense any books, records or other documents within its
control and access to employees that are reasonably requested in the course of
such defense.
Section 11.4 Limitations on Indemnification. The Sellers shall not be
required to indemnify any Purchaser Indemnified Parties under Section 11.1
unless the aggregate of all amounts for which indemnity would otherwise be
payable by the Sellers exceeds $75,000 (except with respect to any inaccuracy in
or breach of the representations and warranties contained in Sections 6.1, 6.2,
6.5, 6.18, 6.27 and 6.38 and except for any indemnity rights pursuant to Section
11.1.2 and 11.1.3, with respect to which this threshold shall not apply), and,
in such event, the Sellers shall be responsible for the entire amount. The
Sellers' indemnity obligations under Section 11.1.1 with respect to any breach
of the representations and warranties under Article VI (except with respect to
any inaccuracy in or breach of the representations and warranties contained in
Sections 6.1, 6.2, 6.3, 6.5, 6.6, 6.8, 6.15, 6.18, 6.19, 6.21, 6.26, 6.27, 6.28,
6.30, 6.35, 6.36 and 6.38) shall be limited, in the aggregate, to $1,000,000.
Purchaser shall not be required to indemnify any other Person under Section 11.2
unless the aggregate of all amounts for which indemnity would otherwise be
payable by Purchaser exceeds $75,000, and in such event, Purchaser shall be
responsible for the entire amount. Purchaser's indemnity obligations under
Section 11.2.1 shall be limited, in the aggregate, to $1,000,000.
Section 11.5 Notice to Indemnifying Party. If any party (the
"Indemnified Party") receives notice of any claim or other commencement of any
action or proceeding with respect to which any other party (or parties) (the
"Indemnifying Party") is obligated to provide indemnification pursuant to
Sections 11.1 or 11.2 or pursuant to any other specific indemnification covenant
contained in this Agreement, the Indemnified Party shall promptly give the
Indemnifying Party written notice thereof which notice shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom. The
failure of a party to give notice under this Section 11.5 shall not relieve any
party from liability, unless and to the extent the other party has been
materially prejudiced thereby. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld or delayed) unless a suit shall
have been instituted against it and the Indemnifying Party either (i) shall not
have undertaken the defense of such suit after notification thereof as provided
in Section 11.6 or (ii) is demonstrably unable to undertake the defense of such
suit or satisfy the claims arising thereunder.
Section 11.6 Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a Person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding
57
using counsel of its choice (subject to the approval of the Indemnified Party,
which approval may not be unreasonably withheld or delayed) if it (i)
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim and (ii)
demonstrates its ability to undertake the defense of such claim or proceeding
and satisfy any liabilities resulting therefrom. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its counsel and at its own expense; provided, however, that if the
Indemnified Party, in its reasonable discretion, determines that there exists a
conflict of interest between the Indemnifying Party (or any constituent party
thereof) and the Indemnified Party, the Indemnified Party (or such constituent
party thereof) shall have the right to engage separate counsel, the reasonable
costs and expenses of which shall be paid by the Indemnifying Party, but in no
event shall the Indemnifying Party be liable to pay for the costs and expenses
of more than one separate firm of attorneys (in addition to any local counsel).
If the Indemnifying Party does not assume the defense of any such claim or
litigation resulting therefrom, the Indemnified Party may settle or defend
against such claim or litigation, after giving notice of the same to the
Indemnifying Party, on such terms as the Indemnified Party may deem appropriate,
and the Indemnifying Party shall be entitled to participate in (but not control)
the defense of such action, with its counsel and at its own expense. If the
Indemnifying Party thereafter seeks to question the manner in which the
Indemnified Party defended such third-party claim or the amount or nature of any
such settlement, the Indemnifying Party shall have the burden to prove by a
preponderance of the evidence that the Indemnified Party did not defend or
settle such third-party claim in a reasonably prudent manner. Notwithstanding
the foregoing, however, Purchaser shall in all cases be entitled to control of
the defense of any such action if it (i) may result in injunctions or other
equitable remedies in respect of Purchaser or the Business; (ii) may result in
liabilities which, taken with other then-existing claims by Purchaser under this
Article XI, would not be fully indemnified hereunder; or (iii) may have an
adverse impact on the Business or the financial condition of Purchaser including
an effect on the Tax liabilities, earnings or ongoing business relationships of
Purchaser even if the Seller satisfies all indemnification amounts in full.
Section 11.7 Survival of Representations and Warranties.
Notwithstanding any right of Purchaser and the Sellers to fully investigate the
affairs of the other parties hereto and notwithstanding any knowledge of facts
determined or determinable by Purchaser or Sellers pursuant to such
investigation or right of investigation, whether before or after execution and
delivery of this Agreement or the Closing, and notwithstanding any waiver of any
condition to the Closing, Purchaser and the Sellers shall have the right to rely
fully upon the representations, warranties, covenants and agreements of the
other parties hereto contained in this Agreement or in any other Seller
Documents or Purchaser Documents, as applicable. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
or compliance with any covenant or obligation, will not affect the right of
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations. Except as otherwise
provided herein, each representation, warranty, covenant and agreement of any of
the Sellers contained herein or in any other Seller Document, or in any
instrument or document furnished in connection with this Agreement or the
transactions contemplated hereby, shall survive the execution and delivery of
this Agreement and the Closing and any investigation at any time made by or on
behalf of Purchaser indefinitely. Notwithstanding the foregoing, (i) the
representations and warranties of the Sellers contained in Sections 6.21 and
58
6.26 shall terminate and expire on the second anniversary of the Closing Date,
unless on or prior to such date Purchaser has delivered to the Representative a
written notice of a claim with respect to any such representation or warranty,
(ii) the representations and warranties of the Sellers contained in Sections
6.18 shall terminate and expire on the third anniversary of the Closing Date,
unless on or prior to such date Purchaser has delivered to the Representative a
written notice of a claim with respect to any such representation or warranty,
and (iii) all other representations and warranties contained in Article VI
(other than those contained in Sections 6.1, 6.2, 6.5, 6.27 and 6.38, which
shall survive the execution and delivery of this Agreement and the Closing and
any investigation at any time made by or on behalf of Purchaser indefinitely)
shall terminate and expire on the eighteen month anniversary of the Closing
Date, unless on or prior to such date Purchaser has delivered to the
Representative a written notice of a claim with respect to any such
representation or warranty.
Section 11.8 Survival of Representations and Covenants of Purchaser.
With the sole exception of those covenants which are to be performed by
Purchaser after the Closing (which shall survive until a claim thereon is barred
by the applicable statute of limitations), each representation, warranty,
covenant and agreement of Purchaser contained herein shall survive the execution
and deliver of this Agreement and the Closing and shall thereafter terminate and
expire on the eighteen month anniversary of the Closing Date, unless, on or
before such date, the Representative has delivered to Purchaser a written notice
of claim with respect to such representation, warranty, covenant or agreement.
ARTICLE XII
CONFIDENTIALITY
Section 12.1 Confidentiality of the Sellers. Unless this Agreement
shall have been terminated pursuant to Article VIII, each Seller agrees to, and
agrees to use its Best Efforts to cause its agents, representatives, Affiliates,
employees, officers and directors to: (i) treat and hold as confidential (and
not disclose or provide access to any Person) all Intangible Personal Property
and information relating to product development, price, distributors, Contracts,
Customer Lists, pricing and marketing plans, policies and strategies, details of
client and consultant contracts, operations, methods, product development
techniques, business acquisition plans, new personnel acquisition plans and all
other confidential information with respect to any of the Sellers, the Business
or the Assets, except as may be required by applicable Law, in which event each
Seller agrees to, and agrees to use its Best Efforts to cause its agents,
representatives, Affiliates, employees, officers and directors to, furnish only
that portion of such confidential information which they reasonably believe is
legally required to be provided and exercise their reasonable efforts to obtain
assurances that confidential treatment will be afforded such information; and
(ii) in the event such Seller or any of its agents, representatives, Affiliates,
employees, officers or directors becomes legally compelled to disclose any such
information, provide Purchaser with prompt written notice of such requirement so
that Purchaser may, at the expense of Purchaser, seek a protective order or
other remedy. This Section 12.1 shall not apply to any information that, at the
time of disclosure, is known to the receiving party before disclosure thereof,
is independently developed by the receiving party, is or becomes publicly
59
available through no fault of any Seller or their respective agents,
representatives, Affiliates, employees, officers or directors, is obtained by
the receiving party from a third party not known by the receiving party to be
under any obligation not to disclose such information and which the receiving
party has no reason to believe is not otherwise publicly available (provided,
however, that once any Seller is advised that information obtained under such
circumstance is indeed confidential hereunder, this Section 12.1 shall
thereafter apply to such information) or is reasonably necessary in order for
any Seller to litigate any claim against Purchaser including, but not limited
to, any claim against Purchaser pursuant to this Agreement. Each Seller agrees
and acknowledges that remedies at law for any breach of its obligations under
this Section 12.1 are inadequate and that in addition thereto Purchaser shall be
entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach. Notwithstanding the foregoing, the
Sellers, with the consent of Purchaser (which consent shall not be unreasonably
withheld or delayed), may make such disclosures in connection with defending any
claim brought against any Seller or any of its agents, representatives,
Affiliates, employees, officers and directors by any third person as may be
reasonably necessary in order for such Seller to conduct its defense thereof;
provided, however, that each Seller agrees to, and agrees to cause its agents,
representatives, Affiliates, employees, officers and directors to, exercise
their respective Best Efforts to obtain assurances that confidential treatment
will be afforded such information and to seek a protective order or other remedy
to preserve the confidentiality of such information.
Section 12.2 Confidentiality of Purchaser. During the period starting
at the execution of this Agreement and ending on the earlier of (A) the Closing
Date or (B) the third anniversary of the date of this Agreement, Purchaser
agrees to, and agrees to use its Best Efforts to cause its agents,
representatives, Affiliates, employees, officers and directors to: (i) treat and
hold as confidential (and not disclose or provide access to any Person) all
Intangible Personal Property, and information relating to product development,
price, distributors, Contracts, Customer Lists, pricing and marketing plans,
policies and strategies, details of client and consultant contracts, operations,
methods, product development techniques, business acquisition plans, new
personnel acquisition plans and all other confidential information with respect
to the Sellers, the Assets or the Business, except as may be required by
applicable Law, in which event Purchaser agrees to, and agrees to use its Best
Efforts to cause its agents, representatives, Affiliates, employees, officers
and directors to, furnish only that portion of such confidential information
which Purchaser reasonably believes is legally required to be provided and
exercise its reasonable efforts to obtain assurances that confidential treatment
will be accorded such information; and (ii) in the event that Purchaser or any
such agent, representative, Affiliate, employee, officer or director becomes
legally compelled to disclose any such information, provide the Sellers with
prompt written notice of such requirement so that the Sellers may, at the
expense of the Sellers, seek a protective order or other remedy. This Section
12.2 shall not apply to any information that, at the time of disclosure, is
known to the receiving party before disclosure thereof, is independently
developed by the receiving party, is or becomes publicly available through no
fault of Purchaser or any of its agents, representatives, Affiliates, employees,
officers and directors, or is obtained by the receiving party from a third party
not known by the receiving party to be under any obligation not to disclose such
information and which the receiving party has no reason to believe is not
otherwise publicly available (provided, however, that once Purchaser is advised
that information obtained under such circumstance is indeed confidential
60
hereunder, this Section 12.2 shall thereafter apply to such information) or is
reasonably necessary in order for Purchaser to litigate any claim against the
Sellers, including, but not limited to, any claim against the Sellers pursuant
to this Agreement. Purchaser agrees and acknowledges that remedies at law for
any breach of its obligations under this Section 12.2 are inadequate and that in
addition thereto the Sellers shall be entitled to seek equitable relief,
including injunction and specific performance, in the event of any such breach.
Notwithstanding the foregoing, (x) Purchaser may make such disclosure of
confidential information relating to any of the Sellers, the Assets or the
Business to its officers, directors, employees, Affiliates, agents, accountants,
financial advisors, attorneys, financing sources, direct and indirect
shareholders and representatives for bona fide business purposes in connection
with this transaction; provided, however, that Purchaser shall advise such
Persons of the confidentiality and non-disclosure provisions of this Section
12.2 and be responsible for any violation or breach of such provisions by such
Persons, and (y) Purchaser, with the consent of the Sellers (which consent shall
not be unreasonably withheld or delayed), may make such disclosures in
connection with defending any claim brought against Purchaser or any of its
agents, representatives, Affiliates, directors, officers or employees by any
third person as may be reasonably necessary in order for Purchaser to conduct
its defense thereof; provided, however, that Purchaser agrees to, and agrees to
cause its agents, representatives, Affiliates, directors, officers and employees
to, exercise their respective Best Efforts to obtain assurances that
confidential treatment will be afforded such information and to seek a
protective order or other remedy to preserve the confidentiality of such
information.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Change Corporate Name. Each Seller shall execute such
documents and promptly take such action as is necessary to allow Purchaser and
its Affiliates to use and register all trademarks, tradenames, corporate names
and other Intangible Personal Property being conveyed to Purchaser pursuant to
the terms of this Agreement. Within 30 days of the Closing, each Seller shall
change its name so as to not include "Flight International," "Flight
International Aviation," "Flight Alaska" or any other trade names or trademarks
being purchased by Purchaser hereunder.
Section 13.2 Expenses. Except to the limited extent provided in the
last sentence of Section 8.3, the Sellers and Purchaser shall pay their own
expenses incident to the negotiation, preparation and performance of this
Agreement and the transactions contemplated hereby, including, without
limitation, expenses and disbursements of their respective financial advisors,
accountants and counsel. The expenses of the Sellers referred to in this Section
13.2 shall not be Assumed Liabilities.
Section 13.3 Notices and Other Communications. Every notice or other
communication required or contemplated by this Agreement by any party shall be
delivered by personal delivery, postage prepaid return receipt requested
certified mail, or by facsimile, addressed to the party for whom intended as set
forth on Schedule 13.3, or at such other address as the intended recipient
previously shall have designated by written notice to the other parties. Notice
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by certified mail shall be effective on the date it is officially recorded as
delivered to the intended recipient by return receipt or equivalent. All notices
and other communication required or contemplated by this Agreement delivered in
person or sent by facsimile with answer back receipt shall be deemed to have
been delivered to and received by the addressee and shall be effective on the
date of personal delivery or on the date sent if answer back receipt received.
Notice not given in writing shall be effective only if acknowledged in writing
by a duly authorized representative of the party to whom it was given.
Section 13.4 Counterparts. This Agreement may be executed in any number
of counterparts, and each counterpart shall constitute an original instrument,
but all such separate counterparts shall constitute only one and the same
instrument.
Section 13.5 Written Agreement to Govern. This Agreement constitutes
the entire understanding between the parties as to the subject matter hereof,
except as may be explicitly set forth in writing in any agreement, certificate
or document specifically referenced herein, and cancels any and all previous
contracts or agreements between the parties with respect to the subject matter
hereof. This Agreement may not be altered, amended, or modified except by a
written instrument executed by or on behalf of each of the parties hereto. This
Agreement shall become binding only after the same is signed and delivered by or
on behalf of each of the parties hereto.
Section 13.6 Assignability. Neither this Agreement nor any right or
obligation hereunder is assignable in whole or in part, whether by operation of
law or otherwise, by any party without the express written consent of the other
parties hereto and any such attempted assignment shall be void and
unenforceable; provided, however, that Purchaser may transfer or assign this
Agreement or any right or obligation hereunder to any of its Affiliates or any
financing source at any time prior to or after the Closing. This Agreement and
the rights and obligations hereunder shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors or assignees,
and no other Person shall acquire or have any rights under or by virtue of this
Agreement.
Section 13.7 No Waiver of Rights. All waivers hereunder must be made in
writing, and failure of any party at any time to require another party's
performance of any obligation under this Agreement shall not affect the right
subsequently to require performance of that obligation. Any waiver of any breach
of any provision of this Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision or a waiver or modification of
any other provision.
Section 13.8 Subject Headings. The subject headings of the Articles and
Sections of this Agreement are included for the purposes of convenience only,
and shall not affect the construction or interpretation of any of the provisions
of this Agreement. All Section references contained herein shall be deemed to
refer to other Sections of this Agreement, unless expressly stated otherwise.
62
Section 13.9 Further Assurances. At all times before and after the
Closing, the parties hereto shall each perform such acts, execute and deliver
such instruments and documents and do all such other things consistent with the
terms of this Agreement as may be reasonably necessary to accomplish the
transactions contemplated in this Agreement or to otherwise carry out the
purpose of this Agreement.
Section 13.10 Schedules and Exhibits. The parties acknowledge that the
Schedules to this Agreement have not been prepared or are incomplete as of the
date hereof (such unprepared or incomplete Schedules being the "Sellers'
Incomplete Schedules"). The Sellers shall deliver to Purchaser and its counsel
for their review a complete and accurate version of the Sellers' Incomplete
Schedules (as so revised, the "Final Proposed Schedules") not later than 30 days
after the date of this Agreement. The Sellers shall also provide Purchaser with
copies of any supporting documents and such access to those officers and other
employees of each Seller and to Sellers' legal counsel and other representatives
as may be reasonably requested by Purchaser and its legal counsel in connection
with their review of the Final Proposed Schedules. Purchaser shall have the
right to terminate this Agreement by written notice to the Representative as
described below in the event that Purchaser, in its sole discretion, is not
satisfied with the Final Proposed Schedules. Not later than 10 business days
after the Final Proposed Schedules, certified by an officer of each Seller, and
all such supporting documents and access shall have been provided to and
acknowledged by Purchaser in writing, Purchaser shall either (i) advise the
Representative that the Final Proposed Schedules are acceptable to Purchaser,
whereupon the Final Proposed Schedules shall become the Schedules hereto, or
(ii) advise the Representative that it has determined to terminate this
Agreement pursuant to the provisions of this Section 13.10; provided, however,
that if Purchaser does not respond within the aforementioned 10 business day
period, then Purchaser shall be deemed to have accepted the Final Proposed
Schedules. Purchaser will acknowledge receipt of the Final Proposed Schedules
and all supporting documents and access referred to above in writing promptly
after the same has been furnished to it and its legal counsel. All Schedules and
Exhibits referred to in and attached to this Agreement are incorporated herein
by such reference as if fully set forth in the text hereof. Any capitalized and
undefined terms used in any Schedule attached hereto shall have the same meaning
assigned to such term herein. Notwithstanding the foregoing, Purchaser shall not
be required to review or consider the Final Proposed Schedules until such time
as it has received the final proposed schedules and all supporting documentation
and related information under the Maritime Purchase Agreement so long as
Purchaser has notified the Representative in writing prior to the end of the
aforementioned 10 business day period that it has not received such schedules,
documentation or information.
Section 13.11 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement should be prohibited or
invalid under applicable Law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 13.12 Publicity and Reports. The Sellers and Purchaser shall
coordinate all publicity relating to the transactions contemplated by this
Agreement and, except to the extent required by Law or applicable stock exchange
rules or required in connection with Purchaser's financing of the transactions
contemplated hereby, no party shall issue any press release, publicity statement
or other public notice relating to this Agreement, or the transactions
63
contemplated by this Agreement, without obtaining the prior consent of the other
parties hereto (which consent shall not be unreasonably withheld or delayed).
Purchaser and the Sellers shall consult with each other with respect to the form
and content of any application or report made to any Governmental Authority
which relates to this Agreement or the transactions contemplated hereby.
Section 13.13 Parties in Interest; Joint and Several Liability of the
Sellers. This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement except for the provisions of Article XI (which are
intended to be for the benefit of the Persons provided for therein and may be
enforced by such Persons). Nothing in this Agreement is intended to relieve or
discharge the obligations of any third Person to (or to confer any right of
subrogation or action over against) any party to this Agreement. The obligations
of the Sellers under this Agreement shall be joint and several and, unless
expressly stated in this Agreement, all actions to be taken by the Sellers
hereunder shall be taken jointly or through the Representative.
Section 13.14 Specific Performance. The Sellers acknowledge that, in
view of the uniqueness of the Business and the transactions contemplated by this
Agreement, Purchaser would not have an adequate remedy at law for money damages
in the event that this Agreement has not been performed in accordance with its
terms, and therefore agrees that Purchaser shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
Section 13.15 GOVERNING LAW; CONSENT TO JURISDICTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICT PROVISIONS) OF THE STATE
OF NEW YORK. EACH PARTY TO THIS AGREEMENT, ON BEHALF OF ITSELF AND ITS
SUCCESSORS IN INTEREST AND ASSIGNS, HEREBY SUBMITS TO THE JURISDICTION OF THE
FEDERAL AND STATE COURTS LOCATED IN THE CITY OF NEW YORK, NEW YORK, IN
CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS
CONTEMPLATED HEREBY.
[SIGNATURE PAGE FOLLOWS]
64
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
written above.
PURCHASER:
VTF CORPORATION
By: /s Robert B. McKeon
Name: Robert B. McKeon
Title: President
SELLERS:
THE FLIGHT INTERNATIONAL GROUP, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
FLIGHT INTERNATIONAL, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
FLIGHT INTERNATIONAL AVIATION, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
65
FLIGHT INTERNATIONAL SALES AND
LEASING, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
FLIGHT ALASKA, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
FLIGHT INTERNATIONAL OF FLORIDA, INC.
By: /s/ David E. Sandlin
Name: David E. Sandlin
Title: President and CEO
66
ANNEX B
G-V CAPITAL CORP.
999 Walt Whitman Road, Third Floor
Melville, New York 11747
(631) 421-3600 Fax (631) 421-2279
E-Mail: Lkaplan@aol.com
Lawrence Kaplan
May 8, 2002
Board of Directors
The Flight International Group, Inc.
One Lear Drive
Newport News, VA 23602
Dear Sirs:
We understand that The Flight International Group, Inc., a Georgia corporation
("FIG") and VTF Corporation ("VTF"), a Delaware corporation (together with its
successors or assigns, "Purchaser") are proposing to enter into an Asset
Purchase Agreement (the "Agreement"), by and among FIG, Flight International,
Inc., a Georgia corporation ("FII"), Flight International Aviation, Inc., a
Georgia corporation ("FIA"), Flight International Sales and Leasing, Inc., a
Delaware corporation ("FIS"), Flight Alaska, Inc., a Delaware corporation
("FAI"), and Flight International of Florida, Inc., a Florida corporation
("FIOF", and together with FIG, 1, FIA, FIS and FAI, each is individually
referred to herein as a "Seller" and are collectively referred to herein as the
"Sellers").
The Agreement provides, among other things, that on the Initial Closing Date (as
such term is defined in the Agreement), Purchaser shall purchase the Assets and
assume the Assumed Liabilities from the Sellers and pay to the Representative,
on behalf of the Sellers, the Total Purchase Price. The "Total Purchase Price"
shall consist of $6,500,000 (the "Base Purchase Price"), minus the Adjustment
Amount, if any, and minus $1,000,000 which will be placed in escrow for a
nine-month period in connection with possible claims following the Initial
Closing Date. The proposed sale and purchase of the Assets and assumption of the
Assumed Liabilities are sometimes referred to herein as the "Proposed
Transaction". The terms of the Proposed Transaction are set forth in more detail
in the Agreement.
You have requested our opinion, as investment bankers, as to the fairness from a
financial point of view, to FIG of the Total Consideration to be paid by VTF for
the Assets and assumption of Assumed Liabilities in the Proposed Transaction.
Our opinion addresses only the fairness, from a financial point of view, of the
Total Consideration to be received by the Sellers for the Assets and assumption
of Assumed Liabilities in the Proposed Transaction, and we do not express any
views on any other terms of the Proposed Transaction. Specifically, we have not
been requested
Board of Directors
The Flight International Group, Inc.
May 8, 2002
Page 3
to opine as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion we have: (i) reviewed a draft of the Agreement dated
April 25, 2002 and, for purposes hereof, we have assumed that the final form
thereof will not differ in any material respect from such draft; (ii) reviewed
FIG's financial statements as at and for the fiscal years ended April 30, 1995,
1996, 1997, 1998, 1999, 2000 and 2001, respectively, and for the nine month
period ending January 31, 2002, have assumed for the purposes hereof that the
final audited financial statements of the Company will not differ in any
material respect from the drafts submitted to us for our review; (iii) reviewed
such publicly available information concerning FIG as we believe is relevant to
our analysis, including FIG's Annual Reports on Form 10-K or Form 10-KSB for the
period ended April 2000; (iv) reviewed certain financial and operating
information with respect to the business, operations and prospects of FIG
furnished to us by FIG; (v) compared the historical results of the operations of
FIG with those of certain publicly traded companies which we deemed to be
reasonably comparable; and (vi) reviewed the financial terms, to the extent
publicly available, of certain comparable transactions and compared them with
the terms of the Proposed Transaction. In addition, we have had discussions with
the management of FIG concerning their business, operations, assets, credit and
collection procedures, financial condition and prospects and have undertaken
such other analyses and examinations and considered such other financial,
economic and market data as we deemed appropriate in arriving at our opinion.
In arriving at our opinion we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for the independent verification of such information and have
further relied upon the assurances of FIG and VTF that they are not aware of any
facts or circumstances that would make such information inaccurate or
misleading. We have also assumed that obtaining all regulatory approvals and
third party consents required for the consummation of the proposed transaction
will not have an adverse impact on FIG or VTF or on the anticipated benefits of
the Proposed Transaction, and we have assumed that the transactions described in
the Agreement will be consummated without waiver or modification of any of the
material terms or conditions contained therein by any party thereto. In arriving
at our opinion, we have not made or obtained any evaluations or appraisals of
the assets or liabilities of FIG or VTF. Our opinion set forth herein is
necessarily based upon financial, market, economic and other conditions and
circumstances as they exist and have been disclosed on, and can be evaluated as
of, the date hereof. We are not expressing any opinion herein as to the price at
which either the FIG New Common Stock or the VTF Common Stock will actually
trade at any time.
We have acted as financial advisor to FIG in connection with this transaction
and will receive a fee for such services and for rendering this opinion. In
addition, FIG has agreed to indemnify us
Board of Directors
The Flight International Group, Inc.
May 8, 2002
Page 4
for certain liabilities which may arise out of the rendering of this opinion.
Our opinion is provided for the use and benefit of the Board of Directors of FIG
and is rendered to the Board of Directors in connection with the Proposed
Transaction. This opinion is not intended and does not constitute a
recommendation to any shareholder of the Company as to how a shareholder should
vote with respect to the Proposed Transaction. This opinion is not to be
reprinted, reproduced or disseminated without our prior written consent, and is
not to be quoted or referred to, in whole or in part, in connection with the
Proposed Transaction or any other matter; provided that we understand and agree
that if this opinion is required pursuant to any applicable statute or
regulation to be included in any materials to be filed with the Securities and
Exchange Commission or mailed to the shareholders of FIG in connection with the
Transaction, the opinion may be reproduced in such materials only in its
entirety; provided, further, that any description of or reference to us or any
summary of this opinion in such materials will be in a form acceptable to and
consented to in advance by us, such consent not to be unreasonably withheld.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, we are of the opinion that, as of the date hereof,
the Total Consideration to be received by FIG in connection with the Transaction
is fair, from a financial point of view, to FIG.
Respectfully submitted,
G-V CAPITAL CORP.
By: /s/ Lawrence Kaplan
Lawrence Kaplan, President
ANNEX C
ARTICLE 13 OF THE GEORGIA BUSINESS CODE
---------------------------------------
.CODE, 14-2-1301
CODE OF GEORGIA
TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS
CHAPTER 2. BUSINESS CORPORATIONS
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party:
(A) If approval of the shareholders of the
corporation is required for the merger by Code Section
14-2-1103 or 14-2-1104 or the articles of incorporation and
the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged
with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Code Section
14-2-604; or
(F) Cancels, redeems, or repurchases all or part of
the shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be
no right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan of
merger or share exchange to accept for their shares anything except
shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share exchange
are either listed on a national securities exchange or held of record
by more than 2,000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
14-2-1303
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
14-2-1320
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the notice required in subsection (a) of this Code
section is delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
14-2-1324.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325.
(a) Except as provided in Code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making of
the offer or the taking of the proposed corporate action, whichever is later.
14-2-1326.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure. 14-2-1327.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth
in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the
limitations period of Code Section 14-2-1332, notify the corporation of
his own estimate of the fair value of his shares and the amount of
interest due and demand payment of his estimate of the fair value of
his shares and interest due.
14-2-1330.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or statutory
overnight delivery or by publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment.
14-2-1331.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Code Sections 14-2-1320 through
14-2-1327 ; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
14-2-1332.
No action by any dissenter to enforce dissenters' rights shall be brought more
than three years after the corporate action was taken, regardless of whether
notice of the corporate action and of the right to dissent was given by the
corporation in compliance with the provisions of Code Section 14-2-1320 and Code
Section 14-2-1322.
ANNEX D
THE FLIGHT INTERNATIONAL GROUP, INC.
ONE LEAR DRIVE
NEWPORT NEWS/WILLIAMSBURG INTERNATIONAL AIRPORT
NEWPORT NEWS, VIRGINIA 23602
May 9, 2002
Maritime Sales & Leasing, Inc.
One Lear Drive
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
Re: Allocation of Debt
To Whom It May Concern:
This letter shall set forth the terms and conditions pursuant to which
The Flight International Group, Inc. ("Flight") and Maritime Sales & Leasing,
Inc. ("Maritime", and together with Flight, the "Companies" or each "Company")
shall allocate any increase in the aggregate Indebtedness of the Companies above
$34.8 million. Terms not defined herein shall have the meanings ascribed to them
in that certain Asset Purchase Agreement by and among, inter alia, Flight and
VTF Corporation ("VTF"), dated as of May 9, 2002 ("Asset Purchase Agreement").
The Companies acknowledge that neither would enter into their respective
agreements with VTF but for the other party's execution of this letter
agreement.
By the signatures of the Companies below, each Company hereby
acknowledges and agrees that, as of January 31, 2002 (the "Debt Allocation
Date"), the aggregate Indebtedness of Flight, on a consolidated basis, was
$12,500,000 and the aggregate Indebtedness of Maritime was $22,300,000
("Allocated Indebtedness").
In the event that, at the Closing, the Assumed Indebtedness is greater
than $34,800,000 and the Allocated Indebtedness of both of the Companies has
increased since the Debt Allocation Date, (i) the Base Purchase Price shall be
reduced, on a dollar for dollar basis, by the amount by which Flight's
Indebtedness shall have so increased and (ii) the cash (or cash equivalent) to
be paid to Maritime pursuant to the Maritime Purchase Agreement shall be
reduced, on a dollar for dollar basis, by the amount by which Maritime's
Indebtedness shall have so increased.
In the event that, at the Closing, the Assumed Indebtedness is greater
than $34,800,000 and the Allocated Indebtedness of Flight has increased since
the Debt Allocation Date and the Allocated Indebtedness of Maritime has either
been reduced or remained the same, (i) the Base Purchase Price shall be reduced,
on a dollar for dollar basis, by the lesser of (a) the amount by which Flight's
Indebtedness shall have so increased and (b) the aggregate reduction in the Base
Purchase Price pursuant to the
Asset Purchase Agreement, and (ii) the cash (or cash equivalent) to be paid to
Maritime pursuant to the Maritime Purchase Agreement shall remain as set forth
therein.
In the event that, at the Closing, the Assumed Indebtedness is greater
than $34,800,000 and the Allocated Indebtedness of Maritime has increased since
the Debt Allocation Date and the Allocated Indebtedness of Flight has either
been reduced or remained the same, (i) the cash (or cash equivalent) to be paid
to Maritime pursuant to the Maritime Purchase Agreement shall be reduced, on a
dollar for dollar basis, by the lesser of (a) the amount by which Maritime's
Indebtedness shall have so increased and (b) the aggregate reduction in the
purchase price owed to Maritime pursuant to the Maritime Purchase Agreement and
(ii) the Base Purchase Price shall remain as set forth in the Asset Purchase
Agreement.
In the event that, at the Closing, the Assumed Indebtedness is equal to
or less than $34,800,000, the parties hereto agree that any reduction in the
indebtedness of either party hereto shall be for the benefit of the other.
Each of Maritime and Flight will take all such actions under their
respective Purchase Agreements to cause the foregoing agreement to be put into
effect in all respects.
If the foregoing is acceptable, please sign on the line where
indicated.
THE FLIGHT INTERNATIONAL GROUP, INC.
By: /s/ David E. Sandlin
David E. Sandlin
President and Chairman
AGREED AND ACCEPTED TO
AS OF THE 9th DAY OF
May, 2002
MARITIME SALES & LEASING, INC.
By: /s/ John R. Bone
John R. Bone, President