SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 1996
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KIWI INTERNATIONAL AIR LINES, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 0-26106 22-3158467
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Hemisphere Center, Routes 1 & 9 South, Newark, New Jersey 07114
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(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 645-8401
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Item 1. POSSIBLE FUTURE CHANGE IN CONTROL OF REGISTRANT
On July 1, 1996, the Company entered into a Convertible Note Purchase
and Option Agreement (the "Agreement") with Recovery Equity Investors II, L.P.,
a California based investment fund ("REI"), pursuant to which REI purchased
$2,000,000 principal amount of the Company's 6% Convertible Unsecured Notes Due
March 15, 1997 ("Convertible Notes") for a purchase price of $1,995,000. The
Convertible 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) after approval by the shareholders of the Company of an Amended
and Restated Certificate of Incorporation (the "Restated Certificate") and the
filing of the Restated Certificate with the New Jersey Secretary of State,
convertible preferred stock having the rights, designations and preferences
summarized below ("Convertible Preferred Stock"), at a conversion price of $1.00
per share.
Pursuant to the Agreement, two persons designated by REI have been
elected to the Company's 15-member Board of Directors. If REI acquires
Convertible Preferred Stock, the terms thereof will provide for continued Board
representation described below. If and when a Qualifying Public Offering (as
such term is defined below) occurs, the Convertible Preferred Stock will, except
in certain circumstances, automatically convert into Class C Common Stock.
Thereafter REI and certain affiliates of REI who may hold Class C Common Stock
issued upon conversion of Convertible Preferred Stock ("Conversion Shares"),
shall have a nonassignable right to elect one director for each 10% of the total
outstanding shares of Class C Common Stock represented by the Conversion Shares
held by REI and its affiliates, but no more than 3 directors.
Under the Agreement, REI purchased for $5,000 options to invest an
additional $8 million in the Company no later than March 15, 1997, consisting
of: (i) an option to purchase, exercisable on or before December 31, 1996, an
additional $2 million principal amount of Convertible Notes (the "Additional
Convertible Notes") for a purchase price of $2 million, and (ii) an option to
purchase, exercisable 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
conversion price on both the Additional Convertible Notes and the Convertible
Preferred Stock is also $1.00 per share, subject to certain adjustments.
If REI immediately converted its Convertible Notes, it would own 2
million shares of Class C Common Stock, representing approximately 34.3% of the
combined voting power of all classes of voting Common Stock which would then be
outstanding. A Voting Trust under which the voting trustees now have the power
to vote all 2,009,208 shares of the Company's Class A Common Stock would in such
case represent approximately 34.4% of the combined voting power of all classes
of voting stock. Assuming exercise of all 3,216,676 outstanding warrants to
purchase Class A or Class C Common Stock, and the issuance of 950,000 shares
issuable upon conversion of other outstanding convertible notes, REI's
percentage ownership upon immediate conversion would be 20% of the combined
voting power all classes of voting stock, and the Voting Trust would have the
right to vote shares representing approximately 35.4% of the combined voting
power of all classes of voting stock.
The Voting Trust expires December 31, 1997 and if the Restated
Certificate required by the Agreement is approved by the Company's stockholders,
all shares of Class A Common Stock
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will automatically convert into an equivalent number of shares of Class C Common
Stock on January 1, 1998. If and when those events occur, the Class A Common
Shares will no longer be voted as a block, and the holders of Class A Common
Stock will no longer have the right to elect a majority of the Board of
Directors from time to time.
Assuming the full $10 million is invested by REI and all Convertible
Notes are subsequently converted by REI into stock, REI would own 10 million
voting shares of the Company. REI's interests would represent approximately
72.3% of the combined voting shares of all classes, and approximately 55.6% of
the combined voting shares of all classes, assuming exercise of all 3,216,676
outstanding warrants to purchase Class A or Class C Common Stock, and the
issuance of 950,000 shares issuable upon conversion of other outstanding
convertible notes.
Under the Agreement, the Company is obligated to seek shareholder
approval at its 1996 Annual Meeting, expected to occur in August, 1996, of the
Restated Certificate which would provide, among other things, the following
changes:
(a) the authorization of 12,000,000 shares of Convertible
Preferred Stock having rights, designations and preferences
which can be summarized as follows:
(1) Dividends - the right to participate pari passu with
holders of Common Shares in dividends and other
distributions, if any;
(2) Redemption - (i) the right of the holders, at any
time after August 1, 2001 (or earlier upon a change
in control or certain other fundamental corporate
transactions), if the Company has not theretofore
conducted a public offering of its securities in
which the Company receives at least $15,000,000 of
gross offering proceeds (a "Qualifying Public
Offering") to have the Company redeem the shares of
Convertible Preferred stock at a price which is the
greater of the original issue price of the shares or
the fair market value of such shares, and (ii) the
right of the Company, at any time after August 1,
2002 if the Company has not theretofore conducted a
Qualifying Public Offering, to redeem the shares of
Convertible Preferred Stock at the price set forth
above;
(3) General Voting Rights - the right to vote on all
matters submitted to vote on all matters submitted to
a vote by the Common Stockholder on an as-converted
basis (except the election of directors, which is
discussed below);
(4) Class Voting Rights - the right to vote as a class on
certain corporate matters such as mergers,
consolidations sales of substantially all of the
Company's assets, the issuance of senior securities,
and any amendments to the Certificate of
Incorporation changing the rights, designations and
preferences of such preferred stock;
(5) Conversion - (i) the right to convert such preferred
stock, at the holder's option into Class C Common
Stock of the Company on a one for one basis, subject
to adjustments, and (ii) the automatic conversion of
such
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shares into Class C Common Stock of the Company
upon the occurrence of a Qualifying Public Offering;
(6) Preemptive Rights - the preemptive right to purchase
shares of common or preferred stock offered and sold
by the Company in private transactions (excluding
shares offered and sold under certain employee
benefit plans);
(7) Liquidation Preference - In the event of a
liquidation of the Company, the holders of the
Convertible Preferred Stock will be entitled to
receive from the assets of the Company, before
distribution of such assets to holders of Common
Stock, an amount equal to the price per share at
which such Convertible Preferred Stock was originally
issued, adjusted for stock splits or combinations, if
any; and
(8) Representation on Board of Directors - (i) from the
time Convertible Preferred Stock is originally issued
until January 1, 1998, the holders of Convertible
Preferred Stock shall be entitled to elect two
members of the Board of Directors, and (ii) from
January 1, 1998 until a Qualifying Public Offering
has occurred, the holders of Convertible Preferred
Stock shall be entitled to elect one-third of the
members of the Board of Directors.
(b) the elimination of an unquantified liquidation preference of
Class C Common shares over Class A Common and Class B Common
shares;
(c) the elimination of Class B and Class D Common Stock (of which
no shares have heretofore been issued) and therefore a
conversion feature of Class C Common stock, under which
outstanding shares of Class C Common convert automatically to
shares of Class B Common if the holder thereof becomes
employed by the Company, and a concurrent issuance of an
additional $1500 worth of Class B Shares as a "bonus" to such
holder;
(d) the automatic conversion of all issued and outstanding shares
of Class A Common Stock into Class C Common Stock effective
January 1, 1998, immediately following the expiration of the
Voting Trust on December 31, 1997.
Under the terms of the Agreement and the Restated Certificate,
limitations may be imposed on REI's ability to convert Convertible Notes or
purchase Convertible Preferred Stock if the issuance of shares of Class C Common
Stock or Convertible Preferred Stock, as the case may be, would result in a
breach of any United States statutory or United States Department of
Transportation regulatory restrictions on foreign ownership or control of the
Company or its securities, which breach would result in the loss of the
Company's operating certificates or authorities (such statutory and regulatory
restrictions being called collectively "Foreign Ownership Restrictions").
Generally, Foreign Ownership Restrictions currently in effect require that
persons who are not "citizens of the United States" for the purpose of such
Foreign Ownership Restrictions ("U.S. Citizens") in the aggregate, not own more
than 25% of the voting securities of a United States air carrier such as the
Company, that the President and two-thirds or more of the board of directors and
other managing officers of the United States air carrier be U.S. Citizens and
that persons who are not U.S. Citizens not otherwise have the ability to exert
significant
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control over the United States air carrier. REI, although a Delaware limited
partnership , as a result of the ownership of certain of its limited partnership
interests, might not currently be considered to be a U.S. Citizen. Accordingly,
REI's right to convert Convertible Notes and purchase Convertible Preferred
Stock would be subject to the limitations described above. Pursuant to the
Purchase Agreement, the Company has agreed to limit ownership of its equity
securities by persons other than REI who are not U.S. Citizens to not more than
10% of its total outstanding equity.
The terms of the Convertible Notes and the terms of the Convertible
Preferred Stock both prohibit the Company from (a) issuing any equity
securities, or any rights, options or warrants to acquire any equity securities
that are senior to, or (except in certain circumstances) pari pasu with, the
Convertible Preferred Stock, (b) prior to the termination of the Voting Trust
Agreement (as defined below), except in certain circumstances, incurring more
than an additional aggregate $1,000,000 of indebtedness for borrowed money
(other than refinancing of debt outstanding on July 1, 1996) unless the
Company's ratio of "Earnings Before Fixed Charges and Taxes" to "Fixed Charges"
on a pro forma basis and based on the Company's annualized performance over the
preceding six months is 1.25 to 1 or greater and (c) engaging in any merger or
consolidation, liquidation or sale or other disposition of all or substantially
all of its assets.
In addition, the occurrence of a "Change of Control" or a "Material
Sale Transaction" will constitute an event of default under the Convertible
Notes and require, at the holder's option, the redemption of outstanding shares
of Convertible Preferred Stock. For the purpose of the Convertible Notes and the
Convertible Preferred Stock, a "Change of Control" will be deemed to have
occurred upon the acquisition by an individual or group of 40% or more of the
combined voting power of the Company's outstanding voting securities or if the
Company's current Directors or approved successors cease to constitute a
majority of the Board of Directors. A "Material Sale Transaction" is a
transaction which has not been approved by a majority of the directors
designated by REI and then serving on the Company's Board of Directors involving
a sale or other disposition by the Company of 25% or more of its aircraft fleet
or operational rights at any airport (or group of airports within any 12-month
period) representing 25% or more of its gross revenues for the preceding 12
months.
The Company disclaims any change in control occurring by virtue of the
offer and sale of $2,000,000 principal amount of the Convertible Notes to REI
pursuant to the Agreement. If REI exercises its options under the Agreement to
purchase additional securities, it may result at a subsequent date in a change
in control of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits
(99) The Convertible Note Purchase and Option Agreement
(the "Agreement") with Recovery Equity Investors II,
L.P. is incorporated herein by reference to Exhibit 1
to the Schedule 13D filed by Recovery Equity
Investors II, L.P., Recovery Equity Partners II,
L.P., Joseph J. Finn-Egan and Jeffrey A. Lipkin with
the Commission on July 11, 1996.
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SIGNATURE
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 hereunto duly authorized.
DATE: July 12, 1996
REGISTRANT: KIWI INTERNATIONAL AIR LINES, INC.
By: /s/ JAMES E. PLAYER
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James E. Player
Vice President and
Chief Financial Officer
