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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER 0-26106
KIWI INTERNATIONAL AIR LINES, INC.
Incorporated in the State of New Jersey
22-3158467
(I.R.S. Employer
Identification Number)
HEMISPHERE CENTER
Newark, NJ 07114-0006
(Principal Executive Office)
Telephone Number: (201) 645-1133
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 1996, there were outstanding 2,009,208 shares of Class A
Common Stock (no par value) and 1,824,073 shares of Class C Common Stock (no par
value) of the registrant.
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<PAGE>
KIWI INTERNATIONAL AIR LINES, INC.
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION:
ITEM 1 Financial Statements:
Statements of Operations -- Three Months
and Six Months Ended June 30, 1996 and 1995 ...... 3
Balance Sheets -- June 30, 1996 and
December 31, 1995 ................................ 4
Statements of Cash Flows -- Six Months Ended
June 30, 1996 and 1995 ........................... 5
Notes to Financial Statements ...................... 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three and Six Months Ended June 30, 1996 and 1995 .. 8
PART II OTHER INFORMATION:
ITEM 1 Legal Proceedings .................................. 11
ITEM 5 Other Information .................................. 12
ITEM 6 Exhibits and Reports on Form 8-K ................... 13
Signatures ......................................... 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KIWI INTERNATIONAL AIR LINES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June Six Months Ended June
-------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Passenger revenue ............................ $48,626,396 $41,063,851 $ 95,296,088 $73,356,548
Other revenues ............................... 4,750,206 2,860,149 7,651,224 7,625,167
----------- ----------- ------------ -----------
Total operating revenue ................... 53,376,602 43,924,000 102,947,312 80,981,715
----------- ----------- ------------ -----------
OPERATING EXPENSES
Flying operations ........................... 18,650,799 13,619,472 36,126,983 25,686,585
Maintenance ................................. 7,272,834 5,875,857 13,602,348 12,332,516
Passenger service ........................... 5,107,187 4,144,700 9,924,564 7,934,711
Aircraft traffic and servicing .............. 7,237,647 6,384,453 14,279,883 11,699,381
Promotion and sales ......................... 10,402,696 8,447,667 19,614,012 15,986,528
General and administrative .................. 3,311,142 3,601,741 6,406,116 6,946,510
Depreciation and amortization ............... 276,124 153,219 519,703 277,373
----------- ----------- ------------ -----------
Total operating expenses .................. 52,258,429 42,227,109 100,473,609 80,863,604
----------- ----------- ------------ -----------
Operating income .......................... 1,118,173 1,696,891 2,473,703 1l8,111
----------- ----------- ------------ -----------
NONOPERATlNG INCOME
Interest expense .......................... (148,744) (99,389) (304,446) (175,069)
Interest income ........................... 115,257 86,988 228,308 172,162
Other nonoperating income (expense) ....... (72,030) (2,548) (122,325) 35,537
----------- ----------- ------------ -----------
Tota1 nonoperating income (expense) ....... (105,517) (14,949) (198,463) 32,630
----------- ----------- ------------ -----------
Net income ................................ $ 1,012,656 $ 1,681,942 $ 2,275,240 $ 150,741
=========== =========== ============ ============
Weighted average number of
shares of common stock outstanding ......... 3,870,036 3,863,956 3,872,416 3,864,510
Net income per share of common stock
outstanding ................................ $ 0.26 $ 0.44 $ 0.59 $ 0.04
=========== =========== ============ ============
See accompanying Notes to Financial Statements
</TABLE>
3
<PAGE>
KIWI INTERNATIONAL AIR LINES, INC.
BALANCE SHEETS
June 30, December 3l,
1996 1995
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 781,351 $ 1,114,872
Restricted cash ................................ 932,501 1,007,501
Accounts receivable, net ....................... 13,766,988 12,849,563
Inventory ...................................... 812,580 954,263
Prepaid maintentance ........................... 14,738,200 11,422,747
Prepaid expenses and other current assets ...... 3,015,268 1,913,673
------------ ------------
Total current assets ......................... 34,046,888 29,262,619
EQUIPMENT, at cost:
Flight and other equipment ..................... 7,748,600 6,959,490
Less: Accumulated depreciation ................. (1,810,370) (1,347,627)
------------ ------------
Net equipment .................................. 5,938,230 5,611,863
OTHER ASSETS ..................................... 1,552,849 1,194,193
------------ ------------
Total Assets ................................... $ 41,537,967 $ 36,068,675
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt .............. $ 3,548,961 $ 3,689,877
Advance ticket sales ........................... 18,868,862 16,600,717
Accounts payable ............................... 11,789,525 10,952,230
Excise tax and PFC's payable ................... 1,863,615 5,203,448
Accrued maintenance ............................ 10,959,609 8,967,502
Accrued payroll tax and employee benefits ...... 2,815,333 2,766,565
Accrued other liabilities ...................... 9,024,283 7,393,390
------------ ------------
Total current liabilities .................... 58,870,188 55,573,729
LONG TERM DEBT, net of current ................... 1,310,468 1,382,899
------------ ------------
Total Liabilities .............................. 60,180,656 56,956,628
------------ ------------
STOCKHOLDERS' EQUITY
Class A common stock ........................... 9,982,390 9,982,390
Class C common stock ........................... 7,804,020 7,804,020
Stock subscriptions ............................ 483,268 513,243
Accumulated deficit ............................ (36,912,367) (39,187,606)
------------ ------------
Net stockholders' equity .................... (18,642,689) (20,887,953)
Total liabilities and stockholders'
equity .................................... $ 41,537,967 $ 36,068,675
============ ============
See accompanying Notes to Financial Statements
4
<PAGE>
KIWI INTERNATIONAL AIR LINES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 2,275,240 $ 150,741
Adjustments to reconcile net income to net cash generated
by (used in) operating activities:
Depreciation and amortization ................................... 519,703 277,373
Changes in operating assets and liabilities
(Increase) decrease in restricted cash ........................ 75,000 (19,200)
Increase in accounts receivable, net .......................... (917,425) (4,803,123)
(Increase) decrease in inventory .............................. 141,653 (276,931)
Increase in prepaid maintenance ............................... (3,315,453) (2,832,069)
Increase in prepaid expenses and other current assets ......... (1,101,595) (29,879)
Increase in other assets ...................................... (415,616) (350,842)
Increase in advance ticket sales .............................. 2,268,145 4,179,500
Increase (decrease) in accounts payable ....................... 837,295 (2,838,797)
Increase (decrease) in accrued excise tax and PPC's payable ... (3,339,833) 255,997
Increase in accrued maintenanace .............................. 1,992,107 5,396,080
Increase in accrued payroll tax and employee benefits ......... 48,768 574,302
Increase in accrued other liabilities ......................... 2,068,777 245,727
----------- -----------
Net cash generated by (used in) operating activities ............ 1,136,795 (71,121)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of equipment, net .......................................... (789,110) (724,951)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of long term debt ........................................ 975,000 --
Repayment of borrowings on debt and capital lease obligations ....... (1,626,231) (324,316)
Proceeds from issuance of stock subscriptions ....................... 29,975 15,950
----------- -----------
Net cash return used in financing activities ...................... (681,206) (308,366)
----------- -----------
Decrease in cash and cash equivalents ............................. (333,521) (1,104,439)
CASH AND CASH EQUIVALENTS, beginning of period......................... 1,114,872 2,718,132
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............................... $ 781,351 $ 1,613,693
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
5
<PAGE>
KIWI INTERNATIONAL AIR LINES, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(1) OVERVIEW
The interim financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K filed with the SEC on April 1, 1996 (Commission File No.
0-26106). This financial information reflects, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position and results of operations for the interim
periods. The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
(2) COMMITMENTS AND CONTINGENCIES
The Company reached agreement with officials of the collection branch of
the Internal Revenue Service ("IRS") with respect to the payment of excise taxes
accrued during 1994. The Company owes approximately $1,000,000 in taxes as of
June 30, 1996. The Company may also be liable for unspecified penalties in
regard to the tax liability. The Company has requested that the IRS abate all
penalties; a determination on that request has not been made by the IRS.
The Company brought legal action in the United States District Court,
District of New Jersey against Pegasus Capital Corporation and its affiliated
partnerships (collectively, "Pegasus"), the lessor of eight aircraft operated by
the Company. The suit was brought on September 22, 1995 in response to actions
threatened to be taken by Pegasus against the Company arising from the
interpretation of an agreement entered into between the Company and Pegasus in
March, 1995 (the "1995 Agreement"). Pegasus claimed the right under the 1995
Agreement to substitute a B727-200 aircraft for one of the existing aircraft
leased by the Company from Pegasus. The Company and Pegasus had disputes
concerning the interpretation of this and other provisions of the 1995
Agreement, including the condition and quality of the aircraft which Pegasus
proposed to offer in substitution, and the timing of the substitution of the
aircraft. Pegasus is seeking damages from the Company, estimated by Pegasus in
court submissions at $905,896, for the alleged breach of the 1995 Agreement in
refusing delivery of the aircraft offered in substitution. The Company has
counterclaimed for damages from Pegasus estimated at $1,615,000 and for
unspecified punitive damages.
On May 14, 1996, Pegasus claimed that the Company was delinquent in making
payments due under three aircraft lease agreements on various dates between May
1, 1996 and May 15, 1996 totaling approximately $300,000. Pegasus sought an
immediate order of the Court declaring the Company to be in default of the
leases, that Pegasus is entitled to repossess the three aircraft in question,
and that Pegasus is entitled to seek recovery at trial of unspecified amounts
for alleged compensatory damages, legal fees, costs of repossession, storage and
refurbishment of the aircraft and other alleged incidental damages.
A hearing was held on May 30, 1996. At the hearing, the Company tendered
payment of the $300,000 due for May payments, and agreed to pay interest on the
past-due amounts, in order to cure the default. The Court therefore denied
Pegasus' request to repossess the aircraft. There can be no assurance that the
Court will allow the Company to cure future defaults, if any, under the Pegasus
aircraft leases.
On or about June 5, 1996, Pegasus and the Company agreed to dismiss without
prejudice all claims for damages against one another in order for negotiations
to proceed with respect to proposals for Pegasus to lease three hush-kitted
aircraft to the Company, either by arranging for the hush-kitting of existing
aircraft or
6
<PAGE>
the replacement of existing leased aircraft with hush-kitted aircraft. In July,
1996, the Company reached an agreement in principle with Pegasus to modify two
of the Company's existing leased aircraft by December 30, 1996 to equip them
with hush kits. The costs of the hushkitting will be funded by Pegasus and
financed over the terms of the leases in the form of increased lease payments.
The lease terms will be extended for periods beginning with completion of the
hushkitting and ending after the earlier to occur of five years or the
completion of 60,000 flight cycles. Lease payments will be increased by
approximately $40,000 per aircraft per month. Additionally, Pegasus proposed,
subject to certain conditions, to lease another hush-kitted 727-200 aircraft to
the Company. The Company has advised Pegasus that it does not intend to lease
such aircraft. The agreements are subject to entering into definitive lease
agreements and other definitive legal documents, and to other conditions. Upon
completion of the transactions, Pegasus and the Company will dismiss with
prejudice claims made against one another and dismissed without prejudice in
June, 1996.
(3) DEBT
During December of 1995 and January of 1996, the Company raised $1,150,000
from a Private Note Offering. Each Unit sold under the Offering consisted of:
i) $25,000 principal amount of 10% Convertible Secured Notes due June 1, 1996,
convertible into Class A or C Common Stock at $5.00 per share, and ii) five year
warrants to purchase 5,000 shares of Class A or C Common Stock at $5.00 per
share. The Company paid the entire outstanding $1,150,000 principal amount and
all accrued interest on June 5, 1996.
During June 1996, the Company offered $2,000,000 and sold $975,000
principal amount of its 10% Convertible Unsecured Notes due October 15, 1996.
These notes allow the holder thereof to convert the principal amount thererof
into Class A or Class C Common Stock at a conversion price of $1.00 per share.
As of July 17, 1996 the Company offered the remaining $1,025,000 of its 10%
Convertible Unsecured Notes with a later maturity date of March 15, 1997, as
required by an Agreement with Recovery Equity Investors II, L.P. (see note 4).
(4) SUBSEQUENT EVENT
On July 1, 1996 and July 24, 1996, the Company received investments of $2.0
million each, for an aggregate of $4.0 million, from Recovery Equity Investors
II, L.P. ("REI"), a California based investment fund. These investments were in
the form of 6% Convertible Unsecured Notes due March 15, 1997. The Notes provide
for the conversion thereof, at REI's option, into either: (i) the Company's
Class C Common Stock at a conversion price of $1.00 per share, or (ii)
convertible preferred stock ("Convertible Preferred Stock") if and when approved
by the shareholders of the Company. The Company also granted options to purchase
up to $6.0 million in additional securities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company recorded net income of $1.0 million and $2.3 million on
revenues of $53.4 million and $102.9 million for the three and six months ended
June 30, 1996, respectively. The above figures include a positive one-time $2.5
million adjustment to other operating revenue. The revenue adjustment reflects
the recognition, in the second quarter of 1996, of revenue from tickets sold in
periods prior to June 30, 1995. The revenue was not previously realized because
it represented sales to ticket holders who had not yet used their tickets. The
revenue is now being recognized because sufficient time has elapsed that the
ticket holders are no longer eligible to request a refund. Prior to the
adjustment, total revenues for the three and six months ended June 30, 1996 were
$50.9 million and $100.4 million, and operating losses were $1.4 million and
$26,000, respectively.
The Company experienced improvement in its load factors for both the three
and six month periods ended June 30, 1996. For the three and six months ended
June 30, 1996, load factors increased to 61.1% and 61.4%, compared to 53.2% and
54.2% for the same periods in 1995. The increase in load factors was offset by a
decrease in yield per revenue passenger mile (RPM). The Company's yield per RPM
decreased by 16.5% to $0.1180 from $0.1420 for the three months ended June 30,
1996. Yield per RPM also decreased by 11.8% to $0.1290 from $0.1360 for the six
months ended June 30, 1996. The decrease in the Company's yield per RPM is
attributable to a reduction in average fares of approximately $9 to $10 between
1995 and 1996, and the commencement of service to Las Vegas from Atlanta and
Chicago in February of 1996. The long distance between Las Vegas and each of
these cities results in a relatively low yield per RPM.
The Company's costs continue to be controlled and in line with the high
level of service that is provided. The Company had an average cost per available
seat mile (ASM) of $0.0782 and $0.0779 for the three and six month periods ended
June 30, 1996, compared to $0.0773 and $0.0801 for the same periods in 1995.
Operating results in the airline industry are significantly affected by
both the general and economic environment in which a carrier operates. Small
fluctuations in yield per RPM and cost per ASM--whether industry-wide or unique
to the particular carrier--can have a substantial effect on profitability. Thus,
airline profits, as well as the ability to accurately forecast operating
results, are subject to a relatively high degree of instability.
While the Company has experienced improvement since 1994, cumulative
operating losses since inception are significant. At June 30, 1996, the
Company's accumulated deficit was approximately $36,912,000. The Company has
limited resources and will be dependent upon future successful financing, both
to effectively manage the accumulated deficit and for future capital expansion
requirements.
8
<PAGE>
RESULTS OF OPERATIONS
The table below sets forth selected financial data of the Company for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
June 30, 1996 June 30, 1995
-------------------------- ------------------------
Percent of Percent of
Amount Revenues Amount Revenues
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Operating Revenues.................... $53,376,602 100.0% $43,924,000 100.0%
=========== ===== =========== =====
Expense Category:
Flight operations .......................... 7,293,120 13.7% 6,138,165 14.0%
Aircraft fuel .............................. 11,357,679 21.3% 7,481,307 17.0%
Maintenance ................................ 7,272,834 13.6% 5,875,857 13.4%
Passenger services ......................... 5,107,187 9.6% 4,144,700 9.4%
Aircraft and traffic services .............. 7,237,647 13.6% 6,384,453 14.5%
Sales and marketing ........................ 2,941,736 5.5% 1,998,216 4.5%
Reservations/Revenue management ............ 7,460,960 14.0% 6,449,451 14.7%
General and Administrative services ........ 3,311,142 6.2% 3,601,741 8.2%
Depreciation and amortization .............. 276,124 0.5% 153,219 0.3%
----------- ----- ----------- -----
Total operating expenses.................... $52,258,429 97.9% $42,227,109 96.1%
=========== ===== =========== =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------
June 30, 1996 June 30, 1995
-------------------------- ------------------------
Percent of Percent of
Amount Revenues Amount Revenues
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Operating Revenues.................... $102,947,312 100.0% $80,981,715 100.0%
=========== ===== =========== =====
Expense Category:
Flight operations .......................... 14,572,102 14.2% 11,738,519 14.5%
Aircraft fuel .............................. 21,554,881 20.0% 13,948,066 17.2%
Maintenance ................................ 13,002,348 13.2% 12,332,516 15.2%
Passenger services ......................... 9,924,564 9.6% 7,934,711 9.8%
Aircraft and traffic services .............. 14,270,883 13.9% 11,699,381 14.4%
Sales and marketing ........................ 4,518,721 4.4% 4,190,805 5.2%
Reservations/Revenue management ............ 15,095,291 14.7% 11,795,723 14.6%
General and Administrative services ........ 6,406,116 6.2% 6,946,510 8.6%
Depreciation and amortization .............. 519,703 0.5% 277,373 0.3%
----------- ----- ----------- -----
Total operating expenses.................... $100,473,609 97.6% $80,863,604 99.9%
=========== ===== =========== =====
</TABLE>
Total operating revenue for the three and six months ended June 30, 1996
increased 21.6% and 27.1%, respectively, as compared to the same periods in
1995, to $53,377,000 and $102,947,000. This increase was due primarily to the
growth of the Company's operations. The total number of passengers carried
increased to 548,037 and 1,063,493 for the three and six months ended June 30,
1996, respectively, as compared to 419,523 and 756,236 for the corresponding
periods in 1995. Total available seat miles (ASM) increased 22.3% and 27.7% to
668,084,000 and 1,289,906,000 and revenue passenger miles (RPM) increased 40.4%
and 44.7% to 408,141,000 and 791,919,000 for the three and six months ended June
30, 1996, respectively. These RPM and ASM figures equate to average load factors
of 61.1% and 61.4% for the three and six months ended June 30, 1996,
respectively. The average passenger fare decreased 10.3% and 9.2% to $88.36 and
$89.25 for the three and six months ended June 30, 1996, from $95.75 and $97.24
for the comparable periods in 1995. This decrease can be attributed in part to a
slightly more competitive fare environment in the Company's markets during 1996,
in comparison with 1995.
All expense categories related to flight operations and passenger services
have increased due to the increase in the volume of operations. The average
number of flights per month increased to 2,059 in 1996 from 1,669 in 1995.
Aircraft fuel expense also increased significantly due to a 18% increase in the
price per gallon of aircraft fuel for the three and six months ended June 30,
1996 compared to the same periods in 1995. The average fuel price increased
approximately $0.10 per gallon in 1996 of which $0.043 per gallon was a result
of the discontinuance of a federal fuel tax exemption in October of 1995. Based
on 1996 1evels, the combined impact of the increase in fue1 prices and the fuel
tax has been an additional $550,000 per month in fuel expenses.
All other expenses increased through the ordinary course of business,
consistent with the growth in the number of flights operated and passengers
carried by the Company between the periods in 1996 compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of
approximately $781,35l and a working capital deficit of $24,823,300. At December
31, 1995, the Company had cash and cash equivalents of approximately $1,114,872
and a working capital deficit of $26,311,110. Historically, the Company has
operated with a working capital deficit. The Company's ability to meet its
existing debts with cash from operating activities, to fund capital
expenditures, and to improve its liquidity ultimately will depend on its ability
to (i) obtain the continued cooperation of the Company's lessors and other trade
creditors to extend
9
<PAGE>
favorable payment terms, (ii) secure the infusion of approximately $6 million to
$10 million in new capital (above the $4 million raised from REI subsequent to
June 30, 1996), and (iii) to generate significant additional funds from
operations beyond that which have been generated in the past. The Company will
require cash from other sources to meet these short-term cash flow needs. There
can be no assurances that the Company will be successful in managing its
indebtedness, improving operations or securing new financing. The failure of the
Company to improve its liquidity through these actions or otherwise would have
a material adverse effect upon the Company.
The operating losses of $1.4 million and $26,000 (prior to the revenue
adjustment) incurred by the Company during the three months and six months
ended June 30, 1996, respectively, and a reduction of operations effected by the
Company, in agreement with the FAA (See Part II, Item 1., Legal Proceedings),
has significantly exacerbated the Company's existing lack of liquidity and
working capital. The reduction in operations had an immediate and substantial
adverse effect on the Company's revenue earning capacity. The Company was forced
to cancel approximately 15% of its scheduled flights, and estimates that lost
revenues during the months of July and August could amount, in total, to $10
million, or 25% of forecast revenue.
The Company recorded net income of $2.3 million, advance ticket sales
increased by $2.3 million and accounts payable and other accrued liabilities
increased by $2.9 million for the six months ended June 30, 1996. Partially
offsetting these positive cash flows, the Company increased accounts receivable
by $917,000, increased prepaid maintenance, net of accrued maintenance, by $1.3
million, and increased prepaids and other current assets by $1.4 million for the
six months ended June 30, 1996. During this period, the Company used $789,000,
net, for the purchase of equipment and used $681,000 in financing activities.
During 1996, the Company deposited monies into a trust account to be used
for the repayment of 10% Convertible Secured Notes which matured on June 1,
1996. The Company used funds accumulated in the trust account to repay the
$1,150,000 of Convertible Secured Notes on June 5, 1996.
During June 1996, The Company offered $2,000,000 and sold $975,000
principal amount of its 10% Convertible Unsecured Notes due October 15, 1996.
These notes allow the holder thereof to convert the principal amount thereof
into Class A or Class C Common Stock at a conversion price of $1.00 per share.
As of July 17, 1996 the Company offered the remaining $1,025,000 of its 10%
Convertible Unsecured Notes with a later maturity date of March l5, 1997, as
required by an Agreement with Recovery Equity Investors II, L.P. (see note 4).
The Company is a party to an agreement with First Bank National Association
("First Bank") pursuant to which First Bank processes certain credit card sales
for the Company. Pursuant to the agreement. the Bank holds back funds relating
to collections on account of sales slips submitted to it by the Company as
security for the due and punctual payment of and performance by the Company of
all its obligations under the agreement. The holdback amount was approximately
$6.4 million at June 30. 1996, as determined in accordance with a formula set
forth in the agreement, which is intended to cover 115% of First Bank's
estimated maximum exposure. In comparison, the holdback amount was approximately
$5.2 million at June 30, 1995.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
AIRCRAFT LEGAL DISPUTE
The company brought legal action in the United States District Court,
District of New Jersey against Pegasus Capital Corporation and its affiliated
partnerships (collectively, "Pegasus"), the lessor of eight aircraft operated by
the Company. The suit was brought on September 22, 1995 in response to actions
threatened to be taken by Pegasus against the Company arising from the
interpretation of an agreement entered into between the Company and Pegasus in
March, 1995 (the "1995 Agreement"). Pegasus claimed the right under the 1995
Agreement to substitute a B727-200 aircraft for one of the existing aircraft
leased by the Company from Pegasus. The Company and Pegasus had disputes
concerning the interpretation of this and other provisions of the 1995
Agreement, including the condition and quality of the aircraft which Pegasus
proposed to offer in substitution, and the timing of the substitution of the
aircraft. Pegasus is seeking damages from the Company, estimated by Pegasus in
court submissions at $905,896, for the alleged breach of the 1995 Agreement in
refusing delivery of the aircraft offered in substitution. The Company has
couterclaimed for damages from Pegasus estimated at $1,615,000 and for
unspecified punitive damages.
On May 14, 1996, Pegasus claimed that the Company was delinquent in making
payments due under three aircraft lease agreements on various dated between May
1, 1996 and May 15, 1996 totaling approximately $300,000. Pegasus sought an
immediate order of the Court declaring the Company to be in default of the
leases, that Pegasus is entitled to repossess the three aircraft in question,
and that Pegasus is entitled to seek recovery at trial of unspecified amounts
for alleged compensatory damages, legal fees, costs of repossession, storage and
refurbishment of the aircraft and other alleged incidental damages.
A hearing was held on May 30, 1996. At the hearing, the Company tendered
payment of the $300,000 due for May payments, and agreed to pay interest on the
past-due amounts, in order to cure the default. The Court therefore denied
Pegasus' request to repossess the aircraft. There can be no assurance that the
Court will allow the Company to cure future defaults, if any, under the Pegasus
aircraft leases.
On or about June 5, 1996, Pegasus and the Company agreed to dismiss without
prejudice all claims for damages against one another in order for negotiations
to proceed with respect to proposals for Pegasus to lease three hush-kitted
aircraft to the Company, either by arranging for the hush-kitting of existing
aircraft or the replacement of existing leased aircraft with hush-kitted
aircraft. In July, 1996. the Company reached an agreement in principle with
Pegasus to modify two of the Company's existing leased aircraft by December 30,
1996 to equip them with hush kits. The costs of the hushkitting will be funded
by Pegasus and financed over the terms of the leases in the form of increased
lease payments. The lease terms will be extended for periods beginning with
completion of the hushkitting and ending after the earlier to occur of five
years or the completion of 60,000 flight cycles. Lease payments will be
increased by approximately $40,000 per aircraft per month. Additionally, Pegasus
proposed, subject to certain conditions, to lease an another hushkitted 727-200
aircraft to the Company. The Company has advised Pegasus that it does not intend
to lease such aircraft. The agreements are subject to entering into definitive
lease agreements and other definitive legal documents, and to other conditions.
Upon completion of the transactions, Pegasus and the Company will dismiss with
prejudice claims made against on another and dismissed without prejudice in
June, 1996.
REDUCTION IN OPERATIONS BY AGREEMENT WITH THE FAA
On June 21, 1996, officials of the Federal Aviation Administration ("FAA")
met with the Company's management to convey the results of an in-depth Regional
Aviation Safety Inspection (known as a "RASIP Inspection") of the Company's
operations, which the FAA conducted between May 30 and June
11
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13, 1996. The FAA advised the Company that it was not in compliance with
safety regulations, primarily relating to pilot training and operations. The FAA
stated its intention to order an immediate suspension of all KIWI flight
operations unless KIWI agreed voluntarily to reduce the number of aircraft it
operates from 15 to 11, effective June 22, 1996, until such time as it can
demonstrate to the FAA's satisfaction that KIWI can conduct operations with all
15 aircraft in compliance with FAA ru1es and regulations. The Company also
agreed to relinquish its authority to internally check qualifications and
training of its airmen, allowing the FAA to perform those functions until
further notice. It also agreed to ground 32 airmen until their qualifications
could be reestablished to the FAA's satisfaction.
The Company obtained the FAA's permission to resume operations of two of
the four grounded aircraft on July 26, 1996, and anticipates receiving
permission to resume operation of the remaining two aircraft in August. Also,
the Company reestablished qualifications for all 32 grounded airmen.
On July 2, 1996, the FAA delivered its written report of findings from the
RASIP Inspection, containing detailed findings of alleged deficiencies in both
operations and maintenance areas. The FAA has the authority to seek civil
monetary penalties based on such findings. It is not possible to predict whether
the FAA will seek to do so, or the amount of penalties they may seek, in
addition to the Company's voluntary reduction in operations.
OTHER LEGAL PROCEEDINGS
In May, 1996, the law firm of Reboul, MacMurray, Hewitt, Maynard & Kristol
commenced an action against the Company for $108,000 for unpaid legal fees and
disbursements for services rendered to the Company during 1992-1994. In August,
1996, the Company settled the suit for $84,000 payable in seven monthly
installments of $12,000 each.
ITEM 5. OTHER INFORMATION
On July 24, 1996, Recovery Equity Investors II, L.P. ("REI") purchased
S2,000,000 principal amount of the Company's 6% Convertible Unsecured Notes Due
March 15, 1997 ("Convertible Notes") for a purchase price of $2,000,000,
pursuant to the option granted to it in the Convertible Note Purchase and Option
Agreement dated as of July 1, 1996 (the "Agreement"). The investment brings the
total invested in such Convertible Notes by REI to $4,000,000. Under the
Agreement, REI has an additional option to purchase, on or before March 15,
1997, up to 6 million shares of the Company's convertible preferred stock for a
purchase price of $6 million. The convertible preferred stock must be authorized
by the Company's shareholders at the 1996 Annual Meeting, expected to be held on
September 4, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
10.1 1996 Stock Option Plan
10.2 1996 Employee Stock Purchase Plan
10.3 Specimen 10% Convertible Unsecured Note Due October 15, 1996
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(b) Reports of Form 8-K Filed During the Quarter Ended June 30, 1996
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KIWI INTERNATIONAL AIR LINES, INC.
August 14, 1996 By: /s/ JOHN G. MURPHY
-------------------------------------
John G. Murphy, President
and Chief Executive Officer
August 14, 1996 By: /s/ JAMES E. PLAYER, JR.
-------------------------------------
James E. Player, Jr., Chief Financia1
Officer
13
KIWI INTERNATIONAL AIR LINES, INC.
1996 STOCK OPTION PLAN
Section 1. Purpose. The purpose of the KIWI International Air Lines, Inc.
Stock Option Plan (the "Plan") is to promote the interests of KIWI International
Air Lines, Inc., a New Jersey corporation (the "Company"), and any and all
subsidiaries thereof, by providing an opportunity to selected employees,
officers and directors of the Company and any subsidiaries thereof as of the
date of the adoption of the Plan or at any time thereafter, and other persons
rendering bona fide services to the Company or any subsidiary thereof, to
purchase Common Stock of the Company. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate such employees and other persons
and to encourage such employees and other persons to devote their best efforts
to the business and financial success of the Company. It is intended that this
purpose will be effected by the granting of "non-qualified stock options" and/or
"incentive stock options" to acquire the Common Stock of the Company. Under the
Plan, the Board of Directors shall have the authority (in its sole discretion)
to grant "incentive stock options" within the meaning or Section 422(b) of the
Code or "non-qualified stock options" as described in Treasury Regulation
Section 1.83-7 or any successor regulation thereto.
Section 2. Definitions. For purposes of the Plan, the following terms used
herein shall have the following meanings, unless a different meaning is clearly
required by the context.
2.1 "Board of Directors" shall mean the Board of Directors of the Company.
2.2 "Class A Common Stock" shall mean the Class A Common Stock, no par
value, of the Company, which is subject to an Option granted under this Plan, or
the Class A Common stock, no par value, of the Company, as a class, as the
context may require.
2.3 "Class C Common Stock" shall mean the Class C Common Stock, no par
value, of the Company, which is subject to an Option granted under this Plan, or
the Class C Common Stock, no par value, of the Company, as a class, as the
context may require.
2.4 "Code" shall mean the Internal Revenue Code of 19S6, as amended.
2.5 "Committee" shall mean the committee of the Board of Directors referred
to in Section 5 hereof.
2.6 "Common Stock" shall mean the Class A Common Stock and/or the Class C
Common Stock which is subject to Options granted under this Plan, or the Class A
Common Stock and/or the Class C
<PAGE>
Common Stock as separate clauses or a single class, as the context may require.
2.7 "Disability" shall mean permanent and total disability within the
meaning of Section 22(e)(3) of the Code.
2.8 "Eligible Person" shall mean any Employee (but with respect to ISOs,
only an Employee within the meaning of clause (1) of Section 2.9) or any
consultant, advisor or other person rendering bona fide services to the Company
or any subsidiary.
2.9 "Employee" shall mean (i) with respect to an ISO, any person who at the
time the ISO is granted is employed by the Company or any Subsidiary on a
full-time basis, and (ii) with respect to a Non-Qualified Option, any person
who, at the time the Non-Qualified Option is granted, is employed by the Company
or any Subsidiary on a full-time basis or part-time basis, and any director of
the Company or any Subsidiary.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" of a share of Common Stock shall mean, as of any
day, the average of the last sale prices of sales of shares of Common Stock on
all national securities exchanges on which the Common Stock may at the time be
listed or, if there shall have been no sale. on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on such day the Common Stock shall not be so listed, the last sale
price on the NASDAQ system on such day, or, if there shall have been no sales on
such day, the average of the representative bid and asked prices quoted in the
NASDAQ system as of 3:30 p.m., New York time, on such day, or, if on such day
the Common Stock shall not be quoted in the NASDAQ system, the average of the
high and low bid and asked prices on such day in the over-the-counter market as
reported by National Quotation Bureau Incorporated, or any similar successor
organization. If at any time the Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ system or the over-the-counter
market, the Fair Market Value of the shares of Common Stock subject to an Option
shall be the Fair Market Value thereof determined by the Board of Directors in
its absolute discretion, exercised in good faith.
2.12 "ISO" shall mean an Option that constitutes and is treated as an
"incentive stock option" as defined in Section 422(b) of the Code.
2.14 "Non-qualified Option" shall mean an Option that is a "non-qualified
stock option" as described in Treasury Regulation
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Section 1.83-7 or any successor regulation thereto and that shall not constitute
nor be treated as an ISO.
2.15 "Option" shall mean any ISO or Non-Qualified Option granted to an
Eligible Person pursuant to the Plan.
2.16 "Option Agreement" shall mean a written agreement, contract or other
instrument or document evidencing an Option.
2.17 "Participant" shall mean any Eligible Person to whom an Option is
granted pursuant to the Plan.
2.18 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, as amended, and any successor to
such Rule.
2.19 "Securities Act" shall mean the Securities Act of 1933, as amended.
2.20 "Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
capital stock in one of the other corporations in such chain.
2.21 "Transfer" shall mean sell, assign, transfer, pledge, convey or
otherwise dispose of, or subject to any lien, encumbrance or security interest
of any kind.
Section 3. Eligibility. Options may be granted to any Eligible Person. The
Board of Directors shall have the sole authority to select the Eligible Persons
to whom Options are to be granted hereunder, and to determine whether an
Eligible Person is to be granted a Non-Qualified Option, an ISO or any
combination thereof. No person shall have any right to participate in the Plan.
Any person selected by the Board of Directors for participation during any one
period will not by virtue of such participation have the right to be selected as
a Participant for any other period.
Section 4. Common Stock Subject to the Plan.
4.1 Number of Shares. The total number of shares of Class A Common Stock
for which Options may be granted under the Plan shall not exceed in the
aggregate one million four hundred thousand (1,400,000) shares (subject to
adjustment as provided in Section 7 hereof), and the total number of shares of
Class C Common Stock for which Options may be granted under the Plan shall not
exceed in the aggregate one hundred thousand (100,000) shares (subject to
adjustment as provided in Section 7 hereof).
3
<PAGE>
4.2 Shares Available. The shares of Class A Common Stock and Class C Common
Stock that may be subject to Options granted under the Plan may be either
authorized and unissued shares or shares reacquired at any time and now or
hereafter held as treasury stock, as the Board of Directors may determine. In
the event that any outstanding Option expires or is terminated for any reason,
the shares allocable to the unexercised portion of such Option may again be
subject to an Option granted under the Plan.
4.3 Special ISO Limitations.
(a) The aggregate Fair Market Value (determined as of the date an ISO is
granted) of the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an Eligible Person during any calendar year
(under the Plan and any other plan of the Company or any Subsidiary) shall not
exceed $100,000.
(b) No ISO shall be granted to an Eligible Person who, at the time the ISO
is granted, owns (actually or constructively under the provisions of Section
424(d) of the Code) stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Subsidiary, unless the
exercise price is at least 110% of the Fair Market Value (determined as of the
time the ISO is granted) of the shares of Common Stock subject to the ISO, and
the ISO by its terms is not exercisable more than five years from the date it is
granted.
4.4 ISO Limitations Not Applicable to Non-Qualified Options.
Notwithstanding any other provision of the Plan, the provisions of Sections
4.3(a) and (b) shall not apply, nor shall be construed to apply, to any
Non-Qualified Option granted under the Plan.
Section 5. Administration of the Plan.
5.1 Administration by Board of Directors or Committee. The Plan shall be
administered by the Board of Directors or, if established at any time by the
Board of Directors, by a committee thereof (the "Stock Option Committee"), the
members of which shall be appointed by and serve at the pleasure of the Board of
Directors. The Stock Option Committee shall consist of two or more persons, all
of whom shall be "disinterested persons" within the meaning of Rule 16b-3, and
once constituted, the Plan shall be administered by the Stock Option Committee
for so long as the Board of Directors deems it desirable for the Plan to comply
with and qualify under Rule 16b-3. So long as the Plan is administered in
accordance with Rule 16b-3, persons serving or designated to serve as members of
the Committee shall not be granted Options under the Plan. As used herein,
except in Sections 13 ("Amendment of the Plan"), 15 ("Termination of the Plan")
and 16 ("Effective Date of the Plan"), references to the Board of Directors
shall mean the
4
<PAGE>
Board of Directors or the Stock Option Committee, whichever is then acting with
respect to the administration of the Plan.
5.2 Interpretation. The Board of Directors shall have full authority to
interpret and construe the Plan and any provision thereof, any Option granted
under the Plan or any Option Agreement. The Board of Directors shall have the
authority, from time to time, to adopt, modify or rescind such rules and
regulations, not inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the purposes of the Plan.
5.3 Finality. The interpretation and construction by the Board of Directors
of any provision of the Plan or any rule or regulation adopted thereunder, or of
any Option or Option Agreement, shall be final and conclusive upon all parties.
5.4 Grant of Options.
The Board of Directors shall have the sole authority and discretion under
the Plan to take the following actions, in each case subject to and consistent
with the provisions of the Plan; (i) to select the Eligible Persons who are to
be granted Options under the Plan; (ii) to designate whether any Option to be
granted under the Plan is to be an ISO of a Non-Qualified option; (iii) to
establish the number of shares of Common Stock that may be issued under each
Option; (iv) to determine the time and the conditions subject to which Options
may be exercised in whole or in part; (v) to determine the form of the
consideration that may be used to purchase shares of Common Stock upon exercise
of any Option (including the circumstances under which the Company's issued and
outstanding shares of Common Stock, or shares of Common Stock issuable upon
exercise of an Option, may be used by a Participant to purchase shares of Common
Stock in connection with the exercise of an Option); (vi) to impose restrictions
and/or conditions with respect to shares of Common Stock acquired upon exercise
of an Option; (vii) to determine the circumstances under which shares of Common
Stock acquired upon exercise of any Option may be subject to repurchase by the
Company; (viii) to determine the circumstances and conditions subject to which
shares of Common Stock acquired upon exercise of an Option may be transferred,
including, without limitation, the circumstances and conditions subject to which
a proposed sale of shares of Common Stock acquired upon exercise of an option
may be subject to the Company's right of first refusal (as well as the terms and
conditions of any such right of first refusal); (ix) to establish vesting
provisions for any Option relating to the time when (or the circumstances under
which) the Option may be exercised by a Participant, including, without
limitation, vesting provisions that may be contingent upon (A) the continued
employment of the Participant by the Company or a Subsidiary, (B) the Company
meeting specified financial goals, (C) a change of control of the Company or (D)
the occurrence of other specified events; (x) to require that a Participant who
acquires
5
<PAGE>
Common Stock upon the exercise of an Option become a party to any voting trust
agreement or shareholders' agreement to which the Company or any Subsidiary is
a party; (xi) to accelerate the time when outstanding Options may be exercised,
(xii) to establish any other terms, restrictions and/or conditions applicable
to any Option not inconsistent with the provisions of the Plan; and (xiii) to
determine all other matters to be determined in connection with Options and the
administration of the Plan.
Section 6. Specific Terms and Conditions of Options.
6.1 All Options. The terms and conditions of each Option granted under the
Plan shall be specified by the Board of Directors and shall be set forth in a
written Option Agreement between the Company and the Participant in such form as
the Board of Directors shall approve. No Participant shall have any rights to or
interest in an Option until it has executed and delivered an Option Agreement
with respect thereto. The terms and conditions of any Option granted hereunder
need not be identical to those of any other Option granted hereunder.
Options shall be subject to the following conditions:
(a) Options to purchase Class A Common Stock shall be granted only to
Eligible Persons who are Employees at the time the Options are granted and at
the time they are exercised and Options to purchase Class C Common Stock shall
be granted only to Eligible Persons who are not Employees at the time the
Options are granted.
(b)(i) In the event the Participant shall cease to be employed by the
Company or any Subsidiary (on a full-time basis in the case of an ISO) for any
reason other than as a result of his or her death or Disability, the unexercised
portion of the Option may only be exercised within the three month period after
the date on which the Participant ceased to be so employed, and only to the
extent that the Participant could have otherwise exercised the Option as of the
date on which he or she ceased to be so employed and had not previously done
so.
(ii) In the event the Participant shall cease to be employed by the Company
or any Subsidiary (on a full-time basis in the case of an ISO) by reason of his
or her Disability, the unexercised portion of the Option held by such
Participant at that time may only be exercised within one year after the date on
which the Participant ceased to be so employed, and only to the extent that the
Participant could have otherwise exercised the Option as of the date on which he
or she ceased to be so employed and had not previously done so.
6
<PAGE>
(iii) In the event the Participant shall die while in the employ of the
Company or a Subsidiary, the unexercised portion of the Option held by such
Participant at the time of his or her death may only be exercised within one
year after the date of the Participant's death, and only to the extent that the
Participant could have otherwise exercised much Option at the time of his or her
death and had not previously done so. In such event, the Option may be exercised
by the executor or administrator of the Participant's estate or by any person or
persons who shall have acquired the Option directly from the Participant by
bequest or inheritance.
(c) The Option shall not be assignable or Transferable by the Participant
otherwise than by will or the laws of descent and distribution, and during the
Participant's lifetime, the Option shall be exercisable only by the Participant.
6.2 ISOs. The terms and conditions of each ISO shall be such that each ISO
issued hereunder shall constitute and shall be treated as an "incentive stock
option" as defined in Section 422(b) of the Code.
Each ISO shall be subject to the following additional conditions:
(a) The option price of the ISO shall be fixed by the Board of Directors
but shall in no event be less than 100% (or 110% in the case of an Eligible
Person referred to in Section 4.3(b) hereof) of the Fair Market Value of the
shares of Common Stock subject to the ISO on the date the ISO is granted.
(b) The term of each ISO (including the date on which such ISO shall expire
and terminate) shall be fixed by the Board of Directors, but the term shall in
no event exceed ten years from the date on which such ISO is granted (or, in the
case of an ISO granted to an Eligible Person referred to in Section 4.3(b)
hereof, such term shall in no event exceed five years from the date on which
such ISO is granted).
6.3 Non-Qualified Options. The terms and conditions of each Non-Qualified
Option may, but need not, contain some or all of the terms and conditions which
are required for incentive stock options an defined in Section 422(b) of the
Code. The terms and conditions of any Non-Qualified Option granted hereunder
need not be identical to those of any other Non-Qualified Option granted
hereunder.
6.4 Additional Terms and Conditions. The Board of Directors may, in any
manner not inconsistent with the Plan, by way of the Option Agreement or
otherwise, establish such other terms, conditions, restrictions and/or
limitations on any Option or the exercise thereof.
7
<PAGE>
Section 7. Adjustments. In the event that, after the adoption of the Plan
by the Board of Directors, there shall be any change in the outstanding shares
of Common Stock by reason of merger, consolidation, reorganization,
recapitalization, stock split, combination or exchange of shares or declaration
of dividends payable in Common Stock, the Board of Directors shall appropriately
adjust (1) the number of shares of Common Stock (and the option price per share)
subject to the unexercised portion of any outstanding Option (to the nearest
possible full share), provided, however, that the limitations of Section 424 or
the Code shall apply with respect to adjustments made to ISOs; and (ii) the
number of shares of Common Stock for which Options may be granted under the
Plan, as set forth in Section 4.1 hereof, and such adjustments shall be
effective and binding for all purposes of the Plan. If the Company shall not be
the surviving corporation in any merger, consolidation or reorganization, shares
of common stock or other securities of the surviving corporation or any other
property into which the shares of Common Stock subject to an Option are
converted pursuant to the merger, consolidation or reorganization, shall be
subject to the same terms, conditions and restrictions as were applicable to
such shares of Common Stock immediately prior to conversion, except to the
extent that such terms, conditions and restrictions were modified as a result of
such merger, consolidation or reorganization or have lapsed. In the event that
at any time an Option is outstanding, the Company makes an extraordinary
dividend or other extraordinary distribution (whether in cash, property,
securities or any combination thereof) with respect to shares of Common Stock,
or repurchase shares of Common stock pursuant to a tender offer or exchange
offer subject to Section 13(e) of the Exchange Act or any other offer available
to substantially all holders of the Common Stock (other than repurchases of
shares of Common Stock by the Company in open market transactions), the Board of
Directors may consider the economic impact of such share repurchases and may, in
its discretion, make such adjustments to outstanding Options as it deems
equitable under the circumstances.
Section 8. Withholding. To the extent that the Company is required to
withhold any Federal, state or local taxes in respect of an Option or in respect
of any shares of Common Stock acquired upon exercise of the Option, whether as a
result of the exercise of the Option, a "disqualifying disposition" of any
shares of Common Stock acquired upon exercise of the Option (in the case of an
ISO), or for any other reason, the Company shall have the right to deduct from
any payments of any kind otherwise due to the Participant the aggregate amount
of such Federal, state or local taxes required to be so withheld or, if such
payments are insufficient to satisfy such Federal, state or local taxes, or if
no such payments are due or to become due to such Participant, then, may require
the Participant to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. A Participant may satisfy
8
<PAGE>
a withholding tax payment obligation by electing to have the Company or any
Subsidiary apply outstanding shares of Common Stock owned by the Participant, or
to be acquired by the Participant upon the exercise of the Option, against the
taxes required to be withheld, and shares so applied shall be that number of
shares of Common Stock the Fair Market Value of which is equal to the tax
required to be withheld (determined on the date that the amount of withholding
tax is to be determined). All matters with respect to the amount and payment of
taxes to be withheld in respect of any such compensation income shall be
determined by the Board of Directors, in its sole discretion.
Section 9. Regulatory Approvals. Notwithstanding anything to the contrary
contained in the Plan, the Company shall have no obligation to issue or deliver
certificates evidencing shares of Common Stock upon the exercise of an Option,
or in connection with the resale or other disposition thereof, if the Board of
Directors determines that the registration or qualification under any federal or
state law of any shares of Common Stock to be issued upon the exercise of an
Option, or the approval of any governmental agency, stock exchange or similar
organization, is necessary as a condition of or in connection with the issuance
or delivery of such shares.
Section 10. Compliance with Securities Laws. If the shares of Common Stock
that have been issued to a Participant pursuant to the Plan have not been
registered under the Securities Act pursuant to an effective registration
statement, such Participant, if the Board of Directors deems it advisable, may
be required to represent and agree in writing that (i) no such shares acquired
by the Participant pursuant to the Plan will be sold except pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from registration thereunder and (ii) such Participant is acquiring
such shares for his or her own account and not with a view to the distribution
thereof. The Company shall have the right to require that any certificate
evidencing Common Stock issued pursuant to the exercise of an Option bear any
restrictive legend required by law, the Plan or the Option Agreement relating to
such Option. The Company may, but shall not be required to, cause shares of
Common Stock issued upon exercise of an Option to be registered under the
Securities Act or applicable state securities laws or to be listed or admitted
to trading on any established securities exchange or market in which the Common
Stock is listed or traded.
Section 11. Rights as Stockholder. The holder of an Option shall have no
rights as a stockholder with respect to any shares of Common Stock issuable upon
the exercise of an Option until the date when he or she has exercised the Option
and his or her holding of such shares is entered upon the records of the Company
or its duly authorized transfer agent. Except as expressly provided in the Plan
or an Option Agreement, no adjustment shall be made for dividends
9
<PAGE>
or other rights for which the record date is prior to the date on which the
Participant's holding of such shares is so recorded.
Section 12. Effect of the Plan on Employment Relationship. Neither the Plan
nor any Option granted hereunder to a Participant shall be construed as
conferring upon such Participant any right to continue in the employ of (or
otherwise provide services to) the Company or any Subsidiary, or limit in any
respect the right of the Company or any Subsidiary to terminate such
Participant's employment or other relationship with the Company or any
Subsidiary, as the case may be, at any time.
Section 13. Amendment of the Plan. The Board of Directors may amend the
Plan from time to time as it deems desirable; provided, however, that, the Board
of Directors shall not amend the Plan in any manner that requires the approval
of stockholders of the Company pursuant to the Code, the certificate of
incorporation or by-laws of the Company, any stockholders or voting trust
agreement to which the Company is a party or Rule 16b-3 (if the Board of
Directors has determined that the Plan should comply with and be qualified under
Rule 16b-3), unless the required approval of stockholders is obtained within the
time specified. In any event, no amendment made after the date an Option is
granted shall adversely affect any right of the Participant with respect to such
Option without the written consent of such Participant.
Section 14. Expenses, Indemnity. (a) All expenses and liabilities incurred
by the Board of Directors in the administration of the Plan shall be borne by
the Company. The Board of Directors may employ attorneys, consultants,
accountants or other persons in connection with the administration of the Plan.
The Company, and its officers and directors, shall be entitled to rely upon the
advice, opinions or valuations of any such persons.
(b) No member of the Board of Directors or the Stock Option Committee shall
be liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan or any Option granted hereunder.
(c) Each member of the Board of Directors or the Stock Option Committee
acting in the administration of the Plan shall be indemnified and held harmless
by the Company from all claims, liabilities and expenses he or she may suffer
or incur by reason thereof, to the fullest extent permitted by the New Jersey
Business Corporation Act.
Section 15. Termination of the Plan. The Board of Directors may terminate
the Plan at any time. Unless the Plan shall theretofore have been terminated by
the Board of Directors, the Plan shall terminate ten years after the date of its
initial adoption by the Board of Directors. No Option may be granted hereunder
after termination of the Plan. The termination of the
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<PAGE>
Plan shall not alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
Section 16. Effective Date of the Plan. The Plan shall be effective as of
_________________, 1996, the date on which the Plan was adopted by the Board of
Directors of the Company, subject to approval (not later than 12 months after
the effective date of the Plan) by the holders of at least 51% of all classes of
capital stock of the Company present and voting at a meeting of the stockholders
of the Company. No Option shall be exercisable prior to the approval of the Plan
by stockholders.
11
KIWI INTERNATIONAL AIR LINES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
Section 1. PURPOSE.
The purpose of the KIWI International Air Lines, Inc. 1996 Employee Stock
Purchase Plan (the "Plan") is to promote the interests of KIWI International Air
Lines, Inc., a New Jersey corporation (the "company"), and all subsidiaries
thereof by providing an opportunity to selected employees, officers and
directors of the Company or any subsidiary thereof as of the date of the
adoption of the Plan or at any time thereafter, and consultants or advisors
rendering bona fide services to the Company or any subsidiary thereof, to
acquire Common Stock of the company. By encouraging such stock ownership, the
Company seeks to attract, retain and motivate such employees and persons and to
encourage such employees and persons to devote their best efforts to the
business and financial success of the Company.
Section 2. DEFINITIONS.
For purposes of the Plan, the following terms used herein shall have the
following meanings, unless a different meaning is clearly required by the
context.
"Award" shall mean an award of the right to purchase or otherwise acquire
Common Stock granted pursuant to the Plan.
"Award Agreement" shall mean a written agreement, contract or other
instrument or document evidencing an Award.
"Board of Directors" shall mean the Board of Directors of the Company.
"Book Value" of a share of Common Stock shall mean, as of any date, the
aggregate book value of all series of common stock of the Company, divided by
the total number of issued and outstanding shares of all series of common stock
of the Company as of such date, determined on the basis of the Company's audited
financial statements as of such date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Class A Common Stock" shall mean the Class A Common Stock, no par value,
of the Company, which is subject to an Award under this Plan, or the Class A
Common Stock, no par value, of the company, as a class, as the context may
require.
"Class C Common Stock" shall mean the Class C Common Stock, no par value,
of the Company, which is subject to an Award
<PAGE>
under this Plan, or the Class C Common Stock, no par value, of the company, as a
class, as the context may require.
"Common Stock" shall mean the Class A Common Stock and/or the Class C
Common Stock which is subject to awards granted under this Plan, or the Class A
Common Stock and/or the Class C Common Stock as separate classes or a single
class, as the context may require
"Disability" shall mean permanent and total disability within the meaning
of Section 22(e)(3) of the Code.
"Eligible Person" shall mean any Employee, director and officer of the
Company, and any consultant or advisor rendering bona fide services to the
Company or any Subsidiary.
"Employee" shall mean any person who is employed by the Company or any
Subsidiary, on a full-time or part-time basis.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock shall mean, as of any day,
the average of the last sale prices of sales of shares of Common Stock on all
national securities exchanges on which the Common Stock may at the time be
listed or, if there shall have been no sales on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on such day the Common Stock shall not be so listed, the last sale
price on the NASDAQ system on such day, or, if there shall have been no sales on
such day, the average of the representative bid and asked prices quoted in the
NASDAQ system as of 3:30 p.m., New York time, on such day, or, if on such day
the Common Stock shall not be quoted in the NASDAQ system, the average of the
high and low bid and asked prices on such day in the over-the-counter market as
reported by National Quotation Bureau Incorporated, or any similar successor
organization. If at any time the Common Stock is not listed on any national
securities exchange or quoted in the NASDAQ system or the over-the-counter
market, the Fair Market Value of the shares of Common Stock subject to an Award
shall be the Fair Market Value thereof determined by the Board of Directors in
its absolute discretion, exercised in good faith.
"Participant" shall mean any Eligible Person to whom an Award is granted
pursuant to the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, as amended, and any successor to
such Rule.
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"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Plan Committee" shall mean the committee of the Board of Directors
referred to in Section 5 hereof
"Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
capital stock in one of the other corporations in such chain.
"Transfer" shall mean sell, assign, transfer, pledge, convey or otherwise
dispose of, or subject to any lien, encumbrance or security interest of any
kind.
Section 3. ELIGIBILITY.
Subject to Section 6(a), Awards may be made to any Eligible Person. The
Board of Directors shall have the sole authority to select the Eligible Persons
to whom Awards are to be granted hereunder. No person shall have any right to
participate in the Plan. Any Eligible Person selected by the Board of Directors
for participation during any one period will not by virtue of such participation
have the right to be selected as a Participant for any other period.
Section 4. COMMON STOCK SUBJECT TO THE PLAN.
4.1. NUMBER OF SHARES. The total number of shares of Class A Common Stock
for which Awards may be granted under the Plan shall not exceed in the
aggregate three million four hundred thousand (3,400,000) shares (subject to
adjustment as provided in Section 8 hereof), and the total number of shares of
Class C Common Stock for which Awards may be granted under the Plan shall not
exceed in the aggregate one hundred thousand (100,000) shares (subject to
adjustment as provided in Section 8 hereof). If any shares of Common Stock
subject to an Award are forfeited prior to the time such shares are issued by
the Company to the Participant under the terms of the Award, such shares shall
again become available for grant pursuant to the Plan.
4.2 SHARES AVAILABLE. The shares of Common Stock that may be subject to
Awards granted under the Plan may be either authorized and unissued shares or
shares reacquired at any time and now or hereafter held as treasury stock, as
the Board of Directors may determine.
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<PAGE>
Section 5. ADMINISTRATION OF THE PLAN.
5.1 ADMINISTRATION BY BOARD OF DIRECTORS OR COMMITTEE. The Plan shall be
administered by the Board of Directors or, if established at any time by the
Board of Directors, by a comittee thereof, the members of which shall be
appointed by and serve at the pleasure of the Board of Directors (the "Stock
Plan Committee"). The Stock Plan Committee shall consist of two or more
persons, all of whom shall be "disinterested persons" within the meaning of Rule
16b-3, and once constituted, the Plan shall be thereafter be administered by the
Stock Plan Committee, for so long as the Board of Directors deems it desirable
for the Plan to comply with and qualify under Rule 16b-3. So long as the Plan is
administered in accordance with Rule 16b-3, persons serving or designated to
serve as members of the Committee shall not be granted Awards under the Plan. As
used herein, except in Sections 14 ("Amendment of the Plan"), 16 ("Termination
of the Plan") and 17 ("Effective Date of the Plan"), references to the Board of
Directors shall mean the Board of Directors or the Committee, whichever is then
acting with respect to the administration of the Plan.
5.2 INTERPRETATION. The Board of Directors shall have full authority to
interpret and construe the Plan and any provision thereof, any Award granted
under the Plan or any Award Agreement. The Board of Directors shall have the
authority to adopt, modify or rescind from time to time such rules and
regulations, not inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the purposes of the Plan.
5.3 FINALITY. The interpretation and construction by the Board of Directors
of any provision of the Plan or any rule or regulation adopted thereunder, or of
any Award or Award Agreement, shall be final and conclusive upon all parties.
5.4 AUTHORITY OF THE BOARD OF DIRECTORS. The Board of Directors shall have
the sole authority and discretion under the Plan to take the following actions,
in each case subject to and consistent with the provisions of the Plan: (i) to
select the Participants who are granted Awards under the Plan; (ii) to determine
the number of Awards and the time or times Awards shall be made; (iii) to
establish the terms, conditions, restrictions and limitations of any Award,
including without limitation, (A) the number of shares of Common Stock to be
covered by each Award; (B) the amount to be paid by a Participant to acquire
shares of Common Stock pursuant to an Award; (C) the form or the consideration
that may be used to purchase shares of Common Stock pursuant to any Award
(including, without limitation) the circumstances under which the Company's
issued and outstanding shares of Common Stock may be used by a Participant to
purchase the Common Stock subject to an Award and the circumstances under which
a Participant may elect to
4
<PAGE>
purchase shares pursuant to an Award by delivery of Participants promissory
note); (D) restrictions or limitations on the vesting of shares of Common Stock
subject to an Award, including by way of illustration and not limitation,
forfeiture and vesting provisions (which may be contingent upon the
Participant's continued employment by the Company or any Subsidiary, the
Participant achieving specified performance goals, the Company meeting specified
financial goals, a change of control of the Company, or other specified events)
and the conditions for the lapse or waiver of such restrictions or limitations,
(E) restrictions or limitations on the rights of a Participant as a holder of
shares of Common Stock acquired pursuant to an Award, including restrictions and
limitation on the right to vote or receive dividends or other distributions in
respect of such shares and (F) Transfer restrictions, including the conditions
upon which shares of Common Stock acquired pursuant to an Award may be
Transferred or shall be subject to repurchase by the Company or subject to a
right of first refusal of the Company (as well as the terms and conditions of
any such right of first refusal); (iv) to prescribe the form of any Award
Agreement, which not need be identical for each Participant; (v) to require that
any recipient of an Award become a party to any stockholders' or voting trust
agreement to which the Company or any subsidiary is a party; (vi) to modify or
accelerate the time at which any or all restrictions, limitations or conditions
imposed with respect to any shares of Common Stock subject to an Award will
lapse or waive any such restrictions, limitations or conditions; (vii) to
determine the Book Value or the Fair Market Value of the Common Stock for
purposes of the Plan and any Award or Award Agreement; and (viii) to determine
all other matters to be determined in connection with an Award and the
administration of the Plan.
Section 6. SPECIFIC TERMS AND CONDITIONS OF AWARDS. The Board of Directors
shall grant Awards to Participants on the following terms and conditions:
(a) Awards of Class A Common Stock shall be made only to Eligible Persons
who are Employees at the time of the Awards and Awards of Class C Common Stock
shall be made only to Eligible Persons who are not Employees at the time of the
Award.
(b) The terms and conditions of each Award granted under the Plan shall be
specified by the Board of Directors and set forth in an Award Agreement between
the Company and the Participant in such form as the Board of Directors shall
approve. The terms and conditions of any Award granted hereunder need not be
identical to those of any other Award granted hereunder. No Participant shall
have any rights to or interest in an Award until it has executed and delivered
an Award Agreement with respect to such an Award.
(c) Shares of Common Stock subject to an Award shall be subject to such
vesting conditions, restrictions on Transfer and
5
<PAGE>
other restrictions, limitations and conditions as the Board or Directors may
impose, which may lapse separately or in combination at such times, or in
installments or otherwise, as the Board of Directors shall determine at the time
of grant or thereafter.
(d) Except as otherwise determined by the Board of Directors at the time of
grant or thereafter, upon termination of employment (as determined by criteria
established by the Board of Directors) prior to the lapse or waiver of all
vesting conditions imposed on an Award, shares of Common Stock that are at the
time subject thereto shall be forfeited upon such terms and conditions as may be
contained in the Award Agreement pursuant to which such Award was granted;
provided however, that the Board of Directors may provide by rule, regulation or
in any Award Agreement that such conditions shall be waived in whole or in part
in the event of terminations resulting from specified causes, and in other case&
the Board of Directors may waive in whole or in part any restrictions or
conditions on such shares.
Section 7. TRANSFER RESTRICTIONS.
Until all restrictions, limitations and conditions imposed on any Award
have lapsed in accordance with the terms of the Plan and the Award Agreement by
which such Award was granted, the shares of Common Stock subject to such Award
shall not be Transferred otherwise than by will or the laws of descent and
distribution, except to the Company under the terms of the Plan or such Award
Agreement, provided, however, that a Participant may, in the manner established
by the Board of Directors, designate a beneficiary or beneficiaries to exercise
the rights of the Participant with respect to the Award upon the death of the
Participant. A beneficiary, guardian, legal representative or other person
claiming any rights under the Plan from or through a Participant shall be
subject to all the terms, conditions, restrictions and limitations imposed by
the Plan and any Award Agreement applicable to such Participant, as well as any
additional restrictions or limitations deemed necessary or appropriate by the
Board of Directors.
Section 8. ADJUSTMENTS.
In the event that, after the adoption of the Plan by the Board of
Directors, there shall be any change in the outstanding shares of Common Stock
by reason of merger, consolidation, reorganization, recapitalization, stock
split, combination or exchange of shares or declaration of dividends payable in
Common Stock, the Board of Directors shall appropriately adjust the number of
shares of Common Stock for which Awards may be granted under the Plan. If the
Company shall not be the surviving corporation in any merger, consolidation or
reorganization, shares of Common Stock acquired pursuant to an Award which are
converted into common stock or other securities of the surviving corporation
shall be subject
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<PAGE>
to the same terms, conditions and restrictions as were applicable to such shares
of Common Stock immediately prior to conversion, except to the extent that such
terms, conditions and restrictions were modified as a result of such merger,
consolidation or reorganization or have lapsed. In the event that at any time an
Award is outstanding, the Company should make an extraordinary dividend or other
extraordinary distribution (whether in cash, property, securities or any
combination thereof) with respect to shares of Common Stock, or repurchase
shares of Common Stock pursuant to a tender offer or exchange offer subject to
Section 13(e) of the Exchange Act or any other offer available to substantially
all holders of the Common Stock (other than repurchases of shares of Common
Stock by the Company in open market transactions), the Board or Directors may
consider the economic impact of such share repurchases and may, in its
discretion, make such adjustments as it deems appropriate under the
circumstances.
Section 9. WITHHOLDING.
To the extent that the Company is required to withhold any Federal, state
or local taxes in respect of any Award granted hereunder or in respect of any
shares of Common Stock acquired pursuant to an Award, whether upon the lapse or
waiver of restrictions thereon or as a result of any election made by a
Participant pursuant to Section 83(b) of the Code or for any other reason, the
Company shall deduct from any payments or any kind otherwise due to such
Participant the aggregate amount of such Federal, state or local taxes required
to be so withheld or, if such payments are insufficient to satisfy such Federal,
state or local taxes, or if no such payments are due or to become due to such
Participant, then, such Participant will be required to pay to the Company, or
make other arrangements satisfactory to the Company regarding payment to the
Company of, the aggregate amount of any such taxes. At the Company's option and
only to the extent permitted by applicable law, a Participant may satisfy a
withholding tax payment obligation by electing to have the Company or any
Subsidiary apply outstanding shares of Common Stock owned by the Participant,
including shares acquired by it pursuant to an Award (provided that all
restrictions and limitations on such shares shall have lapsed or been waived),
against the taxes required to be withheld, and the shares so applied shall be
that number of shares of Common Stock the Fair Market Value of which is equal to
the tax required to be withheld (determined on the date that the amount of
withholding tax is to be determined). All matters with respect to the amount and
payment of taxes to be withheld in respect of any such compensation income shall
be determined by the Board of Directors in its sole discretion.
Section 10. EVIDENCE OF AWARDS; STOCK CERTIFICATES.
Awards may be evidenced in any manner the Board of Directors deems
appropriate, including without limitation, Award
7
<PAGE>
Agreements, book entry registration or the issuance of stock certificates.
Certificates evidencing shares of Common Stock acquired pursuant to an Award
shall bear an appropriate legend referring to the restrictions imposed on such
Stock and such other matters as the Board of Directors may determine. The Board
of Directors may require that stock certificates or other instruments evidencing
the shares of Common Stock issued in respect of Awards shall be held by the
Company or other person, until all restrictions, limitations and conditions
thereon shall have lapsed.
Section 11. COMPLIANCE WITH SECURITIES LAWS.
If the shares of Common Stock that have been issued to a Participant
pursuant to the Plan have not been registered under the Securities Act pursuant
to an effective registration statement, such Participant, if the Board of
Directors deems it advisable, may be required to represent and agree in writing
that (i) no such Shares acquired by the Participant pursuant to the Plan will be
sold except pursuant to an effective registration statement under the Securities
Act or pursuant to an exemption from registration thereunder and (ii) such
Participant is acquiring such shares for his or her own account and not with a
view to the distribution thereof. The company shall have the right to require
that any certificate evidencing Common Stock issued pursuant to the Plan bear
any restrictive legend required by law, the Plan or the Award Agreement relating
to such Award. The company may, but shall not be required to, cause shares of
common Stock acquired pursuant to an Award to be registered under the Securities
Act or applicable state securities laws or to be listed or admitted to trading
on any established securities exchange or market in which the Common Stock is
listed or traded.
Section 12. RIGHTS AS STOCKHOLDER.
A Participant shall have absolute ownership of such shares of Common Stock,
including the right to vote and receive dividends declared thereon, from the
date on which the Participant's holding of shares of Common Stock is entered
upon the records of the Company or its duly authorized transfer agent, subject
to the terms, conditions, limitations and restrictions set forth in the Plan and
in the Award Agreement relating to such Award. Except as expressly provided in
the Plan or an Award Agreement, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date on which the
Participant's holding of shares is so recorded.
Section 13. EFFECT OF THE PLAN ON EMPLOYMENT RELATIONSHIP.
Neither the Plan nor any Award granted hereunder to a Participant shall be
construed as conferring upon such Participant any right to continue in the
employ of (or otherwise provide
8
<PAGE>
services to) the Company or any Subsidiary, or limit in any respect the right of
the Company or any Subsidiary to terminate such participant's employment or
other relationship with the Company or such Subsidiary, as the case may be, at
any time.
Section 14. AMENDMENT OF THE PLAN.
The Board of Directors may amend the Plan from time to time as it deems
desirable, provided, however, that, if required by (i) the certificate of
incorporation or by-laws of the Company, (ii) any stockholders' or voting trust
agreement to which the Company is a party or (iii) Rule 16b-3 (if the Board of
Directors has determined that the Plan should comply with and be qualified under
Rule 16b-3), the Board of Directors shall not amend the Plan without the
approval of stockholders, to the extent required thereby. No amendment made
after the date an Award is made shall adversely affect any right of a
Participant with respect to such Award without the written consent of such
Participant.
Section 15. EXPENSES INDEMNITY.
(a) All expenses and liabilities incurred in the administration of the Plan
shall be borne by the Company. The Board of Directors may employ attorneys,
consultants, accountants or other persons in connection with the administration
of the Plan, and shall be entitled to rely upon the advice, opinions or
valuations of any such persons.
(b) No member of the Board of Directors shall be liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or any Award granted thereunder.
(c) Each member of the Board of Directors or the Stock Plan Committee
acting in the administration of the plan shall be indemnified by the Company
from all claims, liabilities and expenses he or she may suffer or incur by
reason thereof, to the fullest extent permitted by the New Jersey Business
Corporation Act.
Section 16. TERMINATION OF THE PLAN.
The Board of Directors may terminate the Plan at any time. Unless the Plan
shall theretofore have been terminated by the Board of Directors, the Plan shall
terminate ten years after the date of its initial adoption by the Board of
Directors. No Award may be granted hereunder after termination of the Plan. The
termination of the Plan shall not alter or impair any rights or obligations
under any Award theretofore granted under the Plan.
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Section 17. EFFECTIVE DATE OF THE PLAN.
The Plan was adopted by the Board of Directors on April 23, 1996 and shall
be effective as of May 1, 1996, subject to approval on or before May 1, 1997 by
the holders of at least 51% of all classes of capital stock of the Company
present and voting at a meeting of the stockholders of the Company for such
purpose; provided, however, that the failure to obtain such stockholders'
approval within the period specified shall not affect the validity of any Award
granted prior to the earlier to occur of: (i) the date of the meeting at which
stockholders take action to disapprove the Plan, or (ii) May 1, 1997, or any
Common Stock issued pursuant to any such Award.
* * * * *
10
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF (THE
"UNDERLYING SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE
TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, UNLESS EITHER THIS NOTE OR THE
UNDERLYING SHARES HAVE BEEN REGISTERED UNDER SAID ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT IS AVAILABLE. IF THIS NOTE OR THE UNDERLYING SHARES ARE
TO BE SOLD OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENT, THE COMPANY MAY REQUIRE A WRITTEN OPINION OF COUNSEL, SATISFACTORY
TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED AND
THAT SUCH TRANSFER WILL NOT VIOLATE SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.
NOTE NO. ___________
KIWI INTERNATIONAL AIR LINES, INC.
10% Convertible Unsecured Note due October 15, 1996
$_______________________ __________________, 1996
KIWI INTERNATIONAL AIR LINES, INC., a New Jersey corporation (herein called
the "Company"), for value received, hereby promised to pay to
______________________, or registered assigns, the principal sum of
_____________________________ Dollars _________ on October 15, 1996 ("Maturity
Date"), together with interest on the amount of said principal sum remaining
from time to time unpaid at the rate of ten percent (10%) per annum from the
date hereof until the principal hereof shall be paid in full, said interest to
be payable monthly on the first day of each calendar month commencing July 1,
l996. Such principal and interest shall be payable at the principal office of
the Company in Newark, New Jersey and shall be sent to the Holder hereof at the
registered address of such Holder as reflected in the registry books maintained
by the Company.
This Note is one or a duly authorized issue of Notes of the Company
designated as its "10% Convertible Unsecured Notes due October 15, 1996" (herein
called the "Notes"), limited in aggregate principal amount to $2,000,000 as
described in the Confidential Private Placement Memorandum originally dated June
5, 1996.
1. CONVERSION
(a) Conversion at Holder's Option. Subject to and upon compliance with the
provisions of this Note, at the option of the Holder hereof (hereinafter, a
"Holder's Conversion"), this Note or any portion of the principal amount hereof
may at any time on or before the payment of such Note in full be converted at
the principal amount thereof, or of such portion thereof, into fully paid and
non-assessable shares of Common Stock of the
<PAGE>
Company at the converion price, determined as hereinafter provided, in effect
at the time of conversion.
(b) Conversion at Company's Option. Subject to and upon compliance with the
provisions of this Note, at the option of the company (hereinafter, a "Company
Conversion"), concurrently with or at any time after the receipt by the Company
in cash of at least $10,000,000 of gross proceeds in the aggregate from offers
and sales of preferred stock or other equity securities from one or more private
institutional investors, all, but not less than all of the principal amount
hereof may be converted into fully paid and non-assessable shares of Common
Stock of the Company at the conversion price, determined as hereinafter
provided, in effect at the time of conversion. If, at the time of conversion of
its Note, the Holder is an employee of the Company, then the Common Stock to be
issued to such Holder shall be Class A Common Stock. If, at the time of
conversion of its Note, the Holder is not an employee of the Company, then the
Common Stock to be issued to such Holder shall be Class C Common Stock.
(c) Conversion Price. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price"), whether a
Holder's Conversion or a Company Conversion, shall be one dollars ($1.00) per
share, subject to adjustment as set forth herein.
(d) Procedure for Conversion.
(i) Holder's Conversion. In order to exercise the Holder's Conversion
privilege, the Holder hereof shall surrender this Note to the Company at the
principal office of the Company, accompanied by written notice to the Company
that such Holder elects to convert the same (or the portion thereof to be
converted) in the form attached hereto. As promptly as practicable after the
receipt of such notice and surrender of such this Note, the Company shall issue
and deliver to such Holder a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of this Note (or spacified
portion hereof) registered in the name of such Holder. Such conversion shall be
deemed to have been effected forthwith when such notice shall have been received
by the Company and the Note shall have been surrendered; and at such time the
person in whose name such stock shall be issuable shall be deemed to have become
the holder of record of the shares represented thereby, whether or not the stock
transfer books of the Company shall then be closed. Thereupon, but only after
the payment of any accrued interest on the portion of this Note which is
converted the rights of the Holder of this Note as such Holder shall cease (but
only to the extent of the portion thereof converted, if only a portion thereof
is converted).
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(ii) Company Conversion. Upon, or at any time after, the certification in
writing, by the President or Chief Financial Officer of the Company that the
Company has received in cash at least $10,000,000 of gross proceeds, in the
aggregate, from offers and sales of preferred stock or other equity securities
from one or more private institutional investors, the Company may effect a
Company Conversion on the date and at the time specified in any resolution of
the Board of Directors (the "Company Conversion Date"). As promptly as
practicable after the Company Conversion Date, the Company shall give written
notice to the Holder hereof that the Company Conversion has occurred and
specifying the Company Conversion Date, and issue and deliver to the Holder a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of this Note (or specified portion hereof)
registered in the name of such Holder. The Company may withhold delivery of such
certificate or certificates from the Holder pending surrender and delivery by
the Holder to the Company of this Note. The Company Conversion shall be deemed
to have been effected on and as of the Company conversion Date; and at such time
the person in whose name such stock shall be issuable shall be deemed to have
become the holder of record of the shares represented thereby, whether or not
the stock transfer books of the Company shall then be closed. Thereupon, but
only after the payment of any accrued interest on the portion of this Note which
is converted, the rights of the Holder of this Note as such Holder shall cease
(but only to the extent of the portion thereof converted, if only a portion
thereof is converted).
(e) No Fractional Shares; Accrued Interest. No fractional shares shall be
issued upon conversion of this Note and any portion of the principal hereof
which should otherwise be convertible into a fractional share shall be paid in
cash. Interest accrued on this Note (or the portion of this Note which is
converted) shall become due and payable on the date of conversion. No payment or
adjustment shall be made upon any conversion on account of any dividends on the
Common Stock issued upon such conversion. In the case of a Holder's Conversion,
if this Note is converted in part only, upon such conversion the Company shall
execute and deliver to the Holder hereof, at the expense of the Company, a new
Note, dated as of the last date to which interest on this Note shall have been
paid, in principal amount equal to the unconverted portion of this Note.
(f) Adjustment to Conversion Price.
(i) Stock Splits. Reverse Splits and Stock Dividends. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, or shall declare a dividend upon stock of the Company
payable in Common Stock, the conversion price in effect immediately prior to
such subdivision or declaration shall be proportionately reduced; and,
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<PAGE>
conversely, in case the outstanding shares of Common Stock of the Company shall
be combined into a smaller number of shares, the conversion price in effect
immediately prior to such combination shall be proportionately increased.
(ii) Reorganization. If any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company with
another entity, or the transfer or the sale of all or substantially all of its
assets to another entity shall be effective, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the Holder of this Note shall
thereafter have the right to receive upon the basis and upon the terms and
conditions herein specified and in lieu of the shares of Common Stock of the
Company immediately theretofore receivable upon the exercise of such conversion
rights represented by this Note, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore receivable upon the exercise of the conversion
rights represented by this Note, had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the Holder
of this Note to the end that the provisions (including without limitation
provisions for adjustment of the conversion price and of the number of shares
receivable upon the conversion of this Note) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise thereof. The Company shall not effect
any such consolidation, merger or sale, unless prior to the consummation thereof
the successor entity (if other than the Company) resulting from such
consolidation or merger or the entity acquiring such assets shall assume by
written instrument executed and mailed to the Holder of this Note the obligation
to deliver to each such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to receive
upon conversion.
(iii) Notice of Adjustment. Upon any adjustment or other change relating to
the conversion price or the securities upon conversion of this Note, then and in
each such case the Company shall give written notice thereof, by certified or
registered mail, postage prepaid to the Holder of this Note, which notice shall
state the conversion price resulting from such adjustment and the increase or
decrease in the number or other denomination of securities receivable at such
price upon the conversion of such Note, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4
<PAGE>
(g) Company to Reserve Common Stock for Issuance.
The Company covenants that it will at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued capital stock,
for the purpose of effecting the conversion of this Note, the full number of
shares of Common Stock then issuable upon the conversion of this Note and all
other options, warrants and convertible notes and securities from time to time
outstanding.
(h) Common Stock to Be Validly Issued.
The Company covenants that all shares of Common Stock which may be issued
upon the conversion of this Note will, upon issuance, be validly issued, fully
paid and nonassessable, and free from all taxes (other than taxes payable in
respect of the transfer of any such shares), liens and charges with respect to
the issue thereof; and without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such action
as may be requisite to assure that the par value per share, if any, of the
Common Stock is at all times equal to or less than the then effective conversion
price per share of the Common Stock issuable upon conversion of this Note.
(i) Converted Notes to be Cancelled.
The Company covenants that to the extent that this Note is converted they
shall be cancelled and may not be redelivered.
2. EVENTS OF DEFAULT
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any interest upon this Note when it
becomes due and payable, and continuance of such default for a period or 30
days; or
(b) default in the payment of the principal of any Note at maturity;
or
(c) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) decree or order adjudging the
Company a bankrupt or insolvent, or approving
5
<PAGE>
as properly filed a petition seeking reorganization, arrangement,
adjustment, composition of or in respect of the Company under an applicable
Federal or State law, or appointing a custodian, receiver, liquidator,
assignee trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days; or
(d) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by the Company to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Company, or the filing by the Company of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State law,
or the consent by the Company to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
of any substantial part of its property, or the making by the Company of an
assignment for the benefit of creditors, or the admission by the Company in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company in furtherance of any such
action.
3. ACCELERATION OF MATURITY.
If an Event of Default specified in described in paragraph 3(c) or 3(d)
above occurs and is continuing, then in every such case the entire principal
amount of this Note, and all accrued and unpaid interest hereon, shall
automatically become immediately due and payable. If any other Event of Default
occurs and is continuing, the Holder of this Note may declare the principal of,
and accrued interest on, this Note to be due and payable immediately, by a
notice in writing to the Company, and upon any such declaration, such principal
and interest shall immediately due and payable.
4. MISCELLANEOUS.
No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional,
6
<PAGE>
to pay the principal of and interest on this Note at the times, places and rate
herein prescribed or to convert this Note.
The Company may deem and treat the person in whose name this Note is
registered as the absolute owner hereof for the purpose of receiving payment and
for all other purposes, and the company shall not be affected by any notice to
the contrary.
The Notes shall be governed by and construed in accordance with the law of
the State of New Jersey.
IN WITNESS WHEREOF, KIWI INTERNATIONAL AIR LINES, INC. has caused this Note
to be signed in its name by its President or one of its Vice Presidents and
attested by its Secretary or one of its Assistant Secretaries.
ATTEST: KIWI INTERNATIONAL AIR LINES, INC.
By:
- - - ------------------------------- -----------------------------------
James E. Player, Secretary John G. Murphy, President
7
<PAGE>
CONVERSION NOTICE
The undersigned Holder of this Note hereby irrevocably exercises the option
to convert this Note into shares of Common Stock in accordance with the terms of
this Note and directs that such shares be registered in the name of and
delivered to the undersigned (or, if the undersigned is an employee of the
Company, registered and delivered to the Trustees under the Voting Trust
Agreement), and that a check in payment for any fractional share be delivered to
the undersigned.
The undersiqned (check one):
[ ] is
[ ] is not
an employee of the Company.
----------------------------------
Dated:____________________ Signature
HOLDER
Please print name and address of
Holder:
----------------------------------
Name
----------------------------------
Address
----------------------------------
----------------------------------
Social Security or other Taxpayer
Identification Number, if any
N-1
<PAGE>
[Individual Acknowledgement]
STATE OF ________________
SS.:
COUNTY OF _______________
On this ______ day of _____________, 19__, before me, the undersigned,
personally appeared ________________________, who, I am satisfied, is the person
who signed the foregoinq Conversion Notice, and he or she did acknowledge under
oath that he or she signed and delivered the same as his or her voluntary act
and deed, for the uses and purposes expressed in the instrument.
------------------------------
Notary Public
[Entity Acknowledgement]
STATE OF ________________
SS.:
COUNTY OF _______________
On this ________ day of _____________ 19__, before me, the undersigned,
personally appeared _____________________________, the
______________________________ of ____________________________, who, I am
satisfied, is the person who signed the foregoing Conversion Notice, and he or
she did acknowledge under oath that he or she signed and delivered the same in
his or her capacity as such officer of such entity, that he or she was
authorized to execute the same on behalf of such entity, and that the foregoing
instrument is the voluntary act and deed of such entity, made by virtue of
proper authority.
------------------------------
Notary Public
N-2
<PAGE>
Form of Acknowledgement and Acceptance of Voting Trust Agreement
and Shareholders' Agreement.
[To Be Executed if the Holder is
an Employee of the Company]
In connection with the issuance to the undersigned of Class A Common Stock
of KIWI International Air Lines, Inc. (the "Company"), I hereby acknowledge the
applicability of and expressly agree to be bound by the terms of (a) that
certain Voting Trust Agreement dated October 1, 1992 among the Voting Trustees
and all shareholders of Class A and Class B Common Stock of the Company (the
"Voting Trust Agreement"), and (b) that certain Shareholders' Agreement dated
October 1, 1992 among the Company and shareholders of Class A and Class B Common
Stock of the Company (the "Shareholders' Agreement").
The terms of the Voting Trust Agreement expressly require that as a holder
of Class A Common Stock of the Company, I assign and deliver all certificates
evidencing such shares to the Trustees of the Voting Trust. I do hereby assign
the same to such Trustees, and I authorize and direct the Company to instruct
the Company's stock registrar and transfer agent to deliver stock certificates
evidencing such shares to the Voting Trustees.
I further acknowledge that I have received a copy of the Voting Trust
Agreement and of the Shareholders' Agreement and have read and understand the
terms thereof.
----------------------------------
Dated:____________________ Signature
HOLDER
Please print name and address of
Holder:
----------------------------------
Name
----------------------------------
Address
----------------------------------
----------------------------------
Social Security or other Taxpayer
Identification Number, if any
N-3
