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
Rule14a-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
[X] 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: $1,300.00
(2) Form, Schedule or Registration Statement No.: Preliminary Proxy
Statement
(3) Filing party: The Flight International Group, Inc.
(4) Date filed: June 10, 2002
November 25, 2002
Dear Shareholder:
You are cordially invited to attend the Company's Special Meeting of
Shareholders to be held on December 9, 2002, 9:00 A.M., local time, at 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 all of the Company's assets (except the capital stock of our wholly owned
subsidiaries and certain other excluded assets) and the assignment of certain
liabilities and the sale of substantially all the assets and the assignment of
certain liabilities 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.
One Lear Drive
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 9, 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 December 9, 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, as amended (the "Asset Purchase Agreement")
pursuant to which the Company and its operating subsidiaries
(collectively, the "Subsidiaries"), the capital stock of which
Subsidiaries represents substantially all of the assets of the
Company, will sell substantially all of their assets and
assign certain liabilities (the "Asset Sale") to VTF
Corporation, and the transactions contemplated thereby.
2. To approve the postponement or adjournment of the meeting, if
necessary, to solicit additional proxies.
The Board of Directors has fixed the close of business on November 13,
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. The Company will not solicit proxies on the
Internet.
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 hereto as Annex C.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTIONS DESCRIBED HEREIN;
PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS; OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.
November 25, 2002
1
TABLE OF CONTENTS
PAGE
General 1
Summary 2
Cautionary Statement Regarding Forward-Looking Statements 9
The Parties 10
The Flight International Group, Inc. 10
Description of Business 11
Description of Property 20
Legal Proceedings 21
Financial Statements 23
Selected Consolidated Financial Data of the Company 23
Management's Discussion and Analysis 25
Changes in and Disagreements with Accountants 49
Quantitative and Qualitative Disclosures About Market Risk 50
VTF Corporation 50
Special Factors 51
Background of the Asset Purchase Agreement 51
Recommendation of the Board of Directors 53
Reasons For The Sale Of Substantially All Of Our Assets 54
G-V's Opinion 58
Interests of Certain Persons in the Asset Purchase Agreement 66
Certain Effects of the Asset Sale 67
2
Plans for the Company after the Asset Sale 68
Conduct of the Business of the Company if the Asset Sale
is not completed 68
Accounting Treatment 68
Federal Income Tax Consequences 68
The Asset Purchase Agreement 69
The Asset Sale; Consideration 69
Representations and Warranties; Covenants 70
Conditions 71
Termination 72
Voting Agreements 72
Regulatory Approval 72
Fees and Expenses 72
Source of Financing 73
Dissenters' Rights 73
Market for the Common Stock 76
Security Ownership of Certain Beneficial Owners and Management 76
Directors and Management 78
Where You Can Find More Information 81
Other Business 81
Financial Statements
Annex A: Asset Purchase Agreement, dated May 9, 2002, by and between The
Company, the Subsidiaries and VTF (and amendments thereto dated September 23,
2002 and November 15, 2002)
Annex B: Fairness Opinion and Report 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. (and an amendement thereto dated
November 15, 2002.)
Annex E: Term Sheet outlining terms of David Sandlin's employment with VTF
Annex F: Side letter from VTF waiving the financing contingency
Annex G: Commitment Letter
Annex H: Escrow Agreement
3
THE FLIGHT INTERNATIONAL GROUP, INC.
One Lear Drive
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 9, 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 December
9, 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, as amended (the "Asset
Purchase Agreement"), by and between the Company, the Company's
operating subsidiaries ("Subsidiaries") and VTF Corporation
(together with its assignees, "VTF") and providing for the sale
(the "Asset Sale") to VTF of all of the Company's assets (except
for the capital stock of the Subsidiaries and certain other
assets enumerated in the Asset Purchase Agreement) and the
assignment of certain liabilities, and the sale of substantially
all of the assets and the assignment of certain liabilities of
our Subsidiaries, which represents substantially all of the
Company's consolidated assets, and the transactions contemplated
thereby.
2. to approve the postponement or adjournment of the meeting, if
necessary, to solicit additional proxies.
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 November 25,
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 not solicit proxies
on the Internet. 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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTIONS DESCRIBED HEREIN;
PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS; OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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.
RECORD DATE AND VOTING RIGHTS
Shareholders of record at the close of business on November 13, 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 and the consummation of the transactions
contemplated thereby.
SUMMARY
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, unless otherwise indicated or the context requires
otherwise, the terms "Company," "we," "us" and "our" refer to The Flight
International Group, Inc. and its subsidiaries and predecessors.
2
- - 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 our direct and indirect
subsidiaries. In addition, with the use of these
aircraft, we have established a 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 10.
VTF CORPORATION
VTF is a Delaware corporation formed solely for
the purpose of entering into the Asset Purchase
Agreement and the asset purchase agreement with
Maritime Sales & Leasing, Inc. (as described
herein), and performing the transactions
contemplated by such agreements and related
agreements. VTF is a wholly owned subsidiary of
The Veritas Capital Fund, L.P. ("Veritas Fund").
The Veritas Fund is a private equity fund
established by Veritas Capital Management, L.L.C.
("Veritas Capital"). Founded in 1992, Veritas
Capital is a leading investor in middle market
defense and aerospace companies. 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
agreements and the related transactions. Neither
Veritas Fund or Veritas Capital is a party to the
Asset Purchase Agreement nor has either entity
guaranteed VTF's obligations thereunder. 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. VTF has
advised us that it will be assigning its rights
and obligations under the Asset Purchase Agreement
(as permitted thereunder) prior to the closing to
one or more affiliates. See VTF CORPORATION,
beginning at page 50.
3
- -THE ASSET PURCHASE
AGREEMENT On May 9, 2002 we entered into the Asset Purchase
Agreement with VTF, pursuant to which we agreed to
sell all of our assets (except the capital stock of
our Subsidiaries and certain other excluded assets)
and substantially all of the assets of our
Subsidiaries ("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 69.
- - PURPOSES FOR THE
TRANSACTION
The Company has agreed to sell substantially all
of its assets at this time due to a number of
factors, including the terms of the Asset Purchase
Agreement, the lack of other potential buyers and
the Company's historical lack of capital
resources. See the section entitled REASONS FOR
THE SALE OF SUBSTANTIALLY ALL OF OUR ASSETS,
beginning at page 53.
- - 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, 2002 is expected, upon completion,
to reflect a net operating loss carryforward of
approximately $13,000,000.00, and a capital loss
carryforward of approximately $2,450,000, which is
available and sufficient to offset the estimated
taxable gain on the sale. See FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTIONS,
beginning on page 68.
- - PURCHASE PRICE The total purchase price for the Assets and
Liabilities under the Asset Purchase Agreement is
$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 Maritime
and us exceeds $31,800,000, the aggregate purchase
price for Maritime and us will be reduced on a
dollar for dollar basis. As of July 31, 2002, the
combined indebtedness of the Company was
$34,686,000. As of November 15, 2002, the combined
indebtedness of the Company and Maritime was
$32,594,000. Based on anticipated levels of
indebtedness and other obligations as of the
projected closing date, the Company expects that
there will be a downward adjustment to the
purchase price of approximately $600,000. The
amount of any adjustment is subject to the
Company's operating performance and other factors
that could affect the level of its indebtedness
prior to the closing, as well as the timing of the
anticipated closing date. The Company will not
re-solicit Shareholder approval if there is a
further material reduction in the purchase price
resulting from increased indebtedness. A copy of
the side letter agreement between Maritime and us
respecting the manner in which any such purchase
price reduction will be allocated is attached
hereto as Annex D. Our Chairman and President, Mr.
David E. Sandlin, and a director, Mr. John Bone,
own the outstanding capital stock of Maritime.
4
- - SALE OF MARITIME One of the conditions to the Asset Sale is the
contemporaneous sale of the assets of Maritime to
VTF for a cash purchase price of $12,785,000 plus
the assumption of specified indebtedness. Our
President and Chairman, Mr. David E. Sandlin, and a
director, Mr. John Bone, own the outstanding
capital stock of Maritime. By virtue of their
ownership of Maritime, their interests in the Asset
Sale are different than other Shareholders. See the
sections entitled INTERESTS OF CERTAIN PERSONS IN
THE ASSET SALE on page 66 and the ASSET PURCHASE
AGREEMENT on page 69.
- - PLANS FOR THE COMPANY
FOLLOWING THE ASSET SALE Following the consummation of the Asset Sale, we
will use the net proceeds (after expenses and
reasonable reserves for liquidation) received by us
to offer to redeem all of our outstanding Common
Stock. Contemporaneous with the filing of this
proxy statement, we are filing a Schedule 13E-3 in
connection with this transaction with the
Securities and Exchange Commission. See PLANS FOR
THE COMPANY AFTER THE ASSET SALE, beginning on page
67.
- - OTHER BENEFITS TO
CERTAIN SHAREHOLDERS David E. Sandlin, our Chairman and President, has
agreed to enter into an employment and
non-competition agreement with VTF following the
closing for a term of two years at a base salary
of $225,000 per year. Mr. Sandlin will also be
eligible to receive a discretionary incentive
bonus of up to 50% of his annual salary. Mr.
Sandlin is also eligible for a retention bonus of
$125,000, 25% of which shall be payable thirty
days after the closing of the Asset Sale and the
transactions between VTF and Maritime and the
remaining 75% of which shall be payable on the
first anniversary of the closing of the Asset Sale
and the transactions between VTF and Maritime. A
copy of the term sheet agreed to by Mr. Sandlin
and VTF is attached hereto as Annex E. John Bone,
a member of our Board of Directors, has agreed to
enter into a non-competition agreement with VTF
following the closing. See INTERESTS OF CERTAIN
PERSONS IN THE ASSET PURCHASE AGREEMENT AND
RELATED TRANSACTIONS beginning on page 66.
5
- - 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. As of the date hereof, Mr. Sandlin owns
21.0% of our issued and outstanding Common Stock.
In conjunction with Mr. Bone (who owns 15.3% of our
issued and outstanding Common Stock) and Maritime
(who owns 9.8% of our issued and outstanding Common
Stock), they have a combined ownership of 46.1% of
the voting Common Stock. The shares owned by
Maritime are included in Mr. Sandlin's Voting
Agreement. Mr. Bone's shares are not covered by a
voting agreement, but he has advised our Board that
he intends to vote in favor of the approval and
adoption of the Asset Purchase Agreement and all of
the transactions contemplated thereby.
- - 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 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 (VTF has recently delivered a letter to
the Company waiving this financing contingency, a
copy of which is annexed hereto as Annex F), (iii)
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), (iv) VTF being satisfied with its due
diligence investigation of our assets, operations
and condition and (v) the closing of an asset
purchase agreement by and between VTF and Maritime.
Our Chairman and President, Mr. David E. Sandlin,
and a director, Mr. John Bone, own the outstanding
capital stock of Maritime. See the sections
entitled INTERESTS OF CERTAIN PERSONS IN THE ASSET
PURCHASE AGREEMENT on page 66 and the ASSET
PURCHASE AGREEMENT on page 69.
6
- - RECOMMENDATION The Board of Directors of the Company (the
"Board") believes that the transactions
contemplated by the Asset Purchase Agreement
present the best currently available opportunity to
enhance and realize upon our shareholder value.
Further, the Board believes that the structure of
the transactions and terms of the transactions are
procedurally and substantively fair to the
unaffiliated shareholders of the Company. See the
Section entitled SPECIAL FACTORS and REASONS FOR
THE SALE OF SUBSTANTIALLY ALL OF OUR ASSETS,
beginning at page 51. 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 unaudited financial statements and
our audited financial statements for the year ended
April 30, 2001. A copy of all audited financial
statements are attached to this proxy statement. A
copy of G-V's opinion and report 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 51.
7
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 or G-V. Even in the event of such
improvements, the Company will not receive additional consideration beyond the
cash payment of $6,500,000 (subject to adjustment) provided in the Asset
Purchase Agreement.
8
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 (757) 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
For the three months ended July 31, 2002, revenues from operations totaled
approximately $13,357,000. This represents an increase of 18.2% over the same
period last year. In first quarter of fiscal year 2003, the Company's revenues
were generated from three sources. Fleet Operations of owned or leased aircraft
accounted for 83.4% of total revenue, while the MRO Center produced 9.9% of
sales and the FBO provided 6.7% of total revenues. For the fiscal year 2002,
revenues from continuing operations totaled $44,788,464. This represents an
increase of 19.8% over the prior fiscal year. In fiscal year 2002, the Company's
revenues were generated from three sources. Fleet Operations of owned or leased
aircraft accounted for 91.7% of total revenue, while the MRO Center produced
4.5% of total revenues and the FBO provided 3.8% of total revenues.
The majority of the Company's revenues are derived from contracts with the
United States Federal Government. For the fiscal year ended April 30, 2002,
revenue from contracts with the United States Government represented
approximately 68.7 % of the Company's total consolidated revenues, as compared
to 63.9% in fiscal 2001 and 80.1% in fiscal 2000. For the three months ended
July 31, 2002 and 2001, revenues from U.S. government contracts represented
61.8% and 66.1% of the Company's total consolidated revenues, respectively.
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.
9
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.
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 unforeseeable
cost overruns 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.
10
The Government markets in which the Company conducts fleet operations are
moderately competitive. Price usually is a significant factor considered in
awarding contracts. Other 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, total company revenues, the firm's
experience in the field of aviation services and adequacy of resources,
including maintenance personnel, aircrews, repair facilities and aircraft.
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 material operations in fiscal year 2002.
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.
12
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 a
$600,000 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. Based on re-marketers' valuations of
the reclaimed assets, bad debt expense of $210,000 was recorded in 2002 for the
shortfall between realizable value of the reclaimed assets and the remaining
balance on the note. Losses from this discontinued operation totaled $2,506,003
in fiscal year 2001, consisting of a loss from discontinued operations of
$1,461,003 and a loss on disposal of discontinued operations of $1,045,000.
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 year 2002, 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 July 31, 2002 and the date of this Proxy Statement, the Company operates
46 aircraft. FII operates 22 Learjets, five Fairchild Metro III's, two Casa
212's and four other prop aircraft. These aircraft are used in the conduct of
fleet operations for government and commercial customers. The Company plans to
return three Learjet 20 Series, which have become surplus resources to the
Lessor in the near future. In addition, the Company owns and operates electronic
warfare equipment used in conjunction with its fleet operations contracts.
FAI operates two twin-turboprop Casa 212s, one twin-prop Navajo Chieftain, a
twin-turbine Beech KingAir 2002 and eight single-engine prop aircraft.
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.
13
FLIGHT INTERNATIONAL, INC. - FLEET OPERATIONS
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 government imposed price increases in each of the four potential option
periods based on expected utilization rates, but was subsequently notified that
option periods 5,6,7 and 8 would not include two Lear 30 aircraft added in the
final year of the original contract. On March 31, 2002, the Company completed
the sixth and final option period of the 1996 contract. These contracts
contributed 50.9% of the Company's revenue in fiscal year 2001 and 54.6% in
fiscal year 2002. For the three months ended July 31, 2002 and 2001, the CAS-MOS
contract generated 50.1% and 47.5% of the Company's revenues, respectively.
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,
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.
14
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 30
Series 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 2002, the contract contributed 6.2% of the Company's
revenues. For the three months ended July 31, 2002 and 2001, revenues from the
contract represented 4.6% and 7.7% of the Company's total revenues,
respectively. 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 electronic
warfare 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 provide radar calibration and target
acquisition training, 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 these 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.
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 effective November 2001. The Company anticipates that
this method of invoicing will reduce the negative impact caused by seasonality
in the future, but can provide no assurances that the program, which is being
conducted on an experimental basis during the base year of the contract, will
continue in the future.
15
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 2002 and the first quarter of 2003, the Company continued to provide
aircraft leasing and maintenance to the U.S. Navy/Naval Weapons Center in China
Lake, California, providing Metro III aircraft necessary to accomplish
transportation of naval personnel. This revenue stream returned to nominal
levels in 2002, following two years of elevated revenues, when the Navy desired
to upgrade the Metro III fleet with additional avionics and structural
modifications.
FII's Fleet Operations contribution to Company revenues for the first quarter of
fiscal 2003 and 2002 were 67.2% and 68.5% respectively. FII's contribution to
Company revenues for fiscal 2002, 2001 and 2000 were 73.0%, 73.0% and 85.6%,
respectively.
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 Air's assets 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.
16
In December 2001, FAI was granted authority by the DOT to carry passengers on a
scheduled basis. Management implemented a plan to develop scheduled-passenger
operations in underserved markets utilizing twin-engine aircraft capable of
carrying both passengers and freight. These services began in May 2002 in Nome,
Alaska.
FAI's contribution to Company revenues for the first quarter of fiscal 2003 and
2002 were 16.2% and 24.1% respectively. FAI's contribution to Company revenues
for fiscal 2002, 2001 and 2000 were 18.7%, 15.3% and 3.7%, respectively.
Operations in Alaska in 2000 were actually conducted through a division of FII
as FAI did not have operations until May 2000.
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. FIA's
contribution to total consolidated revenues for the quarter ended July 31, 2002
and 2001 were 6.6% and 3.8%, respectively. FIA's revenues for fiscal 2002, 2001
and 2000 represented 3.8%, 4.4% and 5.8% of the Company's total revenues,
respectively.
FLIGHT INTERNATIONAL, INC. - MODIFICATION REPAIR AND OVERHAUL CENTER
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.
17
During 1998 and 1999, management forecasted that demand for modification, repair
and overhaul services by aircraft original equipment manufacturers (OEM's) would
provide a growth opportunity to and expand on the Company's ability to design
and modify "special missions" aircraft. In addition, several OEM's approached
the Company to perform post-production modifications to recently manufactured
aircraft minimizing disruption of the OEM's highly automated assembly processes.
FIG continues to expand its MRO business lines at its facilities at the NN/W
Airport. The Company plans to utilize its expertise as a producer of "special
missions" aircraft and its considerable experience with Learjet aircraft to
expand its MRO sales.
The MRO Center contributed 4.5% of total revenues in fiscal 2002, 7.4% in fiscal
2001 and 5.2% in fiscal 2000. In the fiscal quarters ended July 31, 2002 and
2001, the MRO Center generated 9.9% and 3.5% of the Company's total revenues,
respectively.
FLIGHT INTERNATIONAL SERVICES - DISCONTINUED AND DISPOSED OPERATIONS
In February 2000, the Company acquired the assets and certain liabilities of
Flight Systems, Inc. (FSI), a subsidiary of Aviation Technology Group, Inc. in
Myrtle Beach, South Carolina. Located on the site of a former U.S. Air Force
base, the facility provided ample facilities to expand the Company's aircraft
Modification, Repair and Overhaul to service larger, more complex aircraft. A
wholly owned subsidiary, Flight International Services, Inc. ("FIS"), was
established to utilize the assets acquired from FSI. FSI's core business,
Airline Heavy Check maintenance, provided the Company with an existing revenue
base upon which to build the modification work. FSI's 80 employees were hired by
FIS to continue the inspection, repair and overhaul services provided to several
airlines.
The facilities in Myrtle Beach provided sufficient room for repair and overhaul
of regional airline sized aircraft and virtually all corporate aircraft.
Capabilities at FIS included airframe, interiors, sheet metal, accessories,
composites, and paint shops.
The Company believes that the economic recession of early 2000 caused a
reduction in demand for both air carrier and corporate MRO services. When
anticipated revenue growth failed to materialize, management determined that the
FIS division would not be economically viable within an acceptable time period.
The decision was made to dispose of the business and a suitable buyer was found
in November 2000.
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.
18
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 July 31, 2002, the Company had 281 employees, including 220 full-time
employees. None of the Company's employees is covered by a collective bargaining
agreement.
19
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 July 31, 2002, FIA's leasehold interests at the NN/W Airport represented
approximately 1.3% 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 July 31, 2002, FAI's leasehold interests in Bethel, Alaska, acquired in
June 2000, represented approximately 3.6% 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, on a month-to-month basis. 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.
The Company presently maintains or operates a fleet of 46 aircraft, of which 11
are owned and 35 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 July 31, 2002, the
indebtedness to Vbank was approximately $523,000. The indebtedness to Vbank
provides for complete amortization thereof through graduated payments through
November 2003, at which time the entire obligation will be satisfied.
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 until the year 2004, pursuant
to a lease agreement with the Peninsula Airport Commission of Newport News,
Virginia.
20
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.
Charles T. Myers, Flight Systems, Inc., Aviation Technologies, Inc. and George
Kosko v. Flight International Group, Inc. The plaintiffs alleged that the
Company breached an 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.
There has been a recent development in the Charles Myers, et al v Flight
International Group, Inc. litigation as previously reported pending in United
States District Court in South Carolina. Mr. Myers, a Shareholder of the
Company, filed a motion to enjoin the sale of the Company's assets. His theory
is that the Company would no longer be able to respond to a judgment favorable
to the plaintiffs. The Company has filed its response, which details the
deficiencies of the motion for a preliminary injunction and, as of the date of
this filing, no date has been set to hear this motion. Counsel has advised us
that they do not believe the motion poses any serious threat to the transaction,
however, we can provide no assurances thereof. Mr. Myers has not scheduled the
matter for hearing, leaving the motion to be decided on the written record. The
Company believes the motion has no merit and will vigorously defend it.
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 $54,000. 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.
The Company has expensed and maintains a payable reflected in its financial
statements in the amount of approximately $54,000 to Mr. Kosko and a note
payable in the amount of $203,000 to Mr. Myers and will continue to do so until
this matter is resolved.
21
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.
FINANCIAL STATEMENTS
See pages F-1 to F-25 attached hereto for fiscal year ended April 30, 2002
financial statements and F-26 to F-32 attached hereto for three months ended
July 31, 2002 financial statements.
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, 2002, 2001, 2000, 1999 and 1998 and as of and for the three months ended
July 31, 2002 and 2001, October 31, 2001, January 31, 2002 and April 30, 2002.
No pro forma data for the Company giving effect to the proposed Asset Sale is
provided because the Company does not believe such information is material to
Shareholders in evaluating the proposed Asset Sale since the proposed Asset Sale
consideration is all cash.
The financial information for the Company, as of and for each of the five years
ended April 30, 2002, 2001, 2000, 1999 and 1998 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 three
months ended July 31, 2002, July 31, 2001, October 31, 2001, January 31, 2002
and April 30, 2002 has been derived from unaudited consolidated financial
statements of the Company which, in the opinion of Company management, includes
all adjustments necessary for a fair presentation of the Company's financial
position and the results of operations. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended July 31,
2002 are not necessarily indicative of the results that will be achieved for the
full year and cannot be used to indicate the 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. No financial information for the quarterly periods ended October 31,
2000 and January 31, 2001 is included in the table below due to the change in
the Company's internal accounting software in late 1999. In May 1999, the
Company's accounting software was determined to be non-compliant with year 2000
standards. Due to the Company's change to a compliant system and subsequent
training of personnel, those numbers are not available, and the Company would
not be able to generate such financial information without undue expense and
delay.
22
As of or the Year ended April 30, Three months ended July 31,
2002 2001(2) 2000(1) 1999 1998 2002 2001
----- ------ ------- ---- ----- ---- ----
Statement of Operations
Data
Net revenues $44,788,464 $37,400,960 $28,984,109 $25,313,924 $22,060,399 $13,356,627 $11,296,387
Operating costs and
expences 46,574,746 37,271,322 27,300,578 24,173,464 20,935,929 13,249,4488 11,040,885
Income (loss) from
continuing operations
before taxes (2,731,025) (975,016) 1,335,849 809,411 758,883 (157,831) (51,622)
Loss from discontinued
operations - (1,460,721) (457,568) - - - -
Loss on disposal of
subsidary - (1,045,282) - - - - -
Net Income (loss) (2,731,025) (3,481,019) 878,281 809,411 725,883 (157,831) (51,622)
Basic and diluted earning
(loss) per share data:
Continuing operations (2.46) (0.88) 1.29 0.80 0.72 (.14) (.05)
Discontinued operations - (2.26) (0.44) - - - -
Balance sheet data:
Current assets 14,692,306 10,192,369 13,274,490 7,303,060 7,675,340 15,428,602 12,476,320
Total assets 25,166,430 21,025,793 20,130,977 11,915,382 11,793,619 26,298,401 23,286,378
Current Liabilities 20,820,894 13,459,329 11,043,809 5,683,068 4,866,982 22,895,409 14,959,547
Long term debt and
other liabilties 6,143,359 6,633,760 4,673,445 3,018,730 4,512,907 5,358,654 7,445,251
Shareholders' equity
(deficit) (1,797,823) 932,704 4,413,723 3,213,584 2,404,173 (1,955,654) 881,580
Other data:
Book value per share N/A 0.84 3.98 3.17 2.38 N/A 0.79
3 months ended 3 months ended 3 months
ended 3 months ended Jul 31, 2001 Oct
31, 2001 Jan 31, 2002 Apr 30, 2002
-------------------------------------------------------------------
Statement of Quarterly Operations
Data:
Net revenues $11,296,387 $12,072,628 $9,627,054 $11,792,395
Operating costs and expenses $11,040,885 $11,460,493 $10,710,610 $13,362,758
Operating income (loss) $255,502 $612,135 ($1,083,556) ($1,570,363)
Net income (loss) ($51,622) $365,614 ($1,314,633) ($1,730,384)
Net income (loss) per share (.05) 0.33 (1.18) (1.56)
Weighted Average shares,
basic and diluted 1,109,588 1,109,588 1,109,588 1,109,588
(1) Includes the acquired net assets of FAI and FIS.
(2) Includes operations of FAI, acquired April 2000.
23
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.
Revenue Recognition
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
compensation of fixed costs evenly over the contract period. In addition,
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.
Calculation of Inventory
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
THREE MONTHS ENDED JULY 31, 2002 COMPARED TO THE THREE MONTHS ENDED JULY 31,
2001
Revenue
For the three months ended July 31, 2002, revenues totaled approximately
$13,357,000. This represents an increase of 18.2% over the same period last
year. In the first quarter of fiscal year 2003, the Company's revenues were
generated from three sources. Fleet Operations of owned or leased aircraft
accounted for 83.4% of total revenue, while the MRO Center produced 9.9% of
revenues and the FBO provided 6.7% of total revenues.
24
A period over period revenue comparison for each source is outlined in the
following table. Fleet Operations, MRO and FBO revenues showed increases over
the same period in the prior year (dollars in thousands):
Three Months Three Months
ended ended
July 31, 2002 July 31, 2001 % Increase (Decrease)
--------------- ------------- ---------------------
Fleet Operations $11,145 $10,463 6.5%
MRO Center $ 1,322 $ 397 233.0%
Newport News FBO $ 890 $ 436 103.9%
FII's Fleet Operations revenue increased by 1,229,000 or 14.9% compared to the
first quarter of fiscal year 2002. This increase is primarily due to aerial
refueling services provided to the DOD whereby, the Company supported its
military customers by providing in-flight tanker services to several branches of
the military, including the Navy and Marine Corps. A slight offset of the
aforementioned increase is the negative impact to revenues received under the
Company's CAS-MED government contract, which was adversely impacted by the
Government's response to terrorism. Based on the hours flown through July 31,
2002, the Company anticipates it will be able to file a claim for "un-flown
guaranteed hours" in the second quarter of fiscal year 2003. In addition,
changes associated with the timing of billing, and of fixed and variable cost
streams on the follow-on CAS-MOS contract resulted in the recognition of less
revenue during the current quarter than the billing methodology allowed by the
CAS-MOS contract in effect during the previous year. FII's Fleet Operations
revenues would have been $381,000 higher in the first quarter of 2003 had
revenues been billed in an identical manner as in prior years under the previous
CAS-MOS contract.
Also impacting Fleet Operations was a decrease in revenues for Flight Alaska of
$561,000 to $2,165,000, or 20.6% in the first quarter of fiscal year 2003, as
charter revenues have remained depressed since the events of September 11, 2001.
MRO Center revenues were up substantially over the prior period due primarily to
an aircraft modification contract with Raytheon Australia, which added
approximately $650,000 of revenue in the current quarter. Landing Gear Service
Life Extension Program revenues also increased versus the prior quarter, while
sales of targets and associated repair parts inventories to the DOD also
contributed to the increase.
FBO revenues increased as a direct result of the award of the defense fuel
suppliers contract at the NN/W Airport. The Company is now compensated by the
DOD for fueling FII and other DOD customers that transit the NN/W Airport.
25
Cost of Services
Cost of services 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: aircraft and engine leases and
depreciation, fuel, insurance, maintenance, pilots and equipment. Also included
are the costs of operating the FBO at the NN/W Airport, repair parts, outside
services and direct labor for the MRO Center.
For the three-month period ended July 31, 2002, cost of services from continuing
operations increased to $11,434,000 from $9,694,000 for the same period in the
prior year, a 17.9% increase. The major factors contributing to the increase in
cost of services were expenses related to the cost of aircraft leases with
additional aircraft, sub-contracted flight services, and cost of goods sold
associated with the Raytheon Australia modification program. The overall gross
margin increased to 14.4% from 14.2% for the same period last year.
Since April 2002, the Company's CAS-MOS contract operations have been conducted
on a "Government Supplied Fuel" basis. Simultaneously, the Company was awarded
the Defense Fuels Contract for the NN/W Airport and is now compensated by the
DOD to fuel the Company's aircraft in conjunction with the CAS-MOS contract.
Fuel costs decreased in the first quarter of fiscal year 2003 to $993,000 from
$1,196,000 in the same period a year earlier; a decrease of 16.9%. Fuel expense
for Fleet Operations dropped by over $450,000 while the FBO's cost of fuel sold
increased by $323,000.
Contracted operations expense rose in the three-month period ended July 31, 2002
due principally to increases in tanker flight activity. During the period, the
Company supported an additional product line for its DOD customers by providing
for aerial refueling services to several branches of the military, including the
Navy and Marine Corps. These services are primarily provided through a
subcontractor. Costs associated with the additional services were responsible
for a $1,665,000 increase, while decreased activity levels associated with other
subcontractors during the quarter resulted in a cost reduction. On a net basis,
sub-contracted operations increased by $1,073,000 for the first quarter of
fiscal 2003 compared with the same period a year earlier.
Hull, liability, and passenger insurance costs increased to $457,000 in the
first quarter of fiscal 2003 versus $246,000 for the same period a year earlier,
or an 85.8% increase. The increase was due primarily to a general premium rate
increase that followed the events of September 11, 2001 and the cost of insuring
additional aircraft. A policy year-end premium adjustment received in the first
quarter of fiscal 2002 also contributed to the increase.
Aircraft lease expense increased to $1,632,000 in the first 3 months of fiscal
2003 from $1,372,000 a year earlier, or 18.9%, reflecting an increase in Lear 30
Series aircraft required for the follow-on CAS-MOS contract and CASA 212
aircraft deployed in Alaska.
26
Depreciation and Amortization
Owned aircraft and engines are depreciated on a straight-line basis over 12
years, while engine overhauls are depreciated based on hours flown down to a
core value. 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 $433,000 for the three months ended July 31,
2002 reflects an increase of 11.5% compared to the same period last year. The
$45,000 increase is due primarily to increases in depreciable assets from the
prior year.
General, Corporate and Administrative
General, corporate and administrative expenses consist principally of facility
costs associated with the Company's hangars and corporate headquarters, and
wages associated with the administrative and sales staff. General, corporate and
administrative expenses aggregated $1,382,000 for the three months ended July
31, 2002, up from $1,027,000 in the prior year, or an increase of 34.7%. The
increase is attributable to additional wages and personnel required in its
general management, accounting and finance functions as well as over $100,000 in
costs in the first quarter of fiscal 2003 associated with the pending sale of
the Company's assets to VTF Corporation.
Interest Expense
Net interest expense decreased to $265,000 from $307,000 for the same
three-month period last year, or 13.7%. The decrease is due to the pay-down of
the Company's long-term debt from the prior year.
Income Tax Expense
No income tax benefit has been recorded for the net loss due to the uncertainty
of the realization of such benefit. For further discussion see Note 5 to the
Consolidated Financial Statements included herein.
Net Income
The consolidated net loss for the three months ended July 31, 2002 was $158,000,
a loss of $.14 per share compared to a net loss of $52,000 or $.05 per share,
for the three months ended July 31, 2001. Changes associated with the timing of
recognizing fixed and variable revenue streams based on the terms of the
follow-on CAS-MOS contract resulted in the recognition of less revenue during
the current quarter than the billing methodology allowed by the CAS-MOS contract
in effect during the previous year. Net Income would have been higher by
$381,000 in the first quarter of 2003 had revenues been recognized in an
identical manner (see Revenue section above). The weighted average number of
shares was 1,109,588 in both periods.
27
YEAR ENDED APRIL 30, 2002 COMPARED TO APRIL 30, 2001
Revenues
For the year ended April 30, 2002, revenues from continuing operations totaled
$44,788,464. This represents an increase of 19.75% over the prior year. In
fiscal year 2002, the Company's revenues were generated from three sources.
Fleet Operations of owned or leased aircraft accounted for 91.7% of total
revenue, while the MRO Center produced 4.5% of total revenues and the FBO
provided 3.8% of total revenues.
A year-over-year revenue comparison for each source is outlined in the
following table. Fleet Operations and Fixed Base Operations showed increases
while the MRO Center posted a decrease in revenues as displayed below (in
thousands):
12 Months Ended 12 Months Ended
April 30, 2002 April 30, 2001 % Increase (Decrease)
-------------- -------------- ---------------------
Fleet Operations $ 41,059 $ 33,009 24.4%
MRO Center $ 2,023 $ 2,761 (26.7)%
Newport News FBO $ 1,706 $ 1,630 4.7%
The increase in Fleet Operations revenues can be attributed to a 15.6% net
increase in FII's Government fleet operations sales, a 112.0% increase in FII's
commercial fleet operations sales due to flight operations conducted in
Australia and a 46.4% increase in revenues at FAI associated with charter
operations as part of a six month sub-contract with Bristol Environmental. Fleet
Operations revenues were adversely impacted by reductions in revenues of
$858,000 for the aircraft-leasing contract at China Lake as revenues returned to
"pre-aircraft modification" levels. Revenues associated with the CAS-MED
contract decreased by $294,000. NATO and CAS-MOS revenues increased $5,483,000,
however sub-contractor revenues for tanker operations added $4,606,000 of this
total. While the revenue gains for CAS-MOS of $716,000 represented a 3.8%
increase, management had been forecasting an 8.0% increase based on the
assumption that the CAS-MOS bridge contract's service level would mirror the
previous contracts. Two aircraft required by the original CAS-MOS contract were
excluded from the bridge contract. As a direct result, the Company's revenues
were $800,000 lower than it forecasted. Similarly, revenues in Flight Alaska,
Inc. were lower than its forecasts by approximately $1,000,000 as revenue
opportunities for FAI's large twin turbo-prop aircraft were adversely impacted
by the events of September 11th. Anticipated oil industry revenues failed to
materialize as several of the major oil producers on the North Slope of Alaska
curtailed their exploration and development plans. Finally, the oil industry's
plans to explore and develop the Alaska Natural Wildlife Refuge (ANWR) were
dealt a severe blow when the United States Congress failed to pass enabling
legislation. The prospects of future oil exploration and development have been
significantly diminished. The Company plans to reposition the four CASA 212's
and the Beech King Air to more profitable DOD contracts under FII.
28
MRO Center revenues were lower in fiscal 2002 as general economic conditions
impacted the aviation maintenance sector significantly. Airframe "Service Life
Extension Program" (SLEP) revenues decreased over prior year's levels as a
result of the uncertainty after September 11th. The Company began to realize
value from its efforts to develop and market a Landing Gear SLEP. Commercial and
government MRO activities were also curtailed by internal modification and depot
level maintenance requirements on existing and newly acquired fleet operations
aircraft.
FBO revenues increased in fiscal 2002 over the prior year, despite the effects
of September 11th on domestic air travel, due to an increase in discount air
carrier operations at the NN/W Airport. Increased fuel prices also contributed
to the gain offsetting the reduction in the volume of gallons pumped. In
addition, at year-end the Company was awarded the Defense Fuel Sales contract
for the NN/W Airport that is expected to provide roughly $1,000,000 in annual
fuel sales revenues for DOD customers such as FII's military training
operations. The three-year contract runs through March 31, 2005. There can be no
assurances that the contract would continue past that date or that revenues at
these levels will be achieved.
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 fiscal year 2002, there was a 29.1% increase in cost of services from
continuing operations. The major factors contributing to the increase in cost of
services were expenses related to the cost of fuel, aircraft lease, insurance
and tax expenses associated with temporarily idle assets required for the
delayed CAS-MOS follow-on contract and general increases in operational
activities associated with growth in CAS-MOS subcontracted services and Flight
Alaska business lines. Overall gross margins declined to 7.8% from 15% in the
prior year. Included in the net change is a reclassification of previously
recorded general and administrative expenses. This change was in response to the
CAS-MOS directed requirement for Cost Accounting Standards compliance. Had these
changes not been made, management estimates that the gross margin would have
declined to 9.9% from 15% for the prior fiscal year.
During fiscal year 2002, fuel prices were stable, but at historically elevated
levels and substantially above the prices bid in the Company's long-term
contracts. Management requested an equitable fuel adjustment for the
Government's fiscal year that ended September 30, 2001, but the request has been
denied. Fuel expenses were adjusted upward $240,000 in fiscal year 2002 to
reflect these additional un-reimbursed costs in fiscal 2001.
As is prevalent in capital-intensive businesses, the majority of the Company's
direct operating costs are fixed. Aircraft ownership, insurance, taxes,
facilities related costs, certificate management personnel and related
overheads, and contract management personnel and their related overheads are
determined by contractual commitment and cannot be readily reduced. Most of the
remaining costs, including flight crew and maintenance wages, tend to be
semi-variable in nature based on contractual commitments to respond to our
customer's requests for service with little or no notice.
29
As the sole bidder on the new CAS-MOS contract, the Company began preparations
for performing the new contract in November 2001 anticipating a January contract
start date. The new contract called for additional Learjet 30 Series aircraft
with greater time-on-station capabilities than six of the Company's existing
Learjet 20 Series aircraft. While modification costs can be capitalized,
aircraft ownership expenses during the preparation process cannot. Management
calculates the ownership costs for the three additional aircraft acquired for
the follow-on CAS-MOS contract generated $575,000 of expenses in fiscal 2002.
With the contract award date postponed until April 1st, the Company had no other
interim use for these aircraft causing significant erosion in operating margin.
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 $1,609,342 for fiscal year 2002 reflects an
increase of 25.5% compared to fiscal year 2001. The $327,402 increase is due
primarily to depreciation on an additional aircraft and equipment of $160,000,
increased activity levels for fleet aircraft resulting in increased engine
depreciation expenses of $5,000, increased airframe depreciation of $60,000 and
depreciation associated with the assets acquired in Alaska of $105,000.
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 $3,813,459 for the fiscal year 2002, a decrease of 16%
over the fiscal year 2001. The decrease was primarily due to the
reclassification of overhead type expenses to the Cost of Services line. This
change was in response to the CAS-MOS directed requirement for Cost Accounting
Standards compliance. Had these changes not been made, general, corporate and
administrative expenses would have been consistent with prior fiscal years'
expenses.
In 2002 the Company realized bad debt expense of approximately $500,000.
Included in this adjustment was a charge of $210,000 for the default of a note
receivable from Reliance Aerotech associated with the sale of FIS's assets.
Overall, bad debt expense was decreased by $500,000 over those experienced in
fiscal 2001.
30
In fiscal 2002, the Company experienced approximately $300,000 in one-time legal
and accounting support costs associated with the VTF acquisition, $215,000 for
additional accounting and operating software design and implementation expenses
and $196,000 in general increases associated with growth in operating levels.
Interest Expense
Net interest expense for fiscal 2002 decreased to $944,743 from $1,104,654 for
the prior fiscal year, or 14.5%. The decrease in interest expense is principally
due to the decrease in interest rates charged on the gross borrowing and
adjustments for overcharged interest expenses in the prior year.
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 8 to the Consolidated Financial Statements included herein.
Net Income
The consolidated net loss on continuing operations for fiscal year 2002 was
$2,731,025, or a loss of $2.46 per share. In fiscal year 2001 a consolidated net
loss on continuing operations was $975,016, or a loss of $.88 per share and
total consolidated net loss after discontinued operations was $3,481,019 or a
loss of $3.14 per share.
In the fourth quarter of the year ended April 30, 2002, the Company recorded net
adjustments which increased its net loss by approximately $610,000. The Company
determined that $240,000 and $160,000 previously accrued for equitable fuel
expense reimbursement in 2001 and 2002, respectively, was unlikely to be
recovered from the government. In addition, the Company recorded bad debt
expense in the fourth quarter of approximately $210,000 due to a default on a
note receivable.
YEAR ENDED APRIL 30, 2001 COMPARED TO THE YEAR ENDED APRIL 30, 2000
Revenues
For fiscal year 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 88.3% of total revenue, while the MRO
Center produced 7.3% of sales and the FBO provided 4.4% of total revenues.
31
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 $ 33,009 $25,772 28.1%
MRO Center $ 2,761 $ 1,510 82.8%
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 U.S. 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
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 a Learjet 35 Series 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. In the past, parts sales to
government agencies were classified as Fleet Operations revenue. Management
reclassified approximately $585,000 from Fleet Operations to Commercial
Maintenance during fiscal 2001. On a comparable basis, Fleet Operations revenues
would have increased by 30.3% over fiscal 2000 levels.
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 $585,000 from Fleet Operations to
Commercial Maintenance during fiscal 2001. On a comparable basis, MRO revenues
increased by 44.1% over fiscal 2000 levels.
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 fiscal year 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.
32
Since the Company cannot hedge against fuel volatility, it has worked to
decrease its exposure to volatile fuel prices by performing as many services as
possible on an Aircraft, Crew, Maintenance and Insurance (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.
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 of $125,000 increased activity levels for fleet aircraft that
increased engine depreciation expenses of $70,000, and depreciation associated
with the assets acquired in Alaska of $205,000.
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 fiscal year 2001, an increase of 71.5% over
the prior fiscal year. 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 divestiture of FIS during
the year and an increase in bad debt expense of approximately $947,000. This bad
debt expense was primarily due to additional reserve requirements combined with
direct customer account write-offs. For a discussion of the Company's
divestiture during the year, see the section below entitled "Business Trends and
Results of Subsidiary Operations - Discontinued and Disposed Operations."
33
Interest Expense
Interest expense increased to $1,104,654 from $347,682 for the prior fiscal
year, 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 8 to the Consolidated Financial Statements included herein.
Net Income
The consolidated net loss on continuing operations for fiscal year 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 on continuing operations of $1,335,849 or $1.29 per share and a
consolidated net profit after discontinued operations of $878,281 or $0.85 per
share, for the year ended April 30, 2000. For fiscal 2000, the impact to net
income from the discontinued Myrtle Beach Operation was $457,568 (see the
section below entitled "Business Trends and Results of Subsidiary Operations -
Discontinued and Disposed Operations.") The weighted average number of shares
was 1,109,424 and 1,029,656, respectively.
YEAR ENDED APRIL 30, 2000 COMPARED TO THE YEAR ENDED APRIL 30, 1999
Revenues
For fiscal year 2000, revenues from continuing operations totaled $28,984,109.
This represents an increase of 14.5% over the prior fiscal year. In fiscal year
2000, the Company's revenues were generated from three sources. Fleet Operations
of owned or leased aircraft accounted for 89% of total revenue, while the MRO
Centers (Commercial Maintenance) produced 5.2% of sales and the FBO provided
5.8% of total revenues.
34
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 U.S. 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 Learjet 30 Series aircraft for operations in
conjunction with the award of the CAS-MED contract.
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.
For fiscal year 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, Inc.
acquisition. The overall gross margin increased to 16.0% from 15.8% in the prior
fiscal year.
The Company has worked to decrease its exposure to volatile fuel prices by
performing as many services as possible on an Aircraft, Crew, Maintenance and
Insurance (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.
35
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. 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 $884,611 for fiscal year 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 of $105,000, the addition of depreciation for two months at FIS of
$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.
Interest Expense
Interest expense increased to $347,682 from $331,049 for the prior fiscal year,
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 8 to the Consolidated Financial Statements included herein.
36
Net Income
The consolidated net profit from continuing operations for fiscal year 2000 was
$1,335,849, a profit of $1.29 per share compared to a net profit of $809,411 or
$0.80 per share, for fiscal year 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 of $425,000.
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED JULY 31, 2002
Continued growth in the first three months of fiscal 2003 once again
necessitated the need to increase short-term borrowings.
Cash from Operations
Cash absorbed from operations was $93,000 in the current period versus cash
generated from operations of $427,000 in the last year's first quarter. The
decrease was attributed primarily to the increased net loss and that changes in
working capital accounts absorbed $368,000 in the first three months of fiscal
2003 while providing $158,000 for that same period in the prior year.
Cash used in Investing Activities
Net cash used in investing activities decreased from $1,804,000 for the July
2001 quarter to $614,000 in the current quarter. The primary reason for the
decrease was that the Company purchased two J-31 aircraft from Maritime Sales
and Leasing and made subsequent improvements to these aircraft during the July
2001 quarter.
Cash from Financing Activities
In the three month period ended July 31, 2002, financing activities generated an
additional $525,000 versus $1,534,000 for the same period in the prior year.
Proceeds in both years were utilized to fund property and equipment acquisitions
and operations, while July 2001 also included funds borrowed for the acquisition
of the two planes acquired from Maritime Sales and Leasing.
For the three months ending July 31, 2002, the Company realized a net decrease
of $183,000 in cash and cash equivalents versus an increase of $157,000 in the
prior period.
37
FOR THE YEAR ENDED APRIL 30, 2002
The Company's growth plan resulted in a significant number of financing
transactions in fiscal year 2002. During that year, the Company continued to
fund its growth and operations primarily through short and long-term borrowings.
Cash from Operations
Net losses and non-operating items absorbed $1,053,214 in fiscal year 2002
versus $1,697,706 absorbed in fiscal year 2001. Changes in working capital
accounts provided $3,504,055 in fiscal year 2002 while providing $2,117,807 in
the prior fiscal year. On a net basis, the Company's operating activities
provided $2,450,841 for fiscal year 2002, while providing $420,101 in the
comparable prior fiscal year period.
Cash to Investing Activities
Acquisition of additional property and equipment absorbed $1,654,541. The
purchase of two J-31 aircraft for resale absorbed $1,566,081, and investment in
other long-term assets consumed $65,000. On a net basis, investment activities
resulted in the absorption of $3,199,926 in fiscal year 2002.
Cash from Financing Activities
In fiscal year 2002, 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 $1,300,000. Net proceeds from lines of credit provided an
additional $883,232 in cash to fund increased working capital requirements that
accompanied the expansion. Repayment of scheduled long-term debt and notes
payable absorbed $1,422,391. During the fiscal year, short and long-term
financing activities provided a total of $760,841.
For fiscal year 2002, the Company realized a net increase in cash and cash
equivalents of $11,756.
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 collateralized 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 Series
aircraft 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 collateral
for the debt.
38
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, 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 shareholder misrepresented
the basis for this note. 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 collateral.
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 collateral 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 collateralized
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,
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 collateralized 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 up to $7,250,000 and carries a rate of Prime plus one-half percent.
As of July 31, 2002, the available balance on the line was approximately
$472,000.
39
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 has an estimated market value 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 planes have been
substantially prepared for resale and are being marketed by the Company
currently.
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 which have not
changed appreciably since April 30, 2002 were approximately as follows as of
April 30, 2002:
Schedule of contractual obligations (1):
Payments due by period
- --------------------------------------------------------------------------------------------------------------
Less than
Total 1 year 1-3 years 4-5 years After 5 years
------------------------------------------------------------------------------------
Long-term
debt $7,090,256 $1,555,433 $ 3,567,812 $1,104,311 $862,770
Capital
leases 439,540 252,500 187,040 - -
Operating
leases 22,079,000 5,817,000 9,877,000 6,385,000 -
------------------------------------------------------------------------------------
Total
Contractual
cash
obligations $29,608,796 $7,624,933 $13,631,852 $7,489,311 $862,700
====================================================================================
(1) In addition to the above minimum lease commitments, historically the Company
has incurred additional lease expense that is based on hours flown for which
there is no minimum obligation. Amounts paid under these agreements were
approximately $10,473,000,$6,839,000, $7,028,000, $4,160,000 and $3,485,000, for
the years ended April 30, 2002, 2001, 2000, 1999 and 1998, respectively.
40
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 90% of net eligible accounts receivable on government contracts and 85% on
commercial contracts. Borrowings under the line of credit may not exceed
$7,250,000. At July 31, 2002, the Company had borrowings outstanding under the
line of approximately $6,778,000.
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.
BUSINESS TRENDS AND RESULTS OF SUBSIDIARY OPERATIONS
General
During the quarter ended July 31, 2002, revenue growth accelerated for the
Company's MRO and FBO operations as new contracts awarded late in the prior
fiscal year began to generate anticipated revenue streams. The revenue growth
rates for Fleet Operations remained at depressed levels with virtually all of
the growth being derived from increased aerial tanker activities. By the end of
the first quarter of fiscal 2003, fleet utilization began rebounding and
management believes this trend will continue throughout the year as additional
"homeland security" activities increase demand for the Company's training
services.
During fiscal year 2002, the Company's profitability was adversely impacted by
the losses associated with its Alaska operations, lower than anticipated asset
utilization and revenue generation on the CAS-MOS bridge contract, efforts of
the Company to prepare for the new CAS-MOS contract, fuel cost adjustments
associated with the DOD's denial of equitable adjustments for operations in
fiscal 2001 and 2002, additional legal and professional fees associated with the
VTF sale and accounting system software implementation, and bad debt expenses
associated with stale receivables from both government and commercial customers.
41
The general trend toward slowing revenue growth continued in 2002 and the
Company believes that this was exacerbated, at least in part, by the events of
September 11, 2001. Training services and air carrier operations were
immediately halted and resumed on a limited basis after approximately one week.
While security concerns associated with aircraft operations were eventually
resolved, demand for the Company's services was reduced for its Alaskan
operations and from the U.S. Navy, which found itself deploying more assets
around the world and, as a result, disrupting its training schedules.
Discontinued and Disposed Operations
In July 2000, the aviation industry entered an economic downturn that resulted
in a significant reduction in revenue stream from airline maintenance customers
that formed the core of FIS's customer base. In addition, the Company's source
of growth revenues was interrupted as the commercial aircraft modification
market also turned down. By the end of July 2000, management determined that the
original business plan for its Myrtle Beach operations 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
totaled $1,460,721 while losses on the disposal of this operation were
$1,045,000 in fiscal 2001. In fiscal 2002, the company experienced an additional
write off of $210,000 when the purchaser of FIS's assets, Reliance Aerotech,
Inc., defaulted on its note to the Company for the equipment that was part of
the sale. The Company retrieved the equipment that formed the collateral for the
note and valued the assets at $303,000 based on estimated market values obtained
from independent third party equipment marketers. The additional loss was taken
as bad debt expense in 2002 and represents the difference between the balance
due on the note and collateral value at the time of default.
Profitability Improvement
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.
Excess capacity is currently being measured on a contract-by-contract basis
using new software tools. This will enable the immediate realignment of aircraft
assets to more promising opportunities. The Company has identified its Alaskan
turbo-prop services as a low-productivity operation. The Company intends to
secure alternative opportunities to deploy its fleet of Casa 212 aircraft in
response to this negative development. Based on opportunities to provide
services to the DOD for additional training, management believes these aircraft
can be re-deployed.
42
The Company has identified an alternative use for the King Air 200 that will
increase productivity and yield by deploying this asset to an additional U.S.
Government customer. If profitable uses for these five aircraft cannot be
attained, the aircraft will be returned to the Lessor. Assuming management is
successful in its efforts to re-deploy these aircraft, the Company would realize
normal aircraft utilization rates, a substantial increase in revenues and yields
and a return to reasonable profitability for these assets. Management believes
that the remaining operations in Alaska will be break-even to slightly
profitable after reductions in direct and indirect salaries and wages, and
associated overhead expenses, as a result of the redeployment of these large
aircraft.
The Company has identified two Learjet 30 Series and three Learjet 20 Series
aircraft assigned to FII that are currently underutilized. With the recent award
of contracts for US Air Force gunnery practice and Canadian Air Force interim
flight services, management believes that the two Learjet 30 Series aircraft
will have become fully utilized by September 2002. The three Learjet 20 Series
aircraft are being prepared for return to the Lessor.
The Company has also increased its sale of training services to NATO and NATO
Member countries in Europe. Management is pursuing training opportunities for US
Air Force squadrons deployed to bases in foreign countries. If successful,
utilization of European based assets could well exceed domestic utilization
rates.
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 and 2002 combined. 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 risk mitigation provided by "customer provided fuel" will result in
substantial profitability stabilization.
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.
43
During renewal negotiations just completed, the Company's premiums increased 30%
over 2001 rates, which management believes is appreciably below industry-average
rate increases which have been exceeding 80% since September 11th. 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. The Company anticipates it will recoup a substantial
portion of the current year increase in insurance premiums on its CAS-MOS
contract as a result of an equitable adjustment clause. Claims for equitable
adjustment will be made on the Company's other long-term contracts. No
assurances can be made that these requests will be honored.
FLEET OPERATIONS
Flight International, Inc.
Revenues for FII Fleet Operations grew to approximately $32,664,000 in fiscal
year 2002 from $27,275,000 in the prior year, an increase of 19.7%. During the
quarter ended July 31, 2002, revenues for FII Fleet Operations grew to
$8,980,000 from $7,736,000 in the same period a year earlier, an increase of
16.1%.
Annual revenues from the CAS-MOS contract have been approximately $24.1 million
(including its associated tanker operations contract), $18.8 million, $16.8
million and $15.2 million, for the fiscal years 2002, 2001, 2000 and 1999. This
contract represented 73.8% of FII's fiscal 2002 Fleet Operations revenues, up
from 68.9% in fiscal year 2001 and 68.0% in fiscal year 2000. For the quarters
ended July 31, 2002 and 2001, the CAS-MOS contracts (including its associated
tanker operations contract) generated $6.7 million and $5.4 million,
respectively and represented 74.5% and 69.4% of FII's Fleet Operations total
revenues for those respective periods.
During fiscal 2002, the Company began providing aerial refueling services to
several branches of the DOD through a sub-contractor, Omega Air. This
revolutionary commercial venture provides an economical alternative for the US
Air Force's tanker fleet during periods of peak demand. A pilot program
initiated in July 2001 was expanded when the DOD awarded a separate contract for
tanker services in January 2002. In total, up to 1200 hours of tanker time could
be flown between July 2001 and December 2002. During fiscal 2002, approximately
760 hours of service were provided and management anticipates that virtually all
of the potential 1200 program hours will be used by the end of the current
contract period, which ends December 31, 2002. While the program has been an
operational success, no assurances can be given that any of the option periods
will be exercised. Revenues associated with the program were $4,606,000 and the
Company incurred $4,250,000 of direct costs to provide the services in fiscal
2002. During the quarter ended July 31, 2002, revenues increased to $1,776,091
as compared to $533,000 in the same period a year earlier, or an increase of
233.2%
44
The tanker program provided the majority of growth for the CAS-MOS contracts in
fiscal 2002. Excluding tanker services, CAS-MOS revenues only increased by
approximately 3.8% for 2002 levels, as compared to 13.1% for fiscal 2001 and
10.5% in 2000. As a result of the events of September 11th and the reduction of
two aircraft from the contract for 7 months of the contract year, the revenues
were substantially below the Company's forecasts.
The Company's new CAS-MOS contract requires a restructuring of FII's aircraft
fleet. Three additional Learjet 30 Series aircraft with "multi-mission"
capability were acquired in anticipation of being placed in service as the
Company was the sole bidder during the latest competitive bidding process. For
the last six months of fiscal 2002, the Company leased three more aircraft than
the bridge contract required to prepare for the follow-on contract. Management
calculates the un-capitalized ownership costs associated with preparing these
three aircraft for service to be approximately $575,000.
With the initialization of services under the follow-on CAS-MOS contract,
management expects this program to achieve positive financial results in 2003.
Cost components for fuel have been reduced while yield increases for flight
hours have increased. While the new contract calls for a reduction in hours
compared to the prior contract, the yield increases and cost reductions are
expected to result in profitable operations. Management believes, based on
current utilization rates, that the DOD could well exceed the guaranteed hours
for the base year. Due to its fixed and variable pricing structure,
approximately 44% of the CAS-MOS program's revenue stream is recognized on a
fixed basis. If, by contract year-end, the DOD purchases excess hours, average
yield per flight hour flown increases substantially due to the fixed revenue
element while costs remain stable. Unlike excess pricing in past CAS-MOS
contracts, the impact of flying substantial excess hours would have a positive
impact on FII's profitability for fiscal 2003. No assurances can be made that
any excess hours will be ordered.
FII management has been notified that it was the successful bidder for gunnery
practice tow services with the US Air Force after demonstrating the efficacy of
these flight services in 2002. Management anticipates this contract, valued at
$4,000,000 over the next 5 years, will commence in September 2002 and increase
asset utilization rates by approximately 350 hours annually.
In July 2002, management concluded discussions with the Canadian Air Force to
add flight-training services through the CAS-MOS contract. These services began
in late July and are expected to generate approximately 400 hours of additional
flying time during fiscal 2003.
FII management has made an unsolicited proposal to provide interim Special
Forces training support services for the U.S. Army. The DOD has requested that
the Company demonstrate the service capabilities of its Casa 212 aircraft, which
are uniquely outfitted to provide paratrooper training, and personnel and cargo
transportation in multiple cabin configurations. Services will commence in
mid-August. The Company believes that the demand for these services will
increase dramatically in the near future and provide substantial opportunities
to re-deploy all of the Company's Casa 212 fleet.
45
Flight Alaska, Inc.
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 Learjet Series 35 aircraft. 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 and the anticipated
opening of the Arctic National Wildlife Refuge for exploration. The Company
expanded services to include freight, mail and passenger flights from Deadhorse,
Alaska to surrounding village communities.
Revenues for fiscal 2002 totaled $8,395,501 versus $5,734,360 in fiscal 2001.
Revenues continued to expand in early fiscal 2002 as FAI provided charter
services to the Department of Interior using two of its Casa-212 aircraft and
passenger transportation services to Bristol Environmental as part of a
hazardous waste removal contract with the U.S. Navy for Amchitka Island in the
Aleutians. After September 11th, revenue growth slowed dramatically as services
were initially halted and the economy slipped deeper into recession. Revenues
were substantially impacted by retrenchment of oil company exploration and
development efforts on the North Slope. For the year, revenues were under
forecast by $1,000,000 while costs exceeded budget by $200,000 due to ownership
expenses on non-performing assets being inducted into service in fiscal 2002 and
2003.
In the first quarter of fiscal 2003, the division's revenues decreased to
$2,164,973 from $2,726,540 a year earlier; a decrease of 20.6%, as a result of
the economic slowdown affecting the Alaskan market. Management believes this
slowdown will continue and has re-deployed two of its Casa 212 aircraft to new
business in its FII division.
46
With the failure of Congress to enact legislation to open ANWR for exploration
and drilling, FAI management now believes there to be insufficient growth
potential to warrant the number of large turbo-prop aircraft assets. The Company
plans to move the remaining Casa-212 assets to more promising opportunities with
the DOD and re-deploy the King Air 200 to service with another US Government
agency in the near future. Along with the transfer of assets, FAI management has
begun to downsize personnel and related overhead expenses to bring them in line
with anticipated mail and passenger revenues.
MRO CENTER
MRO work is conducted in the Company's Newport News, Virginia hangar facilities.
Building on its expertise derived from maintaining and operating Learjet
aircraft for training services, the Company plans to expand aircraft "special
missions" modification and service work for countries and companies that wish to
develop internal commercial or government training programs.
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 its NN/W MRO center in the coming months. The investment in
software and hardware required was approximately $150,000.
Revenues from continuing operations grew for the fiscal year 2001 to $2,761,155
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 20 and 30 Series 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.
Effective in fiscal 2001, management started reporting sales of
maintenance-related parts, services and labor to government customers as MRO
revenues rather than fleet operations revenues. In 2001, $585,000 of revenue is
included in MRO revenue totals. Had 2001 been stated on an equivalent basis to
fiscal 2000, revenues would have increased 44.1%
MRO revenues for fiscal 2002 dropped to $2,023,014 as the economy in general and
aviation in particular slid deeper into recession. Airframe SLEP revenues, which
are anticipated to be volatile for the next few years, were significantly lower
in 2002. Landing gear SLEP revenues added $468,000 during the year. These
revenues are expected to continue at current levels for the next two years as
the primary customer uses the services on a U.S. Air Force Learjet maintenance
program with up to 100 aircraft, that will require landing gear SLEP during the
contract period.
47
In January 2002, the Company entered into an agreement with Raytheon Aircraft of
Australia to produce a Learjet 35 Series aircraft capable of a full range of
Electronic Warfare training activities. The aircraft is scheduled for completion
in February 2003. Management projects that revenues associated with this project
will be recognized entirely in fiscal year 2003.
In the quarter ended July 31, 2002, revenues for the MRO Center grew to
$1,322,000 from $397,000 in the same period a year earlier. This 233.0% increase
is primarily due to revenues associated with the Raytheon Australia aircraft
modification program.
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 $1,702,000 in fiscal year 2000 from $1,772,000 in
fiscal year 1999.
During fiscal year 2001, revenues for FIA decreased to $1,630,000 from
$1,702,000 in fiscal year 2000. FIA saw 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. Net profits for the subsidiary were $69,609 in fiscal year 2001,
versus a net profit of $183,386 for the previous year.
For fiscal 2002, FIA revenues totaled $1,706,000 versus $1,630,000 for the same
period in the prior year. This 6.9% increase in revenues can be attributed to
increased commercial airline activities at the NN/W Airport and price increases
that were passed through to the customers. Margins increased due to the
stabilization, and eventual easing of raw fuel costs during the year.
In January 2002, the Company was awarded a 3-year contract to serve as the
Defense Fuels Supplier 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. No
assurances can be provided that this contract will be re-awarded to the Company
when it comes up for renewal in April 2005.
In the first quarter of fiscal 2003, revenue rose to $890,000 from $436,000 for
the same period a year earlier, or an increase of 103.9%. The increase can be
directly attributed to fuel sales to the DOD at the NN/W airport, including the
Company's own training services, which receive DOD provided fuel.
48
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 the asset purchase agreement with Maritime, and
performing the transactions contemplated by such agreements and related
agreements. 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 asset purchase agreement with Maritime and the
transactions contemplated by such agreements and related agreements. VTF's sole
shareholder is Veritas Capital Fund, L.P. ("Veritas Fund"). Veritas Fund is a
private equity fund established by Veritas Capital Management, L.L.C. ("Veritas
Capital"). Founded in 1992, Veritas Capital is a leading investor in middle
market defense and aerospace companies. Neither Veritas Fund nor Veritas Capital
is a party to the Asset Purchase Agreement or has guaranteed VTF's obligations
thereunder. 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.
VTF has recently advised the Company that it will assign its rights and
obligations under the Asset Purchase Agreement and the Maritime asset purchase
agreement (as permitted thereunder) prior to the closing to one or more
wholly-owned subsidiaries of Raytheon Aerospace, LLC, an affiliate of Veritas
Capital ("RALLC"), that will be formed solely for the purpose of engaging in the
transactions. References to VTF in this proxy statement shall include its
assignees under the Asset Purchase Agreement. RALLC will not become a party to
the Asset Purchase Agreement nor will it guarantee its subsidiaries' obligations
thereunder.
RALLC is a leading provider of aerospace and other technical services to the
U.S. Department of Defense and other government agencies, including the Air
Force, Navy, Army, Marine Corps, Customs Service, Drug Enforcement
Administration and NASA. Approximately 96% of RALLC's sales for the year ended
December 28, 2001 were made directly or indirectly to the U.S. Government.
RALLC's services include logistics support, maintenance, repair and overhaul,
supply chain management and pilot training. As part of its service offerings,
RALLC deploys highly mobile, quick-response field teams worldwide to provide
critical mission support. RALLC supports military training aircraft (such as the
T-6A Texan II and T-34C Turbomentor), tactical aircraft (such as the AH-64
Apache helicopter and B-2 Spirit stealth bomber), cargo and utility aircraft
(such as the C-12 Huron and C-9 Skytrain) and other defense-related platforms
(such as the Patriot missile system and the M1 Abrams Main Battle Tank). In
aggregate, RALLC supports over 1,800 active fixed and rotary wing aircraft and
other vehicles representing over 75 platforms. RALLC has an extensive global
presence with over 5,500 employees and operations at 299 sites in 42 states and
32 countries, primarily in facilities owned by RALLC's customers rather than by
RALLC.
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 early 1999, the Company employed an investment
banking group to search for a merger/acquisition partner. Though many potential
opportunities were discussed, none were forthcoming and nothing materialized
from this relationship.
In early 2000, a large fuel supplying company contacted the Company regarding
the possibility of being bought by their holding company. A preliminary letter
of interest, with consideration at approximately $7.00 per share, was received,
based on the Company's then current financial statements. Two investment banking
firms were approached for funding. Based on the fact that the Company was in its
last year of the CAS-MOS contract with no guarantee of being awarded another
CAS-MOS contract, this funding was denied. All efforts to effect this
transaction then ceased.
49
During the Summer of 2001, a European company approached us about buying the
Company and issued a conditional letter of intent for the purchase of the
Company and Maritime. The conditional offer for The Flight International Group,
Inc. was for $5,700,000 and $12,300,000 for Maritime, each subject to the
completion of satisfactory financial statement audits. The offer for the Company
was contingent, however, on the offeror being able to purchase 100% of the
Company, which was not permitted under applicable United States laws. After
realizing that attempts to structure similar transactions to comply with this
law had been tried many times and found to be not feasible, the offeror allowed
its letter of intent to lapse.
Simultaneous with the above-described negotiations, Maritime began discussions
with one of its prime lenders about the proposition of refinancing its entire
fleet of aircrafts and using the equity to buy a larger share of the Company,
thus infusing a significant amount of cash into the Company. This plan was
initially accepted, but the lender was then purchased by another bank that had
no interest in financing aircrafts over 20 years old. This endeavor collapsed in
late 2001.
In the late Summer of 2001, Scott Terry, a consultant to the Company, introduced
David Sandlin, the Company's President, to Dan Grafton, President of Raytheon
Aerospace LLC ("Raytheon"). Subsequently, Mr. Sandlin was invited to make a
presentation to Raytheon on the merits of the Company as a service provider and
potential partner. Mr. Grafton asked us to meet with the principals of The
Veritas Capital Fund, L.P., a private equity investor in the middle market
defense and aerospace companies and a majority owner of Raytheon. Mr. Sandlin
and Robert Dynan, the Company's CFO, met with representatives of Veritas, on 14
November 2001 in the offices of Spectrum Technology in Washington, D.C. to
discuss the merits of the Company and how it would fit with the other defense
related companies affiliated with Veritas. As discussed above, the Company had
been in discussions with Maritime and its prime lenders. These discussions
involved presentations by the Company with Maritime as a potential combined
entity. As the presentation to Raytheon occurred a short while after these
discussions, the presentation involved both the Company and Maritime as service
partners and potential partners. Management believed that Maritime and the
Company together would be more attractive service partners than the Company
itself (due to the fact that the Company leases the majority of the aircrafts
used for its operations from Maritime). When an offer to purchase the Company
ultimately came, a mutually contingent offer to purchase Maritime was also made.
A team from Raytheon visited Flight's headquarters in late November 2001 to
become acquainted with the Company. Mr. Sandlin was then invited to the New York
office of Veritas for a meeting on October 25, 2001 to discuss a letter of
intent. Initially, the cash purchase price offered for the Company was
$4,000,000. Mr. Sandlin and senior management discussed this offer and
negotiated to receive a higher cash purchase price. On December 3, 2001, a
letter of intent was received providing for a cash purchase price of $6,500,000
(subject to adjustment). After management consulted with our Board members and
legal counsel, this 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. Initially, the parties contemplated that the
structure of the transaction would be for Veritas or one of its subsidiaries or
affiliates to purchase all of the outstanding capital stock of the Company. The
parties subsequently agreed to structure the transaction as a sale of
substantially all of the Assets and Liabilities of the Subsidiaries to VTF. As a
result of the Company's accrued net operating losses, the change in structure is
not anticipated to result in a taxable gain on the Asset Sale. 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.
As all recent attempts to infuse capital into the Company or otherwise enter
into a strategic partnership to enhance the Company's value did not materalize,
the Company believed it was the proper time to enter into a transaction of this
nature. For a comprehensive detailed discussion of the reasons why the Company
entered into this transaction, see the Section below entitled "Reasons for the
Sale of Substantially all of our Assets."
50
In early January 2002, VTF's attorneys prepared and distributed a preliminary
draft of the Asset Purchase Agreement. Over the next several months, the parties
and their legal and financial advisors 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. The main substantive
points that were negotiated among the parties were the amount and duration of
the escrow for indemnity claims by VTF following the closing. Initially, VTF had
proposed a one year escrow of $1,500,000 of the purchase price. After consulting
with its counsel, the Company countered with a proposal that the escrow should
be in the range of $240,000 to $500,000 for a period of not more than six months
following the closing. The parties then agreed on a $1,000,000 indemnity escrow
to be held for nine months following the closing. The parties also negotiated
the terms of the representations and warranties. During the week of May 7, 2002,
the Asset Purchase Agreement was finalized and the parties executed the
agreement on May 9, 2002.
On September 23, 2002, the Asset Purchase Agreement was amended to extend
certain termination dates. On November 15, 2002, we entered into an amendment to
the Asset Purchase Agreement (the "Second Amendment") pursuant to which, among
other things, VTF agreed to deposit into escrow the sum of $250,000, which will
be payable to us in the event the closing of the Asset Sale does not occur by
the close of business on December 16, 2002 and all conditions to the obligation
of VTF to consummate the transactions contemplated by the Asset Purchase
Agreement set forth in Article IX of the Asset Purchase Agreement have been
satisfied or waived on or prior to such date (other than those conditions that
by their nature are to be satisfied at the Closing and which are prepared to be
satisfied at the Closing); if the closing does not occur on or prior to December
16, 2002, for any other reason, the $250,000 would be returned to VTF. In
addition, pursuant to the Second Amendment, (i) the date on which either we or
VTF may, under certain circumstances, terminate the Asset Purchase Agreement if
the Asset Sale has not been consummated was extended to December 16, 2002 and
(ii) the purchase price adjustment amount was modified. Copies of the Second
Amendment and the Escrow Agreement entered into in connection with the Second
Amendment are annexed hereto as Annex A and Annex H, respectively.
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 a preliminary
oral report of G-V provided by the Company's counsel to the effect that G-V
expected that the results of analyses would illustrate that the consideration to
be received by the Company was fair to its shareholders from a financial point
of view (based solely on the terms of the Asset Purchase Agreement and G-V's
experience, not on any analyses conducted to date, and subject to the completion
of its due diligence and analyses) 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 unaffiliated
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.
51
On June 3, 2002, the Board held another meeting, at which all directors were
present. G-V made its presentation at this Board meeting and delivered its final
report. The Board (including all directors who are not employees of the Company)
considered the Asset Purchase Agreement and final report of, and presentation
by, 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 unaffiliated Shareholders, reconfirmed its approval
and adoption of the Asset Purchase Agreement (substantially in the form
presented) and related transactions, and recommended that the Shareholders
approve and adopt the same.
On September 13, 2002, pursuant to a unanimous written consent, the Board
reaffirmed its confidence in the reliability, accuracy, veracity and utility of
the fairness opinion rendered by G-V and reaffirmed its decision to recommend
the approval of the adoption of the Asset Purchase Agreement by the
Corporation's shareholders and that the price and terms of the transactions
contemplated thereby are fair to the unaffiliated Shareholders of the Company.
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.
REASONS FOR THE SALE OF OUR ASSETS AND SUBSTANTIALLY ALL OF THE SUBSIDIARIES
ASSETS
In reaching its determination that the sale of substantially all of the assets
of our Subsidiaries is fair to, and in the best interests of, the Company and
our unaffiliated Shareholders, and in recommending that our Shareholders vote to
approve the Asset Purchase Agreement and the sale of substantially all of the
assets of our Subsidiaries, 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 the Company could
receive for the sale of its assets and its subsidiaries
assets. The analysis contained in G-V's report indicated that
the purchase price to be paid by VTF represented a premium
over the consideration received in similar transactions or by
similar companies, and that the purchase price to be paid was
a premium based on a discounted cash flow analysis of the
Company's financial information. In August, 2002, the
principal of G-V was indicted by a Federal grand jury on
charges of securities and mail fraud related to alleged
securities violations in connection with the initial public
offerings of four companies (United States vs. Lawrence
Kaplan, et. al., 02 Crim. 986 (SDNY)). G-V was not named as a
defendant in the indictment. After being advised of the
indictment and the nature of the claim, the Board revisited
the fairness opinion and reviewed the opinion and report
prepared by G-V. On September 13, 2002, pursuant to a
unanimous written consent, the Board reaffirmed its confidence
in the reliability, accuracy, veracity and utility of the
fairness opinion rendered by G-V based on the nature of the
claim, that G-V was not named in the indictment and the fact
that the principal of G-V that was indicted was not primarily
involved in the research and preparation of the analyses, and
reaffirmed its decision to recommend the approval of the
adoption of the Asset Purchase Agreement by the Company's
Shareholders and that the price and terms of the transactions
contemplated thereby are fair to the unaffiliated Shareholders
of the Company.
52
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. VTF has since
delivered a letter to the Company waiving the financing
contingency, a copy of which is annexed hereto as Annex F.
Based on a lack of liquidity in the Company's Common Stock and
the analysis by G-V of similar transactions and companies, the
Board believed the purchase price being paid for the Assets
and Liabilities was the best price available.
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.
Except as otherwise set forth herein, the Board did not
receive any other offers for the Company, nor did it seek any
other offers. This was due to the Board's belief that the
purchase price being paid was the best price available and due
to the failure of any transaction to materialize from the
various alternatives it considered during the past few years.
See the first five paragraphs of the section entitled
BACKGROUND OF THE ASSET PURCHASE AGREEMENT AND RELATED
TRANSACTIONS, above.
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.
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.
53
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.
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. The Board also considered Mr.
Sandlin's and Mr. Bone's employment arrangements with VTF
following the Asset Sale.
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.
54
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 Company, after consultation with its advisors, believes 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.
In reaching its decision to recommend the approval of the Asset Purchase
Agreement, the Board considered the above factors, particularly the Company's
historical lack of cash flows, the lack of a public market for the Company's
Common Stock and certain other factors, including the general trend towards
consolidation in the industry which generally supported its belief that the sale
to VTF represents the best alternative to maximize the value of the Company for
the Company's Shareholders.
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. The Board considered the fact that the transaction
contemplated by the Asset Purchase Agreement is not structured so that the
approval of at least a majority of the Company's unaffiliated Shareholders is
required. Further, a majority of the Company's directors who are not employees
of the Company have not retained an unaffiliated representative to act solely on
behalf of the unaffiliated Shareholders for purposes of negotiating this
transaction and/or preparing a report concerning the fairness of the
transaction.
The Board did not weigh the consideration to be received by the Company in the
Asset Sale in relation to current or historical market prices for the Company's
Common Stock, as the Company's stock does not actively trade. The Board did not
consider the consideration to be received by the Company in the Asset Sale in
relation to liquidation value, as the Company believes any such valuation would
be speculative and likely to be lower than the consideration offered. Due to the
termination provisions of the Company's government contracts, the Company would
only be able to terminate any such contract prior to an option year. An early
termination under these contracts would trigger liquidated damages that would be
subject to offset against certain of our accounts receivable resulting in a
reduction of the Company's value under liquidation scenario. Also, the Company's
government contracts, which account for nearly 70% of its revenue, contain
non-assignment provisions, which would make them of uncertain value in a
liquidation scenario. These factors and others make it extremely difficult to
predict the Company's value from a liquidation perspective and accordingly, the
Company believes that they would not be a good indicator of the value of the
Company. In addition to the speculative nature of any such analyses, the Company
believes undertaking these analyses would involve an unnecessary expense and
delay. While the Board did not independently consider the going concern value of
the Company, G-V's analysis included, and the Board considered and adopted, as a
part of that valuation, a discounted cash flow analysis. The Board believes that
net book value is not a good indicator of the value of the Company, as it is
based on the historical cost value of the Company's assets (which is not
necessarily indicative of fair value), and would not provide a fair value for
the business as compared to the operational performance based analyses performed
by G-V. In addition, the Company was expected to, and in fact did, have a
negative book value shortly after the time the Board approved the transactions.
55
The Board of Directors did obtain an unaffiliated representative (see the
section entitled G-V's Opinion, below) to determine the fairness of the
transaction to all of the Company's Shareholders and determined based upon the
factors set forth above in this section that the transactions contemplated by
the Asset Purchase Agreement are fair to the unaffiliated Shareholders of the
Company. Further, based on the procedural safeguard of the unanimous approval of
all of our directors, including those directors who are not employees and the
availability of dissenter's rights, the Board believes that the transactions
contemplated by the Asset Purchase Agreement are procedurally fair to the
Company's unaffiliated Shareholders. The Board believes that the approval of the
Asset Purchase Agreement by all outside directors, together with the right of
any Shareholder that objects to the transaction to exercise dissenter's rights
under Georgia law to obtain the fair value of their shares of Common Stock,
provide procedural safeguards to the unaffiliated Shareholders in reaching its
determination that the transactions contemplated by the Asset Purchase Agreement
are fair to the Company's unaffiliated Shareholders. See the section below
entitled "Dissenter's Rights".
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. The
full text of G-V's opinion and report are annexed hereto. G-V's report and
opinion are available for inspection and copying at the principal executive
offices of the Company, One Lear Drive, Newport News/Williamsburg International
Airport, Newport News, Virgina, Monday-Friday, between 9:30 a.m. and 5:00 p.m.
by any of our Shareholders. A copy of G-V's report and opinion will be sent to
any Shareholderat the expense of any such Shareholder who contacts the Company
to request a copy of such document. Any such request should be sent to the
Company at One Lear Drive, Newport News/Williamsburg International Airport,
Newport News, Virgina 23602, Attn: Ann Campbell. 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.
56
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 fiscal years
ended April 30, 1995, 1996, 1997, 1998, 1999, 2000 and 2001
and (ii) the nine months ended January 31, 2002 (unaudited)
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.
In arriving at its opinion, G-V utilized four generally accepted valuation
techniques: Comparable Transaction Analysis, Discounted Cash Flow Analysis,
Comparable Company Analysis and Premium Paid Analysis. G-V believes these
techniques provide a reasonably comprehensive analysis of both the Company and
the transaction in light of standards recently demonstrated in investments and
valuations within the Company's peer group. G-V selected the companies in the
table below as the best available for the Company's peer group based on their
likeness to the Company in one or more of the following criteria: industry,
size, similar type transaction and public availability of information.
COMPANY NAME DESCRIPTION
- ------------ -----------
AAR CORP. AAR Corp. provides value-added products and
services to the worldwide aviation/aerospace
industry. AAR's Aircraft and Engines segment
is engaged in the purchase, sale and lease of used
commercial jet aircraft; the purchase, sale and lease
of new, overhauled and repaired engines and engine
products; and the overhaul, repair and exchange of
engine parts and components and other engine support
services.
57
BOEING COMPANY The Boeing Company, an aerospace company, operates,
together with its subsidiaries, in three principal
segments: Commercial Airlines Operations, Military
Aircraft and Missiles, and Space and Communications.
Commercial Airplanes Operations is involved in the
development, production and marketing of commercial
jet aircraft. The segment also provides related
support services, principally to the commercial
airline industry worldwide. The Military Aircraft and
Missiles segment is involved in the research,
development, production, modification and support of
military aircraft, including fighter, transport and
attack aircraft; helicopters; and missiles.
LOCKHEED MARTIN CORP. Lockheed Martin Corporation is engaged in the
conception, research, design, development,
manufacture, integration and operation of advanced
technology systems, products and services. Its
products and services range from aircraft, spacecraft
and launch vehicles, to missiles, electronics,
information systems and telecommunications. This
company operates in five principal business segments
consisting of Systems Integration, Space Systems,
Aeronautics, Technology Services and Global
Telecommunications. This company serves customers in
both domestic and international defense and
commercial markets, with its principal customers
being agencies of the United States Government.
NORTHROP
GRUMMAN CORP. Northrop Grumman Systems Corporation is a global
aerospace and defense company. This company provides
technologically advanced products, services and
solutions in defense and commercial electronics,
systems integration, information technology and
non-nuclear shipbuilding and systems to United States
and international military, government and commercial
customers.
TEXTRON, INC. Textron, Inc. is a global multi-industry company with
operations in five business segments: Aircraft,
Automotive, Fastening Systems, Industrial Products
and Finance. This company's Aircraft segment consists
of Bell Helicopter Textron and Cessna Aircraft
Company.
EDAC TECHNOLOGIES
CORP. Edac Technologies Corporation (Edac) offers design
and manufacturing services for a wide range of
industries in areas such as special tooling,
equipment and gauges, and components used in the
manufacture, assembly and inspection of jet engines.
Edac also specializes in the design and repair of
precision spindles. Spindles are an integral part of
numerous machine tools, which are found in virtually
any type of manufacturing environment. Items
manufactured by Edac include precision rings, and
other components for jet engines, industrial spindles
and specialized machinery designed by this company or
others and other assemblies requiring close
tolerances.
FIRST AVIATION
SERVICES INC. First Aviation Services Inc., together with its
wholly owned subsidiaries, Aircraft Products
International Ltd., API Asia Pacific Inc. and its
majority-owned subsidiary, Aerospace Products
International Inc. (API), is engaged in distributing
aircraft parts and components to the aviation
industry worldwide. This company distributes the
products of over 150 parts and component
manufacturers and suppliers, and provides the
aerospace industry with third-party logistics and
inventory management services.
58
HEICO CORPORATION HEICO Corporation is a manufacturer of Federal
Aviation Administration-approved jet engine
replacement parts. It is also a manufacturer of
certain electronic equipment for the aerospace,
defense and electronics industries. Through the
Flight Support Group (FSG), HEICO uses
proprietary technology to design, manufacture and
sell jet engine replacement parts for sale at lower
prices than those manufactured by OEMs. In addition,
FSG repairs, refurbishes and overhauls engine and
aircraft components for domestic and foreign
commercial air carriers and aircraft repair
companies, and manufactures thermal insulation
products and related components primarily for
aerospace, defense and commercial applications.
KREISLER MANUFACTURING Kreisler Manufacturing Corporation fabricates
precision metal components and assemblies
primarily for aircraft engines with both military
and commercial applications and for industrial gas
turbines. The primary function of Kreisler
tubular products is to transport fluids, including
air, oil and gas, to various parts of the aircraft,
aircraft engine or industrial gas turbine.
SIFCO
INDUSTRIES, INC. SIFCO Industries, Inc. is engaged in the
production and sale of a variety of metalworking
processes, services and products produced primarily
to the specific design requirements of its customers.
The processes include forging, heat-treating,
coating, welding, machining and brush plating; and
the products include forgings, machined forgings and
other machined metal parts, remanufactured component
parts for turbine engines, and brush plating
solutions and equipment.
SEQUA CORPORATION Sequa Corporation is a diversified industrial
company that produces a broad range of products
through operating units in five business segments:
Aerospace, Propulsion, Metal Coating, Specialty
Chemicals and Other Products. The Aerospace segment
consists of Sequa's largest operating unit,
Chromalloy Gas Turbine.
TRIUMPH GROUP, INC. Triumph Group, Inc. designs, engineers,
manufactures, repairs, overhauls and distributes
aircraft components, such as mechanical and
electromechanical control systems, aircraft and
engine accessories, auxiliary power units (APUs),
avionics and aircraft instruments. Triumph serves
commercial airlines and air cargo carriers, as well
as original equipment manufacturers (OEMs) of
aerospace vehicles, commercial and military aircraft
and aircraft components.
59
The following is a summary of all material financial and comparative analyses
performed by G-V and presented to the Board and is subject to the assumptions
set forth above.
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. These four transactions presented in the table below were
effected from September 1998 through March 2000. The acquirors included
DLJ Merchant Banking, Inc., United Technologies, Corp., AlliedSignal,
Inc. and Alcoa, Inc. This analysis, which did not take into account net
debt of the Company or any of the other targets, showed that the value
to earnings before taxes, depreciation and amortization expenses
("EBITDA") and price to cash flow ratios are highest in VTF's proposed
acquisition of the Company and that the value to revenue and value to
gross profit ratios are within the range received by the target
companies involved in the four comparable transactions. As demonstrated
in the table below, the four transactions reviewed had an average
transaction value equal to 7.35 times EBITDA, while the Asset Sale has
a transaction value equal to 14.55 times the Company's EBITDA. The
average price per share received in the four transactions was 11.42
times the average net cash flow per share, while the price per share of
the Asset Sale is 21.18 times the Company's net cash flow per share.
The transaction reviewed had more favorable ratios than the Company
with respect to revenues and gross profits. Comparable transaction
analysis provides direct evaluation of the transaction itself.
Rank Value LTM Cash
Date Transaction Price/ LTM LTM Gross Flow/
Date Ann. Effective Target Name Acquiror Name (4) Value(3) Revenue EBITDA Profit Share
- --------- --------- ----------- ------------- ----------- -------- ------- ------ ------ -----
7/17/98 9/4/98 DeCrane Aricraft Holdings DLJ Merchant Banking Inc $ 181.5 $ 273.2 $ 113.6 $ 19.2 $ 34.1 $ 1.56
10/21/99 10/21/99 Cade Industries Inc. United Technology Corp 133.2 132.2 102.9 12.6 23.0 0.40
11/1/99 11/1/99 Tristar Aerospace Co Allied Signal Inc 269.8* 262.7 205.1 37.6 66.5 1.22
3/14/00 3/14/00 Howmet International Alcoa Inc 349.3 349.3 1,459.7 282.2 343.9 1.89
--------------------------------------------------------
MEAN
--------------------------------------------------------
Flight International Gp. VTF Corp. $ 20.5 $ 6.5 $ 37.4 $ 1.4 $ 5.9 $ 0.28
Multiples
---------------------------
Value/
Date Value/ Value/ Gross Price/ Price/
Date Ann. Effective Target Name Acquiror Name LTM EPS Revenue EBITDA Profit Cash Flow EPS
- --------- --------- ----------- ------------- ------- ------- ------ ------ --------- ------
7/17/98 9/4/98 DeCrane Aricraft Holdings DLJ Merchant Banking Inc $ 1.37 2.40x 9.46x 5.32x 14.75x 16.79x
10/21/99 10/21/99 Cade Industries Inc. United Technology Corp 0.24 1.76x 14.46x 7.89x 12.58x 21.04x
11/1/99 11/1/99 Tristar Aerospace Co Allied Signal Inc 1.00 0.88x 4.83x 2.73x 7.76x 9.50x
3/14/00 3/14/00 Howmet International Alcoa Inc 1.36 0.12x 0.64x 0.53x 10.60x 14.71x
` -----------------------------------------------------
1.29x 7.35x 4.12x 11.42x 15.51x
-----------------------------------------------------
$(0.88) 0.17x 14.55x 3.45x 21.18x NM
FOOTNOTES
1-Premiums are caculated based on the original announcement date, which is the
first date when the target company is publicly disclosed as a possible
takeover candidate.
2-*denotes that the value is estimated.
3-Transaction Value in millions (not including net debt of target) 4-Transaction
Value in millions (including net debt of Target)
60
2. Discounted Cash Flow Analysis. Discounted Cash Flow Analysis provides
evaluation of the proposed transaction versus the long term prospects
of investment in the Company. Using a discounted cash flow analysis,
G-V calculated the net present value, using a 20% discount rate, of the
assets proposed to be sold based on the Company's revenue estimate
through fiscal year 2003, and escalated by 10% thereafter. In arriving
at the 20% discount rate, G-V considered a number of factors including
the risk inherent in business, lack of liquidity and lack of control.
After applying a discount rate of 25% due to the Company's lack of
liquidity and an additional minority discount at 25%, G-V arrived at a
$6,900,000 and $5,200,000 valuation, respectively. Conducting an
additional sensitivity analysis using discount rates of 15% and 25%
resulted in valuations of between $3,700,000 to $13,000,000. By
contrast, the aggregate consideration to be received, including the
assumption of indebtedness, will exceed $16 million. These findings are
demonstrated in the table below.
TOTALS 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
------ ----------------------------------------------------------------------------
Net Cash Flows (assumed year-end) $42.3 $0.0 $0.0 $0.0 $0.0 $0.0 $1.7 $8.3 $9.7 $11.1 $11.5
$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $4.7 $4.3
-Discount Rates $0.0 $0.0 $0.0 $12.0 $14.7 $14.8 $14.2 $13.6 $13.0 $11.7
DCF Value with 15% Discount Rate $13.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.8 $3.1 $3.2 $3.2 $2.8
DCF Value with 20% Discount Rate $9.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.6 $2.3 $2.3 $2.2 $1.9
DCF Value with 25% Discount Rate $6.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.5 $1.7 $1.6 $1.5 $1.2
-Lack of Liquidity Discount (25%) Applied to:
DCF Value with 15% Discount Rate $9.8 $0.0 $0.0 $0.0 $0.0 $0.0 $0.6 $2.3 $2.4 $2.4 $2.1
DCF Value with 20% Discount Rate $6.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.4 $1.7 $1.7 $1.6 $1.4
DCF Value with 25% Discount Rate $4.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.3 $1.2 $1.1 $0.9
-Minority Discount (25%) Applied to:
DCF Value with 15% Discount Rate, net of liq disc. $7.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.4 $1.8 $1.8 $1.8 $1.6
DCF Value with 20% Discount Rate, net of liq disc. $5.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.3 $1.3 $1.2 $1.0
DCF Value with 25% Discount Rate, net of liq disc. $3.7 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.0 $0.9 $0.8 $0.7
61
3. Comparable Company Analysis. Comparable Company Analysis provides a
proposed valuation of the Company as an asset, based on public
valuation of comparable companies. G-V selected twelve publicly traded
companies in lines of business similar to the Company. In undertaking
this analysis, G-V reviewed market capitalization, market enterprise
value ("MEV"), historical and projected multiples of revenue, EBITDA
and earnings per share. The ratio of MEV to EBITDA for the Company were
within the range of comparable ratios for the companies that were used
as the basis for comparison. These findings are demonstrated in the
table below. An analysis of the Company illustrated a MEV 14.55 times
the Company's EBITDA, as compared to an average MEV equal to 6.97
times the EBITDA of the comparable companies.
Market
Enterprise 52 Week
Price Market Value ------------- Revenue
Company Ticker 5/4/02 Cap MEV High Low LTM
- ----------------------------------------------------------------------------------------------
ARR CORP AIR $ 12.27 $ 390.9 $ 280.6 $ 17.5 $ 6.96 $ 835.48
BOEING CO BA 44.63 35,663.6 51,679.6 69.85 27.60 57,189.0
EDAC TECHNOLOGIES CORP EDAC 1.68 7.3 39.8 2.65 1.20 46.3
FIRST AVAITION SVCS INC FAVS 4.60 33.1 (7.5) 5.48 4.00 105.0
HEICO CORP HEI 17.22 359.0 358.4 20.90 10.80 171.3
KREISLER MANUFACTURING CORP KRSL 10.20 20.2 9.5 10.77 4.74 20.3
LOCKHEED MARTIN CORP LMT 62.85 27,867.1 34,289.1 63.48 35.36 24,950.0
NORTHROP GRUMMAN CORP NOC 122.38 13,285.6 19,319.6 125.98 76.40 11,483.0
SIFCO INDUSTRIES SIF 5.45 27.9 10.8 7.45 4.50 105.6
SEQUA CORP-CLA SQAA 60.20 625.4 842.1 60.60 39.69 1,785.9
TRIUMPH GROUP INC TGI 48.41 765.2 749.3 50.00 21.60 615.0
TEXTRON INC TXT 49.21 6,950.9 6,630.9 60.47 31.29 12,450.0
FLIGHT INTERNATIONAL GROUP $ 5.86 $ 6.5 $ 20.5 - - $ 37.40
Market
Enterprise
EBITDA EPS Market Cap/ Value MEV/ Market Cap
Company Ticker LTM LTM Sh.Out LTM Revenue LTM EBITDA LTM EPS
- ---------------------------------------------------------------------------------------------------------
ARR CORP AIR $ 56.26 $ 0.59 $ 31.86 $ 0.47x $ 4.99x $ 20.83x
BOEING CO BA 7,257.0 3.88 798.87 0.62x 7.12x 11.51x
EDAC TECHNOLOGIES CORP EDAC 6.1 0.40 4.35 0.16x 6.55x 4.16x
FIRST AVAITION SVCS INC FAVS 0.3 (0.11) 7.20 0.32x NM NM
HEICO CORP HEI 43.8 0.80 20.85 2.10x 8.08x 21.55x
KREISLER MANUFACTURING CORP KRSL 4.1 1.61 1.98 1.00x 2.30x 6.34x
LOCKHEED MARTIN CORP LMT 2,389.0 1.61 443.39 1.12x 14.35x 39.16x
NORTHROP GRUMMAN CORP NOC 1,247.0 5.58 108.56 1.16x 15.49x 21.94x
SIFCO INDUSTRIES SIF 10.2 0.58 5.12 0.26x 1.06x 9.40x
SEQUA CORP-CLA SQAA 162.1 3.94 10.39 0.35x 5.20x 15.27x
TRIUMPH GROUP INC TGI 98.4 3.19 15.81 1.24x 7.62x 15.18x
TEXTRON INC TXT 1,678.0 (2.18) 141.25 0.56x 3.95x NM
---------------------------------------------------------------
OVERALL MEAN 0.78X 6.97X 16.53X
OVERALL MEDIAN 0.59X 6.55X 15.22X
---------------------------------------------------------------
-------------------------------
FLIGHT INTERNATIONAL GROUP $ 1.41 $(0.88) 1.11 0.17X 14.55X NM
-------------------------------
* Values for the Company are based on FY02 estimates and terms of the
transaction.
62
4. Premium Paid Analysis. Premium Paid Analysis provides a proposed
premium to the pre-transaction value of the Company based on the
presence of an acquirer. 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 more than 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. These findings are
demonstrated in the two tables below.
Recent Transactions in the Company's Stock
------------------------------------------
Actual/ Acquisition Acquisition
Implied Price per Premium/
Transaction Description Price Share (Discount)
- ----------------------- ------- ------- ----------
Shares issued in FY2000 acquisition $3.50 $5.86 67.3%
Shares redeemed in FY2000 $5.55 $5.86 5.5%
Options granted in FY2001 $4.26 $5.86 37.5%
Options granted in FY2000 $3.37 $5.86 73.8%
Options granted in FY1999 $3.07 $5.86 90.8%
Book Value per Share (1/31/02)-unaudited) $1.40 $5.86 319.4%
Book Value per Share (4/30/01)-audited) $0.84 $5.86 596.7%
Averages $3.14 $5.86 86.4%
Comparable Transactions
-----------------------
Stock Premiums
Prior Periods(%)
---------------------
Date Original Rank Value Price/ Share
Ann. Date Target Name Acquiror Name Transaction(4) Value(3) Price 1 day 1 week 4 weeks
----- ------- ----------- ------------- ------------- -------- ----- ----- ------ -------
1. 3/26/90 3/26/90 Whitehall Corp Cambridge Capital Fund LP 65.7US 29.5US 20.00 35.59 30.08 56.86
2. 8/30/90 8/30/90 Lockheed Corp Investor Group 350.0US 350.0US 35.00 30.84 28.44 25
3. 11/21/94 5/9/94 Abex Inc (Mafco Consolidaded) MacAndrews & Forbes
Holdings 197.6US* 266.1US 10.00 48.15 45.45 60
4. 11/14/96 11/14/96 Interactive Flight Tech Hyatt Corp 11.9US 11.9US 9.88 -13.19 -3.66 -19.39
5. 2/14/97 2/14/97 UNC Inc Greenwich Air Services Inc 442.7US 821.9US 15.00 37.93 41.18 36.36
6. 3/26/98 3/26/98 Whitehall Corp Aviation Sales Co 139.9US 139.9US 22.57 2.57 -2.95 9.08
7. 7/17/98 7/17/98 DeCrane Aircraft Holdings Inc DLJ Merchant Banking Inc 181.5US 273.2US 23.00 30.5 28.67 33.82
8. 8/17/98 8/17/98 Ronson Corp Investor Group 15.5US 21.3US 5.25 42.66 44.63 35.31
9. 2/8/99 2/8/99 Howmet International Inc Cordant Technologies Inc 385.1US* 385.1US 17.00 7.12 11.48 13.33
10. 10/21/99 10/21/99 Cade Industries Inc United Technologies Corp 133.2US 132.2US 5.05 30.32 26.25 55.38
11. 11/01/99 11/1/99 Trister Aerospace Co Allied Signal Inc 269.8US * 262.7US 9.50 43.4 67.03 65.22
12. 3/14/00 3/14/00 Howmet International Inc Alcoa Inc 349.3US 349.3US 21.00 13.51 12.75 14.29
----------------------------------------------------
MEAN 25.8% 27.6% 32.1%
----------------------------------------------------
63
From these various detailed analyses, the Board determined that the value to be
received by the Shareholders of the Company was fair and reasonable and compares
to the consideration received by other shareholders of other companies in
similar businesses have received for their stock in the last four years in
similar transactions.
Pursuant to an engagement agreement with G-V, 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. In addition, the Company's President, David Sandlin,
and VTF have agreed in principle to the terms of an employment agreement for Mr.
Sandlin to be president of the division of VTF that operates the Company's and
Maritime's business following the Asset Sale. The term sheet for Mr. Sandlin's
employment with VTF is an exhibit to the Asset Purchase Agreement. The term
sheet states that Mr. Sandlin's employment will be for a term of two years at an
annual salary of $225,000 per year. Mr. Sandlin will be eligible for a
discretionary incentive bonus of up to 50% of his annual salary. Mr. Sandlin is
also eligible for a retention bonus of $125,000, 25% of which shall be payable
thirty days after the closing of the Asset Sale and the transaction between VTF
and Maritime and the remaining 75% of which shall be payable on the first
anniversary of the closing of the Asset Sale and the transactions between VTF
and Maritime. Mr. Sandlin will also be subject to non-competition,
non-interference and non-disclosure agreements for 5 years. There is no
agreement, understanding or arrangement for Mr. Sandlin to receive any direct or
indirect equity interest in VTF or any affiliate thereof. A copy of the term
sheet outlining the terms of Mr. Sandlin's employment arrangement with VTF is
attached hereto as Annex E. John Bone, a member of our Board of Directors, has
agreed to enter into a non-competition, non-interference and non-disclosure
agreement having a term of 3 years.
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.
64
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. The Company believes that the
benefits of the Asset Purchase Agreement and transactions contemplated thereby
to its unaffiliated Shareholders include: (i) the opportunity to receive a
pro-rata cash payment from the net proceeds of the Asset Sale for their shares
of Common Stock in connection with the planned Tender Offer, (ii) realizing the
highest possible value of the Assets of the Company which has had long standing
capital restraints and operating losses and (iii) the anticipated lack of
adverse tax consequences to the Company on the sale of the Assets due to
available net operating and net capital loss carryforwards, maximizing the
amount available for payment to Shareholders pursuant to the planned Tender
Offer. Detriments to the Company's unaffiliated Shareholders include: (i) if a
Shareholder does not participate in the planned Tender Offer, since the Company
will not have any active operating business if the Asset Sale is consummated,
the opportunity for future growth of their equity interest in the Company will
be diminished, (ii) the indemnity holdback of $1,000,000 of the sale proceeds
for nine months following the Asset Sale and the potential for indemnity claims,
which could decrease the amount of net proceeds available for the planned Tender
Offer, (iii) if the Tender Offer is successful, the Company intends to terminate
the registration of its Common Stock under the Securities Exchange Act of 1934,
and cease filing periodic reports, thus there will be decreased access to
information concerning the Company for remaining Shareholders and (iv)
participants in the planned Tender Offer may be required to pay Federal, state
and local taxes upon receipt of cash from the offer.
The Company believes that the benefits of the Asset Purchase Agreement and
transactions contemplated thereby to itself include: (i) providing liquidity to
its Shareholders who have held shares of Common Stock that are not actively
traded, (ii) realizing the highest possible value of the Assets of the Company
which has had long-standing capital restraints and operating losses, (iii)
infusing capital into the Company at a time when its recent history has shown a
lack of strategic alternatives available to the Company, (iv) the anticipated
lack of adverse tax consequences to the Company on the sale of the Assets due to
available net operating and net capital loss carryforwards, and (v) if the
planned Tender Offer is successful, the Company plans to "go private" and cease
its reporting obligations under the Securities Exchange Act of 1934 and
significant expenses related thereto. Detriments to the Company include the fact
that the Company will not have any active operating business if the Asset Sale
is consummated and the fact that there are no present plans to acquire any
operating business or assets to replace the Assets being sold pursuant to the
Asset Purchase Agreement.
In addition to the benefits to unaffiliated Shareholders above, the Company
believes that the benefits of the transaction that are unique to the Company's
affiliated Shareholders include: (i) the proceeds to be received by our
President and Chairman, David Sandlin, and John Bone, one of our directors on
the contemporaneous sale of Maritime Sales & Leasing and (ii) Mr. Sandlin's
salary and bonus under his proposed employment agreement with the purchaser
following the closing. In addition to the detriments above, an additional
detriment to the Company's affiliated Shareholders is the requirement that Mr.
Sandlin and Mr. Bone are entering into non-competition agreements with VTF
following the closing.
For a further discussion of these benefits and detriments, see the Sections
above entitled "REASONS FOR THE SALE OF OUR ASSETS AND SUBSTANTIALLY ALL OF THE
SUBSIDIARIES ASSETS" and "INTERESTS OF CERTAIN PERSONS IN THE ASSET PURCHASE
AGREEMENT AND RELATED TRANSACTIONS" and the Sections below entitled "PLANS FOR
THE COMPANY AFTER THE ASSET SALE" and "FEDERAL INCOME TAX CONSEQUENCES OF THE
PROPOSED TRANSACTION."
PLANS FOR THE COMPANY AFTER THE ASSET SALE
On August 14, 2002, the Board unanimously approved a plan to make an offer to
purchase all of the issued and outstanding shares of the Company's Common Stock,
followed by the winding up of the Company's business. The plan is conditioned
upon the consummation of the Asset Sale. All net proceeds from the Asset Sale
(after deducting expenses and reasonable reserves for liquidation) will be
offered to our Shareholders on a pro-rata basis through a tender offer.
Contemporaneous with the filing of this proxy statement, the Company has filed a
Schedule 13E-3 (the "Schedule 13E-3") with the SEC in connection with the
transactions described herein and the Company's planned tender offer. The
Company plans to file a joint Schedule 13E-3/Schedule TO with respect to the
tender offer as soon as practicable following the closing and as soon as the
terms of the proposed tender offer are known and finalized. If the results of
the tender offer are such that we have fewer than 300 shareholders of record, we
may file an application to deregister our Common Stock and cease our reporting
obligations with the SEC.
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.
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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 Internal Revenue Service adjusts the loss
carryforwards, 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.
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 the sale of 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 (subject to adjustment).
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 $31,800,000, 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. As of July 31, 2002, the combined indebtedness of the Company and
Maritime was $34,686,000. As of November 15, 2002, the combined indebtedness of
the Company and Maritime was $32,594,000. Based on anticipated levels of
indebtedness and other obligations as of the projected closing date, the Company
expects that there will be a downward adjustment to the purchase price of
approximately $600,000. The amount of any adjustment is subject to the Company's
operating performance and other factors that could affect its indebtedness prior
to the closing, as well as the timing of the anticipated closing date. The
Company will not re-solicit Shareholder approval if there is a further material
reduction in the purchase price based on increased indebtedness.
On November 15, 2002, we entered into the Second Amendment, pursuant to which,
among other things, VTF agreed to deposit into escrow the sum of $250,000, which
will be payable to us in the event the closing of the Asset Sale does not occur
by the close of business on December 16, 2002 and all conditions to the
obligation of VTF to consummate the transactions contemplated by the Asset
Purchase Agreement set forth in Article IX of the Asset Purchase Agreement have
been satisfied or waived (other than those conditions that by their nature are
to be satisfied at the Closing and which are prepared to be satisfied at the
Closing) on or prior to December 16, 2002; if the closing does not occur on or
prior to December 16, 2002, for any other reason, the $250,000 would be returned
to VTF.
66
Certain of the Company's assets and liabilities will be excluded from the Asset
Sale. The excluded assets include: (i) the purchase price payable to the Company
under the Asset Purchase Agreement, (ii) any shares of capital stock of the
Company's subsidiaries and (iii) the corporate minute books and stock records of
the Company and its subsidiaries. The excluded liabilities include: (i) the
obligations and liabilities of the Company arising under the Asset Purchase
Agreement, (ii) the obligations of the Company for any and all taxes (including
interest, penalties and additions to tax or additional amounts relating to taxes
thereto) arising from the operations of the Company prior to the closing of the
Asset Sale, (iii) the Company's obligations for fees and expenses incurred in
connection with the negotiation, preparation or approval of the Asset Purchase
Agreement, (iv) all liabilities or obligations of the Company in respect of
litigation arising as a result of any act, omission or circumstance taking place
prior to the closing, (v) 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; (vi) all unpaid or unperformed
wages, salaries, payroll taxes, sick pay, fringe benefits and other employee
benefits of any employees of the Company and (vii) certain other excluded items
set forth in the Asset Purchase Agreement annexed hereto.
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.
67
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
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 (VTF has since
delivered a letter to the Company waiving its financing contingency, a copy of
which is annexed hereto as Annex F), (iii) 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)), (iv) the
satisfactory completion of a due diligence investigation by VTF of the Company's
assets, operations and condition, (v) 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 under certain circumstances: (i)
if the closing of the transactions contemplated therein do not occur prior to
December 16, 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 $38,300,000, (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. As of the date hereof, Mr. Sandlin owns 21.0% of our
issued and outstanding Common Stock. In conjunction with John Bone (who owns
15.3% of our issued and outstanding Common Stock) and Maritime (who owns 9.8% of
our issued and outstanding Common Stock), they have a combined ownership of
46.1% of the voting Common Stock. The shares owned by Maritime are included in
Mr. Sandlin's Voting Agreement. This voting agreement terminates the earlier of
the date the Asset Purchase Agreement is terminated or the transactions
contemplated thereby are consummated. John Bone, one of our directors, has
indicated to the Board that he intends to vote his shares in favor of the
approval and adoption of the Asset Sale and all of the transactions contemplated
thereby. The Company is not aware of any agreement between Mr. Bone and VTF with
respect to Mr. Bone's shares of the Company's Common Stock.
68
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. To date the Company has incurred $63,504 for accounting
expenses, $186,800 for legal expenses, $50,000 for financial consultants,
$28,157 for EDGAR filing services and $8,143 for miscellaneous expenses in
connection with the Asset Sale.
SOURCE OF FINANCING
VTF has advised the Company that it will assign its rights and obligations under
the Asset Purchase Agreement prior to the closing to one or more subsidiaries of
RALLC who are expected to finance the Asset Sale entirely through borrowings
under credit facilities available to RALLC and its subsidiaries. RALLC will not
become a party to the Asset Purchase Agreement by virtue of the assignment, and
will not guarantee the obligations of its subsidiaries thereunder. As its
existing credit facility does not currently permit RALLC to consummate the asset
acquisition, RALLC has informed us that (although not contractually obligated to
do so) it intends to seek a replacement of its existing credit facility with a
larger new credit facility with substantially the same syndicate of lending
institutions in order to finance the Asset Sale. RALLC and VTF have informed us
that they do not have any alternative financing plans in the event they are
unable secure a new credit facility.
RALLC's new credit facility is expected to provide aggregate borrowing
availability of $189,375,000, comprised of (i) a $40,000,000 revolving credit
facility, (ii) a $45,000,000 term loan A facility and (iii) a $104,375,000 term
loan B facility. The new credit facility is expected to be guaranteed by all of
RALLC's subsidiaries and secured by the stock and assets of such subsidiaries.
The revolving and term loans under the new credit facility are expected to have
maturity dates between June 30, 2006 and June 29, 2007.
The revolving and term loans under the new credit facility will bear interest,
at RALLC's option, at a rate equal to LIBOR or a base rate, plus in each case a
margin ranging from 2.5% to 4.0%, to be determined based on RALLC's leverage
ratio.
RALLC will be required to negotiate the terms of the definitive documentation
governing the new credit facility prior to the closing of the Asset Sale, and
expects such documentation will contain customary conditions precedent to
advancing funds. RALLC has obtained a commitment letter from CIBC World Markets
Corp. relating to the additional financing required to consummate the Asset
Sale. A copy of the commitment letter is annexed hereto as Annex G. The
financing referred to in the commitment letter is subject to customary
conditions, including satisfactory completion by the lead lender of confirmatory
due diligence, the receipt of required third-party and governmental consents and
approvals, completion of definitive documentation in form and substance
satisfactory to the lenders, a satisfactory senior secured credit rating from
credit rating agencies, and the absence of a material adverse change with
respect to RALLC or financial markets generally.
RALLC anticipates that any indebtedness incurred through borrowings under the
new credit facility will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by RALLC and its
subsidiaries. No decision has been made concerning the method to be employed to
repay such indebtedness. Such decision will be made based on review by RALLC
from time to time of the availability of particular actions, as well as on
prevailing interest rates and financial and other economic conditions and such
other factors as RALLC may deem appropriate.
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.
69
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 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 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.
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:
70
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
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.
71
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 are not listed on any stock exchange or listed on any
automated quotation system.
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 November 13,
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.
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 November 13, 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.
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Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership (1) Percent of Class
- ----- ------------- ----------------
David E. Sandlin (2) 405,882 36.58%
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.
Newnan, GA 30263
Vice Admiral Richard M. Dunleavy (Ret.) 5,000 *
2220 Sandfiddler Road
Virginia Beach, VA 23456
Maritime Sales & Leasing, Inc.(3) 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. ("FPL") 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.
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(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).
(2) Includes 2,882 shares owned by Mr. Sandlin's daughter, Elizabeth.
(3) All of the outstanding capital stock of Maritime Sales & Leasing is
equally owned by David E. Sandlin and John Bone.
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
Robert C. Dynan 46 April 3, 2000 Executive Vice President
Matthew J. Nowicki 43 June 3, 2002 Chief Financial Officer
and Treasurer
Ann P. Campbell 63 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.)
74
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.
None of the members of management or of the Company's Board of Directors has
been convicted in a criminal proceeding during the past five years, nor has any
such person been a party to any judicial or administrative proceeding during the
past five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws. Each such person is a citizen of the United States.
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 24 aircraft to FII and four
aircraft to FAI . In addition, Mr. Sandlin leases one aircraft personally to FAI
and is a part owner of The Aviation Company which lease aircraft to the Company.
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.
75
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.
76
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. Copies of such material can be obtained
from the Public 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 November 25, 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.
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
November 25, 2002
77
THE FLIGHT INTERNATIONAL GROUP, INC.
PROXY - SPECIAL MEETING OF SHAREHOLDERS
December 9, 2002
THE FLIGHT INTERNATIONAL GROUP, INC.
One Lear Drive
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
December 9, 2002 FOR SHAREHOLDERS OF RECORD ON NOVEMBER 13, 2002. The
undersigned 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 December 9, 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. Approval of the postponement or adjournment of the meeting, if
necessary, to solicit additional proxies.
/ / / / / /
FOR AGAINST ABSTAIN
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)
78
Please sign exactly as name appears below. When joint tenants hold shares, 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.
79
The Flight International Group, Inc.
and Subdidaries.
Consolidated Financial Statements
Years Ended April 30, 2002, 2001, 2000 and 1999
F-1
The Flight International Group, Inc.
and Subsidiaries
Table of Contents
Report of Independent Certified Public Accountants F-3
Consolidated Financial Statements
Balance Sheets F-4
Statements of Operations F-6
Statements of Stockholders' Equity (Deficit) F-7
Statements of Cash Flows F-8
Summary of Accounting Policies F-9-12
Notes to Consolidated Financial Statements F-13 - 25
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, 2002, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the four years in the period ended
April 30, 2002. 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, 2002, 2001 and 2000,
and the results of their operations and their cash flows for each of the four
years in the period ended April 30, 2002 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and has a net
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1 to the financial statements. The financial statements do not
include any adjustments that might result from the outcome of the uncertainty.
/s/ BDO Seidman, LLP
Richmond, Virginia
August 2, 2002
F-3
CONSOLIDATED BALANCE SHEETS
ASSETS
April 30,
---------------------------------------------
2002 2001 2000
---- ---- ----
Current assets
Cash $ 195,573 $ 183,817 $ 167,647
Accounts receivable, net (Notes 3,6 and 13) 8,213,821 6,329,370 5,701,100
Inventories (Notes 4, 6 and 7) 2,967,050 2,827,982 3,123,887
Costs in excess of billings 812,408 154,401 722,259
Prepaid expenses and other 170,091 78,320 202,412
Deposits (Note 13) 462,978 487,979 706,173
Note receivable - current portion (Note 2) 304,304 130,500 -
Assets held for sale 1,566,081 - 2,651,012
- ------------------------------------------------------------------------------------------------------------------
Total current assets 14,692,306 10,192,369 13,274,490
- ------------------------------------------------------------------------------------------------------------------
Property and equipment, net (Notes 5, 6, 7 and 9) 9,822,459 9,728,393 5,313,631
- ------------------------------------------------------------------------------------------------------------------
Other long-term assets, net of amortization of approximately
$139,000, $90,000 and $42,000 651,665 635,531 580,308
Note receivable, less current portion (Note 2) - 469,500 -
Goodwill, net of amortization of approximately $11,000 (Note 2) - - 962,548
- ------------------------------------------------------------------------------------------------------------------
Total other assets 651,665 1,105,031 1,542,856
- ------------------------------------------------------------------------------------------------------------------
Total assets $25,166,430 $21,025,793 $20,130,977
- ------------------------------------------------------------------------------------------------------------------
F-4
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
April 30,
-----------------------------------------------
2002 2001 2000
---- ---- ----
Current liabilities
Accounts payable (Note 13) $ 7,777,745 $ 3,606,365 $ 2,272,191
Deferred gain - current portion (Note 13) - 141,531 283,060
Accrued fuel expense (Note 16) 362,603 926,053 1,010,682
Accrued expenses and other liabilities (Note 13) 3,261,226 1,631,632 1,884,880
Deferred revenue 878,285 - -
Accrued compensation and benefits 771,417 635,372 372,495
Notes payable (Note 6) 5,829,158 4,945,926 3,900,391
Long-term debt due currently (Note 7) 1,737,649 1,369,639 1,081,525
Note payable stockholder (Note 13) 202,811 202,811 238,585
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 20,820,894 13,459,329 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) 5,693,334 6,183,735 3,889,912
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 26,964,253 20,093,089 15,717,254
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 9, 10 and 11)
Stockholders' equity (deficit)
Common stock, $.01 par value, 10,000,000 shares
authorized; 1,109,588 issued and outstanding (Note 15) 11,097 11,095 11,095
Additional paid-in capital 1,329,016 1,328,520 1,328,520
Retained earnings (deficit) (3,137,936) (406,911) 3,074,108
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (1,797,823) 932,704 4,413,723
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 25,166,430 $21,025,793 $20,130,977
- ------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended April 30,
--------------------------------------------------------------------
2002 2001 2000 1999
---- ---- ---- ----
Revenues (Note 12) $44,788,464 $37,400,960 $28,984,109 $25,313,924
- ----------------------------------------------------------------------------------------------------------------------
Operating costs and expenses
Costs of services (Note 13) 41,293,476 31,803,584 24,357,200 21,322,103
Gain on disposal of assets (Note 13) (141,531) (351,932) (492,071) (69,760)
Depreciation and amortization 1,609,342 1,281,940 789,517 600,658
General, corporate and administrative 3,813,459 4,537,730 2,645,932 2,320,463
- ----------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 46,574,746 37,271,322 27,300,578 24,173,464
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (1,786,282) 129,638 1,683,531 1,140,460
Interest expense 944,743 1,104,654 347,682 331,049
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before taxes (2,731,025) (975,016) 1,335,849 809,411
Loss from discontinued operations (Note 2) - (1,460,721) (457,568) -
Loss on disposal of subsidiary (Note 2) - (1,045,282) - -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,731,025) $(3,481,019) $ 878,281 $ 809,411
- ----------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per share data:
Continuing operations $ (2.46) $ (.88) $ 1.29 $ .80
Discontinued operations - (2.26) (.44) -
- ----------------------------------------------------------------------------------------------------------------------
$ (2.46) $ (3.14) $ .85 $ .80
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of shares - basic 1,109,588 1,109,424 1,029,656 1,013,976
Weighted average number of shares - diluted 1,109,588 1,109,424 1,039,217 1,013,976
- ----------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional 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) (5,950) (59) (32,983) -
Net income - - - 878,281
- -------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2000 1,109,424 11,095 1,328,520 3,074,108
Net loss - - - (3,481,019)
- -------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2001 1,109,424 11,095 1,328,520 (406,911)
Stock Options exercised 164 2 496
Net loss - - - (2,731,025)
- -------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2002 1,109,588 $11,097 $1,329,016 $(3,137,936)
- -------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended April 30,
---------------------------------------------------------------------
2002 2001 2000 1999
---- ---- ---- ----
Operating activities
Net income (loss) $(2,731,025) $(3,481,019) $ 878,281 $ 809,411
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Bad debt - note receivable 210,000 - - -
Loss on disposal of subsidiary - 1,045,282 - -
Depreciation and amortization 1,609,342 1,281,940 884,611 600,658
Engine reserve - (191,977) 193,553 (296,178)
Gain on sale of assets (141,531) (351,932) (492,071) (69,759)
Net cash provided (absorbed) by
Accounts receivable (1,884,451) (1,337,356) (1,684,436) 472,055
Inventories (139,068) (47,010) (256,692) (798,854)
Costs in excess of billings (658,007) 567,858 (288,343) (111)
Prepaid expenses and other assets (66,771) 375,987 (211,696) 682,974
Accounts payable 4,171,380 2,534,382 1,093,011 105,206
Accrued expenses and other liabilities 1,202,687 23,946 283,321 275,736
Deferred revenue 878,285 - (727,586) (950,802)
Income taxes payable - - - (20,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided (absorbed) by operating
activities 2,450,841 420,101 (328,047) 810,336
- ----------------------------------------------------------------------------------------------------------------------------
Investing activities
Proceeds from sale of assets held for resale - 1,225,000 - -
Proceeds from sale of property and equipment - 500,000 1,700,000 -
Investment in property and equipment (1,654,541) (5,182,533) (1,710,923) (1,103,201)
Investment in assets held for sale (1,566,081) (320,592) (2,651,012) -
Investment in other long-term assets (65,000) (257,500) - -
Proceeds from note receivable repayment 85,696 - - -
Acquisitions - - (1,298,281) -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash absorbed by investing activities (3,199,926) (4,035,625) (3,960,216) (1,103,201)
- ----------------------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from lines of credit, net 883,232 2,748,662 1,116,760 629,409
Repayment of long-term debt (1,422,391) (4,354,697) (1,024,774) (856,260)
Proceeds from long-term debt 1,300,000 5,273,504 4,215,000 495,000
Net shareholder advances (repayments) - (35,775) 69,632 -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 760,841 3,631,694 4,376,618 268,149
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 11,756 16,170 88,355 (24,716)
Cash and cash equivalents, beginning of year 183,817 167,647 79,292 104,008
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 195,573 $ 183,817 $ 167,647 $ 79,292
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and
notes to consolidated financial statements.
F-8
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 through its subsidiary in Alaska,
Flight Alaska, Inc. ("FAI"), 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,
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.
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 - 20 months (remaining lease term);
equipment, computers, office furniture, and fixtures 3 - 7 years.
F-9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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 balance at April 30, 2000
includes costs related to the acquisition and refurbishment of three airplanes.
The assets are stated at the lower of cost or market. Two planes were sold
during the year ended April 30, 2001 and another was put into service by the
Company and therefore transferred to property and equipment. Assets held for
sale at April 30, 2002 includes costs related to acquisition and refurbishment
of two airplanes.
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 and $615,000 at April 30, 2002 and
2001, respectively, and are being amortized on a straight line basis over 10-15
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.
Asset Impairments and Disposals - 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, as determined based on
undiscounted cash flows over the remaining amortization periods. If there is
evidence of impairment, the carrying value of related assets would be reduced by
the estimated shortfall of undiscounted cash flows.
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 compensation of fixed
costs evenly over the contract . In addition, 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 has a major airplane modification job in progress as of
April 30, 2002 for a customer. The contract is expected to be complete near the
end of the year ended April 30, 2003. Due to the length of the contract it will
be accounted for on the percentage of completion method based on milestones set
forth in the contract. As of April 30, 2002 the Company had not achieved any of
the contact milestones and therefore no revenues have been recognized. The
Company had accumulated approximately $672,000 and $878,000 of costs and
deferred revenue, respectively, related to the contract as of April 30, 2002.
F-10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Maintenance Revenue - The Company recognizes maintenance revenue at the
time of completion.
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. The adoption of this statement is not expected to have an
impact on the Company's financial condition or results of operations.
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 adoption of this statement
is not expected to have an impact on the Company's financial condition or
results of operations.
F-11
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. Currently, the Company
is assessing but has not determined how the adoption of SFAS 144 will impact its
financial position and results of operations.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement changes certain accounting related to the
extinguishment of debt, and eliminates inconsistencies between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
statement is effective after May 15, 2002 and early application is encouraged as
of the beginning of the fiscal year or as of the beginning of the interim period
in which the statement is issued. The adoption of the statement is not expected
to have an impact on the Company's present financial condition or results of
operations.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 provides guidance on
the timing of the recognition of costs associated with exit or disposal
activities. The new guidance requires costs associated with exit or disposal
activities be recognized when incurred. Previous guidance required recognition
of these types of costs at the date of commitment to an exit or disposal plan.
The provisions of the statement are to be adopted prospectively after December
31, 2002. Although SFAS No. 146 may impact the accounting for costs related to
exit or disposal activities we may enter into in the future, particularly the
timing of the recognition of these costs, the adoption of the statement will not
have an impact on the Company's present financial condition or results of
operations.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Management's Plans - 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
transaction occurs, it is anticipated that it would close in fall of 2002.
Should the sale not be consummated, management has implemented significant
operating changes to ensure the success of the Company. The following is a
summary of the major changes:
The Company's primary government services contract was renewed April 1, 2002.
This contract's structure changed, resulting in an increase in the incremental
cash flow realized from the fixed monthly billing change. Additionally, the
combined billing value per flight hour has increased.
The Company is restructuring its fleet and is currently in process of
reassigning several assets from the Alaska subsidiary to anticipated new
contracts. A realignment of resources will increase fleet utilization and
provide the basis for an increase revenue stream.
Operating policies and procedures are being revised and overhead cost structures
are being adjusted to ensure an efficient and compliant operating
infrastructure.
The customer base has been expanded due to a recent contract award from the US
Air Force. This contract has a five-year performance period with annual
estimated revenue of $700,000.
The Company is aggressively seeking new business opportunities and has several
potential contract awards outstanding. These proposals include six new customers
from both the commercial and governmental market.
The Company is very confident that implementing the newly established operating
budget, utilizing an efficient corporate infrastructure, and expanding its
customer base will achieve its business plan.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the possible inability
of the Company to continue as a going concern.
Note 2 - Acquisitions and Disposal of Subsidiary - 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. 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.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Acquisitions and Disposal of Subsidiary (continued)
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 -
The Company disposed of its subsidiary FIS effective November 30, 2000 for a
$600,000 note receivable. The note was to mature April 2005 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 was 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) $ -
- --------------------------------------------------------------------------------
As of April 30, 2002, the Company recorded bad debt expense of $210,000 due to
default on the note receivable subsequent to year end. The outstanding principal
was reduced from approximately $514,000 to $304,000 as of April 30, 2002. The
$304,000 represents the estimated realizable value of all operating assets of
FIS turned over to the Company in satisfaction of the note.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 3 - Accounts Receivable - The balance of accounts receivable is comprised
of the following:
April 30,
-----------------------------------------
2002 2001 2000
---- ---- ----
Flight operations contracts
and programs $7,403,302 $5,722,238 $5,063,132
Commercial 808,585 856,535 551,426
Other receivables 496,650 362,317 106,229
---------- ---------- ----------
8,708,537 6,941,090 5,720,787
Less: allowance for
doubtful accounts (494,716) (611,720) (19,687)
----------- ----------- ------------
$8,213,821 $6,329,370 $5,701,100
=========== =========== ============
Accounts receivable from flight operations contracts and programs consist of the
following:
April 30,
--------------------------------------------
2002 2001 2000
---- ---- ----
U.S. Government
Amounts billed $5,976,248 $3,968,879 $2,053,128
Services provided,
not billed 452,927 978,520 2,129,655
---------- ----------- ----------
6,429,175 4,947,399 4,182,783
---------- ---------- ----------
Commercial Customers
Amounts billed 974,127 774,839 770,679
Services provided,
not billed - - 109,670
---------- ---------- ----------
974,127 774,839 880,349
---------- ---------- ----------
Total flight operations
contracts and programs $7,403,302 $5,722,238 $5,063,132
========= ========= =========
Accounts receivable are billed in accordance with the terms of the contracts
under which they arise.
Note 4 - Inventories - Inventories are compromised of:
April 30,
-----------------------------------------
2002 2001 2000
---- ---- ----
Aircraft parts $2,737,760 $2,579,701 $2,928,592
Targets and cable 207,065 224,073 183,308
Fuel 22,225 24,208 11,987
----------- ----------- ----------
$2,967,050 $2,827,982 $3,123,887
========= ========= =========
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - Property and Equipment - Property and equipment consist of the
following:
April 30,
---------------------------------------
2002 2001 2000
---- ---- ----
Aircraft, improvements, and engines $ 8,335,544 $ 6,868,259 $3,220,532
Electronic warfare equipment 963,147 963,147 519,147
Buildings and leasehold improvements 3,487,277 3,430,650 2,246,378
Office furniture and fixtures 872,481 787,009 287,392
Other equipment 1,473,656 1,428,499 1,839,260
--------- --------- ----------
15,132,105 13,477,564 8,112,709
Accumulated depreciation
and amortization (5,309,646) (3,749,171) (2,799,078)
----------- ---------- -----------
Property and equipment, net $ 9,822,459 $ 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 and to $7,250,000 as of
December 2001. The current term of the agreement runs through August 31, 2002.
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, which was approximately 5.25% at April 30, 2002. Outstanding advances at
April 30, 2002, 2001 and 2000 were approximately $5,829,000, $4,946,000 and
$3,900,000, respectively. Under the agreement, the Company was required to
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. The agreement was also amended December 1, 2001 to include virtually
all equipment of the Company as collateral. The Company believes it will be able
to refinance the debt as it becomes due.
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.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt - Long-term debt consists of the following:
April 30,
---------------------------------------------
2002 2001 2000
---- ---- ----
Note payable to a bank with interest payable at the monthly
LIBOR Index plus 3% (4.8%), due in equal monthly installments of principal and
interest of $17,500, beginning
May 1, 2001 through April 1, 2004, secured by aircraft. $ 1,907,500 $ 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. 1,031,860 1,071,732 -
Note payable to a bank with interest payable at 8.55%, due in equal monthly
installments of principal and interest of
$11,898, maturing July 2006, secured by aircraft. 695,366 - -
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. 615,286 951,800 1,238,041
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. 541,875 733,125 908,438
Note payable to a bank with interest payable at 8.55%, due in equal monthly
installments of principal and interest of
$8,725 through July 2006, secured by aircraft. 509,914 - -
Note payable to a bank with interest payable at the LIBOR Index plus 3% (4.8%),
due in monthly installments of $16,500 beginning June 1, 2000 through May 1,
2005,
secured by aircraft. 478,174 640,152 775,000
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. (See Note 13) 409,149 500,000 -
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt (continued)
April 30,
-----------------------------------------
2002 2001 2000
---- ---- ----
Capital lease obligation, due in quarterly installments of
principal and interest of $50,500, through March 31,
2004, secured by computer equipment (Note 9). $ 340,727 $ 433,971 $ -
Note payable to a bank with interest payable at Prime rate plus 1.00% (5.75%),
due in equal monthly installments of principal of $5,952 plus interest
maturing on August 15,
2006, secured by aircraft. 315,488 386,912 452,384
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%
(5.5%), due in equal monthly installments of principal and interest of $1,875
through October 15, 2004,
secured by aircraft. 170,615 193,125 215,625
Note payable to a bank with interest payable at the LIBOR Index rate plus 3%
(4.8%), due in monthly installments of principal of $6,668 plus interest
through October 10, 2003,
secured by aircraft. 119,982 199,994 -
Note payable to a bank with interest payable at prime plus .25% (5%), due in
equal monthly installments of principal and interest of $3,472 through
November 2003, secured by
equipment. 65,972 107,639 -
Note payable to an insurance company with interest payable at 8.7%, due in
monthly installments of $3,503 maturing
September 2002. 17,141 - -
Note payable to a bank with interest payable at 8.9%, due in equal monthly
installments of principal and interest
of $376 maturing on March 1, 2003, secured by a vehicle. 3,833 8,247 11,085
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 7 - Long-Term Debt (continued)
April 30,
---------------------------------------------
2002 2001 2000
---- ---- ----
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
--------- ---------- ---------
7,430,983 7,553,374 4,971,437
Current maturities 1,737,649 1,369,639 1,081,525
--------- --------- ---------
Long-term debt, net $5,693,334 $6,183,735 $3,889,912
========= ========= =========
At April 30, 2002, aggregate principal payments due for long-term debt for the
next five fiscal years and thereafter were as follows:
2003 $1,737,649
2004 2,889,627
2005 836,626
2006 463,199
2007 641,112
Thereafter 862,770
----------
$7,430,983
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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,
-------------------------------------------------------
2002 2001 2000
---- ---- ----
Deferred gain $ - $ 54,000 $ 161,000
Engine reserve 227,000 227,000 244,000
Allowance for bad debts 96,000 168,000 7,000
Vacation expense 123,000 87,000 83,000
Net operating loss carryforwards 4,900,000 4,400,000 2,432,000
Basis difference of property and equipment (380,000) (40,000) -
----------- ------------ -----------
Net deferred tax asset 4,966,000 4,896,000 2,927,000
Valuation allowance (4,966,000) (4,896,000) (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, 2002, the cumulative net operating loss available for federal
income tax purposes was estimated at approximately $13 million which will expire
primarily during years ended 2011, 2019, 2021 and 2022
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 and engines was approximately $15,931,000, $11,488,000, $9,719,000 and
$7,272,000 for the years ended April 30, 2002, 2001, 2000 and 1999,
respectively. Such lease expenses included approximately $10,473,000,
$6,839,000, $7,028,000 and $4,160,000 for the years ended April 30, 2002, 2001,
2000 and 1999, respectively, for contingent rentals based on hours flown. See
discussion of related party lease commitments at Note 13.
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 approximately $960,000, $651,000, $391,000 and
$369,000 for the years ended April 30, 2002, 2001, 2000 and 1999, respectively.
Such lease expenses included approximately $66,000, $95,000, $105,000 and
$102,000 for the years ended April 30, 2002, 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 April 30, 2002 includes the leased
equipment of approximately $363,000, net of amortization of approximately
$223,000.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 9 - Lease Commitments (continued)
At April 30, 2002, future minimum lease payments excluding contingent rentals on
capital and operating leases for each of the next five fiscal years were as
follows:
Capital Operating
------- ---------
2003 $252,500 $5,817,000
2004 187,040 5,206,000
2005 - 4,671,000
2006 - 4,260,000
2007 - 2,125,000
--------------------------------------------------------------
Total minimum lease payments 439,540 22,079,000
Amounts representing interest 98,813 -
--------------------------------------------------------------
$340,727 $22,079,000
--------------------------------------------------------------
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 unclaimed shares are being held by the Company in the names of certain
unsecured creditors. These shares have been included as outstanding for earnings
per share purposes.
As a result of a state sales and use tax audit, the Company was assessed a
liability of approximately $280,000 for periods ended December 31, 2000 and
prior and a lien was placed on certain real property owned by the Company. The
Company has accrued approximately $240,000 based on a settlement of the
assessment as of April 30, 2002 and 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 in February 2000. 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 April 30, 2002 and 2001 the Company has
liabilities recorded of approximately $54,000 and $203,000 in each year related
to the attorney fees and shareholder payables, respectively.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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 15% 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 seven 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.
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 $111,000, $130,000, $72,000 and
$59,000 to the plan for the years ended April 30, 2002, 2001, 2000 and 1999,
respectively.
Note 12 - Transactions With Major Customer - Revenues from all U.S. government
contracts included in Flight operations are approximately as follows:
Year Ended April 30, Amount Percent
------------------- -------- -------
2002 $29,918,000 69%
2001 $23,893,000 64%
2000 $23,643,000 80%
1999 $19,444,000 77%
Note 13 - Related Parties - The Company had a note payable on advances from a
stockholder of $202,811 at April 30, 2002 and 2001, respectively. See further
discussion at Notes 2 and 10 regarding the stockholder who acquired shares of
the Company as the principal owner of Flight Systems, Inc.
The Company has entered into lease agreements with Maritime Sales and Leasing
("MSL") for certain aircraft and engines which require future minimum lease
payments at April 30, 2002 for each of the next five years as follows: 2003 -
$4,590,000, 2004 - $4,276,000, 2005 - $3,883,000 and 2006 - $3,620,000 and 2007
- - $1,763,000. David Sandlin, Chairman, President and CEO of the Company, is also
an owner of MSL. Related to these agreements, the Company has deposits of
approximately $337,000 with MSL as of April 30, 2002.
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 deferred gain as of April 30,
2001 and 2000 was $141,531 and $424,591, respectively. The remaining deferred
gain of $141,531 as of April 30, 2001 was recognized during 2002.
The Company has lease agreements for certain aircraft with the Aviation Company.
David Sandlin has an ownership interest in the Aviation Company. Approximately
$311,000, $22,000, $3,000 and $67,000 of lease expense was incurred for the
years ended April 30, 2002, 2001, 2000 and 1999, respectively. The Company also
has lease agreements for certain aircraft directly with David Sandlin.
Approximately $22,000 and $26,000 of lease expense was incurred for the years
ended April 30, 2002 and 2001, respectively. Required future minimum lease
payments at April 30, 2002 for each of the next five years to the Aviation
Company are approximately as follows: 2003 - $727,000, 2004 - $727,000, 2005 -
$727,000, 2006 - $632,000 and 2007 - $361,000.
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 in 2001 of approximately $113,000 related to the
transaction based on the present value of the lease payments over the five year
term.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 13 - Related Parties (continued)
Total lease expense including contingent rentals on all related party leases
were approximately as follows:
Year Ended April 30,
2002 $7,286,000
2001 $5,725,000
2000 $4,942,000
1999 $3,085,000
The amounts due to and from MSL including amounts related to the leasing
arrangements described are approximately as follows:
April 30, 2002 2001 2000
- ------------------------------------------------------------------------
Note payable (Note 7) $409,000 $500,000 $ -
Leases payable 813,000 110,000 182,000
Accounts receivable 178,000 165,000 124,000
Lease deposits 337,000 337,000 409,000
Note 14 - Supplemental Disclosure of Cash Flow Information - The Company made
interest payments of approximately $935,000, $1,030,000, $520,000 and $355,000
for the years ended April 30, 2002, 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.
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.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
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, 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted- Weighted-
average average average average
exercise exercise exercise exercise
Shares price Shares price Shares price Shares price
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding
at beginning of year 243,850 $3.63 153,350 $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 (164) 3.00 - - - - - -
Options forfeited
(cancelled) - - - - ( 13,300) 3.10 (38,000) 2.00
- ------------------------------------------------------------------------------------------------------------------------
Options outstanding
at end of year 243,686 $3.63 243,850 $3.63 153,350 $3.25 74,650 $3.07
- ------------------------------------------------------------------------------------------------------------------------
As of April 30, 2002, all options are vested and exercisable at a weighted
average price per share of $3.63. The weighted average remaining life of options
outstanding is approximately seven 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% no options were granted during 2002. The options granted
during the year ended April 30, 2001 had substantially no fair value under the
Black-Scholes method. 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 years ended
April 30, 2002 and 2001.
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 estimated actual usage
throughout the year and adjusts, if necessary at year end, the liability based
on actual invoices received and expected future invoices.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 16 - Accounting Estimates (continued)
As of April 30, 2002, the Company recorded bad debt expense of $210,000 due to
default on the note receivable subsequent to year end. The outstanding principal
was reduced from approximately $514,000 to $304,000 as of April 30, 2002. The
$304,000 represents the estimated realizable value of all operating assets of
FIS turned over to the Company in satisfaction of the note. The Company believes
that the $304,000 balance as of April 30, 2002 estimates the realizable value of
the assets received.
Note 17 - Sale of Assets - In November 2001, the Company entered into a letter
on 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
transaction occurs, it is anticipated that it would close in fall of 2002.
Note 18 - Fourth Quarter Adjustments - In the fourth quarter of the year ended
April 30, 2002, the Company recorded net adjustments which increased its net
loss by approximately $610,000. The Company determined that $240,000 and
$160,000 previously accrued for equitable fuel expense reimbursement in 2001 and
2002, respectively, was unlikely to be recovered from the government. In
addition, the Company recorded bad debt expenses in the fourth quarter of
approximately $210,000 due to default on a note receivable as discussed in Note
2 to the financial statements.
In the fourth quarter of the year ended April 30, 2000, the Company recorded net
adjustments which increased its net income by approximately $400,000 reflecting
approximately $825,000 of unrecorded contract revenues earned during the third
quarter and the deferral of a portion of a gain related to a sale-leaseback
transaction ($425,000).
F-25
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31, April 30,
2002 2002
---- ----
(Unaudited)
Current assets
Cash $ 12,633 $ 195,573
Accounts receivable, net 8,575,952 8,213,821
Inventories 3,232,793 2,967,050
Costs in excess of billings 827,210 812,408
Prepaid expenses and other 750,855 170,091
Deposits 462,978 462,978
Note receivable - 304,304
Assets held for sale 1,566,181 1,566,081
- ------------------------------------------------------------------------------
Total current assets 15,428,602 14,692,306
- ------------------------------------------------------------------------------
Property and equipment, net 10,231,162 9,822,459
- ------------------------------------------------------------------------------
Other long-term assets, net of amortization 638,637 651,665
- ------------------------------------------------------------------------------
Total assets $26,298,401 $25,166,430
==============================================================================
F-26
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
July 31, April 30,
2002 2002
---- ----
(Unaudited)
Current liabilities
Accounts payable $ 7,700,219 $ 7,777,745
Accrued fuel expense 406,248 362,603
Accrued expenses and other liabilities 4,013,025 3,261,226
Deferred revenue 919,589 878,285
Accrued compensation and benefits 777,384 771,417
Notes payable 6,778,483 5,829,158
Long-term debt due currently 2,097,650 1,737,649
Note payable stockholder 202,811 202,811
- -----------------------------------------------------------------------------------------
Total current liabilities 22,895,409 20,820,894
Accrued engine reserves 450,025 450,025
Long-term debt, less current maturities 4,908,621 5,693,334
- -----------------------------------------------------------------------------------------
Total liabilities 28,254,055 26,964,253
- -----------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $.01 par value, 10,000,000 shares
authorized; 1,109,588 issued and outstanding 11,097 11,097
Additional paid-in capital 1,329,016 1,329,016
Retained earnings (deficit) (3,295,767) (3,137,936)
- -----------------------------------------------------------------------------------------
Total stockholders' equity (deficit) (1,955,654) (1,797,823)
- -----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity (deficit) $ 26,298,401 $ 25,166,430
=========================================================================================
See accompanying notes to consolidated financial statements.
F-27
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
------------------------------
July 31, 2002 July 31, 2001
------------- -------------
(Unaudited) (Unaudited)
Revenues $13,356,627 $11,296,387
- -----------------------------------------------------------------------------------------
Operating costs and expenses
Costs of services 11,434,432 9,693,687
Gain on disposal of assets -- (68,199)
Depreciation and amortization 432,975 388,225
General, corporate and administrative 1,382,041 1,027,172
- -----------------------------------------------------------------------------------------
Total operating costs and expenses 13,249,448 11,040,885
Operating income 107,179 255,502
Interest expense 265,010 307,124
- -----------------------------------------------------------------------------------------
Net loss $ (157,831) $ (51,622)
=========================================================================================
Earnings (loss) per share data:
Basic and diluted loss per share $ (.14) $ (.05)
Weighted average number of shares - basic and diluted 1,109,588 1,109,588
=========================================================================================
See accompanying notes to consolidated financial statements.
F-28
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
------------------------------
July 31, 2002 July 31, 2001
------------- -------------
(Unaudited) (Unaudited)
Operating activities
Net loss $ (157,831) $ (51,622)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation and amortization 432,975 388,225
Gain on disposal of assets -- (68,199)
Net cash provided (absorbed) by
Accounts receivable (362,131) (591,749)
Inventories (175,827) (67,125)
Costs in excess of billings (14,802) 58,270
Prepaid expenses and other assets (580,768) (87,543)
Accounts payable (77,526) 1,010,819
Accrued expenses and other liabilities 801,411 (164,384)
Deferred revenue 41,304 --
- -----------------------------------------------------------------------------------
Net cash provided (absorbed) by operating
activities (93,195) 426,692
- -----------------------------------------------------------------------------------
Investing activities
Investment in property and equipment (638,913) (364,859)
Investment in assets held for sale (100) (1,438,924)
Proceeds from note receivable repayment 24,655 --
- -----------------------------------------------------------------------------------
Net cash absorbed by investing activities (614,358) (1,803,783)
- -----------------------------------------------------------------------------------
Financing activities
Proceeds from line of credit, net 949,325 547,538
Repayment of long-term debt (424,712) (313,567)
Proceeds from long-term debt -- 1,300,000
- -----------------------------------------------------------------------------------
Net cash provided by financing activities 524,613 1,533,971
- -----------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (182,940) 156,880
Cash and cash equivalents, beginning of period 195,573 183,817
- -----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,633 $ 340,697
===================================================================================
See accompanying notes to consolidated financial statements.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION - The accompanying unaudited financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements should be
read in conjunction with the Company's annual financial statements for the year
ended April 30, 2002 included in the Company's Form 10-K filed with the
Securities and Exchange Commission on August 19, 2002.
In the opinion of management, the financial statements include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly the financial position of the Company as of July 31, 2002 and the
results of its operations and its cash flows for the respective three month
periods ended July 31, 2002 and 2001. Interim results for the three months ended
July 31, 2002 are not necessarily indicative of results that may be expected for
the fiscal year ending April 30, 2003.
NOTE 2 - 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 operates
a fixed base operation ("FBO") at the Newport News/Williamsburg International
Airport. The Company also provides flight services through its subsidiary in
Alaska, Flight Alaska, Inc. ("FAI"), 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.
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 compensation of fixed costs evenly over
the contract. In addition, 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 has a major airplane modification job in progress for a customer.
The contract began during the year ended April 30, 2002 and is expected to be
complete near the end of the year ended April 30, 2003. Due to the length of the
contract it is being accounted for on the percentage of completion method based
on milestones set forth in the contract.
Maintenance Revenue - The Company recognizes maintenance revenue at the time of
completion.
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.
Reclassifications - Certain reclassifications have been made to the prior period
financial statements to conform to the July 31, 2002 presentation.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 - MANAGEMENT'S PLANS - On May 9, 2002, the Company entered into an Asset
Purchase Agreement with VTF Corporation ("VTF"). As detailed in the Preliminary
Proxy Statement filed August 19, 2002, VTF will assume substantially all of the
Company's assets and liabilities and those of the Company's wholly-owned
subsidiaries for $6,500,000 (subject to adjustment based on the amount of
indebtedness assumed by VTF). The transaction is subject to approval of the
Company's shareholders and other closing conditions. There can be no assurance
that the transaction will be consummated.
Should the sale not be consummated, management has implemented significant
operating changes to ensure the success of the Company. The following is a
summary of the major changes:
The Company's primary government services contract was renewed April 1, 2002.
This contract's structure changed, resulting in an increase in the incremental
cash flow realized from the fixed monthly billing change. Additionally, the
combined billing value per flight hour has increased.
The Company is restructuring its fleet and is currently in process of
reassigning several assets from the Alaska subsidiary to anticipated new
contracts. A realignment of resources will increase fleet utilization and
provide the basis for an increased revenue stream.
Operating policies and procedures are being revised and overhead cost structures
are being adjusted to ensure an efficient and compliant operating
infrastructure.
The customer base has been expanded due to a recent contract award from the US
Air Force. This contract has a five-year performance period with annual
estimated revenue of $700,000.
The Company is aggressively seeking new business opportunities and has several
potential contract awards outstanding. These proposals include six new customers
from both the commercial and governmental market.
The Company is very confident that implementing the newly established operating
budget, utilizing an efficient corporate infrastructure, and expanding its
customer base will achieve its business plan.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classifications of liabilities that may result from the possible inability
of the Company to continue as a going concern.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT - The Company has a $7,250,000 line of
credit agreement with a bank in Newport News, Virgina. The Company pays a
variable rate of interest, which was approximately 5.25% at July 31, 2002. As of
July 31, 2002, outstanding advances were approximately $6,800,000. The line is
secured by certain inventory, receivables, and equipment. The agreement was to
expire August 31, 2002, however, it has been extended to October 31, 2002.
As of July 31, 2002, long-term debt was approximately $7,006,000. As of July 31,
2002 as well as April 30, 2002, long-term debt consists primarily of aircraft
and engine debt on assets used in the Company's flight operations with the
majority of the remaining debt related to leasehold improvements at the Newport
News airport and in Alaska.
The Company believes it will be able to satisfy its short and long-term debt
commitments, including refinancing debt as it becomes due, if necessary.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 - INCOME TAXES - No provision has been made for income taxes because of
the substantial net operating loss carryforwards. The Company has recorded a
valuation allowance for the deferred tax asset due to uncertainty of its
realization.
As of April 30, 2002, the cumulative net operating loss available for federal
income tax purposes was estimated at approximately $13,000,000 and will expire
primarily during years ended 2011, 2019, 2021 and 2022.
NOTE 6 - SALE OF ASSETS - On May 9, 2002, the Company entered into an Asset
Purchase Agreement with VTF Corporation ("VTF"). As detailed in the Preliminary
Proxy Statement filed August 19, 2002, VTF will assume substantially all of the
Company's assets and liabilities and those of the Company's wholly-owned
subsidiaries for $6,500,000 (subject to adjustment based on the amount of
indebtedness assumed by VTF). The transaction is subject to approval of the
Company's shareholders and other closing conditions. There can be no assurance
that the transaction will be consummated.
F-32
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");
10
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");
11
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;
19
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;
20
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.
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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.
31
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.
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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.
52
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
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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
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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.
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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
AMENDMENT
THIS AMENDMENT, dated as of September 23, 2002 (this "Amendment"), is
made and entered into by and among VTF Corporation ("Purchaser"), The Flight
International Group, Inc. ("FIG"), Flight International, Inc. ("FII"), Flight
International Aviation, Inc. ("FIA"), Flight International Sales and Leasing,
Inc. ("FIS"), Flight Alaska, Inc. ("FAI") and Flight International of Florida,
Inc. ("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"). Capitalized terms used herein but otherwise not defined shall have
the meaning given to such terms in the Agreement (as defined below).
WHEREAS, Purchaser and the Sellers have entered into that certain Asset
Purchase Agreement dated as of May 9, 2002 (the "Agreement") pursuant to which
Purchaser has agreed to purchase substantially all of the assets and assume
specified liabilities of the Sellers; and
WHEREAS, the Agreement provides that if the Closing does not occur on
or before the close of business on September 30, 2002 (the "Termination Date"),
Purchaser or the Representative, on behalf of the Sellers, may, under certain
circumstances, terminate the Agreement;
WHEREAS, Purchaser and the Sellers desire to extend the Termination
Date;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment to Section 8.1. The first paragraph of Section 8.1 of the
Agreement shall be amended and restated to read as follows:
"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 November 15,
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:"
2. Amendment to Section 8.1.2(ii). Clause (ii) of Section 8.1.2 shall
be amended to read as follows:
"(ii) the shareholders of FIG shall not have duly approved the
transactions contemplated by this Agreement on or before
November 15, 2002,"
3. No Waiver. Nothing in this Amendment shall constitute a waiver by
Purchaser or the Sellers of any breach or default on the part of any party to
the Agreement.
4. Governing Law. The validity, construction and enforceability of this
Amendment shall be governed in all respects by the internal laws (as opposed to
conflict provisions) of the State of New York.
5. No Other Agreements. This Amendment constitutes the entire agreement
of the parties with respect to the subject matter hereof and supersedes and
preempts all prior agreements, understandings or representations, both written
and oral, between the parties with respect to the subject matter hereof.
6. Effect. Except as amended hereby, the Agreement shall remain in full
force and effect in accordance with its terms.
7. Counterparts. The parties may execute multiple counterparts of this
Amendment. Each executed counterpart shall be deemed an original, but all of
them together represent one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed as of this 23rd day of September, 2002.
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
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
SECOND AMENDMENT
THIS SECOND AMENDMENT, dated as of November 15, 2002 (this
"Amendment"), is made and entered into by and among VTF Corporation
("Purchaser"), The Flight International Group, Inc. ("FIG"), Flight
International, Inc. ("FII"), Flight International Aviation, Inc. ("FIA"), Flight
International Sales and Leasing, Inc. ("FIS"), Flight Alaska, Inc. ("FAI") and
Flight International of Florida, Inc. ("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"). Capitalized terms used herein
but otherwise not defined shall have the meaning given to such terms in the
Agreement (as defined below).
WHEREAS, Purchaser and the Sellers have entered into that certain Asset
Purchase Agreement dated as of May 9, 2002, as amended as of September 23, 2002
(the "Agreement"), pursuant to which Purchaser has agreed to purchase
substantially all of the assets and assume specified liabilities of the Sellers;
WHEREAS, the Agreement provides that if the Closing does not occur on
or before the close of business on November 15, 2002 (the "Termination Date"),
Purchaser or the Representative, on behalf of the Sellers, may, under certain
circumstances, terminate the Agreement; and
WHEREAS, Purchaser and the Sellers desire to amend the Agreement to,
among other things, extend the Termination Date, provide for a deposit by
Purchaser into an escrow account of $250,000 and modify certain other terms and
provisions;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
AMENDMENT TO AGREEMENT
1.1 Amendment to Article I. (a) The definition of "Adjustment Amount"
set forth in Article I of the Agreement shall be amended and restated to read as
follows:
'Adjustment Amount' shall mean the amount by which the
Assumed Indebtedness exceeds $31,800,000; 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 $31,800,000, the
Adjustment Amount shall be zero."
(b) Article I of the Agreement shall be amended to insert the following
definitions, in alphabetical order:
(i) 'Deposit Escrow' shall mean $250,000, which shall be
deposited by Purchaser with Feldman Weinstein LLP, as escrow
agent, on November 14, 2002 pursuant to the Deposit Escrow
Agreement, together with any interest and earnings thereon."
(ii) 'Deposit Escrow Agreement' shall mean that certain
Escrow Agreement, dated as of November 14, 2002, by and
between Purchaser, the Sellers and Feldman Weinstein LLP."
1.2 Amendment to Section 3.2.2. Clause (a) of Section 3.2.2 of the
Agreement shall be amended and restated to read as follows:
"(a) to the Representative, on behalf of the Sellers, the Base
Purchase Price, minus the Deposit Escrow, if released to the
Representative pursuant to the Deposit Escrow Agreement, 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"
1.3 Addition of Section 3.6. The Agreement shall be amended to add a
new Section 3.6, which shall read as follows:
(a) "Deposit Escrow Agreement; Deposit Escrow. Purchaser shall
deposit the Deposit Escrow in escrow with the Feldman
Weinstein LLP on November 14, 2002. The Deposit Escrow shall
be distributed as follows:
(i) to the Representative, on December 23, 2002, if the
closing shall not have occurred by the close of business on
December 16, 2002 and all conditions to the obligation of
Purchaser to consummate the transactions contemplated by this
Agreement as set forth in Article IX have been satisfied or
waived (other than those conditions that by their nature are
to be satisfied at the Closing and which are prepared to be
satisfied at the Closing) on or prior to December 16, 2002;
(ii) to the Purchaser, on December 23, 2002, if the Closing
shall not have occurred on or prior to December 16, 2002 for
any reason other than that specified in clause (i) above; or
(iii) unless otherwise distributed pursuant to clause (i) or
(ii) above, to the Representative, on the Closing Date, in
partial payment of the Base Purchase Price under Section 3.2
of the Agreement.
(b) Limited Waiver of Due Diligence Condition. For purposes of
clause (i) of Section 3.6(a) only, and not for any other
purpose under this Agreement (including, without limitation,
for purposes of determining Purchaser's obligations under
Section 4.1 or its rights under Article VIII of this
Agreement), Section 9.11 of this Agreement shall be deemed to
be satisfied if the failure of the satisfaction of such
condition is solely the result of information disclosed by the
Sellers to Purchaser in writing prior to November 11, 2002.
(c) Nothing herein, including the distribution of the Deposit
Escrow to the Representative pursuant to Section 3.6(a)(i)
above, shall limit the Sellers' rights and the Sellers shall
have the right to pursue all remedies available to it at law
or in equity."
1.4 Amendment to Section 8.1. The first paragraph of Section 8.1 of the
Agreement shall be amended and restated to read as follows:
"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 December 16,
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:"
1.5 Amendment to Section 8.1.2(ii). Clause (ii) of Section 8.1.2 of the
Agreement shall be amended and restated to read as follows:
"(ii) the shareholders of FIG shall not have duly approved the
transactions contemplated by this Agreement on or before
December 16, 2002,"
1.6 Amendment to Section 8.1.6. Section 8.1.6 of the Agreement shall be
amended and restated to read as follows:
"Assumed Indebtedness. By Purchaser if the Assumed
Indebtedness minus the Maritime Adjustment Amount exceeds
$38,300,000."
1.7 Amendment to Section 8.3. Section 8.3 of the Agreement shall be
amended to delete the last sentence of such Section in its entirety.
1.8 Amendment to Section 9.2.11. Section 9.2.11 of the Agreement shall
be amended and restated to read as follows:
"If applicable, a certificate executed by each Seller and
Maritime and each shareholder of Maritime allocating the
amount by which the Assumed Indebtedness exceeds $31,800,000
to the Adjustment Amount and the Maritime Adjustment Amount,
in form and substance satisfactory to Purchaser;"
1.9 Amendment to Section 13.2. Section 13.2 of the Agreement shall be
amended and restated to read as follows:
"Expenses. 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."
1.10 Amendment to Section 13.10. Section 13.10 of the Agreement shall
be amended to insert the word "reasonably" before the words "satisfied with the
Final Proposed Schedules" at the end of the fourth (4th) sentence of Section
13.10.
ARTICLE II
CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective upon (a) the execution and
delivery of (i) this Amendment by the Purchaser and the Sellers, (ii) the
Deposit Escrow Agreement by the Purchaser, the Sellers and Feldman Weinstein
LLP, (iii) that certain Amendment to the Maritime Purchase Agreement, dated the
date hereof, by and between Purchaser and Maritime, and (iv) that certain Escrow
Agreement, dated the date hereof, by and between Maritime, Purchaser and Parks,
Chesin, Walbert & Miller, P.C. and (b) the deposit of the Deposit Escrow by
Purchaser to an account designated in writing by Feldman Weinstein LLP pursuant
to the Deposit Escrow Agreement, by wire transfer of immediately available
funds.
ARTICLE III
MISCELLANEOUS
3.1 No Waiver. Nothing in this Amendment shall constitute a waiver by
Purchaser or the Sellers of any breach or default on the part of any party to
the Agreement.
3.2 Governing Law. The validity, construction and enforceability of
this Amendment shall be governed in all respects by the internal laws (as
opposed to conflict provisions) of the State of New York.
3.3 No Other Agreements. This Amendment constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes and preempts all prior agreements, understandings or representations,
both written and oral, between the parties with respect to the subject matter
hereof.
3.4 Effect. Except as amended hereby, the Agreement shall remain in
full force and effect in accordance with its terms.
3.5 Counterparts. The parties may execute multiple counterparts of this
Amendment. Each executed counterpart shall be deemed an original, but all of
them together represent one and the same agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto caused this Amendment to be duly
executed as of this 15th day of November, 2002.
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
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
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
------------------------------------------------------
PRESENTATION TO:
THE BOARD OF DIRECTORS
OF
FLIGHT INTERNATIONAL
SALE OF ASSETS TO
VTF CORPORATION
BY G-V CAPITAL CORPORATION
MAY 2002
Lawrence Kaplan
G-V Capital Corp.
631.421.3600 (p)
631.421.2279 (f)
lkaplan467@aol.com
Page 1
OVERVIEW
* ENGAGEMENT
* TRANSACTION OVERVIEW
* FIGI VALUATION METHODOLOGY/OVERVIEW
* SUMMARY VALUATION ANALYSIS
- DISCOUNTED CASH FLOW ANALYSIS (WACC)
- COMPARABLE COMPANY ANALYSIS
- COMPARABLE ACQUISITION ANALYSIS
- PREMIUM PAID ANALYSIS
* THE OPINION
Page 2
ENGAGEMENT
FLIGHT INTERNATIONAL GROUP, INC. ("FIGI" OR "THE COMPANY") HAS RETAINED G-V
CAPITAL TO RENDER A VALUATION OPINION (THE "OPINION") TO THE COMPANY, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE PAID BY VTF CORPORATION,
INC. ("VTF" OR "THE ACQUIRER") TO THE SHAREHOLDERS OF FIGI AND ALL ITS
SUBSIDIARIES IN THE ACQUISITION OF ITS ASSETS AND ASSUMPTION OF ITS LIABILITIES
(THE "ACQUISITION").
G-V CAPITAL HAS COMPLETED ITS INTERNAL REVIEW PROCESS NECESSARY TO RENDER THE
OPINION ON MAY 8, 2002. THE INFORMATION SUMMARIZED HEREIN IS DATED AS OF MAY 8,
2002.
Page 3
TRANSACTION OVERVIEW
SUMMARY TRANSACTION TERMS
TRANSACTION FORM................... ASSET PURCHASE
CONSIDERATION...................... $6,500,000 IN CASH
ASSUMPTION OF LIABILITIES OF FIGI AND
RELATED BUSINESSES AND SUBSIDIARIES
ADJUSTMENT AMOUNT.................. AMOUNT DEPENDS ON AGGREGATE ASSUMED
DEBT IN ACQUIRING FIGI AND MARITIME SALES
AND LEASING ($34.8 MILLION THRESHOLD AMT.)
Page 4
FIGI VALUATION METHODOLOGY/OVERVIEW
DISCOUNTED CASH FLOW ANALYSIS
o Discounted cash flows based on company revenue estimate through FY2003,
escalated by 10% thereafter
o Discount rates reflect risk inherent in business, lack of liquidity and
lack of control (minority interest)
COMPARABLE COMPANY ANALYSIS
o Selected 12 publicly-traded companies in similar lines of business to FIGI
o Reviewed historical and projected multiples of revenue, EBITDA and
earnings per share
COMPARABLE TRANSACTIONS ANALYSIS
o Reviewed four transactions involving publicly-traded companies in similar
lines of business
o Transactions occurred during the past four years
PREMIUM PAID ANALYSIS
o Selected 12 transactions involving publicly-traded companies in similar
lines of business
o Analyzed one day, 1 week,4 weeks premiums paid
o Reviewed most recent activity in FIGI stock
These analyses must be considered as a whole, selecting portions and/or other
factors without considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying our analyses and opinion. None of
the analyses performed by G-V was assigned greater significance. G-V arrived at
its ultimate opinion, based on all the analyses undertaken by it and assessed as
a whole.
Page 5
DISCOUNTED CASH FLOW ANALYSIS
ASSUMPTIONS MAJOR AND CONCLUSION
o Discount rates of 15% to 25%; 20% is base case discount rate (see following
page)
o Discounts for (i) lack of trading liquidity of 25% and (ii) minority
interest of 25%
o Revenues based on FIGI estimates through 2003 and escalate 10% thereafter
o Gross margins for 2003 forward are assumed to be the same as 2002
o Base Case Valuation of $5.2 million for minority shareholder equity value
TOTALS 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
------ --------------------------------------------------------------------------
Net Cash Flows (assumed year-end) $42.3 $0.0 $0.0 $0.0 $0.0 $0.0 $1.7 $8.3 $9.7 $11.1 $11.5
$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $4.7 $4.3
-Discount Rates $0.0 $0.0 $0.0 $12.0 $14.7 $14.8 $14.2 $13.6 $13.0 $11.7
DCF Value with 15% Discount Rate $13.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.8 $3.1 $3.2 $3.2 $2.8
DCF Value with 20% Discount Rate $9.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.6 $2.3 $2.3 $2.2 $1.9
DCF Value with 25% Discount Rate $6.5 $0.0 $0.0 $0.0 $0.0 $0.0 $0.5 $1.7 $1.6 $1.5 $1.2
-Lack of Liquidity Discount (25%) Applied to:
DCF Value with 15% Discount Rate $9.8 $0.0 $0.0 $0.0 $0.0 $0.0 $0.6 $2.3 $2.4 $2.4 $2.1
DCF Value with 20% Discount Rate $6.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.4 $1.7 $1.7 $1.6 $1.4
DCF Value with 25% Discount Rate $4.9 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.3 $1.2 $1.1 $0.9
-Minority Discount (25%) Applied to:
DCF Value with 15% Discount Rate Net of liq disc. $7.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.4 $1.8 $1.8 $1.8 $1.6
DCF Value with 20% Discount Rate Net of liq disc. $5.2 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.3 $1.3 $1.2 $1.0
DCF Value with 25% Discount Rate Net of liq disc. $3.7 $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $1.0 $0.9 $0.8 $0.7
Page 6
WEIGHTED AVERAGE COST OF CAPITAL
o Unlevered beta equals Levered Beta/(1+(1-t)D/E).
o Risk Premium calculated using actual returns on stocks, bonds and bills for
the United States from 1928 to the most recent year.
o Risk Free Rate (10 Year T-Bonds, May 4, 2002):
o Debt / Equity Ratio assumed $6.5 million cash consideration as equity value
Debt/Capital Levered Beta Cost of Equity Unlevered Beta
40% 1.90 20.43% 1.36
50% 2.03 21.52% 1.36
Required equity Returns at Different 60% 2.17 22.62% 1.36
Debt to Capitalization Ratios 68% 2.28 23.54% 1.36
70% 2.31 23.72% 1.36
80% 2.44 24.82% 1.36
90% 2.58 25.91% 1.36
Assumed Cost of Debt (pretax) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00%
-------------------------------------------------------------
Assumed Cost of Debt (after-tax) 11.00% 12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00%
Weighted Average Cost of Capital 40% 16.66% 17.06% 17.46% 17.86% 18.26% 18.66% 19.06% 19.46%
50% 16.26% 16.76% 17.26% 17.76% 18.26% 18.76% 19.26% 19.76%
60% 15.65% 16.25% 16.85% 17.45% 18.05% 18.65% 19.25% 19.85%
68% 14.97% 15.65% 16.34% 17.02% 17.70% 18.39% 19.07% 19.75%
70% 14.82% 15.52% 16.22% 16.92% 17.62% 18.32% 19.02% 19.72%
80% 13.76% 14.56% 15.36% 16.16% 16.96% 17.76% 18.56% 19.36%
90% 12.49% 13.39% 14.29% 15.19% 16.09% 16.99% 17.89% 18.79%
Page 7
COMPARABLE COMPANY ANALYSIS
COMPARABLE COMPANIES ANALYSIS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
o Acquisition consideration provides favorable comparison with trading
multiples of comparable publicly-traded firms
Market
Enterprise 52 Week
Price Market Value ------------- Revenue
Company Ticker 5/4/02 Cap MEV High Low LTM
- ----------------------------------------------------------------------------------------------
ARR CORP AIR $ 12.27 $ 390.9 $ 280.6 $ 17.5 $ 6.96 $ 835.48
BOEING CO BA 44.63 35,653.6 51,679.6 69.85 27.60 57,189.0
EDAC TECHNOLOGIES CORP EDAC 1.68 7.3 39.8 2.65 1.20 46.3
FIRST AVAITION SVCS INC FAVS 4.60 33.1 (7.5) 5.48 4.00 105.0
HEICO CORP HEI 17.22 359.0 353.4 20.90 10.80 171.3
KREISLER MANUFACTURING CORP KRSL 10.20 20.2 9.5 10.77 4.74 20.3
LOCKHEED MARTIN CORP LMT 62.85 27,867.1 34,289.1 63.48 35.36 24,950.0
NORTHROP GRUMMAN CORP NOC 122.38 13,285.6 19,319.6 125.98 76.40 11,483.0
SIFCO INDUSTRIES SIF 5.45 27.9 10.8 7.45 4.50 105.6
SEQUA CORP-CLA SQAA 60.20 625.4 842.1 60.60 39.69 1,785.9
TRIUMPH GROUP INC TGI 48.41 765.2 749.3 50.00 21.60 615.0
TEXTRON INC TXT 49.21 6,950.9 6,630.9 60.47 31.29 12,450.0
FLIGHT INTERNATIONAL GROUP $ 5.86 $ 6.5 $ 20.5 - - $ 37.40
Market
Enterprise
EBITDA EPS Market Cap/ Value MEV/ Market Cap
Company Ticker LTM LTM Sh.Out LTM Revenue LTM EBITDA LTM EPS
- ---------------------------------------------------------------------------------------------------------
AAR CORP AIR $ 56.26 $ 0.59 $ 31.86 $ 0.47x $ 4.99x $ 20.83x
BOEING CO BA 7,257.0 3.88 798.87 0.62x 7.12x 11.51x
EDAC TECHNOLOGIES CORP EDAC 6.1 0.40 4.35 0.16x 6.55x 4.16x
FIRST AVAITION SVCS INC FAVS 0.3 (0.11) 7.20 0.32x NM NM
HEICO CORP HEI 43.8 0.80 20.85 2.10x 8.08x 21.55x
KREISLER MANUFACTURING CORP KRSL 4.1 1.61 1.98 1.00x 2.30x 6.34x
LOCKHEED MARTIN CORP LMT 2,389.0 1.61 443.39 1.12x 14.35x 39.16x
NORTHROP GRUMMAN CORP NOC 1,247.0 5.58 108.56 1.16x 15.49x 21.94x
SIFCO INDUSTRIES SIF 10.2 0.58 5.12 0.26x 1.06x 9.40x
SEQUA CORP-CLA SQAA 162.1 3.94 10.39 0.35x 5.20x 15.27x
TRIUMPH GROUP INC TGI 98.4 3.19 15.81 1.24x 7.62x 15.18x
TEXTRON INC TXT 1,678.0 (2.18) 141.25 0.56x 3.95x NM
---------------------------------------------------------------
OVERALL MEAN 0.78X 6.97X 16.53X
OVERALL MEDIAN 0.59X 6.55X 15.22X
---------------------------------------------------------------
-------------------------------
FLIGHT INTERNATIONAL GROUP $ 1.41 $(0.88) 1.11 0.17X 14.55X NM
-------------------------------
SOURCE: FACTSET
NOTES:
MEV = Market Enterprise Value
FIGI Values are based on FY02 estimates and the terms of the Acquisition
Page 8
COMPARABLE COMPANY DESCRIPTIONS
Aircraft-SIC 3721
COMPANY NAME DESCRIPTION
- ------------ -----------
AAR CORP AAR Corp. provides value-added products and services to the
worldwide aviation/aerospace industry. The Company's
Aircraft and Engines segment is engaged in the purchase,
sale and lease of used commercial jet aircraft; the
purchase, sale and lease of new, overhauled and repaired
engines and engine products; and the overhaul, repair and
exchange of engine parts and components and other engine
support services.
BOEING COMPANY The Boeing Company, an aerospace company, operates, together
with its subsidiaries, in three principal segments:
Commercial Airlines Operations, Military Aircraft and
Missiles, and Space and Communications. Commercial Airplanes
Operations is involved in the development, production and
marketing of commercial jet aircraft. The segment also
provides related support services, principally to the
commercial airline industry worldwide. The Military Aircraft
and Missiles segment is involved in the research,
development, production, modification and support of
military aircraft, including fighter, transport and attack
aircraft; helicopters; and missiles.
LOCKHEED
MARTIN CORP. Lockheed Martin Corporation is engaged in the conception,
research, design, development, manufacture, integration and
operation of advanced technology systems, products and
services. Its products and services range from aircraft,
spacecraft and launch vehicles, to missiles, electronics,
information systems and telecommunications. The Company
operates in five principal business segments consisting of
Systems Integration, Space Systems, Aeronautics, Technology
Services and Global Telecommunications. The Company serves
customers in both domestic and international defense and
commercial markets, with its principal customers being
agencies of the United States Government.
NORTHROP
GRUMMAN CORP. Northrop Grumman Systems Corporation is a global
aerospace and defense company. The Company provides
technologically advanced products, services and solutions in
defense and commercial electronics, systems integration,
information technology and non-nuclear shipbuilding and
systems to United States and international military,
government and commercial customers.
TEXTRON, INC. Textron, Inc. is a global multi-industry company with
operations in five business segments: Aircraft, Automotive,
Fastening Systems, Industrial Products and Finance. The
Company's Aircraft segment consists of Bell Helicopter
Textron and Cessna Aircraft Company.
Page 9
COMPARABLE COMPANY DESCRIPTIONS
Aircraft-SIC 3721
COMPANY NAME DESCRIPTION
- ------------ -----------
EDAC
TECHNOLOGIES CORP. Edac Technologies Corporation (Edac) offers design and
manufacturing services for a wide range of industries in
areas such as special tooling, equipment and gauges, and
components used in the manufacture, assembly and inspection
of jet engines. Edac also specializes in the design and
repair of precision spindles. Spindles are an integral part
of numerous machine tools, which are found in virtually any
type of manufacturing environment. Items manufactured by
Edac include precision rings, and other components for jet
engines, industrial spindles and specialized machinery
designed by the Company or others and other assemblies
requiring close tolerances.
FIRST AVIATION
SERVICES INC. First Aviation Services Inc., together with its wholly owned
subsidiaries, Aircraft Products International Ltd., API Asia
Pacific Inc. and its majority-owned subsidiary, Aerospace
Products International Inc. (API), is engaged in
distributing aircraft parts and components to the aviation
industry worldwide. The Company distributes the products of
over 150 parts and component manufacturers and suppliers,
and provides the aerospace industry with third-party
logistics and inventory management services.
HEICO CORPORATION HEICO Corporation is a manufacturer of Federal Aviation
Administration-approved jet engine replacement parts. It is
also a manufacturer of certain electronic equipment for the
aerospace, defense and electronics industries. Through the
Flight Support Group (FSG), the Company uses proprietary
technology to design, manufacture and sell jet engine
replacement parts for sale at lower prices than those
manufactured by OEMs. In addition, FSG repairs, refurbishes
and overhauls engine and aircraft components for domestic
and foreign commercial air carriers and aircraft repair
companies, and manufactures thermal insulation products and
related components primarily for aerospace, defense and
commercial applications.
KREISLER
MANUFACTURING Kreisler Manufacturing Corporation fabricates precision
metal components and assemblies primarily for aircraft
engines with both military and commercial applications and
for industrial gas turbines. The primary function of the
Company's tubular products is to transport fluids, including
air, oil and gas, to various parts of the aircraft, aircraft
engine or industrial gas turbine.
Page 10
COMPARABLE COMPANY DESCRIPTIONS
Aircraft Engines
and Engine PArts -SIC 3724
COMPANY NAME DESCRIPTION
- ------------ -----------
SIFCO
INDUSTRIES, INC. SIFCO Industries, Inc. is engaged in the production and sale
of a variety of metalworking processes, services and
products produced primarily to the specific design
requirements of its customers. The processes include
forging, heat-treating, coating, welding, machining and
brush plating; and the products include forgings, machined
forgings and other machined metal parts, remanufactured
component parts for turbine engines, and brush plating
solutions and equipment.
SEQUA CORPORATION Sequa Corporation is a diversified industrial
company that produces a broad range of products through
operating units in five business segments: Aerospace,
Propulsion, Metal Coating, Specialty Chemicals and Other
Products. The Aerospace segment consists of Sequa's largest
operating unit, Chromalloy Gas Turbine.
HEICO CORPORATION HEICO Corporation is a manufacturer of Federal Aviation
Administration-approved jet engine replacement parts. It is
also a manufacturer of certain electronic equipment for the
aerospace, defense and electronics industries. Through the
Flight Support Group (FSG), the Company uses proprietary
technology to design, manufacture and sell jet engine
replacement parts for sale at lower prices than those
manufactured by OEMs. In addition, FSG repairs, refurbishes
and overhauls engine and aircraft components for domestic
and foreign commercial air carriers and aircraft repair
companies, and manufactures thermal insulation products and
related components primarily for aerospace, defense and
commercial applications.
TRIUMPH GROUP, INC. Triumph Group, Inc. designs, engineers,
manufactures, repairs, overhauls and distributes aircraft
components, such as mechanical and electromechanical control
systems, aircraft and engine accessories, auxiliary power
units (APUs), avionics and aircraft instruments. Triumph
serves commercial airlines and air cargo carriers, as well
as original equipment manufacturers (OEMs) of aerospace
vehicles, commercial and military aircraft and aircraft
components.
Page 11
COMPARABLE ACQUISITION ANALYSIS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
o Acquisition consideration provides favorable comparison with consideration
paid in comparable transactions.
Rank Value LTM Cash
Date Transaction Price/ LTM LTM Gross Flow/
Date Ann. Effective Target Name Acquiror Name (4) Value(3) Revenue EBITDA Profit Share
- --------- --------- ----------- ------------- ----------- -------- ------- ------ ------ -----
7/17/98 9/4/98 DeCrane Aricraft Holdings DLJ Merchant Banking Inc $ 181.5 $ 273.2 $ 113.6 $ 19.2 $ 34.1 $ 1.56
10/21/99 10/21/99 Cade Industries Inc. United Technology Corp 133.2 132.2 102.9 12.6 23.0 0.40
11/1/99 11/1/99 Tristar Aerospace Co Allied Signal Inc 269.8* 262.7 205.1 37.6 66.5 1.22
3/14/00 3/14/00 Howmet International Alcoa Inc 349.3 349.3 1,459.7 282.2 343.9 1.89
--------------------------------------------------------
MEAN
--------------------------------------------------------
Flight International Gp. VTF Corp. $ 20.5 $ 6.5 $ 37.4 $ 1.4 $ 5.9 $ 0.28
Multiples
---------------------------
Value/
Date Value/ Value/ Gross Price/ Price/
Date Ann. Effective Target Name Acquiror Name LTM EPS Revenue EBITDA Profit Cash Flow EPS
- --------- --------- ----------- ------------- ------- ------- ------ ------ --------- ------
7/17/98 9/4/98 DeCrane Aricraft Holdings DLJ Merchant Banking Inc $ 1.37 2.40x 9.46x 5.32x 14.75x 16.79x
10/21/99 10/21/99 Cade Industries Inc. United Technology Corp 0.24 1.76x 14.46x 7.89x 12.58x 21.04x
11/1/99 11/1/99 Tristar Aerospace Co Allied Signal Inc 1.00 0.88x 4.83x 2.73x 7.76x 9.50x
3/14/00 3/14/00 Howmet International Alcoa Inc 1.36 0.12x 0.64x 0.53x 10.60x 14.71x
` -----------------------------------------------------
1.29x 7.35x 4.12x 11.42x 15.51x
-----------------------------------------------------
$(0.88) 0.17x 14.55x 3.45x 21.18x NM
FOOTNOTES
1-Premiums are caculated based on the original announcement date, which is the
first date when the target company is publicly disclosed as a possible
takeover candidate.
2-*denotes that the value is estimated.
3-Transaction Value in millions (not including net debt of target) 4-Transaction
Value in millions (including net debt of Target)
Page 12
PREMIUM PAID ANALYSIS
ONE DAY, 1 WEEK, 4 WEEKS PREMIUM FOR SELECTED 12 TRANSACTIONS
(DOLLARS IN MILLIONS)
o Below analysis of premiums paid in comparable acquisitions of public
companies indicates a control premium of approximately 25% is applicable to
shareholders' minority interests.
Stock Premiums
Prior Periods(%)
---------------------
Date Original Rank Value Price/ Share
Ann. Date Target Name Acquiror Name Transaction(4) Value(3) Price 1 day 1 week 4 weeks
----- ------- ----------- ------------- ------------- -------- ----- ----- ------ -------
1. 3/26/90 3/26/90 Whitehall Corp Cambridge Capital Fund LP 65.7US 29.5US 20.00 35.59 30.08 56.86
2. 8/30/90 8/30/90 Lockheed Corp Investor Group 350.0US 350.0US 35.00 30.84 28.44 25
3. 11/21/94 5/9/94 Abex Inc (Mafco Consolidated) MacAndrews & Forbes
Holdings 197.6US* 226.1US 10.00 48.15 45.45 60
4. 11/14/96 11/14/96 Interactive Flight Tech Hyatt Corp 11.9US 11.9US 9.88 -13.19 -3.66 -19.39
5. 2/14/97 2/14/97 UNC Inc Greenwich Air Services Inc 442.7US 821.9US 15.00 37.93 41.18 36.36
6. 3/26/98 3/26/98 Whitehall Corp Aviation Sales Co 139.9US 139.9US 22.57 2.57 -2.95 9.08
7. 7/17/98 7/17/98 DeCrane Aircraft Holdings Inc DLJ Merchant Banking Inc 181.5US 273.2US 23.00 30.5 28.67 33.82
8. 8/17/98 8/17/98 Ronson Corp Investor Group 15.5US 21.3US 5.25 42.66 44.63 35.31
9. 2/8/99 2/8/99 Howmet International Inc Cordant Technologies Inc 385.1US* 385.1US 17.00 7.12 11.48 13.33
10. 10/21/99 10/21/99 Cade Industries Inc United Technologies Corp 133.2US 132.2US 5.05 30.32 26.25 55.38
11. 11/01/99 11/1/99 Trister Aerospace Co Allied Signal Inc 269.8US * 262.7US 9.50 43.4 67.03 65.22
12. 3/14/00 3/14/00 Howmet International Inc Alcoa Inc 349.3US 349.3US 21.00 13.51 12.75 14.29
----------------------------------------------------
MEAN 25.8% 27.6% 32.1%
----------------------------------------------------
FOOTNOTES
1- Premiums are calculated based on the original announcement date, which is
the first date when the target company is publicly disclosed as a possible
takeover candidate.
2- * Denotes that the value is estimated
3- Transaction Value in millions (not including net debt of Target) 4-
Transaction Value in millions (including net debt of Target)
Page 13
RECENT TRANSACTIONS IN FIGI STOCK
ANALYSIS OF RECENT FIGI STOCK TRANSACTIONS
(DOLLARS IN MILLIONS)
o Below analysis indicates the consideration to be paid in the Acquisition
represents an average premium of 86% over prices paid or implied in recent
FIGI stock transactions or valuation measures.
Actual/ Acquisition Acquisition
Implied Price per Premium/
Transaction Description Price Share (Discount)
- ----------------------- ------ ----- ----------
Shares issued in FY2000 acquisition $3.50 $5.86 67.3%
Shares redeemed in FY2000 $5.55 $5.86 5.5%
Options granted in FY2001 $4.26 $5.86 37.5%
Options granted in FY2000 $3.37 $5.86 73.8%
Options granted in FY1999 $3.07 $5.86 90.8%
Book Value per Share (1/31/02-unaudited) $1.40 $5.86 319.4%
Book Value per Share (4/30/01-audited) $0.84 $5.86 596.7%
AVERAGES $3.14 %5.86 86.4%
Page 14
THE OPINION
o G-V Capital Corp. was engaged to render an opinion as to the fairness, from
a financial point of view, of the Proposed Transactions.
o 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 independent verification of such
information and have further relied upon the assurances of management of
the Company that they are not aware of any facts or circumstances that
would make such information inaccurate or misleading.
o We are aware of, and our opinion is subject to, changes in various
agreements and related documents that have not been finalized and/or
executed as of the date of this opinion. Changes in the terms of such
documents and agreements, while not anticipated, could have a material and
adverse effect upon our opinion.
o We have assumed that the Company's projections and estimates have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgements of the Company's management as to the future
performance of the Company, and that the Company will perform substantially
in accordance with such projections and estimates.
o Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Proposed Transactions
are fair to such stockholders.
Page 15
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
THE FLIGHT INTERNATIONAL GROUP, INC.
ONE LEAR DRIVE
NEWPORT NEWS/WILLIAMSBURG INTERNATIONAL AIRPORT
NEWPORT NEWS, VIRGINIA 23602
November 15, 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:
Reference is made to that certain letter agreement by and between The
Flight International Group, Inc. ("Flight") and Maritime Sales & Leasing, Inc.
("Maritime", and together with Flight, the "Companies" or each "Company") dated
May 9, 2002, as amended to date (the "Letter Agreement"). 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, dated as of May
9, 2002 ("Asset Purchase Agreement").
The third paragraph through the sixth paragraph of the Letter Agreement
is hereby amended in its entirety as follows:
"In the event that, at the Closing, the Assumed Indebtedness is greater
than $31,800,000 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 $31,800,000 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 $31,800,000 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 $31,800,000, the parties hereto agree that any reduction in the
indebtedness of either party hereto shall be for the benefit of the other."
Except as amended hereby, the Letter Agreement shall remain in full
force and effect. 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 15th DAY OF
NOVEMBER, 2002
MARITIME SALES & LEASING, INC.
By: /s/ John R. Bone
John R. Bone, President
ANNEX E
VTF Corporation
Term Sheet Relating
To Proposed
Employment and Non-Competition Agreement
With David E. Sandlin
May 7, 2002
--------------------------------------
Employer: VTF Corporation or its affiliates ("Employer").
Employee: David E. Sandlin ("Employee").
Position: President of Flight International.
Term: 2 years.
Salary: $225,000 per year.
Bonus: Employee will be eligible for an incentive bonus of
up to 50% of his annual salary. Employee will also be
eligible for a retention bonus of $125,000, 25% of
which shall be payable thirty days after the closing
of the transaction between Employer and Maritime
Sales & Leasing, Inc. and the transaction between
Employer and The Flight International Group, Inc. and
its subsidiaries (collectively, the "Transactions")
and 75% of which shall be payable on the first
anniversary of the closing of the Transactions.
Non-Competition: Employee will be subject to non-competition,
non-interference and non-disclosure agreement for 5
years.
Equity Incentive
Compensation: To be agreed upon by the parties.
Governing Law New York.
and Forum:
Other Terms: To be agreed upon by the parties.
ANNEX F
ANNEX F
VTF Corporation
660 Madison Avenue
14th Floor
New York, N.Y. 10021
September 26, 2002
The Flight International Group, Inc.
Newport News Williamsburg
International Airport
Newport News, Virginia 23602
Attention: Mr. David Sandlin
RE: ASSET PURCHASE AGREEMENT, DATED AS OF MAY 9, 2002, AS AMENDED (THE
"ASSET PURCHASE AGREEMENT), BY AND BETWEEN VTF CORPORATION (THE
"COMPANY"), 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.
Dear Mr. Sandlin:
Reference is hereby made to the above-referenced Asset Purchase
Agreement. This letter shall confirm that the Company has waived the condition
to its obligation to consummate the translations contemplated by the Asset
Purchase Agreement set forth in Section 9.0 of the Asset Purchase Agreement.
Except as otherwise provided herein, the Asset Purchase Agreement shall
remain in full force and effect in accordance with its terms.
Very truly yours,
VTF Corporation
By: /s Robert B. McKeon
Its: President
-------------------------
ANNEX G
CONFIDENTIAL
COMMITMENT LETTER
November 12, 2002
Raytheon Aerospace LLC
555 Industrial Drive South
Madison, Mississippi 39110
Attention: Robert McKeon
Re: $189,375,000 Amended and Restated Senior Secured Credit
Facility for Raytheon Aerospace LLC
Gentlemen:
DESCRIPTION OF TRANSACTION
Raytheon Aerospace LLC, a Delaware limited liability company
(the "Borrower"), is the borrower under that certain Credit Agreement dated as
of June 27, 2001 among the Borrower, Canadian Imperial Bank of Commerce, as
administrative agent, the other agents named therein, CIBC World Markets Corp.,
as lead arranger, and certain other lenders party from time to time thereto with
respect to a credit facility in the original aggregate principal amount of up to
$125,000,000 (the "Existing Credit Agreement"). You have advised us that the
Borrower intends to acquire (the "Acquisition") substantially all of the assets
of The Flight International Group, Inc. and certain of its affiliates party to
that certain Asset Purchase Agreement dated as of May 9, 2002 and Maritime Sales
& Leasing, Inc. (collectively, the "Target") for approximately $51,100,000, pay
certain transaction costs of approximately $5,000,000, and in connection with
the Acquisition, amend and restate the Existing Credit Agreement (the
"Restatement"; and collectively with the Acquisition, the "Transaction").
You have advised us that in connection with the Transaction
and for general working capital needs, you will require a senior secured credit
facility of $189,375,000 (the "Credit Facility") of which amount approximately
$55,000,000 will be borrowed on the date of closing (the "Closing Date").
DESCRIPTION OF CREDIT FACILITY
The senior bank credit facilities to be provided to the
Borrower will consist of the existing $45,000,000 term A loan facility with a
maturity date of June 30, 2006, a $104,375,000 term loan B facility with a
maturity date of June 29, 2007 (the "Term B", consisting of the existing
$49,375,000 term B loan and an add-on of $55,000,000 such add-on being the "Term
B Add-On"), and a $40,000,000 revolving credit facility with a maturity date of
June 30, 2006 (the "Revolver", consisting of the $25,000,000 existing Revolver
plus an increase of $15,000,000, such increase being the "Revolver Add-On"). A
to be determined sublimit of the Revolver will be made available for the
issuance of letters of credit.
1
Based upon and subject to the foregoing, and pursuant to the
terms and conditions described below, CIBC World Markets Corp. is pleased to
confirm that it or one or more of its agencies, branches or affiliates
(collectively, "CIBC"), is willing to provide all of the $55,000,000 Term B
Add-On, the $15,000,000 Revolver Add-On and its existing commitment under the
Existing Credit Agreement, all as described in this Letter, in the Summary of
Terms and Conditions attached as Annex A hereto (the "Term Sheet") and the Fee
Letter (as defined below), subject to the terms and conditions set forth in this
Letter, the Term Sheet and the Fee Letter.
The Borrower hereby agrees that CIBC will act as exclusive
lead arranger (the "Lead Arranger") and sole book runner (the "Book Runner") for
the Credit Facility and CIBC is pleased to confirm that it is willing to use
commercially reasonable efforts to arrange for a syndicate of other banks,
financial institutions and other "accredited investors" (as defined in SEC
regulations; each such bank, financial institution and accredited investor,
including CIBC (and any successors and assigns of such banks, financial
institutions and accredited investors), being a "Lender" and, collectively, the
"Lenders") to participate in the Credit Facility. In addition, CIBC reserves the
right to arrange for other Lenders to provide a portion of its share of the
Credit Facility. CIBC will act as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"). The Borrower hereby agrees that no other
agents, co-agents or arrangers will be appointed, no other titles will be
awarded and no compensation (other than as expressly set forth in the Term Sheet
and accompanying fee letter dated as of the date hereof (the "Fee Letter")) will
be paid in connection with the Credit Facility unless the Lead Arranger shall so
agree.
CONDITIONS PRECEDENT
This commitment is based upon our investigation to date and is
subject to CIBC obtaining satisfactory results from the completion of our and
our counsel's confirmatory due diligence. CIBC confirms that it is substantially
satisfied with the results to date of its due diligence investigation of the
business, assets, results of operations, properties and condition (financial and
other) of RAAH I, LLC ("Holdings"), Borrower and its subsidiaries, including the
acquisition vehicles formed by Borrower to consummate the Acquisition
(collectively, the "Loan Parties") and the Target.
CIBC's commitment hereunder and CIBC's agreement to perform
the services described herein are subject to the conditions set forth in the
Term Sheet and to the following: (i) consummation of the Acquisition for a
purchase price of approximately $51,100,000, on terms satisfactory to CIBC,
including, without limitation, all legal, environmental and tax aspects thereof,
(ii) the payment of no more than $5,000,000 in transaction costs related to the
Transaction, (iii) since the date hereof, nothing shall have occurred which
could reasonably be likely to have a material adverse effect on the ability of
any Loan Party to perform its obligations, and to avoid default, under the
Senior Loan Documentation (as defined below) or consummate the Transaction, (iv)
our not becoming aware after the date hereof of any information or other matter
2
affecting the Transaction, the Target or the Loan Parties that is inconsistent
in a material and adverse manner with any Information (as defined below),
including all Projections (as defined below) disclosed to us prior to the date
hereof, which information or other matter we reasonably believe could be
expected to have a material adverse effect on the business, operations,
condition (financial or otherwise), assets or liabilities (including the
Projections) or prospects of the Loan Parties or the Target, (v) our
satisfaction that prior to and during the syndication of the Credit Facility
there shall be no competing offering, placement or arrangement of any debt
securities or bank financing by or on behalf of the Borrower, (vi) the capital
structure of the Borrower after giving effect to the Transaction (including,
without limitation, the amount and terms of any equity components of the
financing for the Transaction) shall be consistent with the capital structure
contemplated in the Term Sheet, (vii) the reasonable satisfaction of CIBC in all
material respects with the material terms of all material agreements relating to
the Transaction, (viii) the negotiation, execution and delivery on or before the
anticipated closing date of December 6, 2002 but in any event no later than
December 31, 2002 of Senior Loan Documentation with respect to the Credit
Facility in form and substance satisfactory to CIBC and the Lenders and (ix)
other conditions CIBC determines are usual and customary for transactions of
this type and not inconsistent with the provisions hereof and the Term Sheet.
As used herein, the term "Senior Loan Documentation" means the
amended and restated financing documents embodying the terms of this commitment
letter (this "Letter") and the Term Sheet and the other loan documents, with
such changes therein as shall be necessary or appropriate to reflect changes in
the Borrower and differences in the transactions being financed thereby.
SYNDICATION
As we discussed, although CIBC commits to provide all of the
$55,000,000 Term B Add-On and the $15,000,000 Revolver Add-On, CIBC intends to
use commercially reasonable efforts to arrange for the syndication of the Credit
Facility. CIBC will manage in consultation with the Borrower and Veritas Capital
Management, L.L.C. ("Veritas") all aspects of the syndication, including
decisions as to the selection of institutions to be approached and when they
will be approached, when their commitments will be accepted, the allocations of
the commitments among the Lenders and the amount and distribution of fees among
the Lenders. In that regard, the Borrower agrees to actively assist CIBC (and to
cause Veritas to actively assist) in the syndication of the Credit Facility,
which assistance will require, among other things, that Veritas, the Borrower
and the other Loan Parties provide all information CIBC reasonably deems to be
necessary to successfully complete the syndication.
In addition, the Borrower agrees (i) to promptly provide, and
to cause its consultants and advisors to promptly provide, to CIBC all financial
and other information in its or their possession with respect to the
Transaction, the Target, the Loan Parties and any other transactions
contemplated therewith, including, without limitation, information and
projections prepared by the Borrower, its advisors, Veritas or its advisors
relating to the Loan Parties, the Target, the Transaction and the other
transactions contemplated therewith, (ii) to answer questions during regular
business hours regarding the Credit Facility and the Transaction, (iii) to use
its reasonable best efforts to cause its consultants and advisors to answer
questions regarding the Credit Facility, (iv) to review and assist in the
3
preparation of an information memorandum relating to the Credit Facility and (v)
to meet with prospective Lenders and to use commercially reasonable efforts to
ensure that CIBC's syndication efforts benefit from the lending relationships of
Veritas and the Loan Parties.
The Borrower represents that, based on its review and
analysis, (a) all information, other than Projections (as defined below), which
has been or is hereafter made available to CIBC or the other Lenders by Veritas,
the Borrower or any other Loan Party or any of their respective representatives
in connection with the Transaction (the "Information") has been reviewed and
analyzed by the Borrower and, as supplemented as contemplated by the next
sentence, is (or will be, in the case of Information made available after the
date hereof) complete and correct in all material respects when taken as a whole
and does not (or will not, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements were or are made, and (b) all financial projections
concerning the Loan Parties and the Transaction that have been or are hereafter
made available to CIBC or the other Lenders by Veritas or the Loan Parties or
any of their respective representatives in connection with the Transaction (the
"Projections") have been (or will be, in the case of Projections made available
after the date hereof) prepared in good faith based upon reasonable assumptions.
The Borrower agrees to supplement the Information and the Projections from time
to time until the Closing Date so that the representation and warranty in the
preceding sentence is correct on the Closing Date. In arranging and syndicating
the Credit Facility, CIBC will be using and relying on the Information and the
Projections without independent verification thereof.
FEES AND EXPENSES; INDEMNITY
In consideration of the Credit Facility to be arranged for by
CIBC, Borrower shall, upon acceptance of this Letter, pay to CIBC the fees set
forth in and in accordance with the separate Fee Letter from CIBC to the
Borrower.
In addition, and regardless of whether the transactions
contemplated hereunder are consummated, the Borrower agrees to pay the
reasonable costs and expenses (including the reasonable fees and expenses of
external counsel (including, without limitation, any local counsel) to CIBC,
reasonable professional fees of consultants, appraisers and other experts and
reasonable out-of-pocket expenses of CIBC (including, without limitation,
syndication expenses) incurred by CIBC in connection with the preparation,
execution and delivery of this Letter, the Fee Letter and the Senior Loan
Documentation and the syndication of the Credit Facility. Such expenses shall be
due and payable upon demand by CIBC or, at CIBC's discretion, shall be due and
payable on the Closing Date. The Borrower also agrees to pay all costs and
expenses of CIBC (including, without limitation, fees and disbursements of
internal and external counsel) incurred in connection with the enforcement of
any of its rights and remedies hereunder.
The Borrower further agrees to indemnify, defend and hold
harmless, release and discharge CIBC and each of the Lenders, and each director,
officer, employee, agent, attorney and affiliate thereof (each an "indemnified
person") from and against any and all losses, claims, damages, liabilities or
other expenses to which CIBC or such other indemnified persons may become
4
subject, insofar as such losses, claims, damages, liabilities (or actions or
other proceedings commenced or threatened in respect thereof) or other expenses
arise out of or in any way relate to or result from the Transaction, any of the
statements contained in this Letter or relating to the extension of the
financing contemplated by this Letter, or any use or intended use of the
proceeds of any of the loans and other extensions of credit contemplated by this
Letter, and to reimburse CIBC and each of the Lenders and each other indemnified
person for any and all reasonable legal or other expenses incurred in connection
with investigating, defending or participating in any such investigation,
litigation or other proceeding (whether or not any such investigation,
litigation or other proceeding involves claims made between any Loan Party or
any third party and CIBC and such Lender or any such indemnified person, and
whether or not such Lender or any such indemnified person is a party to any
investigation, litigation or proceeding out of which any such expenses arise);
provided, however, that the indemnity contained herein shall not apply to an
indemnified person to the extent that such losses, claims, damages, liabilities
or other expenses result from the gross negligence or willful misconduct of
CIBC, such Lender or other indemnified person, as determined by a final,
non-appealable judgment of a court of competent jurisdiction. Neither CIBC nor
any Lender shall be responsible or liable to any other party or any other person
for consequential damages that may be alleged as a result of this Letter. The
foregoing provisions of this paragraph shall be in addition to any rights that
CIBC, any Lender or any other indemnified person may have at common law or
otherwise.
All payments hereunder shall be made free and clear of any
set-off, withholding, claims or applicable taxes (other than taxes based on
income) and shall be made in U.S. dollars (unless otherwise specified).
This provision shall survive termination of this Letter.
CONFIDENTIALITY
The Borrower agrees that the existence of this Letter and the
terms and conditions hereof are confidential and may not be disclosed to any
third party without CIBC's prior written consent, except, after acceptance of
this Letter, to the extent that such disclosure (a) is required by law,
regulation, supervisory authority, or other applicable judicial or governmental
order, (b) was or becomes generally available to the public other than as a
result of a disclosure by one of the parties or (c) is made on a comparable
confidential basis to the Loan Parties' attorneys, accountants, tax advisors or
other representatives on a need to know basis. CIBC hereby consents to the
disclosure of this Letter to the sellers of Target (the "Sellers") and consents
to the filing of this letter by the Sellers with the Securities and Exchange
Commission.
The Borrower acknowledges that CIBC may share with any of its
subsidiaries and affiliates (including CIBC Inc.) any information provided by
any Loan Party or any of their respective affiliates in connection with the
proposed Transaction, and that CIBC reserves the right to employ the services of
such subsidiaries and affiliates in order to fulfill its obligations under this
Letter.
5
The Borrower should be aware that other parties with
conflicting interests may also be CIBC's customers, and that CIBC may be
providing financial or other services to them. However, CIBC assures that,
consistent with their long standing policy to hold in confidence the affairs of
their customers, CIBC will not furnish confidential information obtained from
Veritas or any Loan Party to any other customer or prospective customer, and
will hold such confidential information in accordance with their customary
procedures for handling confidential information. By the same token, CIBC will
not make available to Veritas or any Loan Party confidential information that
CIBC has obtained from any other customer.
This provision shall survive the termination of this Letter.
GOVERNING LAW; JURISDICTION; WAIVERS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, CIBC AND
THE BORROWER EACH HEREBY AGREES THAT THIS LETTER AND THE FEE LETTER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, U.S.A.
WITH RESPECT TO ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS LETTER, THE FEE LETTER OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THE PERFORMANCE OF ANY OF THE PARTIES HEREUNDER OR UNDER THE FEE LETTER,
BORROWER HEREBY IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, U.S.A.; (B)
AGREES THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT; (C) WAIVES THE DEFENSE
OF ANY INCONVENIENT FORUM; (D) AGREES THAT A FINAL JUDGMENT OR RULING IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANOTHER
JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; (E)
WAIVES ALL RIGHTS TO TRIAL BY JURY; (F) TO THE EXTENT THAT IT OR ITS PROPERTIES
OR ASSETS HAS OR HEREAFTER MAY HAVE ACQUIRED OR BE ENTITLED TO IMMUNITY
(SOVEREIGN OR OTHERWISE) FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL
PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OF A JUDGMENT OR FROM EXECUTION OF A JUDGMENT OR
OTHERWISE), FOR ITSELF OR ITS PROPERTIES OR ASSETS, AGREES NOT TO CLAIM ANY SUCH
IMMUNITY AND WAIVES SUCH IMMUNITY; AND (G) CONSENTS TO SERVICE OF PROCESS BY
MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SET
FORTH ON THE FIRST PAGE OF THIS LETTER AND AGREES THAT SUCH SERVICE SHALL BE
EFFECTIVE WHEN SENT OR DELIVERED. THE BORROWER REPRESENTS AND WARRANTS THAT IT
HAS CONSULTED WITH COUNSEL AND UNDERSTANDS THE RAMIFICATIONS OF THE FOREGOING.
THIS PROVISION SHALL SURVIVE THE TERMINATION OF THIS LETTER.
6
AMENDMENTS; ASSIGNMENT
This Letter may not be amended or modified except in a writing
signed by the parties hereto. This Letter, including the Term Sheet, and the Fee
Letter contain the entire agreement between CIBC and the Borrower with respect
to the matters described herein and in the Fee Letter and supersede all prior
understandings, written or oral, between the parties.
The Borrower may not assign or delegate any of its
undertakings hereunder without the prior written consent of CIBC.
MISCELLANEOUS
For the convenience of the parties, any number of counterparts
of this Letter may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all such
counterparts taken together shall constitute one and the same agreement.
The Borrower acknowledges and agrees that CIBC has the right
to place advertisements in financial and other newspapers and journals at its
own expense describing its services to the Borrower and the other Loan Parties
hereunder.
The Borrower acknowledges and agrees that there are no
brokers, representatives or other persons which have an interest in the
compensation due to CIBC from any transaction contemplated herein.
The Borrower and the Lead Arranger acknowledge and agree that
CIBC shall be considered an independent contractor in relation to the Borrower
and the other Loan Parties under this Letter.
TERMINATION
Our offer will terminate at 5:00 p.m. (Pacific time) on
November 15, 2002 unless on or before that date you sign and return an enclosed
counterpart of this Letter together with an executed copy of the accompanying
Fee Letter concerning certain fee arrangements and other matters set forth
therein. The Credit Facility referred to herein shall in no event be available
unless the Transaction shall have been consummated on or prior to December 6,
2002 but in any event no later than December 31, 2002.
Please acknowledge your agreement to the terms and conditions
hereof and of the attached Term Sheet by signing the enclosed copy of this
Letter below and returning same together with the letter regarding fees and the
fees payable thereunder to CIBC before the expiration date referred to above.
[Remainder of page intentionally left blank]
7
We appreciate having been given the opportunity by you to be
involved in this transaction.
Very truly yours,
CIBC WORLD MARKETS CORP.
By: /s/
--------------------------------
Cedric Henley
Executive Director
CIBC World Markets Corp., AS
AGENT
AGREED AND ACCEPTED
the ___ day of November, 2002
RAYTHEON AEROSPACE LLC
By: /s/
---------------------------------
Title:
------------------------------
RAYTHEON AEROSPACE LLC
$189,375,000 SENIOR SECURED CREDIT FACILITY
SUMMARY OF TERMS AND CONDITIONS
November 12, 2002
- --------------------------------------------------------------------------------
The following summarizes selected terms of the credit facility to be utilized in
connection with the financing of the acquisition of The Flight International
Group, Inc. and certain of its affiliates party to that certain Asset Purchase
Agreement dated as of May 9, 2002 and Maritime Sales & Leasing, Inc.
(collectively the "Target"). This Summary of Terms is intended merely as an
outline of certain of the material terms of such credit facility. It does not
include descriptions of all of the terms, conditions and other provisions that
are to be contained in the definitive documentation relating to such credit
facility and it is not intended to limit the scope of discussion and negotiation
of any matters not inconsistent with the specific matters set forth herein. All
terms defined in the commitment letter to which this Summary of Terms is
attached and not otherwise defined herein shall have the same meanings when used
herein.
BORROWER: Raytheon Aerospace LLC (the "Borrower").
SPONSOR: Veritas Capital Management, LLC ("Veritas").
GUARANTORS: RAAH I, LLC ("Holdings") and all existing and
future subsidiaries of the Borrower, including
the acquisition vehicles formed by the Borrower
to consummate the acquisition of the Target
(collectively, "Newco").
LEAD ARRANGER
AND BOOKRUNNER: CIBC World Markets Corp.
ADMINISTRATIVE
AGENT: Canadian Imperial Bank of Commerce, acting
through one or more of its affiliates or
designees ("CIBC").
LENDERS: CIBC and a group of financial institutions
reasonably acceptable to the Lead Arranger.
CLOSING: The effective date of the loan documentation and
satisfaction of Conditions Precedent, but not
later than December 31, 2002.
CREDIT FACILITY: A $189,375,000 amended and restated senior
secured credit facility, composed of (i) a
$40,000,000 revolving credit facility (the
"Revolver") consisting of the $25,000,000
existing Revolver plus an increase of $15,000,000
(the "Revolver Add-On"), (ii) a $45,000,000 term
loan A facility (the "Term A"), and (iii) a
$104,375,000 term loan B facility (the "Term B"
and collectively with the Term A, the "Term
Loans"), consisting of the existing $49,375,000
Term B Loan and an add-on of $55,000,000 (the
"Term B Add-On"; the Revolver Add-On and the Term
B Add-On are collectively referred to as the
"Add-On"). Provisions of the Credit Facility not
described in this term sheet shall be
substantially similar to the provisions of the
Borrower's existing Credit Agreement dated as of
June 27, 2001 (the "Existing Credit Facility").
SUMMARY OF TERMS AND CONDITIONS NOVEMBER 12, 2002
- --------------------------------------------------------------------------------
TRANSACTION: The Borrower's acquisition of the Target for
approximately $51,100,000, and payment of
transaction costs of approximately $5,000,000,
and the amendment and restatement of the
Borrower's Existing Credit Facility
(collectively, the "Transaction").
DESCRIPTION OF REVOLVER
REVOLVER: A $40,000,000 revolving credit facility,
consisting of the existing $25,000,000 commitment
plus an additional $15,000,000.
MATURITY: June 30, 2006.
AVAILABILITY: Revolving loans may be drawn, repaid and redrawn
until Maturity subject to availability under a
borrowing base which shall be equal to the sum of
85% of eligible billed receivables, 50% of
eligible unbilled receivables, and 60% of
eligible inventory.
LETTER OF
CREDIT SUBLIMIT: The Revolver will contain a to be determined
sublimit for the issuance of letters of credit.
DESCRIPTION OF TERM A
TERM A: A $45,000,000 fully amortizing term loan.
MATURITY: June 30, 2006.
AVAILABILITY: The Term A was fully funded at the closing of the
Existing Credit Agreement (the "Original Closing
Date"). The Term A shall amortize quarterly based
upon the existing schedule.
DESCRIPTION OF TERM B
TERM B: A $104,375,000 amortizing term loan, consisting
of the existing $49,375,000 Term B Loan and the
$55,000,000 Add-On.
MATURITY: June 29, 2007.
AVAILABILITY: The Term B Add-On shall be fully funded at
Closing to effect the Transaction and shall
increase the current quarterly amortization of
$125,000 by $137,500 to an aggregate quarterly
amortization payment of $262,500 and shall be due
in full at maturity.
GENERAL TERMS & CONDITIONS
PURPOSE: The Credit Facility shall be used to consummate
the Transaction, and thereafter for general
corporate purposes, including working capital,
refinancings, acquisitions, investments, and
capital expenditures made in accordance with the
terms of the Credit Agreement.
SECURITY: All obligations of the Borrower and the
Guarantors under the Credit Facility shall
continue to be secured by a first priority
perfected security interest in the collateral for
the Existing Credit Facility and shall also be
secured by a first priority perfected security
interest in all of the capital stock of Newco and
the assets of the Target.
2
COMMITMENT FEE: The Borrower shall pay a per annum fee of 50
basis points, calculated on a 360 day basis,
payable quarterly in arrears on the unused
portion of the Revolver.
PRICING MATRIX: The Borrowing Rate will be determined by a
pricing matrix based on the Borrower's Total
Leverage (in basis points):
EXISTING PRICING GRID
-----------------------------------------------------------------------------------
REVOLVER/TERM A TERM LOAN B
----------------- ---------------
TOTAL LIBOR LIBOR
LEVEL LEVERAGE MARGIN MARGIN
-----------------------------------------------------------------------------------
I x < 2.25 250.00 400.00
II 2.25 < or = x < 2.75 275.00 400.00
III 2.75 < or = x < 3.25 300.00 400.00
IV 3.25 < or = x < 3.75 325.00 400.00
V x >or = 3.75 350.00 400.00
The Applicable Base Rate Margin shall mean the
Applicable LIBOR Margin less 1.00%
Consolidated Total Debt shall be defined as in
the Existing Credit Facility.
Consolidated EBITDA shall be defined as in the
Existing Credit Facility, but will be adjusted to
have Transaction Costs reflect the Transaction.
CONDITIONS
PRECEDENT: Customary for credit agreements of this nature
including, but not limited to:
(i) Completion of the Transaction for a
purchase price of approximately
$51,100,000 plus applicable
transaction costs of approximately
$5,000,000, on terms acceptable to
the Lead Arranger, including,
without limitation, all legal,
environmental and tax aspects
thereof;
(ii) Satisfactory completion of the Lead
Arranger's counsel due diligence
with respect to the Transaction;
(iii) All consents and approvals of the
boards of directors, shareholders,
governmental entities and other
applicable third parties necessary
in connection with the Transaction;
(iv) Receipt and satisfactory review by
the Lead Arranger of the material
documentation related to the
Transaction;
(v) Satisfactory opinions of counsel;
(vi) A satisfactory senior secured
rating from both Standard & Poors
and Moody's
3
(vii) Satisfactory certificate of
solvency;
(viii) No material adverse change to the
Borrower or the financial markets;
and
(ix) Payment by the Borrower of all fees
and expenses associated with the
Transaction.
FINANCIAL
COVENANTS: Customary for credit agreements of this nature,
including, but not limited to, the following:
(i) Maximum Total Leverage;
(ii) Maximum Senior Leverage;
(iii) Minimum Interest Coverage;
(iv) Minimum Fixed Charge Coverage;
(v) Minimum EBITDA; and
(vi) Minimum Consolidated Net Worth.
NEGATIVE
COVENANTS: Customary for credit agreements of this nature,
including, but not limited to, limitations on the
following:
(i) Capital Expenditures;
(ii) Acquisitions;
(iii) Investments;
(iv) Restricted Payments;
(v) Transactions with Affiliates;
(vi) Rental Obligations;
(vii) Mergers and Dispositions; and,
(viii) Liens, Guarantees, and Other
Indebtedness.
FEES & EXPENSES: The Borrower will pay all expenses incurred by the
Lead Arranger, including, without limitation,
those related to the preparation arrangement,
negotiation, documentation, syndication, closing
and administration of this transaction (whether or
not the transaction actually closes). The Borrower
will pay the Lead Arranger and Administrative
Agent the fees detailed in a separate fee letter.
CHANGE IN
MARKET: The terms and conditions outlined herein are
subject to there being no material adverse change
in the financial markets or the financial
condition or prospects of the Borrower.
GOVERNING LAW: New York
LEGAL COUNSEL: O'Melveny & Myers LLP.
4
ANNEX H
ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into this fifteenth (15th)
day of November, 2002 (this "Agreement"), by and among 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"),
FIG, as Representative (the "Representative") on behalf of the Sellers, and VTF
CorpORATION, a Delaware corporation (together with its successors or assigns,
"Purchaser"), and FELDMAN WEINSTEIN LLP, a New York limited liability
partnership, as the Escrow Agent hereunder (the "Escrow Agent").
WITNESSETH:
WHEREAS, Purchaser and the Sellers are parties to that certain Asset
Purchase Agreement dated as of May 9, 2002, as amended as of September 23, 2002
(as amended, restated, supplemented or otherwise modified from time to time, the
"Asset Purchase Agreement"), pursuant to which Purchaser is purchasing the
Assets from the Sellers;
WHEREAS, as a condition and inducement to execution and delivery of
that certain Amendment to the Asset Purchase Agreement dated as of the date
hereof (the "Amendment"), Purchaser has agreed to cause the deposit of certain
funds with the Escrow Agent, and the parties to this Agreement desire to define
the terms and conditions pursuant to which the Escrow Agent shall hold and
release such funds or portions thereof;
WHEREAS, pursuant to that certain Representative Agreement dated May 7,
2002 (the "Representative Agreement"), the Sellers have irrevocably appointed
the Representative as their agent and representative for all purposes under the
Asset Purchase Agreement and this Agreement; and
WHEREAS, the Escrow Agent is willing to act as escrow agent pursuant to
the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto and the terms and conditions hereof, the parties hereto hereby agree as
follows:
1. DEFINITIONS. Unless otherwise defined herein, each capitalized term
used herein shall have the meaning set forth in the Asset Purchase Agreement.
2. APPOINTMENT OF THE ESCROW AGENT. Purchaser, the Sellers and the
Representative hereby appoint Feldman Weinstein LLP, as escrow agent, to act in
accordance with the terms and conditions set forth in this Agreement, and the
Escrow Agent hereby accepts such appointment and agrees to act in accordance
with such terms and conditions.
3. ESTABLISHMENT OF ESCROW.
(a) Pursuant to Article II of the Amendment, contemporaneously with the
execution and delivery of this Agreement, Purchaser has deposited with the
Escrow Agent the sum of $250,000 (the "Deposit Escrow Amount") in
immediately available funds by wire transfer, to be held in an account by
the Escrow Agent (the "Escrow Account") and disbursed by the Escrow Agent
in accordance with the terms of this Agreement. Purchaser shall be the sole
owner of the Escrow Fund (as defined below) until disbursed to or required
to be disbursed to the Representative in accordance with the provisions of
this Agreement, and neither the Representative nor any of the Sellers shall
have any rights to or interest in the undisbursed portion of the Escrow
Fund. Without limiting the generality of the foregoing, for federal, state
and local income tax purposes, Purchaser shall be the owner of the Escrow
Account and all amounts deposited therein (such ownership to be subject to
the terms and conditions hereof), and all income resulting from such
ownership and any U.S. federal, state or local income tax on such income
shall be for the account of Purchaser.
(b) The Deposit Escrow Amount and all Earnings (as defined below)
thereon on deposit in the Escrow Account are referred to herein as the
"Escrow Fund".
4. RECEIPT AND INVESTMENT OF FUNDS. The Escrow Agent hereby
acknowledges receipt of the Deposit Escrow Amount from Purchaser on the date
hereof, and agrees, unless otherwise instructed in writing by Purchaser and the
Representative, that it may invest such funds, from and after the date hereof,
in a money market account, regular depository account, certificates of deposit
of a bank or trust company organized under the laws of the United States, or any
state thereof, each of which has a combined capital, surplus and retained
earnings of at least $500,000,000; provided, that any investment instrument
shall have the ability to be liquidated upon seventy-two (72) hours notice. The
Escrow Agent agrees to deposit in the Escrow Account and hold in escrow as part
of the Escrow Fund all interest and other distributions or gains (collectively,
"Earnings") derived from such investments and reinvestments, if any.
5. DISTRIBUTION OF THE ESCROW FUND.
(a) The Escrow Agent is authorized by Purchaser, the Sellers and the
Representative to disburse the Escrow Fund as follows:
(i) in accordance with joint written instructions of the
Representative and the Purchaser;
(ii) in accordance with written instructions of either the
Representative or the Purchaser that it is entitled to payment of the
Escrow Fund in accordance with Section 3.6 of the Asset Purchase
Agreement (a
2
"Distribution Notice"); provided that Escrow Agent shall give
written notice to the party which did not deliver the Distribution
Notice of receipt of the Distribution Notice, and such other party
shall have five (5) business days after receipt of such written notice
from the Escrow Agent to provide any written objection (an "Objection
Notice") to Escrow Agent and the party delivering the Distribution
Notice. Any Objection Notice must be detailed and specific as to the
reasons for objecting to the distribution. If no Objection Notice is
received by Escrow Agent within such five (5) business day period, the
Escrow Fund shall be distributed in accordance with the Distribution
Notice. If an Objection Notice is received within such time period, the
parties thereupon shall use their respective best efforts to resolve
any such objections and provide joint written instructions with regard
to distribution of the Escrow Funds. In the event the parties shall
fail to resolve any such dispute, the Escrow Agent shall retain the
Escrow Deposit in accordance with Section 5(b) below; or
(iii) unless otherwise distributed pursuant to clause (i) or (ii)
above, to the Representative, on the Closing Date, in partial payment
of the Base Purchase Price under Section 3.2 of the Asset Purchase
Agreement;
(b) Notwithstanding anything herein to the contrary, it is understood
and agreed that should any dispute arise with respect to the delivery
and/or ownership or right of possession of the Escrow Fund held by the
Escrow Agent hereunder, including following the delivery of an Objection
Notice, the Escrow Agent is authorized and directed (i) to retain in the
Escrow Agent's possession without liability to anyone, except for its bad
faith or willful misconduct all or any part of said Escrow Fund subject to
dispute until such disputes shall have been settled either by mutual
written agreement of the parties or by a final order, decree or judgment of
a board of arbitration or a court of competent jurisdiction after the time
for appeal has expired and no appeal has been perfected, but the Escrow
Agent shall be under no duty whatsoever to institute or defend any such
proceedings, or (ii) to deliver the Escrow Fund and any other property and
documents held by the Escrow Agent hereunder to a state or Federal court
having competent subject matter jurisdiction and located in the State and
City of New York in accordance with the applicable procedure therefor.
6. RELIANCE ON REPRESENTATIVE. Purchaser and the Escrow Agent each
shall be entitled to rely, without any investigation or inquiry by such Person,
upon all actions by the Representative as having been taken upon the authority
of the Sellers. Any action by the Representative taken on behalf of a Seller
shall be conclusively deemed to be the action of such Seller and neither
Purchaser nor the Escrow Agent shall have any liability or responsibility to any
Seller for any action taken in reliance thereon.
7. EXCULPATION OF THE ESCROW AGENT.
The Escrow Agent shall have no duties or responsibilities other than
those expressly set forth herein. The Escrow Agent shall be under no liability
to Purchaser or the Representative by reason of any failure on the part of any
party hereto (other than the Escrow Agent) or any maker, endorser or other
signatory of any other document to perform such party's obligations hereunder or
under any such other document.
3
7.1 This Escrow Agreement shall not be deemed to create a fiduciary
relationship between the parties hereto under state or federal law.
7.2 The Escrow Agent shall not be liable for any action taken or
omitted by it, or any action suffered by it to be taken or omitted, in good
faith and in the exercise of its own best judgment, and may rely conclusively
on, and shall be protected in acting upon, any order, notice, demand,
certificate, opinion or advice of counsel (including counsel chosen by the
Escrow Agent), statement, instrument, report or other paper or document (not
only as to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any information
therein contained) which is reasonably believed by the Escrow Agent to be
genuine and to be signed or presented by the proper Person or Persons.
7.3 Promptly after the receipt by the Escrow Agent of notice of any
demand or claim which, directly or indirectly, arises out of or relates to this
Agreement or the services of the Escrow Agent hereunder or the commencement of
any action, suit or proceeding related to such demand or claim, the Escrow Agent
shall notify the other parties hereto in writing.
7.4 The agreements set forth in this Section 7 shall survive the
termination of this Escrow Agreement and the payment of all amounts hereunder.
7.5 The Escrow Agent shall not be required to use its own funds in the
performance of any of its obligations or duties or the exercise of any of its
rights or powers, and shall not be required to take any action which, in the
Escrow Agent's reasonable judgment, could involve it in expense or liability
unless furnished with security and indemnity which it deems, in its reasonable
discretion, to be satisfactory.
7.6 The Escrow Agent is hereby expressly authorized to disregard any
and all instructions given by any of the parties hereto or by any other person
or corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction except for its bad faith or willful
misconduct.
7.7 The Escrow Agent shall be entitled to employ such legal counsel,
and other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Representative and the Sellers, and may continue to act as legal counsel for the
Representative and any Seller, from time to time, notwithstanding its duties as
the Escrow Agent hereunder. Each of the Representative and the Purchaser
consents to the Escrow Agent in such capacity as legal counsel for the
Representative and the Sellers, and waives any claim that such representation
represents a conflict of interest on the part of the Escrow Agent. Purchaser
understands that the Representative and the Escrow Agent are relying explicitly
on the foregoing provision in entering into this Escrow Agreement.
4
8. NO COMPENSATION OF THE ESCROW AGENT. The Escrow Agent shall not be
entitled to receive compensation for any services rendered by it hereunder or
reimbursement of out-of-pocket expenses paid or incurred by the Escrow Agent in
the administration of its duties hereunder.
9. METHOD OF DISBURSEMENT BY THE ESCROW AGENT. All payments by the
Escrow Agent to any party to this Agreement shall be made by wire transfer of
immediately available funds to an account designated in writing by such party.
In the event any payment or disbursement is required by the terms hereof to be
made on a date that is not a Business Day, such payment or disbursement shall be
made on the next succeeding Business Day.
10. RECORDS. The Escrow Agent shall maintain accurate records of all
transactions hereunder. As may reasonably be requested by Purchaser, any Seller
or the Representative from time to time, the Escrow Agent shall provide
Purchaser, any Seller or the Representative, as the case may be, with a complete
copy of such records, certified by the Escrow Agent to be a complete and
accurate account of all such transactions. The authorized representatives of
Purchaser, the Sellers and the Representative shall also have access to such
books and records at all reasonable times during normal business hours upon
reasonable notice to the Escrow Agent.
11. NOTICES. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly delivered and received on the date of personal delivery
or on the date of receipt, if mailed by registered or certified mail, postage
prepaid and return receipt requested, or on the date of delivery as evidenced by
the records of delivery services, if sent by hand courier or overnight delivery
service, or on the date of written confirmation of the delivery produced by the
sending telecopier by facsimile or facsimile transmission, and shall be
addressed to the following addresses:
(a) if to the Escrow Agent:
Feldman Weinstein LLP
420 Lexington Avenue
New York, NY 10170
Attention: David N. Feldman, Esq.
Telephone: (212) 869-7000
Facsimile: (212) 997-4242
(b) if to Purchaser:
VTF Corporation
c/o Veritas Capital Fund L.P.
660 Madison Avenue
14th Floor
New York, N.Y. 10021
Attention: Thomas J. Campbell
Telephone: (212) 688-0020
Facsimile: (212) 688-9411
5
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: Benjamin J. Polk, Esq.
Daniel A. Ninivaggi, Esq.
Telephone: (212) 294-6787
Facsimile: (212) 294-4700
(c) if to the Representative:
The Flight International Group
Newport News/Williamsburg International Airport
Newport News, Virginia 23602
Attention: David E. Sandlin
Telephone: (757) 886-5500
Facsimile: (757) 874-5539
with a copy to:
Feldman Weinstein LLP
420 Lexington Avenue
New York, NY 10170
Attention: David N. Feldman, Esq.
Telephone: (212) 869-7000
Facsimile: (212) 997-4242
or to such other address and to the attention of such other person as any of the
above may have furnished to the other parties in writing.
12. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
13. MONETARY UNITS. All amounts referred to herein are expressed in
United States dollars and all payments by the Escrow Agent shall be made in such
dollars.
13.1 ASSIGNMENT AND MODIFICATION. 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.
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14. HEADINGS. The headings used in this Agreement are for convenience
of reference only and shall not be deemed to limit, characterize or in any way
affect the interpretation of any provision of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
16. CONSENT TO JURISDICTION. Each of the parties hereto hereby
irrevocably agrees that any action, suit or proceedings against any of them or
by any of the other parties with respect to this Agreement shall be brought
before the exclusive jurisdiction of the federal or state courts located in the
City of New York in the State of New York, unless all the parties hereto agree
in writing to any other jurisdiction. Each of the parties hereto hereby submits
to such exclusive jurisdiction.
17. SEVERABILITY. If any provisions of this Agreement shall be declared
by any court of competent jurisdiction illegal, void or unenforceable, the other
provisions shall not be affected, but shall remain in full force and effect.
18. TERMINATION. This Agreement shall terminate upon the disbursement
in full of the Escrow Fund.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
FELDMAN WEINSTEIN LLP,
AS THE ESCROW AGENT
By: /s/ David N. Feldman
Name: David N. Feldman
Title: Partner
VTF CORPORATION
By: : /s Robert B. McKeon
Name: Robert B. McKeon
Title: President
THE FLIGHT INTERNATIONAL GROUP, INC.,
ON ITS BEHALF AND AS REPRESENTATIVE
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
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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
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