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U.S. Securities and Exchange Commission, Washington, D.C. 20549
FORM 10-KSB
(Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended April 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 2-87778A
THE FLIGHT INTERNATIONAL GROUP, INC.
(Name of small business issuer in its charter)
Georgia 58-1476225
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Newport News/Williamsburg International Airport, Newport News, VA 23602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (804) 886-5500
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
New Common Stock, par value $.01 per share (successor to Common Stock, par value
$.01 per share)
(Title of class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No .
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Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year: The
issuer's revenues for the year ending April 30, 1996 were $12,265,436.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified
date within the past 60 days: As of the date hereof, there is no public
market for the issuer's securities.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court. Yes No X
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
class of common equity, as of the latest practicable date: As of July 15,
1996, there were 998,974 shares of the issuer's New Common Stock, par
value $.01 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format
[check one]: Yes ; No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Introduction
The Company was incorporated in Georgia on May 7, 1982. Operating
through its direct and indirect subsidiaries described in the next paragraph,
the Company is an aviation services company performing military training
services using specially modified commercial aircraft, principally under
contract with the United States Department of Defense, other government agencies
and foreign countries. 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").
Flight International, Inc., a Georgia corporation ("FII"), Flight
International Aviation, Inc., a Georgia corporation ("FIA") and FI Sales and
Leasing, Inc., a Delaware corporation are wholly-owned subsidiaries of the
Company. Flight International of Florida Inc., a Florida corporation ("FIF") is
a wholly-owned subsidiary of FII. Flight International Aviation Training Center,
Inc., a Georgia corporation ("FIATC"), was a wholly-owned subsidiary of FIA. FIA
sold its shares of capital stock of FIATC, which operated a flight school at the
NN/W Airport, in August 1995.
The Company and several of its affiliates emerged from bankruptcy
protection in December 1994 (see "Bankruptcy Proceedings (February 1994 through
December 1994)," below). In its first full fiscal year since emerging from
bankruptcy, which ended April 30, 1996, and in the period subsequent thereto,
the Company has increased its revenue, obtained two major long-term contracts
which management believes will materially increase the Company's business in the
years ahead (see "New Contracts," below) and has generated positive net income
(after extraordinary item) for the year ended April 30, 1996.
Bankruptcy Proceedings (February 1994 through December 1994)
After reporting significantly reduced revenues for the year ended April
30, 1993, the Company lost two major contracts which accounted for 50% of 1993
fiscal year revenue, as a result of which the Company dramatically reduced its
workforce and began to liquidate unneeded assets. Management also attempted
voluntarily to restructure the liabilities of the Company, including
approximately $32 million in secured debt and $6.6 million in unsecured debt.
In spite of diligent efforts, the Company was unable to successfully
restructure its debt, and on February 4, 1994 (the "Petition Date"), the
Company, FII, FIA and FIF (the "Chapter 11 Entities") filed a petition for
relief under Chapter 11 of the Federal Bankruptcy Code (the "Code") in the
United States Bankruptcy Court for the Eastern District of Virginia, Newport
News Division (the "Bankruptcy Court"). The Chapter 11 Entities remained in
possession of their properties as debtors-in-possession during the pendency of
the proceedings in the Bankruptcy Court.
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Through the bankruptcy period (which included management changes
resulting in David Sandlin's return to the Company), the Company's revenues
continued to drop and losses continued to mount. The Company reported losses for
the fiscal year ended April 30, 1994 of $9,997,000 (after a loss of $6,967,065
for the fiscal year ended April 30, 1993, a loss of $18,269,153 for the fiscal
year ended April 30, 1992 and a loss of $7,930,352 for the fiscal year ended
April 30, 1991). Management's time was focused on finding new sources of
business to replace the lost major contracts, negotiating with and attempting to
restructure creditor claims and handling other matters relating to the
bankruptcy proceedings.
On December 28, 1994, a Joint Plan of Reorganization dated August 31,
1994, as amended, confirmed and decreed by order of the Bankruptcy Court (the
"Plan"), became effective pursuant to an order of the Bankruptcy Court. The Plan
restructured and satisfied the claims of the creditors of the Chapter 11
Entities and the interests of shareholders of the Company.
As part of the Plan, a new class of stock, New Common Stock, par value
$.01 per share ("New Common Stock") was created (with 1,000,000 shares
authorized) and all previous classes of stock, including its Common Stock, par
value $.01 per share ("Old Common Stock") were canceled pursuant to an Amended
and Restated Certificate of Incorporation of the Company filed with the
Secretary of State of Georgia on December 13, 1994 (the "Amended Certificate of
Incorporation").
Shortly after the filing of the Amended Certificate of Incorporation,
pursuant to the Plan all shares of capital stock existing prior to the Petition
Date, including the Old Common Stock, were canceled and shares of New Common
Stock were issued or reserved for disputed claims, as follows: (i) 290,000
shares were sold to new directors and members of management for an aggregate of
$290,000, (ii) 100,000 shares were given to members of management as
compensation, (iii) 98,976 shares were distributed pro rata to holders of Old
Common Stock (including a small amount of treasury shares held by the Company)
and (iv) 510,000 shares were issued and distributed to (or reserved for)
unsecured creditors of the Chapter 11 Entities (the "Creditor Shareholders"). Of
this 510,000 shares of New Common Stock, approximately 200,000 shares were the
subject of claims disputed by the Company. As of August 15, 1996, no shares
remained in dispute, although some resolved disputes still require paperwork
which has not been completed.
As to these formerly disputed claims, the Company still is holding
certain stock certificates issued to these creditors (on the basis of assuming
that these creditors' remaining claims were wholly justified). The resolution of
such disputes has already resulted and will result in fewer shares being
delivered to such creditors than were issued pursuant to the Plan and which are
and were being held by the Company. The shares which will not be delivered to
these creditors will be canceled and reissued pro rata to the remaining Creditor
Shareholders.
Certain preexisting secured lenders' indebtedness also was restructured
as part of the Plan, so that the Company's total long-term debt as of December
31, 1994 was $8,171,770, as of April 30, 1995 it was $7,714,437 and, as of April
30, 1996 it was $4,633,888.
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Post-Bankruptcy Period
Management believes that in the post-bankruptcy period it has taken
steps to rebuild its balance sheet, continue to develop contracts in its core
areas, including the new contracts described herein (See "New Contracts," below)
and as a result acquire more personnel and equipment, strengthening the
Company's ability to compete more effectively in its marketplaces. In addition,
the Company is reexamining all aspects of its current sources of revenue and its
current expenses to determine both the short-term and long-term benefits to be
derived from each such source in the context of the Company's overall strategy.
See "Flight Operations - Competition" below.
New Contracts
In August 1996, the Company was awarded a major contract. The
Commercial Air Services Military Operations Support (CAS-MOS) contract is a
derivative of the original government contract won by the Company in 1980 and
operated until September 1993. The new contract runs for one base year with four
option years which the Government has, and starts October 1, 1996. Annual
revenues from this contract are anticipated to be $12 to $22 million; however,
CAS-MOS replaces $4.5 million in existing business from Sentel and Pax River.
Therefore, the net increase from this contract is estimated to be $7.5 to $17.5
million, or an increase of 60% to 140% over fiscal year 1996 actual revenue, and
is expected to constitute a substantial portion of the Company's revenues. The
Company does not anticipate any significant problems in obtaining the resources
necessary to service this contract, although there can be no assurance thereof.
In February 1996, the Company was awarded a new contract to provide
Military Free Fall Flight Support (MFF) to the U.S. Army. This contract runs for
a base period through September 30, 1996 with four one year option periods. Base
period revenues are anticipated to be approximately $900,000, with total
projected revenues of $7 million over the five year period assuming all option
periods are exercised. The MFF contract is significant because it represents the
Company's first contract relating to Army training.
There can be no assurance that the Government will exercise its options
on either the MFF or CAS-MOS contracts.
The Company's consolidated operations are concentrated principally in
two business segments: flight operations and fixed base operations.
FLIGHT OPERATIONS
As of August 1, 1996, the Company operated 18 aircraft, including 10
Learjets, four Fairchild Metro IIIs, three Casas and one Cheyenne. These
aircraft are used in the conduct of flight operations for the U.S. Government
and commercial customers. In addition, the Company owns and operates electronic
warfare equipment used in conjunction with its flight operations contracts. The
Company also maintains an inventory of spare aircraft parts used in support of
the Company's fleet as well as third party aircraft.
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Contract Flight Services
The Company performs contract flight services for the United States
Department of Defense ("DOD"), other government agencies and commercial
customers. The Company utilizes specially modified business jets and propjets in
connection with the training of military aircrews, radar operators and weapons
controllers in the techniques of airborne target identification and intercept.
Under the contracts with the DOD, the Company's aircraft simulate
aggressor aircraft, tow airborne targets for air-to-air and surface-to-air
missile and gunnery live firing exercises and use airborne electronic
countermeasures equipment and techniques to disrupt ship, aircraft and land
based communications and radar. Contracts with the DOD generally provide for
compensation based on flight hours of usage. Flight crews are required to hold
United States government security clearances in connection with certain
classified aspects of the services provided.
In addition to its contracts with the DOD, a small portion of the
Company's revenues from flight operations is generated from customers in the
aerospace industry, which use specially configured aircraft for training and
testing. Typically, customers utilize aircraft and flight crews in connection
with product development. Many of these services are provided pursuant to
purchase orders, rather than long-term contracts. A portion of the fleet of
aircraft is offered on an international basis for charter service.
Seasonality is a significant factor in contract flight operations
(historically representing a majority of the Company's revenues) which affects
revenue and cash flow. Revenues are lower during midsummer and early winter
months.
Aircraft Lease/Rental
In addition to offering contract flight services, the Company offers
its aircraft and equipment for lease or rental to DOD and other government
customers. During the fiscal year ended April 30, 1996, this part of the
business remained strong, due principally to continuing the Company's contract
with the U.S. Navy/Naval Weapons Center in China Lake, California, to provide
Metro III aircraft necessary to accomplish naval training.
Government Contracts
Generally, United States Federal government contract awards are made
through sealed competitive bids, unless an exemption from full and open
competition under the 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.
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The Company's DOD contracts were awarded competitively pursuant to
procedures under the relevant Federal procurement laws or are annual contracts
having additional one year option periods that may be exercised by the DOD.
For each year of a contract, including the base year and any option
year that the government has elected to take, all contract revenues are
contingent upon the availability of adequate funding. For the fiscal year ended
April 30, 1996, revenue from contracts with the United States government
represented approximately 47% of the Company's total revenues.
Payments received under government contracts normally are based upon
flight hours at the price per flight hour established in the contract. Flight
hours are measured from the time aircraft and personnel depart for a
predesignated location defined in the contract to perform the assigned training
or support mission, until the completion of the mission and the return of the
aircraft to the predetermined station. Under most contracts it is necessary to
attain a predetermined mission success rate or other contract performance
standard.
Minimum guaranteed contract payments under most contracts are based on
an established number of flight hours that the government is required to order
during each current year of the contract and during any subsequent contract year
for which the government affirmatively exercises an option. The Company's price
for "guaranteed" flight hours is fixed in the contract. 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 established number of guaranteed flight hours specified in
the contract at the applicable contract rate, regardless of whether or not the
government actually uses all such flight hours for the contract year. However,
payment to the Company for a shortfall, if any, between the number of hours
actually used by the government and the level specified in the contract 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 certain uncontrollable cost overruns such
as jet fuel cost increases.
The Defense Contract Audit Agency has the right to audit the Company's
books and records as a result of these contractual relationships. Because of the
fixed-price nature of the contracts, however, prices are not normally subject to
renegotiation or retroactive adjustment.
Competition
The markets in which the Company conducts flight operations are highly
competitive. Price usually is a significant factor considered in awarding
contracts. Many firms, ranging in size from companies having substantially
smaller operations than the Company to affiliates of major corporations having
substantially greater resources than the Company, compete directly with the
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Company for contracts awarded by the United States Government and the other
flight operations customers and potential customers of the Company.
Competitive factors other than price which affect the award of flight
operations contracts include the number of employees (for example, certain
contracts are available only to businesses with fewer than 1,500 employees),
experience in the field of aviation services and adequacy of resources,
including maintenance personnel, aircrews, repair facilities and aircraft.
Management believes that many of the advantages the Company once had
over some of its competitors had diminished prior to, during and immediately
after the bankruptcy period due to the Company's deteriorating financial
condition, the requirement to substantially reduce its personnel, the transfer
(due to a liquidation strategy) of certain strategic resources into the hands of
competing companies and the bankruptcy itself. These events, including the loss
of key contracts and resultant downsizing of key personnel, aircraft and
equipment had enabled the Company's competition to bid competitively on most of
the core business of the Company. The effort to rebuild the Company's status in
the industry has been an enormous challenge for management.
In the fiscal year ended April 30, 1996 and thereafter, however,
management believes it has made substantial inroads to substantially reducing or
even eliminating these problems. The Company's renewed strength resulting from
the restructuring of its indebtedness, the obtaining of the CAS-MOS contract and
other significant events discussed herein have resulted in a greater ability to
compete in its marketplace, although competition remains strong.
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 the commercial
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.
Financial condition and fiscal stability also are significant
competitive factors affecting the award of contracts in both the government and
commercial sectors of flight operations. The company's results of operations
during the last five fiscal years had adversely affected its ability to compete
for certain contracts. In the fiscal year ended April 30, 1996 and thereafter,
because of the reasons described herein, management believes it has to a large
extent rebuilt confidence in the Company's customers and potential customers
that the Company is in a stronger financial condition and is determined to be a
long-term player in the industry. See Item 6, "Management's Discussion and
Analysis or Plan of Operation."
FIXED BASE OPERATION
FIA operates a FBO at the NN/W Airport pursuant to an agreement with
the Peninsula Airport Commission which terminates in April 2004. The FBO
currently serves the line service and fuel requirements of Company aircraft in
support of the Company's flight operations. The Company also 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
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airframe repairs), aircraft modifications, avionics installation and
replacement, charter, flight instruction, pilot services and aircraft storage
and hangaring.
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 Company controls
substantially all the fueling business at the NN/W Airport. For major
maintenance, the Company's facilities compete with other facilities nationwide.
The availability of storage hangars for aircraft also is 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 which are used for its fleet of aircraft as well as third-party
aircraft. Management does not believe that revenues from its FBO are seasonal or
dependent on a single customer.
The FBO comprises approximately 39,000 square feet of hangar space and
43,000 square feet of maintenance and office space, of which approximately
10,000 square feet is occupied by the Company's headquarters. These facilities
are in excess of current Company needs, and management has attempted, without
success, to sell or sublease a portion of its office and hangar space.
Management still desires to sell or sublease a portion of this space unless
business conditions justify otherwise. (See Item 6, "Management's Discussion and
Analysis or Plan of Operation," regarding the FBO.)
REGULATION
The Company's business is subject to regulation by the U.S. Federal
Aviation Administration ("FAA") and the Department of Transportation ("DOT")
under the provisions of the Federal Aviation Act of 1958, as amended (the
"Aviation Act"). The DOT is responsible, inter alia, for evaluating and
determining the fitness of individuals and organizations to function as air
carriers and maintains jurisdiction over consolidations, mergers or acquisitions
of air carriers.
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 under Federal Aviation Regulation
Part 135 and repair facilities (repair stations), including those operated by
the FBO, 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
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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 standards for aircraft exhaust
regulations 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 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 which 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 may operate 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.
During the fiscal year ended April 30, 1996, the Company conducted
certain research and development activities relating to its aircraft at a cost
of approximately $150,000.
EMPLOYEES
As of April 30, 1996, the Company had 118 employees, including 83
full-time employees. None of the Company's employees is covered by a collective
bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's leasehold interests at the NN/W Airport represent
approximately 20% of the total assets of the Company. These leasehold interests
consist of three hangars totaling 39,000 square feet and approximately 43,000
square feet of maintenance shop and office space. As previously stated, these
facilities are in excess of current Company needs, and management has attempted,
without success, to sell or sublease a portion of its office and hangar space.
Management still desires to sell or sublease a portion of this space unless
business conditions justify otherwise. 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 improvement of the property,
and, in the opinion of the management, the property is adequately insured.
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The Company presently operates a small fleet of 18 aircraft, of which
three are owned and fifteen are leased. The Company also owns, subject to a Deed
of Trust and Security Interest Lien to Signet Bank/Virginia, certain buildings,
hangars and maintenance facilities at its FBO and leases the land at its
headquarters from the Peninsula Airport Commission. A majority of the Company's
assets are pledged as collateral on its debt and capital lease obligations.
In 1988, FIA mortgaged substantially all of its leasehold interests,
improvements and related fixtures and equipment to Signet Bank/Virginia. As of
April 30, 1996, the indebtedness to Signet Bank/Virginia was approximately
$1,970,762. As of April 30, 1996, the indebtedness to Signet Bank/Virginia was
restructured to provide for complete amortization thereof through graduated
payments through November 2003, upon which the entire obligation will be
satisfied. See Item 6, "Management's Discussion and Analysis or Plan of
Operation" and Note 6 to the accompanying Consolidated Financial Statements for
a discussion concerning certain properties.
FIXED BASE OPERATIONS
The Company leases the land underlying its headquarters building and
hangars through the year 2004 pursuant to a lease agreement with the Peninsula
Airport Commission of Newport News, Virginia, which agreement was retained as a
part of the Plan.
ADMINISTRATIVE FACILITIES
The Company's executive offices and corporate headquarters are located
at Newport News/Williamsburg International Airport, Newport News, Virginia
23602, where the Company has approximately 10,000 square feet of office space.
These facilities are in excess of current Company needs, and management has
attempted, without success, to sell or sublease a portion of its office and
hangar space. Management still desires to sell or sublease a portion of this
space unless business conditions justify otherwise.
ITEM 3. LEGAL PROCEEDINGS
As a consequence of the bankruptcy proceedings with respect to the
Chapter 11 Entities, virtually all litigations against the Chapter 11 Entities
were terminated. There are no material pending legal proceedings to which the
Company is a party or to which any of its properties are subject. A certain
grand jury investigation, is described in Note 8 to the annexed Consolidated
Financial Statements of the Company set forth in Item 7 hereof.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal quarter of the Company ended April 30, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 its Form
10-K for the fiscal year ended April 30, 1993, a Current Report on Form 8-K
filed during the bankruptcy and all required filings reflective of all periods
from and after January 31, 1995.
The shares of New Common Stock of the Company currently trade in the
"pink sheets," since the Old Common Stock, which had been listed on the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ")
Additional List, was delisted in 1992. As of April 30, 1996, the Company has a
net worth of less than $1 million, thus making it ineligible for relisting on
NASDAQ, and there can be no assurance that the Company will be able to satisfy
the requirements for relisting the New Common Stock as successor to the Common
Stock on the NASDAQ System.
The Company believes that since April 30, 1993, virtually no trading
has taken place with respect to the Old Common Stock and New Common Stock,
respectively. 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 New Common Stock as of
April 30, 1996 is 2,200. The Company has no other class of securities authorized
in its Amended Certificate of Incorporation.
No cash dividends were declared on either the Old Common Stock or the
New Common Stock during the fiscal years ended April 30, 1996 and April 30,
1995.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
As discussed in detail in Item 1 above, the Company emerged from
bankruptcy pursuant to the Plan effective December 28, 1994, almost eleven
months after the Petition Date. The effect of the Plan was to exchange all
unsecured claims for equity positions, restructure all secured debt with
improved interest rates, resolve all law suits, claims and other disputes,
retain equity interests for shareholders existing prior to the bankruptcy and
provide management with an opportunity to invest in the Company and obtain
incentive compensation. The confirmation and implementation of the Plan was
completed very rapidly, for several reasons: (i) key lenders had negotiated
favorable terms for the Company conditioned upon a plan confirmed by December
1994, (ii) tax law changes would have
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resulted in the loss of substantially all of the Company's loss carryforwards if
the Plan confirmation was delayed and (iii) the Company's ability to attract new
business was impaired by its bankrupt status.
The Company accounted for the reorganization effected by the Plan
through the principles of "fresh start" accounting, as required by Statement of
Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code", issued by the American Institute of certified Public
Accountants. The Company was required to adopt fresh start reporting because the
holders of the existing voting shares immediately prior to the filing and
confirmation of the Plan received less than 50% of the voting shares of the
emerging entity and its reorganization value was less than the total of its
post-petition liabilities and allowed claims. For accounting purposes, the
effective date was deemed to be December 31, 1994. As a result, the audited
financial statements included herein break the fiscal year into two components:
the eight months (May 1, 1994 through December 31, 1994) during which the
Company was engaged in the bankruptcy proceedings ("Bankruptcy Period"), and the
four months (January 1, 1995 through April 30, 1995) subsequent to emergence
from bankruptcy ("Post-Bankruptcy Period").
As a result of the implementation of fresh start accounting, the
financial statements of the Company for the Post-Bankruptcy Period are not
comparable to the Company's financial statements of prior periods. In most cases
herein, no comparison is made between the Post-Bankruptcy Period and prior
periods.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 1996 COMPARED TO FOUR MONTHS ENDED APRIL 30, 1995 AND THE
EIGHT MONTHS ENDED DECEMBER 31, 1994
Revenues
For the year ended April 30, 1996, revenues totaled $12,265,000. This
represents an increase of 12% over the prior year. Company revenue is generated
from four sources. Contract flying of owned or leased aircraft accounts for 55%
of total revenue, followed by aircraft leasing at 18%, the repair facility at
14% and the FBO at 13% of total revenue.
All four sources of revenue showed increases as displayed below (in
thousands):
<TABLE>
<CAPTION>
12 Months Ended 12 Months Ended
April 30, 1996 April 30, 1995 % Increase
-------------- -------------- ----------
<S> <C> <C> <C>
Contract Flying $6,772 $6,102 11
Aircraft Leasing 2,157 1,492 45
Repair Station 1,693 1,495 13
Fixed Base Operations 1,625 1,529 6
</TABLE>
The 45% increase in aircraft leasing is as a result of having a full
year of operations on the China Lake contract as opposed to seven months in
fiscal year 1995.
- 12 -
<PAGE> 13
Costs of Services
Costs of services include the direct operating expenses of aircraft
owned and leased by the Company. Types of expenses incurred include the
following: lease, fuel, insurance, maintenance, pilots and equipment. Also
included are the costs of operating the FBO at the NN/W Airport. The costs for
the aircraft repair facility are also included in costs of services.
For the year ending April 30, 1996 there was a 1.9% decrease in costs
of services. This decrease, combined with the 12% increase in revenue, is
reflected in improved gross margins across the board. The overall gross margin
improved to 24% from 13% in the prior year. Major factors contributing to the
decrease in costs of services were the FBO, which decreased costs by 25% and by
sale of the flight school. Repair station and all flight operations also had
improved gross margins.
Depreciation and Amortization
Aircraft and engines are depreciated as follows: aircraft are
depreciated on a straight-line basis over 12 years. Engines are depreciated
based on hours flown down to a core value. In addition, a reserve is recorded to
cover the cost of major periodic inspections on engines. 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. Increase in depreciation is a result of a relatively stable
level of aircraft and facilities and an increased utilization rate.
Depreciation and amortization of $828,425 for the fiscal year ended
April 30, 1996 reflects an increase of 4% compared to fiscal year 1995. This
increase is the result of the moderate increased utilization of aircraft.
General, Corporate and Administrative
General, corporate and administrative expenses consist principally of
facility costs associated with the three hangars and corporate headquarters
building, and labor costs associated with the administrative and sales staff.
General, corporate and administrative expenses aggregated $1,812,130 for the
year ended April 30, 1996, a decrease of 13% over the prior twelve month period.
This decrease is a result of a reduction in professional fees and the departure
of an executive of the Company, partially offset by an increase in marketing
expenses.
Interest Expense
Interest expense increased to $561,284 from $409,735 for the prior
twelve month period, or 37%. This increase in primarily due to the fact that
interest on unsecured and undersecured indebtedness did not begin accruing until
the confirmation date of the Plan in December 1994.
Extraordinary Gain on Debt Extinguishment
In April 1996, the Company paid off at a discount certain indebtedness
to Michigan National Bank in a transaction described in more detail herein (see
Item 12, "Certain Relationships and Related Transactions"). As a result of that
transaction, an extraordinary gain of $313,793 was recorded to
- 13 -
<PAGE> 14
reflect the forgiveness of that portion of the indebtedness.
Net Income (Profit)
The consolidated net profit for the year ended April 30, 1996 was
$115,295, a profit of $.11 per share (includes an extraordinary gain of
$313,793; net loss before extraordinary item was $198,498, or $.20 per share).
The weighted average number of shares remained consistent during this period at
998,976.
FOUR MONTHS ENDED APRIL 30, 1995 AND THE EIGHT MONTHS ENDED DECEMBER 31, 1994
COMPARED TO THE FISCAL YEAR ENDED APRIL 30, 1994
Revenues
Total revenues of $3.7 million and $7.2 million for the four months
ended April 30, 1995 and the eight months ended December 31, 1994 were, on a
combined basis, 40% lower than the year ended April 30, 1994. This decrease was
primarily due to the loss of the Continental United States Commercial Services
(CAS Conus) Contract on September 30, 1993. The CAS Conus Contract accounted for
34% of revenues for the year ended April 30, 1994. Other factors included an
increase in FBO revenue of $0.6 million due to increased sales of inventoried
parts and an increase in service provided to third parties, offset by a decrease
in flight training revenue of $0.5 million due to decreased enrollment and the
leasing of the flight school to a third party in November 1994.
Cost of Services
Cost of services of $2.8 million and $6.7 million for the four months
ended April 30, 1995 and the eight months ended December 31, 1994, respectively,
reflect a combined decrease of $4.8 million (34%) over fiscal year 1994. Due to
the loss of certain contracts (such as the CAS Conus Contract), the Company
reduced its workforce by approximately 28%, resulting in a reduction of salaried
wages and direct labor of approximately $2.5 million. The remaining decrease in
cost of services is related to the sale of a significant number of aircraft
which resulted in reduced costs for maintenance, fuel, property taxes, insurance
and other costs.
Depreciation and Amortization
Depreciation and amortization of $0.3 million for the four months ended
April 30, 1995, added to the $0.5 million for the eight months ended December
31, 1994,, reflects a combined decrease of $1.1 million (58%) compared to 1994.
This decrease is the result of the writedown of fixed assets in the amount of
$24 million to fair market value in accordance with SOP 90-7 during the eight
months ended December 31, 1994 and the sale and writedown of assets in the
amount of $15 million during 1994.
- 14 -
<PAGE> 15
General, Corporate and Administrative
General, corporate and administrative expenses aggregated $0.5 million
for the four months ended April 30, 1995 and $1.5 million for the eight months
ended December 31, 1994, a combined decrease of $0.6 million (20%) compared to
1994. This decrease is primarily the result of reduced personnel costs achieved
through the workforce reduction described above and a $0.4 million reduction in
professional fees as a result of the relatively swift emergence from bankruptcy
in December 1994.
Extraordinary Items
The Company recorded a gain on the discharge of prepetition liabilities
of $23 million during the eight months ended December 31, 1994. This gain was
the result of the write-off of unsecured note payable balances and other
liabilities in accordance with the Plan. The Company also adjusted debt balances
to amounts allowed by the Bankruptcy Court at April 30, 1994, in accordance with
SOP 90-7 and recorded an extraordinary gain of $1 million.
Net Income (Loss)
As a result of the foregoing, the Company incurred a net loss of $0.12
million (a loss of $.12 per share) for the four months ended April 30, 1995,
net income of $21.2 million (net income of $21.25 per share) for the eight
months ended December 31, 1994 (includes an extraordinary gain of $25 million;
net loss per share before extraordinary item was $1.98), compared to a net loss
of $10.0 million (a loss of $1.01 per share) for the year ended April 30, 1994.
The weighted average number of shares used in computing primary loss per share
decreased from 9.9 million for the year ended April 30, 1994 to 1.0 million for
the four months ended April 30, 1995 and the eight months ended December 31,
1994 as a result of the confirmation of the Plan as described in Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily through cash flows from
operations and bank indebtedness. The Company's operating activities provided
cash of approximately $663,657 for the year ended April 30, 1996, while
providing $1,844,426 in the comparable prior year period. For the year ended
April 30, 1996, cash from operations was primarily provided by net income and
increases in deferred revenue, offset by increases in accrued expenses and
prepaid expenses.
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.
These costs can be reduced through leasing arrangements and advance payments
from customers, if these are 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.
As described above, the Plan included a favorable restructuring of all
of the Company's indebtedness and the Company's aircraft and parts inventory
currently is financed over periods averaging six years with interest rates fixed
at 7-8%. The mortgage on the leasehold improvements
- 15 -
<PAGE> 16
at the FBO, including the headquarters building and adjoining hangers, as
indicated above, has been modified to allow for amortization of the loan with a
graduated payment through November 2003. As indicated above, the facilities are
in excess of current Company needs, and management has attempted, without
success, to sell or sublease a portion of its office and hangar space.
Management still desires to sell or sublease a portion of this space unless
business conditions justify otherwise. See Notes 6 and 7 to the Consolidated
Financial Statements included herein for a discussion of future debt and lease
commitments.
ITEM 7. FINANCIAL STATEMENTS
See pages F-1 through F-26 annexed hereto.
[Remainder of page intentionally left blank.]
- 16 -
<PAGE> 17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the
Registrant and its accountants on any matter of accounting principles, practices
or financial statement disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
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:
<TABLE>
<CAPTION>
Name Age Date of Election Position
- ---- --- ---------------- --------
<S> <C> <C> <C>
David E. Sandlin 52 March 30, 1994 Chairman, President, Director
Wayne M. Richmon 39 February 13, 1995 Executive Vice President,
Treasurer, Chief Financial
Officer, Director
Gary D. Reinhart 60 April 13, 1993 Vice President of Administration
Ann P. Campbell 57 April 13, 1993 Secretary
C. Lofton Fouts, Jr. 64 February 13, 1995 Director
John R. Bone 45 February 13, 1995 Director
James N. Lingan 48 May 24, 1995 Director
Vice Admiral Richard M. Dunleavy (Ret.) 63 May 24, 1995 Director
</TABLE>
The Plan requires that the Company's Board of Directors remain at six
(6) members until changed by vote of shareholders. The members of the Board of
Directors need not be shareholders of the Company. Further, the Plan requires
that three members of the Board of Directors 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,
Richmon and Bone represent these three directors. The remaining three directors
shall consist of individuals who are not directly or indirectly engaged,
employed or retained by the Company or its subsidiaries and/or affiliates.
Messrs. Fouts, Lingan and Dunleavy represent these three directors.
- 17 -
<PAGE> 18
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 and its subsidiaries since March 30, 1994, and was
formerly President of Flight International's Sales and Leasing Division. 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 in
Maritime Sales & Leasing, Inc. ("Maritime"), a major lessor of turbine aircraft.
Maritime has leased a total of thirteen aircraft to FII. Prior to FII's sale of
FIATC, Maritime had leased certain aircraft and a simulator to FIATC. Maritime
also leases aircraft to Sentel Corp., which has been a competitor of FII and a
maintenance and parts customer of FII. FII also is a subcontractor of Sentel
Corp. for contract flying services. Mr. Sandlin also is a one-third owner of The
Aviation Company ("TAC"), which has leased one aircraft to the Company. With
relation to three particular Learjets owned by the Company, an arrangement was
made in May 1996 whereby Maritime would purchase the aircraft from the Company,
lease them back to the Company and pay off Michigan National Bank (the entity
that financed the aircraft). See Item 12, "Certain Relationships and Related
Transactions."
Wayne M. Richmon. Mr. Richmon, Executive Vice President, Treasurer,
Chief Financial Officer and Director, joined the Company in 1993, and is
responsible for finance, corporate administration, human resources, management
information services and contract administration. Prior to joining the Company,
he served previously as Chief Financial Officer for American Systems Engineering
Company and held management positions at two national "big six" accounting
firms, specializing in government contract and consulting services. Mr. Richmon
is a CPA registered in the State of Virginia.
Gary D. Reinhart. Mr. Reinhart, Vice President, Administration, joined
the Company in 1987 as Director of Purchasing and has also served as Director,
Materials and Risk Management. Mr. Reinhart previously worked in corporate and
group management positions with Bendix/ Allied Signal for 28 years.
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. Ms. Campbell has over fifteen years
experience as a legal secretary and currently serves as Executive Secretary to
the Chairman and to the Chief Financial Officer.
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 studies 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. See Item 12, "Certain Relationships
and Related Transactions."
- 18 -
<PAGE> 19
James N. Lingan. Mr. Lingan, Director, is a principal with KPMG Peat
Marwick LLP in Washington, D.C. Mr. Lingan supervises a staff which provides
consulting and advisory services to Department of Defense weapons acquisitions
programs. Mr. Lingan has served more than 10 years in the United States Navy and
is a Captain in the Navy Reserve.
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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
No reports on Forms 3 or 4 were furnished to the registrant during the
fiscal year ended April 30, 1995. During the bankruptcy and as a result of the
implementation of the Plan, new directors and officers were appointed and the
mix of shareholders of the Company changed dramatically. Thus, the Company is
aware that each of the current officers and directors listed above should have
filed a Form 3 upon taking office, but did not do so in a timely fashion. All
such officers and directors filed Forms 3 during July 1995, all of which were
furnished to the registrant. The Forms so filed did contain, and when due should
have contained, information concerning one acquisition by three such directors
(Messrs. Sandlin, Richmon and Bone) of shares of New Common Stock pursuant to
the Plan. The only shares of New Common Stock owned of record by officers and
directors are those issued pursuant to the Plan.
In addition, in November 1995, by virtue of issuances of additional
shares as a result of settlement with certain creditors of the Company, Michigan
National Bank ("MNB") and South Trust Bank of Alabama, N.A. ("South Trust") each
became owners of 10% of the outstanding New Common Stock, but the Company never
received, nor does the Company believe these shareholders filed, Forms 3 or 5.
No shareholder other than MNB and South Trust and the officers and
directors owns of record more than ten percent (10%) of the issued and
outstanding shares of New Common Stock to the knowledge of the Company.
ITEM 10. EXECUTIVE COMPENSATION
The following table reflects the aggregate cash compensation, including
bonuses and deferred compensation for services in all capacities to the Company
during the fiscal year ended April 30, 1996 for the Chief Executive Officer of
the Company and the four highest paid executive officers whose aggregate
remuneration exceeded $100,000.
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------------
Name and Other All
Principal Annual Other
Position Year Salary Compensation Compensation
- -------- ---- ------ ------------ ------------
<S> <C> <C> <C> <C>
David E. Sandlin
Chairman, President,
Director 1996 $100,000(1) (2) (3)
</TABLE>
- --------------------
(1) Pursuant to an Employment Agreement, dated as of January 3, 1995, by
and between the Company and David E. Sandlin (the "Sandlin Agreement"),
Mr. Sandlin received a salary at an annual rate of $100,000 from the
effective date of such agreement through the end of the fiscal year
ended April 30, 1996.
(2) The Sandlin Agreement provides for certain perquisites, including an
apartment in Newport News, Virginia, travel costs to and from his home
in Atlanta, Georgia and an automobile in Newport News. The aggregate
cost of these items for the fiscal year ended April 30, 1996 was
$25,081.
(3) Mr. Sandlin is an officer, director and 50% shareholder of Maritime.
Maritime has leased a total of 13 aircraft to FII. Prior to FII's sale
of FIATC, Maritime had leased certain aircraft and a simulator to
FIATC. Maritime also leases aircraft to Sentel Corp., which has been a
competitor of FII and a maintenance and parts customer of FII. FII also
is a subcontractor of Sentel Corp. for contract flying services. Mr.
Sandlin is also a one-third owner of TAC, which has leased one aircraft
to the Company. With relation to three particular Learjets owned by the
Company, an arrangement was made in May 1996 whereby Maritime would
purchase the aircraft from the Company, lease them back to the Company
and pay off Michigan National Bank (the entity that financed the
aircraft). The Company does not believe that any of the foregoing
constituted compensation to Mr. Sandlin, but makes this disclosure for
the sake of completeness. See Item 12, "Certain Relationships and
Related Transactions."
THE FLIGHT INTERNATIONAL GROUP, INC. 401(k) PLAN
On November 1, 1989, the Company terminated the 401(k) portion of its
Employee Savings and Stock Ownership Plan (the "ESSOP Plan") and adopted a plan
in the form of the Prudential Retirement Accumulation 401(k) plan, known as The
Flight International Group, Inc. 401(k) Plan (the "Plan").
The Plan is a defined contribution plan sponsored by the Company. The
Plan covers all eligible employees of the Company. 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 25% of the first 4% of employees'
contributions. All employee contributions, rollover contributions and earnings
thereon
- 20 -
<PAGE> 21
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 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 his account. The
Company contributed $14,470 and $13,482 to the Plan in fiscal years 1996 and
1995, respectively.
On May 1, 1996 the then existing Plan was changed with regard to the
trustee and the matching obligation. In an effort to increase its enrollment in
the plan, the Company has (by unanimous vote of the Board of Directors) replaced
the former trustee and record keeping agent, Prudential. The new trustee will be
Fidelity Investments, which, after a six month investigation, was found by the
Company to be superior in timely reporting and fund performance. The former Plan
was also altered in that the matching obligation of the Company, formerly 25
cents per dollar, is now 30 cents per dollar.
The Plan has applied for, but not yet received, a determination letter
exempting it from Federal income taxes.
DIRECTORS' COMPENSATION
Directors who are not members of management or affiliates thereof
receive $1,000 for each Board meeting attended, plus out-of-pocket expenses
incurred in connection with such attendance. Members of management and
affiliates thereof who are directors do not receive separate compensation
therefor.
EMPLOYMENT AGREEMENTS
The Sandlin Agreement
The Sandlin Agreement continues for a term which expires December 31,
1996, provided, that the Sandlin Agreement is renewed automatically from year to
year thereafter unless either party gives notice of termination. Mr. Sandlin's
base salary is $100,000 per year (subject to increases by the Board of Directors
taking into consideration certain factors specified therein). Mr. Sandlin is
reimbursed for all necessary and reasonable expenses incurred in performing
under the Sandlin Agreement and certain other expenses specified therein
(including without limitation for the cost of an apartment and automobile for
his use in Newport News, Virginia and his travel expenses to and from his home
in Atlanta, Georgia and Newport News). He is also entitled to participate in any
benefit programs which the Company may establish. The Sandlin Agreement also
confirms the Company's agreement to issue the Sandlin Incentive Stock.
The Company may terminate the Sandlin Agreement for "cause" (as defined
therein), in the event of the death or disability of Mr. Sandlin or at any time
after delivery to Mr. Sandlin of a written notice of termination. Mr. Sandlin
may terminate the Sandlin Agreement on sixty (60) days' written notice for,
among other things, a reduction in his base salary below that in existence upon
signing (or other material breach by the Company), the relocation of the
Company's offices and the assignment of duties inconsistent with his position or
material adverse alteration in the nature or status of his responsibilities or
conditions of employment (including without limitation material reductions in
vacation or material increase in overnight travel obligations not reasonably
required).
- 21 -
<PAGE> 22
In the event that the Sandlin Agreement is terminated by the Company
for cause or in the event of death or disability, or in the event Mr. Sandlin
terminates the Sandlin Agreement other than in connection with a change in
control, Mr. Sandlin receives his salary, expense reimbursements and other
benefits through the date of termination, in addition to any applicable
insurance benefits.
In the event of a termination by the Company not for cause, death or
disability, or in the event Mr. Sandlin terminates the Sandlin Agreement in
connection with a change in control, Mr. Sandlin receives the amounts described
above plus a lump sum severance payment equal to 100% of his annual base salary
at the rate in effect at the time notice of termination is given. In this
circumstance, the Company, for one year after termination, also will provide Mr.
Sandlin with life and health insurance benefits substantially similar to those
he was receiving immediately prior to the notice of termination. A change in
control is deemed to have occurred in the event of a sale of the Company or
merger of the Company with another business pursuant to which any person or
entity other than certain specified entities (these are Maritime, Global Jet,
Phoenix Air Group and DESCO, Aviation Consultants) become beneficial owners of
capital stock of the Company.
The Sandlin Agreement prohibits Mr. Sandlin, during the term of the
Sandlin Agreement and for one year thereafter, from serving as an employee,
owner, partner, agent, director, officer, consultant or shareholder (except
ownership of 5% or less of most public companies) of a business which is
materially in competition with the business of the Company, but this provision
can be modified by formal resolution of at least 75% of the Board of Directors
(excluding Mr. Sandlin). The Company agrees to indemnify Mr. Sandlin against
reasonable expenses, liabilities and losses incurred or suffered by him in
connection with his service to the Company.
Employment Agreement with Wayne M. Richmon
The Company also has entered into an Employment Agreement with Wayne M.
Richmon, its Executive Vice President, Treasurer and Chief Financial Officer,
dated as of January 3, 1995 (the "Richmon Agreement"). The Richmon Agreement
continues for a term which expires December 31, 1996, provided, that the Richmon
Agreement is renewed automatically from year to year thereafter unless either
party gives notice of termination. Mr. Richmon's base salary is $80,000 per year
(subject to increases by the Board of Directors taking into consideration
certain factors specified therein). Mr. Richmon is reimbursed for all necessary
and reasonable expenses incurred in performing under the Richmon Agreement and
certain other expenses specified therein. He is also entitled to participate in
any benefit programs which the Company may establish. The Richmon Agreement also
confirms the Company's agreement to issue the Richmon Incentive Stock.
The Company may terminate the Richmon Agreement for "cause" (as defined
therein), in the event of the death or disability of Mr. Richmon or at any time
after delivery to Mr. Richmon of a written notice of termination. Mr. Richmon
may terminate the Richmon Agreement on sixty (60) days' written notice for,
among other things, a reduction in his base salary below $80,000 (or other
material breach by the Company), the relocation of the Company's offices and the
assignment of duties inconsistent with his position or material adverse
alteration in the nature or status of his responsibilities or conditions of
employment.
In the event that the Richmon Agreement is terminated by the Company
for cause or in the event of death or disability, or in the event Mr. Richmon
terminates the Richmon Agreement other than in connection with a change in
control, Mr. Richmon receives his salary, expense reimbursements and other
benefits
- 22 -
<PAGE> 23
through the date of termination, in addition to any applicable insurance
benefits.
In the event of a termination by the Company not for cause, death or
disability, or in the event Mr. Richmon terminates the Richmon Agreement in
connection with a change in control, Mr. Richmon receives the amounts described
above plus a lump sum severance payment equal to 100% of his annual base salary
at the rate in effect at the time notice of termination is given. In this
circumstance, the Company, for one year after termination, also will provide Mr.
Richmon with life and health insurance benefits substantially similar to those
he was receiving immediately prior to the notice of termination. A change in
control is deemed to have occurred in the event of a sale of the Company or
merger of the Company with another business pursuant to which any person or
entity becomes beneficial owner of capital stock of the Company.
The Richmon Agreement prohibits Mr. Richmon, during the term of the
Richmon Agreement and for one year thereafter, from serving as an employee,
owner, partner, agent, director, officer, consultant or shareholder (except
ownership of 5% or less of most public companies) of a business which is
materially in competition with the business of the Company. The Company agrees
to indemnify Mr. Richmon against reasonable expenses, liabilities and losses
incurred or suffered by him in connection with his service to the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of August 15, 1996, all persons
known to the registrant to be the beneficial owner of more than five percent of
the Company's New Common Stock (other than those persons listed in the chart
under "Security Ownership of Management" below in this Item 11).
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership Percent of Class
- ---------- ---------- ----------------
<S> <C> <C>
Flight Partners Limited., L.P. ("FPP") 60,000 6.01%
c/o Lincolnshire Management, Inc.
780 Third Avenue
New York, NY 10017
Attention: Mr. William F. Wolffer, Jr.
Michigan National Bank 103,985 10.41%(1)
2777 Inkster Road
Mail Code 10-60
Farmington Hills, MI 48334-5326
Attention: Otto Wilhelm, Vice President
</TABLE>
- 23 -
<PAGE> 24
<TABLE>
<S> <C> <C>
South Trust Bank of Alabama, N.A. 105,435 10.55%(1)
112 N. 20th Street, 3rd Floor
Birmingham, AL 35203
Attention: Mr. Lee Brown, Senior V.P.
First Tennessee National Bank Assn. 54,073 5.41%(1)
Box 84
Memphis, TN 38101
Attention: Gary Rick, Vice President
LeasePlan USA, Inc. 61,341 6.14%(1)
180 Interstate North Parkway, Suite 400
Atlanta, GA 30339
Attention: John Stasiowski, Vice President
</TABLE>
- --------------------
(1) Pursuant to the Plan, 510,000 shares of New Common Stock were issued to
unsecured creditors and certain other claimants of the Chapter 11 Entities,
including these shareholders (the "Creditor Shareholders"). The Company
disputed, however, claims to approximately 200,000 of such shares to certain
creditors. As to the remaining disputed claims, the Company is holding stock
certificates issued to these creditors (on the basis of assuming that these
creditors' claims were wholly justified), and is currently attempting to resolve
such disputes in the Bankruptcy Court. As of the date of filing of this Annual
Report, as indicated above, the Company has resolved all such disputed claims,
subject to final paperwork in certain cases. The resolution of such disputes has
resulted and will continue to result in fewer shares being delivered to such
creditors than were issued pursuant to the Plan and which are being held by the
Company. The shares which will not be delivered to these creditors will be
canceled and reissued pro rata to the remaining Creditor Shareholders, including
certain of these shareholders, whose absolute and percentage ownership would
thereby increase. A final distribution of the remaining shares is expected by
December 31, 1996.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of August 15, 1996, information as
to all directors and executive officers of the Company, and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial
Owner Ownership Percent of Class (1)
- ---------- ---------- --------------------
<S> <C> <C>
David E. Sandlin 195,000 19.5%
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602
</TABLE>
- 24 -
<PAGE> 25
<TABLE>
<S> <C> <C>
Wayne M. Richmon 50,000 5.0%
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602
Gary D. Reinhart - 0 - ---
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602
Ann P. Campbell - 0 - ---
c/o The Flight International Group, Inc.
Newport News/Williamsburg
International Airport
Newport News, Virginia 23602
C. Lofton Fouts, Jr. - 0 - ---
6690 Knollwood Circle
Douglasville, GA 30135
John R. Bone 145,000 14.5%
P.O. Box 217, 64 College Street
Newman, GA 30263
James N. Lingan - 0 - ---
2531 Jefferson Davis Highway
Building NC3
Arlington, VA 22202
Vice Admiral Richard M. Dunleavy (Ret.) - 0 - ---
2220 Sandpiper Road
Virginia Beach, VA 23456
ALL DIRECTORS AND
EXECUTIVE OFFICERS
AS A GROUP (8 individuals) 390,000 39.0%
</TABLE>
------- ----
CHANGES IN CONTROL
The Company is not aware of any arrangements which may result in a
change in control of the Company.
- 25 -
<PAGE> 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Sandlin is an officer, director and 50% shareholder of Maritime, a
major lessor of turbine aircraft. Maritime has leased a total of thirteen
aircraft to FII at a total cost to FII of $4,600,000 through October 1999. Prior
to FII's sale of FIATC, Maritime had leased certain aircraft and a simulator to
FIATC at an annual minimum cost to FIATC of $3,500,000. Maritime also leases
aircraft to Sentel Corp. ("Sentel"), which has been a competitor of FII and a
maintenance and parts customer of FII. FII also is a subcontractor of Sentel for
contract flying services. The Company believes the financial and other
arrangements between FII and Maritime are, and between FIATC and Maritime were,
reasonable and fair and similar to arrangements which would have been made in an
arm's length transaction between FII or FIATC, as applicable, and an
unaffiliated third party. The Company does not believe that Mr. Sandlin's
relationships with Maritime and, indirectly, Sentel materially interfere with
Mr. Sandlin's ability to fully perform his obligations to the Company as a
director, officer and employee.
Mr. Sandlin is also a one-third owner of TAC, which has leased one Casa
235 aircraft to the Company. In anticipation of a project to send Casa 235
aircraft to Bahrain, the Company sought to lease a plane from TAC. In
expectation of this lease, TAC purchased the aircraft intended for the lease.
Thereafter, this project was eliminated due to DOD budget cutting. However, the
aircraft has been leased to the Company. As of April 30, 1996, the Company had
not found a full time use for the aircraft and this situation had been causing
harm to its cash flow. On April 30, 1996, the lease was modified from $60,000
per month to $500 per hour flown. This substantially reduced the cost of
carrying this aircraft, although certain other significant expenses, such as
insurance and other maintenance, continue. The Company believes, however, that
the financial and other arrangements between FII and TAC are reasonable and fair
and similar to arrangements which would have been made in an arm's length
transaction between FII and an unaffiliated third party.
In an effort to alleviate the Company's cash flow problems, the
following plan involving three Company owned Learjets which were financed by
Michigan National Bank ("MNB") was approved by the Company's Board of Directors
in March 1996. The Company's monthly payment to MNB on the aircraft was $47,000.
The plan provided that Maritime purchase the aircraft, repay all indebtedness to
MNB, and then lease the aircraft back to the Company at a monthly rate of
$53,000.
The proceeds from the sale were distributed as follows:
<TABLE>
<S> <C>
Sale Price of Aircraft $ 2,900,000
Payoff of MNB Debt (1,850,000)
-----------
Proceeds to the Company $ 1,050,000
</TABLE>
In addition, an engine also financed by MNB (worth approximately
$400,000) was retained by the Company. The plan relieved the Company of its
indebtedness to MNB, allowed it to receive an additional $1,050,000 and pay only
$6,000 per month more for the lease than it was paying to service the debt.
Mr. Bone is an officer, director and 50% shareholder of Maritime. In
addition, Mr. Bone is the sole shareholder, director and officer of Global Jet
("Global Jet"), which, with Mr. Bone, has been instrumental in developing the
fleet of Learjets for Phoenix Air Group, a competitor of FII. The
- 26 -
<PAGE> 27
Company does not believe that Mr. Bone's relationships with Maritime and Global
Jet materially interfere with Mr. Bone's ability to fully perform his
obligations to the Company as a director.
The Board of Directors of the Company currently requires approval or
ratification by the Board of all related party transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
1. The exhibits required to be filed as part of this Annual Report on
Form 10-KSB are listed in the attached Exhibit Index.
2. During the quarter ended January 31, 1996, the Company filed no
Current Reports on Form 8-K.
- 27 -
<PAGE> 28
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: September 6, 1996 THE FLIGHT INTERNATIONAL GROUP,
INC.
By: /s/ David E. Sandlin
---------------------------------
David E. Sandlin
Principal Executive Officer
By: /s/ Wayne M. Richmon
---------------------------------
Wayne M. Richmon
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
s/ David E. Sandlin Director and September 6, 1996
- ------------------- Principal Executive
David E. Sandlin Officer
s/ Wayne M. Richmon Director and September 6, 1996
- ------------------- Principal Financial
Wayne M. Richmon Officer
s/ C. Lofton Fouts, Jr. Director September 6, 1996
- -----------------------
C. Lofton Fouts, Jr.
s/ John R. Bone Director September 6, 1996
- ---------------
John R. Bone
s/ James N. Lingan Director September 6, 1996
- ------------------
James N. Lingan
s/ Vice Admiral
Richard M. Dunleavy (Ret.) Director September 6, 1996
- --------------------------
Vice Admiral
Richard M. Dunleavy (Ret.)
- 28 -
<PAGE> 29
EXHIBIT INDEX
Exhibit
Number Page Description
3(a) Amended and Restated Articles of Incorporation of the
Company (incorporated by reference to the Company's
Report on Form 10-KSB for the fiscal year ended April
30, 1995).
3(b) Bylaws of the Company (incorporated by reference to the
Company's Report on Form 10-KSB for the fiscal year
ended April 30, 1995)..
10(a) Lease Agreement dated November 8, 1984 between the
Peninsula Airport Commission and Flight International
Aviation, Inc., as amended. (incorporated by reference
to Exhibit 10(n) to the Company's Report on Form 10-K
for the fiscal year ended April 30, 1988).
10(b) Award/Contract No. N00421-92-C-0134 dated September 15,
1992, issued by the United States Naval Weapons Center,
Patuxent River, MD to Flight International, Inc.
(incorporated by reference to the Company's Report on
Form 10-KSB for the fiscal year ended April 30, 1995).
10(c) Award/Contract No. N68936-94-C-0086 dated November 21,
1994, issued by the United States Naval Weapons Center,
China Lake, CA to Flight International, Inc.
(incorporated by reference to the Company's Report on
Form 10-KSB for the fiscal year ended April 30, 1995).
10(d) Collateral Retention and Adequate Protection Agreement
dated July 25, 1994 among Flight International Inc.,
Flight International of Florida, Inc. and First
Tennessee Equipment Finance Corporation (incorporated by
reference to Exhibit 2 to the Company's Current Report
on Form 8-K dated December 20, 1994).
10(e) Collateral Retention and Adequate Protection Agreement
dated July 29, 1994 among Flight International Inc.,
Flight International of Florida, Inc., the Company and
Michigan National Bank (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K
dated December 20, 1994).
10(f) Amended Secured Promissory Note between Signet
Bank/Virginia and Flight International Aviation, Inc.
dated October 13, 1994 (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K
dated December 20, 1994).
10(g) Stipulation Regarding Adequate Protection of Interest of
Nations Financial Capital Corporation in Certain
Aircraft Owned By Debtor dated December 14, 1994 between
Flight International of Florida, Inc. and
NationsFinancial Capital Corporation (incorporated by
reference to Exhibit 2 to the Company's Current Report
on Form 8-K dated December 20, 1994).
- 29 -
<PAGE> 30
10(h) Agreement on Use of Cash Collateral and for Loan
Restructure dated December 14, 1994 between Flight
International, Inc. and SouthTrust Bank of Alabama, N.
A. (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated December 20,
1994).
10(i) Collateral Retention and Adequate Protection Agreement
dated December 14, 1994 among Flight International Inc.,
Flight International of Florida, Inc., the Company and
Lease Plan U.S.A. (incorporated by reference to Exhibit
2 to the Company's Current Report on Form 8-K dated
December 20, 1994).
10(j) Employment Agreement dated January 3, 1995 between the
Company and David E. Sandlin (incorporated by reference
to the Company's Report on Form 10-KSB for the fiscal
year ended April 30, 1995).
10(k) Employment Agreement dated January 3, 1995 between the
Company and Wayne M. Richmon (incorporated by reference
to the Company's Report on Form 10-KSB for the fiscal
year ended April 30, 1995).
10(l) Award/Contract No. N00019 dated August 30, 1996, issued
by the United States Naval Air Systems Command,
AIR-2.5.3, Patuxent River, MD to Flight International,
Inc. ("CAS-MOS" Contract) (submitted on paper for
confidential treatment).
10(m) Amendment of Solicitation/Modification of Contract dated
August 30, 1996, issued by the United States Naval Air
Systems Command, AIR-2.5.3, Patuxent River, MD to Flight
International, Inc. (amendment to CAS-MOS Contract)
(submitted on paper for confidential treatment).
10(n) Award/Contract No. 222022 dated June 17, 1996, issued by
HQ, USA Special Operations Command, Fort Bragg, NC to
Flight International, Inc. ("Yuma" Contract) (submitted
on paper for confidential treatment).
10(o) Fourth Modification Agreement, dated as of April 30,
1996, by and between Flight International Aviation,
Inc., Steven D. Delaney, Otto W. Konrad and Signet Bank.
10(p) Amended and Restated Deed of Trust Note, dated April 30,
1996, from Flight International Aviation, Inc., as
maker, to Signet Bank.
22 Subsidiaries of the Company (incorporated by reference
to the Company's Report on Form 10-KSB for the fiscal
year ended April 30, 1995).
27 Financial Data Schedule.
- 30 -
<PAGE> 31
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONTENTS
================================================================================
<TABLE>
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5 - 6
Statements of Changes in Stockholders' Equity (Capital Deficit) 7
Statements of Cash Flows 8 - 9
SUMMARY OF ACCOUNTING POLICIES 10 - 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14 - 25
</TABLE>
<PAGE> 32
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. as of April 30, 1996 and 1995, and December 31, 1994,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended April 30, 1996, the four months ended April 30,
1995 and the eight months ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
On December 28, 1994, The Flight International Group, Inc. emerged from
bankruptcy. The consolidated financial statements of the Reorganized Company
reflect the impact of adjustments to reflect the fair value of assets and
liabilities under fresh start reporting. As a result, the consolidated financial
statements of the Reorganized Company are presented on a different basis than
those of the Predecessor Company and, therefore, are not comparable in all
respects.
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. as of April 30, 1996 and 1995, and December 31, 1994,
and the results of its operations and its cash flows for the year ended April
30, 1996, the four months ended April 30, 1995 and the eight months ended
December 31, 1994 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
June 20, 1996
Richmond, Virginia
F-2
<PAGE> 33
<TABLE>
<CAPTION>
===============================================================================================================
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $1,178,779 $ 601,744 $ 1,060,158
Accounts receivable, net (Note 3) 1,380,803 1,809,891 1,166,861
Inventories (Notes 4 and 6) 1,729,503 1,376,818 1,483,305
Prepaid expenses, deposits and other 786,985 564,186 323,172
Assets held for resale - - 122,500
- -------------------------------------------------------------------------------------------------------------
Total current assets 5,076,070 4,352,639 4,155,996
- -------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net (Notes 5 and 6) 4,532,658 7,821,152 8,003,291
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS 31,116 29,208 20,173
- -------------------------------------------------------------------------------------------------------------
$9,639,844 $12,202,999 $12,179,460
=============================================================================================================
</TABLE>
<PAGE> 34
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 174,286 $ 69,414 $ 115,981
Deferred revenue 598,145 277,478 140,283
Accrued expenses and other liabilities (Note 1) 1,580,820 1,902,435 1,958,636
Long-term debt due currently (Note 6) 599,533 871,357 945,786
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 2,952,784 3,120,684 3,160,686
OTHER NON-CURRENT LIABILITIES 1,659,855 1,361,680 795,583
LONG-TERM DEBT, less current maturities (Note 6) 4,034,355 6,843,080 7,225,984
- -----------------------------------------------------------------------------------------------------------
Total liabilities 8,646,994 11,325,444 11,182,253
- -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 7 and 8)
- -----------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Notes 1 and 2)
Common stock, $.01 par value, 1,000,000 shares
authorized, 998,976 issued and outstanding 9,990 9,990 9,990
Additional paid-in capital 988,986 988,986 988,986
Treasury stock, 1,769 shares of common stock,
at fair value (1,769) (1,769) (1,769)
Accumulated deficit (4,357) (119,652) -
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 992,850 877,555 997,207
- -----------------------------------------------------------------------------------------------------------
$9,639,844 $12,202,999 $12,179,460
===========================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE> 35
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Predecessor Company
Four Months Eight Months
YEAR ENDED Ended Ended
APRIL 30, 1996 April 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES (Note 10) $12,265,436 $3,697,148 $ 7,216,350
- ---------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Costs of services 9,265,121 2,818,476 6,627,990
(Gain) loss on disposal of assets (3,026) - 94,318
Depreciation and amortization 828,425 266,240 528,219
General, corporate and administrative 1,812,130 529,407 1,564,250
- ---------------------------------------------------------------------------------------------------------
Total operating costs and expenses 11,902,650 3,614,123 8,814,777
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE OTHER (INCOME)
EXPENSES AND EXTRAORDINARY ITEMS 362,786 83,025 (1,598,427)
- ---------------------------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSES
Write down of assets to fair market value
(Note 2) - - 374,589
Interest expense 561,284 202,677 207,058
Litigation settlements - - (202,930)
- ---------------------------------------------------------------------------------------------------------
Total other (income) expenses 561,284 202,677 378,717
- ---------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY ITEMS (198,498) (119,652) (1,977,144)
- ---------------------------------------------------------------------------------------------------------
EXTRAORDINARY ITEMS
Gain on discharge of prepetition liabilities
(Notes 1, 2 and 6) - - 23,206,351
Gain on debt extinguishment (Notes 6 and 12) 313,793 - -
- ---------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 115,295 $ (119,652) $21,229,207
=========================================================================================================
</TABLE>
F-5
<PAGE> 36
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
================================================================================
<TABLE>
<CAPTION>
Predecessor Company
Four Months Eight Months
YEAR ENDED Ended Ended
APRIL 30, 1996 April 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME (LOSS) PER COMMON SHARE
Income (loss) before extraordinary items $(0.20) $(0.12) $(0.20)
Extraordinary item 0.31 - 2.34
- -------------------------------------------------------------------------------------------------
Net income/loss per common share $ 0.11 $(0.12) $ 2.14
=================================================================================================
Weighted average number of shares 998,976 998,976 9,899,713
=================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
<PAGE> 37
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(CAPITAL DEFICIT)
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in Treasury Accumulated
Shares Amount Capital Stock Deficit
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1994 9,899,713 $98,998 $26,692,372 $(1,623,939) $(46,932,593)
Adjustments to record
plan of reorganization (8,900,737) (89,008) (25,703,386) 1,622,170 25,703,386
Net income for the period - - - - 21,229,207
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 998,976 9,990 988,986 (1,769) -
Net loss for the period - - - - (119,652)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 30, 1995 998,976 9,990 988,986 (1,769) (119,652)
Net income for the year - - - - 115,295
- --------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 30, 1996 998,976 $ 9,990 $ 988,986 $ (1,769) $ (4,357)
==============================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-8
<PAGE> 38
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor Company
Four Months Eight Months
YEAR ENDED Ended Ended
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 115,295 $ (119,652) $ 21,229,207
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Depreciation and amortization 828,425 266,240 528,219
Engine reserve (7,093) 69,683 318,962
Provision for write down of assets -- -- 374,589
(Gain) loss on sale of assets (3,026) -- 94,318
Extraordinary gain on extinguishment of
prepetition liabilities -- -- (23,206,351)
Extraordinary gain on debt extinguishment (313,793) -- --
Reorganization adjustments -- -- 233,856
Changes in operating assets and liabilities
Accounts receivable 429,088 (643,030) 637,003
Inventories (352,685) 106,487 1,752,478
Prepaid expenses and other assets (226,767) (250,049) 476,159
Accounts payable 104,872 (46,567) (2,573,191)
Accrued expenses and other liabilities (231,326) (143,181) 1,704,523
Deferred revenue 320,667 720,589 314,134
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 663,657 (39,480) 1,883,906
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (219,866) (84,101) (303,646)
Proceeds from the sale of property and
equipment 2,900,000 122,500 1,103,284
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,680,134 38,399 799,638
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of long-term debt (2,766,756) (457,333) (1,770,457)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,766,756) (457,333) (1,770,457)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUED...
F-9
<PAGE> 39
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Predecessor Company
Four Months Eight Months
YEAR ENDED Ended Ended
APRIL 30, 1996 April 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 577,035 $ (458,414) $ 913,087
CASH AND CASH EQUIVALENTS,
beginning of period 601,744 1,060,158 147,071
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,178,779 $ 601,744 $ 1,060,158
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reclassification of rotables from fixed
assets and inventory $ -- $ -- $ 1,667,180
Reclassification of fixed assets to assets
held for sale, net $ -- $ -- $ 223,853
Reorganization adjustment - write off of
additional paid-in capital $ -- $ -- $25,703,386
Deferred gain on sale/leaseback of property
and equipment (Note 12) $ 214,974 $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting
policies and notes to consolidated financial
statements.
F-10
<PAGE> 40
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
NATURE OF BUSINESS The Flight International Group, Inc. and Subsidiaries
(the "Company") is an aviation services company that
performs military training services using specially
modified commercial aircraft, principally under
contracts with the United States Department of
Defense, other government agencies and foreign
countries. In addition, the Company has established a
market for training and testing in the aerospace
industry. The Company also operates a fixed base
operation ("FBO") at the Newport News/Williamsburg
International Airport.
FINANCIAL REPORTING Effective February 4, 1994, the Company adopted the
DURING REORGANIZATION American Institute of Certified Public Accountants'
Statement of Position 90-7 (SOP 90-7), Financial
Reporting by Entities in Reorganization Under the
Bankruptcy Code. In accordance with SOP 90-7
unsecured and undersecured prepetition liabilities
were classified as "liabilities subject to
compromise" during the Chapter 11 proceeding. The
accrual of interest on such liabilities was
discontinued for the period February 4, 1994 through
the confirmation date of the plan.
The emergence from Chapter 11 proceedings on December
31, 1994, resulted in the creation of a new reporting
entity without any accumulated deficit and with the
Company's assets and liabilities restated to their
estimated fair value.
PRINCIPLES OF The consolidated financial statements include the
CONSOLIDATION accounts of the Company and its wholly owned
subsidiaries. All significant intercompany
transactions and balances have been eliminated.
INVENTORIES Aircraft parts
Aircraft parts include repairable and expendable
aircraft components and rotables. 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.
F-11
<PAGE> 41
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORIES Fuel
(CONTINUED)
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.
PROPERTY AND Property and equipment are recorded at cost. The cost
EQUIPMENT 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.
The U.S. Federal Aviation Administration mandates the
performance of a Major Periodic Inspection (MPI) on
engines every 1,500 flight hours. In order to
properly account for the cost of this inspection over
the time the engine is in service, the Company
records a reserve based on hours between inspections
for each engine. The reserve is relieved when the
service work is performed on the engine.
Electronic Warfare Equipment
Substantially all electronic warfare equipment and
related aircraft modifications are utilized to train
military aircrews, radar operators and weapons
controllers in the techniques of airborne target
identification and intercept. Such equipment and
related aircraft modifications are carried at the
lower of cost or market value and are depreciated on
a straight-line basis over 5 years.
F-12
<PAGE> 42
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY AND Other Equipment
EQUIPMENT All other property and equipment is depreciated on a
(CONTINUED) 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 -109 months
(remaining lease term); equipment, office furniture,
and fixtures - 5 years.
REVENUE RECOGNITION Contract Revenue - The Company recognizes
contract revenue as hours are flown, at the average
rate per flight hour, over the term of each contract.
Certain contracts provide for a guaranteed minimum
number of flight hours per contract year. Contract
revenue for such guaranteed but unflown hours, if
any, is recognized at the end of the contract year.
Certain contracts provide for cash payments in excess
of the average rate per hour in the early years of a
contract; such excess is recorded as deferred
revenue.
Aircraft Maintenance - Repairs and maintenance
services performed for unrelated third parties are
recognized on the completed contract method. Costs
associated with an incomplete job at period end are
deferred as costs in excess of billings and included
in "prepaid expenses, deposits and other" in the
consolidated balance sheets.
INCOME TAXES Income taxes are accounted for under FASB Statement
No. 109, "Accounting for Income Taxes" ("SFAS No.
109), the asset and liability method. Under the asset
and liability method, 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. Under SFAS
No. 109, 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 For purposes of the statement of cash flows, the
CASH FLOWS Company considers all highly-liquid instruments
purchased with a maturity of three months or less to
be cash equivalents.
NET INCOME (LOSS) Net income (loss) per common share is computed by
PER SHARE dividing the income (loss) by the weighted average of
the number of shares of common stock outstanding
during the period.
F-13
<PAGE> 43
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 in prior
year consolidated financial statements to conform to
the presentation in the 1996 consolidated financial
statements.
RECENT ACCOUNTING In March 1995, the Financial Accounting Standards
PRONOUNCEMENTS Board issued its Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of LongLived Assets Being Disposed Of."
SFAS 121 is effective for fiscal years beginning
after December 15, 1995, and provides guidance as to
the manner and timing of impairment losses to be
recognized on long-lived assets, certain identifiable
intangibles, and goodwill. SFAS 121 is not expected
to have a material impact on the Company when it is
adopted.
F-14
<PAGE> 44
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. REORGANIZATION On February 4, 1994, The Flight International Group,
AND EMERGENCE Inc. ("Flight") and its subsidiaries, Flight
FROM CHAPTER 11 International, Inc. ("FII"), Flight International of
Florida, Inc. ("FIF"), and Flight International
Aviation, Inc. ("FIA") (collectively, 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, 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. The shares of
new common stock were distributed as follows:
i) 510,000 shares were issued to holders of
allowed general unsecured claims, ii)
290,000 shares were issued to Flight's
management group, as identified in the
Disclosure statement, in exchange for an
equity investment of $290,000 in the
reorganized company, iii) 100,000 shares
were issued to the Flight management, as
identified in the Disclosure statement and
iv) 98,976 shares were issued to
shareholders of record on December 20, 1994.
Of the 510,000 shares to be issued to holders of
allowed general unsecured claims approximately 51,000
shares are being held by the Company to satisfy the
remaining claims of the unsecured creditors.
Substantially all claims have now been settled. The
Company anticipates that a final distribution of the
remaining shares based on the final valuation of all
general unsecured claims will be completed by
December 31, 1996.
Priority tax claims are being paid in accordance with
plan provisions which permit payments over a period
of six years together with interest thereon. Unpaid
claims amounted to approximately $270,000 and
$330,000 at April 30, 1996 and 1995, respectively,
and are included in accrued expenses and other
long-term liabilities.
Convenience claims (general unsecured claims of
$2,000 or less) were paid in an amount equal to the
lessor of ten (10%) percent for the Allowed
Convenience Claim or $200.
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
F-15
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. REORGANIZATION Upon consummation of the Plan, the Company recorded
AND EMERGENCE an extraordinary gain in 1994 on the discharge of
FROM CHAPTER 11 debt and prepetition liabilities of $23,206,351.
(CONTINUED) There was no tax expense recorded on the gain due to
the net operating loss carryforwards available at
December 31, 1994.
2. FRESH START The Company has accounted for the reorganization by
ACCOUNTING using the principles of fresh start accounting, as
required by SOP 90-7. The Company was required to
adopt fresh start reporting because the holders of
the existing voting shares immediately prior to
filing and confirmation of the plan received less
than 50% of the voting shares of the emerging entity
and its reorganization value was less than the total
of its post-petition liabilities and allowed claims.
Under the principles of fresh start accounting, the
Company's total assets were recorded at their assumed
reorganization value, with the reorganization value
allocated to identifiable tangible assets on the
basis of their estimated fair value. Accordingly, the
Company's property and equipment was reduced by
approximately $23,980,441 and accumulated
depreciation was eliminated. In addition, the
retained deficit of the predecessor company at
December 31, 1994 totaling $47,777,044 was
eliminated, and, at January 1, 1995, the reorganized
Company's financial statements reflected no beginning
retained earnings or deficit.
The Company's net reorganization value was determined
to be approximately $1,000,000. The net
reorganization value was based principally on cash
infusions received for the issuance of new common
stock and was approved by the Bankruptcy Court.
As a result of the implementation of fresh start
accounting, the financial statements of the Company
after consummation of the plan are not comparable to
the Company's financial statements of prior periods.
F-16
<PAGE> 46
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. FRESH START A summary of the impact of the Plan of Reorganization
ACCOUNTING and the related fresh start adjustments is presented
(CONTINUED) below.
<TABLE>
<CAPTION>
Pre- Adjustments Reorganized
Confirmation to Record Fresh Start Balance Sheet
December 31, Plan of Fair Value December 31,
ASSETS 1994 Reorganization Adjustments 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 1,060,158 $ -- $ -- $ 1,060,158
Accounts receivable, net 1,166,861 -- -- 1,166,861
Inventories 1,404,292 1,379,013 (1,300,000) 1,483,305
Prepaid expenses and
deposits 323,172 -- -- 323,172
Assets held for resale 122,500 -- -- 122,500
Property and equipment 33,362,745 (1,379,013) (23,980,441) 8,003,291
Accumulated depreciation (24,905,852) -- 24,905,852 --
Other assets 20,173 -- -- 20,173
- --------------------------------------------------------------------------------------------------------------
$ 12,554,049 $ -- $ (374,589) $ 12,179,460
- --------------------------------------------------------------------------------------------------------------
Pre- Adjustments Reorganized
LIABILITIES AND Confirmation to Record Fresh Start Balance Sheet
STOCKHOLDERS' EQUITY December 31, Plan of Fair Value December 31,
(CAPITAL DEFICIT) 1994 Reorganization Adjustments 1994
- --------------------------------------------------------------------------------------------------------------
Accounts payable $ 115,981 $ -- $ -- $ 115,981
Deferred revenue 140,283 -- -- 140,283
Accrued expenses and
other liabilities 5,456,885 (3,498,249) -- 1,958,636
Long-term debt due
currently 28,654,930 (27,709,144) -- 945,786
Long-term debt, less
current maturities -- 7,225,984 -- 7,225,984
Other non-current
liabilities 795,583 -- -- 795,583
Common stock 98,998 (89,008) -- 9,990
Additional paid-in
capital 26,692,372 (25,703,386) -- 988,986
Treasury stock (1,623,939) 1,622,170 -- (1,769)
Accumulated deficit (47,777,044) 48,151,633 (374,589) --
- --------------------------------------------------------------------------------------------------------------
$ 12,554,049 $ -- $ (374,589) $ 12,179,460
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 47
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. ACCOUNTS The balance of accounts receivable is comprised of
RECEIVABLE the following:
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flight operations contracts
and programs $ 1,256,892 $ 1,683,235 $ 1,186,590
Trade 128,930 299,169 220,642
Other receivables 53,764 38,136 32,695
- ------------------------------------------------------------------------------------------
1,439,586 2,020,540 1,439,927
Less: allowance for
doubtful accounts (58,783) (210,649) (273,066)
- ------------------------------------------------------------------------------------------
$ 1,380,803 $ 1,809,891 $ 1,166,861
- ------------------------------------------------------------------------------------------
Accounts receivable from flight operations contracts
and programs consist of the following:
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
U.S. GOVERNMENT
Amounts billed $ 201,407 $ 127,634 $ 532,843
Services provided,
not billed 302,582 241,490 219,499
- ------------------------------------------------------------------------------------------
503,989 369,124 752,342
- ------------------------------------------------------------------------------------------
COMMERCIAL CUSTOMERS
Amounts billed 498,977 675,907 414,309
Services provided,
not billed 253,926 638,204 19,939
- ------------------------------------------------------------------------------------------
752,903 1,314,111 434,248
- ------------------------------------------------------------------------------------------
Total flight operations
contracts and programs $ 1,256,892 $ 1,683,235 $ 1,186,590
- ------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 48
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. ACCOUNTS Accounts receivable are billed in accordance with the
RECEIVABLE terms of the contracts under which they arise, which
(CONTINUED) generally provide for bi-weekly billing cycles.
Amounts not billed represent services performed
between the last billing date and year end.
4. INVENTORIES Inventories are comprised of:
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aircraft parts $1,544,818 $1,207,794 $1,300,240
Targets and cable 160,426 145,980 146,720
Fuel 24,259 23,044 36,345
- ------------------------------------------------------------------------------------------
$1,729,503 $1,376,818 $1,483,305
- ------------------------------------------------------------------------------------------
</TABLE>
5. PROPERTY AND Property and equipment consist of the following:
EQUIPMENT
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aircraft and engines $ 2,339,820 $ 5,236,150 $ 5,236,150
Electronic warfare
equipment 519,147 519,147 519,147
Leasehold interests 1,999,791 1,999,791 1,999,791
Office furniture and
fixtures 39,955 12,110 --
Other equipment 395,006 320,194 248,203
- ------------------------------------------------------------------------------------------
5,293,719 8,087,392 8,003,291
Accumulated depreciation
and amortization (761,061) (266,240) --
- ------------------------------------------------------------------------------------------
Property and equipment,
net $ 4,532,658 $ 7,821,152 $ 8,003,291
- ------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE> 49
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. LONG-TERM As disclosed in Note 1, the Company filed voluntary
DEBT petitions in the United States Bankruptcy Court for
reorganization under Chapter 11 of the United States
Bankruptcy Code on February 4, 1994. Interest expense
on unsecured and undersecured obligations ceased to
accrue at the Petition Date.
The plan for reorganization was confirmed by the
Bankruptcy Court on December 8, 1994. The debtors
renegotiated and restructured a significant amount of
their obligations on favorable repayment terms with
holders of secured claims. During the period from the
petition date through confirmation date, the Company
was required to make adequate protection payments to
certain creditors. All adequate protection payments
made were applied against principal balances. In
accordance with the plan, the balance of unsecured
debt was exchanged for a prorata share of 51% of the
new common stock of the Company.
Long-term debt outstanding at each balance sheet date
was as follows:
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Note payable to bank with
interest payable at 8.5%,
due in 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 $1,970,762 $1,973,444 $1,972,655
Note payable to finance
company with interest
payable at 8%, due in equal
monthly installments of
principal and interest of
$6,784 maturing on August 1,
1996, secured by certain
property and
equipment 21,489 91,917 116,080
Note payable to finance
company with interest
payable at 8%, due in equal
monthly installments of
principal and interest of
$7,800 through July 30,
1999, and a final payment of
principal and unpaid
interest of approximately
$17,768 due August 30, 1999,
secured by
certain property and equipment 292,449 354,301 480,000
</TABLE>
F-20
<PAGE> 50
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
6. LONG-TERM
DEBT
(CONTINUED)
<TABLE>
<CAPTION>
APRIL 30, 1996 April 30, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Note payable to finance
company with interest
payable at 8%, due in equal
monthly installments of
principal and interest of
$30,000 through December 20,
1999, and a final payment of
principal and unpaid
interest of $338,120 due
January 20, 2000, secured by
certain property and equipment $1,391,487 $1,629,718 $1,705,000
Note payable to bank with
interest payable at 7%
through December 8, 1999,
and at the five-year U.S.
Treasury Bill rate plus
2.10% through December 8,
2004, due in monthly
installments of principal
and interest of
approximately $15,333
through December 8, 2004,
secured by inventory 957,701 1,211,165 1,320,591
Note payable to bank with
interest payable at 7.875%,
due in equal monthly
installments of principal
and interest of $47,500
through June 21, 2000, and a
final payment of principal
and unpaid interest of
approximately $61,436 due
July 20, 2000, secured by
certain
property and equipment -- 2,453,892 2,577,444
- ------------------------------------------------------------------------------------------
4,633,888 7,714,437 8,171,770
Current maturities 599,533 871,357 945,786
- ------------------------------------------------------------------------------------------
Long-term debt, net $4,034,355 $6,843,080 $7,225,984
- ------------------------------------------------------------------------------------------
</TABLE>
F-21
<PAGE> 51
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------
6. LONG-TERM At April 30, 1996, aggregate principal payments due
DEBT for long-term debt for the succeeding five years
(CONTINUED) and thereafter were as follows:
<TABLE>
<S> <C>
1997 $ 599,533
1998 661,250
1999 740,639
2000 999,080
2001 451,283
Thereafter 1,182,103
-----------------------------------
$4,632,888
===================================
</TABLE>
An extraordinary gain of $313,793 was recorded at April 30,
1996 to reflect forgiveness of bank debt related to early
payoff of an amount less than the outstanding balance on
the 7.875% not payable to bank, (See Note 12).
7. OPERATING The Company leases various aircraft and engines under
LEASE operating leases for use on government contracts. Total
COMMITMENTS lease expense for these aircraft was as follows:
<TABLE>
<S> <C>
Fiscal year ended April 30, 1996 $1,894,834
Four months ended April 30, 1995 $ 408,421
Eight months ended December 31, 1994 $ 481,603
</TABLE>
Such lease expenses included approximately $164,819, $59,638
and $69,805 at April 30, 1996, 1995, and December 31, 1994,
respectively, of contingent rentals based on hours flown.
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 lease was as follows:
<TABLE>
<S> <C>
Fiscal year ended April 30, 1996 $347,736
Four months ended April 30, 1995 $ 77,476
Eight months ended December 31, 1994 $206,301
</TABLE>
F-22
<PAGE> 52
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------
7. OPERATING Such lease expenses included approximately $102,878,
LEASE $22,972 and $65,965 at April 30, 1996, 1995, and
COMMITMENTS December 31, 1994, respectively, of contingent rentals
(CONTINUED) based on revenue.
At April 30, 1996, future minimum lease payments on all
operating leases for each of the next five fiscal years
and thereafter were as follows:
<TABLE>
<S> <C>
1997 $1,587,755
1998 1,510,672
1999 1,512,922
2000 494,051
2001 110,501
Thereafter 310,130
-----------------------------------
$5,526,031
===================================
</TABLE>
8. CLAIMS On May 7, 1996, the Company received notification of a
CONTINGENCIES grand jury subpoena issued on behalf of the United States
AND Information Agency (USIA) for records of Flight International
COMMITMENTS Aviation, Inc. and Flight International Aviation Training
Center, Inc. pertaining to the administration of training
pursuant to the J-1 Exchange Visitor Program. The Company
has produced all documents in its possession and has
cooperated with the investigation. Flight has not been
identified as a "target" of any criminal investigation
nor have any civil claims been asserted against the
Company. In addition, the Company has not operated the
Training Center since November 1, 1994.
Management of the Company believes that the ultimate
settlement of this matter will not have a material
adverse effect on the Company's financial position or
results of operations.
F-23
<PAGE> 53
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- ------------------------------------------------------------------------
9. EMPLOYEE BENEFIT The Company sponsors a defined contribution
PLANS pension plan covering all eligible employees.
Employees become eligible to participate upon
completing one year of service in a job class-
ification 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 25% of
the first 4% 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. Effective May 1, 1996, the Company
increased its match to 30% of the first 5%
of employees' contributions.
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 his account. The
Company contributions to the Plan were as
follows:
<TABLE>
<S> <C>
Fiscal year ended April 30, 1996 $14,470
Four months ended April 30, 1995 $ 4,463
Eight months ended December 31, 1994 $ 9,019
</TABLE>
10. TRANSACTIONS Revenues from all U.S. government contracts
WITH MAJOR included in the Flight operations segment
CUSTOMER are as follows:
<TABLE>
<CAPTION>
PERCENT
OF
AMOUNT TOTAL REVENUE
<S> <C> <C>
Fiscal year ended April 30, 1996 $5,942,969
47%
Four months ended April 30, 1995 $1,036,707
28%
Eight months ended December 31, 1994 $2,650,735
37%
</TABLE>
<PAGE> 54
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- ------------------------------------------------------------------------
11. INCOME TAXES There were no required provisions for income
taxes for fiscal 1996, 1995 or 1994. As of
April 30, 1996, the cumulative net operating
loss available for Federal income tax purposes
amounted to approximately $9,000,000, which
will expire primarily in the 2006-2011 period,
if not previously utilized.
The Company's deferred tax asset, which has
been fully reserved, consists primarily of
property and equipment basis differences due
to reorganization under Chapter 11 and deferred
contract revenue.
12. RELATED PARTIES The Company has entered into lease agreements
with Maritime Sales and Leasing ("MSL") for
certain aircraft which require future minimum
lease payments of approximately $4.6 million
through October, 1999. David Sandlin, President
and CEO of the Company, is also an officer of
MSL.
On January 2, 1996, the Company entered into
a lease with the Aviation Company. David Sandlin
has an ownership interest in the Aviation Company.
The single aircraft lease called for payments of
$60,000 per month. On April 30, 1996, the lease
was modified, with the rate changed to $500 per
hour flown.
On April 15, 1996, Flight sold three planes to
MSL for $2.9 million. The Company leased the
planes back from MSL for a three year period.
Proceeds from the sale were distributed as
follows: $1.85 million to payoff bank debt;
$106,000 to MSL for lease deposits; and the
remainder to the Company. The Company realized
a $218,000 gain related to the sale/leaseback
which was deferred over the lease term, and a
$313,793 extraordinary gain related to the
early extinguishment of related bank debt,
(See Note 6).
Total rent expense on all related party leases
were as follows:
<TABLE>
<S> <C>
Fiscal year ended April 30, 1996 $1,285,671
Four months ended April 30, 1995 $ 253,600
Eight months ended December 31, 1994 $ 282,298
</TABLE>
On June 1, 1996, the Company entered into a lease
with MSL for two aircraft needed for a recent
contract award. The term of the lease is 12 months
with four one year extensions tied to the option
years exercised on the contract. Minimum lease
payments for the first 12 months total $408,000.
In addition, if all four one year extensions are
not exercised a $166,000 cancellation penalty
will apply.
<PAGE> 55
THE FLIGHT INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
- ------------------------------------------------------------------------
13. FAIR VALUE OF Financial instruments which potentially subject
FINANCIAL the Company to concentrations of credit risk
INSTRUMENTS 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, approxi-
mates the carrying amount.
<PAGE> 1
Exhibit 10(0)
This instrument is exempt from taxation pursuant to section 58.1-803(D) of the
Code of Virginia, as amended.
FOURTH MODIFICATION AGREEMENT
THIS FOURTH MODIFICATION AGREEMENT, dated as of the 30th day of April, 1996,
between FLIGHT INTERNATIONAL AVIATION, INC., a Georgia corporation (the
"Borrower") as Grantor; STEVEN D. DELANEY and OTTO W. KONRAD (jointly, the
"Trustees") as Grantees; and SIGNET BANK, a Virginia banking corporation,
formerly known as Signet Bank/Virginia (the "Lender), recites and provides:
RECITALS:
Pursuant to a loan agreement dated August 18, 1988 (The "Original Loan
Agreement"), the Lender made a $3,200,000.00 loan (the "Loan") to the Borrower.
The Loan was evidenced by a deed of trust note dated August 18, 1988 (the
"Original Note"), made by the Borrower, payable to the order of the Lender in
the original principal sum of $3,200,000.00, and secured by (i) a leasehold deed
of trust dated as of August 18, 1988 (the "Original Deed of Trust") recorded
August 22, 1988, in the Clerk's Office of the Circuit Court of the City of
Newport News, Virginia, (the "Clerk's Office") in Deed Book 1181, Page 2054,
whereby certain property located in the City of Newport News, Virginia, and more
particularly described, was conveyed to certain trustees who were replaced by
substitute trustees for whom the Trustees were substituted by instrument dated
June 12, 1996, and recorded in the Clerk's Office immediately prior hereto, (ii)
a security agreement dated August 18, 1988 (the "Original Security Agreement")
with respect to certain collateral, and (iii) an assignment of leases dated
August 18, 1988 (the "Original Assignment of Leases") recorded August 22, 1988
in the Clerk's Office in Deed Book 1181, page 2069, covering certain leases as
more particularly defined therein. The Original Loan Agreement, the Original
Note, the Original Deed of Trust, the Original Security Agreement, the Original
Assignment of Leases and all other documents and instruments evidencing and
securing the Loan are hereafter sometimes collectively referred to as the
"Original Loan Documents."
By Modification Agreement dated as of September 12, 1991 (the "First
Modification") recorded in the Clerk's Office in Deed Book 1263, Page 1591, the
maturity date of the Loan was extended and certain of the terms of each of the
Original Loan Documents were amended. By Second Modification Agreement dated as
of August 15, 1992 (the "Second Modification") recorded in the aforesaid Clerk's
Office in Deed Book 1301, Page 1007, the maturity date of the Loan was again
extended and certain of the terms of each of the Original Loan Documents were
amended. By Third Modification Agreement dated as of January 20, 1995 (the
"Third Modification") recorded in the aforesaid Clerk's Office in Deed Book
1390, Page 1193, the maturity date of the Loan was again extended and certain of
the terms of each of the Original Loan Documents were amended. The Original Loan
Agreement, as modified by the First, Second, and Third Modifications, is
hereinafter referred to as the "Loan Agreement," the Original Note, as modified
by the First, Second, and Third Modifications, is hereafter referred to as the
"Note," the Original Deed of Trust, as modified by the First, Second, and Third
<PAGE> 2
Modifications, is hereinafter referred to as the "Deed of Trust," the Original
Security Agreement, as modified by the First, Second, and Third Modifications is
hereinafter referred to as the "Security Agreement," and the Original Assignment
of Leases, as modified by the First, Second, and Third Modifications and as
amended by an Amendment To Assignment Of Leases dated January 15, 1995 recorded
in the Clerk's Office in Deed Book 1390, Page 1186, is hereinafter referred to
as the "Assignment of Leases." The Original Loan Documents, as modified by the
First, Second, and Third Modifications, and, in the case of the Original
Assignment Of Leases, as amended by the Amendment to Assignment of Leases, are
hereinafter sometimes collectively referred to as the "Loan Documents."
The Lender has agreed to extend the maturity date of the Loan and to
amend some of its terms. The parties hereto now which to modify the Loan
Documents accordingly.
MODIFICATION AGREEMENT:
For and in consideration of the sum of $10.00, cash in hand paid, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment and Restatement of Note. The Note shall be amended and
restated in the form attached hereto as Exhibit 1. The Borrower shall execute
an Amended And Restated Deed Of Trust Note in the form of Exhibit 1 and deliver
the same to the Lender. The Borrower hereby confirms and agrees that the Loan
made pursuant to the Loan Agreement and evidenced by the Amended And Restated
Deed Of Trust Note is the Loan mentioned in, secured by and entitled to the
benefits of, the Loan Documents. The execution and delivery of the Amended And
Restated Deed Of Trust Note shall be in substitution of (and not in
satisfaction of) the obligations of the Borrower pursuant to the Note.
2. References to Note. All references to the Note in the Loan
Agreement, Deed of Trust, Security Agreement, and the Assignment of Leases
shall mean the Amended And Restated Deed Of Trust Note.
3. Modification of Loan Agreement. (a) The Loan Agreement is hereby
modified by amending the description of the parcels of property as provided on
Attachment A to the Loan Agreement, in order to add the following parcel to the
description given for the Fixed Based Operation Property:
PARCEL III:
All that certain piece or parcel of land situate on the premises of
the lessor and being that piece consisting of 4.2 acres plus or minus
and described "Right of First Refusal" on that certain plan entitled
"LAND LEASE PLAT, FLIGHT INTERNATIONAL, INC., NEWPORT NEWS, VIRGINIA,"
made by Coenen & Associates, Inc., dated March 27, 1984.
2
<PAGE> 3
(b) The Loan Agreement is hereby modified by deleting Section 2.1 of
the Loan Agreement and incorporating in its place and by reference the terms of
the Amended And Restated Deed Of Trust Note.
(c) Except as specifically modified hereby, the terms and provisions of
the Loan Agreement are hereby ratified and confirmed and remain in full force
and effect.
4. Modification of Deed of Trust. (a) The Deed of Trust is hereby
modified by substituting the Amended And Restated Deed Of Trust Note in place
of Attachment B to the Deed of Trust.
(b) Except as specifically modified hereby, the terms and provisions of
the Deed of Trust are hereby ratified and confirmed and remain in full force
and effect. The Deed of Trust, as modified hereby, continues to secure the
obligations of the Borrower under the Loan with the same lien priority as
immediately prior to the execution and recordation hereof.
5. Modification of Security Agreement. (a) The Security Agreement is
hereby modified by amending the description of the parcels of property as
provided on Attachment A to the Security Agreement, in order to add the
following parcel to the description given for the Fixed Based Operation
Property:
PARCEL III:
All that certain piece or parcel of land situate on the premises of
the lessor and being that piece consisting of 4.2 acres plus or minus
and described "Right of First Refusal", on that certain plan entitled
"LAND LEASE PLAT, FLIGHT INTERNATIONAL, INC., NEWPORT NEWS, VIRGINIA,"
made by Coenen & Associates, Inc., dated March 27, 1984.
(b) Except as specifically modified hereby, the terms and provisions of
the Security Agreement are hereby ratified and confirmed and remain in full
force and effect. The Security Agreement, as modified hereby, continues to
secure the obligations of the Borrower under the Loan with the same lien
priority as immediately prior to the execution and recordation hereof.
6. Modification of Assignment of Leases. (a) The Assignment of Leases
is hereby modified by deleting the description of the third lease described on
Attachment A to the Assignment of Leases and by substituting in place thereof
the following:
Lease dated November 1, 1987, as amended by Lease Modification
Agreement dated August 19, 1988, by and between PAC and Flight
International Aviation, Inc., a Georgia corporation duly authorized
to transact business in the Commonwealth of Virginia, with a
3
<PAGE> 4
Memorandum of Lease regarding same recorded in Deed Book 1181,
Page 2051, in the aforementioned Clerk's Office.
(b) Except as specifically modified hereby, the terms and provisions
of the Assignment of Leases are hereby ratified and confirmed and remain in
full force and effect. The Assignment of Leases, as modified hereby, continues
to secure the obligations of the Borrower under the Loan with the same lien
priority as immediately prior to the execution and recordation hereof.
7. Representations and Warranties. The Borrower hereby
acknowledges that all representations and warranties made by the Borrower in
the Loan Documents and in any document, instrument, report, opinion, schedule
or certificate heretofore or herewith submitted to the Lender are
true and correct as of the date hereof, with the same force and effect as if
all such representations and warranties were fully set forth herein.
8. No Novation. This Agreement is a revision only and not a
novation, and, except as herein provided, all of the terms and conditions of
the Loans and the Loan Documents are hereby reaffirmed and shall remain in full
force and effect until payment of all outstanding indebtedness from the
Borrower to the Lender in full.
9. Payment of Fees and Expenses. The Borrower shall pay $34,949.46
to the Lender on or before December 5, 1997, which amount the Borrower agrees
is the outstanding balance of various fees and expenses required to be paid
under Section 3 and 4 of the Third Modification. In addition, the Borrower
shall pay one-half of the fees and expenses, including attorneys' fees,
incurred by the Lender in connection with the negotiation, documentation,
closing, and recordation of this Agreement, and the expense of upgrading the
Lender's title insurance policy, which payment shall be made on or before June
30, 1996.
10. Guaranty. Flight International Group, Inc. (the "Guarantor")
shall absolutely and unconditionally guaranty payment of all obligations of the
Borrower to the Lender. Concurrently with the execution and delivery of this
Agreement and the Amended And Restated Deed Of Trust Note, the Borrower shall
cause the Guarantor to execute and deliver to the Lender the Guaranty in the
form of Exhibit 2 attached hereto.
11. Certified Resolutions. Concurrently with the execution and
delivery of this Agreement and the Amended And Restated Deed Of Trust Note, the
Borrower shall execute and deliver to the Lender a certified copy of the
resolutions adopted by the Board of Directors of the Borrower approving the
execution and delivery of this Agreement and the Amended And Restated Deed Of
Trust Note by the Borrower and a certified copy of the resolutions adopted by
the Board of Directors of the Guarantor approving the execution and delivery of
the Guaranty by the Guarantor.
12. Reporting Requirements. The Borrower shall provide to the
Lender, on a quarterly basis, a detailed balance sheet, income statement and
statement of cash flow. The
4
<PAGE> 5
Borrower shall also provide to the Lender on an annual basis, within 120 days
of the fiscal year end, an audited financial statement prepared by a certified
public accounting firm.
13. Restriction on Asset Transfer. the Borrower hereby agrees that
until all amounts outstanding on the Amended And Restated Deed Of Trust Note
are paid in full, the Borrower will seek written consent of the Lender, prior
to conveyance or transfer of any of its assets pledged to the Lender by virtue
of the Loan Documents or of any rights pledged to the Lender in connection
therewith, other than conveyance of such assets in the ordinary course of
business to any third party, including without limitation, a subsidiary or
affiliate of the Borrower. Whether to consent to any such transfer shall be
solely within the Lender's discretion. In the event of a transfer of assets or
rights to an entity affiliated with the Borrower, it shall be a condition to
the Lender's granting of any such consent that such affiliate third party
receiving such transferred assets or rights shall execute and deliver to the
Lender a guaranty of the Amended And Restated Deed Of Trust Note an the
Borrower's obligations under the Loan Documents in form and substance
satisfactory to the Lender. The Borrower hereby acknowledges that the
restriction on asset transfers, particularly with respect to transfers to
affiliates of the Borrower, is a condition to the Lender's agreement to enter
into this Agreement.
14. Restriction on Payment of Salaries, Dividends, etc.
(a) The Borrower shall not declare or pay any dividends;
purchase, redeem, retire, or otherwise acquire for value any of its capital
stock now or hereafter outstanding; make any distribution of assets to its
stockholders as such whether in cash, assets, or in obligations of the
Borrower; or allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement of
any shares of its capital stock; make any other distribution by reduction of
capital or otherwise in respect of any shares of its capital stock; or permit
any of its subsidiaries, affiliates or others, to purchase or otherwise acquire
for value any stock of the Borrower, another subsidiary or affiliate.
(b) The Borrower shall not make any other distribution to
shareholders or pay any salary, bonus or other compensation to any shareholder
other than a reasonable salary to persons active in the day to day management
of the Borrower.
(c) The Borrower shall not make any loans to any current or
future employees or shareholders.
15. Waiver of Claims. As part of the consideration to the Lender
herein, the Borrower hereby waives all set-offs, counterclaims, claims and all
other defenses of every nature whatsoever they have against the Lender with
respect to the Loan Documents or otherwise.
16. Consent of Lender. The Lender executes this Agreement to evidence
its consent to the modification effected hereby; provided, however, that such
consent shall neither be nor
5
<PAGE> 6
be deemed to be a consent to, or a waiver of the necessity of obtaining the
consent of the Lender to, any future modification.
17. Consent of Trustees. The Trustees execute this Agreement at the
direction of the Lender, and with the Lender's consent, which consent is
evidenced by the Lender's signature affixed hereto, solely to evidence their
consent to the modification effected hereby.
18. Further Assurances. The Borrower hereby covenants and agrees to
execute and deliver, or cause to be executed and delivered, and to do or make,
or cause to be done or made, upon the reasonable request of the Lender, any and
all instruments, paper, deeds, acts or things, supplemental, confirmatory or
otherwise, as may be reasonably required by the Lender for the purpose of
effecting the modification described herein.
19. Completeness and Modification. This Agreement constitutes the
entire agreement between the parties hereto as to the transactions contemplated
hereby and supersedes all prior discussions, understandings or agreements
between the parties hereto.
20. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
21. Governing law. This Agreement and all other instruments referred to
herein shall be governed by, and shall be construed according to, the laws of
the Commonwealth of Virginia.
WITNESS the following signatures and seals.
BORROWER:
FLIGHT INTERNATIONAL AVIATION,
INC., a Georgia corporation
By: /s/ Wayne M. Richmon (SEAL)
-----------------------------
Wayne M. Richmon
Executive Vice President
TRUSTEES:
By: _____________________________ (SEAL)
Steven D. Delaney, as Trustee
6
<PAGE> 7
By:___________________________(SEAL)
Otto W. Konrad, as Trustee
LENDER:
SIGNET BANK, a Virginia corporation
By: /s/ P. Kelly Gowen
_____________________________(SEAL)
P. Kelly Gowen
Vice President
<PAGE> 8
COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF VIRGINIA, to-wit:
The foregoing instrument was acknowledged before me this 28th day of
August, 1996, by Wayne M. Richmon, as Executive Vice President, of Flight
International Aviation, Inc., a Georgia corporation, on behalf of the
corporation.
/s/ Ann P. Campbell
______________________
Notary Public
My Commission Expires: 7/31/98
COMMONWEALTH OF VIRGINIA
CITY OF RICHMOND, to-wit:
The foregoing instrument was acknowledged before me this ____ day of
June, 1996, by Steven D. Delaney, as Trustee.
______________________
Notary Public
My Commission Expires: _________________
COMMONWEALTH OF VIRGINIA
CITY OF RICHMOND, to-wit:
The foregoing instrument was acknowledged before me this ___ day of
June, 1996, by Otto W. Konrad, as Trustee.
______________________
Notary Public
My Commission Expires: _________________
<PAGE> 9
COMMONWEALTH OF VIRGINIA
CITY/COUNTY OF NEWPORT NEWS, to-wit:
The foregoing instrument was acknowledged before me this 23rd day of
August 1996, by C. Kelly Gowen as Vice President, of Signet Bank, a Virginia
banking corporation, on behalf of the corporation.
/s/ Ann P. Campbell
______________________
Notary Public
My Commission Expires: 7/31/98
<PAGE> 1
Exhibit 10(P)
AMENDED AND RESTATED DEED OF TRUST NOTE
$1,972,654.90 April 30, 1996
Newport News, Virginia
FLIGHT INTERNATIONAL AVIATION, INC., a Georgia corporation duly
authorized to transact business in the Commonwealth of Virginia (hereinafter
referred to as the "Borrower"), for value received, hereby promises to pay to
the order of SIGNET BANK, a Virginia banking corporation, formerly Signet
Bank/Virginia (together with any subsequent holder of this Note, the "Lender"),
at 11742 Jefferson Avenue, Newport News, Virginia, or at such other address as
the Lender shall specify in writing to the Borrower, the principal sum of ONE
MILLION NINE HUNDRED SEVENTY TWO THOUSAND SIX HUNDRED FIFTY FOUR AND 90/100
DOLLARS ($1,972,654.90), together with interest on the unpaid principal balance
at a rate per annum of eight and one-half percent (8.5%). Interest shall be
charged and calculated on the basis of a 360-day year for the actual number of
days elapsed.
Principal and interest on this Note shall be payable in monthly
installments on the 1st day of each month as follows: (a) beginning on May 1,
1996 and continuing through October 1, 1996 monthly installments shall be in
the amount of Nineteen Thousand and 00/100 Dollars ($19,000.00), (b) beginning
on November 1, 1996, and continuing until October 1, 1997, monthly installments
shall be in the amount of Twenty Six Thousand and 00/100 Dollars ($26,000.00);
(c) beginning on November 1, 1997, and continuing until October 1, 1998,
monthly installments shall be in the amount of Twenty Eight Thousand and 00/100
Dollars ($28,000.00), (d) beginning on November 1, 1998, and continuing until
October 1, 1999, monthly installments shall be in the amount of Thirty Thousand
and 00/100 Dollars ($30,000.00), (e) beginning on November 1, 1999, and
continuing until October 1, 2000, monthly installments shall be in the amount
of Thirty One Thousand and 00/100 Dollars ($31,000.00), (f) beginning on
November 1, 2000, and continuing until October 1, 2001, monthly installments
shall be in the amount of Thirty Three Thousand and 00/100 Dollars
($33,000.00), (g) beginning on November 1, 2001, and continuing until October
1, 2002, monthly installments shall be in the amount of Thirty Five Thousand
and 00/100 Dollars ($35,000.00), and (h) beginning on November 1, 2002, and
continuing until October 1, 2003, monthly installments shall be in the amount
of Thirty Seven Thousand and 00/100 Dollars ($37,000.00).
The remaining principal balance of this Note and all accrued and unpaid
interest shall be due and payable no later than November 1, 2003.
In the event any installment of principal or interest or any other sum
due hereunder is not paid when due (whether upon acceleration, at maturity or
otherwise), such overdue installment or sum shall continue to bear interest,
including (to the extent permitted by law) interest on any overdue installment
of interest, from the date on which such installment or other sum was due at
the annual rate equal to the applicable interest rate set forth above. In
addition, if any installment of principal or interest or any other sum due
hereunder is not received by the Lender within seven (7) days after its due
date, the Borrower shall pay to the Lender a late payment charge in an amount
equal to five percent (5%) of such overdue installment. Both principal and
interest are payable in lawful money of the United States and in immediately
available funds.
<PAGE> 2
This Note evidences the loan which the Lender made to the Borrower
pursuant to the Loan Agreement dated August 18, 1988, by and between the Lender
and the Borrower and has been amended and restated pursuant to the terms of the
Fourth Modification Agreement of even date herewith (the "Fourth
Modification"). This Note has been executed and delivered by the Borrower in
substitution of (and not in satisfaction of) the Deed of Trust Note dated August
18, 1988, as modified by the Modification Agreement dated September 12, 1991
(the "First Modification"), the Second Modification Agreement dated August 15,
1992 (the "Second Modification"), and the Third Modification Agreement dated
January 20, 1995 (the "Third Modification").
This Note is secured by: (1) the Leasehold Deed of Trust dated August
18, 1988, recorded August 22, 1988, in the Clerk's Office of the Circuit Court
of the City of Newport News (the "Clerk's Office") in Deed Book 1181, page
2054, as modified by the First Modification recorded in the Clerk's Office in
Deed Book 1263, Page 1591, the Second Modification recorded in the Clerk's
Office in Deed Book 1301, Page 1007, the Third Modification recorded in the
Clerk's Office in Deed Book 1390, Page 1193, and the Fourth Modification to be
recorded in the Clerk's Office (the "Deed of Trust"); (2) the Assignment of
Leases dated August 18, 1988, as modified by the First, Second, Third, and
Fourth Modification Agreements and as amended by the Amendment to Assignment of
Leases dated January 15, 1995, recorded January 27, 1995, in the Clerk's Office
in Deed Book 1390, Page 1186; and (3) the Security Agreement dated August 18,
1988, as modified by the First, Second, Third, and Fourth Modification
Agreements.
Payments or prepayments on this Note shall be applied first to any late
charges due hereunder, then to pay, or to reimburse the Lender for, any costs
and expenses incurred by or on behalf of the Lender under the Deed of Trust
which the Borrower is required to pay thereunder or which the Borrower is
required to pay pursuant to the Loan Agreement, as modified from time to time,
then in reduction of any sums advanced by the Lender to cure a default under
the Deed of Trust, then to any applicable prepayment premium or penalty, then
to accrued interest, and the remainder to reduce the principal balance hereof.
The Borrower may prepay this Note in whole or in part at any time
without penalty or premium.
Any of the following shall constitute an Event of Default under this
Note: (1) upon failure to pay within ten (10) days after written notice from
Lender to Borrower that any payment of principal, interest, late charges or
otherwise, was not received when due; or (2) the occurrence of an "Event of
Default" under the Deed of Trust. Upon the occurrence of an Event of Default,
the entire unpaid balance of this Note shall, at the option of the Lender,
become immediately due and payable, without notice or demand.
The Borrower agrees to pay all expenses, including reasonable
attorney's fees, incurred in collecting this Note or in preserving or disposing
of any collateral granted as security for the payment of this Note or in
defending any claim arising out of the execution of this Note or the obligation
which it evidences.
The Borrower waives presentment, demand, protest and notice of
dishonor, and to the fullest extent permitted by law waives all exemptions,
whether homestead or otherwise, as to the obligation
2
<PAGE> 3
evidenced by this Note. The Borrower agrees that the Lender, at any time or
times, may grant extensions of the time for payment or other indulgences or
permit the renewal of this Note, or permit the substitution, exchange or
release of any security for this Note, and agrees that the Lender may apply all
moneys made available to it or, except as otherwise provided in the Deed of
Trust, the proceeds from the disposition of any security for this Note either
to this Note or to any other obligation of the Lender.
Upon the occurrence of an Event of Default hereunder the Lender shall
have the right to offset the amount owed hereunder against any account,
checking, savings or otherwise, which the Borrower may have with the Lender, or
against any amounts owed by the Lender in any capacity to Borrower, whether or
not then due, and the Lender shall be deemed to have exercised such right of
offset and to have made a charge against any such account or amounts
immediately upon the occurrence of a default hereunder even though such charge
is made or entered on the books of the Lender subsequent thereto.
The Lender shall not be deemed to have waived any of the Lender's
rights or remedies hereunder unless such waiver is express and in a writing
signed by the Lender, and no delay or omission by the Lender in exercising, or
failure by the Lender on any one or more occasions to exercise, any of the
Lender's rights hereunder or under the Deed of Trust, or at law or in equity,
including, without limitation, the Lender's right, after any Event of Default,
to declare the entire indebtedness evidenced hereby immediately due and
payable, shall be construed as a novation of this Note or shall operate as a
waiver or prevent the subsequent exercise of any or all of such rights.
Acceptance by the Lender of any portion or all of any sum payable hereunder
whether before, on or after the due date of such payment, shall not be a waiver
of the Lender's right either to require prompt payment when due of all other
sums payable hereunder or to exercise any of the Lender's rights, powers and
remedies hereunder or under the Deed of Trust. A waiver of any right in writing
on one occasion shall not be construed as a waiver of the Lender's right to
insist thereafter upon strict compliance with the terms hereof without previous
notice of such intention being given to the Borrower, and no exercise of any
right by the Lender shall constitute or be deemed to constitute an election of
remedies by the Lender precluding the subsequent exercise by the Lender of any
or all of the rights, powers and remedies available to it hereunder, under the
Deed of Trust, or at law or in equity.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as
of the date first above written.
FLIGHT INTERNATIONAL AVIATION, INC., a
Georgia corporation duly authorized to transact business
in the Commonwealth of Virginia
By: /s/ Wayne M. Richmon
------------------------------------------
Wayne M. Richmon, Executive Vice President
3
<PAGE> 4
THIS DOCUMENT IS ATTACHMENT A
TO THE AMENDED AND RESTATED DEED OF TRUST NOTE
The real property interests securing the Amended And Restated Deed Of
Trust Note pursuant to the Leasehold Deed of Trust dated August 18, 1988, as
modified, are as follows:
The Fixed Base Operation Property:
---------------------------------
PARCEL I:
All that certain piece or parcel of land situate on the premises of the
property owned by The Peninsula Airport Commission and being that piece
consisting of 2.0661 acres and described as "Exist. Lease Area" on that
certain plat entitled "LAND LEASE PLAT, FLIGHT INTERNATIONAL, INC.,
NEWPORT NEWS, VIRGINIA" made by Coenen & Associates, Inc., dated March
27, 1984, and recorded in Deed Book 1086, Page 1998, in the Office of
the Clerk of the Circuit Court of the City of Newport News, Virginia.
PARCEL II:
All that certain piece or parcel of land situate on the premises of the
property owned by The Peninsula Airport Commission and being that piece
consisting of 1.9589 acres and described as "New Lease Area" on that
certain plat entitled, "LAND LEASE PLAT, FLIGHT INTERNATIONAL, INC.,
NEWPORT NEWS, VIRGINIA," made by Coenen & Associates, Inc., dated March
27, 1984, and recorded in Deed Book 1086, Page 1998, in the aforesaid
Clerk's Office.
Both Parcels I and II are within that property commonly known as
"Patrick Henry International Airport" and are immediately adjacent to
and west of that portion of Patrick Henry International Airport known as
"taxiway," Parcel II also being immediately south of that part commonly
known as "taxiway."
PARCEL III:
All that certain piece or parcel of land situate on the premises of the
lessor and being that piece consisting of 4.2 + acres and described
"Right of First Refusal" on that certain plan entitled "LAND LEASE PLAT,
FLIGHT INTERNATIONAL, INC., NEWPORT NEWS, VIRGINIA," made by Coenen &
Associates, Inc., dated March 27, 1984.
<PAGE> 5
(ATTACHMENT A continued)
The General Aviation Building Property:
All that certain lot, piece or parcel of land situate, lying and being
in the City of Newport News, State of Virginia, located on the premises
of the property owned by The Peninsula Airport Commission, known and
designated as "0.77 Ac. plus or minus /33,400 sq. ft." as shown on
that certain plat entitled, "PLAT OF THE PROPERTY OF THE PENINSULA
AIRPORT COMMISSION LEASED TO FLIGHT INTERNATIONAL, INC., NEWPORT
NEWS, VIRGINIA" dated November 2, 1984, and made by Coenen &
Associates, Inc., Engineers-Planners-Surveyors, and recorded in
Deed book 1086, Page 1999, in the aforesaid Clerk's Office.
The Cartwright Lease Property:
That certain parcel of land situated on a street known or to be known as
Corporate Lane, said Corporate Lane being situated on the easterly side
of G Avenue near its southern extremity and said leased parcel runs
along said Corporate Lane S 57 degrees, 48' W 208 feet and extends back
therefrom S 32 degrees 12' E 303 feet in parallel lines with the rear
line running generally parallel with the front line, with said rear
line including an access way to a proposed taxiway, all of the above
being shown on that certain plat entitled, "SITE PLAN, HANGAR NO. 1,
CARTWRIGHT AVIATION, INC., PATRICK HENRY AIRPORT, NEWPORT NEWS,
VIRGINIA," dated August 12, 1983, prepared by C. K. Tudor Engineers,
Inc., Newport News, Virginia, which said plat is made a part hereof
by reference thereto; the parcel herein described contains thereon a
2 Sty. Br. Office/Whse (20' x 100'), a parking area immediately in
front thereof and a paved area at the rear of said parcel, all as
shown on said plat.
Together with all the buildings, improvements and fixtures now or hereafter on
the Fixed Base Operation Property, the General Aviation Building Property, and
the Cartwright Lease Property, and all rights, privileges and appurtenances in
anyway belonging thereto, and also together with all leases now or hereafter
applicable thereto, all rents and profits, rights and benefits derived
therefrom, and any owner and hazard insurance premium and condemnation award or
payment relating thereto.
<PAGE> 6
THIS DOCUMENT IS ATTACHMENT B
TO THE AMENDED AND RESTATED DEED OF TRUST NOTE
The leases securing this Amended And Restated Deed Of Trust Note
pursuant to the Assignment of Leases dated August 18, 1988, as modified and
amended are as follows:
1. Lease dated November 8, 1984 by and between The Peninsula Airport
Commission, a municipal corporation created by special act of the General
Assembly of Virginia (hereinafter the PAC), and Flight International Aviation,
Inc., a Georgia corporation duly authorized to transact business in the
Commonwealth of Virginia (Flight International Aviation), with a Memorandum of
Lease regarding same recorded in Deed Book 1086, Page 1978, in the Office of
the Clerk of the Circuit Court of the City of Newport News, Virginia, as
amended by that certain Amendment to Lease dated June 10, 1988.
2. Lease dated January 1, 1979 by and between PAC and Ram Aviation,
Incorporated, a Virginia corporation, subsequently assigned to Flight
International Aviation, with a Memorandum of Lease regarding same recorded in
Deed Book 1086, Page 1974, in the aforementioned Clerk's Office.
3. Lease dated November 1, 1987, as amended by Lease Modification
Agreement dated August 19, 1988, by and between PAC and Flight International
Aviation, Inc., a Georgia corporation duly authorized to transact business in
the Commonwealth of Virginia, with a Memorandum of Lease regarding same
recorded in Deed Book 1181, Page 2051, in the aforementioned Clerk's Office.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements of the company for the year ended April 30,
1996 and is qualified in its entirety by reference to the form 10-KSB for
fiscal 1996.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,178,779
<SECURITIES> 0
<RECEIVABLES> 1,439,586
<ALLOWANCES> 58,783
<INVENTORY> 1,729,503
<CURRENT-ASSETS> 5,076,070
<PP&E> 5,293,719
<DEPRECIATION> 761,061
<TOTAL-ASSETS> 9,639,844
<CURRENT-LIABILITIES> 2,952,784
<BONDS> 0
0
0
<COMMON> 9,990
<OTHER-SE> 982,860
<TOTAL-LIABILITY-AND-EQUITY> 9,639,844
<SALES> 12,265,436
<TOTAL-REVENUES> 12,265,436
<CGS> 9,265,121
<TOTAL-COSTS> 11,902,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 581,284
<INCOME-PRETAX> (198,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> (198,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 313,793
<CHANGES> 0
<NET-INCOME> 115,295
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
