<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4522 75-2564006
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
1515 WEST 20TH STREET
P.O. BOX 612787
DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS 75261
(214) 456-2200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
M. TOM CHRISTOPHER
CHIEF EXECUTIVE OFFICER
1515 WEST 20TH STREET
P.O. BOX 612787
DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS 75261
(214) 456-2200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies of communications to:
MICHAEL M. BOONE STEPHEN A. OPLER
GREG R. SAMUEL JOEL J. HUGHEY
HAYNES AND BOONE, LLP ALSTON & BIRD
3100 NATIONSBANK PLAZA ONE ATLANTIC CENTER
901 MAIN STREET 1201 WEST PEACHTREE STREET
DALLAS, TEXAS 75202-3789 ATLANTA, GEORGIA 30309-3424
(214) 651-5000 (404) 881-7000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is to be made pursuant to Rule 434, please
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........ 3,450,000 shares $16.00(2) $55,200,000(2) $19,034.48
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</TABLE>
(1) Includes 450,000 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for purposes of calculation of the registration fee, in
accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
KITTY HAWK, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 REGISTRATION STATEMENT
(PART I) ITEM NO. AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
---------------------------------------------------- -----------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Forepart of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; The Company;
Risk Factors
4. Use of Proceeds..................................... Prospectus Summary; Use of
Proceeds; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations
5. Determination of Offering Price..................... Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution............................................ Risk Factors; Dilution
7. Selling Security Holders............................ Management; Principal Stockholders
and Selling Stockholder; Certain
Transactions
8. Plan of Distribution................................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered.......... Description of Capital Stock
10. Interests of Named Experts and Counsel.............. *
11. Information with Respect to Registrant.............. Prospectus Summary; The Company;
Risk Factors; Use of Proceeds;
Dividend Policy; Dilution;
Capitalization; Selected
Consolidated Financial and
Operating Data; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business;
Management; Certain Transactions;
Principal Stockholders and
Selling Stockholder; Description
of Capital Stock; Shares Eligible
for Future Sale; Additional
Information
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... *
</TABLE>
- ---------------
* Such item is inapplicable, or the answer thereto is in the negative and is
omitted from the Prospectus.
<PAGE> 3
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED JULY 17, 1996
PROSPECTUS
3,000,000 SHARES
[KITTY HAWK, INC. LOGO]
KITTY HAWK(R), INC.
COMMON STOCK
------------------
Of the 3,000,000 shares offered hereby, 2,700,000 shares are being sold by
the Company and 300,000 shares are being sold by a stockholder (the "Selling
Stockholder"). See "Principal Stockholders and Selling Stockholder." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholder.
Prior to this offering, there has not been a public market for the common
stock (the "Common Stock") of the Company. It is currently estimated that the
initial public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. Application has been made to have
the Common Stock listed on The Nasdaq Stock Market's National Market under the
symbol "KTTY."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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- --------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total(3) $ $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses payable solely by the Company estimated to be
$ .
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Selling Stockholder will be $ ,
$ , and $ , respectively.
---------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
FIELDSTONE
FPCG SERVICES, L.P.
, 1996
<PAGE> 4
[MAP OF
SCHEDULED KITTY
HAWK U.S. ROUTES]
[MAP OF KITTY
HAWK SCHEDULED
PACIFIC RIM
ROUTES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus: (i) does not give
effect to the exercise of the Underwriters' over-allotment option and (ii) gives
effect to the consummation during June 1996 of a 0.2285391 share dividend for
each share of Common Stock then outstanding. As used in this Prospectus, the
terms "Kitty Hawk" and "Company" refer to Kitty Hawk, Inc., a Delaware
corporation, and its subsidiaries and predecessors, unless the context indicates
otherwise. A reference to a fiscal year by date refers to the Company's fiscal
year ending on August 31 of that calendar year.
THE COMPANY
Kitty Hawk is one of the leading providers of air freight charter services
in the United States, emphasizing highly-reliable, time-sensitive services. The
Company's air freight carrier owns 24 aircraft, 16 of which are currently used
in scheduled airport-to-airport freight service under contracts primarily with
major freight forwarders in North America and the Pacific Rim. These contracts
generally require the Company to supply aircraft, crew, maintenance, and
insurance ("ACMI") and to meet certain on-time performance standards, while its
customers are responsible for substantially all other operating expenses,
including fuel. Additionally, Kitty Hawk is the leading provider of same-day air
logistics charter services in the United States. Through use of its advanced,
proprietary computer software, the Company manages delivery of extremely
time-sensitive freight utilizing the on-demand charter services of both
third-party air freight carriers and planes from the Company's fleet that are
not then committed to ACMI service. The Company's total revenues have increased
to $103.7 million in fiscal year 1995 from $33.4 million in fiscal year 1991.
During the same period, the Company's owned aircraft fleet grew to 21 aircraft
from 9 aircraft. Kitty Hawk has been profitable in every fiscal year since its
inception in 1985.
Air Freight Carrier. Kitty Hawk believes it operates one of the three
largest fleets of Boeing 727-200F (freighter) aircraft dedicated to ACMI
contract charters. Under ACMI contracts the air freight carrier operates
designated aircraft on scheduled routes typically for either certificated air
freight carriers that desire the operational flexibility of supplementing their
existing fleet with additional airlift capacity provided by the Company or
uncertificated entities that prefer to outsource the air freight carrier
function of their operations. The Company believes it met the scheduled
departure and/or arrival times (as applicable under the subject ACMI contract)
of its ACMI contract charter customers 98.9% of the time during the nine months
ended May 31, 1996, not including delays beyond the Company's control. In
addition, the Company's air freight carrier flew approximately 8.8% of the
on-demand charters managed by the Company in the nine months ended May 31, 1996.
By deploying aircraft owned by the air freight carrier not then operating under
an ACMI contract to service on-demand charters for its air logistics business,
Kitty Hawk is able to moderate fluctuations in its asset utilization and thereby
maintain higher utilization rates in its air freight carrier business. During
the nine months ended May 31, 1996, the Company's air freight carrier customers
included the U.S. Postal Service and air freight companies such as Burlington
Air Express, Inc., DHL Airways, Inc., Emery Worldwide Airlines, Inc. and Federal
Express Corporation. The Company's air freight carrier business accounted for
$9.8 million (56.3%) of the Company's gross profit in the nine months ended May
31, 1996.
Air Logistics. Kitty Hawk's expedited, same-day air charter services
primarily support the "just-in-time" inventory management systems and emergency
repair and replacement part requirements of major industrial companies.
Utilizing a proprietary computerized database, the Company coordinates
"door-to-door" transportation services by arranging for ground pickup, loading,
air transportation, unloading, and ground delivery of freight. On-demand air
logistics services are generally used to transport manufacturing and replacement
parts and products when expedited, same-day delivery is critical to avoid costly
inventory shortages or work stoppages. For the nine months ended May 31, 1996,
the time elapsed between the customer's initial estimate of freight availability
and the delivery of that freight was typically less than six hours at an average
charge per shipment of $5,803. In the nine months ended May 31, 1996, the
Company's air logistics business arranged 11,209 on-demand charters for more
than 250 customers such as Eagle USA Airfreight Inc., General Motors Corporation
("GM"), International Business Machines Corp., Ryder System, Inc., the U.S.
Postal Service,
3
<PAGE> 6
and TRW Inc. In the nine months ended May 31, 1996, the Company's air logistics
business accounted for $7.6 million (43.7%) of the Company's gross profit.
Most Significant Customers. Since 1990, Kitty Hawk has managed virtually
all of GM's North American on-demand air freight charters. In the nine months
ended May 31, 1996, GM accounted for approximately $42.1 million (39.3%) of the
Company's total revenues. Additionally, Kitty Hawk is a significant provider of
services to the U.S. Postal Service and Burlington Air Express, Inc. In the nine
months ended May 31, 1996, the U.S. Postal Service and Burlington Air Express,
Inc. accounted for approximately $21.3 million (19.8%) and approximately $10.0
million (9.3%), respectively of the Company's total revenues.
THE FLEET
The Company's air freight fleet is comprised of ten Boeing 727-200Fs
(including two recently purchased Boeing 727-200 aircraft that are in the
process of cargo reconfiguration), five Douglas DC-9-15Fs and nine turbo-prop
Convairs. During fiscal year 1997, the Company intends to use the proceeds of
the offering to add five Boeing 727-200Fs to its fleet, three of which the
Company anticipates will be initially dedicated to ACMI contract charter use and
two to on-demand charters, and to repay certain aircraft acquisition and
modification indebtedness. With these additional aircraft, the Company believes
that its air freight carrier will be able to obtain a greater number of ACMI
contract and on-demand charters flown on Company aircraft, which generally
produce a higher gross profit margin than charters subcontracted to third-party
carriers.
COMPETITIVE STRENGTHS
Kitty Hawk believes that its principal competitive strengths are its:
- Customer Focus. Kitty Hawk's commitment to customer service and
satisfaction is a significant factor in its ability to attract and retain
customers. In an independent survey of certain of the Company's customers
performed by Dun & Bradstreet, Inc. dated May 18, 1995, the Company
received an overall rating of 1.00 (on a performance scale of: 1.00 =
"Exceeds Expectations" to 5.00 = "Below Expectations"). The Company
believes that its profit sharing compensation structure motivates its
employees to provide excellent customer service and reduces employee
turnover.
- Boeing 727-200F Fleet. The Company believes that its fleet of Boeing
727-200Fs enables it to offer its customers a desirable aircraft type for
the shipment of freight and to attract and retain customers who desire a
single source of Boeing 727-200F aircraft. Kitty Hawk believes the
popularity of the 727-200F aircraft stems from its range and payload
characteristics, which the Company believes are well suited for flights of
up to 2,500 miles that are typical of the intra-American and intra-Asian
routes of its integrated freight customers. According to the April 1996
issue of FedEx Aviation Services' Commercial Jet Fleet, more Boeing 727
(-100 and -200) aircraft are currently utilized in freighter configuration
than are any other aircraft type.
- Advanced Technology. The Company believes that its computerized database,
information software, and tracking systems enable it to increase its
aircraft utilization and provide better service to customers. These
systems enable the Company to provide a level of service which the Company
believes is not otherwise currently available in the market for on-demand
air logistics.
- Economies of Scale. As the leading provider of same-day air logistics
charter services in the United States, the Company believes it enjoys
significant pricing advantages in arranging third-party air freight
charters, which results in lower charges to its customers and increased
profitability for Kitty Hawk.
BUSINESS STRATEGY
The Company's strategy is to continue its rapid growth by: (i) acquiring
additional Boeing 727-200F aircraft primarily for its ACMI contract business to
meet expected growth in air freight transportation demand in both the North
American and Pacific Rim markets, (ii) increasing its focus on marketing to
firms reducing inventory and shortening product cycle times through direct air
shipments from manufacturer to end user, (iii) continuing to provide high
quality service through the ongoing development and enhancement of its
computerized database, information software, and tracking systems, and (iv)
pursuing the acquisition of domestic and international strategic suppliers of
on-demand air and related ground transportation services.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...................... 2,700,000 shares
Common Stock offered by the Selling Stockholder.......... 300,000 shares
Common Stock to be outstanding after the offering........ 10,450,000 shares (1)
Use of proceeds.......................................... For the acquisition and modification of
five additional Boeing 727-200 aircraft
and the repayment of indebtedness
incurred for the acquisition and
modification of two Boeing 727-200
aircraft.
Proposed Nasdaq National Market Symbol................... KTTY
</TABLE>
- ---------------
(1) Does not include: (i) 300,000 shares of Common Stock available for the
future grant of stock options under the Company's Omnibus Securities Plan
and for matching contributions by the Company under its 401(k) Savings Plan,
(ii) 200,000 shares of Common Stock available for issuance under the
Company's Annual Incentive Compensation Plan and (iii) 100,000 shares of
Common Stock available for issuance under the Company's Employee Stock
Purchase Plan. See "Management -- Employee Compensation Plans and
Arrangements."
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, NINE MONTHS
------------------------------------------------- ENDED
1991 1992 1993 1994 1995 MAY 31, 1996
------- ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Air freight carrier................ $ 6,121 $ 6,760 $12,939 $ 28,285 $ 41,117 $ 37,042
Air logistics...................... 27,260 45,893 52,840 79,415 62,593 70,084
------- ------- -------- -------- -------- --------
Total revenues....................... 33,381 52,653 65,779 107,700 103,710 107,126
Gross profit......................... 5,281 4,188 10,578 14,749 18,178 17,392
Stock option grant to executive...... -- -- -- -- -- 2,907(1)
Operating income..................... 1,454 1,258 5,934 8,004 9,345 6,908
Net income........................... 846 1,013 4,105 5,261 4,416 3,411(1)
Net income per share................. $ 0.08 $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.43(1)
======= ======= ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding...... 10,089 8,671 7,968 7,968 7,968 7,968
OPERATING DATA:
Air Freight Carrier
Revenue aircraft owned (at end of
period)......................... 9 11 10 15 21 23
Flight hours flown(2).............. 3,615 3,567 7,030 11,795 15,283 14,168
Number of on-demand charters
flown........................... 377 292 752 1,182 1,238 987
Number of ACMI contract charters
flown........................... 257 655 1,314 1,734 2,555 2,530
Air Logistics
Number of on-demand charters
managed(3)...................... 6,137 8,416 8,996 15,531 14,198 11,209
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 31, 1996
------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 4,450 $ 4,450
Total assets.......................................................... 61,977 98,977
Long-term debt, including current maturities.......................... 25,739 25,739
Stockholder's equity.................................................. 23,284 60,284
</TABLE>
- ---------------
(1) Results for the nine months ended May 31, 1996, lack comparability to prior
periods because such period includes one of two nonrecurring grants to an
executive officer of stock options that resulted in a charge to earnings of
approximately $2,907,000. Had this grant of stock options not occurred, net
income for the nine months ended May 31, 1996 would have been $5,141,000 and
net income per share would have been $0.65. See "Management -- Employee
Compensation Plans and Arrangements."
(2) As reported by the Company to the Federal Aviation Administration (the
"FAA").
(3) Includes on-demand charters flown by the Company's air freight carrier.
(4) Adjusted to reflect the sale of the shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $15.00 per
share and the application by the Company of the estimated net proceeds
therefrom. See "Use of Proceeds."
6
<PAGE> 9
THE COMPANY
The Company conducts its operations primarily through two wholly-owned
subsidiaries, Kitty Hawk Aircargo, Inc. and Kitty Hawk Charters, Inc. Kitty Hawk
Aircargo, Inc. was formed in 1989 and operates as the Company's air freight
carrier. Kitty Hawk Charters, Inc. was formed in 1980 and operates the Company's
air logistics business.
In 1980, Mr. M. Tom Christopher, the Selling Stockholder, founded
Christopher Charters, Inc. which arranged on-demand air charters using
third-party air freight carriers. In 1985, Mr. Christopher formed the Company to
acquire Kitty Hawk Airways, Inc., an FAA certificated Part 135 (small aircraft)
operator and to acquire Christopher Charters, Inc. (whose name was later changed
to Kitty Hawk Charters, Inc.). Kitty Hawk Airways, Inc. was an independent
on-demand air freight carrier used frequently by Christopher Charters, Inc. The
Company obtained FAA Part 121 certification (transport category aircraft) in
1987 through the acquisition of a small independent air freight carrier.
Kitty Hawk was reincorporated in Delaware in October 1994. The Company's
principal executive offices are located at 1515 West 20th Street, P.O. Box
612787, Dallas/Fort Worth International Airport, Texas 75261 and its telephone
number is (214) 456-2200.
7
<PAGE> 10
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. In
addition to the other information in this Prospectus, prospective investors
should carefully consider the following risk factors relating to the Company and
its Common Stock before making an investment.
AIRCRAFT OWNERSHIP AND OPERATION
Capital Investment. The air freight carrier business is a highly
capital-intensive business. The Company's balance sheet as of May 31, 1996,
reflected an increase in its ownership of aircraft to $53.0 million from $18.6
million at August 31, 1994, primarily reflecting the acquisition of six Boeing
727-200s, two Douglas DC-9-15Fs, and three turboprop Convairs and related
replacement jet engines. Since May 31, 1996, the Company has acquired and will
modify two additional aircraft for an estimated cost of approximately $15.0
million. In order to further expand the Company's air freight carrier business,
the Company intends to purchase used jet aircraft (including the five Boeing
727-200s the Company intends to purchase with the proceeds of the offering) that
typically require certain modifications including reconfiguring the aircraft
from passenger to cargo use and installing equipment to comply with noise
abatement regulations. The market for used jet aircraft and parts required for
such modifications is volatile and can be negatively affected by limited supply,
increased demand, and other market factors and recently has experienced
significant price increases. Therefore, there can be no assurance that Kitty
Hawk will be able to purchase and modify additional aircraft at favorable prices
or that the Company will have or be able to obtain sufficient resources with
which to make such purchases and modifications. See "Business -- Business
Strategy," "Business -- Government Regulation," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Operating Costs. The operation of the Company's air freight carrier
business incurs considerable operational, maintenance, fuel, and personnel
expenses. In fiscal years 1993, 1994, and 1995 and the nine months ended May 31,
1996, the costs of revenues attributable to the air freight carrier were $8.9
million, $19.5 million, $28.1 million and $27.2 million, respectively,
principally reflecting an expansion of the Company's air freight carrier fleet.
Kitty Hawk's operation of aircraft requires compliance with maintenance
directives and regulations of the FAA. Spare or replacement parts and components
may not be readily available in the marketplace. If the Company is unable to
obtain necessary parts or components in a timely manner, the Company's air
freight carrier business could be adversely affected. In addition, even if such
parts or components are available, a shortage of supply could result in an
increase in procurement costs that may adversely affect the Company's
profitability.
Fuel is a cost component in the operation of the Company's aircraft for
on-demand services and the aircraft of third-party providers of charter
services. Both the cost and availability of fuel are subject to many economic
and political factors and events occurring throughout the world and recently the
cost of fuel has increased markedly. Kitty Hawk has no agreement with any fuel
supplier assuring the availability or price stability of fuel and such
agreements are generally not available in the industry. The Company is unable to
pass on increased fuel costs to GM without GM's consent, pursuant to the terms
of the GM Agreement, and the Company may have similar restrictions with respect
to fuel cost increases under other customer agreements in the future.
Accordingly, the future cost and availability of fuel to Kitty Hawk cannot be
predicted, and substantial price increases in, or the unavailability of adequate
supplies of, fuel may have a material adverse effect on the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Maintenance," and "Business -- Government Regulation."
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Kitty Hawk's largest three customers directly accounted for 68.4% of total
revenues in the nine months ended May 31, 1996.
General Motors Corporation. Of the Company's total revenues in fiscal years
1993, 1994, and 1995 and in the nine months ended May 31, 1996, GM accounted for
$36.0 million (54.7%), $67.9 million (63.1%), $48.9 million (47.1%), and $42.1
million (39.3%), respectively. Of the revenues from GM, $32.1 million
8
<PAGE> 11
(89.2%), $57.5 million (84.6%), $38.7 million (79.2%), and $34.2 million
(81.2%), respectively, were attributable to air logistics primarily in
connection with on-demand charters flown by third-party air cargo carriers, and
$3.9 million (10.8%), $10.4 million (15.4%), $10.2 million (20.8%), and $7.9
million (18.8%), respectively, were attributable to on-demand charters flown by
the Company's air freight carrier. Of the Company's gross profits from air
logistics in fiscal years 1993, 1994, and 1995 and in the nine months ended May
31, 1996, GM accounted for $2.1 million (32.2%), $3.0 million (50.4%), $1.4
million (27.1%), and $2.8 million (37.1%), respectively. GM accounted for 70.7%,
77.4%, 59.9%, and 59.1% of the total number of on-demand charters that were
flown by the air freight carrier in 1993, 1994, and 1995 and in the nine months
ended May 31, 1996, respectively. In addition to GM, the Company believes
approximately 16.3% of its total revenues in the nine months ended May 31, 1996
were generated from services provided to other participants in the U.S.
automotive industry, a substantial portion of which the Company believes were GM
suppliers.
Kitty Hawk provides on-demand logistics services to GM pursuant to a
non-exclusive agreement executed in June 1990 for a term ending May 1997 (the
"GM Agreement"). Pursuant to the GM Agreement, the Company is the primary
manager of on-demand cargo charters for GM in North America. The GM Agreement
limits the Company's utilization of its air freight carrier to a maximum of 30%
of the charter revenue or charter volume in the performance of on-demand
charters for GM. In the nine months ended May 31, 1996, the air freight carrier
accounted for approximately 18.8% of the charter revenue from, and 8.1% of the
charter volume of, the GM on-demand charters managed by the Company. These
limitations could prevent Kitty Hawk from directing GM on-demand charters to its
air freight carrier, thereby precluding the Company from realizing the higher
gross profit margins generated by the air freight carrier as compared to
charters subcontracted to third-party carriers. In addition, this limitation may
restrict the flexibility of Kitty Hawk in shifting aircraft dedicated or
expected to be dedicated to ACMI contract charter service to on-demand charter
service, which in turn results in a greater dependence by the Company on its
ACMI contract charter customers.
The GM Agreement also provides that either party may, with or without
cause, terminate the agreement following a quarterly review by giving the other
party at least 30 days' prior written notice thereof. Therefore, there can be no
assurance that the GM Agreement will remain in effect for its scheduled term or
that it will be extended beyond May 1997. A change in, or renewal of, the GM
Agreement on terms less favorable to the Company could have a material adverse
effect on the Company. Kitty Hawk believes GM has attempted (including on at
least two occasions issuing system-wide pronouncements to significantly reduce
use of expedited transportation, including Kitty Hawk's air logistics services),
and in the future will continue to attempt, to reduce its premium transportation
expenses including amounts paid to the Company under the GM Agreement. A strike
of GM workers at various plants during the third quarter of fiscal 1996 resulted
in GM temporarily ceasing to use the Company's air logistics services. Any
development that precipitates a reduction in GM's or its suppliers' usage of air
freight charters or any decision by GM to terminate or not extend its
relationship with the Company could have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Relationship with GM."
U.S. Postal Service. Of the Company's total revenues in fiscal years 1993,
1994, and 1995 and the nine months ended May 31, 1996, the U.S. Postal Service
accounted for $17.3 million (26.3%), $11.1 million (10.3%), $10.0 million
(9.7%), and $21.3 million (19.8%), respectively. Of these revenues, $14.3
million (83.0%), $8.3 million (74.5%), $6.0 million (59.6%), and $19.7 million
(92.5%), respectively, were attributable to the Company's air logistics business
in connection with its management of seasonal Christmas charters flown by
third-party air cargo carriers, and $3.0 million (17.0%), $2.8 million (25.5%),
$4.0 million (40.4%), and $1.6 million (7.5%), respectively, were attributable
to the air freight carrier for ACMI contract charters flown by the Company on
designated routes. Of the Company's gross profits from air logistics in fiscal
years 1993, 1994, and 1995 and in the nine months ended May 31, 1996, the U.S.
Postal Service accounted for $4.0 million (61.5%), $2.0 million (33.8%), $1.0
million (18.9%), and $3.8 million (50.0%), respectively.
The U.S. Postal Service awards contracts periodically pursuant to a public
bidding process which considers quality of service and other factors, including
price to a lesser extent. Bids for contracts to provide Christmas season
charters generally are submitted in the summer of each year and are typically
awarded
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during the following fall. These contracts are typically for one year or less.
The inability of Kitty Hawk to remain competitive with respect to price and
quality of service would have a material adverse effect on the Company's ability
to obtain such contracts. The inability of Kitty Hawk to obtain such contracts
in the future (including for the 1996 Christmas season) and replace them with
new business could have a material adverse effect on the Company's total
revenues and profitability. Kitty Hawk's contracts with the U.S. Postal Service
are subject to termination at the convenience of the U.S. Postal Service. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Air Logistics."
Burlington Air Express, Inc. Recently, Burlington Air Express, Inc. has
developed into a significant customer, accounting for $10.0 million (9.3%) of
the Company's total revenues for the nine months ended May 31, 1996. Burlington
Air Express, Inc. currently leases under one ACMI contract five of the Company's
Boeing 727-200Fs and under a separate ACMI contract three of the Company's
Convairs. The Boeing 727-200F ACMI contract is for a term expiring on March 1,
1999, but pursuant to the terms of this contract, either party may terminate
upon thirty days' written notice the services of one Boeing 727-200F aircraft
immediately and one additional Boeing 727-200F aircraft on or after each of
March 1, 1997, March 1, 1998, and September 1, 1998. In addition, Burlington Air
Express, Inc. may earlier terminate this contract if, among other reasons, the
Company fails to meet certain performance standards. The loss of this customer,
or a reduction in this customer's use of the Company's services, could have a
material adverse effect on the Company. See "Business -- Air Freight Carrier."
CYCLICALITY
Kitty Hawk's air logistics services are provided to numerous industries and
customers that experience significant fluctuations in demand based on economic
conditions and other factors beyond the control of the Company and, therefore,
the demand for the Company's services could be materially adversely affected by
downturns in the businesses of the Company's customers. Of the Company's total
revenues for the nine months ended May 31, 1996, the Company believes
approximately 55.5% were generated from services provided to the U.S. automotive
industry, which has historically been a cyclical industry. A contraction in the
U.S. automotive industry, a prolonged work stoppage or other significant labor
dispute involving that industry, or a change in policy reducing the usage of air
freight charters in that industry, could have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
GOVERNMENT REGULATION
The Company's air freight carrier is subject to Title 49 of the United
States Code (formerly the Federal Aviation Act of 1958, as amended), under which
the Department of Transportation ("DOT") and the FAA exercise regulatory
authority over air carriers.
The DOT regulates the economic aspects of the airline industry, while the
FAA regulates air safety and flight operations. The DOT is primarily responsible
for regulating economic issues affecting air service, including, among other
things, air carrier certification and fitness, insurance, consumer protection,
unfair methods of competition and transportation of hazardous materials.
The FAA is primarily responsible for regulating air safety and flight
operations, including, among other things, airworthiness requirements for each
type of aircraft the Company's air freight carrier operates, pilot and crew
certification, aircraft maintenance and operational standards, noise abatement,
airport slots and other safety-related factors.
The Company's operations are subject to routine, and periodically more
intensive, inspections and oversight by the FAA. Following a review of safety
procedures at ValuJet, Inc., the FAA on June 19, 1996, announced it would
propose changes to the FAA's and air carriers' oversight of contract maintenance
and training procedures which, if implemented, would result in higher scrutiny
of such maintenance and training procedures and could result in the Company
incurring increased maintenance costs for its contract maintenance. See
"Business -- Maintenance." Because the Company conducts operations for the U.S.
military, it is also subject to inspections by the Department of Defense (the
"DOD"). The Company's air
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freight carrier is also subject to regulation by the DOD in connection with
operations to military airfields, and, in connection with international
operations, to regulation by the Department of Commerce, the U.S. Customs
Service, the Immigration and Naturalization Service, and the Animal and Plant
Health Inspection Service of the Department of Agriculture. The Environmental
Protection Agency has jurisdiction to regulate aircraft engine exhaust
emissions. All air carriers are also subject to certain provisions of the
Federal Communications Act of 1934, as amended, because of their extensive use
of radio and other communication facilities. Additional laws and regulations
have been imposed from time to time by federal, state, and local governments
that have increased significantly the cost of operations by imposing additional
requirements or restrictions on operations. For example, certain cities, states,
and local airport authorities prohibit flights in and out of their airports with
Stage II aircraft (as defined by the FAA) or between certain hours. The FAA has
proposed amendments to its flight and rest time regulations which, if adopted as
proposed, could restrict the ability of the Company to respond to a shipper's
request for same day delivery and/or would require the Company to hire and train
additional qualified pilots to perform the Company's flight operations.
The adoption of new laws, policies, or regulations, or changes in the
interpretation or application of existing laws, policies or regulations, whether
by the FAA, the DOT, the Federal Communications Commission, the United States
government, or any foreign, state, or local government, could have a material
adverse impact on Kitty Hawk and its operations.
The Company's revenue fleet is comprised of ten Boeing 727-200 aircraft
manufactured between 1969 and 1978, five Douglas DC-9-15 aircraft manufactured
during 1967 and 1968, and nine turbo-prop Convairs manufactured between 1948 and
1957. Manufacturer's Service Bulletins ("Service Bulletins") and FAA
Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of these aircraft to be
subject to extensive aircraft examinations and may require certain of these
aircraft to undergo structural inspections and modifications to address problems
of corrosion and structural fatigue at specified times. It is possible that
additional Service Bulletins or Directives applicable to the types of aircraft
included in the Company's fleet could be issued in the future. The cost of
compliance with Directives and Service Bulletins cannot currently be estimated,
but could be substantial.
The DOT and the FAA have the authority to modify, amend, suspend, or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulation. In addition, the DOT and the FAA may
impose civil or criminal penalties for violations of applicable rules and
regulations. Such actions by the FAA or the DOT, if taken, could have a material
adverse effect on Kitty Hawk.
The DOT and the Environmental Protection Agency exercise regulatory
jurisdiction over the transportation of hazardous materials. The Company may
from time to time transport articles that are subject to these regulations.
Shippers of hazardous materials share responsibility for compliance with these
regulations and are responsible for proper packaging and labeling. Substantial
civil monetary penalties can be imposed on both shippers and air carriers for
infractions of these regulations.
Certain of the Company's air freight carrier operations are conducted
wholly between two or more points that are all located outside of the United
States. To the extent required to do so, the Company obtains authority to
operate such foreign operations from the aeronautical authorities of the
countries in which such operations are conducted. As with the certificates and
license obtained from U.S. authorities, the Company must comply with all
applicable rules and regulations imposed by these foreign aeronautical
authorities or be subject to the suspension, amendment or modification of its
operating authorities.
On December 31, 1995, a 6.25% federal transportation excise tax applicable
to air freight transportation expired. Reinstatement of the tax or adoption of a
different tax or user fee by the government will result in higher costs to
shippers of air freight and air freight carriers, which may have a material
adverse effect on the Company's freight traffic, yields, revenue, and margins.
On July 9, 1996, the U.S. Senate passed legislation that, if enacted into law,
would reinstate the 6.25% federal transportation excise tax.
Under current federal aviation law, the Company's air freight carrier could
cease to be eligible to operate as an air freight carrier if more than 25% of
the voting stock of the Company were owned or controlled by non-
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U.S. citizens. Moreover, in order to hold an air freight carrier certificate,
the president and two-thirds of the directors and officers of an air carrier
must be U.S. citizens. All of the Company's directors and officers are U.S.
citizens. Furthermore, (i) the Certificate of Incorporation limits the aggregate
voting power of non-U.S. persons to 22 1/2% of the votes voting on or consenting
to any matter and (ii) the Bylaws do not permit non-U.S. citizens to serve as
directors or officers of the Company. See "Business -- Government Regulation"
and "Description of Capital Stock."
COMPETITION
The market for air freight carrier services has been and is expected to
remain highly competitive. Kitty Hawk competes with other air freight carriers
with regard to furnishing on-demand charters and ACMI contract charters. The
Company believes that the basis for such competition is price, quality of
service, and the location and performance characteristics of aircraft. The
Company's air freight carrier is also subject to competition from other modes of
transportation, including, but not limited to, railroads and trucking.
Numerous competitors of Kitty Hawk provide or coordinate door-to-door air
freight charters on an expedited basis. The market for air logistics also has
been and is expected to remain highly competitive. The Company's principal
competitors for on-demand air logistics services are other air logistics
companies, air freight carriers which seek to book charters directly with
customers, and air freight companies that offer expedited service. During the
last fourteen months, each of Emery Worldwide Airlines Inc., Federal Express
Corporation, and United Parcel Service have entered the expedited air freight
business by offering "next-flight-out" service.
The Company's ability to attract and retain business also is affected by
the decisions of the transportation departments of commercial and industrial
businesses whether, and to what extent, to coordinate their own transportation
needs. Prior to 1990, GM conducted its air logistics business in-house. GM and
certain other customers maintain transportation departments that could be
expanded to manage charters in-house which could have a material adverse effect
on Kitty Hawk. With respect to the Company's ACMI contract charter business, the
Company could be adversely affected by the decision of certain of its
certificated customers to acquire additional aircraft, or by its uncertificated
customers to acquire and operate their own aircraft, to service routes currently
serviced by Company aircraft. Many of the Company's competitors and customers
have substantially greater financial resources than the Company.
POSSIBILITY THAT HISTORICAL RATES OF GROWTH WILL NOT CONTINUE; MANAGEMENT OF
EXPANDED OPERATIONS
From August 31, 1990 to May 31, 1996, Kitty Hawk experienced substantial
growth. If Kitty Hawk continues to grow, the Company's ability to manage growth
successfully will require it to continue to improve its operations and financial
management; to develop the management skills of its account managers and
supervisors; and to train, motivate, and effectively manage its employees. The
Company's failure to manage growth successfully could have a material adverse
effect on the Company's business.
A significant factor in the growth of the Company and its air logistics
business has been the utilization by certain manufacturers (particularly GM) of
"just-in-time" inventory management systems that rely on the use of same-day air
freight delivery service. Because many manufacturers have already adopted
"just-in-time" inventory management programs, much of the growth in the
expedited, same-day air logistics business associated with the conversion to
such inventory control systems may already have occurred and, therefore, the
rates of growth historically experienced by the Company's air logistics business
may not continue. See "Business -- Overview of Expedited Air Freight
Transportation Industry."
The Company's future success is dependent to a significant degree on its
ability to manage and integrate profitably five Boeing 727-200Fs that the
Company intends to acquire and place in service during fiscal year 1997, three
of which the Company anticipates will be initially dedicated to ACMI contract
charter use. Kitty Hawk is seeking to obtain new ACMI contracts with additional
and existing customers, to which the Company anticipates such aircraft would be
dedicated when placed in service. The Company intends to have new ACMI contracts
in place for these aircraft by the time they are placed in service. However, to
the extent arrangements for such new ACMI contracts have not been made at such
time, Kitty Hawk would seek other
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revenue opportunities for such aircraft although there can be no assurance that
such opportunities will be available at such time. The failure to generate
adequate revenue from such Boeing 727-200Fs pending the entering into of ACMI
contracts, or the failure to secure ACMI contracts for such aircraft, could have
a material adverse effect on the Company. Furthermore, there also can be no
assurance that Kitty Hawk will be able to achieve profitable results from these
aircraft or any other aircraft acquired in the future. See "Business."
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
One of Kitty Hawk's business strategies is to continue its growth by
pursuing the acquisition of both domestic and international strategic suppliers
of on-demand air and related ground transportation services. Growth through
acquisition involves substantial risks, including improper valuation and
inadequate or unsuccessful integration of acquired businesses. There can be no
assurance that suitable acquisition candidates will be available, that the
Company will be able to acquire, profitably manage, or successfully integrate
such additional companies, or that any such future acquisitions will produce
returns justifying the investment by Kitty Hawk. In addition, the Company may
compete for acquisition candidates with its competitors or other companies that
have significantly greater resources than the Company. See "Business -- Business
Strategy."
Kitty Hawk currently intends to finance future acquisitions by issuing
shares of Common Stock to sellers of such businesses as all or a portion of the
consideration to be paid. Any future such issuance may result in substantial
dilution to purchasers of the shares of Common Stock offered hereby. In the
event that sellers of potential acquisition candidates are unwilling to accept
shares of Common Stock as part of the consideration for the sale of their
businesses, Kitty Hawk may be required to utilize its available cash resources
or to pursue other types of financing to complete any acquisitions.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends, and will continue
to depend, on the services of: (i) M. Tom Christopher, the founder, Chairman of
the Board of Directors, Chief Executive Officer, and, until recently, the sole
stockholder of the Company and (ii) Tilmon J. Reeves, the President and Chief
Operating Officer of the Company who is primarily responsible for the day-to-day
operations of the Company. The loss of services of either Mr. Christopher or Mr.
Reeves could have a material adverse effect on the Company. The GM Agreement
provides that GM may terminate the GM Agreement in the event of a change in
management of Kitty Hawk Charters, Inc. Mr. Christopher, Mr. Reeves, and Mr.
Richard R. Wadsworth, Senior Vice President -- Finance, Chief Financial Officer,
and Secretary have entered into employment agreements with the Company. See
"Management -- Employment Agreements."
OPERATIONS DEPENDENT UPON LIMITED FLEET
Because 18 of the Company's 24 aircraft are or are expected to be dedicated
to service under ACMI contracts (and the Company anticipates three of the five
aircraft to be purchased with the proceeds of the offering also will be so
dedicated), in the event one or more of the Company's aircraft were destroyed or
out of service for an extended period of time, the Company's ability to fulfill
its obligations under one or more of its ACMI contracts could be impaired. While
Kitty Hawk believes that its insurance coverage is sufficient to cover the
replacement cost of an aircraft, there can be no assurance that suitable
replacement aircraft could be purchased or leased or that, if purchased, the
Company could utilize such an aircraft without incurring substantial costs or
delays.
SEASONALITY
The Company's air logistics business is seasonal, with its highest revenues
historically occurring in the Company's second and fourth fiscal quarters due to
the services provided to the U.S. Postal Service during the Christmas holiday
season in the Company's second fiscal quarter and to increased production
schedules of GM and its suppliers in the Company's first and fourth fiscal
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality" and "Business."
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CONTROL BY MR. CHRISTOPHER
Immediately after completion of this offering, Mr. Christopher will own
7,123,436 shares, or approximately 68.2% (63.9% if the Underwriters'
over-allotment option is exercised in full), of the Common Stock. Consequently,
Mr. Christopher will have the ability to elect all of the directors of the
Company and to effect or prevent certain corporate transactions that require
majority approval, including mergers and other business combinations.
Furthermore, Mr. Christopher will be able to reject proposed transactions
favored by a majority of the independent stockholders pursuant to voting
decisions made by Mr. Christopher in his capacity as a stockholder, which
decisions may be made independent of his fiduciary duty to stockholders in his
capacity as a director of the Company. See "Principal Stockholders and Selling
Stockholder."
BENEFITS TO SELLING STOCKHOLDER AND OTHER AFFILIATES OF THE COMPANY
Benefits to the Selling Stockholder, Mr. Christopher, as a result of the
offering include the increased marketability of his shares of Common Stock and
the sale of certain of his shares of Common Stock in the offering. The original
aggregate purchase price of Mr. Christopher's shares in a predecessor
corporation, which shares he ultimately exchanged for his shares of Common
Stock, was approximately $1,000. Messrs. Reeves and Wadsworth recently were
granted, and exercised, options to purchase 390,707 and 153,567 shares of Common
Stock respectively for a purchase price of $.01 per share. Pursuant to a
provision in such options, the Company withheld 40% of the shares of Common
Stock to be issued to Messrs. Reeves and Wadsworth in order to satisfy income
tax withholding obligations. Messrs. Reeves and Wadsworth also will benefit from
the increased marketability of their shares. The shares of Common Stock held by
Messrs. Christopher, Reeves and Wadsworth will have a market value (based upon
an assumed initial offering price of $15.00 per share) immediately following the
offering of $106,851,540 ($100,101,525 if the Underwriters' over-allotment
option is exercised in full), $3,516,360 and $1,382,100, respectively. See
"Management" and "Principal Stockholders and Selling Stockholder."
NO PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. Accordingly, no assurance can be given as
to the liquidity of the market for the Common Stock or the price at which any
sales may occur. The future market price of the Common Stock is likely to depend
upon a variety of events, including quarter-to-quarter variations in operating
results, news announcements, trading volume, general market trends, and other
factors. The initial public offering price of the Common Stock will be
determined by negotiations among the Company, the Selling Stockholder, and the
representatives of the Underwriters and may not be indicative of the market
price of the Common Stock after this offering. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect prevailing market prices for the Common
Stock. Upon completion of this offering, 10,450,000 shares of Common Stock will
be outstanding. The 3,000,000 shares (or 3,450,000 shares, if the Underwriters'
over-allotment option is exercised in full) offered hereby will be freely
tradable by persons that are not "affiliates" of Kitty Hawk without restriction
under the Securities Act of 1933, as amended (the "Securities Act"). All of the
remaining 7,450,000 shares of Common Stock (7,000,000 shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock are
deemed "restricted securities" pursuant to Rule 144 under the Securities Act and
may be resold to the extent permitted by Rule 144 and Rule 701 of the Securities
Act or any exemption under the Securities Act.
The Company intends to file a registration statement under the Securities
Act covering the 600,000 shares of Common Stock reserved for issuance under the
Company's Omnibus Securities Plan, 401(k) Savings Plan, Annual Incentive
Compensation Plan and Employee Stock Purchase Plan (collectively, the "Plans").
See "Management -- Employee Compensation Plans and Arrangements." As of the date
hereof, no options or shares had been issued under any of these Plans. Such
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to
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affiliates, be available for sale in the open market when issued pursuant to the
Plans, subject to provisions of the Plans, including vesting, and the lock-up
agreements described herein.
The Selling Stockholder, as well as Messrs. Reeves and Wadsworth, will
hold, in the aggregate, 7,450,000 shares of Common Stock after this offering
(7,000,000 shares if the Underwriters' over-allotment option is exercised in
full). The Company, its directors and executive officers (other than the Selling
Stockholder, who has agreed to a period of 360 days) have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock of the Company or
any securities convertible into, or exercisable or exchangeable for, Common
Stock of the Company, except for the grant of options or other rights under the
Company's Omnibus Securities Plan so long as such options do not vest within
such 180 day period. Such consent of Smith Barney Inc. may be provided without
notice to purchasers of the Common Stock or to officials of the Nasdaq National
Market System. See "Management -- Employee Compensation Plans and Arrangements"
and "Shares Eligible for Future Sale."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS AND THE GM AGREEMENT
The Certificate of Incorporation and Bylaws of Kitty Hawk include certain
provisions that may be deemed to have anti-takeover effects and may delay,
defer, or prevent a takeover attempt that a stockholder of the Company might
consider to be in the best interests of the Company or its stockholders. These
provisions: (i) classify the Company's Board of Directors into three classes,
each of which will serve for different three year periods, (ii) provide that
only the Board of Directors, the Chairman of the Board of Directors, or the
beneficial owners of 25% or more of the outstanding voting capital stock may
call special stockholders' meetings, (iii) require the vote of the holders of at
least two-thirds of the outstanding shares of each class of the Company's
capital stock then entitled to vote thereon for the stockholders to amend or
repeal the Bylaws or certain provisions of the Certificate of Incorporation,
(iv) require the vote of at least two-thirds of the members of the Board of
Directors who are elected by the holders of Common Stock for the Board of
Directors to amend or repeal the Bylaws, (v) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings, (vi) subject
the Company to a provision of Delaware law that restricts certain "business
combinations" involving a stockholder who owns 15% or more of the Company's
outstanding voting stock, (vii) limit the aggregate voting power of non-U.S.
persons to 22 1/2% of the votes voting on or consenting to any matter, and
(viii) prohibit non-U.S. citizens from serving as directors or officers of the
Company. See "Description of Capital Stock -- Special Provisions of the
Certificate of Incorporation and Bylaws" and "Business -- Government
Regulation." In addition, the requirement that the vote of the holders of at
least two-thirds of the outstanding shares of each class of the Company's
capital stock is necessary for the stockholders to amend or repeal the Bylaws or
certain provisions of the Certificate of Incorporation may adversely affect the
extent to which stockholders, other than Mr. M. Tom Christopher, exercise
control over the Company.
GM may terminate the GM Agreement in the event Mr. Christopher no longer
holds majority ownership of the Company or if a major automobile manufacturer
acquires more than 20% of the outstanding Common Stock of the Company.
PREFERRED STOCK
The authorized capital stock of the Company includes 1,000,000 shares of
preferred stock (the "Preferred Stock"). The Board of Directors, in its sole
discretion, may designate and issue one or more series of Preferred Stock from
the authorized and unissued shares of Preferred Stock. Subject to limitations
imposed by law or the Company's Certificate of Incorporation, the Board of
Directors is empowered to determine: (i) the designation of and the number of
shares constituting each series of Preferred Stock, (ii) the dividend rate for
each series, (iii) the terms and conditions of any voting, conversion, and
exchange rights for each series, (iv) the amounts payable on each series upon
redemption or the Company's liquidation, dissolution or
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winding-up, (v) the provisions of any sinking fund for the redemption or
purchase of shares of any series, and (vi) the preferences and the relative
rights among the series of Preferred Stock. At the discretion of the Board of
Directors, and subject to its fiduciary duties, the Preferred Stock could be
used to deter any takeover attempt, by tender offer or otherwise. In addition,
Preferred Stock could be issued with voting and conversion rights that could
adversely affect the voting power of holders of Common Stock. The issuance of
Preferred Stock could also result in a series of securities outstanding that
would have preferences over the Common Stock with respect to dividends and in
liquidation. The Board of Directors has no current intention to issue shares of
Preferred Stock.
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of the Common Stock. Accordingly, investors
purchasing shares of Common Stock in this offering will incur immediate and
substantial dilution of $9.05 per share based upon an assumed initial offering
price of $15.00 per share. See "Dilution."
USE OF PROCEEDS
The net proceeds to be received by Kitty Hawk from this offering, after
deducting the estimated underwriting discount and offering expenses payable by
the Company, are estimated to be approximately $37.0 million, based on an
assumed initial public offering price of $15.00 per share. The Company will not
receive any proceeds from the sale of shares of Common Stock offered by the
Selling Stockholder.
Kitty Hawk intends to use the proceeds to acquire and modify five
additional Boeing 727-200F aircraft for an estimated total cost of approximately
$23.5 million, three of which the Company anticipates will be initially
dedicated to ACMI contract charter use and two of which will be dedicated to
on-demand charters. The Company, however, periodically evaluates the utilization
of its owned aircraft and, therefore, the Company's actual aircraft use may vary
materially from the current plans.
In addition, the Company intends to utilize approximately $13.5 million of
the net proceeds to repay all but approximately $1.6 million of bank
indebtedness incurred or expected to be incurred to purchase, maintain, and
modify (including cargo reconfiguration and noise abatement modifications) two
Boeing 727-200s acquired during July 1996 or, to the extent such maintenance and
modification expenses have not been incurred prior to the receipt of net
proceeds from this offering, to pay such expenses as incurred. Of this
indebtedness: (i) $3.0 million (which amount of indebtedness is currently
outstanding) bears interest at the lender's prime rate or, at the Company's
option, the London Interbank Offering Rate plus 1.95%, is secured by the
Company's accounts receivable, and has a final maturity date of July 31, 1996,
and (ii) $10.5 million (which is expected to be incurred under the anticipated
coordinated banking relationship described under "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources") is expected to bear interest at the London Interbank
Offering Rate plus 150 to 200 basis points (based upon a fixed charge coverage
ratio), be secured by accounts receivable, and would have to be repaid under the
terms of the anticipated coordinated banking relationship within 150 days of its
advance. Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term, interest-bearing, investment grade
obligations.
DIVIDEND POLICY
Kitty Hawk has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain earnings for development and
growth of its business and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. The terms of the Company's existing loan
agreements with Wells Fargo Bank, National Association prohibit the payment of
dividends on the Common Stock. Payment of future dividends, if any, will be at
the discretion of the Company's Board of Directors, after taking into account
various factors, including the Company's earnings, capital requirements and
surplus, financial position, contractual restrictions, and other relevant
business conditions and there can be no assurance that dividends will be paid.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
16
<PAGE> 19
DILUTION
As of May 31, 1996, the net tangible book value of Kitty Hawk was $23.3
million, or $3.14 per share of Common Stock. Net tangible book value per share
is defined as the book value of all tangible assets of the Company, less its
total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of the 2,700,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of May 31,
1996 would have been approximately $60.3 million, or $5.95 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $2.81 per share to the existing stockholders and an immediate dilution
to new stockholders of $9.05 per share. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $15.00
Net tangible book value per share before the offering......... $3.14
Increase per share attributable to new investors.............. 2.81
-----
Pro forma net tangible book value per share after the
offering.................................................... 5.95
------
Dilution per share to new investors........................... $ 9.05(1)
======
</TABLE>
- ---------------
(1) Excludes the effect of 326,564 shares issued to Messrs. Reeves and Wadsworth
on June 26, 1996, upon the exercise of outstanding options. See
"Management -- Employee Compensation Plans and Arrangements."
The following table sets forth on a pro forma basis as of June 28, 1996 the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
the existing stockholders and by the new investors (before deduction of
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 7,750,000 74.16% $ 4,265 .01% *
New investors................ 2,700,000 25.84 40,500,000 99.99 $ 15.00
---------- ------ ----------- ------
Total........................ 10,450,000 100.00% $40,504,265 100.00%
========== ====== =========== ======
</TABLE>
- ---------------
* Less than $0.01 per share.
The foregoing table assumes no exercise of the Underwriters' over-allotment
option. Under Kitty Hawk's Omnibus Securities Plan and 401(k) Savings Plan,
Annual Incentive Compensation Plan and Employee Stock Purchase Plan, Kitty Hawk
has reserved for issuance 300,000, 200,000 and 100,000 shares of Common Stock,
respectively. As of June 28, 1996, no options or shares had been issued under
any of these plans. To the extent that any options or shares are issued under
these plans, there will be further dilution to new investors.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of Kitty Hawk at May 31,
1996, and as adjusted to give effect to the sale of the 2,700,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds."
<TABLE>
<CAPTION>
MAY 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt............................. $ 4,347 $ 4,347
======= =======
Long-term debt................................................... $21,392 $21,392
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
no shares issued............................................ -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
7,423,436 shares issued and outstanding; 10,123,436 shares
issued
and outstanding as adjusted(1).............................. 74 101
Paid-in capital................................................ 2,907 39,880
Retained earnings.............................................. 20,303 20,303
------- -------
Total stockholders' equity....................................... 23,284 60,284
------- -------
Total capitalization............................................. $44,676 $81,676
======= =======
</TABLE>
- ---------------
(1) Does not include: (i) 326,564 shares issued to Messrs. Reeves and Wadsworth
on June 26, 1996, upon the exercise of outstanding options, (ii) 300,000
shares of Common Stock available for the future grant of stock options under
the Company's Omnibus Securities Plan and for matching contributions by the
Company under its 401(k) Savings Plan, (iii) 200,000 shares of Common Stock
available for issuance under the Company's Annual Incentive Compensation
Plan, and (iv) 100,000 shares of Common Stock available for issuance under
the Company's Employee Stock Purchase Plan. See "Management -- Employee
Compensation Plans and Arrangements."
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth selected financial and operating data with
respect to Kitty Hawk for each of the fiscal years indicated and the nine months
ended May 31, 1995 and May 31, 1996. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, including
the Notes thereto, appearing elsewhere in this Prospectus. The selected
financial data as of and for each of the fiscal years ended August 31, 1991
through 1995 and as of and for the nine months ended May 31, 1996 has been
derived from audited consolidated financial statements of the Company. In the
opinion of management of the Company, the data presented for the nine months
ended May 31, 1995, which are derived from the Company's unaudited consolidated
financial statements, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such period. Results for the nine months ended May 31,
1996 are not necessarily indicative of results for the entire fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, MAY 31,
----------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Air freight carrier.......................... $ 6,121 $ 6,760 $12,939 $ 28,285 $ 41,117 $30,768 $ 37,042
Air logistics................................ 27,260 45,893 52,840 79,415 62,593 47,404 70,084
------- ------- ------- -------- -------- ------- --------
Total revenues................................. 33,381 52,653 65,779 107,700 103,710 78,172 107,126
Total costs of revenues........................ 28,100 48,465 55,201 92,951 85,532 64,362 89,734
------- ------- ------- -------- -------- ------- --------
Gross profit................................... 5,281 4,188 10,578 14,749 18,178 13,810 17,392
General and administrative expenses............ 3,827 2,930 4,394 6,013 7,832 5,156 6,676
Non-qualified profit sharing expense........... -- -- 250 732 1,001 772 901
Stock option grant to executive................ -- -- -- -- -- -- 2,907(1)
------- ------- ------- -------- -------- ------- --------
Operating income............................... 1,454 1,258 5,934 8,004 9,345 7,882 6,908
Interest expense............................... (132) (157) (134) (343) (1,185) (783) (1,344)
Contract settlement income, net(2)............. -- -- 725 1,178 -- -- --
Other income (expense)......................... (49) 287 193 (432) (601) 87 169
------- ------- ------- -------- -------- ------- --------
Income before income taxes..................... 1,273 1,388 6,718 8,407 7,559 7,186 5,733
Income taxes................................... 427 375 2,613 3,146 3,143 2,736 2,322
------- ------- ------- -------- -------- ------- --------
Net income..................................... $ 846 $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,450 $ 3,411(1)
======= ======= ======= ======== ======== ======= ========
Net income per share........................... $ 0.08 $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.56 $ 0.43(1)
======= ======= ======= ======== ======== ======= ========
Weighted average common and common equivalent
shares outstanding........................... 10,089 8,671 7,968 7,968 7,968 7,968 7,968
OPERATING DATA:
Air Freight Carrier
Revenue aircraft owned (at end of period).... 9 11 10 15 21 21 23
Flight hours flown(3)........................ 3,615 3,567 7,030 11,795 15,283 11,253 14,168
Number of on-demand charters flown........... 377 292 752 1,182 1,238 951 987
Number of ACMI contract charters flown....... 257 655 1,314 1,734 2,555 1,794 2,530
Air Logistics
Number of charters managed(4)................ 6,137 8,416 8,996 15,531 14,198 10,458 11,209
BALANCE SHEET DATA:
Working capital................................ $ 913 $ 895 $ 4,679 $ 4,223 $ 1,747 $ 727 $ 4,450
Total assets................................... 9,699 9,874 18,598 37,911 47,954 45,382 61,977
Long-term debt, including current maturities... 1,085 2,367 976 9,145 16,981 17,209 25,739
Stockholder's equity........................... 2,226 3,184 7,289 12,550 16,966 17,000 23,284
</TABLE>
- ---------------
(1) Results for the nine months ended May 31, 1996, lack comparability to prior
periods because such period includes one of two nonrecurring grants to an
executive officer of stock options that resulted in a charge to earnings of
approximately $2,907,000. Had this grant of stock options not occurred, net
income for the nine months ended May 31, 1996 would have been $5,141,000
and net income per share would have been $0.65. See "Management -- Employee
Compensation Plans and Arrangements."
(2) Reflects sums received in settlement of litigation. See "Legal
Proceedings -- Litigation and Arbitration Related to Postal Contract" and
Note 5 of Notes to Consolidated Financial Statements.
(3) As reported by the Company to the FAA.
(4) Includes on-demand charters flown by the Company's air freight carrier.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Revenues. The Company's revenues are derived from two related businesses:
(i) air freight carrier and (ii) air logistics. Air freight carrier revenues are
derived substantially from ACMI contract and on-demand charters flown with
Company aircraft. Air logistics revenues are derived substantially from
on-demand air freight charters arranged by Kitty Hawk for its customers
utilizing the flight services of third-party air freight carriers. With respect
to on-demand charters that are arranged by the Company and flown by its air
freight carrier, charges to the customer for air transportation are accounted
for as air freight carrier revenues and charges for ground handling and
transportation are accounted for as air logistics revenues.
GM and the U.S. Postal Service have accounted for a substantial majority of
the Company's revenues for the last three fiscal years and the nine months ended
May 31, 1996. A contract with GM for on-demand charters produced revenues of
$36.0 million, $67.9 million, $48.9 million, and $42.1 million in fiscal years
1993, 1994, and 1995 and in the nine months ended May 31, 1996, respectively,
which represented 54.7%, 63.1%, 47.1%, and 39.3% of the Company's total revenues
for such periods. Of the revenues derived from GM for fiscal years 1993, 1994,
and 1995 and in the nine months ended May 31, 1996, 10.7%, 15.4%, 20.8%, and
18.8%, respectively, were attributable to the air freight carrier and 89.3%,
84.6%, 79.2%, and 81.2%, respectively, were attributable to air logistics.
Revenues derived from GM for fiscal years 1993, 1994, and 1995 and the nine
months ended May 31, 1996, constituted 30.0%, 36.9%, 24.7%, and 21.4%,
respectively, of the revenues derived from the air freight carrier business and
60.8%, 72.4%, 61.9%, and 48.7%, respectively, of the revenues derived from the
air logistics business. Of the Company's gross profits from air logistics in
fiscal years 1993, 1994, and 1995 and in the nine months ended May 31, 1996, GM
accounted for $2.1 million (32.2%), $3.0 million (50.4%), $1.4 million (27.1%),
and $2.8 million (37.1%), respectively.
The U.S. Postal Service accounted for revenues of $17.3 million, $11.1
million, $10.0 million, and $21.3 million in fiscal years 1993, 1994, and 1995
and the nine months ended May 31, 1996, respectively, which represented 26.3%,
10.3%, 9.7%, and 19.8% of the Company's total revenues for such periods,
respectively. Of the revenues derived from the U.S. Postal Service for fiscal
years 1993, 1994, and 1995 and the nine months ended May 31, 1996, 83.0%, 74.5%,
59.6%, and 92.5%, respectively, were attributable to air logistics for seasonal
Christmas charters flown by third-party air freight carriers and 17.0%, 25.5%,
40.4%, and 7.5%, respectively, were attributable to the air freight carrier for
ACMI contract charters. Revenues derived from the U.S. Postal Service for fiscal
years 1993, 1994, and 1995 and the nine months ended May 31, 1996, constituted
22.7%, 10.0%, 9.9%, and 4.3%, respectively, of the revenues derived from the air
freight carrier business and 27.2%, 10.4%, 9.6%, and 28.1%, respectively, of the
revenues derived from the air logistics business. Of the Company's gross profits
from air logistics in fiscal years 1993, 1994, and 1995 and in the nine months
ended May 31, 1996, the U.S. Postal Service accounted for $4.0 million (61.5%),
$2.0 million (33.8%), $1.0 million (18.9%), and $3.8 million (50.0%),
respectively.
Burlington Air Express, Inc. accounted for revenues of $10.0 million in the
nine months ended May 31, 1996, which represented 9.3% of the total revenues for
such period and constituted 25.9% of the revenues derived from the air freight
carrier business and 0.5% of the revenues derived from the air logistics
business. Of these revenues, 96.2% were attributable to the air freight carrier
for ACMI contract charters and 3.8% were attributable to air logistics. See
"Risk Factors -- Dependence on Significant Customers."
Costs of Revenues. The principal components of the costs of revenues
attributable to the air freight carrier consist of the costs for the maintenance
and operation of its aircraft including the salaries of pilots and maintenance
personnel, charges for fuel, insurance and maintenance, and depreciation of
engines and airframes. Generally, charges for fuel are only applicable for the
on-demand charters flown by the air freight carrier because fuel for the ACMI
contract charters is generally provided by the customer or billed to them on a
direct pass-through basis. The principal components of the costs of revenues
attributable to air logistics consist of subcharter costs paid to third-party
air freight carriers and costs paid for ground handling and transportation. With
respect to on-demand charters that are flown by the air freight carrier, all
related air
20
<PAGE> 23
transportation expenses are allocated to the air freight carrier and all related
cargo ground handling and transportation expenses are allocated to air
logistics.
Under an earlier version of the Company's Annual Incentive Compensation
Plan, the Company awarded semiannual cash bonuses to its employees. See
"Management -- Employee Compensation Plans and Arrangements." The aggregate
amount of the bonuses for each of the fiscal years 1993, 1994, and 1995 and the
nine months ended May 31, 1996, have equaled 3.6%, 8.0%, 11.7%, and 13.6% of the
Company's income before the deduction of income taxes and the bonuses that were
paid under the Annual Incentive Compensation Plan.
Significant Events Affecting Comparability of Results of Operations. Since
September 1, 1992, several events have affected the comparability of results of
operations for each of the last three fiscal years and the nine months ended May
31, 1995 and 1996, and will affect the comparability of the results of
operations for fiscal year 1996. First, on December 31, 1995, the Company
granted Mr. Reeves options to purchase 390,707 shares of Common Stock for an
exercise price of $.01 per share, that resulted in a charge to earnings of
approximately $2,907,000. Second, on June 12, 1996, the Company granted Mr.
Wadsworth options to purchase 153,567 shares of Common Stock for an exercise
price of $.01 per share, which will result in a charge to earnings in the fourth
quarter of fiscal 1996 of approximately $1,325,000. Third, fiscal years 1993 and
1994 included contract settlement income amounting to $725,000 and $1,178,000,
respectively. See Note 5 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Company's gross profit (in thousands) and the
gross profit margin by revenue type:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
-------------------------------------------------------- ------------------------------------
1993 1994 1995 1995 1996
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Air freight carrier:
Revenues................... $12,939 100.0% $28,285 100.0% $41,117 100.0% $30,768 100.0% $37,042 100.0%
Costs of revenues.......... 8,912 68.9 19,550 69.1 28,104 68.4 20,795 67.6 27,246 73.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............... $ 4,027 31.1% $ 8,735 30.9% $13,013 31.6% $ 9,973 32.4% $ 9,796 26.4%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Air logistics:
Revenues................... $52,840 100.0% $79,415 100.0% $62,593 100.0% $47,404 100.0% $70,084 100.0%
Costs of revenues.......... 46,288 87.6 73,402 92.4 57,428 91.7 43,567 91.9 62,488 89.2
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............... $ 6,552 12.4% $ 6,013 7.6% $ 5,165 8.3% $ 3,837 8.1% $ 7,596 10.8%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
21
<PAGE> 24
The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST NINE MONTHS
31, ENDED MAY 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier.............................. 19.7% 26.3% 39.6% 39.4% 34.6%
Air logistics.................................... 80.3 73.7 60.4 60.6 65.4
----- ----- ----- ----- -----
Total revenues..................................... 100.0 100.0 100.0 100.0 100.0
Total costs of revenues............................ 83.9 86.3 82.5 82.3 83.8
----- ----- ----- ----- -----
Gross profit....................................... 16.1 13.7 17.5 17.7 16.2
General and administrative expenses................ 6.7 5.6 7.6 6.6 6.2
Non-qualified profit sharing expense............... 0.4 0.7 0.9 1.0 0.8
Stock option grant to executive.................... -- -- -- -- 2.7
----- ----- ----- ----- -----
Operating income................................... 9.0 7.4 9.0 10.1 6.5
Interest expense................................... (0.2) (0.3) (1.1) (1.0) (1.3)
Contract settlement income, net.................... 1.1 1.1 -- -- --
Other income (expense)............................. 0.3 (0.4) (0.6) 0.1 0.2
----- ----- ----- ----- -----
Income before income taxes......................... 10.2 7.8 7.3 9.2 5.4
Income taxes....................................... 4.0 2.9 3.0 3.5 2.2
----- ----- ----- ----- -----
Net income......................................... 6.2% 4.9% 4.3% 5.7% 3.2%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED MAY 31, 1996 COMPARED TO NINE MONTHS ENDED MAY 31, 1995
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $14.6 million and $20.8 million, or 39.5% and
56.3%, respectively, of total air freight carrier revenues for the nine months
ended May 31, 1996, as compared to $14.5 million and $14.9 million, or 47.2% and
48.4%, respectively, for the nine months ended May 31, 1995. ACMI contract
charter revenues for the nine months ended May 31, 1996, increased 40.0% over
the nine months ended May 31, 1995, primarily as the result of additional Boeing
727-200F ACMI contract charters. Revenues from on-demand charters flown by
Company aircraft for the nine months ended May 31, 1996, increased 0.7% from the
comparable prior year period. For the nine months ended May 31, 1996, as
compared to the nine months ended May 31, 1995, prices for the Company's
on-demand and ACMI contract charters remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues increased $22.7 million,
or 47.8%, to $70.1 million in the nine months ended May 31, 1996, from $47.4
million in the nine months ended May 31, 1995. This increase was primarily due
to increased demand for on-demand charters from the automobile industry in the
fourth quarter of calendar year 1995 and a substantial increase in the number of
managed charters for the U.S. Postal Service during December 1995. For the nine
months ended May 31, 1996, as compared to the nine months ended May 31, 1995,
prices for the Company's air logistics services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $6.5 million, or 31.0%, to $27.2 million in the nine months
ended May 31, 1996, from $20.8 million in the nine months ended May 31, 1995,
reflecting the increased volume of business from Boeing 727-200F ACMI contract
charters. Gross profit margin from the air freight carrier decreased to 26.4% in
the nine months ended May 31, 1996, from 32.4% in the comparable prior year
period. This decrease reflects the increase in ACMI contract charters, which
produce lower gross margins than on-demand charters.
As reported to the FAA, overall aircraft utilization increased to 14,168
flight hours for the nine months ended May 31, 1996, from 11,253 in the nine
months ended May 31, 1995, a 25.9% increase. This increase was primarily due to
the increased hours flown for ACMI contract charters.
22
<PAGE> 25
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $18.9 million, or 43.4%, to $62.5 million in the nine months ended May
31, 1996, from $43.6 million in the nine months ended May 31, 1995, reflecting
the increased volume of business. The gross profit margin from air logistics
increased to 10.8% in the nine months ended May 31, 1996, from 8.1% in the
comparable prior year period, a 33.3% increase. This increase was primarily due
to the Company's success in reducing its costs paid to third-party air freight
carriers and ground service providers and increased gross profit margin from the
Company's U.S. Postal Service Christmas contract in December 1995.
General and Administrative Expenses. General and administrative expenses
increased $1.5 million, or 29.5%, to $6.7 million in the nine months ended May
31, 1996, from $5.2 million in the nine months ended May 31, 1995. This increase
was primarily due to an increase in support functions and administrative costs
associated with the growth in the aircraft fleet and the increased revenue
volume for the air freight carrier in the nine months ended May 31, 1996. As a
percentage of total revenues, general and administrative expenses decreased to
6.2% in the nine months ended May 31, 1996, from 6.6% in the nine months ended
May 31, 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $129,000, or 16.7%, to $901,000 in the nine months ended May
31, 1996, from $772,000 in the nine months ended May 31, 1995, reflecting the
increased profitability from operating activities of Kitty Hawk in the nine
months ended May 31, 1996.
Stock Option Grant to Executive. During the nine months ended May 31, 1996,
the Company granted an executive officer options to purchase 390,707 shares of
Common Stock that resulted in a charge to earnings of approximately $2,907,000.
Operating Income. Operating income decreased $1.0 million, or 12.4%, to
$6.9 million in the nine months ended May 31, 1996, from $7.9 million in the
nine months ended May 31, 1995. Operating income margin decreased to 6.5% from
10.1%, for the nine month periods ended May 31, 1996, and 1995, respectively.
Interest Expense. Interest expense increased to $1.3 million for the nine
months ended May 31, 1996 from $783,000 in the nine months ended May 31, 1995, a
71.7% increase. The increase was primarily the result of the incurrence of
additional long-term debt to finance the acquisition of two Boeing 727-200F
aircraft in the second half of fiscal year 1995 and two additional Boeing
727-200F aircraft in the nine months ended May 31, 1996.
Other Income (Expense). Other income increased to $169,000 in the nine
months ended May 31, 1996, from $87,000 in the comparable prior year period,
primarily due to increased interest income.
Income Taxes. Income taxes as a percentage of income before income taxes
increased to 40.5% for the nine months ended May 31, 1996, from 38.1% for the
comparable prior year period. The increase was primarily due to increased state
income taxes.
Net Income. As a result of the above, net income decreased to $3.4 million
in the nine months ended May 31, 1996, from $4.5 million in the nine months
ended May 31, 1995, a 23.3% decrease. Net income as a percentage of total
revenues decreased to 3.2% in the nine months ended May 31, 1996, from 5.7% in
the comparable prior year period.
FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $18.1 million and $20.9 million, or 44.2% and
50.8%, respectively, of total air freight carrier revenues for fiscal year 1995,
as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%,
respectively, for fiscal year 1994. The increase in on-demand and ACMI contract
charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and
97.1%, respectively. These increases were primarily the result of additional
Boeing 727-200F ACMI contract charters and increased on-demand charters flown by
the Company's jet aircraft. For fiscal year 1995 as compared to fiscal year
1994, prices for the Company's ACMI contract charter services and U.S. Postal
Service Christmas contracts remained relatively constant.
23
<PAGE> 26
Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million,
or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year
1994 primarily due to the substantial decline in volume of on-demand charters
for the automobile industry in the first half of calendar 1995 as compared to
the same period in 1994. This decline was primarily the result of the temporary
decision by GM to significantly reduce use of expedited transportation,
including Kitty Hawk's air logistics services, as part of a cost containment
initiative. Prices for the Company's on-demand charters decreased slightly due
to a revenue rate reduction in the GM Agreement which took effect on May 1,
1994.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995
from $19.5 million in fiscal year 1994, reflecting the increased volume of
business from ACMI contract and on-demand charters flown by the Company's jet
aircraft. Gross profit margin from the air freight carrier increased slightly to
31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase.
As reported to the FAA, overall aircraft utilization increased to 15,283
flight hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994,
a 29.6% increase. This increase was primarily the result of the inclusion of an
additional four Boeing 727-200Fs, and two Douglas DC-9-15F aircraft into the
Company's operations during fiscal year 1995.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $16.0 million, or 21.8%, to $57.4 million in fiscal year 1995 from
$73.4 million in fiscal year 1994, reflecting the decrease in the volume of
business. The gross profit margin from air logistics increased to 8.3% in fiscal
year 1995 from 7.6% in fiscal year 1994, a 9.2% increase. This increase was
primarily due to the Company's success in reducing its costs paid to third-party
air freight carriers and ground service providers in the second half of fiscal
year 1995.
General and Administrative Expenses. General and administrative expenses
increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6.0
million in fiscal year 1994. As a percentage of total revenues, general and
administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in
fiscal year 1994. This increase was primarily due to an increase in support
functions and number of personnel associated with the growth in the aircraft
fleet and the revenue volume for the air freight carrier in fiscal year 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased to $1.0 million in fiscal year 1995 from $732,000 in fiscal
year 1994, a 36.8% increase, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1995.
Operating Income. Operating income increased $1.3 million, or 16.8%, to
$9.3 million in fiscal year 1995 from $8.0 million in fiscal year 1994.
Operating income margin increased to 9.0% from 7.4% for fiscal year 1995 and
1994, respectively.
Interest Expense. Interest expense increased to $1.2 million for fiscal
year 1995 from $343,000 in fiscal year 1994, a 246.0% increase. The increase was
primarily the result of the incurrence of additional long-term debt to finance
the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year
1994 and two Douglas DC-9-15F aircraft and two Boeing 727-200 aircraft in fiscal
year 1995.
Other Income (Expense). Other expense increased to $601,000 in fiscal year
1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was
primarily due to the write off of costs associated with the Company's attempted
initial public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The
increase was primarily due to higher state income taxes.
Net Income. As a result of the above, net income decreased to $4.4 million
for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16.0% decrease.
Net income as a percentage of total revenues was 4.3% in fiscal year 1995
compared to 4.9% for fiscal year 1994.
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<PAGE> 27
FISCAL YEAR ENDED AUGUST 31, 1994 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1993
Revenues -- Air Freight Carrier. Air freight carrier revenues increased
$15.3 million, or 118.6%, to $28.3 million from $12.9 million as a result of new
ACMI contract charters with two air freight companies.
Revenues -- Air Logistics. Air logistics revenues increased $26.6 million,
or 50.3%, to $79.4 million from $52.8 million. This increase was attributable
almost exclusively to the increased volume of business from a strong automotive
industry for on-demand charters. Prices for the Company's services generally
were slightly lower for fiscal year 1994 as compared to fiscal year 1993.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $10.6 million, or 119.4%, to $19.5 million in fiscal year
1994 from $8.9 million in fiscal year 1993 reflecting the increased volume of
business. As reported to the FAA, overall aircraft utilization increased to
11,795 flight hours in fiscal year 1994 as compared to 7,030 flight hours in
fiscal year 1993, a 67.8% increase. Gross profit margin from the air freight
carrier decreased slightly to 30.9% in fiscal year 1994 from 31.1% in fiscal
year 1993.
Kitty Hawk experienced a decrease in fuel costs as a percentage of air
freight carrier revenues to 16.5% in fiscal year 1994 compared to 19.6% in
fiscal year 1993. The Company attributes this decrease to slightly lower market
fuel costs and the Company's negotiation of lower into-plane fuel charges in
fiscal year 1994. Generally, the Company's air freight carrier only incurs net
fuel costs in connection with the on-demand charters flown by it.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $27.1 million, or 58.6%, to $73.4 million in fiscal year 1994 from
$46.3 million in fiscal year 1993, reflecting the increased volume of business.
Gross profit margin from air logistics decreased to 7.6% in fiscal year 1994
from 12.4% in fiscal year 1993, due primarily to a $6.1 million decrease in
revenues derived from the Christmas charters managed for the U.S. Postal
Service.
General and Administrative Expenses. General and administrative expenses
increased $1.6 million, or 36.8%, to $6.0 million in fiscal year 1994 from $4.4
million in fiscal year 1993. This increase was primarily due to increased
administrative expenditures to support the Company's 63.7% increase in revenues
in fiscal year 1994 as compared to fiscal year 1993. As a percentage of total
revenues, general and administrative expenses decreased to 5.6% in fiscal year
1994 from 6.7% in fiscal year 1993. This decrease was primarily due to the
increase in total revenues which more than offset the increase in costs
associated with the additional expenditures.
Operating Income. Operating income increased $2.1 million, or 34.9%, to
$8.0 million in fiscal year 1994 from $5.9 million in fiscal year 1993.
Operating income margin decreased to 7.4% from 9.0%.
Interest Expense. Interest expense increased to $343,000 in fiscal year
1994 from $134,000 in fiscal year 1993. This increase in interest expense was
due primarily to a net increase in debt of approximately $8.2 million
attributable to financing of aircraft acquired in fiscal year 1994.
Contract Settlement Income, Net. Contract settlement income was $1.2
million in fiscal year 1994 as compared to $725,000 in fiscal year 1993. Kitty
Hawk recorded contract settlement income (net of expenses) for fiscal year 1993
based upon its best estimate at that time of the ultimate outcome of the matter.
In fiscal year 1994, the final, more favorable resolution resulted in the
Company's recording additional contract settlement income. The settlement income
resulted from the division and allocation of the benefits to the Company, Mr.
Christopher, and other parties resulting from a settlement of litigation among
Emery Worldwide Airlines, Inc., Express One International, Inc., the U.S. Postal
Service, and the Company. See "Business -- Legal Proceedings -- Litigation and
Arbitration Related to Postal Contract."
Other Income (Expense). Other expense in fiscal year 1994 was $432,000
primarily reflecting charges associated with certain current litigation. See
"Business -- Legal Proceedings -- Litigation about Charter Agreement." Other
income for fiscal year 1993 relates primarily to gains on the disposal of
property and equipment.
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<PAGE> 28
Net Income. As a result of the above, net income increased $1.2 million, or
28.2%, to $5.3 million in fiscal year 1994 from $4.1 million in fiscal year
1993. Net income margin decreased to 4.9% from 6.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the acquisition and
modification of aircraft and working capital. In addition, Kitty Hawk has, and
will continue to have, capital requirements for the requisite periodic and major
overhaul maintenance checks for its air freight carrier fleet. The Company's
funding of its capital requirements historically has been from a combination of
internally generated funds and bank borrowings.
Cash provided by operating activities was $4.3 million, $7.6 million, $9.1
million, and $8.8 million in fiscal years 1993, 1994, and 1995 and in the nine
months ended May 31, 1996, respectively. At the end of fiscal years 1993, 1994,
and 1995 and the nine months ended May 31, 1996, the Company had working capital
of $4.7 million, $4.2 million, $1.7 million, and $4.5 million, respectively.
Kitty Hawk has a $9.2 million credit facility, a $3.0 million revolving
credit facility and an $8.9 million loan with Wells Fargo Bank, National
Association ("WFB"), successor in interest to First Interstate Bank of Texas,
N.A. As of May 31, 1996, approximately $6.1 million was outstanding under the
credit facility and $7.2 million was outstanding under the loan. On July 17,
1996, $3 million was outstanding under the revolving credit facility.
The credit facility bears interest at an adjusted Eurodollar rate plus
2.25%. Of the $6.1 million outstanding under the credit facility on May 31,
1996, $2.1 million matures in 1999 and is secured by two DC-9-15F aircraft, and
$4.0 million matures in 2000 and is secured by two Boeing 727-200F aircraft.
The revolving credit facility bears interest at the lender's prime rate or,
at the Company's option, the London Interbank Offered Rate plus 1.95% and is
secured by the Company's accounts receivable. The revolving credit facility
expires on July 31, 1996.
The loan bears interest at an adjusted Eurodollar rate plus 2.00%. Of the
$7.2 million outstanding on this loan as of May 31, 1996, $3.5 million matures
in March 2001 and is secured by two DC-9-15F aircraft, and $3.7 million matures
in July 2001 and is secured by two Boeing 727-200F aircraft.
Each of the credit facilities and loans with WFB prohibit (i) the payment
of dividends or any other payment or distribution on account of the Company's
capital stock, (ii) the redemption or acquisition of the Company's capital stock
or that of a subsidiary, and (iii) the setting apart of any money for a sinking
fund or similar fund for any dividend or other distribution on the Company's
capital stock. All of the WFB loans and credit facilities contain covenants
regarding the financial performance of the Company, including the maintenance of
minimum or maximum ratios of: debt service coverage (1.5 to 1.0), leverage (3.0
to 1.0), and debt to cash flow (4.0 to 1.0). Each of the WFB loans contains
certain other covenants, including limitations on the ability of the Company to
change its business, and the credit facilities contain a right to set off
against payments on all other WFB loans upon default by the Company. If a
"Change of Control" occurs, WFB may accelerate or terminate the loans and credit
facilities. "Change of Control" includes the failure of the Company to own all
of the outstanding stock of certain of its subsidiaries and Mr. Christopher
failing to own at least 51% of the outstanding stock of the Company or ceasing
to be active in the management of the Company.
Certain of the WFB loans also contain covenants with respect to aircraft
maintenance and continuous use and are cross-collateralized. The revolving
credit facility prohibits certain acquisitions and other business combinations,
transactions with affiliates, and the prepayment of other debt without the prior
written consent of WFB.
The Company also has an $11.2 million loan with Bank One, Texas, N.A.
("BOT"). As of May 31, 1996, $11.2 million was outstanding on this loan. The
proceeds of this loan were used to purchase two Boeing 727-200 aircraft. The
loan bears interest at an adjusted Eurodollar rate plus 1.5% to 2.5% based upon
a debt-to-cash-flow ratio of the Company and matures in June 2003. There is an
interest rate swap agreement in place with BOT that effectively converts the
floating rate loan into a fixed rate loan at 7.7%. This loan is
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<PAGE> 29
secured by two Boeing 727-200F aircraft owned by the Company. The BOT loan
contains certain covenants regarding the financial performance of the Company,
including the maintenance of minimum or maximum ratios of: debt service coverage
(1.25 to 1.0), leverage (3.0 to 1.0), debt to cash flow (5.0 to 1.0) and
interest coverage ratios (1.5 to 1.0), and certain other covenants with respect
to the maintenance and use of the aircraft, and insurance. BOT may accelerate or
terminate its commitment under the loan if the Company ceases to own all of the
outstanding stock of Aircraft Leasing, Inc. and Kitty Hawk Aircargo, Inc.
In addition, the Company has a loan with 1st Source Bank. As of May 31,
1996, the outstanding balance of this loan was $1.0 million. The loan bears
interest at 9.75%, is secured by a DC9-15-F and matures in May 2000. The 1st
Source loan contains certain aircraft maintenance covenants and provides that a
change in the Company's business is an event of default upon which 1st Source
may declare all or any part of the remaining unpaid principal immediately due
and payable.
Kitty Hawk anticipates it will enter into a coordinated banking
relationship with WFB and BOT on or before July 26, 1996. The Company
anticipates that this coordinated relationship would result in a single loan
agreement governing (i) $13.3 million of existing debt with WFB, (ii) $11.2
million of existing debt with BOT, (iii) a new $10.0 million facility for
eventual term debt to be provided 80% by WFB and 20% by BOT and (iv) a $15.0
million revolving line of credit to be provided 50% by WFB and 50% by BOT.
Under the coordinated banking relationship, the Company believes its
existing $13.3 million of debt with WFB would mature in June 2002 and would be
secured by aircraft currently mortgaged to WFB and its $11.2 million of existing
debt with BOT would mature in June 2003 and would be secured by aircraft
currently mortgaged to BOT. Kitty Hawk anticipates that borrowings under the
$10.0 million facility would be restricted to the purchase of one DC-9-15F noise
abatement kit and up to seven airframe overhauls checks for Boeing 727-200F
aircraft currently owned by Kitty Hawk. In addition, the Company believes that
the facility would be secured by the aircraft already pledged to WFB and BOT.
The Company anticipates that all advances under this facility would be required
to be made by December 31, 1997, and the loan would mature on June 30, 2003.
Kitty Hawk further believes that borrowings under the $15.0 million revolving
line of credit would be restricted to aircraft acquisitions and modifications,
except that up to $5.0 million will be available for general corporate purposes.
Kitty Hawk anticipates that this line of credit would be secured by accounts
receivable, would expire on December 31, 1998, and would require that any
advance for the purchase or modification of additional aircraft be repaid in
full within 150 days.
Kitty Hawk believes that each of these loans would bear interest from 150
to 200 basis points above the London Interbank Offered Rate, and prohibit (i)
the payment of dividends or any other payment or distribution on account of the
Company's capital stock, (ii) the redemption or acquisition of the Company's
capital stock or that of a subsidiary, and (iii) the setting apart of any money
for a sinking fund or similar fund for any dividend on, redemption of,
acquisition of, or other distribution on, the Company's capital stock. In
addition, the Company believes these loans would be subject to certain early
repayment penalties or swap breakage fees. During fiscal years 1994 and 1995 and
the nine months ended May 31, 1996, the restrictions under the Company's credit
facilities did not have a material impact on the Company's ability to meet its
cash obligations and restrictions under the Company's proposed facility are not
expected to have any such impact in the future.
Capital expenditures were $1.3 million, $13.9 million, $17.9 million, and
$17.2 million for fiscal years 1993, 1994, and 1995 and for the nine months
ended May 31, 1996, respectively. The $17.2 million in capital expenditures for
the nine months ended May 31, 1996 were primarily for the purchase of: (i) three
Boeing 727-200 aircraft and the cargo and noise abatement modification of two of
these aircraft and (ii) three used JT8D-7/-9 jet engines. The $17.9 million in
capital expenditures for fiscal year 1995 were due primarily to the purchase of:
(i) two Boeing 727-200 aircraft and their cargo modification, (ii) three JT8D-15
jet engines for installation on one of the Boeing 727-200 aircraft, (iii) two
Douglas DC-9-15F aircraft in cargo configuration, (iv) noise abatement equipment
with respect to one of the Douglas DC-9-15F aircraft, (v) five used/overhauled
Rolls Royce Dart Convair engines, (vi) two used JT8D-7/-9 jet engines, (vii) a
Westwind 1124 jet aircraft to be used for corporate purposes only, and (viii)
the cargo modification of one Boeing 727-200 aircraft acquired at the end of
fiscal year 1994. The $13.9 million in capital expenditures for fiscal
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<PAGE> 30
year 1994 were primarily for the purchase of: (i) three Boeing 727-200 aircraft
and the cargo modification of two of these aircraft, (ii) two Douglas DC-9-15F
aircraft in cargo configuration, (iii) three Convair 600/640 turbo-prop
aircraft, and (iv) ground handling equipment. Capital expenditures in fiscal
year 1993 were primarily for cargo containers and ground handling equipment. The
acquisitions of all of the Boeing 727-200 aircraft and subsequent cargo
conversions, the Douglas DC-9-15F aircraft and the JT8D-15 engines in the past
three years were financed by bank borrowings and internally generated funds,
except for one Boeing 727-200 aircraft received in the settlement of the ANET
litigation described in "Business -- Legal Proceedings." All other capital
acquisitions were financed from internally generated funds.
Kitty Hawk anticipates purchasing and modifying to cargo configuration five
727-200s (including modifying two of these 727-200s with noise abatement
equipment for approximately $5.2 million) for an aggregate capital expenditure
of approximately $23.5 million in fiscal year 1997. The Company believes, based
upon its knowledge of the market for ACMI contract charters of jet and
turbo-prop aircraft, that recent and planned changes to the composition of its
fleet towards jet aircraft will afford the Company the opportunity to expand its
ACMI contract charter business and direct to its air freight carrier additional
on-demand charters that require jet service. The Company further believes the
$5.2 million amount for noise abatement modifications proposed for fiscal year
1997 for two of these five aircraft proposed to be purchased, together with an
additional $6.8 million to modify currently owned aircraft with noise abatement
equipment during fiscal 1997, represents the total capital expenditures that
would currently be necessary to comply with the requirements of existing
applicable environmental regulations for such fiscal year. See
"Business -- Government Regulation."
The Company historically has followed, and currently intends to follow, a
policy of retiring Convairs at the time of their next scheduled major overhaul
maintenance checks rather than expending the amounts necessary for such checks.
The Company believes that revenue lost from retiring its Convair turbo-prop
aircraft from service will be offset by revenue gains from recent additions of
Boeing 727-200Fs and Douglas DC-9-15Fs. The Company further believes increased
maintenance costs resulting from the addition of these jet aircraft will be
exceeded by corresponding increased revenues. Schedule disruptions caused by
periodic maintenance checks for these jet aircraft generally will be less
frequent than for the Company's turbo-prop aircraft; however, schedule
disruptions resulting from such periodic maintenance checks will generally be
considerably longer for these jets (during which time the jets will be
unavailable for revenue service) than for the Company's turbo-prop aircraft.
During such periodic maintenance checks, the Company intends to avoid a
disruption of service by substituting another aircraft that otherwise would be
dedicated to on-demand service.
Kitty Hawk presently intends to either exercise its option to purchase for
approximately $2.0 million the facility it currently occupies at Dallas/Ft.
Worth International Airport on or before March 1, 1997 or attempt to negotiate
an extension of the lease.
The Company believes that the net proceeds from this offering, together
with available funds, bank borrowings, and cash flows expected to be generated
by operations, will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity or
convertible debt securities will result in additional dilution to the Company's
stockholders. There can be no assurance that additional equity or debt financing
will be available at all or that, if available, such financing will be
obtainable on terms favorable to the Company.
SEASONALITY
Certain customers of the Company engage in seasonal businesses, especially
the U.S. Postal Service, GM, and other customers in the automotive industry. As
a result, Kitty Hawk's air logistics business has historically experienced its
highest quarterly revenues and profitability in its second fiscal quarter due to
the peak activity of the U.S. Postal Service during the Christmas season and in
its first and fourth fiscal quarters when production schedules of the automotive
industry typically increase.
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<PAGE> 31
The following table reflects certain selected quarterly operating results,
which have not been audited or reviewed, for each quarter since the fiscal
quarter ended May 31, 1994. The information has been prepared on the same basis
as the audited Consolidated Financial Statements appearing elsewhere in this
Prospectus and includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the information shown. The
Company's results vary significantly from quarter to quarter and the operating
results for any quarter are not necessarily indicative of the results that may
be expected for any future period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------------------------------------
AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28 MAY 31
1994 1994 1995 1995 1995 1995 1996 1996
--------- ----------- ----------- ------- --------- ----------- ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues........... $31,122 $29,593 $31,743 $16,835 $25,539 $36,045 $48,577 $22,504
Gross profit............. 4,275 5,210 6,290 2,310 4,368 5,936 8,190 3,265
Operating income
(loss)................. 2,022 3,310 3,912 660 1,463 3,564 2,447 897
Net income (loss)........ 1,623 1,960 2,298 192 (34) 1,956 1,273 182
Net income (loss) per
share.................. $ 0.20 $ 0.25 $ 0.29 $ 0.02 $ (0.01) $ 0.25 $ 0.16 $ 0.02
</TABLE>
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<PAGE> 32
BUSINESS
GENERAL
Kitty Hawk is one of the leading providers of air freight charter services
in the United States, emphasizing highly-reliable, time-sensitive services. The
Company's air freight carrier owns 24 aircraft, 16 of which are currently used
in scheduled airport-to-airport freight service under contracts primarily with
major freight forwarders in North America and the Pacific Rim. These contracts
generally require the Company to supply aircraft, crew, maintenance, and
insurance ("ACMI") and to meet certain on-time performance standards, while its
customers are responsible for substantially all other operating expenses,
including fuel. Additionally, Kitty Hawk is the leading provider of same-day air
logistics charter services in the United States. Through its advanced,
proprietary computer software, the Company manages delivery of extremely time-
sensitive freight utilizing the on-demand charter services of both third-party
air freight carriers and planes from the Company's fleet that are not then
committed to ACMI service. The Company's total revenues have increased to $103.7
million in fiscal year 1995 from $33.4 million in fiscal year 1991. During the
same period, the Company's owned aircraft fleet grew to 21 aircraft from 9
aircraft. Kitty Hawk has been profitable in every fiscal year since its
inception in 1985.
OVERVIEW OF EXPEDITED AIR FREIGHT TRANSPORTATION INDUSTRY
The expedited air freight transportation industry is composed largely of
same-day, next-day, and two-day services for the delivery of heavy-weight
freight (as distinguished from packages). The Company directly participates in
the same-day service segment of this industry by coordinating on-demand air
charters and ancillary services through third-parties and by providing on-demand
air charters through its own air freight carrier. Kitty Hawk also indirectly
participates in the next-day and two-day delivery segment of this industry by
providing ACMI contract charters for air freight companies.
ACMI Contract Charters. The next-day and two-day freight delivery business
for heavy-weight freight is dominated by large nationally known companies such
as Burlington Air Express, Inc., DHL Airways, Inc., and Emery Worldwide
Airlines, Inc. The Company's air freight carrier indirectly participates in
these businesses by providing primary and additional lift capacity through ACMI
contract charters for airfreight companies on designated routes for specific
time periods. The Company's air freight carrier has also historically provided
contract charters for mail delivery for the U.S. Postal Service. Most contracts
with these customers are for periods varying from thirty days to three years.
Kitty Hawk does not engage directly in the next-day or two-day delivery
business, and, therefore, does not compete directly with its customers in this
segment.
According to the "McDonnell Douglas World Economic and Traffic Outlook
1995," the growth rate in international cargo traffic during 1994 was 5.7% while
the amount of cargo flown on domestic routes grew by 5.6%, which resulted in
overall world cargo traffic growth of 5.7% during 1994. The "Boeing 1995 World
Air Cargo Forecast," predicts the world air freight (non-mail) market will
increase at an average rate of 6.7% per year through, and triple by, 2014.
During this time period, the intra-Asia air freight market is predicted by the
same source to grow by over 8% per year and the U.S. domestic air freight market
is expected to grow approximately 5% per year. Consequently, Boeing projects a
corresponding increase in the world air cargo fleet to approximately 2,080
dedicated freighter aircraft in 2014 from approximately 1,003 dedicated
freighter aircraft in 1994. In the "Boeing 1996 Current Market Outlook," Boeing
updated this forecast to 2,260 dedicated freighter aircraft in 2015. Of this
increase in the number of dedicated air freighter aircraft, Boeing expects the
small freighter aircraft class, which includes the Boeing 727-200, to account
for approximately 26% of this increase. Each of the foregoing projected growth
rates are estimates only and there can be no assurance that such rates of growth
will be achieved.
As the Stage III noise control standards are phased into effect by January
1, 2000, the Company believes the supply of Boeing 727-200 aircraft available
for freighter reconfiguration will increase as commercial airlines retire all or
portions of their passenger-equipped 727-200s rather than bringing them into
compliance with the Stage III noise control regulations. With over 180 Boeing
707s and certain "short" Douglas DC-8s facing likely retirement from use in the
U.S. market because of the costs of equipping these aircraft to comply
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<PAGE> 33
with the Stage III noise control standards, which the Company believes is not
economically feasible, the Company also believes that in many cases freight
traditionally shipped on such aircraft will be shipped in the future on Boeing
727-200F aircraft. See "Government Regulation." There can be no assurance,
however, of the future availability of Boeing 727-200 aircraft or the status of
the Boeing 727-200F as an aircraft type favored for freighter use in replacement
of retired freighter aircraft types. See "Business -- Aircraft Ownership and
Operation."
On-Demand Air Logistics. In contrast to the market for next-day and two-day
delivery services of heavy-weight freight, the Company believes that the market
in North America for on-demand air logistics is served by hundreds of air
freight carriers, the vast majority of which are privately held, operate from
only one location, and do not coordinate "door-to-door" charter delivery
services to the extent provided by the Company. Of these air charter companies
in the Company's database, the Company believes approximately 40 are operated
under Part 121 of the FAA regulations and are therefore licensed to operate
aircraft certificated to transport in excess of 7,500 pounds of freight. The
Company's air freight carrier also operates under Part 121 of the FAA
regulations.
Kitty Hawk believes that future demand for expedited, same-day air
logistics services from commercial and industrial customers will depend upon a
number of factors, including: (i) outsourcing -- more companies, seeking to
outsource non-core activities, determine that air freight delivery operations
can be outsourced effectively; (ii) enhanced inventory management -- more
companies determine to emphasize or place greater emphasis on "just-in-time"
deliveries and other methods to improve the management of inventory through the
use of reliable, same-day air freight delivery services; and (iii) increased
customer expectations -- more companies experience a need for expedited,
same-day delivery service as their expectations for the timeliness of deliveries
increases.
BUSINESS STRATEGY
The Company's strategy is to continue its rapid growth by: (i) acquiring
additional Boeing 727-200 aircraft primarily for its ACMI contract business to
meet expected growth in air freight transportation demand in both the North
American and Pacific Rim markets, (ii) increasing its focus on marketing to
firms reducing inventory and shortening product cycle times through direct air
shipments from manufacturer to end user, (iii) continuing to provide high
quality service through the ongoing development and enhancement of its
computerized database, information software, and tracking systems, and (iv)
pursuing the acquisition of domestic and international strategic suppliers of
on-demand air and related ground transportation services.
Acquiring Additional Aircraft to Meet Expected Growth in the Air Freight
Industry. Kitty Hawk intends to acquire additional Boeing 727-200 aircraft to
capitalize upon the projected demand for small freighters in the world air cargo
market. See "Overview of Expedited Air Freight Transportation Industry -- ACMI
Contract Charters."
Increase Marketing to Firms Reducing Inventory and Shortening Product Cycle
Times. The Company believes that many manufacturing and non-manufacturing firms
are adopting inventory management systems that reduce inventory and shorten
product cycle times. To avoid costly inventory shortages or work stoppages, such
inventory management systems often require on-demand air charters to supply
inventory directly from the manufacturer to the end users. Kitty Hawk has
recently expanded, and will continue to expand, its marketing efforts,
particularly its logistics and air freight carrier services, to potential and
existing customers outside of the automotive industry. See "Business -- Sales
and Marketing."
Continuing to Provide High Quality Services Through Enhanced Technology.
The Company's full-time staff of five computer programmers intends to continue
developing systems and software to enhance productivity, knowledge, and customer
service. The Company has developed and is testing an Internet system to provide
its account managers with real-time updates on available third party on-demand
air charter aircraft across North America. The Company believes that this system
will enable it to meet customer demands more efficiently and quickly in the
future. In addition, Kitty Hawk is working to enhance communication between its
flight managers and flight crews by utilizing laptop computers with
communications software that will enable the Company to quickly exchange
operating data between Company headquarters and an aircraft,
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<PAGE> 34
including while such aircraft is airborne. By increasing speed and reliability
of communications through the use of these laptop computers, the Company
believes it can reduce telecommunications and labor costs. Finally, Kitty Hawk
intends to provide its maintenance and flight crews with on-line access to the
latest operating and maintenance manuals stored on CD-ROMs.
Acquire Strategic Suppliers of On-Demand Transportation Services. The
Company intends to acquire third party suppliers of on-demand air and related
ground transportation services. As the leading provider of expedited, same-day
air logistics charter services in a highly fragmented industry, the Company
believes such acquisitions should provide strategic and operational benefits,
including the reduction of costs that result from centralizing finance,
administration, and information technology functions. Additionally, because the
Company's gross profit margin on flights flown by third party air freight
carriers is generally lower than on flights flown by the Company's air freight
carrier, Kitty Hawk believes that such acquisitions will increase its average
gross profit margin. However, the Company is not presently engaged in any
negotiations and has no present understandings, agreements, or commitments with
respect to any business acquisition.
AIR FREIGHT CARRIER
General
Kitty Hawk has owned and operated aircraft for on-demand air freight
charter services since 1985. In 1987, the Company's air freight carrier was
expanded to include ACMI contract charter service. Pursuant to ACMI contracts,
the Company's air freight carrier provides scheduled charters carrying
heavy-weight freight and mail for entities that engage primarily in next-day and
two-day delivery service to their customers. The Company's air freight carrier
monitors its on-time performance for its ACMI contract charter and on-demand
functions.
Aircraft Fleet
The Company owns and operates 22 aircraft in revenue service and has
recently purchased two additional Boeing 727-200 aircraft that the Company
expects to place into revenue service in January 1997. The following table
contains certain information about the Company's fleet:
<TABLE>
<CAPTION>
MAXIMUM
TAKE-OFF YEAR CURRENT
AIRCRAFT TYPE WEIGHT (LBS) MANUFACTURED ENGINE MODEL USE CURRENT BASE
- ----------------------------------------------- ------------ ----------------- ---------- -------------------------
<S> <C> <C> <C> <C> <C>
Boeing 727-200..................... 194,800 1978 P&W JT8D-15 * *
Boeing 727-200 194,800 1978 P&W JT8D-15 * *
Boeing 727-200F.................... 178,000 1976 P&W JT8D-9A ACMI Phoenix, AZ
Boeing 727-200F.................... 178,000 1976 P&W JT8D-15 ACMI Saipan, CNMI
Boeing 727-200F.................... 194,800 1975 P&W JT8D-15 ACMI San Jose, CA
Boeing 727-200F.................... 194,800 1975 P&W JT8D-15 ACMI Brownsville, TX
Boeing 727-200F.................... 175,500 1975 P&W JT8D-9A On-Demand Ypsilanti, MI
Boeing 727-200F.................... 178,000 1969 P&W JT8D-9A ACMI Austin, TX
Boeing 727-200F.................... 178,000 1969 P&W JT8D-9A ACMI Minneapolis/St. Paul, MN
Boeing 727-200F.................... 178,000 1968 P&W JT8D-9A ACMI Manila, Philippines
Douglas DC-9-15F................... 90,700 1968 P&W JT8D-7B ACMI Syracuse, NY
Douglas DC-9-15F................... 90,700 1968 P&W JT8D-7B On-Demand Ypsilanti, MI
Douglas DC-9-15F................... 90,700 1967 P&W JT8D-7B On-Demand Dallas/Ft. Worth, TX
Douglas DC-9-15F................... 90,700 1967 P&W JT8D-7B On-Demand Ypsilanti, MI
Douglas DC-9-15F................... 90,700 1967 P&W JT8D-7B On-Demand Ypsilanti, MI
Convair 640........................ 55,000 1957 Rolls Royce Dart ACMI Ypsilanti, MI
Convair 640........................ 55,000 1957 Rolls Royce Dart ACMI El Paso, TX
Convair 640........................ 55,000 1952 Rolls Royce Dart ACMI Laredo, TX
Convair 640........................ 55,000 1952 Rolls Royce Dart On-Demand El Paso, TX
Convair 600........................ 46,200 1949 Rolls Royce Dart ACMI Memphis, TN
Convair 600........................ 46,200 1948 Rolls Royce Dart ACMI Pittsburgh, PA
Convair 600........................ 46,200 1948 Rolls Royce Dart ACMI Cleveland, OH
Convair 600........................ 46,200 1948 Rolls Royce Dart ACMI El Paso, TX
Convair 600........................ 46,200 1948 Rolls Royce Dart ACMI Albuquerque, NM
</TABLE>
- ---------------
* These aircraft, acquired in July 1996, will undergo certain maintenance and
modification procedures, including cargo reconfiguration and noise abatement
modifications, prior to operating in revenue service for the Company. The
Company anticipates that these aircraft will initially be dedicated to ACMI
contract service.
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<PAGE> 35
The aircraft described above do not include two piston engine Convairs
owned by the Company that are operated by Rhoades Aviation, Inc. pursuant to a
lease purchase agreement with the Company. Under the terms of the lease purchase
agreement, the Company has granted to Rhoades Aviation, Inc., an option to
purchase either or both of these aircraft at a price that decreases to zero over
the term of the lease purchase agreement. The aircraft described above also do
not include a Westwind 1124 jet aircraft owned by the Company and utilized
solely for the transport of Company personnel.
ACMI Contracts
As an FAA Part 121 certificated carrier, the Company's air freight carrier
provides primary lift capacity as well as additional lift capacity for overflow
and seasonal freight transportation needs on an ACMI contract basis. In the nine
months ended May 31, 1996, ACMI contracts accounted for approximately 19.5% of
the Company's total revenues.
As of the date of this Prospectus, Kitty Hawk was operating seven Boeing
727-200Fs, eight Convairs and one Douglas DC-9-15F under ACMI contracts with
Burlington Air Express, Inc., Ting Hong Oceanic Enterprises Co., Ltd., Pacific
East Asia Cargo Airlines, Inc., DHL Airways, Inc., and Emery Worldwide Airlines,
Inc. The Company believes that its relationships with its ACMI customers are
mutually satisfactory. However, there can be no assurance that such contracts
will not be canceled in accordance with their terms. See "Risk
Factors -- Dependence on Significant Customers." On July 15, 1996, the Company
entered into an ACMI contract with Pan Air Lineas Aereas S.A. ("Pan Air") to
lease one Boeing 727-200F aircraft to Pan Air in scheduled service from a GD
Express Worldwide, N.V. hub in Cologne, Germany. The lease is scheduled to
commence on September 15, 1996 and terminate on November 29, 1996.
The Company's ACMI contracts typically require the Company to supply
aircraft, crew, maintenance, and insurance, while its customers are responsible
for substantially all other aircraft operating expenses, including fuel, fuel
servicing, airport freight handling fees, landing and parking fees, ground
handling expenses, and aircraft push-back costs. These ACMI contracts also
typically require the Company to operate specific aircraft and/or provide
minimum air freight capacity, and generally are terminable if the Company (i)
fails to meet certain minimum performance levels, (ii) otherwise breaches the
contract, or (iii) becomes subject to other customary events of default.
The ACMI contracts also provide that the Company has exclusive operating
control and direction of each aircraft the Company operates and that certain
foreign-based customers must obtain any government authorizations and permits
required to service the designated routes. See "-- Government Regulation."
Therefore, the Company's route structure is limited to areas in which customers
gain access from the relevant governments. The Company is permitted under its
ACMI Contracts to utilize, and, in fact often does utilize, its aircraft in
on-demand service in the periods between ACMI contract flights.
Burlington Air Express, Inc. Burlington Air Express, Inc. ("Burlington")
currently leases under one ACMI contract five of the Company's Boeing 727-200Fs
and under a separate ACMI contract three of the Company's Convairs. Under each
contract, Burlington pays the Company a fixed fee for each scheduled round-trip
flown by the Company and a per hour charge for any non-scheduled flight
requested by Burlington. At present, each of the five Boeing 727-200Fs leased by
Burlington is scheduled to fly five round-trips per non-holiday week.
The Boeing 727-200F ACMI contract is for a term expiring on March 1, 1999,
but pursuant to the terms of the contract, either party may upon thirty days'
written notice terminate the services of one Boeing 727-200F aircraft
immediately and one additional Boeing 727-200F aircraft on or after each of
March 1, 1997, March 1, 1998 and September 1, 1998. In addition, Burlington may
earlier terminate the contract if, among other reasons, the Company fails to
meet certain performance standards or if majority ownership or control of the
Company is acquired by a competitor of Burlington. The Company operates three
Convairs on behalf of Burlington pursuant to a contract between the parties on
terms substantially similar to those set forth in the Boeing 727-200F ACMI
contract between the parties.
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<PAGE> 36
Pacific East Asia Cargo Airlines, Inc. Pacific East Asia Cargo Airlines,
Inc. ("PEACA"), an affiliate of TNT Express Worldwide, Inc., currently leases
one of the Company's Boeing 727-200F aircraft in scheduled service from Manila,
Philippines under an ACMI contract that expires on April 26, 1998. PEACA may
earlier terminate the contract if the Company fails to meet certain performance
standards. Under the terms of the contract, PEACA pays the Company a guaranteed
fixed monthly fee and an additional fixed charge per flight hour per month in
excess of a certain threshold. The contract provides that prior to September 30,
1996, PEACA may give notice to require the Company, within six months of such
notice, to upgrade the current Boeing 727-200F Stage II aircraft to a Boeing
727-200F Stage III aircraft with certain specified engines and hushkit. See
"Business -- Government Regulation." In the event PEACA exercises its option,
the charges under the contract will automatically increase to certain specified
levels. Because all of the Company's revenues from this ACMI contract, and many
of its costs, are in U.S. dollars, the Company is able to minimize currency
risks normally associated with doing business overseas.
Ting Hong Oceanic Enterprises, Ltd. Ting Hong Oceanic Enterprises Co., Ltd.
("Ting Hong") currently leases one of the Company's Boeing 727-200F aircraft in
scheduled service from Saipan, CNMI under an ACMI contract that expires on
August 31, 1997. Ting Hong may earlier terminate the contract if the Company
fails to meet certain performance standards. Under the terms of the contract,
Ting Hong pays the Company in U.S. dollars a guaranteed fixed monthly fee and an
additional fixed charge per flight hour per month in excess of a certain
threshold. In connection with a recent extension of the contract's term, Ting
Hong granted the Company certain rights of first refusal to match third parties'
rates and terms with respect to new operating leases or renewals or extensions
of existing operating leases for services similar to those provided under the
contract.
DHL Airways, Inc. DHL Airways, Inc. ("DHL") currently leases four Convairs
and one Douglas DC-9-15F from the Company under an ACMI contract that is
terminable upon thirty days' prior written notice. For use of the aircraft, DHL
pays the Company a fixed charge per scheduled round-trip less certain penalties
for late departures or arrivals, other than as a result of delays beyond the
Company's control or caused by DHL's fault or negligence. Currently, each
aircraft leased by DHL under this contract is scheduled to fly five round-trips
per non-holiday week. DHL may earlier terminate the contract if the Company
fails to meet certain performance standards.
On-Demand Charter Service
The air freight carrier provides on-demand charter service for customers of
the Company's air logistics business. Approximately 3.4%, 7.7%, 8.7%, and 8.8%
of the on-demand charters managed by the Company during fiscal years 1993, 1994,
and 1995 and the nine months ended May 31, 1996, respectively, were flown by the
air freight carrier. These charters were flown mostly for GM. The Company also
has flown its own aircraft on certain of the seasonal charters it has managed
for the U.S. Postal Service. See "Air Logistics -- Seasonal Charters for the
United States Postal Service."
The Company intends to direct a higher percentage of on-demand charters to
its air freight carrier as its fleet size increases. On-demand contract charters
flown by the air freight carrier generate a higher gross margin to the Company
than charters subcontracted to third-party carriers.
Acquisition Program
Kitty Hawk has embarked on a program of selective aircraft acquisitions
because it believes certain aircraft can be profitably deployed to increase its
ACMI contract charter business as well as on-demand charter services. In fiscal
year 1997, the Company intends to add five Boeing 727-200F aircraft to its
airline fleet, three of which the Company anticipates initially will be
dedicated to ACMI contract charter use and two initially dedicated to on-demand
charters. See "Use of Proceeds." Although Kitty Hawk has not entered into any
contracts to utilize the aircraft to be purchased with the proceeds of the
offering and no such contract is imminent, the Company currently is negotiating
with a number of existing and potential customers for ACMI contract charters.
The Company believes, based upon its knowledge of the on-demand market, that it
can utilize two of the additional Boeing 727-200Fs to be acquired with the
proceeds of the offering for the foreseeable future in on-demand service without
violating the terms of the GM Agreement. The Company,
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<PAGE> 37
however, periodically evaluates the utilization of its owned aircraft and,
therefore, the Company's actual aircraft use may vary materially from the
current plans. Any jet aircraft not in use on an ACMI contract charter route may
be employed in on-demand service. See "Risk Factors -- Dependence on Significant
Customers" and "Business -- Air Freight Carrier -- Aircraft Fleet."
AIR LOGISTICS
General
On-demand air charters of heavy-weight freight generally are used when
"next-flight-out" delivery services of commercial airlines or the next-day
delivery services of air freight companies or other service providers cannot
meet the customer's delivery deadline. Utilizing a proprietary computerized
database, the Company's air logistics services involve coordinating
"door-to-door" transportation by arranging for ground pick-up, loading, air
transportation, unloading, and ground delivery of the freight. Kitty Hawk has
managed a broad variety of freight shipments including military equipment,
satellites, rescue/disaster recovery supplies, and exotic animals.
The most frequent use of on-demand charters is to deliver manufacturing or
replacement parts to avoid a work stoppage. Manufacturers who employ the
"just-in-time" methodology encourage the order and delivery of inventory just
before it is needed at the assembly plant. On-demand charters also are used to
transport replacement parts on an expedited basis so that critical equipment can
be kept operational or put back in service to avoid or minimize the length of a
shut-down. Firms that are reducing inventory and shortening product cycle times
through direct air shipments also use on-demand charters. For example, the
Company has transported goods for electronics and apparel concerns between their
domestic operations and their operations in Central or South America. The
Company intends to increase its marketing focus on such types of firms. See
"Business -- Sales and Marketing."
The customers of the Company's on-demand air logistics services include
companies that are engaged in industries such as automotive, chemical, computer,
mail and bulk package delivery, retail merchandising, and oil field service and
equipment. Typically, the premium costs incurred in utilizing on-demand charters
to achieve expedited same-day delivery are justified by the Company's customers
on the basis that greater costs would otherwise be incurred as a result of a
work stoppage or having to maintain greater inventory levels.
A significant portion of all on-demand, same-day air freight charters in
North America is accounted for by the automotive industry. The importance of the
automotive industry to on-demand air charters reflects the large number of
automobile parts, the complexity of an automotive manufacturer's supplier and
assembly plant network, and the high cost of shutting down production
facilities. Kitty Hawk believes that "just-in-time" inventory systems have
increased the use of on-demand air charters by the automotive industry and that
on-demand air charters are an integral cost of such "just-in-time" inventory
management systems. Because automotive manufacturers generally carry less
inventory than in the past, unanticipated parts shortages may occur more
frequently.
The Company has experienced rapid growth in the number of on-demand
charters managed for customers unrelated to the automotive industry. The Company
believes it managed 919 non-automotive on-demand charters for the nine months
ended May 31, 1996 as compared to 634 non-automotive on-demand charters for the
nine months ended May 31, 1995.
Delivery of Logistics Services
For the nine months ended May 31, 1996, Kitty Hawk arranged an average of
approximately 41 on-demand charters per day and it has arranged as many as 214
charters in a single day. Each transaction originates from a customer's
telephonic request to arrange a charter answered by one of the Company's 16
full-time account managers who are on duty 24 hours per day, 365 days per year.
The information collected during the first few minutes after a request for a
charter is received is critical to the successful completion of the charter on a
timely basis. The Company believes it provides dependable service on a
cost-effective basis
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<PAGE> 38
because of its computerized database, information software, and tracking
systems, its training of account managers, and its standardized charter
management procedures.
With respect to each freight shipment managed by the Company, the account
manager is required to input the following information in a computerized charter
work sheet: (i) contact information for both the shipper and the recipient; (ii)
the estimated time the freight will be available at the shipper's location and
the estimated time the recipient needs the shipment delivered; (iii) the
specifications of the freight to be shipped; and (iv) information concerning
needed ground transportation between the shipper's facility and the origin
airport as well as between the destination airport and the recipient's facility.
The account manager (subject to the review of a supervisor) selects the
proper type of aircraft to be used for the shipment. Once the most appropriate
aircraft meeting the charter requirements has been identified, the information
maintained by the Company concerning the charter operator is reviewed to ensure
that the chosen carrier meets all of the Company's requirements. The account
manager also is responsible for airport selection. Factors which affect airport
selection include proximity to shipper/receiver, runway lengths and weight
bearing capabilities, instrument approach and weather reporting facilities, fuel
availability, and loading and unloading capabilities. Any ground transportation
and handling also are typically arranged by the account manager.
Unless the customer requesting the logistics services is already subject to
a written agreement concerning pricing, the customer is quoted a price per mile
by aircraft type on a round trip basis plus charges for loading, unloading, and
ground transportation. The shipment size and speed requirements are taken into
account in selecting aircraft type. The Company's per mile prices are developed
based upon a schedule of tariffs by aircraft type provided by third-party air
carriers.
The procedure for account managers is to maintain periodic communication
with the customer throughout the charter. The Company's goal is to notify the
customer of all details of the charter within 15 minutes after receiving the
request for a charter, including aircraft type, carrier, the time the material
will be picked up at the shipper's location, the time the aircraft will be in
position at the origin airport, when the aircraft will be loaded and depart,
flight time, and the time the shipment will be delivered to the recipient. If
any of these details change significantly during the course of the charter, the
customer is notified promptly.
Because a significant amount of information concerning a charter is
required to be assimilated by the account manager within a very short time
frame, the training period typically necessary for an account manager is between
six and nine months. Kitty Hawk has access to experienced outside personnel who
work as account managers on a temporary basis during periods of peak demand. The
Company believes its existing number of account managers is adequate for the
foreseeable future. Upgrades to the Company's computer systems and related
technology have facilitated an increase in the productivity of each account
manager and the Company will seek further upgrades. See "Business -- Sales and
Marketing."
Database, Information Software, and Tracking Systems
Database System. Kitty Hawk believes that its database is critical to its
ability to arrange on-demand air charters in a timely and reliable manner. The
Company maintains in its database a carrier profile for over 500 air freight
carriers that provide on-demand charter service. A carrier profile generally
contains the following information that is pertinent to the Company's carrier
selection decision: (i) the carrier's location and aircraft list, including
physical descriptions, year, make and model, and engines; (ii) the most recent
certificate of insurance obtained with respect to the carrier; (iii) copies of
the carrier's current FAA Air Carrier Certificates and Operating Specifications
and any other international operating certificates; (iv) the carrier's 24-hour
contact information; and (v) copies of the tariff agreement with the carrier.
The most utilized carriers are visited by Company representatives at least
annually to inspect the carrier's facilities and equipment and to update the
carrier database. The database also contains information concerning ground
transportation and aircraft loading companies in North America that is similar
to its information concerning air carriers.
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<PAGE> 39
The Company has developed and is testing an Internet system to provide its
account managers with real-time updates on available third party on-demand air
charter aircraft across North America. The Company believes that this system
will enable it to meet customer demands more efficiently and quickly in the
future.
Information Software System. The Company's logistics system was developed
in 1990 to automate access to the Company's database and has been frequently
revised and improved. This system provides on-screen information regarding air
carriers, aircraft type and specifications, fuel suppliers, cargo handlers, and
surface carriers, along with relevant cost information.
In addition, Kitty Hawk is an on-line subscriber to Jeppesen's Flight
Planning and Kavouras Meteorological services. The flight planning services
provided by Jeppesen integrate airport analyses (comprised of runway lengths,
altitudes, hours of operation and noise abatement procedures) with the current
weather data and other information to provide an automated flight plan. This
flight planning service then transmits electronically the automated flight plan
to the pilot and to the FAA contemporaneously.
The Company is currently testing the feasibility of a wireless information
link between a laptop computer located on-board the Company's aircraft and a
computer located at the Company's headquarters. This computer link, if
successful, will allow the Company to transmit flight plans, weather packages
and flight releases directly to the pilot. This on-board laptop computer is
expected to permit the pilot to compute and transmit weight and balance,
payload, flight times, and fuel into-plane information directly to Company
headquarters. In addition, Kitty Hawk intends to provide its maintenance and
flight crews with on-line access to the latest operating and maintenance manuals
stored on CD-ROMs.
Tracking System. In December 1993, the Company began operation of its
HawkEye system, which was developed internally by its full time programming and
computer support staff. HawkEye allows account managers to track an aircraft's
progress from origin to destination on his or her computer screen and on the
main projection board of the control room. Aircraft icons show each flight, its
direction, and information about the flight including the type of aircraft, the
flight number, its current altitude, ground speed, distance to destination, and
times of departure and estimated arrival. The data supporting the HawkEye System
is a direct data feed obtained from the FAA's Air Traffic Control computer
system. Although the data obtained by the HawkEye system is readily available
for a fee, the Company is not aware of any other air logistics provider that
currently uses the FAA data feed with some form of programming similar to
HawkEye. This real-time information available from the HawkEye system enables
the Company's account managers to provide a level of service which the Company
believes is not otherwise currently available in the market for on-demand,
same-day air logistics.
Seasonal Charters for the United States Postal Service
Since 1986, Kitty Hawk has managed Christmas season charters for the U.S.
Postal Service utilizing third-party air freight carriers in order to provide
additional lift capacity for this peak period. Of the Company's total revenues
for fiscal years 1993, 1994, and 1995 and the nine months ended May 31, 1996,
these Christmas season managed charters accounted for $14.3 million (21.8%),
$8.3 million (7.7%), $6.0 million (5.8%), and $19.7 million (18.4%),
respectively. The U.S. Postal Service awards contracts periodically pursuant to
a public bidding process that considers quality of service and other factors,
including to a lesser extent price. Bids for contracts to provide these
Christmas season charters generally are submitted in the summer of each year and
are typically awarded during the following fall. The Company recently bid for an
annual contract with the U.S. Postal Service for the 1996 Christmas season peak
mailing period. In the future, the air freight carrier may fulfill certain
Christmas season charters with the U.S. Postal Service. See "Risk
Factors -- Dependence on Significant Customers."
MAINTENANCE
The Company's aircraft require considerable maintenance in order to remain
in compliance with FAA regulations. The Company estimates that at current rates
of operation of its existing fleet, during the fiscal year 1997, the next
scheduled major overhaul maintenance checks for six Boeing 727-200Fs will be
completed and, during the fiscal year 1998, three will be completed. The Company
does not anticipate any of its aircraft, at
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current rates of operation, requiring major overhaul maintenance checks during
fiscal year 1999. The Company estimates that the service life of each of its
revenue aircraft extends beyond the year 2000. Kitty Hawk historically has
followed, and currently intends to follow, a policy of retiring Convairs at the
time of their next scheduled major overhaul maintenance checks rather than
expending the amounts necessary for such checks.
Any equipment being placed on the Company's operating certificate is
inspected and repaired prior to being utilized by the Company for either
on-demand or ACMI contract charters. The Company's maintenance facilities enable
it to perform all required airframe maintenance and minor engine repairs on the
aircraft ranging from overnight "turnaround" checks to major airframe overhauls.
The Company performs all maintenance for its fleet, including line maintenance,
at its own maintenance facilities, except for repairs to avionics and overhauls
of engines and airframes. All contract maintenance is performed by subcontracted
FAA-approved maintenance facilities under the on-site supervision and/or
inspection of Company quality assurance personnel. Management currently
anticipates no difficulties in acquiring needed parts. See "Risk
Factors -- Aircraft Ownership and Operation."
The Company has engaged in accident-free operation of aircraft since its
inception in 1985 (the FAA defines "accident" as an aircraft occurrence
involving death, injury, or substantial damage). The Company has been fined by
the FAA only once in its operating history, when in 1988, it was fined $5,000
for operating a Convair with one less than the required number of engine fire
suppression systems.
RELATIONSHIP WITH GM
From the mid-1980s through June 1990, Kitty Hawk used its own aircraft to
fly on-demand charters for GM assembly plants and suppliers that directly
acquired on-demand charters from the open market. In 1990, GM made the decision
to outsource its air logistics function. From among many bidders, including some
of the largest cargo airlines and air freight forwarders in the United States,
the Company was selected as GM's primary air logistics provider.
Under the terms of the GM Agreement, the Company's air logistics business
is encouraged to utilize the air freight carrier but is prohibited from (i)
placing with the Company's air freight carrier in excess of 30% of the total
number of air charters arranged for GM in any calendar year and (ii) placing
with the Company's air freight carrier charters producing revenue in excess of
30% of the total revenue derived from air charters arranged for GM in any
calendar year. In the nine months ended May 31, 1996, the Company's air freight
carrier flew 583 on-demand charters (or 8.1% of total charters arranged for GM
by the Company's air logistics business) resulting in $7.9 million of revenues
to the Company (or 18.8% of the total revenues derived by the Company from GM).
The GM Agreement does not provide for automatic fuel price adjustments. Since
execution of the GM Agreement in June 1990, however, the Company and GM have
agreed to seven fuel price adjustments reflecting both increases and decreases
in the price of aircraft fuel.
The term of the GM Agreement extends through May 1997 and thereafter from
month-to-month until terminated by thirty days' written notice. The GM
Agreement, however, stipulates that in the event of an irreconcilable
difference, either party may, with or without cause, terminate the agreement
following a quarterly review meeting by giving the other party at least 30 days'
prior written notice thereof. Furthermore, GM may terminate the GM Agreement on
ten days' written notice if there is a change in (i) management of Kitty Hawk
Charters, Inc., the Company's wholly-owned subsidiary, through which the
Company's air logistics business is conducted, or (ii) the stock ownership of
the Company such that (a) Mr. Christopher no longer holds a majority of the
outstanding Common Stock of the Company or (b) a major automobile manufacturer
acquires more than 20% of the outstanding Common Stock of the Company, unless
such changes are communicated to GM at least 60 days prior to the effective date
and GM concurs with the changes.
Due to its significant use of on-demand charters, GM could conceivably
determine that it is more economical to arrange charters in-house. For the
following reasons, Kitty Hawk believes it is unlikely that GM will re-establish
in-house air logistics operations: (i) the Company's performance under the GM
Agreement has resulted in what the Company believes is a good relationship with
GM; (ii) such re-establishment of in-house air logistics operations is contrary
to the prevailing trend in the automotive industry towards outsourcing
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<PAGE> 41
and reducing general liability exposure; (iii) GM would have to make a
significant investment in personnel and systems to replicate the Company's
service capabilities; and (iv) the Company believes that it provides service at
a lower total cost than GM can achieve by arranging air logistics in-house.
SALES AND MARKETING
The Company's primary marketing focus is on transportation executives,
financial officers, and purchasing directors of major users of air freight
transportation services and other logistics providers. In connection with the
Company's emphasis on developing and maintaining long-term relationships with
major customers, an individual from the Company is dedicated to particular
accounts. This individual is responsible for educating the client about the
Company's service capabilities, ensuring quality service, and determining how
the Company can best serve the customer. The Company's five dedicated sales and
marketing personnel, in addition to the Company's 16 account managers, typically
maintain close customer contact through weekly calls and periodic visits. Four
of the Company's five dedicated marketing personnel concentrate on developing
air logistics business outside of the automotive industry in keeping with the
Company's strategy of diversifying its air logistics customer base. These
efforts will include an increased focus on firms that are reducing inventory and
shortening product cycle times. The marketing effort on behalf of the air
freight carrier business is primarily focused on selected freight forwarders and
integrators and the existing customers of its air freight carrier business.
Customers also are encouraged to visit Kitty Hawk to meet with Company
executives, tour facilities, and learn more about the Company's services. The
Company does not engage in a significant amount of mass media advertising.
Kitty Hawk believes that retaining existing customers is equally as
important as generating new clients and is a direct result of customer
satisfaction. The Company will continue to upgrade its database, information
software, and tracking systems to maintain high quality service. The Company has
developed a feature that enables customers to access the Company's aircraft
tracking system on a "real time" basis to monitor their own freight. This
feature allows account managers to be more productive by reducing time spent
updating customers on the status of shipments.
EMPLOYEES
At May 31, 1996, Kitty Hawk employed approximately 281 full-time personnel,
of which 47 were involved in sales and administrative functions and 234 in
maintenance and flight operations (including 127 pilots). The Company is not
party to any collective bargaining agreement and considers its relations with
its employees to be satisfactory. The Company intends to motivate certain
employees through ownership of Common Stock and options to purchase Common Stock
and to encourage all employees to own Common Stock.
GROUND FACILITIES
Kitty Hawk occupies a 40,000 square foot facility located at Dallas/Fort
Worth International Airport. This facility includes administrative offices,
maintenance work areas, and hangar and parts storage facilities as well as
flight operations and training facilities. The Company has an option to purchase
the building, subject to the consent of the Dallas/Fort Worth Regional Airport
Board, with an exercise price of $2.0 million at June 30, 1996, which option
amount decreases by $5,000 per month, pursuant to a five-year lease agreement
that commenced March 1, 1993. The option to purchase the property will expire on
March 1, 1997. There is no stated renewal on the lease. The Company presently
intends to either exercise its option or to attempt to negotiate an extension of
the lease. See "Management -- Certain Transactions."
Management believes that its current facilities are adequate to support the
growth in operations that the Company believes will result from the purchase of
seven Boeing 727-200s. The Company maintains an approximately 20,000 square foot
secondary maintenance facility comprised of a maintenance work area, hangar and
an area for the storage of certain aircraft repair parts and maintenance items.
In addition, Kitty Hawk occupies approximately 12 small rental parts storage
spaces (aggregating approximately 2,000 square feet) at a number of origin
airports around the country and in the Pacific Rim, principally supporting the
ACMI contract charter operations, and approximately four apartments in various
locations (aggregating approximately 7,500 square feet) for flight crew
layovers. In conjunction with providing warehouse services for
39
<PAGE> 42
IBM, the Company utilizes an aggregate of less than 2,000 square feet of
warehouse space at approximately 13 locations throughout the United States.
GOVERNMENT REGULATION
The Company's air freight carrier is subject to Title 49 of the United
States Code (formerly the Federal Aviation Act of 1958, as amended), under which
the DOT and the FAA exercise regulatory authority over air carriers.
The DOT regulates the economic aspects of the airline industry, while the
FAA regulates air safety and flight operations. The DOT is primarily responsible
for regulating economic issues affecting air service, including, among other
things, air carrier certification and fitness, insurance, consumer protection,
unfair methods of competition, and transportation of hazardous materials.
The FAA is primarily responsible for regulating air safety and flight
operations, including, among other things, airworthiness requirements for each
type of aircraft the Company's air freight carrier operates, pilot and crew
certification, aircraft maintenance and operational standards, noise abatement,
airport slots, and other safety-related factors.
The Company's operations are subject to routine, and periodically more
intensive, inspections and oversight by the FAA. Following a review of safety
procedures at ValuJet, Inc., the FAA on June 19, 1996, announced it would
propose changes to the FAA's and air carriers' oversight of contract maintenance
and training procedures which, if implemented, would result in higher scrutiny
of such maintenance and training procedures and could result in the Company
incurring increased maintenance costs for its contract maintenance. See
"Business -- Maintenance." Because the Company conducts operations for the U.S.
military, it is also subject to inspections by the Department of Defense (the
"DOD"). The Company's air freight carrier is also subject to regulation by the
DOD in connection with operations to military airfields and, in connection with
international operations, to regulation by the Department of Commerce, the U.S.
Customs Service, the Immigration and Naturalization Service, and the Animal and
Plant Health Inspection Service of the Department of Agriculture. The
Environmental Protection Agency has jurisdiction to regulate aircraft engine
exhaust emissions. All air carriers are also subject to certain provisions of
the Federal Communications Act of 1934, as amended, because of their extensive
use of radio and other communication facilities. Additional laws and regulations
have been imposed from time to time by federal, state, and local governments
that have increased significantly the cost of operations by imposing additional
requirements or restrictions on operations. For example, certain cities, states,
and local airport authorities prohibit flights in and out of their airports with
Stage II aircraft (as defined by the FAA) or between certain hours. The FAA has
proposed amendments to its flight and rest time regulations which, if adopted as
proposed, could restrict the ability of the Company to respond to a shipper's
request for same day delivery and/or would require the Company to hire and train
additional qualified pilots to perform the Company's flight operations.
The adoption of new laws, policies, or regulations or changes in the
interpretation or application of existing laws, policies, or regulations,
whether by the FAA, the DOT, the Federal Communications Commission, the United
States government, or any foreign, state, or local government, could have a
material adverse impact on Kitty Hawk and its operations.
The Company's revenue fleet is comprised of ten Boeing 727-200 aircraft
manufactured between 1969 and 1978, five Douglas DC-9-15 aircraft manufactured
during 1967 and 1968, and nine turbo-prop Convairs manufactured between 1948 and
1957. Manufacturer's Service Bulletins ("Service Bulletins") and FAA
Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of these aircraft to be
subject to extensive aircraft examinations and may require certain of these
aircraft to undergo structural inspections and modifications to address problems
of corrosion and structural fatigue at specified times. It is possible that
additional Service Bulletins or Directives applicable to the types of aircraft
included in the Company's fleet could be issued in the future. The cost of
compliance with Directives and Service Bulletins cannot currently be estimated,
but could be substantial.
40
<PAGE> 43
Airline operators must comply with FAA noise standard regulations
promulgated under Title 49 of the United States Code, the Noise Control Act of
1972, the Quiet Communities Act of 1978, the Airport Noise and Capacity Act of
1990, and the Environmental Protection Agency Engine Emission Regulations
promulgated under the Clean Air Act of 1970, as amended (collectively, the
"Noise Regulations"). The Noise Regulations affect the Company's five Douglas
DC-9-15Fs and its eight Boeing 727-200Fs (the "Jet Fleet"). Four of the aircraft
in the Jet Fleet are currently in compliance with Stage III noise control
standards. By the following deadlines, the Company must bring the Jet Fleet into
Stage III compliance to the extent indicated: December 31, 1996, 50%; December
31, 1998, 75%; and January 1, 2000, 100%. Kitty Hawk intends to comply with the
next deadline of December 31, 1996 by modifying one of its DC-9-15Fs and two of
its 727-200Fs with noise suppression kits during November and December of 1996
for a total cost of $6.8 million (FAA rules permit rounding down to the next
whole aircraft to determine 50% of fleet size). In addition to three firm orders
for noise suppression kits, the Company currently holds an option for six noise
suppression kits and their installation for Boeing 727-200Fs at a cost of $2.6
million for each aircraft modified. Certain airport operations have adopted
local regulations which, among other things, impose curfews and noise abatement
requirements. These local regulations currently have little effect on the
Company.
The DOT and the FAA have the authority to modify, amend, suspend, or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulation. In addition, the DOT and the FAA may
impose civil or criminal penalties for violations of applicable rules and
regulations. Such actions by the FAA or the DOT, if taken, could have a material
adverse effect on Kitty Hawk.
The DOT and the Environmental Protection Agency exercise regulatory
jurisdiction over the transportation of hazardous materials. The Company may
from time to time transport articles that are subject to these regulations.
Shippers of hazardous materials share responsibility for compliance with these
regulations and are responsible for proper packaging and labeling. Substantial
civil monetary penalties can be imposed on both shippers and air carriers for
infractions of these regulations.
Certain of the Company's air freight carrier operations are conducted
wholly between two or more points that are all located outside of the United
States. As with the certificates and license obtained from U.S. authorities, the
Company must comply with all applicable rules and regulations imposed by these
foreign aeronautical authorities or be subject to the suspension, amendment or
modification of its operating authorities.
On December 31, 1995, a 6.25% federal transportation excise tax applicable
to air freight transportation expired. Reinstatement of the tax or adoption of a
different tax or user fee by the government will result in higher costs to
shippers of air freight and air freight carriers, which may have a material
adverse effect on freight traffic, yields, revenue, and margins. On July 9,
1996, the U.S. Senate passed legislation that, if enacted into law, would
reinstate the 6.25% federal transportation excise tax.
Under current federal aviation law, the Company's air freight carrier could
cease to be eligible to operate as an air freight carrier if more than 25% of
the voting stock of the Company were owned or controlled by non-U.S. citizens.
Moreover, in order to hold an air freight carrier certificate, the president and
two-thirds of the directors and officers of an air carrier must be U.S.
citizens. All of the Company's directors and officers are U.S. citizens.
Furthermore, (i) the Certificate of Incorporation limits the aggregate voting
power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any
matter and (ii) the Bylaws do not permit non-U.S. citizens to serve as directors
or officers of the Company.
INSURANCE
The Company is vulnerable to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims involving injury to persons or
property. The Company is required by the DOT to carry liability insurance on
each of its aircraft, and each of the Company's aircraft leases and ACMI
contracts also requires the Company to carry such insurance. Any extended
interruption of the Company's operations due to the loss of an aircraft could
have a material adverse
41
<PAGE> 44
effect on the Company. See "Risk Factors -- Operations Dependent upon Limited
Fleet." The Company currently maintains public liability and property damage
insurance and aircraft liability insurance for each of the aircraft in the fleet
in amounts consistent with industry standards. Aircraft hull insurance is
maintained for all aircraft other than the Convairs. The Company maintains
baggage and cargo liability insurance if not provided by its customers under
ACMI contracts. Although the Company believes that its insurance coverage is
adequate, there can be no assurance that the amount of such coverage will not be
changed upon renewal or that the Company will not be forced to bear substantial
losses from accidents. Substantial claims resulting from an accident could have
a material adverse effect on the Company's financial condition and could affect
the ability of the Company to obtain insurance in the future.
The Company attempts to monitor the amount of liability insurance
maintained by the third-party carriers utilized in its air logistics business
through, among other things, the obtaining of certificates of insurance.
COMPETITION
The market for air freight carrier services has been and is expected to
remain highly competitive. Kitty Hawk competes with other air freight carriers
with regard to furnishing on-demand charters and ACMI contract charters. The
Company believes that the basis for such competition is price, quality of
service, and the location and performance characteristics of aircraft. The
Company's air freight carrier is also subject to competition from other modes of
transportation including, but not limited to, railroads and trucking.
Numerous competitors of Kitty Hawk provide or coordinate door-to-door air
freight charters on an expedited basis. The market for air logistics also has
been and is expected to remain highly competitive. The Company's principal
competitors for on-demand air logistics services are other air logistics
companies, air freight carriers which seek to book charters directly with
customers, and air freight companies that offer expedited service. During the
last fourteen months, each of Emery Worldwide, FedEx, and the United Parcel
Service have entered the expedited freight business by offering
"next-flight-out" service.
The Company's ability to attract and retain business also is affected by
the decisions of the transportation departments of commercial and industrial
businesses whether, and to what extent, to coordinate their own transportation
needs. Prior to 1990, GM conducted its air logistics business in-house. GM and
certain other customers maintain transportation departments that could be
expanded to manage charters in-house which could have a material adverse effect
on Kitty Hawk. With respect to the Company's ACMI contract charter business, the
Company could be adversely affected by the decision of certain of its
certificated customers to acquire additional aircraft, or by its uncertificated
customers to acquire and operate their own aircraft, to service routes currently
serviced by Company aircraft. Many of the Company's competitors and customers
have substantially greater financial resources than the Company.
LEGAL PROCEEDINGS
Litigation and Arbitration Related to Postal Contract
The U.S. Postal Service selected the Company's air freight carrier in
September 1992 as the successful bidder on a contract for a multi-city network
of air transportation services supporting the U.S. Postal Service's Express Mail
system. Another air freight carrier (the "Co-Bidder") was associated with the
Company in the successful bid (the "ANET bid"). Two unsuccessful bidders,
including Emery Worldwide Airlines, Inc. ("Emery") (the incumbent), sued to
enjoin the award. This litigation (the "ANET Litigation") was settled in April
1993 by agreements under which the U.S. Postal Service terminated the Company's
contract for convenience and awarded the contract to Emery. In lieu of damages
for the contract's termination, the U.S. Postal Service paid $10.0 million into
an escrow account to be divided between the Company and the Co-Bidder. Also
under the settlement, Emery delivered releases of the Company's contractual
obligations to purchase more than $40 million in aircraft and equipment, paid
$2.7 million into the escrow account, and agreed to pay $162,500 into the escrow
each quarter for up to 10 years so long as the Emery contract remained in
effect.
42
<PAGE> 45
Before settling the ANET litigation, the Company, Mr. Christopher, the
Co-Bidder and the Co-Bidder's stockholder agreed, among other things, to hold
the escrowed funds in escrow until they had agreed upon an allocation and
distribution, or until the matter was resolved by binding arbitration.
Subsequent disagreements led to litigation and arbitration among the Company,
Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder that were
resolved pursuant to a comprehensive settlement reached in August 1994. Under
the comprehensive settlement, the Company received approximately $3.5 million in
cash from the escrowed funds, and obtained a Boeing 727-200. Also under the
comprehensive settlement agreement, Mr. Christopher received rights to one-half
of any future contingent quarterly payments from Emery.
Qui Tam Litigation
In March 1995, the Company was served with a complaint filed on behalf of
the U.S. government by a third-party plaintiff seeking to share a recovery under
the Federal False Claims Act (the "Act"). The suit, filed in May 1994 in the
federal district court for the District of Columbia, was filed under seal in
accordance with the Act, to enable the U.S. Government to review the claim
before its disclosure to the defendants. The U.S. Government declined to pursue
the claim, but the third-party plaintiff chose to continue. The suit claimed
that the Company and the Co-Bidder fraudulently failed to disclose to the U.S.
Postal Service, both in the ANET bid and in the settlement of the ANET
litigation, that some of aircraft the Company proposed to purchase and use to
perform the contract were aging aircraft with high use, and claimed that the
Company, the Co-Bidder and Emery similarly fraudulently conspired in connection
with the settlement of the ANET litigation. The suit sought to recover treble
the $10 million settlement payment made by the U.S. Postal Service in settling
the ANET litigation, plus the third-party plaintiff's costs and fees.
In May 1996, the court granted the Company its motion to dismiss the suit
and awarded the Company its attorneys' fees and costs. The plaintiff has asked
the court to reconsider its ruling.
The Company does not expect the outcome to have a material adverse effect
upon the Company's financial condition or results of operations.
Litigation about Charter Agreement
The Company filed suit in the 14th Judicial District Court of Dallas
County, Texas against Express One International, Inc. ("Express One") in July
1992 claiming under a one-year aircraft charter by Express One to the Company
that Express One breached its obligations and seeking actual damages of
approximately $60,000. Express One counterclaimed that the Company wrongfully
repudiated the charter and fraudulently induced Express One to provide services
not required by the charter. Express One claimed damages of $356,718 for
services allegedly performed, $1,140,000 for additional fees it would have
received under the charter, an unspecified amount of punitive damages, and
additional amounts for its attorneys' fees and costs.
In February 1995, a jury verdict awarded the Company $25,000 in damages
plus its attorneys' fees and denied Express One's counterclaims. In May 1995,
the court entered judgment in favor of the Company for $25,000 in damages, for
$148,115 in attorneys' fees through trial, and for additional attorneys' fees if
Express One appealed. Before the time for appeal expired, Express One filed a
petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the Eastern District of Texas (Sherman Division). The Company filed
its claim based on the judgment in the bankruptcy proceeding. In November 1995,
Express One filed an appeal, to which the Company responded.
Kitty Hawk does not expect the outcome to have a material adverse effect
upon the Company's financial condition or results of operations.
Routine Litigation
The Company from time to time is involved in various routine legal
proceedings incidental to the conduct of its business. As of the date of this
Prospectus, the Company was not engaged in any legal proceeding expected to have
a material adverse effect upon the Company.
43
<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their ages, and
positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
-------------------------------- --- ------------------------------------------
<S> <C> <C>
M. Tom Christopher(1)........... 49 Chairman of the Board of Directors and
Chief Executive Officer
Tilmon J. Reeves................ 56 President, Chief Operating Officer, and
Director
Richard R. Wadsworth............ 49 Senior Vice President -- Finance, Chief
Financial Officer, Secretary, and Director
Theodore J. Coonfield(2)........ 48 Director
James R. Craig(2)............... 57 Director
Robert F. Grammer(1)(2)......... 60 Director
Lewis S. White(1)............... 56 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Board of Directors consists of seven members, including four
independent directors. Executive officers are elected by the Board of Directors
and serve at its discretion.
M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in 1985, and serves
in the class of directors whose terms expire at the 1997 annual meeting of
stockholders. Prior to assuming these positions, he formed and managed Kitty
Hawk Charters, Inc. He has over 18 years of experience in the air freight
industry, including serving as an account manager for Burlington Northern
Airfreight from 1976 to 1978.
TILMON J. REEVES has served as President and Chief Operating Officer of the
Company since May 1993 and has over 30 years of aviation experience. Prior to
assuming his current positions, he served as Vice President of the Company's air
freight carrier from March 1992 to May 1993. Prior to joining Kitty Hawk, Mr.
Reeves served as Vice President (Sales) of Express One from April 1991 to March
1992. Mr. Reeves served as the Managing Director -- Cargo Services for American
Airlines, Inc. from March 1989 to January 1991. Mr. Reeves became a director in
October 1994 and serves in the class of directors whose terms expire at the 1998
annual meeting of stockholders.
RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since
October 1992, Chief Financial Officer since September 1994, and Secretary since
October 1994. Prior to his current role, he served in a consulting capacity to
Kitty Hawk in the preparation of various bids for the Company's contract air
freight service from December 1991 to September 1992. Mr. Wadsworth served as
Senior Underwriter in the Dallas office of Stephens Inc. from September 1989
until July 1991. Mr. Wadsworth filed for bankruptcy protection in his individual
capacity in February of 1992. Mr. Wadsworth became a director in October 1994
and serves in the class of directors whose terms expire at the 1999 annual
meeting of stockholders.
THEODORE J. COONFIELD became a director of the Company in October 1994 and
serves in the class of directors whose terms expire at the 1998 annual meeting
of stockholders. Since April 1996, Mr. Coonfield has been a consultant with
Performance Consulting Group, a firm specializing in change management
consulting primarily in the banking and insurance industry. From January 1993 to
April 1996, Mr. Coonfield was a consultant with the Richard-Rogers Group, a
consulting firm specializing in total quality issues, where he primarily engaged
in consulting for firms in the transportation industry. From 1990 to December
1992, Mr. Coonfield was the Special Assistant to the Director of the Department
of Human Resources for the State of Oregon. Since 1985, Mr. Coonfield has been
the President of Oregon Wine Designs, Inc., a wine production and marketing
firm.
44
<PAGE> 47
JAMES R. CRAIG became a director of the Company in October 1994 and serves
in the class of directors whose terms expire at the 1997 annual meeting of
stockholders. Mr. Craig is an attorney who has served of counsel to Burke,
Wright & Keiffer, P.C. since 1990. Prior to his affiliation with Burke, Wright &
Keiffer, P.C., Mr. Craig was in private law practice in Dallas since 1971, and
in 1989 served as President of Whitehall Development Company, a real estate
development firm, of which he is now a director.
ROBERT F. GRAMMER became a director of the Company in October 1994 and
serves in the class of directors whose terms expire at the 1997 annual meeting
of stockholders. From 1986 to October 1993, Mr. Grammer was Chairman, President
and owner of R.G. Aviation, a provider of aircraft-related services. Mr. Grammer
retired from this position in October of 1993 to manage his personal
investments.
LEWIS S. WHITE became a director of the Company in October 1994 and serves
in the class of directors whose terms expire at the 1999 annual meeting of
stockholders. From 1988 to April 1996, Mr. White was President of L. S. White &
Co., a management consulting firm. In April 1996, Mr. White became a partner in
Claymore Partners, Ltd., a firm specializing in business turnaround,
restructuring, and corporate finance. Prior to 1988, he held senior financial
positions with Paramount Communications Inc. and Union Carbide Corporation. Mr.
White is also a director of Whitehall Corporation, a New York Stock Exchange
company principally involved in aircraft maintenance.
DIRECTOR COMPENSATION
Pursuant to the Company's Bylaws, the members of the Board of Directors may
be compensated in a manner and at a rate determined from time to time by the
Board of Directors. Directors who are employees of Kitty Hawk do not receive
additional compensation for service as a director. Under the Company's Omnibus
Securities Plan, directors who are not employees of the Company shall receive
shares of Common Stock in an amount equal to their net annual retainer (which is
currently anticipated to be $10,000).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1995, Mr. Christopher, the Chief Executive Officer of
the Company, determined executive officer compensation.
During the last three fiscal years, Martinaire East, Inc. ("Martinaire"), a
corporation 50% owned by Mr. Christopher, leased a Learjet (the "Learjet"), 50%
owned by Mr. Christopher, from the Company and provided the Company with
on-demand charter services utilizing the Learjet. During fiscal years 1993,
1994, and 1995, the Company paid Martinaire $1.8 million, $1.0 million and
$232,000, respectively, for on-demand charter services rendered, which amounts
Mr. Christopher believed represented market rates. The Company's charges to
Martinaire for leasing the Learjet and related operating expenses (at costs Mr.
Christopher believed represented market rates) went largely unpaid until October
1994. The balance owed to Kitty Hawk for the Learjet lease and related operating
expenses at fiscal year end 1993 and 1994 was $428,262 and $481,297,
respectively. In accordance with Company policy, no interest was accrued on
these amounts. On October 24, 1994, the owners of the Learjet, including Mr.
Christopher, agreed to sell the Learjet. In connection with this sale,
Martinaire repaid the Company approximately $636,000 representing all unpaid
amounts owed to the Company at that date for the Learjet lease and related
operating expenses.
Beginning in March 1993, Mr. Christopher, in his individual capacity,
subleased the Company's present facility at Dallas/Fort Worth International
Airport for a guaranteed minimum rent of $21,000 per month from Robert F.
Grammer, a director of the Company. During October 1994, Mr. Christopher
transferred his entire interest in this sublease to the Company, and the Company
assumed Mr. Christopher's obligations and liabilities to Mr. Grammer under the
sublease, including environmental liabilities, if any. See "Business -- Ground
Facilities."
Other than the delay in collecting the Martinaire receivable, the Company
believes that the terms of each transaction discussed above were as favorable to
Kitty Hawk as would have been obtainable from unaffiliated parties under similar
circumstances.
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<PAGE> 48
Under the terms of the settlement allocating the benefits of the ANET
Litigation, Mr. Christopher received rights to certain contingent future
payments. See "Business -- Legal Proceedings -- Litigation and Arbitration
Related to Postal Contract."
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to Kitty Hawk for fiscal year 1994
and 1995, with respect to those persons who were, at August 31, 1994 and 1995,
(i) the Chief Executive Officer and (ii) the other two most highly compensated
executive officers of the Company (collectively, with the Chief Executive
Officer, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITIONS FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------------------------------------- ----------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
M. Tom Christopher 1994 $120,000 $512,000 -- $ 25,022(1)
Chairman of the Board of Directors and Chief 1995 120,000 898,731 -- 352,163(2)
Executive Officer
Tilmon J. Reeves 1994 101,000 225,000 -- 2,982(3)
President and Chief Operating Officer 1995 125,000 108,335 245,708(4) 2,310(3)
Richard R. Wadsworth 1994 110,000 96,000 -- 1,675(3)
Senior Vice President -- Finance, Chief 1995 110,000 70,000 92,140(5) 2,262(3)
Financial Officer, and Secretary
</TABLE>
- ---------------
(1) Consists of (i) matching contributions to the Company's 401(k) Savings Plan
for Mr. Christopher and (ii) life insurance premiums paid on Mr.
Christopher's behalf. Does not include any contingent payments to Mr.
Christopher under the ANET litigation settlement made subsequent to fiscal
year 1994. These payments are contingent upon the Emery contract remaining
in effect. See "Business -- Legal Proceedings -- Litigation and Arbitration
Related to Postal Service Contract."
(2) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET litigation settlement during fiscal year 1995
(ii) life insurance premiums paid on Mr. Christopher's behalf, and (iii)
matching contributions to the Company's 401(k) Savings Plan for Mr.
Christopher.
(3) Consists of matching contributions to the Company's 401(k) Savings Plan.
(4) The option covering these shares was rescinded on June 12, 1996. See
"Management -- Employee Compensation Plans and Arrangements."
(5) The option covering these shares was rescinded on June 12, 1996, when Mr.
Wadsworth was granted a new option. See "Management -- Employee Compensation
Plans and Arrangements."
46
<PAGE> 49
STOCK OPTIONS
The following table sets forth certain information concerning options
granted in fiscal year 1995 to the Company's Named Executive Officers. The
Company has no outstanding stock appreciation rights and granted no stock
appreciation rights during fiscal year 1995. The options described in the tables
below were replaced with options having an exercise price of $.01 per share.
Messrs. Reeves and Wadsworth fully exercised these replacement options on June
26, 1996. See "Management -- Employee Compensation Plans and Arrangements." No
options for the purchase of Common Stock are currently outstanding.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ---------------------------
GRANTED IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---------- -------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tilmon J. Reeves........ 245,708(1) 72.7% $7.81 October 5, 2004 $1,206,836 $3,058,359
Richard R. Wadsworth.... 92,140(2) 27.3% $7.81 October 5, 2004 $ 425,561 $1,146,878
</TABLE>
- ---------------
(1) The option covering these shares was rescinded on June 12, 1996. See
"Management -- Employee Compensation Plans and Arrangements."
(2) The option covering these shares was rescinded on June 12, 1996 when Mr.
Wadsworth was granted a new option. See "Management -- Employee Compensation
Plans and Arrangements."
The following table sets forth certain information concerning the value of
unexercised options held at August 31, 1995 by the Company's Named Executive
Officers. None of the Named Executive Officers exercised options during fiscal
year 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT 8/31/95 MONEY OPTIONS AT 8/31/95(1)
------------------------------- ---------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------- ------------------------------- ---------------------------
<S> <C> <C>
Tilmon J. Reeves............................. 0/245,708(2) $0/$0
Richard R. Wadsworth......................... 0/92,140(3) $0/$0
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at August 31, 1995 ($5.62 per share as
determined by the Board of Directors) and the exercise price of the Named
Executive Officer's option. In determining the fair market value of the
Company's Common Stock, the Board of Directors relied upon an independent
appraisal of an investment banking firm, which considered various factors,
including the Company's financial condition and business prospects, its
operating results, and the absence of a market for its Common Stock.
(2) The option covering these shares was rescinded on December 31, 1995, when
Mr. Reeves was granted a new option. See "Management -- Employee
Compensation Plans and Arrangements."
(3) The option covering these shares was rescinded on June 12, 1996, when Mr.
Wadsworth was granted a new option. See "Management -- Employee Compensation
Plans and Arrangements."
EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS
The Company has adopted an Omnibus Securities Plan (the "Plan") for the
employees of the Company and its subsidiaries. The number of shares of Common
Stock reserved for issuance under the Plan is 300,000 shares. The Plan will be
administered by the Compensation Committee of the Board of Directors. The
47
<PAGE> 50
Compensation Committee may grant stock based and non-stock based compensation to
Plan participants, including nonqualified stock options, incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, stock appreciation rights, other derivative securities, stock bonuses,
restricted stock, awards denominated in stock units, securities convertible into
stock, phantom stock, dividend equivalent rights, and performance awards that
are contingent upon the Company's performance or the performance of the Plan
participant. Awards under the Plan may contain provisions that, if a change in
control of the Company occurs, give the Compensation Committee discretion to
offer to purchase awards from Plan participants and make adjustments or
modifications to outstanding awards to protect and maintain the rights and
interests of the Plan participants or take any other action the award agreements
may authorize. A change in control of the Company is deemed to occur upon any of
the following events: (i) a consolidation or merger in which the Company does
not survive, unless the Company's stockholders retain the same proportionate
common stock ownership in the surviving company after the merger, (ii) a sale of
all or substantially all of the Company's assets, (iii) the approval by the
Company's stockholders of a plan to dissolve or liquidate the Company, (iv) a
third party acquires 20% or more of the Company's voting securities, or (v)
during any two-year period, persons who constituted a majority of the Company's
Board of Directors at the beginning of such period cease to serve as directors
for any reason other than death, unless each new director was approved by at
least two-thirds of the directors then still in office who were directors at the
beginning of the two-year period.
Under the Company's Annual Incentive Compensation Plan, the Compensation
Committee will determine and award semiannual bonuses to employees of the
Company. The aggregate amount of bonuses available for award by the Compensation
Committee is limited to 10% of the Company's income before the deduction of
income taxes and the bonuses that may be paid under the Annual Incentive
Compensation Plan. The Company may elect under the Annual Incentive Compensation
Plan to pay up to the full amount of the bonuses in Common Stock. Up to a
maximum of 200,000 shares may be awarded as bonuses under the Annual Incentive
Compensation Plan.
Kitty Hawk also intends to amend its 401(k) Savings Plan to provide that it
may elect to match employee contributions in cash or Common Stock and that
employees may elect to direct that their accounts be invested in Common Stock.
The aggregate number of shares of Common Stock to be issued pursuant to the
401(k) Savings Plan and the Plan cannot exceed 300,000 shares.
Employees of the Company will be able to purchase an aggregate of 100,000
shares of Common Stock pursuant to an Employee Stock Purchase Plan under Section
423 of the Internal Revenue Code of 1986, as amended, at a price equal to 85% of
the market value of the Common Stock on certain specified dates effective upon
the later of April 1, 1997 or thirty days following the registration of shares
reserved under such Employee Stock Purchase Plan.
On October 5, 1994, the Company granted Mr. Reeves and Mr. Wadsworth
nonqualified options to purchase an aggregate of 245,708 shares and 92,140
shares, respectively, of Common Stock. These options had a term of 10 years, an
exercise price of $7.81 per share, and vested in five equal annual increments
commencing on August 31, 1995. Upon the occurrence of a change in control of the
Company, the death or disability of the optionee or the termination of the
optionee other than for cause, the vesting of these nonqualified options would
have automatically accelerated. In the event of a change in control of the
Company, the Compensation Committee could have, in its discretion, elected to
repurchase option shares at their market value or make adjustments or
modifications to outstanding options to protect and maintain the rights and
interests of optionees. A change in control of the Company was deemed to occur
in the same manner as described above with respect to the Plan.
On December 31, 1995, the Company granted Mr. Reeves an option to purchase
390,707 shares of Common Stock and on June 12, 1996, rescinded all options
earlier granted to Mr. Reeves. The December 31, 1995 option would have
terminated upon the earliest of (i) the date at which all optioned shares had
been delivered, (ii) December 31, 2005, or (iii) the date 12 months after Mr.
Reeves' death. The option was fully vested and had an exercise price of $0.01
per share. During the term of the option, the Company agreed to pay life
insurance premiums required to maintain a term policy insuring Mr. Reeves up to
an amount not to exceed $1,600,000. If Kitty Hawk fulfilled its obligations
under the life insurance contract and Mr. Reeves died before
48
<PAGE> 51
all of the options were exercised, the remaining options would have terminated
automatically upon Mr. Reeves' death.
On June 12, 1996, the Company granted Mr. Wadsworth an option to purchase
153,567 shares of Common Stock and rescinded all options earlier granted to Mr.
Wadsworth. The June 12, 1996 option would have terminated upon the earliest of
(i) the date at which all optioned shares had been delivered, (ii) December 31,
2015, or (iii) the date 12 months after Mr. Wadsworth's death. The option was
fully vested and had an exercise price of $0.01 per share.
On June 26, 1996, Messrs. Reeves and Wadsworth fully exercised their
options. In order to satisfy any income tax withholding obligations arising by
virtue of the exercise of their options, at the election of each of Messrs.
Reeves and Wadsworth pursuant to the terms of their respective options, the
Company withheld from the shares to be delivered to Mr. Reeves, 156,283 shares
and Mr. Wadsworth, 61,427 shares, the fair market value of which is anticipated
to equal to the Company's tax withholding obligation with respect thereto.
Pursuant to their respective option agreements, Messrs. Reeves and Wadsworth
have the right to have the Company register shares received upon exercise of
their options in at least the same ratio of ownership as the number of Mr.
Christopher's common shares included in a registration of Kitty Hawk's shares.
Messrs. Reeves and Wadsworth waived this right with respect to this offering.
The Company also has entered into split-dollar life insurance agreements
with a trust for the benefit of Mr. Christopher and his wife to provide the
trust with death benefits of an aggregate of $5 million under life insurance
policies. Under the split-dollar agreements, the Company pays the premiums under
the insurance policies. Upon Mr. Christopher's death or the termination of the
agreements, the Company is entitled to reimbursement of premiums it has paid to
the extent of the death benefits paid or the cash surrender value of the
policies, as applicable.
Pursuant to a salary continuation agreement, in the event that the Board of
Directors determines that Mr. Christopher has become disabled, the Company has
agreed to continue to pay Mr. Christopher the average monthly compensation he
received during the two years prior to the date of his disability until he dies
or is no longer disabled.
Kitty Hawk has adopted its employee compensation plans and arrangements to
motivate certain employees through ownership of Common Stock and options to
purchase Common Stock and to encourage all employees to own Common Stock.
EMPLOYMENT AGREEMENTS
Mr. Christopher has an employment agreement with Kitty Hawk that provides
for an initial annual base salary of at least $125,000 and bonuses determined by
the Compensation Committee pursuant to the Company's Annual Incentive
Compensation Plan and otherwise. Mr. Christopher's employment agreement contains
(i) a confidentiality provision that prohibits disclosure of the Company's
proprietary information and (ii) a covenant not to compete that provides upon
Mr. Christopher's termination of employment with the Company for any reason, Mr.
Christopher shall not engage, directly or indirectly, in the air logistics,
charter brokerage, on-demand, or scheduled carriage business under an FAA Part
121 or Part 135 certificate for five years following such termination. The
employment agreement may be terminated by either party with or without cause. If
the employment agreement is terminated by the Company without a material breach
by Mr. Christopher, he is entitled to six months of compensation at his
then-current salary.
Messrs. Reeves and Wadsworth have employment agreements with Kitty Hawk
that provide for an initial annual base salary of at least $125,000 and
$110,000, respectively, and annual bonuses determined by the Compensation
Committee pursuant to the Company's Annual Incentive Compensation Plan and
otherwise. These employment agreements provide that Mr. Reeves and Mr. Wadsworth
are prohibited from engaging in the air logistics, charter brokerage, on-demand,
or scheduled carriage business under an FAA Part 121 or Part 135 certificate for
three and two years, respectively, following termination of employment. These
employment agreements also contain a confidentiality provision that prohibits
disclosure of the Company's proprietary information. These employment agreements
may be terminated by either party thereto with or without cause. Mr. Reeves'
employment agreement provides that if he is terminated by the Company without
49
<PAGE> 52
material breach by Mr. Reeves, he shall be entitled to 100% of his then-current
salary in the year following termination and 50% of such annual compensation in
both the second and third year following termination and all rights under the
stock options and other benefits described above. Mr. Wadsworth's employment
agreement provides that if he is terminated by the Company without material
breach by Mr. Wadsworth, he shall be entitled to 100% of his then-current salary
in the year following termination and 50% of such annual compensation in the
second and third year following termination and all rights under the stock
options and other benefits described above.
CERTAIN TRANSACTIONS
Prior to being employed by the Company as an executive officer, Mr.
Wadsworth was paid fees aggregating $126,000 during fiscal years 1992 and 1993
for consulting services rendered to the Company in connection with its bid for
the postal contract that was the subject of the ANET Litigation.
Mr. Craig, a director of the Company, is of counsel to Burke, Wright &
Keiffer, P.C., counsel to the Company. During fiscal years 1993, 1994, and 1995,
the Company paid an aggregate of $542,051 to Burke, Wright & Keiffer, P.C. for
legal services rendered.
Although Kitty Hawk has no present intention to do so, it may in the future
enter into other transactions and agreements incidental to its business with its
directors, officers, and principal stockholders. The Company intends any such
transactions and agreements to be on terms no less favorable to the Company than
could be obtained from unaffiliated parties on an arms' length basis.
Accordingly, the Company has adopted a policy that any such transaction in which
the amount involved exceeds $50,000 or any such transactions in which the
aggregate amount per director, officer, or 10% stockholder exceeds $100,000 per
fiscal year must be approved by a majority of the Company's independent and
disinterested directors. See "Business -- Compensation Committee Interlocks and
Insider Participation."
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of June 28, 1996 and as
adjusted to reflect the sale of the shares offered hereby from (i) each person
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) the Selling Stockholder, (iii) each director of the Company, (iv)
each executive officer of the Company, and (v) all of the directors and
executive officers of the Company as a group. See "Management" and "Certain
Transactions" for a description of the Selling Stockholder's position, office,
or other material relationship with the Company within the past three years.
All shares shown in the table below are held with sole voting and
investment power, subject to community property laws.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BENEFICIALLY BEFORE BENEFICIALLY AFTER
OFFERING SHARES OFFERING
------------------- BEING -------------------
NAME NUMBER PERCENT SOLD NUMBER PERCENT
- -------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
M. Tom Christopher (1)...................... 7,423,436 95.8% 300,000 7,123,436 68.2%
Tilmon J. Reeves (1)........................ 234,424 3.0% 0 234,424 2.2%
Richard R. Wadsworth (1).................... 92,140 1.2% 0 92,140 0.9%
All directors and executive officers as a
group..................................... 7,750,000 100.0% 300,000 7,450,000 71.3%
</TABLE>
- ---------------
(1) The address for this stockholder is 1515 West 20th Street, P.O. Box 612787,
Dallas/Fort Worth International Airport, Texas 75261.
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Kitty Hawk consists of (i) 25,000,000
shares of Common Stock, par value $.01 per share and (ii) 1,000,000 shares of
preferred stock, par value $1.00 per share. On June 28, 1996, there were three
holders of record of Common Stock with 7,750,000 shares outstanding, and no
shares of Preferred Stock were outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of any
outstanding shares of any preferred stock. See "Dividend Policy." In the event
of any dissolution, liquidation, or winding up of the Company, holders of shares
of Common Stock are entitled to share ratably in assets remaining after payment
of all liabilities and liquidation preferences, if any.
Except as otherwise required by law or the Certificate of Incorporation,
the holders of Common Stock are entitled to one vote per share on all matters
voted on by stockholders, including the election of directors. The Certificate
of Incorporation limits the aggregate voting power of non-U.S. persons to
22 1/2% of the votes voting on or consenting to any matter. See
"Business -- Government Regulation."
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption, or conversion rights. The rights, preferences, and
privileges of holders of Common Stock are subject to the rights, preferences,
and privileges granted to the holders of any series of preferred stock which the
Company may issue in the future.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of fully authorized shares
of preferred stock in classes or series and may, at the time of issuance,
determine the powers, rights, preferences, and limitations of each class or
series. Satisfaction of any dividend preferences on outstanding shares of
preferred stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Also, holders of preferred stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution, or
winding up of the Company before any payment is made to the holders of Common
Stock. Under certain circumstances, the issuance of such preferred stock may
render more difficult or tend to discourage a merger, tender offer, or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities, or the removal of incumbent management.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate of Incorporation and Bylaws of Kitty Hawk include certain
provisions that could have anti-takeover effects. The provisions are intended to
enhance the likelihood of continuity and stability in the composition of, and in
the policies formulated by, the Board of Directors. These provisions also are
intended to help ensure that the Board of Directors, if confronted by a surprise
proposal from a third party that has acquired a block of Common Stock of the
Company, will have sufficient time to review the proposal, to develop
appropriate alternatives to the proposal, and to act in what the Board of
Directors believes to be the best interests of the Company and its stockholders.
These provisions of the Certificate of Incorporation may not be amended or
repealed by the stockholders of the Company except upon the vote of the holders
of at least two-thirds of the outstanding shares of each class of the Company's
capital stock then entitled to vote thereon.
The following is a summary of the provisions contained in the Company's
Certificate of Incorporation and Bylaws and is qualified in its entirety by
reference to such documents in the respective forms filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
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<PAGE> 54
Amendment of Bylaw Provisions
The Certificate of Incorporation provides that Bylaw provisions may be
adopted, altered, amended, or repealed only by the affirmative vote of (i) at
least two-thirds of the members of the Board of Directors who are elected by the
holders of Common Stock or (ii) the holders of at least two-thirds of the
outstanding shares of each class of the Company's capital stock then entitled to
vote thereon.
Classified Board of Directors
The Certificate of Incorporation provides for a Board of Directors divided
into three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a short
period of time. At least two annual meetings of stockholders, instead of one,
will generally be required to effect a change in a majority of the Board of
Directors.
Number of Directors; Filling Vacancies; Removal
The Certificate of Incorporation provides that the Board of Directors will
fix the number of members of the Board of Directors to consist of at least one
member (plus such number of directors as may be elected from time to time
pursuant to the terms of any series of preferred stock that may be issued and
outstanding from time to time). The Company's Bylaws provide that the Board of
Directors, acting by majority vote of the directors then in office, may fill any
newly created directorship or vacancies on the Board of Directors.
Under the Delaware General Corporation Law (the "DGCL"), in the case of a
corporation having a classified board, stockholders may remove a director only
for cause (unless the certificate of incorporation provides otherwise). The
Company's Certificate of Incorporation provides that a director may only be
removed for cause. "Cause" is defined in the Certificate of Incorporation to
mean that a director (i) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal, (ii) has
missed 12 consecutive meetings of the Board of Directors, or (iii) has been
adjudged by a court of competent jurisdiction to be liable for gross negligence
or misconduct in the performance of his duties to the corporation in a matter of
substantial importance to the corporation, and such adjudication has become
final and non-appealable. These provisions will preclude a stockholder from
simultaneously removing incumbent directors without cause and gaining control of
the Board of Directors by filling the vacancies created by such removal with its
own nominees.
Special Meetings
The Bylaws and Certificate of Incorporation provide that special meetings
of stockholders may be called by a majority of the Board of Directors, the
Chairman of the Board of Directors, or by any holder or holders of at least 25%
of any class of the Company's outstanding capital stock then entitled to vote at
the meeting.
Advance Notice Requirements for Stockholder Proposals and Director Nominees
The Bylaws establish an advance notice procedure with regard to business
proposed to be submitted by a stockholder at any annual or special meeting of
stockholders of the Company, including the nomination of candidates for election
as directors. The procedure provides that a written notice of proposed
stockholder business at any annual meeting must be received by the Secretary of
the Company not more than 180 days nor less than 120 days before the first
anniversary of the prior year's annual meeting or, in the event of a special
meeting, not more than 10 days after the notice of the special meeting.
Notice to Kitty Hawk from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, including such
person's written consent to being named in a proxy statement as a nominee and to
serving as a director if elected.
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<PAGE> 55
The chairman of a meeting of stockholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought before
such meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
will preclude discussion by any stockholder of any nomination or business
properly made or brought before the annual or any other meeting in accordance
with the foregoing procedures.
Limitations on Directors' Liability
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, no director shall be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director. The effect of this provision is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from gross negligence), except
for liability (i) for any breach of his duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (unlawful payments of dividends or unlawful stock repurchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit. This provision also will not limit the liability of
directors under federal securities laws for violations not involving a breach of
fiduciary duty. This elimination of liability for monetary damages permitted by
Delaware law does not alter the standard of conduct with which directors must
comply nor does it affect the availability of equitable relief to the Company
and its stockholders.
Restrictions on Foreign Directors, Officers and Voting
The Company's Certificate of Incorporation limits the aggregate voting
power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any
matter. Furthermore, the Bylaws do not permit non-U.S. citizens to serve as
directors or officers of the Company.
DELAWARE STATUTE
The Certificate of Incorporation of Kitty Hawk provides for the Company to
be subject to Section 203 of the DGCL ("Section 203"). Under Section 203,
certain transactions and business combinations between a corporation and an
"interested stockholder" owning 15% or more of the corporation's outstanding
voting stock are restricted, for a period of three years from the date the
stockholder becomes an interested stockholder. Generally, Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to, or receipt of disproportionate financial benefits by, the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the Company's
capital stock unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, has been approved by the
Board of Directors before the person becomes an interested stockholder; (ii) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the Company in the same transaction that makes it an interested stockholder; or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Board of Directors and by the holders of
at least two-thirds of the Company's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 10,450,000 shares of the Company's Common
Stock will be outstanding. The 3,000,000 shares (3,450,000 shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless acquired by "affiliates" of the
Company. All of the remaining 7,450,000 shares (7,000,000 shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock are
deemed "restricted securities" within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares") and may be resold only in compliance
with (i) Rule 701 of the Securities Act or (ii) Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an "affiliate," who has beneficially
owned his or her shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company or (if applicable) the date
they were acquired from an "affiliate," is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock (approximately 104,500 shares
upon consummation of this offering) or (ii) the average weekly trading volume of
the then outstanding shares during the four calendar weeks preceding each such
sale. Sales under Rule 144 also are subject to certain manner of sale
restrictions and notice requirements and to the availability of current public
information concerning the Company. A person (or persons whose shares are
aggregated) who is not deemed an "affiliate" of the Company and has not been an
affiliate of the Company for at least the prior three months, and who has owned
shares for at least three years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares under Rule 144 without
regard to the volume limitations and the other conditions described above. As
defined in Rule 144, an "affiliate" of an issuer is a person that directly or
indirectly, through the use of one or more intermediaries, controls, or is
controlled by, or is under the common control with, such issuer.
Any employee, officer, or director of Kitty Hawk who purchases his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701 under the Securities Act, which permits
non-affiliates, subject to the limitations and requirements of Rule 701, to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitations, or notice provisions of Rule 144 and permits
affiliates, subject to the limitations and restrictions of Rule 701, to sell
their Rule 701 shares without having to comply with Rule 144's holding period
restrictions, in each case commencing 90 days from the date of this Prospectus.
The Company intends to file a registration statement under the Securities
Act covering the 600,000 shares of Common Stock reserved for issuance under the
Company's Omnibus Securities Plan, 401(k) Savings Plan, Annual Incentive
Compensation Plan and Employee Stock Purchase Plan (the "Plans"). See
"Management -- Employee Compensation Plans and Arrangements." As of the date
hereof, no options or shares had been issued under any of these Plans. Such
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market
when issued pursuant to the Plans, subject to provisions of the Plans, including
vesting, and the lock-up agreements described herein.
The Company, its directors and executive officers (other than the Selling
Stockholder, who has agreed to a period of 360 days) have agreed that for a
period of 180 days from the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right, or warrant to purchase, or otherwise transfer,
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock of
the Company, except for the grant of options or other rights under the Company's
Omnibus Securities Plan so long as such options do not vest within such 180 day
period.
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<PAGE> 57
UNDERWRITING
Upon the terms and subject to the conditions of the Underwriting Agreement
dated the date hereof, each Underwriter named below has severally agreed to
purchase, and the Company and the Selling Stockholder have agreed to sell to
such Underwriter, the number of shares of Common Stock set forth opposite the
name of such Underwriter.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Smith Barney Inc. ...........................................
Alex. Brown & Sons Incorporated..............................
Fieldstone FPCG Services, L.P. ..............................
-------------
Total.............................................. 3,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all Shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such Shares are taken.
The Underwriters, for whom Smith Barney Inc., Alex. Brown & Sons
Incorporated and Fieldstone FPCG Services, L.P. are acting as the
Representatives, propose to offer the Shares directly to the public at the
public offering price set forth on the cover page of this Prospectus and part of
the shares to certain dealers at a price which represents a concession not in
excess of $ per share under the public offering price. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the Representatives. The Representatives of the Underwriters have
advised the Company that the Underwriters do not intend to confirm any Shares to
any accounts over which they exercise discretionary authority.
The Selling Stockholder has granted to the Underwriters an option,
exercisable for thirty days from the date of this Prospectus, to purchase up to
450,000 additional shares of Common Stock at the price to public set forth on
the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the Shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of Shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
Shares listed in such table.
The Company, its directors and executive officers (other than the Selling
Stockholder who has agreed to a period of 360 days) have agreed that, for a
period of 180 days from the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right, or warrant to purchase, or
55
<PAGE> 58
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock of the Company, except for the grant of options or other rights
under the Company's Omnibus Securities Plan so long as such options do not vest
within such 180 day period.
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Shares of Common Stock included in this offering has been determined by
negotiations between the Company, the Selling Stockholder, and the
Representatives. Among the factors considered in determining such price were the
history of and prospects for the Company's business and the industry in which it
competes, an assessment of the Company's management and the present state of the
Company's development, the past and present revenues and earnings of the
Company, the prospects for growth of the Company's revenues and earnings, the
current state of the U.S. economy and the current level of economic activity in
the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.
The Company, the Selling Stockholder, and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
Fieldstone FPCG Services, L.P., one of the Underwriters, and its affiliates
have provided investment banking services to the Company from time to time, for
which it has received customary fees, including acting as financial advisor and
placement agent in connection with the Company's issuance of senior secured
debt.
LEGAL MATTERS
The validity of the shares offered hereby and certain other legal matters
will be passed upon for the Company and the Selling Stockholder by Haynes and
Boone, LLP, Dallas, Texas. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Alston & Bird, Atlanta,
Georgia.
EXPERTS
The consolidated financial statements of Kitty Hawk, Inc., at August 31,
1994 and 1995 and at May 31, 1996, and for each of three years in the period
ended August 31, 1995 and for the nine months ended May 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
56
<PAGE> 59
ADDITIONAL INFORMATION
Kitty Hawk has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain portions having been omitted pursuant to the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement, including
the exhibits and schedules thereto. The Registration Statement (with exhibits
and schedules thereto) can be inspected and copied at the public reference
facilities maintained by the Commission at its principal offices at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 29549, at prescribed rates.
Kitty Hawk intends to furnish to stockholders annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
independent auditors and quarterly reports for each of the first three quarters
of each fiscal year containing unaudited condensed financial information.
57
<PAGE> 60
KITTY HAWK, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets as of August 31, 1994 and 1995 and May 31, 1995 (unaudited)
and 1996............................................................................. F-3
Consolidated Statements of Income for the years ended August 31, 1993, 1994 and 1995
and the nine months ended May 31, 1995 (unaudited) and 1996.......................... F-4
Consolidated Statements of Stockholder's Equity for the years ended August 31, 1993,
1994 and 1995 and the nine months ended May 31, 1996................................. F-5
Consolidated Statements of Cash Flows for the years ended August 31, 1993, 1994 and
1995 and the nine months ended May 31, 1995 (unaudited) and 1996..................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
Stockholders
Kitty Hawk, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kitty Hawk,
Inc. and subsidiaries as of August 31, 1994 and 1995, and May 31, 1996 and the
related consolidated statements of income, stockholder's equity and cash flows
for each of the three years in the period ended August 31, 1995 and the nine
months ended May 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kitty Hawk,
Inc. and subsidiaries at August 31, 1994 and 1995, and May 31, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1995 and the nine months ended May
31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
June 28, 1996
F-2
<PAGE> 62
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............... $ 4,838,363 $ 3,801,378 $ 3,770,170 $ 4,249,314
Trade accounts receivable............... 15,640,873 12,967,734 7,892,621 12,662,398
Receivables from affiliates............. 481,297 -- 437,000 --
Deferred income taxes................... 159,732 50,410 159,732 1,218,272
Aircraft supplies....................... 121,671 98,386 293,615 36,163
Prepaid expenses and other assets....... 265,132 797,825 1,309,753 1,143,722
----------- ----------- ----------- -----------
Total current assets............ 21,507,068 17,715,733 13,862,891 19,309,869
Property and equipment
Aircraft................................ 18,565,277 36,179,455 36,179,455 52,994,099
Machinery and equipment................. 1,185,203 1,425,272 1,402,740 1,552,945
Furniture and fixtures.................. 240,922 251,349 251,349 252,601
Transportation equipment................ 111,625 176,057 144,182 222,259
----------- ----------- ----------- -----------
20,103,027 38,032,133 37,977,726 55,021,904
Less: accumulated depreciation and
amortization......................... (3,699,176) (7,794,332) (6,458,717) (12,355,097)
----------- ----------- ----------- -----------
Net property and equipment........... 16,403,851 30,237,801 31,519,009 42,666,807
----------- ----------- ----------- -----------
Total assets.............................. $37,910,919 $47,953,534 $45,381,900 $61,976,676
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable........................ $11,711,275 $ 9,327,109 $ 6,574,370 $ 7,274,750
Accrued expenses........................ 1,332,040 1,336,696 1,758,800 1,431,278
Accrued maintenance reserves............ 596,369 2,026,255 2,027,363 1,570,743
Income taxes payable.................... 1,883,898 -- 120,260 235,890
Current maturities of long-term debt.... 1,760,799 3,278,553 2,655,483 4,346,924
----------- ----------- ----------- -----------
Total current liabilities....... 17,284,381 15,968,613 13,136,276 14,859,585
Long-term debt............................ 7,384,136 13,702,652 14,553,099 21,392,393
Deferred income taxes..................... 692,892 1,316,365 692,892 2,440,569
Commitments and contingencies
Stockholder's equity
Preferred stock, $1 par value:
Authorized shares -- 1,000,000, none
issued............................... -- -- -- --
Common stock, $.01 par value: Authorized
shares -- 25,000,000, issued and
outstanding -- 7,423,436............. 74,234 74,234 74,234 74,234
Additional paid-in capital.............. -- -- -- 2,906,758
Retained earnings....................... 12,475,276 16,891,670 16,925,399 20,303,137
----------- ----------- ----------- -----------
Total stockholder's equity...... 12,549,510 16,965,904 16,999,633 23,284,129
----------- ----------- ----------- -----------
Total liabilities and stockholder's
equity.................................. $37,910,919 $47,953,534 $45,381,900 $61,976,676
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier.................. $12,938,780 $ 28,284,894 $ 41,117,564 $30,768,148 $ 37,042,033
Air logistics........................ 52,840,224 79,414,952 62,592,819 47,403,641 70,083,930
----------- ------------ ------------ ----------- ------------
Total revenues................ 65,779,004 107,699,846 103,710,383 78,171,789 107,125,963
Costs of revenues:
Air freight carrier.................. 8,912,348 19,549,833 28,104,280 20,795,051 27,245,989
Air logistics........................ 46,288,250 73,401,606 57,428,344 43,566,922 62,488,433
----------- ------------ ------------ ----------- ------------
Total costs of revenues....... 55,200,598 92,951,439 85,532,624 64,361,973 89,734,422
----------- ------------ ------------ ----------- ------------
Gross profit........................... 10,578,406 14,748,407 18,177,759 13,809,816 17,391,541
General and administrative expenses.... 4,393,876 6,012,975 7,832,167 5,155,901 6,675,633
Non-qualified employee profit sharing
expense.............................. 250,000 731,862 1,000,957 771,919 901,074
Stock option grant to executive........ -- -- -- -- 2,906,758
----------- ------------ ------------ ----------- ------------
Operating income....................... 5,934,530 8,003,570 9,344,635 7,881,996 6,908,076
Other income (expense):
Interest expense..................... (134,420) (342,502) (1,184,921) (782,951) (1,344,202)
Contract settlement income, net...... 724,683 1,177,742 -- -- --
Other, net........................... 192,789 (431,957) (600,667) 87,010 169,435
----------- ------------ ------------ ----------- ------------
Income before income taxes............. 6,717,582 8,406,853 7,559,047 7,186,055 5,733,309
Income taxes........................... 2,612,559 3,146,157 3,142,653 2,735,932 2,321,842
----------- ------------ ------------ ----------- ------------
Net income............................. $ 4,105,023 $ 5,260,696 $ 4,416,394 $ 4,450,123 $ 3,411,467
=========== ============ ============ =========== ============
Net income per share................... $ 0.52 $ 0.66 $ 0.55 $ 0.56 $ 0.43
=========== ============ ============ =========== ============
Weighted average common and common
equivalent shares outstanding........ 7,967,710 7,967,710 7,967,710 7,967,710 7,967,710
=========== ============ ============ =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1992........ $106,048 $ -- $ 3,138,743 $(61,000) $ 3,183,791
Net income...................... -- -- 4,105,023 -- 4,105,023
-------- ---------- ----------- -------- -----------
Balance at August 31, 1993........ 106,048 -- 7,243,766 (61,000) 7,288,814
Retirement of treasury stock in
connection with the Kitty
Hawk, Inc. merger............ (31,814) -- (29,186) 61,000 --
Net income...................... -- -- 5,260,696 -- 5,260,696
-------- ---------- ----------- -------- -----------
Balance at August 31, 1994........ 74,234 -- 12,475,276 -- 12,549,510
Net income...................... -- -- 4,416,394 -- 4,416,394
-------- ---------- ----------- -------- -----------
Balance at August 31, 1995........ 74,234 -- 16,891,670 -- 16,965,904
Stock option grant to
executive.................... -- 2,906,758 -- -- 2,906,758
Net income...................... -- -- 3,411,467 -- 3,411,467
-------- ---------- ----------- -------- -----------
Balance at May 31, 1996........... $ 74,234 $2,906,758 $20,303,137 $ -- $23,284,129
======== ========== =========== ======== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
----------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income........................... $ 4,105,023 $ 5,260,696 $ 4,416,394 $ 4,450,123 $ 3,411,467
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 976,739 1,935,348 4,095,156 2,759,541 4,722,054
(Gain) loss disposal of property
and equipment.................... (41,860) 62,251 -- -- --
Aircraft received in contract
settlement....................... -- (750,000) -- -- --
Deferred income taxes.............. 1,186,728 (638,568) 732,795 -- (43,658)
Stock option grant to executive.... -- -- -- -- 2,906,758
Deferred income.................... (83,333) -- -- -- --
Changes in operating assets and
liabilities:
Trade accounts receivable........ (3,159,203) (8,036,613) 2,673,139 7,748,252 305,336
Contract settlement receivable... (3,500,000) 3,500,000 -- -- --
Receivables from affiliates...... (123,476) (53,035) 481,297 44,297 --
Aircraft supplies................ (16,179) (19,778) 23,285 (171,944) 62,223
Prepaid expenses and other
assets........................ (137,168) 283,342 (532,693) (1,044,621) (345,897)
Accounts payable and accrued
expenses...................... 4,659,023 4,063,034 (2,379,510) (4,710,145) (1,957,777)
Accrued maintenance reserves..... 190,333 379,535 1,429,886 1,430,994 (455,512)
Income taxes payable............. 269,377 1,614,521 (1,883,898) (1,763,638) 235,890
----------- ------------ ------------ ------------ ------------
Net cash provided by operating
activities........................... 4,326,004 7,600,733 9,055,851 8,742,859 8,840,884
Investing activities
Capital expenditures................. (1,317,619) (13,875,983) (17,929,106) (17,874,699) (17,151,060)
Proceeds from sale of property and
equipment.......................... 1,097,761 -- -- -- --
----------- ------------ ------------ ------------ ------------
Net cash used in investing
activities........................... (219,858) (13,875,983) (17,929,106) (17,874,699) (17,151,060)
Financing activities
Proceeds from issuance of long-term
debt............................... -- 10,916,656 9,911,240 9,401,826 11,225,000
Repayments of long-term debt......... (1,391,011) (2,747,533) (2,074,970) (1,338,179) (2,466,888)
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities................. (1,391,011) 8,169,123 7,836,270 8,063,647 8,758,112
----------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents..................... 2,715,135 1,893,873 (1,036,985) (1,068,193) 447,936
Cash and cash equivalents at beginning
of period............................ 229,355 2,944,490 4,838,363 4,838,363 3,801,378
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end
of period............................ $ 2,944,490 $ 4,838,363 $ 3,801,378 $ 3,770,170 $ 4,249,314
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight
services through two related businesses: (i) an air freight carrier and (ii) an
air logistics service provider, all primarily in North America. The Company
provided air logistics services to one customer which accounted for
approximately 55%, 63%, 47% and 39% of its revenues in fiscal years 1993, 1994
and 1995 and the nine months ended May 31, 1996, respectively. Related accounts
receivable from this customer at August 31, 1994 and 1995 and May 31, 1996, were
approximately $7,743,000, $5,089,000 and $4,310,000, respectively. The contract
for these services is effective through May 31, 1997; however, such contract may
be canceled by either party with 30 days notice. Another customer accounted for
approximately 26%, 10%, 10% and 20% of the Company's revenues in fiscal years
1993, 1994 and 1995 and the nine months ended May 31, 1996, respectively. The
Company generally sells on open accounts with 30-day terms and does not require
collateral for credit sales.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods over estimated useful lives ranging
from three to ten years. Convair and DC-9 airframes are depreciated over the
period remaining to the next major airframe overhaul since the Company does not
expect to perform major airframe overhauls on these aircraft. Boeing 727-200
airframes are depreciated over an estimated useful life of ten years.
Costs relating to major airframe overhauls are capitalized as incurred and
amortized over the estimated number of flight hours until the next overhaul (the
deferral method). No major airframe overhauls have been performed to date.
Estimated costs relating to periodic jet airframe maintenance are accrued
over the flight hours remaining before such periodic maintenance must be
performed. Costs relating to non-jet periodic airframe maintenance are expensed
as incurred.
With respect to aircraft engines, the estimated useful life is the period
to the next required engine overhaul, as the Company currently anticipates the
cost of overhauling its engines would exceed the cost of replacement.
Income Taxes
Income taxes have been provided using the liability method in accordance
with the Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.
Revenue Recognition
Revenues are recognized as services are provided.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and
F-7
<PAGE> 67
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
153,567 shares of the Company's common stock at $0.01 granted to certain
executives in December 1995 and June 1996, respectively, have been included in
the calculation of weighted average common and common equivalent shares for all
periods presented.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and held in banks, money market funds, and other investments with
original maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Reorganization
In October 1994, Kitty Hawk, Inc. was organized as a wholly owned
subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with
Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection
therewith, each outstanding share of Group common stock was exchanged for
106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held
in treasury was retired. The accompanying consolidated financial statements
present the effects of the merger on a retroactive basis.
Reclassifications
Certain amounts from prior years have been reclassified to conform to
current year presentation.
2. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, MAY 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C> <C>
(1) Note payable, bearing interest at prime plus 1.75%
(11.0% at May 31, 1996) payable in 48 monthly
installments of $25,021 plus interest, with a
maturity date of December 1996; secured by a
Douglas DC-9 aircraft, with a carrying value of
approximately $838,000 at May 31, 1996............. $ 675,562 $ 350,291 $ 125,104
(2) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.25% (7.723% at May 31, 1996)
payable in 21 quarterly installments of $153,354
plus interest, with a maturity date of September
1999; secured by two Douglas DC-9 aircraft, with a
carrying value of approximately $3,088,000 at May
31, 1996........................................... 3,233,218 2,607,021 2,146,958
(3) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.25% (7.723% at May 31, 1996)
payable in 71 monthly installments of $76,891 plus
interest, with a maturity date of October 2000;
secured by two Boeing 727-200 aircraft, with a
carrying value of approximately $5,309,000 at May
31, 1996........................................... 5,236,155 4,767,245 3,998,334
</TABLE>
F-8
<PAGE> 68
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, MAY 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C> <C>
(4) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.00% (7.473% at May 31, 1996)
payable in 72 monthly installments of $60,517 plus
interest, with a maturity date of March 2001;
secured by two DC-9 aircraft, with a carrying value
of approximately $4,366,000 at May 31, 1996........ -- 4,054,641 3,509,988
(5) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.00% (7.473% at May 31, 1996)
payable in 72 monthly installments of $59,077 plus
interest, with a maturity date of July 2001;
secured by two Boeing 727-200 aircraft, with a
carrying value of approximately $5,027,000 at May
31, 1996........................................... -- 4,201,507 3,733,433
(6) Note payable, bearing interest at 9.75% payable in
18 monthly installments of interest only and 42
monthly installments of $28,212 plus interest
beginning December 1996, with a maturity date of
May 2000; secured by a Douglas DC-9 aircraft, with
a carrying value of approximately $838,000 at May
31, 1996........................................... -- 1,000,500 1,000,500
(7) Note payable, bearing interest at an adjusted
Eurodollar rate plus 1.50% to 2.50% based upon a
debt-to-cash-flow ratio of the Company (7.0625% at
May 31, 1996) payable in monthly installments of
interest only through June 1996 and 28 quarterly
installments of $400,893 plus interest beginning
September 1996, with a maturity date of June 2003;
secured by two Boeing 727-200 aircraft, with a
carrying value of approximately $12,377,000 at May
31, 1996........................................... -- -- 11,225,000
----------- ----------- -----------
9,144,935 16,981,205 25,739,317
Less current portion............................... 1,760,799 3,278,553 4,346,924
----------- ----------- -----------
$7,384,136 $13,702,652 $21,392,393
=========== =========== ===========
</TABLE>
Maturities of long-term debt at May 31, 1996 are as follows:
<TABLE>
<S> <C>
Three months ended August 31, 1996.............................. $ 817,870
1997............................................................ 4,808,921
1998............................................................ 4,842,407
1999............................................................ 4,857,078
2000............................................................ 4,368,473
2001............................................................ 2,825,821
Thereafter...................................................... 3,218,747
-----------
$25,739,317
===========
</TABLE>
Certain notes subject the Company to financial covenants, including debt
service coverage, cash flow and leverage ratios. These notes also prohibit the
payment of dividends. The Company makes quarterly elections to have the
borrowings under notes 2 and 3 bear interest at either the prime rate minus
0.25% or the adjusted
F-9
<PAGE> 69
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Eurodollar rate plus 2.25% and notes 4 and 5 bear interest at either the prime
rate or adjusted Eurodollar rate plus 2.00%.
The Company has entered into two interest rate swap agreements to reduce
the impact of changes in the floating interest rate on note 7 in the table
above. At May 31, 1996 the Company has outstanding two interest rate swap
agreements with the commercial bank to whom note 7 is payable, having a total
notional principal amount of $9,225,000. These swap agreements effectively
change the interest rate exposure on $9,225,000 of the total principal amount of
note 7 to a fixed 7.75 percent. The notional principal amounts of the interest
rate swaps reduce in proportion to required principal reductions on the related
note. The Company is exposed to credit loss in the event of nonperformance by
the other party in the interest rate swap agreements. However, the Company does
not anticipate nonperformance by the counterparty. Based on a quote provided by
the bank, these swap agreements, if terminated at May 31, 1996, would have
resulted in a payment to the Company of approximately $395,000.
The Company has a $3,000,000 revolving line of credit facility (the
"Facility"), expiring June 30, 1996, which bears interest, at the Company's
option, at the bank's prime rate or adjusted Eurodollar rate plus 1.95%.
Borrowings are limited to a percentage of eligible accounts receivable. The
Facility also subjects the Company to various financial covenants, including
maintenance of various liquidity and net worth levels. At May 31, 1996,
$3,000,000 was available to the Company under the Facility. The Company is
negotiating an expansion of its line of credit.
Based upon the variable interest rates provided for in the substantial
majority of the Company's long-term debt, management believes the fair value of
its long-term debt approximates its carrying value at May 31, 1996.
The Company made cash interest payments of $127,262, $280,754, $1,088,928
and $1,374,285 during fiscal years ended 1993, 1994 and 1995, and the nine
months ended May 31, 1996, respectively.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, NINE MONTHS
------------------------------------ ENDED MAY 31,
1993 1994 1995 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Current income tax:
Federal...................................... $1,251,025 $3,434,725 $1,829,723 $ 1,961,075
State........................................ 174,806 350,000 580,135 404,425
---------- ---------- ---------- -----------
Total current income tax............. 1,425,831 3,784,725 2,409,858 2,365,500
---------- ---------- ---------- -----------
Deferred income tax:
Federal...................................... 1,060,804 (608,460) 627,993 (37,806)
State........................................ 125,924 (30,108) 104,802 (5,852)
---------- ---------- ---------- -----------
Total deferred income tax............ 1,186,728 (638,568) 732,795 (43,658)
---------- ---------- ---------- -----------
$2,612,559 $3,146,157 $3,142,653 $ 2,321,842
========== ========== ========== ===========
</TABLE>
F-10
<PAGE> 70
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the provision for income taxes and the amount
computed by applying the statutory federal tax rate to income before income
taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, NINE MONTHS
------------------------------------ ENDED MAY 31,
1993 1994 1995 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Income tax computed at statutory rate........ $2,283,978 $2,858,330 $2,570,076 $ 1,949,325
State income taxes, net of federal benefit... 198,482 211,129 452,058 266,921
Other, net................................... 130,099 76,698 120,519 105,596
---------- ---------- ---------- -----------
Total.............................. $2,612,559 $3,146,157 $3,142,653 $ 2,321,842
========== ========== ========== ===========
</TABLE>
The components of the net deferred tax liabilities recognized on the
accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------------- MAY 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation........................................ $ (996,335) $(2,071,971) $(3,026,169)
Prepaid expenses.................................... (11,069) (117,440) (33,799)
----------- ----------- -----------
Total deferred tax liabilities.............. (1,007,404) (2,189,411) (3,059,968)
----------- ----------- -----------
Deferred tax assets:
Stock option grant to executive..................... -- -- 1,084,221
Nondeductible accruals.............................. 166,365 167,850 167,750
Airframe reserves................................... 220,292 755,606 585,700
Accrued bonuses..................................... 4,436 -- --
State taxes......................................... 83,151 -- --
----------- ----------- -----------
Total deferred tax assets................... 474,244 923,456 1,837,671
----------- ----------- -----------
Net deferred tax liability............................ $ (533,160) $(1,265,955) $(1,222,297)
=========== =========== ===========
</TABLE>
The Company made cash income tax payments of $1,133,985, $2,170,203,
$4,552,371 and $2,078,673 during fiscal years 1993, 1994 and 1995, and the nine
months ended May 31, 1996, respectively.
4. COMMITMENTS
The Company leases its primary office and maintenance space under a
non-cancelable operating lease which expires in fiscal year 1998 from a party
who, effective October 1994, became a member of the Company's Board of
Directors. Rent expense under this lease was $216,152, $260,970, $252,595 and
$191,156 for fiscal years 1993, 1994 and 1995, and the nine months ended May 31,
1996, respectively. The minimum annual rental under the noncancelable operating
lease is $63,000, $252,000 and $126,000 for the three months ended August 31,
1996, for fiscal year 1997, and for fiscal year 1998, respectively. Under the
lease agreement, the Company has the option to purchase the office facilities
and the landlord's interest in the associated ground lease at any time prior to
March 1, 1997 for consideration of $2,200,000 less $5,000 for each monthly
rental payment made after March 1, 1993.
The Company leases its secondary maintenance space under a cancelable
operating lease which expires in May 1999. The lease can be canceled by either
party with 60 days notice. Rent expense under this lease was $59,853 and
$136,250 in fiscal year 1995 and the nine months ended May 31, 1996. The minimum
annual rental under this lease is $40,875, $163,500, $163,500 and $122,625 for
the three months ended August 31, 1996, and fiscal year 1997, 1998 and 1999,
respectively.
F-11
<PAGE> 71
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONTRACT SETTLEMENT
In September 1992, the Company was awarded a contract by the United States
Postal Service (the "USPS"). An unaffiliated air freight carrier (the
"associated bidder") was associated with the Company in the successful bid.
Prior to the commencement of the contract, competing bidders filed suit against
the USPS seeking to set aside the award.
In April 1993, to avoid the expense and uncertainty of continued
litigation, the Company accepted a settlement. Under the settlement, the
contract was terminated for convenience and re-awarded to the incumbent.
Additionally, the Company received $12.7 million and the right to receive up to
a total of $6.5 million over ten years in installments of $162,500 per quarter,
contingent on the re-awarded contract remaining in effect. Appropriate releases
were exchanged.
At August 31, 1993, the Company and the associated bidder had not agreed
upon the division of the settlement proceeds, which were held in escrow; but the
Company reasonably estimated its share of the proceeds, exclusive of the $6.5
million to be paid in installments over ten years, to be at least $3.5 million.
The Company therefore recorded the $3.5 million as a receivable in current
assets and, net of contract-related expense, settlement income of $724,683 for
fiscal year 1993.
During fiscal year 1994, the Company and the associated bidder agreed to a
division of the settlement proceeds and resolution of all their related claims.
Under that agreement, the Company received from escrow approximately $3.5
million cash, obtained title to a Boeing 727-200 aircraft, independently valued
and recorded by the Company at $750,000, and was relieved of $1.2 million of
previously accrued transportation costs. Additionally, one-half of the
contingent future quarterly installment payments were allocated to the Company's
stockholder. As a result of this settlement, for fiscal year 1994, the Company
recorded additional contract settlement income of $1,177,742, which is net of
approximately $730,000 in additional settlement costs, principally legal fees.
This amount also included both income and an offsetting expense of $677,239,
representing the estimated fair value of the future quarterly installment
payments that will be paid directly to the Company's sole stockholder.
6. LITIGATION
The Company filed suit against Express One International, Inc. ("Express
One") in July 1992 in Dallas County, Texas, claiming that Express One breached
an aircraft charter agreement and seeking actual damages of approximately
$60,000. Express One counterclaimed, asserting that the Company wrongfully
repudiated the lease agreement and seeking damages of $356,718 for services
performed, $1,140,000 for additional fees it would have received under the
contract, punitive damages and its attorney's fees and costs.
In February 1995, a jury verdict in the case granted the Company $25,000 in
damages plus its attorneys fees and denied Express One's claims. The court
entered judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorneys fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome to have a
material adverse effect upon the Company's financial condition or results of
operations.
The USPS selected the Company's air freight carrier in September 1992 as
the successful bidder on a contract for a multi-city network of air
transportation services supporting the USPS Express Mail system. Two
unsuccessful bidders sued the USPS to enjoin the award. The Company intervened.
This litigation (the "ANET Litigation") was settled in April 1993 by agreements
under which the USPS terminated the Company's contract for convenience and
awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc.
("Emery").
F-12
<PAGE> 72
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1995, the Company was served with a complaint in a qui tam lawsuit
filed on behalf of the U.S. Government by a third-party plaintiff seeking to
share a recovery under the Federal False Claims Act (the "Act"). The suit, filed
in May 1994, was filed under seal in accordance with the Act, to enable the U.S.
Government to review the claim before its disclosure to the defendants. The U.S.
Government declined to pursue the claim, but the third-party plaintiff chose to
continue. The suit claimed that the Company and another defendant fraudulently
failed to disclose to the USPS, both in the Company's successful bid and in the
settlement of the ANET litigation, that some of the aircraft the Company
proposed to purchase and use to perform the contract were aging aircraft with
high use, and claimed that the Company and Emery similarly fraudulently
conspired in connection with the settlement of the ANET litigation. The suit
sought to recover treble the $10 million settlement payment made by the USPS in
settling the ANET litigation, plus the third party plaintiff's costs and fees.
The Company moved to dismiss the suit with prejudice on grounds that it was
barred by the Act. The Company also sought to recover its attorneys' fees from
the plaintiff and to obtain sanctions against the plaintiff's attorneys. The
Company believes the suit was clearly frivolous because, among other things, the
Company in the ANET bid identified each aircraft by serial number, age, hours
and cycles, and made available use and maintenance records for each aircraft as
required by the request for proposal, and that the USPS reviewed and inspected
the aircraft, data and records and found them acceptable. In May 1996, the court
dismissed the suit and awarded the Company its attorneys' fees and costs. The
plaintiff has asked the court to reconsider its ruling. The Company does not
expect the outcome of this matter to have a material adverse effect upon the
Company's financial condition or results of operations.
Additionally, in the normal course of business, the Company is a party to
matters of litigation, none of which, in the opinion of management, will have a
material adverse effect on the Company's financial condition or the results of
operations.
7. STOCK OPTIONS
In October 1994 the Company granted non-qualified options to two executives
to purchase a total of 337,848 shares of common stock at $7.81 per share.
In December 1995, the Company canceled 245,708 of the options outstanding
and granted to an executive a non-qualified option to purchase 390,707 shares of
common stock at $0.01 per share. The new option has a term of nine years and is
fully vested. Based on an independent appraisal commissioned by the Company, the
fair value of the option of $2,906,758 is reflected as a charge to earnings in
the accompanying statement of income for the nine months ended May 31, 1996.
In June 1996, the Company canceled the remaining 92,140 options outstanding
and granted to another executive a non-qualifying option to purchase 153,567
shares of common stock at $0.01 per share. The new option has a term of nine
years and is fully vested. Based on an independent appraisal commissioned by the
Company, the fair value of the option of $1,588,202 will be reflected as a
charge to earnings during the fourth fiscal quarter ending August 31, 1996.
8. RELATED PARTY TRANSACTIONS
The Company provided maintenance and other services as well as cash
advances to Martinaire East, Inc. ("Martinaire"), a company that is 50% owned by
the Company's stockholder. Total sales to Martinaire for fuel and services were
approximately $424,000, $235,000, $22,000 and $0 in fiscal years 1993, 1994 and
1995, and the nine months ended May 31, 1996, respectively. Martinaire also
flies charter service for the Company. During fiscal years 1993, 1994 and 1995,
and the nine months ended May 31, 1996, Martinaire provided the Company services
in the amount of approximately $1,799,000, $982,000, $232,000 and $1,502,000,
respec-
F-13
<PAGE> 73
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tively. At August 31, 1994 and 1995, and May 31, 1996, approximately $481,000,
$0 and $0, respectively, was due from Martinaire.
9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code. Established effective September 1, 1993, the plan covers
substantially all employees meeting minimum service requirements. Under the
plan, contributions are voluntarily made by employees and the Company provides
matching contributions based upon the employees contribution. The Company
incurred $80,812, $121,217, and $123,993 in matching contributions related to
this plan during fiscal year 1994 and 1995, and the nine months ended May 31,
1996, respectively.
The Company has adopted:
- An Omnibus Securities Plan (the Plan) under which 300,000 shares of its
common stock are reserved for issuance to its employees. The Plan will be
administered by the Company's Compensation Committee which may grant stock
based and non-stock based compensation to the Plan participants.
- An Annual Incentive Compensation Plan (the Compensation Plan) under which
the Compensation Committee will determine and award semiannual bonuses to
employees of the Company. The aggregate amount of bonuses available for
award is limited to 10% of the Company's income before income taxes and
the bonuses to be paid under the Compensation Plan. The Company may elect
to pay the full amount of the bonuses in common stock, which is limited to
total stock distributions of 200,000 shares of common stock.
- An Employee Stock Purchase Plan covering up to 100,000 shares of the
Company's common stock.
10. SUBSEQUENT EVENT
On June 28, 1996 the Company approved a 1.2285391-for-1 stock split
effected as a stock dividend. All references to common stock and per share data
have been restated to give effect to the split.
F-14
<PAGE> 74
[PICTURE OF KITTY
HAWK BUILDING]
[PICTURE OF KITTY HAWK
AIRCRAFT PIERCING WORLD
MAP]
[PICTURE OF KITTY
HAWK BOEING 727]
[PICTURE OF
KITTY HAWK AIRCRAFT]
[PICTURE OF KITTY
HAWK AIRCRAFT
BEING LOADED]
[PICTURE OF KITTY HAWK
CONTROL ROOM]
<PAGE> 75
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER, OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH AN OFFER IN SUCH STATE. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 8
Use of Proceeds....................... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial and
Operating Data...................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 30
Management............................ 44
Certain Transactions.................. 50
Principal Stockholders and Selling
Stockholder......................... 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 57
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until , 1996 (25 days after the commencement of the offering), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
KITTY HAWK, INC.
COMMON STOCK
[KITTY HAWK, INC. LOGO]
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
FIELDSTONE
FPCG SERVICES, L.P.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable solely by the Company in connection with the
issuance and distribution of the securities to be registered, other than
underwriting discounts and expenses, are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 19,034
NASD filing fee................................................... 6,020
Nasdaq application fee............................................ 45,125
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Transfer agent and registrar fees................................. *
Miscellaneous expenses............................................ *
--------
Total................................................... $665,000
========
</TABLE>
- ---------------
* To be supplied by Amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. However, this does not apply with respect to any action in which the
director would be liable under Section 174 of the General Corporation Law of the
State of Delaware ("Delaware Code") nor does it apply with respect to any
liability in which the director (i) breached his duty of loyalty to the Company
or its stockholders; (ii) did not act in good faith or, in failing to act, did
not act in good faith; (iii) acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law; or (iv)
derived an improper personal benefit.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers and former directors and officers to
the fullest extent permitted by the Delaware Code. Pursuant to the provisions of
Section 145 of the Delaware Code, the Company has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company, against any and all
expenses, judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
II-1
<PAGE> 77
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company granted certain options to Messrs. Reeves and Wadsworth in
December of 1995 and June of 1996, respectively. See "Management -- Employee
Compensation Plans and Arrangements." All such options were issued in connection
with employment or consulting services rendered pursuant to Rule 701 and/or
Section 4(2) of the Securities Act of 1933, as amended and were exercised on
June 27, 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
1.1*** -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the "Company"),
filed as Exhibit 3.1 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
3.2 -- Bylaws of the Company, filed as Exhibit 3.2 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the Company,
filed as Exhibit 3.3 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
3.4 -- Amendment No. 1 to the Bylaws of the Company, filed as Exhibit 3.4 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
4.1*** -- Specimen Common Stock Certificate.
5.1*** -- Opinion of Haynes and Boone, LLP, regarding legality of the Common
Stock being issued.
10.1 -- Master Agreement for Air Charter Transportation Services ("GM
Agreement") dated as of June 4, 1990 by and between General Motors
Corp. ("GM") and Kitty Hawk Charters, Inc. ("Charters"), filed as
Exhibit 10.1 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, `
which exhibit is incorporated herein by reference.
10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9, 1990 by and
between the Company and GM, filed as Exhibit 10.2 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4, 1991 by and
between the Company and GM, filed as Exhibit 10.3 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1, 1990 by and
between the Company and GM, filed as Exhibit 10.4 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
</TABLE>
II-2
<PAGE> 78
<TABLE>
<C> <S>
10.5 -- Addendum No. 3 to the GM Agreement dated as of November 5, 1990 by
and between the Company and GM, filed as Exhibit 10.5 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.6 -- Addendum No. 4 to the GM Agreement dated as of December 3, 1990 by
and between the Company and GM, filed as Exhibit 10.6 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7, 1991 by and
between the Company and GM, filed as Exhibit 10.7 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.8 -- Addendum No. 6 to the GM Agreement dated as of February 4, 1991 by
and between the Company and GM, filed as Exhibit 10.8 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4, 1991 by and
between the Company and GM, filed as Exhibit 10.9 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.10 -- Revision to Appendices and to Master Agreement for Air Charter
Transportation Services dated August 13, 1992 by and between the
Company and GM, filed as Exhibit 10.10 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1, 1994 by and
between the Company and GM, filed as Exhibit 10.11 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.12 -- Aircraft Charter Agreement dated as of February 9, 1994 by and
between the Company and DHL Airways, Inc., filed as Exhibit 10.13 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.13* -- Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services
dated as of May 15, 1995 by and between the Company and Burlington
Air Express Inc. ("Burlington").
10.14** -- Agreement to Furnish Five (5) B727-200 Aircraft and Air Cargo
Services dated as of March 1, 1996 by and between the Company and
Burlington.
10.15** -- Aircraft Operating Lease dated as of March 14, 1995 by and between
Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong") and the
Company.
10.16** -- Amendment and Extension of Aircraft Operating Lease dated April 24,
1996 by and between Ting Hong and the Company.
10.17** -- Aircraft Operating Lease dated April 19, 1996 by and between the
Company and Pacific East Asia Cargo Airlines, Inc.
10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the
Company, Aircargo, Leasing, M. Tom Christopher, American
International Airways, Inc., and Conrad Kalitta, filed as Exhibit
10.32 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F.
Grammer and M. Tom Christopher, filed as Exhibit 10.33 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
II-3
<PAGE> 79
<TABLE>
<C> <S>
10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26,
1994 by and between the Company, M. Tom Christopher and Robert F.
Grammer, filed as Exhibit 10.34 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
10.21 -- Amended and Restated Loan Agreement dated as of May 10, 1994 by and
between Leasing, the Company, Aircargo and First Interstate Bank of
Texas, N.A., filed as Exhibit 10.35 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.22*** -- First Amendment to Amended and Restated Loan Agreement dated as of
January 17, 1995 between the Company and First Interstate Bank of
Texas, N.A.
10.23*** -- Loan Agreement dated as of December 18, 1995 between the Company and
Bank One, Texas, N.A.
10.24*** -- Loan Agreement dated as of January 17, 1995 between the Company and
First Interstate Bank of Texas, N.A.
10.25 -- Salary Continuation Agreement dated as of June 15, 1993 by and
between the Company and M. Tom Christopher, filed as Exhibit 10.36 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.26 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and
between the Company and James R. Craig, filed as Exhibit 10.37 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.27 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and
between the Company and James R. Craig, filed as Exhibit 10.38 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.28 -- Kitty Hawk, Inc. 1994 Omnibus Securities Plan, filed as Exhibit 10.39
to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.29 -- Form of Stock Option Agreement to be used under 1994 Omnibus
Securities Plan, filed as Exhibit 10.44 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.30 -- Kitty Hawk, Inc. Employee Stock Purchase Plan, filed as Exhibit 10.41
to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.31 -- Kitty Hawk, Inc. Annual Incentive Compensation Plan, filed as Exhibit
10.42 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.32 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as Exhibit 10.43 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.33 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and M. Tom Christopher, filed as Exhibit 10.45 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
II-4
<PAGE> 80
<TABLE>
<C> <S>
10.34 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and Richard R. Wadsworth, filed as Exhibit 10.46 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.35 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and Tilmon J. Reeves, filed as Exhibit 10.47 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.36 -- Amended and Restated Stock Option Agreement dated as of October 26,
1994 by and between Richard R. Wadsworth and the Company, filed as
Exhibit 10.48 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.37 -- Amended and Restated Stock Option Agreement dated as of October 26,
1994 by and between Tilmon J. Reeves and the Company, filed as
Exhibit 10.49 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.38* -- Stock Option Agreement dated June 12, 1996 by and between Richard R.
Wadsworth, Jr. and the Company.
10.39* -- Stock Option and Life Insurance Agreement dated December 31, 1995 by
and between Tilmon J. Reeves and the Company.
10.40 -- Request for written consent to expand ownership without management
change dated as of October 26, 1994 granted by GM, filed as Exhibit
10.50 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.41 -- Request for written consent to certain disclosures of Master
Agreement and contractual relationship dated as of October 26, 1994
granted by GM, filed as Exhibit 10.51 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.42 -- Kavouras Customer Order Acknowledgment, filed as Exhibit 10.52 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.43 -- Kavouras Meteorological Services Agreement, filed as Exhibit 10.53 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.44 -- Computer Flight Plan and Weather Service Agreement dated as of June
11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc., filed
as Exhibit 10.54 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.45** -- Purchase Agreement between Federal Express Corporation and Postal
Air, Inc. (predecessor to the Company) dated as of October 22, 1992
(the "FEASI Agreement").
10.46** -- Amendment No. 1 dated November 17, 1992 to the FEASI Agreement.
10.47** -- Amendment No. 2 dated February 1993 to the FEASI Agreement.
10.48** -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.
10.49** -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.
10.50** -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.
</TABLE>
II-5
<PAGE> 81
<TABLE>
<C> <S>
21.1* -- Subsidiaries of the Registrant.
23.1* -- Consent of Ernst & Young LLP.
23.2 -- Consent of Haynes and Boone (contained in legal opinion).
24.1* -- The power of attorney of officers and directors of the Company is set
forth on the signature page hereto.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Filed herewith and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.
*** To be filed by amendment.
(b) Financial Statement Schedules and Auditors' Reports on Schedules:
None
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the day of , 1996.
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
------------------------------------
M. Tom Christopher
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Kitty Hawk, Inc. (the "Company") hereby constitutes and appoints,
M. Tom Christopher and Richard R. Wadsworth, or either of them (with full power
to each of them to act alone), his true and lawful attorney-in-fact and agent,
with full power of substitution, for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign, execute, and file any and
all documents relating to this Registration Statement, including any and all
amendments, exhibits and supplements thereto and including any Registration
Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, with any
regulatory authority, granting unto said attorneys, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he himself might or could do if
personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the day of , 1996.
<TABLE>
<CAPTION>
NAME CAPACITIES
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ M. TOM CHRISTOPHER Chairman of the Board of Directors, and
- --------------------------------------------- Chief Executive Officer
M. Tom Christopher
/s/ TILMON J. REEVES President, Chief Operating Officer, and
- --------------------------------------------- Director
Tilmon J. Reeves
/s/ RICHARD R. WADSWORTH Senior Vice President -- Finance, Chief
- --------------------------------------------- Financial Officer, Secretary, and
Richard R. Wadsworth Director, and Principal Financial and
Accounting Officer
/s/ TED J. COONFIELD Director
- ---------------------------------------------
Ted J. Coonfield
/s/ JAMES R. CRAIG Director
- ---------------------------------------------
James R. Craig
/s/ ROBERT F. GRAMMER Director
- ---------------------------------------------
Robert F. Grammer
/s/ LEWIS S. WHITE Director
- ---------------------------------------------
Lewis S. White
</TABLE>
II-7
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1*** -- Form of Underwriting Agreement.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the "Company"),
filed as Exhibit 3.1 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
3.2 -- Bylaws of the Company, filed as Exhibit 3.2 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the Company,
filed as Exhibit 3.3 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
3.4 -- Amendment No. 1 to the Bylaws of the Company, filed as Exhibit 3.4 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
4.1*** -- Specimen Common Stock Certificate.
5.1*** -- Opinion of Haynes and Boone, LLP, regarding legality of the Common
Stock being issued.
10.1 -- Master Agreement for Air Charter Transportation Services ("GM
Agreement") dated as of June 4, 1990 by and between General Motors
Corp. ("GM") and Kitty Hawk Charters, Inc. ("Charters"), filed as
Exhibit 10.1 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9, 1990 by and
between the Company and GM, filed as Exhibit 10.2 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4, 1991 by and
between the Company and GM, filed as Exhibit 10.3 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1, 1990 by and
between the Company and GM, filed as Exhibit 10.4 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.5 -- Addendum No. 3 to the GM Agreement dated as of November 5, 1990 by
and between the Company and GM, filed as Exhibit 10.5 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.6 -- Addendum No. 4 to the GM Agreement dated as of December 3, 1990 by
and between the Company and GM, filed as Exhibit 10.6 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7, 1991 by and
between the Company and GM, filed as Exhibit 10.7 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.8 -- Addendum No. 6 to the GM Agreement dated as of February 4, 1991 by
and between the Company and GM, filed as Exhibit 10.8 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4, 1991 by and
between the Company and GM, filed as Exhibit 10.9 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.10 -- Revision to Appendices and to Master Agreement for Air Charter
Transportation Services dated August 13, 1992 by and between the
Company and GM, filed as Exhibit 10.10 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1, 1994 by and
between the Company and GM, filed as Exhibit 10.11 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.12 -- Aircraft Charter Agreement dated as of February 9, 1994 by and
between the Company and DHL Airways, Inc., filed as Exhibit 10.13 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.13* -- Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services
dated as of May 15, 1995 by and between the Company and Burlington
Air Express Inc. ("Burlington").
10.14** -- Agreement to Furnish Five (5) B727-200 Aircraft and Air Cargo
Services dated as of March 1, 1996 by and between the Company and
Burlington.
10.15** -- Aircraft Operating Lease dated as of March 14, 1995 by and between
Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong") and the
Company.
10.16** -- Amendment and Extension of Aircraft Operating Lease dated April 24,
1996 by and between Ting Hong and the Company.
10.17** -- Aircraft Operating Lease dated April 19, 1996 by and between the
Company and Pacific East Asia Cargo Airlines, Inc.
10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the
Company, Aircargo, Leasing, M. Tom Christopher, American
International Airways, Inc., and Conrad Kalitta, filed as Exhibit
10.32 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F.
Grammer and M. Tom Christopher, filed as Exhibit 10.33 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26,
1994 by and between the Company, M. Tom Christopher and Robert F.
Grammer, filed as Exhibit 10.34 to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by reference.
10.21 -- Amended and Restated Loan Agreement dated as of May 10, 1994 by and
between Leasing, the Company, Aircargo and First Interstate Bank of
Texas, N.A., filed as Exhibit 10.35 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.22*** -- First Amendment to Amended and Restated Loan Agreement dated as of
January 17, 1995 between the Company and First Interstate Bank of
Texas, N.A.
10.23*** -- Loan Agreement dated as of December 18, 1995 between the Company and
Bank One, Texas, N.A.
10.24*** -- Loan Agreement dated as of January 17, 1995 between the Company and
First Interstate Bank of Texas, N.A.
10.25 -- Salary Continuation Agreement dated as of June 15, 1993 by and
between the Company and M. Tom Christopher, filed as Exhibit 10.36 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.26 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and
between the Company and James R. Craig, filed as Exhibit 10.37 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.27 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and
between the Company and James R. Craig, filed as Exhibit 10.38 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.28 -- Kitty Hawk, Inc. 1994 Omnibus Securities Plan, filed as Exhibit 10.39
to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.29 -- Form of Stock Option Agreement to be used under 1994 Omnibus
Securities Plan, filed as Exhibit 10.44 to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of December 1994, which exhibit is incorporated
herein by reference.
10.30 -- Kitty Hawk, Inc. Employee Stock Purchase Plan, filed as Exhibit 10.41
to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.31 -- Kitty Hawk, Inc. Annual Incentive Compensation Plan, filed as Exhibit
10.42 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.32 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as Exhibit 10.43 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.33 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and M. Tom Christopher, filed as Exhibit 10.45 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.34 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and Richard R. Wadsworth, filed as Exhibit 10.46 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.35 -- Employment Agreement dated as of October 27, 1994 by and between the
Company and Tilmon J. Reeves, filed as Exhibit 10.47 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.36 -- Amended and Restated Stock Option Agreement dated as of October 26,
1994 by and between Richard R. Wadsworth and the Company, filed as
Exhibit 10.48 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.37 -- Amended and Restated Stock Option Agreement dated as of October 26,
1994 by and between Tilmon J. Reeves and the Company, filed as
Exhibit 10.49 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.38* -- Stock Option Agreement dated June 12, 1996 by and between Richard R.
Wadsworth, Jr. and the Company.
10.39* -- Stock Option and Life Insurance Agreement dated December 31, 1995 by
and between Tilmon J. Reeves and the Company.
10.40 -- Request for written consent to expand ownership without management
change dated as of October 26, 1994 granted by GM, filed as Exhibit
10.50 to the Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit
is incorporated herein by reference.
10.41 -- Request for written consent to certain disclosures of Master
Agreement and contractual relationship dated as of October 26, 1994
granted by GM, filed as Exhibit 10.51 to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No. 33-85698) dated as
of December 1994, which exhibit is incorporated herein by reference.
10.42 -- Kavouras Customer Order Acknowledgment, filed as Exhibit 10.52 to the
Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.43 -- Kavouras Meteorological Services Agreement, filed as Exhibit 10.53 to
the Registrant's previously filed Registration Statement on Form S-1
(Reg. No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.44 -- Computer Flight Plan and Weather Service Agreement dated as of June
11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc., filed
as Exhibit 10.54 to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994,
which exhibit is incorporated herein by reference.
10.45** -- Purchase Agreement between Federal Express Corporation and Postal
Air, Inc. (predecessor to the Company) dated as of October 22, 1992
(the "FEASI Agreement").
10.46** -- Amendment No. 1 dated November 17, 1992 to the FEASI Agreement.
10.47** -- Amendment No. 2 dated February 1993 to the FEASI Agreement.
10.48** -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.
10.49** -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.
10.50** -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.
21.1* -- Subsidiaries of the Registrant.
23.1* -- Consent of Ernst & Young LLP.
23.2 -- Consent of Haynes and Boone (contained in legal opinion).
24.1* -- The power of attorney of officers and directors of the Company is set
forth on the signature page hereto.
27.1* -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
** Filed herewith and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.
*** To be filed by amendment.
<PAGE> 1
EXHIBIT 10.13
AGREEMENT TO FURNISH THREE (3) CV-600 AIRCRAFT AND
AIR CARGO SERVICES
THIS AGREEMENT TO FURNISH CV-600 AIRCRAFT AND AIR CARGO
SERVICES (this "Agreement") is made and entered into as of the 15th day of May,
1995, by and between Kitty Hawk Group, Inc., a Texas Corporation
("Contractor"), and BURLINGTON AIR EXPRESS INC., a Delaware Corporation
("Burlington").
Preliminary Statement
The Contractor wishes to acquire, operate and maintain the
Aircraft for the exclusive use and benefit of Burlington Monday through
Saturday morning in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the parties hereby agree as follows:
I. DEFINITIONS
(A) Defined Terms. Except as otherwise specified, the
following terms have the respective meanings set forth below for all purposes
of the Agreement, and the definitions of such terms are equally applicable both
to the singular and plural forms thereof.
"Aeronautics Authority" means, as appropriate, the United
States Department of Transportation, the Secretary of Transportation, the FAA
or the Administrator of the FAA, or any person, governmental department,
bureau, commission or agency succeeding to the functions of any of the
foregoing or otherwise having jurisdiction with respect to the ownership,
leasing operation, use or maintenance of the Aircraft.
"Air Carrier" means any air carrier which is a United States
"Domestic Air Carrier" as defined in Part 121 of FAR and has a Certificate of
Public Convenience and Necessity issued pursuant to Section 401 or 418 of the
Aviation Act.
"Aircraft" means three (3) Convair 600 described on Schedule I
hereto, with the Registration Numbers described thereon.
"Aviation Act" means the Federal Aviation Act of 1958, as
amended from time to time, or any successor or substituted legislation at the
time in effect and applicable, and the rules and regulations promulgated
pursuant thereto.
"Block Hour" means, for each Aircraft, each hour or part
thereof (computed to the nearest one-tenth of an hour) elapsing from the moment
such Aircraft begins movement under
1
<PAGE> 2
its own power at the airport at which a flight segment of a Scheduled Route
(or, if Burlington so instructs, for unscheduled flying) departs until such
Aircraft comes to rest at the next airport at which such flight segment
terminates and such Aircraft is no longer moving under its own power.
"Burlington Hub" means the air cargo handling and operations
base designated by Burlington from time to time as the hub of its freight
forwarding operations to which the Services relate.
"Business Day" means any day other than a Saturday, Sunday or
any statutory holiday.
"Dangerous Goods" means, for purposes of this agreement, any
and all "dangerous goods," "hazardous materials," "hazardous substances,"
"restricted articles" and any similar terms as defined in the applicable
Dangerous Goods Regulations from time to time.
"Dangerous Goods Regulations" may mean one or more of the
following: Hazardous Materials Transportation Act of 1970 (Public Law 91458,
October 16, 1970, 84 Stat. 977); the Hazardous Materials Transportation Act
(Public Law 98633, January 3, 1975, as Stat. 2156); (U.S. Code of Federal
Regulations, Title 49 (49CR); International Civil Aviation Organization
Technical Instruction for the Safe Transport of Dangerous Goods (ICAO);
International Air Transport Association Dangerous Goods Regulations (IATA);
Restricted Articles Circular 6-D, Published by Airline Tariff Publishing
Company, Federal Air Regulations Part 121, or any other applicable law or
industry regulations which regulates the transportation of dangerous or
hazardous goods or other materials, as amended, supplemented or replaced from
time to time, and in each case, the rules and regulations from time to time
promulgated pursuant thereto.
"Departure" means each occasion upon which an Aircraft under
the control of Contractor in the performance of Services in fact departs from a
point of origination or an intermediate point on a Scheduled Route.
"Departure Reliability Factor" means with respect to any date,
the number (expressed as percentage) obtained by dividing (i) the number of
Departures in fact made by Contractor during the immediately preceding
consecutive twenty-one (21) Scheduled Flight Days divided by (ii) the number
of Departures scheduled during such consecutive twenty-one (21) Scheduled
Flight Days. Reliability calculations will not be effective for the initial
twenty-one (21) days of operation.
"$" and "dollars" means the lawful currency of the United
States of America.
"Event of Default" means each of the events specified in the
Article VIII hereof.
2
<PAGE> 3
"FAA" means the United States Federal Aviation Administration
or any person, governmental department, bureau, commission or agency succeeding
to the functions thereof.
"FAR" means the regulations promulgated pursuant to the
Aviation Act.
"Lien" means any mortgage, pledge, lien, charge, encumbrance,
lease, security interest or other claim.
"Owner" means Kitty Hawk Group, Inc., a Texas Corporation.
"Person" means an individual, a corporation, an association, a
partnership, a trust or estate, a government or any agency or political
subdivision thereof or any entity.
"Schedule Reliability Factor" means, as of any date, the
number (expressed as a percentage) obtained by dividing (i) the number of
Departures which occurred within fifteen (15) minutes of their respective
scheduled departure times during the immediately preceding twenty-one (21)
consecutive Flight Days by (ii) the total number of Departures occurring during
such twenty-one (21) Flight Days. Reliability factors will not be calculated
during the initial twenty-one (21) day period.
"Scheduled Departure" means each occasion upon which
Contractor in performance of Services is scheduled to depart from a point of
origination or an intermediate point on a Scheduled Route, whether or not a
Departure actually occurs.
"Scheduled Route" means the applicable route designed by
Burlington for the performance of Services pursuant to the terms of this
Agreement, including points of origination, intermediate points and points of
termination as well as scheduled departure and arrival times, as such route
may be changed from time to time by Burlington pursuant to Section II(H)
hereof.
"Services" means the services required to be performed and the
actions required to be taken by Contractor pursuant to the terms of this
Agreement.
(B) Interpretation. The terms used in the Agreement,
unless otherwise defined herein or unless the context otherwise requires, shall
have the meanings established by common usage in the commercial air cargo
transport industry and in the course of dealing between Burlington and
Contractor.
II. PROVISION OF AIR CARGO SERVICES
(A) Generally. Contractor shall provide the Aircraft, and
Contractor, as an independent contractor, shall operate the Aircraft for the
use and benefit of Burlington and furnish to Burlington the Services, upon the
terms and conditions set forth herein.
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(B) Term and Frequency of Service.
1. The Services shall commence on or about May 15th,
1995 or sooner, if mutually agreeable between parties.
2. The Aircraft shall be operated and maintained by
Contractor in such a manner so that the Aircraft performs a minimum of
one round trip flight per day on each Scheduled Flight Day.
3. Except as otherwise provided in Article VIII hereof
the term of this Agreement shall commence on May 15, 1995 and shall be
extended thereafter until terminated by either party giving the other
party thirty (30) days prior written notice.
(C) Service Obligations. Except to the extent that
Burlington is responsible to pay for or provide for personnel, services,
equipment, payments and other items pursuant to Section II(E) hereof,
Contractor, at Contractor's sole cost and expense, shall be responsible to pay
for and provide all personnel, services, maintenance, supplies, equipment,
payments and other items necessary or advisable in connection with the
performance of the Services in accordance with applicable Aeronautics Authority
requirements and other standards and applicable laws and the terms of this
Agreement, as follows:
1. Contractor shall provide all flight crews necessary
to operate the Aircraft in strict accordance with the requirements of
the Scheduled Routes, the Scheduled Flying Days and the Scheduled
Departures. All such personnel shall be properly qualified and
licensed as pilots or flight engineers respectively with respect to
the Aircraft they are operating.
2. Contractor shall provide all maintenance crews and
management personnel necessary or advisable for the operation and
maintenance of the Aircraft, including but not limited to dispatchers
and supervisory and administrative personnel who shall have any
required licenses and ratings in full force and effect and shall be
properly qualified to perform the maintenance work on the Aircraft to
which they are assigned.
3. Contractor shall provide for all flight and
maintenance crew training.
4. Contractor shall pay (i) all compensation of
Contractor's employees (including but not limited to salaries, social
security, premiums for medical and other insurance (including
employer's liability insurance and workers' compensation insurance,
payroll taxes, pension costs and other fringe benefits), (ii) all per
diem allowances or meals for the flight crews, maintenance crews,
dispatchers, supervisory and administrative personnel and (iii) all
other related expenses, including accommodations and transportation
at, to and from the airport, for the flight crews, maintenance and
other ground staff and any other Contractor personnel at all
locations.
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5. During the term of this Agreement Contractor shall
maintain the Aircraft in good working order and good condition and in
strict compliance with all the requirements of FAR Part 121 and all
other applicable Aeronautics Authority rules and regulations.
Contractor shall maintain the airworthiness certificate for each
Aircraft in full force and effect, without material restrictions.
Contractor shall maintain the neat and clean appearance (to include
necessary paint touch-up) of each Aircraft.
6. Contractor shall perform or cause to be performed all
maintenance, service, overhaul and repair of the Aircraft.
7. Contractor shall make available for inspection upon
request to Burlington at any time and from time to time during the
term of this Agreement (and Burlington shall have the right to
inspect) the Aircraft, the maintenance facilities and procedures of
Contractor, and any books, manuals, revision services, documents,
files, data or records in the possession of Contractor relating to the
Aircraft and its operation for Burlington.
8. Contractor, at its expense, shall provide (a) all
expendable, consumable and rotable components and parts, (b) line shop
and service supplies, and (c) shipping of all parts.
9. Contractor shall submit to Burlington, at such time
and in such manner as Burlington may from time to time reasonably
request, reports routinely prepared by Contractor concerning flight
exceptions, aircraft systems, and engine reliability.
10. Contractor shall perform flight planning and aircraft
dispatching and shall manage all communications and operations. All
flight operations shall be under exclusive control of Contractor.
11. Contractor shall prepare all returns, reports and
other filings relating to any tax based upon the property, the net or
gross income or receipts of Contractor.
12. Contractor shall pay and discharge when due all
liabilities and obligations it may have with respect to any Person
which could result in a Lien with respect to any Aircraft, any Aircraft
Engine or any spare engines or spare parts or which could adversely
affect the performance of Contractor's obligations hereunder,
including but not limited to obligations owing Contractor's employees,
suppliers, vendors, lessors and subcontractors.
(D) Exceptions. Burlington shall bear the cost of the
following personnel, services equipment payments and other items incurred in the
performance of service under this Agreement;
1. Loading and unloading cargo;
2. ULD Containers;
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3. Power carts; used for loading and unloading
operations and Engine starts;
4. Towing and pushback fees;
5. Parking and ramp charges;
6. Deicing the Aircraft;
7. Landing fees;
8. Fuel;
9. All seneam and other fees associated with Mexico
operations;
provided, that none of the foregoing are payable by Burlington to the extent
they are to be provided in connection with Contractor's maintenance obligations
or if they result from Contractor's breach of this Agreement or its negligence
or willful misconduct; provided, further, that Burlington shall bear such
foregoing costs only in respect of the operation of the Aircraft on the
Scheduled Routes or when otherwise flown at Burlington's direction; and
provided, further, that nothing in this Section II(E) shall operate to relieve
Contractor from any obligations or liability arising out of any breach of the
terms of this Agreement. (Should Contractor supply any items listed in this
Section II(D), then Burlington will reimburse Contractor its total expense
within thirty (30) days of receipt of invoice for such expense.)
(E) Reliability. Subject to the force majeure provision
set forth in Section XI(H) hereof as qualified below and the circumstances
referred to below, and without limiting Burlington's rights under Article
VIII(A) hereof, Contractor shall perform the Services in a manner such that the
Schedule Reliability Factor is at all times not less than 97.5% and the
Departure Reliability Factor is at all times not less than 98.5%. For purposes
of this Section II(F), circumstances beyond Contractor's reasonable control
shall include failure to perform by Burlington employees or its agents, adverse
weather conditions, delay or damage to Aircraft caused by a loading/unloading
operator designated by Burlington, grounding of aircraft due to temporary or
permanent cancellation of the Aircraft Type Certificate. Circumstances not
beyond the Contractor's control shall include, but are not limited to, those so
described in Section XI(H). Origination or intermediate stop Contractor caused
delays will not be chargeable to Contractor if the flight in question
terminates at the last stop on the applicable Scheduled Route within fifteen
(15) minutes of the Schedule or departs for the last stop on the applicable
Scheduled Route within fifteen (15) minutes of Schedule.
(F) Service-Related Obligations of Contractor. Without
limiting the scope of Contractor's obligations under this Agreement,
Contractor, at its sole cost and expense, shall have the following obligations:
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1. Flight Planning and Reports. Contractor shall prepare
all necessary flight planning and flight following activities required
to perform the Services and shall submit to Burlington within
twenty-four (24) hours following the completion of any Aircraft flight
a Flight Summary Report in a mutually agreed format describing such
Aircraft flight.
2. Crew Rest and In-Transit Facilities. Contractor shall
provide crew rest facilities and transit layover facilities for crews
providing Services in connection with this Agreement. Contractor crews
will not be permitted to lay-over in the Burlington offices, and
Burlington will not provide a lounge for them.
3. Fuel Reports. Within twenty-four (24) hours following
completion of each Aircraft flight, Contractor shall submit to
Burlington a daily Fuel Uplift and Purchase Report in a mutually
agreed format with fuel tickets attached.
4. Configuration and Fueling. In rendering the Services,
Contractor shall configure and fuel each Aircraft so as to provide the
maximum practicable cargo payload at all times, taking into
consideration all relevant flight planning and scheduling factors.
Contractor shall at all times conduct its flight operations in
accordance with usual and customary air carrier practices and to the
extent consistent therewith use its best efforts to conserve fuel.
5. Travel Privileges. Burlington shall be entitled to
travel privileges for its personnel acting as couriers on the Aircraft
provided Contractor shall have first right to move personnel necessary
to perform its obligations. Travel privileges will be subject to FAA
regulations, when applicable.
6. Dangerous Goods. Contractor shall pay special
attention and consideration to the inspection, handling, loading,
stowing and/or carriage of Dangerous Goods. Contractor's personnel,
engaged in any aspect of inspection, handling, loading, stowing and/or
carriage of Dangerous Goods shall prior thereto deliver to Burlington
documented evidence that they have successfully completed an initial
and recurrent training program for Dangerous Goods for air
transportation that is satisfactory to Burlington standards. A
complete record of their proficiency and an outline of their training
program shall be kept on file by Contractor. Contractor shall insure
that its personnel comply with all relevant provisions of Federal,
State or local Dangerous Goods Regulations applicable to the
performance of their functions and are trained and comply with
Burlington's procedures for handling, documenting and transporting
Dangerous Goods on the Aircraft.
(G) Route Changes. Burlington may at any time during the
term of this Agreement change the departure times or the Scheduled Routes upon
no less than seven (7) calendar days prior notice to Contractor; provided,
however, that Burlington may make nominal departure time or enroute changes as
it deems operationally necessary or advisable without prior notice. In the
event that Burlington changes the origination or termination points of a
Scheduled
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Route and, as a direct result, Contractor incurs Relocation Costs Burlington
shall reimburse Contractor for such Relocation Costs within fifteen (15) days
of presentation of detailed invoices, reasonably satisfactory to Burlington,
for such Relocation Costs incurred by Contractor; provided, however, that in no
event shall Burlington be responsible for such costs in excess of $5,000 for a
change in a Scheduled Route. This Section H shall not apply to a relocation of
the Burlington Hub. If Burlington geographically relocates the Burlington Hub,
Burlington and Contractor will negotiate a mutually agreeable basis for
reimbursement of the Relocation Costs imposed upon Contractor in connection
with such a relocation.
III. PAYMENT TO CONTRACTOR
(A) Payment for Services. Contractor shall invoice
Burlington in accordance with the rates established on Schedule I attached
hereto, on a weekly basis. Each invoice shall be submitted to Burlington within
five (5) business days from the closing of the previous calendar week and shall
cover all services provided for that week pursuant to this Agreement. Within
ten (10) business days after receipt of a weekly invoice, the total amount
indicated thereon shall become due and payable; provided however, that
Burlington may in good faith dispute the accuracy of any weekly invoice.
(B) Reimbursement of Fees and Costs. If Contractor shall
have paid any fees or incurred any out-of-pocket costs which are to be
reimbursed to Contractor by Burlington, and such fees or costs shall not have
already been reimbursed by Burlington, then Contractor will be reimbursed for
such fees or costs by submitting to Burlington together with a Monthly
Statement invoices or other evidences of payment reasonably satisfactory to
Burlington in respect of such fees or costs and stating on such Monthly
Statement the total amount of such fees and costs for which it is due
reimbursement.
(C) Taxes.
1. Burlington shall pay all taxes imposed by any
governmental authority upon the payments to Contractor made by Burlington
pursuant to the terms of this Agreement, including but not limited to any
Federal, state or local transportation or excise taxes as may from time to time
be applicable. Notwithstanding the foregoing, Burlington shall not be
responsible for (a) any tax imposed on or measured by the gross or net income,
receipts, capital or net worth, franchises, excess profits or conduct of
business of Contractor, (b) any sales, use or property tax or other similar tax
imposed on or with respect to, the or services purchased or used by Contractor
in connection with the rendition of the Services hereunder, (c) any taxes
imposed upon Contractor by any jurisdiction if such taxes result from the
present, future or former connection of Contractor (or any affiliate of
Contractor) to such jurisdiction unless arising out of the performance of this
Agreement, (d) taxes which arise out of or are caused by any negligence or
willful misconduct of Contractor, or any act or failure to act prohibited by
this Agreement or any misrepresentation by Contractor, or any failure by
Contractor to claim on a timely and proper basis applicable exemptions or
reductions, (e) taxes to the extent attributable to any period after
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the termination or expiration of the term of this Agreement, (f) taxes which
are imposed as a result of a voluntary or involuntary bankruptcy of Contractor,
(g) taxes imposed on a transferee of Contractor of any interest in this
Agreement to the extent the amount of such taxes exceeds the amount of such
taxes that would not have been imposed had there not been such a transfer, or
(h) penalties, fines, additions to tax or interest to the extent resulting from
the negligence or misconduct of Contractor in giving Burlington any notice
required in the immediately succeeding paragraph, or the failure to file any
returns that are timely and proper.
2. Contractor shall notify Burlington at least thirty
(30) days prior to the due date for any taxes subject to indemnification
pursuant to the preceding paragraph (1) or immediately upon determination of
assessment thereof of any such taxes. If directed in writing by Burlington,
Contractor shall, at Burlington's expense, take such action as Burlington may
request to contest the imposition of such tax and shall, if requested, permit
Burlington in Contractor's name to contest the imposition of such tax.
Contractor shall at Burlington's expense, fully cooperate with Burlington in
contesting such claim, give Burlington any relevant information relating to
such claim which may be within Contractor's knowledge or control, and file any
necessary documents which may be required regarding such claim. In the event
Contractor fails to contest or fails to permit Burlington to contest any claim
for taxes, Burlington shall not be obligated to indemnify Contractor for any
such taxes.
3. If as a result of a payment of an indemnity,
Contractor shall realize a tax benefit not previously taken into account in
computing the amount of such payment, or shall obtain a refund of all or any
part of a tax paid by Burlington or with respect to which Burlington had made
an indemnity payment, the Contractor shall pay Burlington the amount of such
refund, or benefit (taking into account any tax consequences to Contractor with
respect to the receipt of such a refund and the payment of such amounts over to
Burlington) within thirty (30) days after Contractor receives such refund or
realizes such benefit. If, in addition to such refund, the Contractor shall
receive an amount representing interest on the amount of such refund,
Burlington shall be paid that proportion of such interest which is fairly
attributable to taxes paid by Burlington or paid by the Contractor with funds
provided by Burlington.
IV. REPRESENTATIONS AND WARRANTIES
(A) Contractor's Representations. Contractor represents
and warrants that on the date hereof:
1. Corporate Status. Contractor is a corporation duly
organized, validly existing, in good standing under the laws of the
State of Texas, is licensed or qualified to do business in all
jurisdictions where the failure to do so could have a material adverse
effect on its ability to perform its obligations hereunder.
2. Authority. Contractor has or will acquire the full
power, authority and legal right to execute, deliver and perform the
terms of this Agreement, including but not
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limited to under the laws, rules and regulations of the Aeronautics
Authority. This Agreement has been duly authorized by all necessary
corporate action of Contractor and has been duly executed and
delivered, and it constitutes a legal, valid and binding obligation of
Contractor enforceable in accordance with its terms. This Agreement
does not contravene any law, governmental rule, regulation or order
known to and binding on Contractor or contravene the certificate of
incorporation or bylaws of Contractor or contravene the provisions of
or constitute any default under, or result in the creation of any lien
upon any of the property of Contractor under, any indenture, mortgage,
contract or other agreement to which Contractor is a party or by which
it is bound.
3. No Conflicting Agreements. Contractor is not in
default under any agreement to which it is a party nor is Contractor a
party to any agreement or instrument or subject to any charter or
other corporate restriction, which individually or in the aggregate
might materially adversely affect the financial or other condition,
business, assets, liabilities or operations of Contractor or the
ability of Contractor to perform its obligations under this Agreement.
4. Governmental Approvals. All necessary licenses,
permits, consents or approvals of, notices to or registrations with or
the taking of any other action in respect of, the Aeronautic
Authority's or any other federal, state, foreign or applicable
governmental authority or agency required to be obtained or
accomplished by Contractor in connection with the execution and
delivery by Contractor of this Agreement and for providing the
Services have been obtained or accomplished by Contractor or are being
obtained or are being accomplished and Contractor is an Air Carrier.
5. Litigation.
a. There are no pending or, to its knowledge,
threatened actions or proceedings to which Contractor is a party which
might materially adversely affect the financial or other condition,
business, assets, liabilities or operations of Contractor or the
ability of Contractor to perform its obligations under this Agreement;
and
b. There are no pending or, to its knowledge,
threatened actions or proceedings of which Contractor has knowledge
before any court or administrative agency which might materially
adversely affect the financial or other condition, business, assets,
liabilities or operations of Contractor or the ability of Contractor
to perform its obligations under this Agreement.
(B) Burlington's Representations. Burlington represents
and warrants to Contractor that on the date hereof:
1. Corporate Status. Burlington is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Delaware.
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2. Authority. Burlington has the full power, authority,
and legal right to execute, deliver, and perform the terms of this
Agreement. This Agreement has been duly authorized by all necessary
corporate action of Burlington and has been duly executed and
delivered and it constitutes a legal, valid and binding obligation of
Burlington enforceable in accordance with its terms. This Agreement
does not contravene any law, governmental rule, regulation or order
known to and binding on Burlington or contravene the certificate of
incorporation or bylaws of Burlington or contravene the provisions of
or constitute any default under, result in the creation of any lien
upon any of the property of Burlington under, any indenture, mortgage,
contract or other agreement to which Burlington is a party or by which
it is bound.
V. CONDITIONS TO EFFECTIVENESS OF AGREEMENT
(A) Burlington's Conditions. This Agreement shall not be
enforceable against Burlington until Burlington shall have received the
following, in each case in form and substance reasonably satisfactory to it:
1. A certificate of the Aeronautics Authority or other
evidence that Contractor and its personnel are qualified and certified
to transport Dangerous Goods.
(B) Contractor's Conditions. This Agreement shall not be
enforceable against Contractor until Contractor shall have received the
following, in each case in form and substance reasonably satisfactory to it:
1. A certificate of Burlington attesting to the
authority of the person or persons authorized to execute and deliver
this Agreement and any other documents to be executed on behalf of
Burlington in connection with the transactions contemplated hereby.
VI. COVENANTS OF CONTRACTOR AND BURLINGTON
The parties covenant and agree as follows:
(A) Further Assurances. Contractor will cause to be done,
executed, acknowledged and delivered each and every further acts, documents and
assurances as Burlington may reasonably require for accomplishing the purposes
of this Agreement.
(B) Operating Requirements. Contractor shall not use or
operate any Aircraft, or permit any Aircraft to be used or operated, in
violation of any applicable law or regulation, or contrary to any condition of
any airworthiness certificate, license, registration or regulation relating to
such Aircraft. Contractor shall be responsible for and shall indemnify and hold
Burlington harmless from and against all penalties, fines or other expenses
imposed by the FAA or other governmental agencies due to violations of any
laws, rules or regulations by Contractor.
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(C) Insurance. Each party hereto will at all times until
the term hereof has expired or been terminated cause to be carried and
maintained at its sole cost and expense the applicable insurance coverage, in
an amount not less than the amount, and containing the provisions, terms and
conditions, set forth below.
1. Hull and Liability Insurance.
a. Contractor will be responsible for "all risk"
hull insurance (including any war risk hull insurance) for the
Aircraft covered by this Agreement. Contractor shall be solely
responsible for the insurance of its spare parts, engines and other
property.
b. Contractor will be responsible and cause to
be obtained and maintained aircraft liability insurance, including
bodily injury or death liability, property damage liability, product
liability and contractual liability, in an amount not less than
$250,000,000 on a combined single limit basis, and personal injury
liability insurance (excluding passenger) in an amount not less than
$25,000,000 on a combined single limit basis.
Contractor's aircraft liability and hull
insurance will name Burlington as an additional insured as its
interest may appear, and will provide that any modification,
alteration and/or change which is material and adverse to Burlington
or the policy, or cancellation of, such policy shall only be effective
as to Burlington upon receipt by Burlington of thirty (30) days' prior
written notice, or seven (7) days' written notice as respects war and
allied perils coverage, or otherwise to the extent of the prevailing
notice period then provided by the applicable insurance market.
2. Workers' Compensation Insurance and Employer's
Liability Insurance.
a. Each of Contractor and Burlington agree to
cause to be obtained and maintained, each with respect to its own
employees, and at its sole cost and expense, statutory Workers'
Compensation Insurance covering the jurisdictions in which it operates
including the monopolistic states of Washington and Ohio. Each party's
insurance policy will contain all states and foreign coverage
endorsements.
b. Each of Contractor and Burlington agree to
cause to be obtained and maintained, for its own account and interest,
at its sole cost and expense, employer's liability coverage in an
amount not less than $1,000,000.
3. Comprehensive General Liability Insurance/Product
Liability Insurance. Contractor, at its sole cost and expense, shall
cause to be obtained and maintained comprehensive general liability
insurance, including contractual liability, which, without limitation,
shall specifically insure the indemnity of Contractor in Sections
VI(B) and XI(A) hereof subject to the terms and conditions of such
policy, and including product liability insurance with respect to any
maintenance, modifications or repairs performed on the Aircraft by
Contractor or any of its subcontractors, in an amount not less than
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$250,000,000, naming Burlington as an additional insured thereunder
and otherwise in form and substance reasonably satisfactory to
Burlington.
4. Insurance Certificates. Before the furnishing by
Contractor of any services hereunder and again prior to the expiration
or renewal of any policy of insurance during the term of this
Agreement, Contractor and Burlington shall exchange certificates of
insurance evidencing the insurance required to be carried by
Contractor and Burlington under this agreement, in a form and
substance reasonably satisfactory.
Such insurance shall provide that any modification,
alteration and/or change which is material and adverse to Burlington
or Contractor, or cancellation of, such insurance shall only be
effective as to Burlington or Contractor upon receipt by Burlington or
Contractor of thirty (30) days' prior written notice.
5. Right to Insure. In the event that Contractor fails
to maintain the insurance required to be obtained and maintained by it
pursuant to this Section, Burlington, may, with reasonable advance
written notice to Contractor, at its option but without any
obligation, provide such insurance and if it so elects, which it may
do in its absolute discretion, as to itself alone and not the other
person. The cost of providing such substitute insurance shall be
payable on demand by Burlington together with interest thereon at the
rate of 10% per annum from and including the date of demand to and
excluding the date paid.
(D) Transportation of Dangerous Goods. Contractor shall at
all times cause itself to be registered with the Aeronautics Authority and
otherwise qualified to transport Dangerous Goods under the Dangerous Goods
Regulations on a current up-to-date basis.
(E) Notification of Default. Contractor or Burlington as
applicable shall notify the other of the occurrence of any Event of Default or
the existence of any circumstances which with notice or the passage of time, or
both, would become an Event of Default promptly after Contractor or Burlington
has knowledge thereof.
VII. TEMPORARY DISCONTINUANCE OF SCHEDULED ROUTES
(A) Temporary Discontinuance of Scheduled Route.
Burlington has the right without cause, after giving forty-eight (48) hours
prior written notice in its sole and absolute discretion to direct Contractor
temporarily to discontinue flying the Aircraft. Burlington may direct
Contractor to resume temporarily discontinued flight provided that Burlington
gives to Contractor notice thereof not less than the number of days prior to
the scheduled resumption as indicated in the following table:
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<TABLE>
<CAPTION>
Period of Temporary Days Prior
Discontinuance to Resumption
- ------------------- -------------
<S> <C>
1 to 10 calendar days 1 calendar day
11 to 20 calendar days 7 calendar days
21 or more calendar days 14 calendar days
</TABLE>
During such temporary discontinuance, Burlington shall be obligated to pay
Contractor the daily scheduled rate.
VIII. DEFAULT/TERMINATION
(A) Default by Contractor. Without limiting the
obligations of Contractor or the rights and remedies of Burlington as provided
in this Agreement, each of the following events (whether any such event shall
be voluntary or involuntary or arise by operation of law or due to any
compliance with any law, rule or regulation or any judgement, order or decree)
shall constitute an "Event of Default":
(i) Contractor shall fail to make any payment
required to be made by Contractor hereunder when due and such failure
continues for a period of ten (10) Business Days; or
(ii) at any time during the term of this Agreement
either (a) the Scheduled Reliability Factor for any period shall be
less than 95% or the Departure Schedule Reliability Factor for any
period shall be less than 97%, and Burlington shall have given notice
to Contractor to cure the default and twenty-one (21) days shall have
expired after the giving of such notice, and, then or thereafter
during the term of this Agreement, either (a) the Scheduled
Reliability Factor shall again be less than 95% for any period or the
Departure Reliability Factor shall again be less than 97% for any
period and Burlington has already given Contractor its one (1) notice
to cure, or (b) notwithstanding the foregoing the Scheduled
Reliability Factor shall ever be less than 93% of the Departure
Reliability Factor shall ever be less than 95%; provided, however,
that in the event that Contractor breaches its obligations under this
Agreement to maintain the Scheduled Reliability Factor for any
applicable period described in clause (a) or (b) above, unless
Burlington has notified Contractor in writing of such breach within
fifteen (15) days thereof, Burlington shall be deemed to have waived
its right to terminate this Agreement as a result of such breach for
such period (but not any other period); or
(iii) if Contractor shall fail to perform or
observe any other covenant, condition or agreement to be performed or
observed by it under this Agreement not otherwise covered specifically
in this Section VIII(A) and if such failure is curable
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without prejudice to Burlington, such failure shall continue uncured
for a period of thirty (30) days after written notice thereof to
Contractor from Burlington so long as Contractor is at all times
diligently prosecuting such cure during such thirty (30) day period;
or
(iv) any representation or warranty made by
Contractor in or pursuant to this Agreement or in any document or
certificate delivered pursuant to this Agreement is or proves to have
been incorrect in any material respect when made;
(v) Contractor assigns or sublets or attempts to
assign or sublet any of its rights or delegates or attempts to
delegate any of its duties or obligations under this Agreement without
the prior written consent of Burlington; or
(vi) Contractor consents to the appointment of a
custodian, receiver, trustee, examiner or liquidator of itself or of a
substantial part of its property, or Contractor makes a general
assignment of the benefit of creditors, or Contractor admits in
writing its inability to pay its debts generally as they become due,
or Contractor is unable to or does not pay its debts generally as they
come due, or Contractor files a voluntary petition in bankruptcy or a
voluntary petition or an answer seeking reorganization in a proceeding
under any bankruptcy laws (as now or hereafter in effect) or an answer
admitting the material allegations of a petition, or Contractor by
voluntary petition, answer, or consent seeks relief under the
provisions of any other existing or future bankruptcy, reorganization
or other similar law providing for the reorganization or winding up of
corporations, or providing for an agreement, composition, extension or
adjustment with its creditors, or any corporate action is taken by
Contractor in furtherance of any of the foregoing; or
(vii) an order, judgment or decree is entered by
any court or governmental agency of competent jurisdiction appointing,
without the consent of Contractor, a custodian, receiver, trustee,
examiner or liquidator of Contractor or of any substantial part of its
property, or any substantial part of the property of Contractor is
sequestered, and any such order, judgment or decree of appointment or
sequestration remains in force undismissed, unstayed or unvacated for
a period of thirty (30) days after the date of entry thereof; or
(viii) a petition against contractor in a proceeding
under the bankruptcy, reorganization or similar laws of the United
States of America or any other insolvency laws (as now or hereinafter
in effect) of any competent jurisdiction is filed and is not withdrawn
or dismissed within thirty (30) days thereafter, or if, under the
provisions of any law providing for reorganization or winding-up of
corporations which may apply to Contractor, any court of competent
jurisdiction assumes jurisdiction, custody or control of Contractor or
of any substantial part of its property and such jurisdiction, custody
or control remains in force or unrelinquished, unstayed or undismissed
for a period of thirty (30) days, or if in any such case at any time
an order for relief is granted; or
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(ix) majority ownership or effective control of
Contractor is acquired by a competitor of Burlington.
(x) Contractor voluntarily or involuntarily
ceases or suspends all or any substantial part of its operations for
any reason, or Contractor announces a future cessation or suspension
of all or any substantial part of operations for any reason
whatsoever, other than in each case as excused by Section XI(H)
hereof, or Contractor ceases or suspends any of its Services
hereunder or announces a future cessation or suspension of any thereof
for any reason whatsoever, other than as excused by Section XI(H)
hereof
(xi) a final judgment is rendered by a court of
competent jurisdiction for the payment of money not, in the reasonable
judgment of Burlington covered by insurance in excess of one million
dollars ($1,000,000), or final judgments are rendered for the
payment of money not, in the reasonable judgment of Burlington, covered
by insurance in excess of one million dollars ($1,000,000) in the
aggregate, shall be rendered against Contractor, or any other final
judgment is rendered by a court of competent jurisdiction which
restrains, hinders or otherwise, in the reasonable judgment of
Burlington, materially and adversely affects Contractor's present or
future performance of any of its obligations hereunder; or
(xii) any obligation of Contractor or any of its
affiliates for the payment of borrowed money (whether as borrower or
guarantor), or payment of the deferred purchase price of any property
or services (whether as buyer or guarantor), or payment of any
obligation under any lease (or sublease) of real or personal property
(whether as lessee or sublessee or guarantor) shall not be paid when
the same becomes due, whether by acceleration or otherwise, after
expiration of any applicable grace period or extension thereof, or
Contractor fails to perform or observe in any material respect any
other provision (unless such provision has been waived) with respect
to any such obligation or in any agreement securing or relating to
such obligation, and the effect of such failure is to permit such an
obligation to be declared due or is to cause such obligation to become
due prior to its stated maturity or in the case of a lease (or
sublease) to permit the lessor or sublessor to take any action to
terminate or repossess, if any such obligations described in this
clause (xiii) individually or in the aggregate are in excess of one
million dollars ($1,000,000); or
(xiii) it is or becomes unlawful for Contractor to
perform any of its obligations hereunder;
Upon the occurrence of any Event of Default described in
clause (vi), (vii) or (viii) above, this Agreement and Burlington's obligations
and Contractor's rights hereunder shall automatically terminate without
notice, and upon the occurrence and during the continuance of any other Event
of Default, Burlington shall immediately be entitled to terminate this Agreement
and Burlington's obligations and Contractor's rights under this Agreement by
notice thereof to Contractor, in each without cost or penalty of any kind and
without limiting Burlington's rights
16
<PAGE> 17
or remedies at law or in equity with respect thereto, including, but not
limited to the recovery of damages due to such a termination.
(B) Default by Burlington. Without limiting the
obligations of Burlington or the rights and remedies of Contractor as provided
in this Agreement, each of the following events (whether any such event shall
be voluntary or involuntary or arise by operation of law or due to any
compliance with any law, rule or regulation or any judgment, order or decree)
shall constitute an "Event of Default":
(i) If Burlington shall fail to make any payment
required to be made by Burlington hereunder and such failure continues
for a period of ten (10) Business Days after written notice thereof is
received by Burlington; or
(ii) If Burlington shall fail to carry and
maintain insurance in accordance with the provisions of Section VI(C)
hereof; or
(iii) If Burlington shall fail to perform or
observe any other covenant, condition or agreement to be performed or
observed by it under this Agreement and if, in the reasonable opinion
of Contractor, such failure is curable without prejudice to
Contractor, such failure shall continue unremedied for a period of
thirty (30) days after written notice thereof to Burlington from
Contractor so long as Burlington is at all times diligently
prosecuting such cure during such thirty (30) day period; or
(iv) Burlington consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or of a
substantial part of its property, or makes a general assignment for
the benefit of creditors, or Burlington admits in writing its
inability to pay its debts generally as they become due, or Burlington
is unable to or does not pay its debts generally as they become due,
or Burlington files a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization in a proceeding under any
bankruptcy laws (as now or hereafter in effect) or an answer admitting
the material allegations of a petition, answer, or consent, seeks
relief under the provisions of any other existing or future bankruptcy
or other similar law providing for the reorganization or winding up of
corporations, or providing for an agreement, composition, extension or
adjustment with its creditors; or
(v) An order, judgment or decree is entered by
any court or governmental agency of competent jurisdiction appointing,
without the consent of Burlington, a custodian, receiver, trustee or
liquidator of Burlington or of any substantial part of its property,
or any substantial part of the property of Burlington is sequestered,
and any such order, judgement or decree of appointment or
sequestration remains in force undismissed, unstayed or unvacated for
a period of thirty (30) days after the date of entry thereof; or
(vi) A petition against Burlington in a proceeding
under the bankruptcy laws of the United States of America or other
insolvency laws (as now or hereinafter in
17
<PAGE> 18
effect) is filed and is not withdrawn or dismissed within thirty (30)
days thereafter, or if, under the provision of any law providing for
reorganization or winding-up of corporations which may apply to
Burlington any court of competent jurisdiction assumes jurisdiction,
custody or control of Burlington or of any substantial or of any
substantial part of its property and such jurisdiction, custody or
control renames in force on unrelinquished, unstayed or undismissed
for a period of thirty (30) days, or if in any such case at any time
an order for relief is granted.
(vii) Any representation or warranty made or deemed made by
Burlington in or pursuant to this Agreement is or proves to have been
incorrect in any material respect when made or deemed made;
Upon the occurrence of any Event of Default described in this
Section VIII (B), Contractor shall immediately be entitled to
terminate this Agreement and its obligations and Burlington's rights
under this Agreement by notice thereof to Burlington, in each case
without cost or penalty of any kind and, subject to the overall limit
or Contractor's recovery rights against Burlington set forth in
Section VII hereof, without limiting Contractor's rights in respect of
the recovery of damages due to such a termination.
(C) Events of Termination. Each of the following events (whether
any such event should be voluntary or involuntary or arise by operation of law
or due to any compliance with any law, rule or regulation of any judgment, or
order or decree) shall constitute an event of termination which shall
immediately entitle Burlington to terminate without notice to Contractor, this
Agreement without cost or penalty of any kind and without limiting Burlington's
rights or remedies at law or in equity with respect thereto, including but not
limited to the recovery of damages due to such a termination:
(i) Contractor shall fail to carry and maintain in full
force and effect insurance in accordance with the provisions of
Section VI(C) hereof or any notice of cancellation shall be given with
respect to any such insurance or Contractor shall operate any Aircraft
outside of the scope or in violation of, or Contractor shall otherwise
fail to comply with, the terms of any insurance or government
indemnity coverage maintained by Burlington or Contractor with respect
to any Aircraft; or
(ii) Contractor disposes, conveys or transfers or
threatens to dispose, convey or transfer all or a material part of its
assets, or Contractor liquidates or dissolves or consolidates or
merges with any other Person, whether in one or a series of
transactions, related or not, without Burlington's prior written
consent which will not be unreasonably withheld, or
(iii) the airworthiness certificate of the Aircraft is
revoked, suspended, canceled, withdrawn, terminated or not renewed or
otherwise ceases to be in full force and effect or becomes subject to
any material restriction; or any consent, authorization, license,
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<PAGE> 19
certificate or approval of or registration with any governmental
authority applicable to Contractor's performance of its obligations
under this Agreement, including, without limitation, its certificate
issued under FAR Part 121 or its Certificate of Convenience and
Necessity issued under the Aviation Act, is not made or is not
maintained in full force and effect or otherwise revoked, suspended,
canceled, withdrawn, terminated or not renewed for any reason
whatsoever.
IX. INDEPENDENT CONTRACTOR
Contractor is an independent Contractor and, without waiving
any rights or remedies hereunder in favor of Burlington, Burlington shall not
in any manner supervise, direct or control Contractor's performance under this
Agreement. Contractor shall not in any manner supervise, direct or control any
of the employees of Burlington. The employees of Contractor engaged in
performing services hereunder shall be considered employees of Contractor for
all purposes and under no circumstances shall be deemed employees of
Burlington. Employees of Burlington shall be considered employees of Burlington
for all purposes and under no circumstances shall be deemed employees of
Contractor. Nothing in this Agreement shall be construed as giving one party to
this Agreement control over the managerial practices, financial administration
or personnel practices, policies or procedures of the other party. Contractor
shall have full and exclusive liability for the payment of Workers'
compensation and employer's liability insurance premiums with respect to its
employees and for the payment of all taxes, contributions and other payments
for unemployment compensation or annuities now or hereinafter imposed upon
employers by the government of the United States of America or by any
individual state, local or foreign authority with respect to such employees.
X. INDEMNIFICATION
(A) Indemnification by Contractor. Contractor agrees to
defend (if requested by an applicable Burlington Indemnitee but failure to
request such defense shall not reduce or otherwise affect Contractor's
liability for the reasonable expenses of such defense by such Burlington
Indemnitee), indemnify and hold harmless Burlington and its affiliates, parent
company and each of their officers, directors, shareholders, agents, servants
and employees (the "Burlington Indemnities") from and against all liabilities
and reasonable expenses, including but not limited to reasonable expenses of
defense (including reasonable legal fees and expenses) and other reasonable
expenses, for injury to or death of any person and for loss of or damage to any
property, including the Aircraft and any cargo, arising out of or in any manner
connected with (i) the negligence or willful misconduct of Contractor, or any
of its entities controlled by or under common control with Contractor or any of
their subcontractors, officers, directors, agents, servants or employees in
connection with the provision of services hereunder, or (ii) maintenance,
modification or repair of the Aircraft. Contractor hereby waives, releases and
renounces any and all claims and recourse rights now or hereafter existing
against any Burlington Indemnitee, and Contractor agrees not to claim against
or sue any Burlington Indemnitee, for any claim, injury,
19
<PAGE> 20
loss, damage, obligation, liability or expense to be indemnified by Contractor
except for liabilities and expenses to be indemnified by Burlington as stated
below.
Burlington shall promptly notify Contractor of any claim as to
which indemnification is sought from Contractor of any of its insurers. Subject
to the rights of insurers under policies of insurance maintained pursuant to
this Agreement, Contractor shall have the sole right to investigate and the
right in its sole discretion to defend or compromise any claim for which
indemnification is sought under Section XI(A), and Burlington shall cooperate,
and Burlington shall cause each of the Burlington Indemnities to cooperate,
with all reasonable requests of Contractor or its insurers in connection
therewith. Where Contractor or the insurers under a policy of insurance
maintained by or on behalf of Contractor undertake the defense with respect to
a claim, no additional legal fees or expenses of any Burlington Indemnitee in
connection with the defense of such claim shall be indemnified hereunder unless
such fees or expenses were incurred expressly at the request of Contractor.
Subject to the requirements of any policy of insurance, Burlington or any other
Burlington Indemnitee may participate at its own expense in any judicial
proceeding controlled by Contractor or its insurers pursuant to the preceding
provisions; provided, that such party's participation does not, in the opinion
of Contractor or any of its insurers, interfere with such proceeding or
control. Notwithstanding the above, Burlington shall have the right to
investigate and defend any litigation at its own expense.
(B) Indemnification By Burlington. Except for the
liabilities and expenses to be indemnified by Contractor as stated above,
Burlington agrees to defend, indemnify, and hold harmless Contractor and its
subcontractors and each of their officers, directors, shareholders, agents,
servants, and employees from and against all liabilities and reasonable
expenses, including, but not limited to reasonable expenses of defense
(including reasonable legal fees and expenses) and other reasonable expenses
for injury to or death of any person or loss of or damage to any property
arising out of or in any way connected with the negligence or willful
misconduct of Burlington, or any of its entities controlled by or under common
control with Burlington or any of their subcontractors, officers, directors,
agents, servants or employees in connection with the provision of services
hereunder.
(C) Cooperation. In the case of any claim indemnified
hereunder, indemnitee agrees to cooperate with indemnitor and the insurers as
any of them may reasonably request in the exercise of their rights to
investigate, defend or compromise any such claim or as may be required to
retain the benefits of such insurance with respect to any such claim.
(D) Subrogation. Indemnitor shall be subrogated to the
rights and remedies of indemnitee on whose behalf any such claim was paid or
for which indemnification is otherwise sought with respect to the condition or
event giving rise to such claim. Should indemnitee receive any refund, in whole
or in part, with respect to any claim paid by indemnitor or its insurers
hereunder, indemnitee shall promptly pay the amount refunded over to
indemnitor.
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<PAGE> 21
XI. MISCELLANEOUS
(A) Notices. All notices, requests, demands, and other
communications, under this Agreement, shall be in writing and sent by U.S.
Registered Mail, postage prepaid, receipt requested, or by courier service, and
shall be deemed to have been duly given as of the date indicated on the return
receipt card mailed to the party to whom notice is given or as of the date
indicated on the delivery receipt of the courier, and properly addressed as
follows:
To Burlington: Burlington Air Express Inc.
1 Air Cargo Parkway
Swanton, Ohio 43558
Attention: Sr. Vice President
Air Operations
Burlington Air Express Inc.
18200 Von Karman Avenue
Irvine, California 92715
Attention: Senior Counsel
To Contractor: Kitty Hawk Group, Inc.
1515 West 20th Street
DFW Airport, Texas 75261
Attn: President
Any party may change its address for the purposes of this Section by
giving the other party written notice of the new address in the manner
set forth above.
(B) Validity, Waiver. In the event that any provisions of
this Agreement shall be held to be invalid, the same shall not affect in any
respect whatsoever the validity of the remainder of this Agreement. No waiver
of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
(C) Governing Law, Gender, Headings. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA. As used in this agreement, the masculine, feminine or neuter
gender, and the singular and plural number shall each be deemed to include the
others whenever the context so indicates. Section headings contained in this
Agreement are for convenience only, and shall not be considered for any purpose
in construing this Agreement.
(D) Attorney's Fees. In the event of a dispute between
the parties arising out of the terms, conditions, and obligations imposed by
this Agreement, the prevailing party in such
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<PAGE> 22
dispute shall be entitled to recover reasonable attorney's fees, costs and
expenses incurred in connection therewith.
(E) Successors and Assigns. THIS AGREEMENT AND THE VARIOUS
RIGHTS AND OBLIGATIONS HEREUNDER SHALL INURE TO THE BENEFIT OF AND BE BINDING
UPON THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS.
CONTRACTOR ACKNOWLEDGES THAT THIS AGREEMENT IS A PERSONAL SERVICES CONTRACT AND
NEITHER THIS AGREEMENT NOR ANY OF CONTRACTOR'S RIGHTS OR OBLIGATIONS HEREUNDER
MAY BE ASSIGNED OR DELEGATED BY CONTRACTOR WITHOUT THE PRIOR WRITTEN CONSENT OF
BURLINGTON.
(F) Non-Disclosure and Confidentiality. Contractor and
Burlington agree to keep confidential such information as Contractor and
Burlington may from time to time impart to each other regarding their business
affairs, including but not limited to this Agreement, and Contractor or
Burlington will not in whole or in part, now or at any time, disclose said
information or this Agreement, during the term of this Agreement, except in
each case to a Person who is or would be permitted assignee if such Person
agrees in writing to be bound by this Section or to professional advisors which
are under a duty to maintain the confidentiality hereof or as may be required
by law or legal process.
(G) Entire Agreement, Etc. This Agreement and the Leases
represent the entire agreement between the parties with respect to the subject
matter hereof, superseding all prior inconsistent agreements, and no oral
agreements have been made. This Agreement may be executed in one or more
separate counterparts, each of which, when so executed, shall be deemed to be
an original. Such counterparts shall, together, constitute and be one and the
same instrument. The Schedules attached hereto are incorporated herein by this
reference and shall for the purpose of this Agreement be deemed to be a part
hereof. This Agreement can be modified only in writing and such modification
must be signed by the parties hereto before it shall become effective.
(H) Force Majeure. Except as provided herein, each party
hereto will be excused from performance under this Agreement by the other as a
result of any event of force majeure, including, but not limited to, acts of
any government or subdivision thereof, the improper failure or refusal of any
government or governmental agency to issue necessary permits or operating
authorities, acts of God, weather, damage or destruction of flight equipment,
lack of fuel availability at airports to be used, riots or civil commotions,
strikes or labor stoppage, military emergency, war or hazards of damages
incident to the state of war, or any other causes which is beyond the control
of either party and which prevents either party from performing this Agreement,
so long as in each case such event of force majeure or other cause beyond the
control of such party is not caused by such party's breach of this Agreement or
negligence or willful misconduct; provided, however, that circumstances within
contractor's reasonable control shall include, but are not limited to,
circumstances related to Contractor's financial condition or sickness,
absenteeism, tardiness, or the unavailability of flight crews, other than
additional crews
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<PAGE> 23
required due to temporary scheduling changes made by Burlington, or inability
to provide services hereunder or grounding of any of the Aircraft by the
Aeronautics Authority due to reasons arising out of Contractor's operating
procedures or its failure to maintain in full force and effect its FAR Part 121
authority and Section 401 or 418 certification. Contractor or Burlington shall
use their best efforts to eliminate or mitigate any adverse affect on the
performance of its obligations hereunder resulting from force majeure or other
circumstances beyond its control.
(I) Non-Exclusive Agreement. Nothing in this Agreement is
intended to or shall require Burlington or Contractor to utilize the services
or facilities of the other to the exclusion of others.
(J) Rights Cumulative. All rights and remedies from time
to time conferred upon or reserved to Burlington and Contractor are cumulative,
and none is intended to be exclusive of another. No delay or omission in
insisting upon the strict observance or performance of any provision of this
Agreement, or in exercising any right or remedy shall be construed as a waiver
or relinquishment of such provision, nor shall it impair such right or remedy.
Every right and remedy may be exercised from time to time and as often as
deemed expedient.
(K) Survival. All indemnities by Contractor or Burlington
contained in this Agreement shall survive the expiration or other termination
of this Agreement.
XII. CERTIFICATION
The parties have each caused this Agreement to be executed on
the day mentioned at the beginning of this Agreement. The individual signing on
behalf of the corporate party certifies that he or she is duly authorized to
make this Agreement binding for and on behalf of that corporation.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and date first above written.
BURLINGTON AIR EXPRESS INC. KITTY HAWK GROUP INC.
By: /s/ GLEN A. BEECHER By: /s/ TILMON J. REEVES
----------------------------- ---------------------------
Name: Glen A. Beecher Name: Tilmon J. Reeves
--------------------------- -------------------------
Title: Sr. Vice President Title: President
-------------------------- ------------------------
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<PAGE> 24
SCHEDULE I
To
Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services dated as
of May 15, 1995, and effective on or about May 15, 1995.
Scheduled Route
<TABLE>
<CAPTION>
Flight CV-600
- ------------- Arrival Departure
------- ---------
<S> <C> <C>
MTY 2336z
LRD 0017z 1503z
MTY 1550z
</TABLE>
<TABLE>
<CAPTION>
Flight CV-600
- ------------- Arrival Departure
------- ---------
<S> <C> <C>
CUU 0030z
ELP 0145z 1800z
CUU 1910z
</TABLE>
<TABLE>
<CAPTION>
Flight CV-600
- ------------- Arrival Departure
------- ---------
<S> <C> <C>
ABQ 0025z
ELP 0130z 1320z
ABQ 1425z
</TABLE>
Route Schedule will be flown five (5) days a week, except for Burlington
designated holidays.
Daily Rate: Complete route schedule $2,500.00 ACMI per aircraft.
There shall be no compensation for scheduled flights that exceed the block
hours of the published route schedule except for weather holds and diversions.
Off Line Rate: $850.00 per block hour ACMI.
Off Line Rate Calculation: Off line flying will be considered as the total
flying in any flight day in which the published route schedule has been deviated
from by request of Burlington, unrelated to mechanical problems, or maintenance
requirements. In the event the published schedule has been accomplished and
Burlington requests additional flying, that additional flying, shall be
calculated by using the off line rate.
Route Change Rate: Burlington shall pay a daily rate to Contractor of $850.00
per block hour (ACMI) or $2,500.00 (ACMI), whichever is higher, for any route
change required by Burlington pursuant to Section IIH of this Agreement.
<PAGE> 1
EXHIBIT 10.14
BLACKED-OUT TEXT OMITTED AND
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
- -------------------------------------------------------------------------------
AGREEMENT TO FURNISH FIVE (5) B727-200 AIRCRAFT AND
AIR CARGO SERVICES
DATED AS OF MARCH 1, 1996
BY AND BETWEEN
KITTY HAWK AIRCARGO, INC.
AND
BURLINGTON AIR EXPRESS, INC.
- -------------------------------------------------------------------------------
<PAGE> 2
AGREEMENT TO FURNISH FIVE (5) B727-200 AIRCRAFT AND
AIR CARGO SERVICES
THIS AGREEMENT TO FURNISH B727-200 AIRCRAFT AND AIR CARGO SERVICES (this
"Agreement") is made and entered into as of the 1st day of March, 1996 by and
between Kitty Hawk Air Cargo, Inc., a Texas Corporation ("Contractor") and
Burlington Air Express, Inc., a Delaware Corporation ("Burlington").
PRELIMINARY STATEMENT
The Contractor wishes to acquire, operate and maintain the Aircraft for the
exclusive use and benefit of Burlington Monday through Saturday morning in
accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants and conditions herein
contained, the parties hereby agree as follows:
1. DEFINITIONS
A. Defined Terms - Except as otherwise specified, the following
terms have the respective meanings set forth below for all
purposes of the Agreement, and the definitions of such terms are
equally applicable both to the singular and plural forms
thereof.
"Aeronautics Authority" means, as appropriate, the United States
Department of Transportation, the Secretary of Transportation,
the FAA or the Administrator of the FAA, or any person,
governmental department, bureau, commission or agency succeeding
to the functions of any of the foregoing or otherwise having
jurisdiction with respect to the ownership, leasing operation,
use or maintenance of the Aircraft.
"Air Carrier" means any air carrier which is a United States
"Domestic Air Carrier" as defined in Part 121 of FAR and has a
Certificate of Public Convenience and Necessity issued pursuant
to Section 401 or 418 of the Aviation Act.
"Aircraft" means five (5) Boeing 727-200 described on Schedule 1
and 1.a. hereto, with the Registration Numbers described
thereon.
"Aviation Act" means the Federal Aviation Act of 1958, as
amended from time to time, or any successor or substituted
legislation at the time in effect and applicable, and the rules
and regulations promulgated pursuant thereto.
1
<PAGE> 3
"Block Hour" means, for each Aircraft, each hour or part thereof
(computed to the nearest one-tenth of an hour) elapsing from the
moment such Aircraft begins movement under its own power at the
airport at which a flight segment of a Scheduled Route (or, if
Burlington so instructs, for unscheduled flying) departs until
such Aircraft comes to rest at the next airport at which such
flight segment terminates and such Aircraft is no longer moving
under its own power.
"Burlington Hub" means the air cargo handling and operations
base designated by Burlington from time to time as the hub of
its freight forwarding operations to which the Services relate.
"Business Day" means any day other than a Saturday, Sunday or
any statutory holiday.
"Dangerous Goods" means, for purposes of this agreement, any and
all "dangerous goods," "hazardous materials," "hazardous
substances," "restricted articles" and any similar terms as
defined in the applicable Dangerous Goods Regulations from time
to time.
"Dangerous Goods Regulations" may mean one or more of the
following: Hazardous Materials Transportation Act of 1970
(Public Law 91458, October 16, 1970, 84 Stat.977); the Hazardous
Materials Transportation Act (Public Law 98633, January 3, 1975,
as Stat.2156); (US Code of Federal Regulations, Title 49 (49CR);
International Civil Aviation Organization Technical Instruction
for the Safe Transport of Dangerous Goods (ICAO); International
Air Transport Association Dangerous Goods Regulations (IATA);
Restricted Articles Circular 6-D, Published by Airline Tariff
Publishing Company. Federal Air Regulations Part 121, or any
other applicable law or industry regulations which regulates the
transportation of dangerous or hazardous goods or other
materials, as amended, supplemented or replaced from time to
time, and in each case, the rules and regulations from time to
time promulgated pursuant thereto.
"Departure" means each occasion upon which an Aircraft under the
control of Contractor in the performance of Services in fact
departs from a point of origination or an intermediate point on
a Scheduled Route.
"Departure Reliability Factor" means with respect to any date,
the number (expressed as percentage) obtained by dividing (i)
the number of Departures in fact made by Contractor during the
immediately preceding consecutive twenty-one (21) Scheduled
Flight Days divided by (ii) the number of Departures scheduled
during such consecutive twenty-one (21) Scheduled Flight Days.
Reliability calculations will not be effective for the initial
twenty-one (21) days of operation.
"$" and "dollars" means the lawful currency of the United States
of America.
"Event of Default" means each of the events specified in the
Article VIII hereof.
"FAA" means the United States Federal Aviation Administration or
any person, governmental department, bureau, commission or
agency succeeding to the functions thereof.
2
<PAGE> 4
"FAR" means the regulations promulgated pursuant to the Aviation
Act.
"Lien" means any mortgage, pledge, lien, charge, encumbrance,
lease, security interest or other claim.
"Owner" means Kitty Hawk Aircargo, Inc., a Texas Corporation.
"Person" means an individual, a corporation, an association, a
partnership, a trust or estate, a government or any agency or
political subdivision thereof or any entity.
"Schedule Reliability Factor" means, as of any date, the number
(expressed as a percentage) obtained by dividing (i) the number
of Departures which occurred within fifteen (15) minutes of
their respective scheduled departure times during the
immediately preceding twenty-one (21) consecutive Flight Days by
(ii) the total number of Departures occurring during such
twenty-one (21) Flight Days. Reliability factors will not be
calculated during the initial twenty-one (21) day period.
"Scheduled Departure" means each occasion upon which Contractor
in performance of Services is scheduled to depart from a point
of origination or an intermediate point on a Scheduled Route,
whether or not a Departure actually occurs.
"Scheduled Route" means the applicable route designed by
Burlington for the performance of Services pursuant to the terms
of this Agreement, including points of origination, intermediate
points and points of termination as well as scheduled departure
and arrival times, as such route may be changed from time to
time by Burlington pursuant to Section II(H) hereof.
"Services" means the services required to be performed and the
actions required to be taken by Contractor pursuant to the terms
of this Agreement.
B. Interpretation - The terms used in the Agreement, unless
otherwise defined herein or unless the context otherwise
requires, shall have the meanings established by common usage in
the commercial air cargo transport industry and in the course of
dealing between Burlington and Contractor.
II. PROVISION OF AIR CARGO SERVICES
A. Generally - Contractor shall provide the Aircraft, and
Contractor, as an independent contractor, shall operate the
Aircraft for the use and benefit of Burlington and furnish to
Burlington the Services, upon the terms and conditions set forth
herein.
B. Term and Frequency of Service
1. The Services shall commence on or about March 1, 1996 or
sooner, if mutually agreeable between parties.
3
<PAGE> 5
2. The Aircraft shall be operated and maintained by
Contractor in such a manner so that the Aircraft
performs a minimum of one round trip flight per day on
each Scheduled Flight Day.
3. Except as otherwise provided in Article VIII and II.B.4.
hereof the term of this Agreement shall commence on
March 1, 1996 and shall be extended for a period of
three years.
4. After the period of time indicated by registration
number below, the contract services may be terminated
with respect to that aircraft by either party giving the
other party thirty (30) days written notice.
N278US 36 months N6827 12 months
N279US 30 months N6809 30 days
N855AA 24 months
C. Service Obligations - Except to the extent that Burlington is
responsible to pay for or provide for personnel, services,
equipment, payments and other items pursuant to Section II(E)
hereof, Contractor, at Contractor's sole cost and expense, shall
be responsible to pay for and provide all personnel, services,
maintenance, supplies, equipment, payments and other items
necessary or advisable in connection with the performance of the
Services in accordance with applicable Aeronautics Authority
requirements and other standards and applicable laws and the
terms of this Agreement, as follows:
1. Contractor shall provide all flight crews necessary to
operate the Aircraft in strict accordance with the
requirements of the Scheduled Routes, the Scheduled
Flying Days and the Scheduled Departures. All such
personnel shall be properly qualified and licensed as
pilots or flight engineers respectively with respect to
the Aircraft they are operating.
2. Contractor shall provide all maintenance crews and
management personnel necessary or advisable for the
operation and maintenance of the Aircraft, including but
not limited to dispatchers and supervisory and
administrative personnel who shall have any required
licenses and ratings in full force and effect and shall
be properly qualified to perform the maintenance work on
the Aircraft to which they are assigned.
3. Contractor shall provide for all flight and maintenance
crew training.
4. Contractor shall pay (i) all compensation of
Contractor's employees (including but not limited to
salaries, social security, premiums for medical and
other insurance (including employer's liability
insurance and workers' compensation insurance, payroll
taxes, pension costs and other fringe benefits), (ii)
all per diem allowances or meals for the flight crews,
maintenance crews, dispatchers, supervisory and
administrative personnel and (iii) all other related
expenses, including accommodations and transportation
at, to and from the airport, for the flight crews,
maintenance and other ground staff and any other
Contractor personnel at all locations.
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<PAGE> 6
5. During the term of this Agreement Contractor shall
maintain the Aircraft in good working order and good
condition and in strict compliance with all the
requirements of FAR Part 121 and all other applicable
Aeronautics Authority rules and regulations. Contractor
shall maintain the airworthiness certificate for each
Aircraft in full force and effect, without material
restrictions. Contractor shall maintain the neat and
clean appearance (to include necessary paint touch-up)
of each Aircraft.
6. Contractor shall perform or cause to be performed all
maintenance, service, overhaul and repair of the
Aircraft.
7. Contractor shall make available for inspection upon
request to Burlington at any time and from time to time
during the term of this Agreement (and Burlington shall
have the right to inspect) the Aircraft, the maintenance
facilities and procedures of Contractor, and any books,
manuals, revision services, documents, files, data or
records in the possession of Contractor relating to the
Aircraft and its operation for Burlington.
8. Contractor, at its expense, shall provide (a) all
expendable, consumable and rotable components and parts,
(b) line shop and service supplies, and (c) shipping of
all parts.
9. Contractor shall submit to Burlington, at such time
and in such manner as Burlington may from time to time
reasonably request, reports routinely prepared by
Contractor concerning flight exceptions, aircraft
systems, and engine reliability.
10. Contractor shall perform flight planning and aircraft
dispatching and shall manage all communications and
operations. All flight operations shall be under
exclusive control of Contractor.
11. Contractor shall prepare all returns, reports and other
filings relating to any tax based upon the property, the
net or gross income or receipts of Contractor.
12. Contractor shall pay and discharge when due all
liabilities and obligations it may have with respect to
any Person which could result in a Lien with respect to
any Aircraft, any Aircraft Engine or any spare engines
or spare parts or which could adversely affect the
performance of Contractor's obligations hereunder,
including but not limited to obligations owing
Contractor's employees, suppliers, vendors, lessors and
subcontractors.
D. Exceptions - Burlington shall bear the cost of the following
personnel, services equipment payments and other items incurred
in the performance of service under this Agreement:
1. Loading and unloading;
2. ULD Containers;
3. Power carts; used for loading and unloading operations
and engine starts;
4. Costs associated with air startups;
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<PAGE> 7
5. Towing and pushback fees;
6. Parking and ramp charges;
7. De-icing the Aircraft;
8. Landing fees;
9. Fuel;
provided, that none of the foregoing are payable by Burlington
to the extent they are to be provided in connection with
Contractor's maintenance obligations or if they result from
Contractor's breach of this Agreement or its negligence or
willful misconduct; provided further, that Burlington shall bear
such foregoing costs only in respect of the operation of the
Aircraft on the Scheduled Routes or when otherwise flown at
Burlington's direction; and provided further, that nothing in
this Section II(E) shall operate to relieve Contractor from any
obligation or liability arising out of any breach of the terms
of this Agreement. (Should Contractor supply any items listed in
this Section II(D), then Burlington will reimburse Contractor
its total expense within thirty (30) days of receipt of invoice
for such expense.)
E. Reliability - Subject to the force majeure provision set forth
in Section XI(H) hereof as qualified below and the circumstances
referred to below, and without limiting Burlington's rights
under Article VIII(A) hereof, Contractor shall perform the
Services in a manner such that the Schedule Reliability Factor
is at all times not less than 97.5% and the Departure
Reliability Factor is at all times not less than 98.5%. For
purposes of this Section II(F), circumstances beyond
Contractor's reasonable control shall include failure to perform
by Burlington employees or its agents, adverse weather
conditions, delay or damage to Aircraft caused by a
loading/unloading operator designated by Burlington, grounding
of Aircraft due to temporary or permanent cancellation of the
Aircraft Type Certificate. Circumstances not beyond the
Contractor's control shall include, but are not limited to,
those so described in Section XI(H). Origination or intermediate
stop Contractor caused delays will not be chargeable to
Contractor if the flight in question terminates at the last stop
on the applicable Scheduled Route within fifteen (15) minutes of
the Schedule or departs for the last stop on the applicable
Scheduled Route within fifteen (15) minutes of Schedule.
F. Service Related Obligations of Contractor - Without limiting the
scope of Contractor's obligations under this Agreement,
Contractor, at its sole cost and expense, shall have the
following obligations:
1. Flight Planning and Reports
Contractor shall prepare all necessary flight planning
and flight following activities required to perform the
Services and shall submit to Burlington within
twenty-four (24) hours following the completion of any
Aircraft flight a Flight Summary Report in a mutually
agreed format describing such Aircraft flight.
2. Crew Rest and In-Transit Facilities
Contractor shall provide crew rest facilities and
transit layover facilities for crews providing Services
in connection with this Agreement. Contractor crews will
not be permitted to layover in the Burlington offices
and Burlington will not provide a lounge for them.
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<PAGE> 8
3. Fuel Reports
Within twenty-four (24) hours following completion of
each Aircraft flight, Contractor shall submit to
Burlington a daily Fuel Uplift and Purchase Report in a
mutually agreed format with fuel tickets attached.
4. Configuration and Fueling
In rendering the Services, Contractor shall configure
and fuel each Aircraft so as to provide the maximum
practicable cargo payload at all times, taking into
consideration all relevant flight planning and
scheduling factors. Contractor shall at all times
conduct its flight operations in accordance with usual
and customary air carrier practices and to the extent
consistent therewith use its best efforts to conserve
fuel.
5. Travel Privileges
Burlington shall be entitled to travel privileges for
its personnel acting as couriers on the Aircraft
provided Contractor shall have first right to move
personnel necessary to perform its obligations. Travel
privileges will be subject to FAA regulations, when
applicable.
6. Dangerous Goods
Contractor shall pay special attention and consideration
to the inspection, handling, loading, stowing and/or
carriage of Dangerous Goods. Contractor's personnel,
engaged in any aspect of inspection, handling, loading,
stowing and/or carriage of Dangerous Goods shall prior
thereto deliver to Burlington documented evidence that
they have successfully completed an initial and
recurrent training program for Dangerous Goods for air
transportation that is satisfactory to Burlington
standards. A complete record of their proficiency and an
outline of their training program shall be kept on file
by Contractor. Contractor shall insure that its
personnel comply with all relevant provisions of
Federal, State or local Dangerous Goods Regulations
applicable to the performance of their functions and are
trained and comply with Burlington's procedures for
handling, documenting and transporting Dangerous Goods
on the Aircraft.
G. Route Changes - Burlington may at any time during the term of
this Agreement change the departure times or the Scheduled
Routes upon no less than seven (7) calendar days prior notice to
Contractor; provided, however, that Burlington may make nominal
departure time or enroute changes as it deems operationally
necessary or advisable without prior notice. In the event that
Burlington changes the origination or termination points of a
Scheduled Route and, as a direct result, Contractor incurs
Relocation Costs Burlington shall reimburse Contractor for such
Relocation Costs within fifteen (15) days of presentation of
detailed invoices, reasonably satisfactory to Burlington, for
such Relocation Costs incurred by Contractor; provided, however,
that in no event shall Burlington be responsible for such costs
in excess of $7,500 for a change in a Scheduled Route. This
Section II(H) shall not apply to a relocation of the Burlington
Hub. If Burlington geographically relocates the Burlington Hub,
Burlington and Contractor will negotiate a mutually agreeable
basis for reimbursement of the Relocation Costs imposed upon
Contractor in connection with such a relocation.
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<PAGE> 9
III. PAYMENT TO CONTRACTOR
A. Payment for Services - Contractor shall invoice Burlington in
accordance with the rates established on Scheduled I attached
hereto, on a weekly basis. Each invoice shall be submitted to
Burlington within five (5) business days from the closing of the
previous calendar week and shall cover all services provided for
that week pursuant to this Agreement. Within ten (10) business
days after receipt of a weekly invoice, the total amount
indicated thereon shall become due and payable; provided
however, that Burlington may in good faith dispute the accuracy
of any weekly invoice.
B. Reimbursement of Fees and Costs - If Contractor shall have paid
any fees or incurred any out-of-pocket costs which are to be
reimbursed to Contractor by Burlington, and such fees or costs
shall not have already been reimbursed by Burlington, then
Contractor will be reimbursed for such fees or costs by
submitting to Burlington together with a Monthly Statement
invoices or other evidences of payment reasonably satisfactory
to Burlington in respect of such fees or costs and stating on
such Monthly Statement the total amount of such fees and costs
for which it is due reimbursement.
C. Taxes
1. Burlington shall pay all taxes imposed by any
governmental authority upon the payments to Contractor
made by Burlington pursuant to the terms of this
Agreement, including but not limited to any Federal,
State or Local transportation or excise taxes as may
from time to time be applicable. Notwithstanding the
foregoing, Burlington shall not be responsible for (a)
any tax imposed on or measured by the gross or net
income, receipts, capital or net worth, franchises,
excess profits or conduct of business of Contractor, (b)
any sales, use or property tax or other similar tax
imposed on or with respect to, the or services purchased
or used by Contractor in connection with the rendition
of the Services hereunder, (c) any taxes imposed upon
Contractor by any jurisdiction if such taxes result from
the present, future or former connection of Contractor
(or any affiliate of Contractor) to such jurisdiction
unless arising out of the performance of this Agreement,
(d) taxes which arise out of or are caused by any
negligence or willful misconduct of Contractor, or any
act or failure to act prohibited by this Agreement or
any misrepresentation by Contractor, or any failure by
Contractor to claim on a timely and proper basis
applicable exemptions or reductions, (e) taxes to the
extent attributable to any period after the termination
or expiration of the term of this Agreement, (f) taxes
which are imposed as a result of a voluntary or
involuntary bankruptcy of Contractor, (g) taxes imposed
on a transferee of Contractor of any interest in this
Agreement to the extent the amount of such taxes exceeds
the amount of such taxes that would not have been
imposed had there not been such a transfer, or (h)
penalties, fines, additions to tax or interest to the
extent resulting from the negligence or misconduct of
Contractor in giving Burlington any notice required in
the immediately succeeding paragraph, or the failure to
file any returns that are timely and proper.
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<PAGE> 10
2. Contractor shall notify Burlington at least thirty (30)
days prior to the due date for any taxes subject to
indemnification pursuant to the preceding paragraph (1)
or immediately upon determination of assessment thereof
of any such taxes. If directed in writing by Burlington,
Contractor shall, at Burlington's expense, take such
action as Burlington may request to contest the
imposition of such tax and shall, if requested, permit
Burlington in Contractor's name to contest the
imposition of such tax. Contractor shall at Burlington's
expense, fully cooperate with Burlington in contesting
such claim, give Burlington any relevant information
relating to such claim which may be within Contractor's
knowledge or control, and file any necessary documents
which may be required regarding such claim. In the event
Contractor fails to contest or fails to permit
Burlington to contest any claim for taxes, Burlington
shall not be obligated to indemnify Contractor for any
such taxes.
3. If as a result of a payment of an indemnity, Contractor
shall realize a tax benefit not previously taken into
account in computing the amount of such payment, or
shall obtain a refund of all or any part of a tax paid
by Burlington or with respect to which Burlington or
benefit (taking into account any tax consequences to
Contractor with respect to the receipt of such a refund
and the payment of such amounts over to Burlington)
within thirty (30) days after Contractor receives such
refund or realizes such benefit. If, in addition to such
refund, the Contractor shall receive an amount
representing interest on the amount of such refund,
Burlington shall be paid that proportion of such
interest which is fairly attributable to taxes paid by
Burlington or paid by the Contractor with funds provided
by Burlington.
IV. REPRESENTATIONS AND WARRANTIES
A. Contractor's Representations -- Contractor represents and
warrants that on the date hereof:
1. Corporate Status
Contractor is a corporation duly organized, validly
existing, in good standing under the laws of the State
of Texas, is licensed or qualified to do business in all
jurisdictions where the failure to do so could have a
material adverse effect of its ability to perform its
obligations hereunder.
2. Authority
Contractor has or will acquire the full power, authority
and legal right to execute, deliver and perform the
terms of this Agreement, including but not limited to
under the laws, rules and regulations of the Aeronautics
Authority. This Agreement has been duly authorized by
all necessary corporate action of Contractor and has
been duly executed and delivered, and it constitutes a
legal, valid and binding obligation of Contractor
enforceable in accordance with its terms. This Agreement
does not contravene any law, governmental rule,
regulation or order known to and binding on Contractor
or contravene the certificate of incorporation or bylaws
of Contractor or contravene the provisions of or
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<PAGE> 11
constitute any default under, or result in the creation
of any lien upon any of the property of Contractor
under, any indenture, mortgage, contract or other
agreement to which Contractor is a party or by which it
is bound.
3. No Conflicting Agreements
Contractor is not in default under any agreement to
which it is a party nor is Contractor a party to any
agreement or instrument or subject to any charter or
other corporate restriction, which individually or in
the aggregate might materially adversely affect the
financial or other condition, business, assets,
liabilities or operations of Contractor or the ability
of Contractor to perform its obligations under this
Agreement.
4. Governmental Approvals
All necessary licenses, permits, consents or approvals
of, notices to or registrations with or the taking of
any other action in respect of, the Aeronautic
Authority's or any other federal, state, foreign or
applicable governmental authority or agency required to
be obtained or accomplished by Contractor in connection
with the execution and delivery by Contractor of this
Agreement and for providing the Services have been
obtained or accomplished by Contractor or are being
obtained or are being accomplished and Contractor is an
Air Carrier.
5. Litigation
a. There are no pending or, to its knowledge,
threatened actions or proceedings to which
Contractor is a party which might materially
adversely affect the financial or other
condition, business, assets, liabilities or
operations of Contractor or the ability of
Contractor to perform its obligations under this
Agreement; and
b. There are no pending or, to its knowledge,
threatened actions or proceedings of which
Contractor has knowledge before any court or
administrative agency which might materially
adversely affect the financial or other
condition, business, assets, liabilities or
operations of Contractor or the ability of
Contractor to perform its obligations under this
Agreement.
B. Burlington's Representations - Burlington represents and
warrants to Contractor that on the date hereof:
1. Corporate Status
Burlington is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Delaware.
2. Authority
Burlington has the full power, authority, and legal
right to execute, deliver, and perform the terms of this
Agreement. This Agreement has been duly authorized by
all necessary corporate action of Burlington and has
been duly executed and delivered and it constitutes a
legal, valid and binding obligation of Burlington
enforceable in accordance with its terms. This Agreement
does not contravene any law, governmental rule,
regulation or order known to and binding on Burlington
or contravene the
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certificate of incorporation or bylaws of Burlington or
contravene the provisions of or constitute any default
under, result in the creation of any lien upon any of
the property of Burlington under, any indenture,
mortgage, contract or other agreement to which
Burlington is a party or by which it is bound.
V. CONDITIONS TO EFFECTIVENESS OF AGREEMENT
A. Burlington's Conditions - This Agreement shall not be
enforceable against Burlington until Burlington shall have
received the following, in each case in form and substance
reasonable satisfactory to it:
1. A certificate of the Aeronautics Authority or other
evidence that Contractor and its personnel are
qualified and certified to transport Dangerous Goods.
B. Contractor's Conditions - This Agreement shall not be
enforceable against Contractor until Contractor shall have
received the following, in each case in form and substance
reasonably satisfactory to it:
1. A certificate of Burlington attesting to the authority
of the person or persons authorized to execute and
deliver this Agreement and any other documents to be
executed on behalf of Burlington in connection with the
transactions contemplated hereby.
VI. COVENANTS OF CONTRACTOR AND BURLINGTON
The parties covenant and agree as follows:
A. Further Assurances - Contractor will cause to be done,
executed, acknowledged and delivered each and every further
acts, documents and assurances as Burlington may reasonably
require for accomplishing the purposes of this Agreement.
B. Operating Requirements - Contractor shall not use or operate
any Aircraft, or permit any Aircraft to be used or operated,
in violation of any applicable law or regulation, or contrary
to any condition of any airworthiness certificate, license,
registration or regulation relating to such Aircraft.
Contractor shall be responsible for and shall indemnify and
hold Burlington harmless from and against all penalties, fines
or other expenses imposed by the FAA or other governmental
agencies due to violations of any laws, rules or regulations
by Contractor.
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C. Insurance - Each party hereto will at all times until the term
hereof has expired or been terminated cause to be carried and
maintained at its sole cost and expense the applicable insurance
coverage, in an amount not less than the amount, and containing
the provisions, terms and conditions, set forth below.
1. Hull and Liability Insurance
a. Contractor will be responsible for "all risk"
hull insurance (including any war risk hull
insurance) for the Aircraft covered by this
Agreement. Contractor shall be solely
responsible for the insurance of its spare
parts, engines and other property.
b. Contractor will be responsible and cause to be
obtained and maintained aircraft liability
insurance, including bodily injury or death
liability, property damage liability, product
liability and contractual liability, in an
amount not less than $200,000,000 on a combined
single limit basis, and personal injury
liability insurance (excluding passenger) in an
amount not less than $20,000,000 on a combined
single limit basis.
Contractor's aircraft liability will name
Burlington as an additional insured as its
interest may appear, and will provide that any
modification, alteration and/or change which is
material and adverse to Burlington or the
policy, or cancellation of, such policy shall
only be effective as to Burlington upon receipt
by Burlington of thirty (30) days prior written
notice, or seven (7) days written notice as
respects war and allied perils coverage, or
otherwise to the extent of the prevailing notice
period then provided by the applicable insurance
market.
2. Workers' Compensation Insurance and Employer's
Liability Insurance
a. Each of Contractor and Burlington agree to cause
to be obtained and maintained, each with respect
to its own employees, and at its sole cost and
expense, statutory Workers' Compensation
Insurance covering the jurisdictions in which it
operates including the monopolistic states of
Washington and Ohio. Each party's insurance
policy will contain all states and foreign
coverage endorsements.
b. Each of Contractor and Burlington agree to cause
to be obtained and maintained, for its own
account and interest, at its sole cost and
expense, employer's liability coverage in an
amount not less than $1,000,000.
3. Comprehensive General Liability Insurance/Product
Liability Insurance
Contractor, at its sole cost and expense, shall cause
to be obtained and maintained comprehensive general
liability insurance, including contractual liability,
which, without limitation, shall specifically insure
the indemnity of Contractor in Sections VI(B) and XI(A)
hereof subject to the terms and conditions of such
policy, and including product liability insurance with
respect to any maintenance, modifications or repairs
performed on the Aircraft by Contractor or any of its
subcontractors, in
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an amount not less than $200,000,000 naming Burlington
as an additional insured thereunder and otherwise in
form and substance reasonably satisfactory to
Burlington.
4. Insurance Certificates
Before the furnishing by Contractor of any services
hereunder and again prior to the expiration or renewal
of any policy of insurance during the term of this
Agreement, Contractor and Burlington shall exchange
certificates of insurance evidencing the insurance
required to be carried by Contractor and Burlington
under this agreement, in a form and substance reasonably
satisfactory.
Such insurance shall provide that any modification,
alteration and/or change which is material and adverse
to Burlington or Contractor, or cancellation of, such
insurance shall only be effective as to Burlington or
Contractor upon receipt by Burlington or Contractor of
thirty (30) days prior written notice.
5. Right to Insure
In the event that Contractor fails to maintain the
insurance required to be obtained and maintained by it
pursuant to this Section, Burlington, may, with
reasonable advance written notice to Contractor, at its
option but without any obligation, provide such
insurance and if it so elects, which it may do in its
absolute discretion, as to itself alone and not the
other person. The cost of providing such substitute
insurance shall be payable on demand by Burlington
together with interest thereon at the rate of 10% per
annum from and including the date of demand to and
excluding the date paid.
D. Transportation of Dangerous Goods - Contractor shall at all
times cause itself to be registered with the Aeronautics
Authority and otherwise qualified to transport Dangerous Goods
under the Dangerous Goods Regulations on a current up-to-date
basis.
E. Notification of Default - Contractor or Burlington as applicable
shall notify the other of the occurrence of any Event of Default
or the existence of any circumstances which with notice or the
passage of time, or both, would become an Event of Default
promptly after Contractor or Burlington has knowledge thereof.
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VII. TEMPORARY DISCONTINUANCE OF SCHEDULED ROUTES
A. Temporary Discontinuance of Scheduled Route - Burlington has the
right without cause, after giving forty-eight (48) hours prior
written notice in its sole and absolute discretion to direct
Contractor temporarily to discontinue flying the Aircraft.
Burlington may direct Contractor to resume temporarily
discontinued flight provided that Burlington gives to Contractor
notice thereof not less than the number of days prior to the
scheduled resumption as indicated in the following table:
<TABLE>
<CAPTION>
PERIOD OF TEMPORARY DAYS PRIOR
DISCONTINUANCE TO RESUMPTION
------------------- -------------
<S> <C>
1 to 10 calendar days 1 calendar day
11 to 20 calendar days 7 calendar days
21 or more calendar days 14 calendar days
</TABLE>
During such temporary discontinuance, Burlington shall be
obligated to pay Contractor the daily scheduled rate.
VIII. DEFAULT/TERMINATION
A. Default by Contractor - Without limiting the obligations of
Contractor or the rights and remedies of Burlington as provided
in this Agreement, each of the following events (whether any
such event shall be voluntary or involuntary or arise by
operation of law or due to any compliance with any law, rule or
regulation or any judgment, order or decree) shall constitute an
"Event of Default":
(i) Contractor shall fail to make any payment required to be
made by Contractor hereunder when due and such failure
continues for a period of ten (10) Business Days; or
(ii) at any time during the term of this Agreement either (a)
the Scheduled Reliability Factor for any period shall be
less than 95% or the Departure Schedule Reliability
Factor for any period shall be less than 97%, and
Burlington shall have given notice to Contractor to cure
the default and twenty-one (21) days shall have expired
after the giving of such notice, and then or thereafter
during the term of this Agreement, either (a) the
Scheduled Reliability Factor shall again be less than
95% for any period or the Departure Reliability Factor
shall again be less than 97% for any period and
Burlington has already given Contractor its one (1)
notice to cure, or (b) notwithstanding the foregoing the
Scheduled Reliability Factor shall ever be less than 93%
or the Departure Reliability Factor shall ever be less
than 95%; provided however, that in the event that
Contractor breaches its obligations under this Agreement
to maintain the Scheduled Reliability Factor for any
applicable period described in clause (a) or (b) above,
unless Burlington has notified Contractor in writing of
such breach within fifteen (15) days thereof, Burlington
shall be deemed to have waived its right to terminate
this Agreement as a result of such breach for such
period (but not any other period); or
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(iii) if Contractor shall fail to perform or observe any
other covenant, condition or agreement to be performed
or observed by it under this Agreement not otherwise
covered specifically in this Section VIII(A) and if such
failure is curable without prejudice to Burlington, such
failure shall continue uncured for a period of thirty
(30) days after written notice thereof to Contractor
from Burlington so lag as Contractor is at all times
diligently prosecuting such cure during such thirty (30)
day period; or
(iv) any representation or warranty made by Contractor in or
pursuant to this Agreement or in any document or
certificate delivered pursuant to this Agreement is or
proves to have been incorrect in any material respect
when made;
(v) Contractor assigns or sublets or attempts to assign or
sublet any of its rights or delegates or attempts to
delegate any of its duties or obligations under this
Agreement without the prior written consent of
Burlington; or
(vi) Contractor consents to the appointment of a custodian,
receiver, trustee, examiner or liquidator of itself or
of a substantial part of its property, or Contractor
makes a general assignment of the benefit of creditors,
or Contractor admits in writing its inability to pay its
debts generally as they become due, or Contractor is
unable to or does not pay its debts generally as they
come due, or Contractor files a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking
reorganization in a proceeding under any bankruptcy laws
(as now or hereafter in effect) or an answer admitting
the material allegations of a petition, or Contractor by
voluntary petition, answer, or consent seeks relief
under the provisions of any other existing or future
bankruptcy, reorganization or other similar law
providing for the reorganization or winding up of
corporations, or providing for an agreement,
composition, extension or adjustment with its creditors,
or any corporate action is taken by Contractor
infurtherance of any of the foregoing; or
(vii) an order, judgment or decree is entered by any court or
governmental agency of competent jurisdiction
appointing, without the consent of Contractor, a
custodian, receiver, trustee, examiner or liquidator of
Contractor or of any substantial part of its property,
or any substantial part of the property of Contractor is
sequestered, and any such order, judgment or decree of
appointment or sequestration remains in force
undismissed, unstayed or unvacated for a period of
thirty (30) days after the date of entry thereof; or
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(viii) a petition against contractor in a proceeding under the
bankruptcy, reorganization or similar laws of the
United States of America or any other insolvency laws
(as now or hereinafter in effect) of any competent
jurisdiction is filed and is not withdrawn or dismissed
within thirty (30) days thereafter, or if, under the
provisions of any law providing for reorganization or
winding-up of corporations which may apply to
Contractor, any court of competent jurisdiction assumes
jurisdiction, custody or control of Contractor or of any
substantial part of its property and such jurisdiction,
custody or control remains in force or unrelinquished,
unstayed or undismissed for a period of thirty (30)
days, or if in any such case at any time an order for
relief is granted; or
(ix) majority ownership or effective control of Contractor is
acquired by a competitor of Burlington.
(x) Contractor voluntarily or involuntarily ceases or
suspends all or any substantial part of its operations
for any reason, or Contractor announces a future
cessation or suspension of all or any substantial part
of operations for any reason whatsoever, other than in
each case as excused by Section XI(H) hereof, or
Contractor ceases or suspends any of its Services
hereunder or announces a future cessation or suspension
of any thereof for any reason whatsoever, other than as
excused by Section XI(H) hereof.
(xi) a final judgment is rendered by a court of competent
jurisdiction for the payment of money not, in the
reasonable judgment of Burlington, covered by insurance
in excess of one million dollars ($1,000,000), or final
judgments are rendered for the payment of money not, in
the reasonable judgment of Burlington, covered by
insurance in excess of one million dollars ($1,000,000)
in the aggregate, shall be rendered against Contractor,
or any other final judgment is rendered by a court of
competent jurisdiction which restrains, hinders or
otherwise, in the reasonable judgment of Burlington,
materially and adversely affects Contractor's present or
future performance of any of its obligations hereunder;
or
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<PAGE> 18
(xii) any obligation of Contractor or any of its affiliates
for the payment of borrowed money (whether as borrower
or guarantor), or payment of the deferred purchase price
of any property or services (whether as buyer or
guarantor), or payment of any obligation under any lease
(or sublease) of real or personal property (whether as
lessee or sublessee or guarantor) shall not be paid when
the same becomes due, whether by acceleration or
otherwise, after expiration of any applicable grace
period or extension thereof, or Contractor fails to
perform or observe in any material respect any other
provision (unless such provision has been waived) with
respect to any such obligation or in any agreement
securing or relating to such obligation, and the effect
of such failure is to permit such an obligation to be
declared due or is to cause such obligation to become
due prior to its stated maturity or in the case of a
lease (or sublease) to permit the lessor or sublessor to
take any action to terminate or repossess, if any such
obligations described in this clause (xiii) individually
or in the aggregate are in excess of one million dollars
($1,000,000); or
(xiii) it is or becomes unlawful for Contractor to perform
any of its obligations hereunder;
Upon the occurrence of any Event of Default described in clause
(vi), (vii), or (viii) above, this Agreement and Burlington's
obligations and Contractor's rights hereunder shall
automatically terminate without notice, and upon the occurrence
and during the continuance of any other Event of Default,
Burlington shall immediately be entitled to terminate this
Agreement and Burlington's obligations and Contractor's rights
under this Agreement by notice thereof to Contractor, in each
without cost or penalty of any kind and without limiting
Burlington's rights or remedies at law or in equity with
respect thereto, including, but not limited to the recovery of
damages due to such a termination.
B. Default by Burlington - Without limiting the obligations of
Burlington or the rights and remedies of Contractor as
provided in this Agreement, each of the following events
(whether any such event shall be voluntary or involuntary or
arise by operation of law or due to any compliance with any
law, rule or regulation or any judgment, order or decree) shall
constitute an "Event of Default":
(i) If Burlington shall fail to make any payment required
to be made by Burlington hereunder and such failure
continues for a period of ten (10) Business Days after
written notice thereof is received by Burlington; or
(ii) If Burlington shall fail to carry and maintain
insurance in accordance with the provisions of Section
VI(C) hereof; or
(iii) If Burlington shall fail to perform or observe any
other covenant, condition or agreement to be performed
or observed by it under this Agreement and if, in the
reasonable opinion of Contractor, such failure is
curable without prejudice to Contractor, such failure
shall continue unremedied for a period of thirty (30)
days after written notice thereof to Burlington from
Contractor so long as Burlington is at all times
diligently prosecuting such cure during such thirty
(30) day period; or
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<PAGE> 19
(iv) Burlington consents to the appointment of a custodian,
receiver, trustee or liquidator of itself or of a
substantial part of its property, or makes a general
assignment for the benefit of creditors, or Burlington
admits in writing its inability to pay its debts
generally as they become due, or Burlington is unable to
or does not pay its debts generally as they become due,
or Burlington files a voluntary petition in bankruptcy
or a voluntary petition or an answer seeking
reorganization in a proceeding under any bankruptcy laws
(as now or hereafter in effect) or an answer admitting
the material allegations of a petition, answer, or
consent, seeks relief under the provisions of any other
existing or future bankruptcy or other similar law
providing for the reorganization or winding up of
corporations, or providing for an agreement,
composition, extension or adjustment with its creditors;
or
(v) An order, judgment or decree is entered by any court or
governmental agency of competent jurisdiction
appointing, without the consent of Burlington, a
custodian, receiver, trustee or liquidator of Burlington
or of any substantial part of its property, or any
substantial part of the property of Burlington is
sequestered, and any such order, judgment or decree of
appointment or sequestration remains in force
undismissed, unstayed or unvacated for a period of
thirty (30) days after the date of entry thereof; or
(vi) a petition against Burlington in a proceeding under the
bankruptcy laws of the United States of America or other
insolvency laws (as now or hereinafter in effect) is
filed and is not withdrawn or dismissed within thirty
(30) days thereafter, or if, under the provision of any
law providing for reorganization or winding-up of
corporations which may apply to Burlington any court of
competent jurisdiction assumes jurisdiction, custody or
control of Burlington or of any substantial part of its
property and such jurisdiction, custody or control
remains in force on unrelinquished, unstayed or
undismissed for a period of thirty (30) days, or if in
any such case at any time an order for relief is
granted.
(vii) Any representation or warranty made or deemed made by
Burlington in or pursuant to this Agreement is or proves
to have been incorrect in any material respect when made
or deemed made.
Upon the occurrence of any Event of Default described in this
Section VIII(B), Contractor shall immediately be entitled to
terminate this Agreement and its obligations and Burlington's
rights under this Agreement by notice thereof to Burlington, in
each case without cost or penalty of any kind and, subject to
the overall limit on Contractor's recovery rights against
Burlington set forth in Section VII hereof, without limiting
Contractor's rights in respect of the recovery of damages due to
such a termination.
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<PAGE> 20
C. Events of Termination - Each of the following events (whether
any such event should be voluntary or involuntary or arise by
operation of law or due to any compliance with any law, rule or
regulation or any judgment, or order or decree) shall constitute
an event of termination which shall immediately entitle
Burlington to terminate without notice to Contractor, this
Agreement without cost or penalty of any kind and without
limiting Burlington's rights or remedies at law or in equity
with respect thereto, including but not limited to the recovery
of damages due to such a termination:
(i) Contractor shall fail to carry and maintain in full
force and effect insurance in accordance with the
provisions of Section VI(C) hereof or any notice of
cancellation shall be given with respect to any such
insurance or Contractor shall operate any Aircraft
outside of the scope or in violation of, or Contractor
shall otherwise fail to comply with, the terms of any
insurance or government indemnity coverage maintained by
Burlington or Contractor with respect to any Aircraft;
or
(ii) Contractor disposes, conveys or transfers or threatens
to dispose, convey or transfer all or a material part of
its assets, or Contractor liquidates or dissolves or
consolidates or merges with any other Person, whether in
one or a series of transactions, related or not, without
Burlington's prior written consent which will not be
unreasonably withheld, or
(iii) the airworthiness certificate of the Aircraft is
revoked, suspended, canceled, withdrawn, terminated or
not renewed or otherwise ceases to be in full force and
effect or becomes subject to any material restriction;
or any consent, authorization, license, certificate or
approval of or registration with any governmental
authority applicable to Contractor's performance of its
obligations under this Agreement, including, without
limitation, its certificate issued under FAR Part 121 or
its Certificate of Convenience and Necessity issued
under the Aviation Act, is not made or is not maintained
in full force and effect or otherwise revoked,
suspended, canceled, withdrawn, terminated or not
renewed for any reason whatsoever.
IX. INDEPENDENT CONTRACTOR
Contractor is an independent Contractor and, without waiving any rights
or remedies hereunder in favor of Burlington, Burlington shall not in
any manner supervise, direct or control Contractor's performance under
this Agreement. Contractor shall not in any manner engaged in performing
services hereunder shall be considered employees of Contractor for all
purposes and under no circumstances shall be deemed employees of
Burlington. Employees of Burlington shall be considered employees of
Burlington for all purposes and under no circumstances shall be deemed
employees of Contractor. Nothing in this Agreement shall be construed as
giving one party to this Agreement control over the managerial
practices, financial administration or personnel practices, policies or
procedures of the other party. Contractor shall have full and exclusive
liability for the payment of Workers' compensation and employer's
liability insurance premiums with respect to its employees and for the
payment of all taxes, contributions and other payments for unemployment
compensation or annuities now or hereinafter
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<PAGE> 21
imposed upon employers by the government of the United States of
America or by any individual state, local or foreign authority with
respect to such employees.
X. INDEMNIFICATION
A. Indemnification by Contractor -- Contractor agrees to defend
(if requested by an applicable Burlington Indemnitee but failure
to request such defense shall not reduce or otherwise affect
Contractor's liability for the reasonable expenses of such
defense by such Burlington Indemnitee), indemnify and hold
harmless Burlington and its affiliates, parent company and each
of their officers, directors, shareholders, agents, servants and
employees (the "Burlington Indemnities") from and against all
liabilities and reasonable expenses, including but not limited
to reasonable expenses of defense (including reasonable legal
fees and expenses) and other reasonable expenses, for injury to
or death of any person other than an employee or agent of the
Burlington Indemnities insured in the course of the employment
and for loss of or damage to any property, including the
Aircraft and any cargo, arising out of or in any manner
connected with (i) the negligence or willful misconduct of
Contractor, or any of its entities controlled by or under common
control with Contractor or any of their subcontractors,
officers, directors, agents, servants or employees in connection
with the provision of services hereunder, or (ii) maintenance,
modification or repair of the Aircraft. Contractor hereby
waives, releases and renounces any and all claims and recourse
rights now or hereafter existing against any Burlington
Indemnitee, and Contractor agrees not to claim against or sue
any Burlington Indemnitee, for any claim, injury, loss, damage,
obligation, liability or expense to be indemnified by
Contractor, except for liabilities and expenses to be
indemnified by Burlington as stated below.
Burlington shall promptly notify Contractor of any claim as to
which indemnification is sought from Contractor of any of its
insurers. Subject to the rights of insurers under policies of
insurance maintained pursuant to this Agreement, Contractor
shall have the sole right to investigate and the right in its
sole discretion to defend or compromise any claim for which
indemnification is sought under Section XI(A), and Burlington
shall cooperate, and Burlington shall cause each of the
Burlington Indemnities to cooperate, with all reasonable
requests of Contractor or its insurers in connection therewith.
Where Contractor or the insurers under a policy of insurance
maintained by or on behalf of Contractor undertake the defense
with respect to a claim, no additional legal fees or expenses of
any Burlington Indemnitee in connection with the defense of such
claim shall be indemnified hereunder unless such fees or
expenses were incurred expressly at the request of Contractor.
Subject to the requirements of any policy of insurance,
Burlington or any other Burlington Indemnitee may participate at
its own expense in any judicial proceeding controlled by
Contractor or its insurers pursuant to the preceding provisions;
provided, that such party's participation does not, in the
opinion of Contractor or any of its insurers, interfere with
such proceeding or control. Notwithstanding the above,
Burlington shall have the right to investigate and defend any
litigation at its own expense.
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<PAGE> 22
B. Indemnification By Burlington - Except for the liabilities and
expenses to be indemnified by Contractor as stated above,
Burlington agrees to defend, indemnify, and hold harmless
Contractor and its subcontractors and each of their officers,
directors, shareholders, agents, servants, and employees from
and against all liabilities and reasonable expenses, including,
but not limited to reasonable expenses of defense (including
reasonable legal fees and expenses) and other reasonable
expenses for injury to or death of any person or loss of or
damage to any property arising out of or in any way connected
with the negligence or willful misconduct of Burlington, or any
of its entities controlled by or under common control with
Burlington or any of their subcontractors, officers, directors,
agents, servants or employees in connection with the provision
of services hereunder.
C. Cooperation - In the case of any claim indemnified hereunder,
Indemnitee agrees to cooperate with Indemnitor and the insurers
as any of them may reasonably request in the exercise of their
rights to investigate, defend or compromise any such claim or as
may be required to retain the benefits of such insurance with
respect to any such claim.
D. Subrogation - Indemnitor shall be subrogated to the rights and
remedies of Indemnitee on whose behalf any such claim was paid
or for which indemnification is otherwise sought with respect to
the condition or event giving rise to such claim. Should
Indemnitee receive any refund, in whole or in part, with respect
to any claim paid by Indemnitor or its insurers hereunder,
Indemnitee shall promptly pay the amount refunded over to
Indemnitor.
XI. MISCELLANEOUS
A. Notices - All notices, requests, demands, and other
communications, under this Agreement, shall be in writing and
sent by US Registered Mail, postage prepaid, receipt requested,
or by courier service, and shall be deemed to have been duly
given as of the date indicated on the return receipt card mailed
to the party to whom notice is given or as of the date indicated
on the delivery receipt of the courier, and properly addressed
as follows:
To Burlington: Burlington Air Express, Inc.
1 Air Cargo Parkway
Swanton, Ohio 43558
Attn: Sr. Vice President, Air Operations
Burlington Air Express, Inc.
18200 Von Karman Avenue
Irvine, California 92715
Attn: Senior Counsel
To Contractor: Kitty Hawk, Inc.
1515 West 20th Street
DFW Airport, Texas 75261
Attn: President
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<PAGE> 23
Any party may change its address for the purposes of this
Section by giving the other party written notice of the new
address in the manner set forth above.
B. Validity, Waiver - In the event that any provisions of this
Agreement shall be held to be invalid, the same shall not affect
in any respect whatsoever the validity of the remainder of this
Agreement. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
C. Governing Law, Gender, Headings - THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED UNDER AND IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular and
plural number shall each be deemed to include the others
whenever the context so indicates. Section headings contained in
this Agreement are for convenience only, and shall not be
considered for any purpose in construing this Agreement.
D. Attorney's Fees - In the event of a dispute between the parties
arising out of the terms, conditions, and obligations imposed by
this Agreement, the prevailing party in such dispute shall be
entitled to recover reasonable attorney's fees, costs and
expenses incurred in connection therewith.
E. Successors and Assigns - THIS AGREEMENT AND THE VARIOUS RIGHTS
AND OBLIGATIONS HEREUNDER SHALL INURE TO THE BENEFIT OF AND BE
BINDING UPON THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS
AND PERMITTED ASSIGNS. CONTRACTOR ACKNOWLEDGES THAT THIS
AGREEMENT IS A PERSONAL SERVICES CONTRACT AND NEITHER THIS
AGREEMENT NOR ANY OF CONTRACTOR'S RIGHTS OR OBLIGATIONS
HEREUNDER MAY BE ASSIGNED OR DELEGATED BY CONTRACTOR WITHOUT THE
PRIOR WRITTEN CONSENT OF BURLINGTON.
F. Non-Disclosure and Confidentiality - Contractor and Burlington
agree to keep confidential such information as Contractor and
Burlington may from time to time impart to each other regarding
their business affairs, including but not limited to this
Agreement, and Contractor or Burlington will not in whole or in
part, now or at any time, disclose said information or this
Agreement, during the term of this Agreement, except in each
case to a Person who is or would be permitted assignee if such
Person agrees in writing to be bound by this Section or to
professional advisors which are under a duty to maintain the
confidentiality hereof or as may be required by law or legal
process.
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<PAGE> 24
G. Entire Agreement, Etc. -- This Agreement and the Leases
represent the entire agreement between the parties with
respect to the subject matter hereof, superseding all prior
inconsistent agreements, and no oral agreements have been made.
This Agreement may be executed in one or more separate
counterparts, each of which, when so executed, shall be deemed
to be an original. Such counterparts shall, together, constitute
and be one and the same instrument. The Schedules attached
hereto are incorporated herein by this reference and shall for
the purpose of this Agreement be deemed to be a part hereof.
This Agreement can be modified only in writing and such
modification must be signed by the parties hereto before it
shall become effective.
H. Force Majeure -- Except as provided herein, each party hereto
will be excused from performance under this Agreement by the
other as a result of any event of force majeure, including, but
not limited to, acts of any government or subdivision thereof,
the improper failure or refusal of any government or
governmental agency to issue necessary permits or operating
authorities, acts of God, weather, damage or destruction of
flight equipment, lack of fuel availability at airports to be
used, riots or civil commotions, strikes or labor stoppage,
military emergency, war or hazards of damages incident to the
state of war, or any other causes which is beyond the control of
either party and which prevents either party from performing
this Agreement, so long as in each case such event of force
majeure or other cause beyond the control of such party is not
caused by such party's breach of this Agreement or negligence
or willful misconduct; provided, however, that circumstances
within contractor's reasonable control shall include, but are
not limited to, circumstances related to Contractor's financial
condition or sickness, absenteeism, tardiness, or the
unavailability of flight crews, other than additional crews
sickness, absenteeism, tardiness, or the unavailability of
flight crews, other than additional crews required due to
temporary scheduling changes made by Burlington, or inability to
provide services hereunder or grounding of any of the Aircraft
by the Aeronautics Authority due to reasons arising out of
Contractor's operating procedures or its failure to maintain in
full force and effect its FAR Part 121 authority and Section 401
or 418 certification. Contractor or Burlington shall use their
best efforts to eliminate or mitigate any adverse affect on the
performance of its obligations hereunder resulting from force
majeure or other circumstances beyond its control.
I. Non-Exclusive Agreement -- Nothing in this Agreement is
intended to or shall require Burlington or Contractor to utilize
the services or facilities of the other to the exclusion of
others.
J. Rights Cumulative -- All rights and remedies from time to time
conferred upon or reserved to Burlington and Contractor are
cumulative, and none is intended to be exclusive of another. No
delay or omission in insisting upon the strict observance or
performance of any provision of this Agreement, or in exercising
any right or remedy shall be construed as a waiver or
relinquishment of such provision, nor shall it impair such right
or remedy. Every right and remedy may be exercised from time to
time and as often as deemed expedient.
K. Survival -- All indemnities by Contractor or Burlington
contained in this Agreement shall survive the expiration or
other termination of this Agreement.
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XII. CERTIFICATION
The parties have each caused this Agreement to be executed on the day
mentioned at the beginning of this Agreement. The individual signing on
behalf of the corporate party certifies that he or she is duly
authorized to make this Agreement binding for and on behalf of that
corporation.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
as of the date and the date first written.
BURLINGTON AIR EXPRESS, INC. KITTY HAWK AIR CARGO, INC.
/s/ GLEN A. BEECHER /s/ TILMON J. REEVES
--------------------------------- ----------------------------
Glen A. Beecher Tilmon J. Reeves
Sr. Vice President President
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<PAGE> 26
SCHEDULE I
To
Agreement to furnish Three (3) B727-200 Aircraft and Air Cargo Services dated
as of February 21, 1996, and effective on March 1, 1996.
SCHEDULED ROUTE
B727-200-223 EFFECTIVE ON MARCH 1, 1996
AUS/MLI/TOL/MLI/AUS
B727-200-223 EFFECTIVE ON MARCH 1, 1996
PHX/TOL/PHX
B727-200-223 EFFECTIVE ON MARCH 1, 1996
MSP/TOL/MSP
Route Schedule will be flown five (5) days per week, except for Burlington
designated holidays. (not to exceed eight (8) per year)
Daily Rate: AUS complete route schedule [BLACKOUT] ACMI.
PHX complete route schedule [BLACKOUT] ACMI.
MSP complete route schedule [BLACKOUT] ACMI.
There will be no compensation for scheduled flights that exceed the block hours
of the published route schedule except for weather holds and diversions.
Off Line Rate: [BLACKOUT] per block hour ACMI.
Off Line Rate Calculation: Off line flying will be considered as the total
flying in any flight day in which the published route schedule has been
deviated from by the request of Burlington, unrelated to mechanical problems,
or maintenance requirements. In the event the published schedule has been
accomplished and Burlington requests additional flying, that additional flying,
shall be calculated by using the off line rate.
Route Change Rate: Burlington shall pay a daily rate to Contractor of
[BLACKOUT] per block hour (ACMI) or [BLACKOUT] (ACMI) per day total for three
(3) aircraft, whichever is higher, for any route changes required by Burlington
pursuant to Section IIH of this Agreement.
BLACKED-OUT TEXT OMITTED AND
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
<PAGE> 27
SCHEDULE 1.a
To
Agreement to furnish Two (2) B727-200 Aircraft and Air Cargo Services dated as
of February 21, 1996, and effective on February 24, 1996.
SCHEDULED ROUTE
B727-200-251 STAGE 3 EFFECTIVE ON February 24, 1996
SJC/TOL/STL/SJC
B727-200-251 STAGE 3 EFFECTIVE ON MARCH 1, 1996
BRO/IAH/TOL/IAH/BRO
Route Schedule will be flown five (5) days per week, except for Burlington
designated holidays. (not to exceed eight (8) per year)
Daily Rate: SJC complete route schedule [BLACKOUT] ACMI.
BRO complete route schedule [BLACKOUT] ACMI.
There will be no compensation for scheduled flights that exceed the block hours
of the published route schedule except for weather holds and diversions.
Off Line Rate: [BLACKOUT] per block hour ACMI.
Off Line Rate Calculation: Off line flying will be considered as the total
flying in any flight day in which the published route schedule has been
deviated from by the request of Burlington, unrelated to mechanical problems,
or maintenance requirements. In the event the published schedule has been
accomplished and Burlington requests additional flying, that additional flying,
shall be calculated by using the off line rate.
Route Change Rate: Burlington shall pay a daily rate to Contractor of
[BLACKOUT] per block hour (ACMI) or [BLACKOUT] (ACMI) per day total for two
(2) aircraft, whichever is higher, for any route changes required by
Burlington pursuant to Section IIH of this Agreement.
BLACKED-OUT TEXT OMITTED AND
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
<PAGE> 1
EXHIBIT 10.15
BLACKED-OUT TEXT OMITTED AND 3/13/95
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
- -------------------------------------------------------------------------------
AIRCRAFT
OPERATING LEASE
- -------------------------------------------------------------------------------
1.0 DATE AND PARTIES
1.1 Date. This aircraft operating lease (this "lease") is effective
March 14, 1995.
1.2 Parties. The parties to this lease are:
A. Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong")
Kaohsiung Fishery Building
Room 101-8 No. 3 East 2nd Road
Chien Chen Fish Port
Kaohsiung, Taiwan
R.O.C.
Phone: 07-8227601
Fax: 07-8416155
B. Kitty Hawk Aircargo, Inc. ("Kitty Hawk")
Attention: Mr. T. James Reeves, President
P.O. Box 612787
1515 West 20th
DFW Airport, Texas 75261
U.S.A.
Phone: (214) 456-2200
Fax: (214) 456-2210
2.0 RECITATIONS
2.1 KITTY HAWK. Kitty Hawk holds a U.S. FAA Part 121 air-carrier
certificate and related DOT authority under which it operates cargo aircraft in
lease service.
2.2 TING HONG. Ting Hong wishes to lease a cargo aircraft under
operating lease.
2.3 PURPOSE. Kitty Hawk will provide and Ting Hong will obtain
aircraft services under this lease.
Aircraft Operating Lease Page 1 of 13
<PAGE> 2
3/13/95
3.0 COVENANTS, REPRESENTATIONS AND WARRANTIES
3.1 LEASED AIRCRAFT
A. Kitty Hawk shall operate under this lease one Boeing
727-200 aircraft with a maximum gross cargo payload of
55,000 lbs., equipped with Pratt & Whitney JT8D-15
engines, configured with twelve cargo-pallet positions
and two belly holds (the "leased aircraft").
B. The initial leased aircraft shall be Boeing 727-200
aircraft, serial no. 20995, U.S. registration no. 854AA
(the "initial aircraft").
C. Kitty Hawk may from time to time, for maintenance,
operating or other reasons, and without charge to Ting
Hong for flight hours or other expenses incurred in the
substitution, substitute another aircraft (a "substitute
aircraft") of the same model, configuration,
registration and certification, and of equivalent
capability, in place of the initial aircraft. The term
"leased aircraft" shall refer to the initial aircraft
and to any substitute aircraft while any of them is
operated under this lease.
D. Kitty Hawk represents and warrants to Ting Hong that (i)
the initial aircraft has an FAA airworthiness
certificate and has all required U.S. governmental
authority to carry general cargo for hire in the U.S.,
and that (ii) to the best of Kitty Hawk's knowledge the
initial aircraft is airworthy and has been maintained in
all material respects in conformity with FAA
requirements; and warrants that the same will be true as
to any substitute aircraft. Kitty Hawk further
represents and warrants that the estimates of maximum
payloads on various possible routes, as set forth in
Captain Ben Planchon's letter to Ting Hong, dated March
2, 1995, a copy of which is Exhibit A, are accurate for
normal atmospheric conditions that do not require
unusual fuel loads for safe and proper operations. KITTY
HAWK MAKES NO OTHER REPRESENTATION OR WARRANTY THAT ANY
LEASED AIRCRAFT IS IN ANY RESPECT SUITABLE FOR THE
PURPOSES OF THIS LEASE.
E. Without relying upon any representation by Kitty Hawk
except those is subparagraph 3.1(D), Ting Hong has
determined that a Boeing 727-200 in the cargo
configuration described in subparagraph 3.1(A) is
suitable for the application and routes that Ting Hong
contemplates under this lease.
3.2 OPERATIONS. Kitty Hawk shall position the leased aircraft to
Saipan International Airport (the "Saipan base"), and be prepared at the
commencement of the lease to begin cargo service under the lease. During the
term of the lease, Kitty Hawk shall
Aircraft Operating Lease Page 2 of 13
<PAGE> 3
3/13/95
operate the leased aircraft solely for carriage of light general cargo tendered
by Ting Hong, including perishable seafood, on schedules and routes within the
South Pacific/Indonesia area (the "South Pacific operating area") in which Ting
Hong requires aircraft service, as directed from time to time by Ting Hong,
except that (i) all schedules shall be within commercially-reasonable
performance capabilities of the leased aircraft, (ii) Ting Hong shall give to
Kitty Hawk notice of schedule and routing requirements no later than 48 hours
before each required aircraft movement, (iii) Ting Hong shall not change
schedule or routing requirements less than 8 hours before aircraft departure,
and (iv) all routes, airports, loading, operating and flying conditions shall
be subject to the reasonable approval of Kitty Hawk's operating personnel.
Kitty Hawk shall not be required to operate the leased aircraft an any respect
that violates U.S. law, rules and regulations; the law, rules and regulations
of any other country; Kitty Hawk's operations and maintenance programs; or the
dictates of good operating practice.
3.3 U.S. AUTHORITY. Kitty Hawk represents and warrants to Ting Hong
that it holds, and promises that it shall maintain in effect throughout the
lease, at Kitty Hawk's sole expense, all U.S. governmental authority for it to
operate the leased aircraft for hire in carrying cargo within the South Pacific
operating area.
3.4 SOUTH PACIFIC AREA AUTHORITY. Ting Hong represents, warrants
and covenants to Kitty Hawk that Ting Hong holds or shall obtain, and shall
maintain in effect throughout this lease, at Ting Hong's sole expense, all
non-U.S. governmental authority required to enable Kitty Hawk's operation of
the leased aircraft in the South Pacific operating area as may be required
under this lease, without change of registration of the leased aircraft, and
without Kitty Hawk's being required to pay any fee related to such
authorization; so long as Kitty Hawk maintains and operates the leased aircraft
in accordance with FAA and DOT requirements, and at no material cost timely
submits such applications and documentation as are requested by Ting Hong.
3.5 TERM. The term of this lease shall commence on the earlier of
(i) the day forty-five days after the day Kitty Hawk receives the initial
payment under paragraph 3.11(B), or (ii) the first day that the leased aircraft
is dispatch ready at the Saipan base; and shall end at midnight GMT on the
first anniversary of the commencement date.
3.6 PERFORMANCE.
A. Kitty Hawk shall make the leased aircraft dispatch ready
at the Saipan base no later than forty-five days after
the day Kitty Hawk receives the initial payment under
paragraph 3.11(B). Thereafter throughout the lease Kitty
Hawk shall exert its best efforts to maintain the leased
aircraft in dispatch-ready condition, with
properly-rested and qualified flight crew on hand, for
all scheduled flights.
B. Throughout the lease Kitty Hawk shall exert its best
efforts to perform all scheduled flights to arrive at
each scheduled destination no later than 15 minutes
after the scheduled arrival time.
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C. Kitty Hawk shall be responsible for arrival delays of
more than 15 minutes from schedule, and for any
unavailability of the leased aircraft, caused by
maintenance failure of any type or crew failure of any
kind.
D. Kitty Hawk shall not be responsible for arrival delays
or unavailability of the leased aircraft caused by:
1. weather conditions being below operating
minimums at departure, destination or alternate
airport;
2. any other weather conditions, unless the
aircraft could have flown in such conditions in
the absence of a maintenance failure;
3. departure delays attributable to completion of
positioning of cargo on the aircraft less than
15 minutes prior to scheduled departure, or to
inaccuracy of weight or deficiency in
documentation or packaging of cargo;
4. departure delays attributable to fueling delays
beyond Kitty Hawk's reasonable control;
5. air-traffic control or other governmental
delays;
6. damage to the leased aircraft by Ting Hong or
its agents, by loading or unloading personnel,
or by ground equipment; or
7. acts of God, fire, flood, strike, labor dispute,
riot, insurrection, war, or any other cause
beyond Kitty Hawk's reasonable control.
E. If the leased aircraft is unavailable on any day for
which there are scheduled operations, and the
unavailability is because of a maintenance failure or a
crew unavailability of any kind, then the guaranteed
aggregate flight hours for the term of the lease under
paragraph 3.11(F) shall be reduced by the number of
flight hours scheduled for such day and not flown.
F. If the leased aircraft fails in any calendar month
during the term of the lease to achieve a minimum level
of 95% on-time arrival, excluding delays for causes
listed in subparagraph 3.6(D), Ting Hong may terminate
the lease by giving 30 days' advance notice to Kitty
Hawk.
3.7 CHARACTER, PACKAGING, DOCUMENTATION OF CARGO; CARGO LOSS
LIMITATIONS.
A. Ting Hong shall only tender to Kitty Hawk cargo that
can be transported lawfully.
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B. Ting Hong shall cause all cargo to be prepared, packed,
and loaded so as to endure safe transportation by
ordinary handling. Kitty Hawk shall have no
responsibility for packaging or repackaging of cargo.
Ting Hong shall provide all necessary or appropriate
shipping documentation, and shall provide Kitty Hawk
timely and accurate weights on all items tendered for
transportation.
C. Kitty Hawk may reject any item that in the reasonable
opinion of Kitty Hawk's flight crew is improperly loaded
or in condition such that it could damage the leased
aircraft. However, such right of rejection is not
intended or to be construed to relieve Ting Hong of any
obligation properly to inspect, prepare, protect, pack,
mark and document items for shipment, or to impose any
liability or obligation upon Kitty Hawk.
D. Ting Hong intends to use the leased aircraft
predominantly to carry its own fresh seafood. Such cargo
can be very valuable, and is inherently fragile and
perishable. Loss or damage to such cargo can result from
many unrelated causes, including delayed or incorrect
handling, storage, packaging, loading, unloading, and
ultimate delivery. A transportation delay for any reason
can result in material loss of value of such cargo. TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TING
HONG RELIEVES AND RELEASES KITTY HAWK OF ANY OBLIGATION
TO TING HONG FOR UNINTENDED DAMAGE TO OR LOSS OF ANY
CARGO CARRIED UNDER THIS LEASE, WHETHER OR NOT CAUSED BY
NEGLIGENCE OF ANY CHARACTER, THAT EXCEEDS THE DAMAGE OR
LOSS THAT MIGHT HAVE BEEN SUFFERED BY NON-PERISHABLE
GENERAL CARGO FROM DELAY OR OTHER PERFORMANCE FAILURE,
ACTION OR INACTION BY KITTY HAWK. TING HONG SHALL
INDEMNIFY KITTY HAWK AND HOLD IT HARMLESS AGAINST
LIABILITY, LOSS AND COST OF DEFENSE UPON ALL CLAIMS FOR
UNINTENDED DAMAGE TO OR LOSS OF ANY CARGO CARRIED UNDER
THIS LEASE, WHETHER OR NOT CAUSED BY NEGLIGENCE OF ANY
CHARACTER, THAT EXCEEDS THE DAMAGE OR LOSS THAT MIGHT
HAVE BEEN SUFFERED BY NON-PERISHABLE GENERAL CARGO FROM
DELAY OR OTHER PERFORMANCE FAILURE, ACTION OR INACTION
BY KITTY HAWK.
3.8 KITTY HAWK'S PAYMENTS. Kitty Hawk shall pay its costs and
expenses of ownership of the leased aircraft; for salaries, housing at the
Saipan base, and standard employee benefits for flight and maintenance crews;
for insurance, maintenance, fuel and oil on vehicles supplied by Ting Hong
under paragraph 3.9(K); for flight and maintenance crew use; for costs and
expenses of maintenance, parts and labor for the leased aircraft; for aircraft
hull, liability and war risk insurance upon the leased aircraft; for aircraft
inflight communications fees; for flight crew housing costs for all overnight
stays away from the Saipan base caused by maintenance failure of any type or
crew failure of any kind; for fuel for aircraft operations for non-revenue
maintenance tests and for flight crew training
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flights required by Kitty Hawk; for taxes attributable to Kitty Hawk's net
income from the lease; and for the costs and expenses of dispatching the leased
aircraft.
3.9 Ting Hong's Payments in Addition to Rent. Ting Hong shall be
responsible for and timely pay the following costs and expenses incurred in
operation of the leased aircraft under this lease:
A. aircraft ground handling, loading and unloading;
B. fuel, oil, fluids and lubricants; except fuel for
aircraft operations for non-revenue maintenance tests
and for flight crew training flights required by Kitty
Hawk;
C. aircraft landing fees and parking fees;
D. aircraft overflight fees;
E. approach and departure fees;
F. customs and immigration fees or charges;
G. any excise or sales taxes imposed by an government in
the South Pacific operating area, excluding U.S., upon
rent payments under this lease;
H. hotel accommodations for flight crew for all overnight
stays away from the Saipan base, if such stays are
caused by scheduling or are requested by Ting Hong;
I. a lockable and secure storage facility at the Saipan
base for storage of aircraft parts and maintenance
equipment; and
J. one automobile for the sole use by each Kitty Hawk
flight crew at the Saipan base, and one truck for the
sole use by the maintenance crew at the Saipan base.
3.10 Liens Attributable to Ting Hong. Ting Hong shall not permit any
lien, claim or encumbrance to be created or to exist against the leased
aircraft as a result of any claim against Ting Hong or as a result of
nonpayment of any cost or expense that is to be paid by Ting Hong under
paragraph 3.9.
3.11 Rental Payments.
A. Ting Hong shall pay to Kitty Hawk rent of [BLACKOUT]
for each of the first 1,800 flight hours of use of the
leased aircraft under this lease, and rent of [BLACKOUT]
for each flight hour in excess of 1,800 flight hours
before April 16, 1996 (a "flight hour" is an hour of
airborne operation of the
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leased aircraft during the term of this lease, with time
of each flight operation beginning when the aircraft
takes off for purposes of flight and ending when the
aircraft touches down at its next landing; except that
flight hours do not include time of operation for
non-revenue maintenance tests and for flight crew
training flights required by Kitty Hawk, and that flight
hours do not include flight hours for positioning the
initial aircraft from DFW to the Saipan base).
B. Ting Hong shall no later than March 14, 1995, pay in
advance to Kitty Hawk:
1. a positioning deposit of [BLACKOUT] (the
"positioning deposit") to pay Kitty Hawk's
actual costs and expenses (the "positioning
costs") of first positioning the initial
aircraft from DFW to the Saipan base at the
commencement of the lease (Kitty Hawk shall
report its positioning costs to Ting Hong at the
commencement of the lease, Kitty Hawk shall at
the commencement of the lease repay to Ting Hong
any amount by which the positioning deposit
exceeds the positioning costs, and Kitty Hawk
shall be solely responsible for positioning
costs in excess of [BLACKOUT] and in case of any
delay in positioning caused by mechanical
problems, Kitty Hawk shall be responsible for
all extra expense such as crew accommodations
and overnight parking fees attributable to such
delay);
2. livery fees of $4,000.00 to reimburse Kitty Hawk
for one repainting of the leased aircraft; and
3. [BLACKOUT] as a prepayment of rental for
120 flight hours of the leased aircraft.
C. Ting Hong shall no later than May 25, 1995, pay
to Kitty Hawk:
1. [BLACKOUT] as a prepayment of rental for an
additional 120 flight hours of the leased
aircraft; and
2. if the aircraft operated more than 120
flight hours from the commencement date
through April 30, 1995, then [BLACKOUT]
for each such excess flight hour.
D. Ting Hong shall no later than June 25, 1995, and
no later than the twenty-fifth day of each
calendar month thereafter, pay to Kitty Hawk:
1. [BLACKOUT] as a prepayment of rental for
an additional 120 flight hours of the
leased aircraft; and
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2. if the aircraft operated more than 120 flight
hours during the preceding calendar month, then
rent for each excess flight hour.
E. Ting Hong shall no later than April 25, 1996, pay to
Kitty Hawk a nonrefundable repositioning fee of
[BLACKOUT] which shall be Kitty Hawk's full compensation
and reimbursement of all costs and expenses of
repositioning the leased aircraft from the Saipan base
to DFW at the end of the lease.
F. Ting Hong guarantees to pay Kitty Hawk for at least
1,800 flight hours during the term of this lease, and if
at the end of this lease the aggregate flight hours for
which Ting Hong has paid Kitty Hawk is less than 1,800,
then Ting Hong shall pay additional rent equal to such
shortfall.
G. At the end of the full term of the lease, when Ting
Hong has fully complied with its payment and indemnity
obligations under the lease, or if the lease is
terminated before the end of its term, Kitty Hawk shall
promptly reimburse to Ting Hong the amount of any unused
prepaid rental, without interest.
H. All payments by Ting Hong to Kitty Hawk under this
lease shall be by wire transfer to Kitty Hawk's account,
as follows:
Bank One, Texas, N.A.
Dallas, Texas, U.S.A.
ABA number: 111000614
Account of: Kitty Hawk Aircargo, Inc.-
Operating Account
Account number: 0100128206
3.12 INSURANCE. Kitty Hawk shall throughout the term of this lease
maintain in effect aircraft all-risk liability insurance of at least $20
million combined single limit coverage, which shall include coverage for
liability for bodily injury and property damage, shall extend to Ting Hong as
an additional insured, and shall not be cancelable without 30 days' advance
written notice to Ting Hong. Kitty Hawk shall within five days after the
execution of this lease deliver to Ting Hong a certificate evidencing such
insurance, and if requested by Ting Hong, copies of insurance policies and
endorsements providing such coverage.
3.13 EXCLUSION OF WARRANTIES, LIMITATION OF DAMAGES, AND PARTIAL
RELEASE. Except for Kitty Hawk's express warranties elsewhere in this lease,
KITTY HAWK WITH TING HONG'S CONSENT DENIES AND EXCLUDES ALL WARRANTIES, EXPRESS
AND IMPLIED, STATUTORY AND OTHERWISE, INCLUDING WITHOUT LIMITATION THAT THE
LEASED AIRCRAFT IS OR WILL BE FIT FOR ANY PURPOSE. NEITHER KITTY HAWK NOR TING
HONG SHALL HAVE ANY RESPONSIBILITY TO THE OTHER FOR ANY INCIDENTAL, RESULTANT,
OR CONSEQUENTIAL DAMAGES OF ANY KIND. TING HONG IRREVOCABLY WAIVES AND RELEASES
ALL TORT CLAIMS
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AGAINST KITTY HAWK ARISING OUT OF ACTIONS OR OMISSIONS OF KITTY HAWK UNDER THIS
LEASE EXCEPT THOSE CAUSED BY KITTY HAWK'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
3.14 Ownership and Control of Leased Aircraft and Rights of
Movement. This lease grants to Ting Hong no rights of ownership, control or
operation of any leased aircraft. Kitty Hawk shall at all times retain and
exercise all rights of operation and movement of the leased aircraft.
3.15 Denial of Agency and Joint Venture. Kitty Hawk has no agency,
joint venture or partnership relationship with Ting Hong, and neither this
lease nor performance under it shall be deemed or construed to create an
agency or joint venture relationship. Neither Kitty Hawk nor Ting Hong shall
have the right under this lease to supervise, direct or control any employee of
the other in any manner or for any purpose.
3.16 Kitty Hawk Default. If Kitty Hawk materially fails to comply
with any of its obligations under this lease; and if Kitty Hawk fails to remedy
such default within ten business days after Ting Hong gives to Kitty Hawk
notice of such default, then Ting Hong may without prejudice to any claim
against Kitty Hawk terminate this lease for cause upon ten business days'
advance notice to Kitty Hawk.
3.17 Early Termination of Lease; Limitation of Damages. If Ting Hong
terminates this lease under the provisions of subparagraph 3.6(F) or paragraph
3.16, Kitty Hawk shall end operations of the leased aircraft under this lease
at the termination date. IN NO EVENT SHALL KITTY HAWK BE RESPONSIBLE IN DAMAGES
FOR ANY BREACH OF THIS LEASE IN AN AMOUNT EXCEEDING IN THE AGGREGATE MORE THAN
(I) ONE-HALF OF ALL LEASE PAYMENTS EARNED BY KITTY HAWK UNDER THE LEASE TO THE
DATE OF TERMINATION, PLUS (II) THE RETURN OF ANY UNEARNED ADVANCE LEASE
DEPOSITS.
3.18 Ting Hong Default. If Ting Hong fails timely to deliver rental
payments, Kitty Hawk may without notice suspend operations of the leased
aircraft under this lease; or if Ting Hong fails timely and materially to
comply with any of its other performance, payment or indemnity obligations
under this lease, and fails to remedy such default within ten business days of
Kitty Hawk's giving notice of such default; then Kitty Hawk may without
prejudice to any claim against Ting Hong terminate this lease for cause,
permanently cease operations under this lease, and return the leased aircraft
to the U.S.
3.19 Other Representations and Warranties.
A. Ting Hong represents and warrants to Kitty Hawk that:
1. Ting Hong is a limited liability company that
has been duly formed and is in good standing
under the laws of The Republic of China, which
has authority to execute, deliver and perform
its obligations under this lease.
2. Ting Hong's execution, delivery and performance
under this lease have been duly authorized by
all requisite action, and this
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lease, including without limitation the
arbitration provisions of paragraph 4.4, is in
all respects enforceable against Ting Hong in
accordance with its terms.
B. Kitty Hawk represents and warrants to Ting Hong that:
1. Kitty Hawk is a corporation that has been duly
formed and is in good standing under the laws of
the State of Texas, which has authority to
execute, deliver and perform its obligations
under this lease.
2. Kitty Hawk's execution, delivery and performance
under this lease have been duly authorized by
all requisite action, and this lease, including
without limitation the arbitration provisions of
paragraph 4.4, is in all respects enforceable
against Kitty Hawk in accordance with its terms.
3.20 INDEMNITIES.
A. Kitty Hawk shall indemnify Ting Hong and hold it
harmless from and against liability, loss and cost of
defense:
1. attributable to breach by Kitty Hawk of any of
its representations and warranties in this
lease, or of its representation, warranty and
covenant under paragraph 3.3; or
2. upon any claim that is the responsibility of
Kitty Hawk under paragraph 3.8.
B. Ting Hong shall indemnify Kitty Hawk and hold it
harmless from and against liability, loss and cost of
defense:
1. attributable to breach by Ting Hong of any of
its representations and warranties in this
lease, or of its representation, warranty and
covenant under paragraph 3.4;
2. upon any claim that is the responsibility of
Ting Hong under paragraph 3.9; or
3. attributable to breach by Ting Hong of any of
its obligations under paragraph 3.10.
3.21 OPINION OF COUNSEL; EVIDENCE OF ABILITY TO PERFORM INDEMNITIES.
Ting Hong shall within ten days after execution of this lease deliver to Kitty
Hawk (i) an option of counsel, in form and substance reasonably acceptable to
Kitty Hawk, expressing favorable opinions as to the matters warranted by Ting
Hong under paragraphs 3.4 and 3.19(A); and (ii) evidence reasonably satisfactory
to Kitty Hawk that it has and will during the term of
AIRCRAFT OPERATING LEASE Page 10 of 13
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this lease maintain the financial ability to perform its indemnity obligations
under paragraph 3.20(B), or deliver a guaranty of those indemnity obligations
in form and substance reasonably acceptable to Kitty Hawk. If either condition
is not satisfied, Kitty Hawk may terminate this lease by notice to Ting Hong,
and if it does so shall promptly return to Ting Hong any payments that it has
then received from Ting Hong, less any cost or expense incurred by Kitty Hawk
to such time in connection with this lease, after which neither party shall
have further obligation under this lease.
4.0 GENERAL PROVISIONS
4.1 AMENDMENTS. To amend this lease, Kitty Hawk and Ting Hong must
sign a written amendment that identifies by paragraph number the provision that
it purports to amend. No noncomplying course of dealing shall be construed to
amend this lease.
4.2 NOTICES. All notices under this lease must be in writing.
Notices may be given by DHL or Federal Express delivery, facsimile, telegram,
telex or other delivery to a party at its notice address in paragraph 1.2.
Notices given by DHL or Federal Express, fees prepaid, addressed to the
intended recipient at its notice address in paragraph 1.2, or to such other
notice address as that party designates by notice to the other party, shall be
deemed given five business days after deposit with DHL or Federal Express. Any
notice given by other means shall be effective only when received by an
executive officer of the addressee. Delivery of a notice to a Kitty Hawk flight
or maintenance crew member engaged in the operating or maintaining the leased
aircraft shall never be deemed giving of a notice to Kitty Hawk for purposes of
this lease.
4.3 CONSTRUCTION.
A. Texas substantive law shall govern the effect and construction
of this lease. The law of the United States, including the
Federal Arbitration Act, and if and to the extent applicable
the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, shall govern the effect and enforceability of
provisions of this lease concerning arbitration, jurisdiction
and venue.
B. All dollar amounts under this lease are in U.S. dollars.
C. A business day is any day other than a Saturday, Sunday, or
legal holiday in Texas.
D. This lease binds and benefits the parties and their respective
successors and assigns.
E. Warranties expressed in this lease shall survive investigation
by any party and termination of the lease. All indemnities
survive termination of the lease.
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F. No rule of construction resolving any ambiguity against a
drafting party shall apply.
G. Failure to enforce a default under this lease shall not be
construed to be a waiver of such default or of any other
default.
H. This lease is the entire agreement between Kitty Hawk and Ting
Hong with respect to the subject matter, and merges and
supersedes all former agreements, promises or representations,
whether oral or written, express or implied, that relate in any
way to the subject matter.
I. If any provision of this lease is invalid or unenforceable, the
remaining provisions shall be enforceable.
J. Titles and headings are only for convenient reference and are
not to be construed in interpretation.
K. No party may assign to another any rights under this lease
without the written consent of the other party.
L. If any provision of this lease is invalid or ineffective for any
reason, the remaining provisions shall nevertheless be
effective.
M. Exhibit A is attached to this agreement for identification.
4.4 BINDING AGREEMENT TO ARBITRATE DISPUTES. Any controversy or
claim arising out of or relating to this lease, or to any breach of this lease,
shall be settled exclusively by arbitration under the International Arbitration
Rules of the American Arbitration Association; but the locale of any such
arbitration shall be in Dallas County, Texas; arbitrators shall be nationals of
the United States; and the language of the arbitration shall be English. Any
suit to require arbitration under this lease, or to enforce judgment upon an
arbitration award, must be brought in the United States District Court for the
Northern District of Texas. The parties acknowledge that this lease shall be
deemed to be executed in Dallas County, Texas, and that this lease will be
partially performed in Dallas County, Texas. A prevailing party in litigation
to require arbitration, in arbitration, or in litigation to enforce an
arbitration award shall be entitled to recover reasonable attorneys' fees and
costs.
KITTY HAWK AIRCARGO, INC.
By: /s/ M. TOM CHRISTOPHER
------------------------
M. Tom Christopher
Chairman of the Board and
Chief Executive Officer
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TING HONG OCEANIC ENTERPRISE CO., LTD.
By: /s/ JANE GOANG-FEI
------------------------
Jane Goang-FEI
President
Aircraft Operating Lease Page 13 of 13
<PAGE> 1
EXHIBIT 10.16
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AMENDMENT AND EXTENSION
OF
AIRCRAFT OPERATING LEASE
- --------------------------------------------------------------------------------
1.0 DATE, PARTIES AND RECITATIONS
1.1 DATE. This amendment and extension of an aircraft operating
lease (this "amendment") is effective April 24, 1996.
1.2 PARTIES. The parties to this amendment are Ting Hong Oceanic
Enterprises Co., Ltd. ("Ting Hong"), and Kitty Hawk Aircargo, Inc. ("Kitty
Hawk").
1.3 AIRCRAFT OPERATING LEASE. Ting Hong and Kitty Hawk are parties
to an Aircraft Operating Lease (the "lease") dated March 14, 1996, under which
Kitty Hawk currently leases to Ting Hong and operates one cargo-configured
Boeing 727-200 aircraft, serial number 20995, registration number N854AA.
1.4 MODIFICATION AND EXTENSION. Ting Hong and Kitty Hawk modify and
extend the lease and otherwise agree as follows.
2.0 ACKNOWLEDGMENTS AND AMENDMENTS
2.1 DEFINED TERMS. Terms that are defined in the lease have the
same defined meanings when used in this amendment.
2.2 COMMENCEMENT DAY AND TERM EXTENSION. The parties acknowledge
that the commencement day of the lease was May 3, 1995. Paragraph 3.5 of the
lease is amended so that the term of the lease is extended to and ends at
midnight GMT on August 31, 1997. The portion of the term of the lease from the
effective date of this amendment through August 31, 1997, is referred to in
this amendment as the "extended term."
2.3 PAID UNUSED HOURS. The parties acknowledge that guaranteed
flight hours under Paragraph 3.11(F) of the lease exceeded by 165 hours the
actual flight hours to the date of this amendment. Kitty Hawk acknowledges that
Ting Hong has paid additional rent under Paragraph 3.11(F) of the lease for
those 165 guaranteed but unused flight hours.
Amendment and Extension of Aircraft Operating Lease Page 1 of 3
<PAGE> 2
2.4 Hourly Rent. Paragraph 3.11(A) of the lease is changed to
provide that Ting Hong shall pay to Kitty Hawk rent of [BLACKOUT] for each
flight hour of use of the leased aircraft during the extended term; except
that:
A. if the aggregate flight hours in any consecutive 12 month
period during the extended term exceed 1,500, then the hourly
rent for any additional flight hours in that 12 month period
will be waived until hourly rent has been so waived for an
aggregate of 165 flight hours during the extended term; and
B. if the aggregate flight hours in any consecutive 12 month period
during the extended term exceed 1,800, then the hourly rent for
all flight hours over 1,800 in that 12 month period ("reduced
rate hours") will be reduced to [BLACKOUT].
2.5 Monthly Rent Payment. Paragraph 3.11(D) of the lease is
modified to provide that no later than May 25, 1996, and no later than the
twenty-fifth day of each calendar month thereafter, Ting Hong must pay to Kitty
Hawk (i) [BLACKOUT] as a prepayment for 125 flight hours in the next calendar
month of the extended term, and (ii) the rent, if any, for all then completed
flight hours for which Ting Hong has not previously paid rent.
2.6 Scheduled Maintenance. Paragraphs 3.2, 3.6 and 3.11 of the
lease are modified to provide that:
A. Kitty Hawk may on May 1, 1996, remove the leased aircraft from
service for scheduled maintenance, and Kitty Hawk will not be
obligated to operate the leased aircraft or any substitute
aircraft under the lease until the earlier of (i) the date the
scheduled maintenance is completed and the leased aircraft is
available for operations at the Saipan base, or (ii) June 7,
1996; and if delivery is later, Kitty Hawk will supply alternate
aircraft or pay Ting Hong for startup/standown expenses of their
727-100 aircraft.
B. Ting Hong will have no obligation to prepay or pay any rent for;
flight hours operated during the month of May 1996.
2.7 Repositioning Fee. Paragraphs 3.11(E) of the lease is modified
to provide that the repositioning fee under that paragraph is payable not later
than August 25, 1997.
2.8 Guaranteed Flight Hours. Paragraphs 3.11(F) of the lease is
modified to provide that Ting Hong (i) does not guarantee any number of
aggregate flight hours during the extended term, but (ii) does guarantee to pay
rent for at least 125 flight hours, whether or not used, during each month of
the extended term in which the leased aircraft is in service (except that if
the leased aircraft is not dispatch ready on June 1, 1996, the monthly minimum
flight hour guarantee for the month of June 1996 will be proportionally reduced
per diem to apply only to the days in which the leased aircraft is dispatch
ready).
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2.9 Third-Party Operations. Paragraphs 3.2 of the lease is modified
to provide that during the extended term both Ting Hong and Kitty Hawk have the
right to offer the use of the leased aircraft to third parties. Ting Hong may
tender cargo of third parties for any scheduled operation, without affecting
any of its obligations under the lease as modified by this amendment. Kitty
Hawk may employ the aircraft for operations for third parties so long as those
third party operations do not materially interfere with Kitty Hawk's
performance of its obligations to Ting Hong under the lease as modified by this
amendment; and the number of hours, if any, of Kitty Hawk's operation of the
leased aircraft in such third party revenue service during the extended term
will be included in aggregate flight hours for purposes of determining when
Ting Hong is entitled to the reduced rate hours under Para. 3.11(A) of; the
lease as modified by Para. 2.4(B) of this amendment. Third party operations
will also be used for meeting Ting Hong's guaranteed flight hours.
2.10 Rights of First Refusal. As a material inducement to Kitty Hawk
to execute this amendment, Ting Hong promises that it shall not during the
extended term, without giving Kitty Hawk at least 30 days' prior written notice
and the right of first refusal at rates and term offered by a third party,
either (i) enter into any operating lease of any additional aircraft with any
third party for services such as those supplied by the leased aircraft under
the lease, or (ii) renew or extend any existing operating agreement or execute
any new operating agreement with any third party to operate any aircraft now
owned or leased by Ting Hong, or to be acquired by Ting Hong during the
extended term, for services such as those supplied by the leased aircraft under
the lease. Kitty Hawk is obligated to provide technical assistance at no cost
to transition aircraft owned by Ting Hong to the Kitty Hawk maintenance program
in order that the aircraft be operated by Kitty Hawk.
2.11 Waiver of Known Defaults. Each party waives and releases all
known claims, if any, against the other for breach of any obligation under the
lease to the date of this amendment.
2.12 No other Modifications. The lease has not been modified except
under this amendment, and as modified by this amendment remains effective.
KITTY HAWK AIRCARGO, INC.
BY: /s/ TILMON J. REEVES
--------------------------
Tilmon J. Reeves
President
TING HONG OCEANIC ENTERPRISE CO., LTD.
BY: /s/ TE-SHENG LEE
------------------------- for
Jan Goang Fei
President
<PAGE> 1
EXHIBIT 10.17
4/19/96 rev
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AIRCRAFT
OPERATING LEASE
- --------------------------------------------------------------------------------
1.0 DATE AND PARTIES
This aircraft operating lease (this "Agreement"), which is made as of
April 19, 1996, is between KITTY HAWK AIRCARGO, INC. ("Kitty Hawk"), a Texas
corporation, and PACIFIC EAST ASIA CARGO AIRLINES, INC. ("PEAC"), a Philippines
corporation.
2.0 RECITATIONS
2.1 KITTY HAWK. Kitty Hawk holds a U.S. FAA Part 121 air-carrier
certificate and related U.S. DOT authority under which it operates cargo
aircraft in lease service.
2.2 PEAC. PEAC is a Philippine airline providing "on time" air
cargo services to customers on schedules and routes between Manila, Jakarta,
Singapore and other Approved Flight Destinations.
2.3 PURPOSE. PEAC wishes to wet lease a cargo aircraft, and Kitty
Hawk agrees to wet lease a cargo aircraft to PEAC, under the terms of this
Agreement.
3.0 DEFINITIONS AND USAGE
3.1 PRIMARY DEFINED TERMS. When used herein and capitalized, unless
the context clearly indicates otherwise, these terms shall have these special
meanings:
AIRCRAFT: the Initial Aircraft identified in Paragraph 4.2(A), any
Upgraded Aircraft under Paragraph 4.2(C), and any Substitute Aircraft
under Paragraph 4.2(D) or 4.4, while any of them is operated hereunder.
APPROVED FLIGHT DESTINATIONS: the airfields listed in Exhibit C, which
may be amended from time to time under Paragraph 4.3(E).
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APPROVED MAINTENANCE PROGRAM: Kitty Hawk's FAA-approved maintenance
program for the maintenance of Boeing 727 aircraft.
APPROVED OPERATIONS SPECIFICATIONS: Kitty Hawk's FAA-approved
operation specifications for Boeing 727 aircraft.
ATO: the Philippine Air Transportation Office, and any successor to any
of its functions.
BASIC RENT: minimum monthly rent payable by PEAC under Paragraph 4.10.
BLOCK HOUR: each whole or partial hour elapsing from the moment the
chocks are removed from the wheels of the Aircraft for Flights until the
chocks are next again returned to the wheels of the Aircraft;
accumulated to two decimal places throughout each calendar month.
CAB: the Philippine Civil Aeronautics Board, and any successor to any
of its functions.
COMMENCEMENT DATE: the day the Initial Aircraft first departs Kitty
Hawk's DFW Facility for the Manila Airport. The parties anticipate that
the Commencement Date will be on or about April 26, 1996.
CONVENTION: the Warsaw Convention for the Unification of Certain Rules
Relating to International Carriage by Air, signed at Warsaw on October
12, 1929, or that convention as amended by the Hague Convention on
September 28, 1955, and the Guadalajara Convention on September 18,
1961, whichever may be applicable.
DFW FACILITY: Kitty Hawk's hangar at DFW Airport, Dallas, Texas.
DOT: the U.S. Department of Transportation, and any successor to any of
its functions.
FAA: the U.S. Federal Aviation Administration, and any successor to any
of its functions.
FEASI: Federal Express Aviation Services, Inc.
FLIGHT: a flight of the Aircraft during the Lease Term (i) to initially
position the Initial Aircraft from the DFW facility to the Manila
Airport, (ii) in connection with maintenance of the Aircraft as required
or reasonably necessary under the Approved Maintenance Program or
Approved Operations Specifications, (iii) under the Operating
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Schedule, or (iv) for a Special Charter Flight; but the term "Flight"
does not include any positioning flight of any Upgraded or Substitute
Aircraft, and does not include any repositioning flight of any Aircraft
to the DFW Facility.
FLYING PERSONNEL: Kitty Hawk's flight crews while assigned to the
operation of the Aircraft.
IATA: the International Air Transport Association.
LEASE TERM: the period beginning on the Commencement Date and ending on
the Termination Date.
MAINTENANCE PERSONNEL: Kitty Hawk's maintenance personnel.
MANILA AIRPORT: Manila Naia Airport, Philippines.
OPERATING SCHEDULE: the schedule of repetitive Flights to be performed
by the Aircraft, as set forth in Exhibit B, which may be amended from
time to time under Paragraph 4.3(D), on routes between Jakarta,
Singapore, Manila, and other Approved Flight Destinations.
PEAC ACOC: the PEAC Aircraft Carrier Operating Certificate issued by the
ATO.
PHILIPPINES: the Republic of the Philippines.
RENT: Basic Rent and Supplemental Rent.
SPECIAL CHARTER FLIGHT: a Flight to be performed by the Aircraft under
Paragraph 4.3(F).
SUPPLEMENTAL RENT: any additional monthly rent payable by PEAC under
Paragraph 4.10.
TERMINATION DATE: midnight GMT on the second anniversary of the
Commencement Date, or the earlier date on which this Agreement is
terminated under Paragraph 4.4, 4.7(D), 4.18 or 4.19.
TOTAL LOSS: any of the following events with respect to the Aircraft:
(i) actual, constructive, compromised, agreed or arranged total loss
or destruction of the Aircraft; or damage to the Aircraft
rendering repair impracticable or uneconomical, or rendering the
Aircraft permanently unfit for normal use for any reason;
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(ii) requisition of title to or use of, or other compulsory
acquisition, requisition, capture, seizure, deprivation,
confiscation, detention or prohibition of use of the Aircraft
for any reason by any government, aeronautical authority, or
competent authority, whether de jure or de facto; or
(iii) hijacking, theft, disappearance, condemnation, confiscation or
seizure of the Aircraft other than in circumstances referred to
in the preceding clause (ii) which deprives PEAC of use of the
Aircraft form more than two consecutive days.
U.S.: the United States of America.
3.2 OTHER DEFINED TERMS. Other terms are defined elsewhere herein,
with the defined term appearing in quotation marks within parentheses
immediately following the defining term or phrase. When used in this Agreement,
unless the context clearly indicates otherwise, those defined terms shall have
those limited meanings.
3.3 USAGE. Defined terms may be used in the singular or plural. The
words "hereof," "herein," "hereby," and "hereunder" always refer to this
Agreement as a whole, and never to a particular provision. Unless otherwise
clearly indicated, paragraph ("Paragraph") references are to paragraphs hereof.
4.0 COVENANTS, REPRESENTATIONS AND WARRANTIES
4.1 AGREEMENT TO LEASE. For the Lease Term and under the terms of
this Agreement, Kitty Hawk agrees to wet lease the Aircraft to PEAC, and PEAC
agrees to take the Aircraft on wet lease.
4.2 THE AIRCRAFT.
A. The Aircraft described in Exhibit A (the "Initial Aircraft"),
bears manufacturer's serial number 19484 and U.S. registration
no. N6809, and is a Stage II aircraft powered by three Pratt &
Whitney JT8D-9A engines.
B. Kitty Hawk represents and warrants to PEAC that (i) Exhibit A
accurately describes the Initial Aircraft, which is currently on
Kitty Hawk's Approved Operations Specifications, (ii) the
Initial Aircraft is under U.S. registration, has an FAA
airworthiness certificate, and has all required U.S.
governmental authority to carry general cargo for hire in the
U.S., and (iii) to the best of
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Kitty Hawk's knowledge the Initial Aircraft is airworthy and
has been maintained in all material respects in conformity with
the Approved Maintenance Program and FAA requirements. Kitty
Hawk further represents, warrants and promises that subparts
(ii) and (iii) of the preceding sentence will be true as to any
Upgraded or Substitute Aircraft; that subpart (ii) will at all
times remain true as to the Aircraft throughout the Lease Term;
and that Kitty Hawk will maintain the Aircraft so that subpart
(iii) will at all times remain true as to the Aircraft
throughout the Lease Term. KITTY HAWK MAKES NO OTHER
REPRESENTATION OR WARRANTY THAT ANY AIRCRAFT IS OR WILL BE IN
ANY RESPECT SUITABLE FOR THE PURPOSES OF THIS AGREEMENT.
C. By giving to Kitty Hawk an upgrade notice no later than
September 30, 1996, and selecting one of the following engine
and hushkit configurations, PEAC may elect once to upgrade the
Aircraft to a Boeing 727-200 Stage III aircraft, equipped with
either (i) Pratt & Whitney JT8D-9 engines and a FEASI
lightweight hushkit, or (ii) Pratt & Whitney JT8D-15 engines and
a FEASI heavyweight hushkit. If PEAC so elects to upgrade the
Aircraft, Kitty Hawk must no later than six months after
receiving PEAC's election notice substitute the appropriate
upgraded aircraft (an "Upgraded Aircraft") as the Aircraft
hereunder, without the substitution disrupting, delaying or
canceling any Flight under the Operating Schedule or any Special
Charter Flight that Kitty Hawk has consented to operate. If PEAC
does not give such an upgrade notice before October 1, 1996, it
may do so later, but only if with Kitty Hawk's consent, which
Kitty Hawk may withhold, or condition on increase in Basic or
Supplemental Rent, delayed substitution of the Upgraded
Aircraft, or extension of the Lease Term, if in Kitty Hawk's
reasonable opinion (i) the cost, expense or difficulty of the
delayed substitution of the Upgraded Aircraft would be
materially greater than in the case of a timely notice, (ii) the
remaining Lease Term would be insufficient to assure Kitty Hawk
reasonable economic return for the dedication of increased
capital investment required to supply the Upgraded Aircraft, or
(iii) the delayed substitution of the Upgraded Aircraft would
otherwise materially increase Kitty Hawk's cost of difficulty of
performing hereunder.
D. From time to time, for maintenance, operating or other reasons,
Kitty Hawk may, with PEAC's prior written consent, which PEAC
must not withhold unreasonably, substitute another aircraft (a
"Substitute Aircraft") of the same model,
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configuration, registration and certification, and of equivalent
capability, in place of the Aircraft for which the substitution
is made. Kitty Hawk shall not permit such a substitution to
disrupt, delay or cancel any Flight under the Operating Schedule
or any Special Charter Flight that Kitty Hawk has consented to
operate. A Substitute Aircraft in temporary use to enable
necessary and prompt maintenance of the Aircraft for which the
substitution is made need not be in PEAC livery. PEAC shall have
no obligation to pay Rent or Supplemental rent for any Block
Hours operated for substitution of Aircraft under this Paragraph
4.2(D), or to pay or reimburse any costs or expenses, including
without limitation costs described in Paragraph 4.11, that are
incurred by Kitty Hawk in connection with the substitution.
E. Without relying upon any representation by Kitty Hawk except
those in Paragraph 4.2(B), PEAC has determined that a Boeing
727-200 as described in Paragraph 4.2(A) is suitable to perform
the Operating Schedule set out in Exhibit B.
4.3 OPERATIONS.
A. On the Commencement Date, which must be no later than 30 days
after Kitty Hawk receives PEAC's Security Deposit under
Paragraph 4.10(G), Kitty Hawk must cause the Initial Aircraft to
depart the DFW Facility for the Manila Airport, by the shortest
reasonable routing, and must promptly after the Commencement
Date position the Initial Aircraft to the Manila Airport in
PEAC's livery, and be prepared to begin operations under the
Operating Schedule.
B. Throughout the Lease Term Kitty Hawk shall:
1. cause sufficient numbers of properly trained, certified,
and licensed Flying Personnel (with valid air-transport
pilot's licenses and appropriate type endorsements),
being at least three flight crews, each including a
captain, a first officer, and a flight engineer, to be
stationed at Manila and elsewhere as required to operate
the Aircraft so as to perform the Operating Schedule;
2. periodically and upon PEAC's request, report to PEAC all
Flying Personnel staffing arrangements and plans; and
give PEAC reasonable prior notice of any addition or
substitution of Flying Personnel so as to give PEAC a
reasonable opportunity to obtain all necessary permits,
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visas and other authorizations necessary for such
addition or substitution;
3. arrange for the proper management, administration, and
performance of maintenance of the Aircraft as may be
reasonably required to enable the Aircraft to perform
the Operating Schedule, by (i) contracting for
commercial maintenance services, sufficient numbers of
dedicated maintenance personnel, and adequate lockable
parts-storage and office facilities to be provided for
the Aircraft at Jakarta by KFS Aviation, Inc., or other
reputable and competent maintenance organizations, (ii)
establishing and maintaining at Jakarta, and elsewhere
if reasonably necessary, a sufficient supply of
appropriate spare parts as may be reasonably required to
enable the Aircraft to perform the Operating Schedule
(and reporting to PEAC before the Commencement Date and
periodically upon PEAC's reasonable request thereafter,
the principal spare parts in that spare parts supply),
and (iii) causing sufficient numbers of properly
trained, certified, and licensed Maintenance Personnel
to be stationed at Jakarta and elsewhere;
4. periodically and upon PEAC's request, report to PEAC
all contract maintenance arrangements and Maintenance
Personnel staffing arrangements and plans; and give PEAC
reasonable prior notice of any addition or substitution
of Maintenance Personnel, so as to give PEAC a
reasonable opportunity to obtain all necessary permits,
visas and other authorizations necessary for such
addition or substitution;
5. maintain the Aircraft in accordance with the Approved
Maintenance Program, the Approved Operations
Specifications, all FAA and manufacturers' directives,
and all other laws, rules, regulations, airworthiness
directives and orders of U.S. or other governmental
authorities having jurisdiction, including performance
of transit, service and maintenance checks that may be
required from time to time (and give to PEAC reasonable
advance notice of at least 30 days before scheduled "B"
and "C" checks, and give to PEAC as much advance notice
as is practicable in the case of any aircraft
substitution arrangements necessitated by those checks
or by any
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unanticipated maintenance required as a result of
those checks);
6. operate the Aircraft in accordance with the Approved
Maintenance Program, the Approved Operations
Specifications, all FAA and manufacturers'
directives, and all other laws, rules, regulations,
airworthiness directives and orders of U.S. or
other governmental authorities having jurisdiction,
with qualified and properly-certificated, and
properly-attired Flying Personnel, complying with
all flight-time limitations imposed on Kitty Hawk's
Flying Personnel by U.S. or other governmental
authority;
7. keep the Aircraft clean internally and externally in
accordance with internationally-accepted airline
standards;
8. provide to PEAC all aircraft-related documentation
necessary for the operation of the Aircraft, including
a copy of Kitty Hawk's operator's certifications, as
amended from time to time;
9. no later than five days after the end of each month
during the Lease Term, deliver to PEAC copies of
flight logs and such other certifications and data as
are reasonably required for the timely calculation of
Block Hours and for the timely payment of any
Supplemental Rent;
10. provide all required initial and ongoing recurrent
training of Flying and Maintenance Personnel; and
provide and be responsible for all costs and expenses
of third-party training and examiners, and of any
required simulator and related Aircraft flying time
solely for such training;
11. exert its best efforts to cause Flying and Maintenance
Personnel to comply fully with all requirements of ATO
and other non-U.S. authorities with respect to training,
licensing, certification, and dress requirements
applicable to the operations of the Aircraft;
12. exert its best efforts consistent with sound and
efficient operating practice, while performing the
Operating
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Schedule, to minimize flight and ground times of the
Aircraft;
13. exert its best efforts to overcome any operational or
technical problems and otherwise exert its best efforts
to cause the Aircraft to perform (i) all Flights under
and in accordance with the Operating Schedule, and (ii)
all Special Charter Flights that Kitty Hawk has
consented to operate; and
14. exert its reasonable good-faith efforts to conduct its
operations hereunder and to cause its Flying and
Maintenance Personnel at all times to conduct themselves
hereunder in accordance with generally-accepted norms of
competent, professional air-carrier conduct.
C. During the Lease Term, Kitty Hawk must only operate the Aircraft
on Flights hereunder.
D. PEAC may from time to time amend the Operating Schedule by
changing repetitive scheduled Flights, subject to Kitty Hawk's
consent which it must not withhold unreasonably if the amendment
does not materially increase Kitty Hawk's costs or difficulty of
performance hereunder. PEAC must give to Kitty Hawk notice of
any amendment to the Operating Schedule no later than 48 hours
before each change in a required movement of the Aircraft; but
Kitty Hawk acknowledges that special circumstances may make the
required advance notice of amendment to the Operating Schedule
impracticable, and in case of such circumstances, shall exert
its reasonable efforts to accommodate requests on shorter
notice. All Flights under the Operating Schedule must be within
commercially-reasonable performance capabilities of the
Aircraft, to and from Approved Flight Destinations, and on
routes for which PEAC holds all relevant non-U.S. route licenses
and other governmental authorizations. PEAC may not require
changes to the Operating Schedule that would necessitate a
temporary increase in the number of Flying Personnel assigned to
the Aircraft.
E. PEAC may from time to time add airfields to the Approved Flight
Destinations by giving Kitty Hawk no less than 10 business days'
advance written notice, but only if the FAA accepts the added
airfields by endorsing the Approved Operations Specifications,
and (ii) the added airfields will not materially increase Kitty
Hawk's costs or difficulty of performance
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hereunder. Kitty Hawk acknowledges that special circumstances
may make the required advance notice of addition of Approved
Flight Destinations impracticable, and in case of such
circumstances, shall exert its reasonable efforts to accommodate
requests for addition of Approved Flight Destinations on shorter
notice.
F. PEAC may from time to time request that the Aircraft operate a
Special Charter Flight, subject to Kitty Hawk's consent which
it must not withhold unreasonably if performing the Special
Charter Flight does not materially increase Kitty Hawks' costs
or difficulty of performing hereunder. To request a Special
Charter Flight, PEAC should give Kitty Hawk at least seven days
advance notice to enable Kitty Hawk to make the necessary Flying
Personnel and maintenance arrangements and to request any
required endorsement of Special Charter Flight destinations on
its Approved Operations Specifications; but Kitty Hawk
acknowledges that special circumstances may make such advance
notice impracticable, and in case of such circumstances, shall
exert its reasonable efforts to accommodate requests for Special
Charter Flights on shorter notice. All Special Charter Flights
must be within commercially-reasonable performance capabilities
of the Aircraft, to and from Approved Flight Destinations or
other destinations that can be timely endorsed on the Approved
Operations Specifications without material expense to Kitty
Hawk, and on routes for which PEAC holds all relevant non-U.S.
route licenses and other governmental authorizations. PEAC may
not require Special Charter Flights that would necessitate a
temporary increase in the number of Flying Personnel assigned to
the Aircraft.
G. Notwithstanding that Kitty Hawk and the Flying Personnel will
perform all Flights at the request and on behalf of PEAC, that
the Aircraft will be endorsed on the PEAC ACOC, and that the
operation of the Flights will be monitored by the ATO; the
parties acknowledge and agree that the Aircraft and its
operations will at all times be under the direction and control
of Kitty Hawk and of the captain of the flight crew of Flying
Personnel then in charge of the Aircraft. The captain of that
flight crew will have complete discretion concerning (i) the
load carried, including the amount of cargo and its
distribution, (ii) whether or not a Flight should be undertaken,
(iii) when and where landings should be made, and (iv) all other
matters relating to the operation of the Aircraft; and PEAC
shall accept
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all such decisions of the captain of the flight crew of Flying
Personnel then in charge of the Aircraft as final and binding.
H. On all Flights under the Operating Schedule and on all Special
Charter Flights, Kitty Hawk must carry only cargo tendered by
PEAC, and must operate the Aircraft in PEAC's livery (except in
the case of a temporary Substitute Aircraft as provided under
Paragraph 4.2(D)), with flight crew uniformed as reasonably
required by PEAC.
I. Kitty Hawk must not, and must not be required to, operate the
Aircraft in any way that violates (i) any U.S. law, rule or
regulation, (ii) any law, rule or regulation of any other
country having jurisdiction over the Aircraft, (iii) the
Approved Operations Specification, (iv) the Approved
Maintenance Program, (v) standard aircraft hull insurance
operating limits or conditions, (vi) the dictates of good
operating practice, or (vii) the terms and conditions of this
Agreement.
4.4 TOTAL LOSS OF AIRCRAFT. If during the Lease Term the Aircraft
suffers a Total Loss, Kitty Hawk must endeavor as soon as possible to replace
the Aircraft with a Substitute Aircraft of the same model, configuration,
registration and certification, and of equivalent capability, in place of the
Aircraft for which the substitution is made, without charge to PEAC for Block
Hours flown in the substitution, or any obligation of PEAC for other costs or
expenses incurred in the substitution. If Kitty Hawk is unable so to replace the
Aircraft with a Substitute Aircraft within 30 days after the occurrence of the
Total Loss, this Agreement shall terminate without further liability of either
party except as to rights and obligations accrued to such termination, and
except that Kitty Hawk shall promptly return to PEAC any Rent prepaid to Kitty
Hawk for any period following the occurrence of the Total Loss and any
unreturned Earnest Money and Security Deposits that exceed PEAC's obligations to
Kitty Hawk accrued to such termination.
4.5 U. S. AUTHORIZATIONS. Kitty Hawk represents and warrants to
PEAC that it holds, and promises that it shall maintain in effect throughout the
Lease Term, at Kitty Hawk's sole expense, (i) an FAA Part 121 air carrier
certificate and all required DOT authority to carry general cargo for hire in
the U.S., and (ii) all U.S. governmental authorizations required for Kitty
Hawk to operate the Aircraft hereunder.
4.6 NON-U.S. OPERATING AUTHORIZATIONS. PEAC represents, warrants
and promises to Kitty Hawk that PEAC holds or shall obtain, and shall maintain
in effect throughout the Lease Term, at PEAC's sole expense, all authorizations
and traffic rights by the CAB and other relevant non-U.S. civil
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aviation authorities required to enable Kitty Hawk's operation of the Aircraft
on Flights without change of registration, so long as Kitty Hawk maintains and
operates the Aircraft in accordance with the Approved Maintenance Program, the
Approved Operations Specifications, and all other FAA and DOT requirements, but
Kitty Hawk shall timely submit at no material cost to Kitty Hawk such
applications and documentation as are requested by PEAC for such purposes. PEAC
shall timely obtain all visas and work permits required by Flying Personnel and
Maintenance Personnel for services hereunder, but Kitty Hawk shall timely
submit to PEAC such applications and documentation as are requested by PEAC for
such purposes, and Kitty Hawk shall promptly reimburse to PEAC on request all
governmental fees or charges for such visas and work permits.
4.7 ON-TIME PERFORMANCE.
A. Kitty Hawk shall exert its best efforts to perform all Flights
under the Operating Schedule to arrive at each scheduled
destination no later than 12 minutes after the scheduled
arrival time.
B. For purposes of determining whether Kitty Hawk has met the on-
time-arrival standard of Paragraph 4.7(A), Kitty Hawk will be
responsible, except as provided in Paragraph 4.7(C), for:
1. any arrival delay of more than 12 minutes from any
scheduled arrival under the Operating Schedule,
caused by Aircraft maintenance failure, by tardiness
or unavailability of required Flying Personnel, or by
any other operational matter within Kitty Hawk's
control; and
2. any cancellation of a Flight under the Operating
Schedule, caused by Aircraft maintenance failure,
by tardiness or unavailability of required Flying
Personnel, or by any other operational matter within
Kitty Hawk's control, which cancellation of a Flight
will be deemed an arrival delay of more than 12
minutes from schedule at the scheduled destination
of that canceled flight.
C. For purposes of determining whether Kitty Hawk has met the
on-time-arrival standard of Paragraph 4.7(A), Kitty Hawk
will not be responsible for any arrival delay or any
cancellation of a Flight caused by:
1. weather conditions being below operating minimums at
departure, destination or alternate airport;
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2. any other weather conditions, unless the aircraft could
have flown in such conditions in the absence of a
maintenance failure;
3. departure delays attributable to completion of
positioning of cargo on the aircraft less than 15
minutes prior to scheduled departure, or to inaccuracy
of weight or deficiency in documentation or packaging of
cargo;
4. departure delays attributable to fueling delays beyond
Kitty Hawk's reasonable control;
5. air-traffic control or other governmental delays;
6. damage to the Aircraft by PEAC or its agents, by loading
or unloading personnel, or by ground equipment; or
7. acts of God, fire, flood, strike, labor dispute, riot,
insurrection, war, or any other cause beyond Kitty
Hawk's reasonable control.
D. If the Aircraft fails in any calendar month during the Lease
Term to achieve a minimum level of 95% on-time arrival under the
standards of Paragraphs 4.7(A), (B) and (C), PEAC may terminate
the Agreement by giving 30 days' advance notice to Kitty Hawk,
but only if PEAC gives such notice no later than 30 days after
the end of the month of performance failure.
4.8 OTHER KITTY HAWK PERFORMANCE.
A. Kitty Hawk shall during the Lease Term:
1. exert its best efforts to make available to PEAC general
information relating to engineering or commercial
matters that becomes known to Kitty Hawk and that may
assist PEAC in the conduct of its business;
2. give immediate notice to PEAC on becoming aware of the
details and circumstances of any action or anticipated
action by the FAA, ATO, or any other person or entity,
concerning alleged or actual violations or noncompliance
with any law, rule or regulation, which may prejudice
the continued operation of the Aircraft hereunder;
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3. give prompt notice to PEAC upon becoming aware of any
labor dispute that affects or may affect Kitty Hawk's
performance hereunder.
B. Kitty Hawk shall be responsible for repositioning the Aircraft
to a destination of its choosing promptly after the Termination
Date and for all costs and expenses of that repositioning.
Moreover, Kitty Hawk shall promptly after the Termination Date
remove PEAC's livery from the Aircraft, at Kitty Hawk's sole
cost and expense.
4.9 CHARACTER, PACKAGING, DOCUMENTATION OF CARGO; CARGO LOSS
LIMITATIONS.
A. PEAC shall only tender to Kitty Hawk cargo that can be
transported lawfully.
B. PEAC shall cause all cargo to be prepared, packed, and loaded so
as to endure safe transportation by proper handling in
accordance with IATA regulations for the cargo concerned
(including dangerous goods). Kitty Hawk shall have no
responsibility for packaging or repackaging cargo. PEAC shall
provide all necessary or appropriate shipping documentation, and
shall provide Kitty Hawk timely and accurate weights on all
cargo tendered.
C. Kitty Hawk may reject any cargo that in the reasonable opinion
of the Flying Personnel then in charge of the Aircraft is
improperly loaded or in condition such that it could damage the
Aircraft. However, such right of rejection is not intended or to
be construed to relieve PEAC of any obligation properly to
inspect, prepare, protect, pack, mark and document items for
shipment, or to impose any liability or obligation upon Kitty
Hawk.
D. PEAC intends to use the Aircraft to carry its customers'
general-cargo air freight. Loss or damage to such cargo can
result from many unrelated causes, including delayed or
incorrect handling, storage, packaging, loading, unloading, and
ultimate delivery. KITTY HAWK SHALL NOT BE LIABLE FOR LOSS OF,
DAMAGE TO, OR DELAY IN TRANSPORTATION OF ANY CARGO HEREUNDER,
WHETHER ARISING IN CONTRACT OR IN TORT OR HOWEVER CAUSED, (I)
EXCEPT AS REQUIRED BY THE CONVENTION OR OTHER APPLICABLE LAW,
AND (II) EXCEPT FOR ANY SUCH CLAIM
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BLACKED-OUT TEXT OMITTED AND
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
RESULTING (A) FROM WILLFUL MISCONDUCT OF KITTY HAWK OR ITS
FLYING OR MAINTENANCE PERSONNEL, OR (B) FROM THEIR ACTIONS DONE
WITH INTENT TO CAUSE DAMAGE, OR DONE RECKLESSLY AND WITH
KNOWLEDGE THAT DAMAGE WILL PROBABLY RESULT. PEAC SHALL INDEMNIFY
KITTY HAWK AND HOLD IT HARMLESS AGAINST LIABILITY, LOSS AND COST
OF DEFENSE UPON ALL CLAIMS FOR WHICH KITTY HAWK HAS NO LIABILITY
UNDER THE PRECEDING SENTENCE.
4.10 RENTAL PAYMENTS.
A. PEAC shall pay to Kitty Hawk for use of the Aircraft hereunder
(i) minimum monthly rent ("Basic Rent") of [BLACKOUT] per
calendar month during the Lease Term, plus (ii) additional
monthly rent ("Supplemental Rent") of [BLACKOUT] per Block Hour
for each Block Hour, if any, in excess of 212 Block Hours in
each calendar month during the Lease Term. For any partial
calendar month, these items shall be prorated per diem: (i)
Basic Rent and (ii) the 212 monthly Block Hours before
Supplemental Rent is due.
B. If PEAC exercises its option under Paragraph 4.2(C) to upgrade
the Aircraft, PEAC shall after substitution of the Upgraded
Aircraft pay to Kitty Hawk for use of the Aircraft hereunder:
1. if the PEAC elects an Upgraded Aircraft equipped with
JT8D-9 engines and a lightweight hushkit, (i) Basic Rent
of [BLACKOUT] per calendar month during the remaining
Lease Term plus (ii) Supplemental Rent of [BLACKOUT] per
Block Hour in excess of 212 Block Hours in each full
calendar month during the remaining Lease Term; and
2. if the PEAC elects an Upgraded Aircraft equipped with
JT8D-15 engines and a heavyweight hushkit, (i) Basic
Rent of [BLACKOUT] per calendar month during the
remaining Lease Term plus (ii) Supplemental Rent of
[BLACKOUT] per Block Hour in excess of 212 Block Hours
in each full calendar month during the remaining Lease
Term.
C. For any calendar month that is partly but not entirely within
the Lease Term, both (i) Basic Rent and (ii) the 212 monthly
Block Hours before Supplemental Rent is due, shall be reduced so
as to be in the ratio that (a) the number of days in that
calendar month that are within the Lease Term bears to (b) the
number of days in that calendar month.
Aircraft Operating Lease Page 15
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BLACKED-OUT TEXT OMITTED AND
SEPARATELY FILED WITH THE
SECURITIES AND EXCHANGE
COMMISSION
D. If (i) any Flight under the Operating Schedule is canceled
because of unavailability of the Aircraft caused by maintenance
failure of any type, by Flying Personnel failure of any kind, or
by any other operational matter within Kitty Hawk's control that
is not described in Paragraph 4.7(C), and if (ii) the unflown
Block Hours for that Flight would have been within the Block
Hours covered by Basic Rent; then the Basic Rent for the month
in which the Flight was canceled will be reduced by the amount
of Basic Rent allocable to the unflown Block Hours, and Kitty
Hawk shall promptly reimburse to PEAC any Basic Rent for those
unflown Block Hours that PEAC had prepaid.
E. If PEAC exercises its option under Paragraph 4.2(C) to upgrade
the Aircraft, hours of operation of the replaced aircraft
incurred in repositioning the replaced aircraft to the DFW
Facility, and hours or operation of the aircraft being
substituted incurred in positioning that aircraft to begin
service as the Aircraft hereunder will not be Block Hours for
which Basic or Supplemental Rent is payable, but PEAC will be
obligated under Paragraph 4.11(C) to reimburse certain expenses
incurred by Kitty Hawk in repositioning the replaced aircraft
and in positioning the Substitute Aircraft.
F. PEAC has delivered to Kitty Hawk a [BLACKOUT] earnest money
deposit (the "Earnest Money Deposit") under the preliminary
letter agreement between Kitty Hawk and PEAC dated March 6, 1996
(the "Preliminary Letter Agreement"), which Kitty Hawk may apply
to costs to change the livery of the Initial Aircraft and to any
other agreed costs to be reimbursed by PEAC that are incurred by
Kitty Hawk before the Commencement Date. Kitty Hawk must no
later than 30 days after the Commencement Date (1) account to
PEAC for all expenditures charged against the Earnest Money
Deposit, and (2) return the unused balance of the Earnest Money
Deposit to PEAC, without interest.
G. Promptly after execution and delivery of this agreement and
before the Commencement Date, PEAC shall pay to Kitty Hawk a
[BLACKOUT] deposit (the "Security Deposit"). At the end of the
Lease Term, when PEAC has fully complied with its payment and
indemnity obligations under the Agreement, Kitty Hawk shall
promptly reimburse the Security Deposit to PEAC, with interest
compounded annually at the rate of 5% per annum for the period
Kitty Hawk holds the Security Deposit.
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H. Before the Commencement Date, PEAC shall pay in advance to Kitty
Hawk the prorated Basic Rent for the Initial Aircraft for the
period beginning with the Commencement Date and ending April 30,
1996.
I. For each calendar month beginning with May 1996 and thereafter
during the term hereof, PEAC shall pay to Kitty Hawk no later
than 10 days after the end of such month (i) the Basic Rent and
Supplemental Rent, if any, for such month, and (ii) any other
amount payable by PEAC to Kitty Hawk under Paragraph 4.11.
J. The Security Deposit and all Rent and other amounts payable by
PEAC to Kitty Hawk hereunder shall be by wire transfer to Kitty
Hawk's account, as follows:
Bank One, Texas, N.A.
Dallas, Texas, U.S.A.
ABA number: 111000614
Account of: Kitty Hawk Aircargo, Inc. - Operating Account
Account number: 0100128206
4.11 PEAC'S RESPONSIBILITIES AND PAYMENTS IN ADDITION TO RENT
A. PEAC shall be responsible for arranging for provision of, and
timely paying all costs and expenses incurred in connection with
Flights for:
1. fuel for the Aircraft;
2. aircraft navigation, approach and departure, landing
and parking permissions;
3. aircraft overflight rights and other required rights
and permissions (except for U.S.);
4. Aircraft ground handling; and
5. cargo handling, containers, and loading and unloading
expenses.
B. PEAC shall be responsible for timely paying all costs and
expenses incurred in connection with Flights (excluding
maintenance Flights) for:
Aircraft Operating Lease Page 17
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4/19/96 rev
1. aircraft inflight communications fees, and all other
communication costs reasonably incurred in connection
with the operation of the Aircraft hereunder;
2. customs and immigration fees or charges;
3. any excise or sales taxes imposed by any government,
except any U.S. state or federal government, upon rent
payments hereunder;
4. ground transportation for Flying Personnel from
accommodation to the Manila Airport and return, and
hotel accommodations and related and necessary ground
transportation for Flying Personnel while away from the
Manila Airport in operations hereunder;
5. standard PEAC Aircraft catering;
6. a contribution toward crew-accommodation costs, payable
to Kitty Hawk, in the amount of $3,000 per 3-person
flight crew of Flying Personnel per month for up to
three flight crews, and a reasonable addition
contribution toward crew-accommodation costs, not to
exceed $1,000 per person, for any additional Flying
Personnel reasonably required from time to time to
perform the Operating Schedule.
7. a lockable and secure parts-storage and office facility
at the Manila Airport;
8. painting the Initial Aircraft in PEAC's livery before
the Commencement Date (to be charged against the Earnest
Money Deposit); and
9. if PEAC exercises its option under Paragraph 4.2(C) to
upgrade the Aircraft, painting the Upgraded Aircraft in
PEAC's livery before its substitution.
C. If PEAC exercises its option under Paragraph 4.2(C) to upgrade
the Aircraft, PEAC shall promptly reimburse to Kitty Hawk upon
request Kitty Hawk's actual out-of-pocket expenses incurred in
repositioning the replaced aircraft to the DFW Facility and in
positioning the aircraft to be substituted, by the shortest
reasonable routes (including without limitation fuel and
aircraft
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inflight communications fees), and of repainting the replaced
aircraft to change its livery.
D. PEAC shall not be responsible, liable or obligated in any way to
Kitty Hawk or any of its Flying or Maintenance Personnel for any
taxes of any nature levied by any governmental authority with
respect to employment or compensation of any Flying or
Maintenance Personnel.
4.12 LIENS ATTRIBUTABLE TO PEAC. PEAC shall not permit any lien,
claim or encumbrance to be created or to exist against the Aircraft as a result
of any claim against PEAC or as a result of nonpayment of any cost or expense
that is to be paid by PEAC under Paragraph 4.11.
4.13 KITTY HAWK'S PAYMENTS. Excepting costs and expenses to be paid
by PEAC under Paragraph 4.11; and in addition to Kitty Hawk's payment
obligations expressed elsewhere in this Agreement, Kitty Hawk shall pay all of
its costs and expenses of owning, maintaining and operating the Aircraft;
including without limitation
A. salaries, crew accommodations, and standard employee benefits
for Flying and Maintenance Personnel (including without
limitation gross salaries, per diems, U.S. social security and
medicare withholding and taxes, licenses, license validations,
medical renewals, loss-of-license insurance,
employee-benefit-plan contributions, and other employee
benefits, if any, that are payable from time to time), and
payroll administration and required U.S. withholding for Flying
and Maintenance Personnel;
B. oil, fluid and lubricants for the Aircraft;
C. maintenance, parts and labor for the Aircraft, and all costs of
shop-maintenance visits and positioning and repositioning
operations of the Aircraft for any maintenance reasons
whatsoever;
D. aircraft hull, liability and war risk insurance upon the
Aircraft required under Paragraph 4.14; and
E. U.S. and Texas taxes, if any, attributable to Kitty Hawk's net
income from the Agreement, and its capital and other business
operations.
Aircraft Operating Lease Page 19
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4/19/96 rev
4.14 INSURANCE. Kitty Hawk must maintain in effect with respect to
all Aircraft operations hereunder comprehensive airline liability insurance,
including aircraft third-party, passenger, baggage, contractual, cargo, mail
and airline general third-party liability insurance, including war and allied
perils coverage where available, of at least $200 million combined single limit
coverage, any one occurrence, each aircraft (but products in the aggregate),
which must name PEAC as an additional insured, must waive subrogation and
setoff against PEAC, must provide for severability of interest in all respects
save the limit of liability, must be primary without right of contribution from
any other insurance with respect to PEAC, and must not be cancelable without 30
days' advance written notice (except 7 days' advance written notice for
termination of war and allied perils coverage) to PEAC. Kitty Hawk must within
three business days after the execution of this Agreement deliver to PEAC a
certificate evidencing such insurance, and if requested by PEAC, copies of
insurance policies and endorsements providing such coverage. Kitty Hawk will
also maintain in effect throughout the Lease Term such hull all-risk insurance
covering the Aircraft, and all other aircraft, engines and spare parts involved
in committed to operations hereunder, including war and allied perils coverage
where available, as Kitty Hawk is required to maintain by financing covenant or
regulatory requirement, or as Kitty Hawk in its discretion deems desirable,
except that such hull insurance must waive subrogation against PEAC. If PEAC
makes available to Kitty Hawk lower-cost alternative insurance coverage that is
equivalent or better in all material respects, in Kitty Hawk's reasonable
opinion, than the insurance coverage required or to be maintained by Kitty Hawk
under this paragraph, Kitty Hawk must accept such alternative coverage in lieu
of the insurance coverage required or to be maintained by Kitty Hawk hereunder,
and Basic Rent for the Aircraft shall be adjusted to reflect Kitty Hawk's
monthly premium savings for any period of such alternative coverage.
4.15 EXCLUSION OF WARRANTIES AND LIMITATION OF DAMAGES. Except for
Kitty Hawk's express warranties elsewhere herein, KITTY HAWK WITH PEAC'S
CONSENT DENIES AND EXCLUDES ALL WARRANTIES, EXPRESS AND IMPLIED, STATUTORY AND
OTHERWISE, INCLUDING WITHOUT LIMITATION THAT THE AIRCRAFT IS OR WILL BE FIT FOR
ANY PURPOSE. NEITHER KITTY HAWK NOR PEAC SHALL HAVE ANY RESPONSIBILITY TO THE
OTHER FOR ANY INCIDENTAL, RESULTANT, OR CONSEQUENTIAL DAMAGES OF ANY KIND.
4.16 DENIAL OF AGENCY AND JOINT VENTURE. Kitty Hawk has no agency,
joint venture or partnership relationship with PEAC, and neither this Agreement
nor performance under it shall be deemed or construed to create an agency or
joint venture relationship. Neither Kitty Hawk nor PEAC shall have the right
hereunder to supervise, direct or control any employee of the other in any
manner or for any purpose.
Aircraft Operating Lease Page 20
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4.17 DENIAL OF COMMON CARRIER STATUS. Neither Kitty Hawk nor PEAC is
a common carrier, and neither Kitty Hawk nor PEAC accepts the obligations of a
common carrier.
4.18 KITTY HAWK DEFAULT. If Kitty Hawk fails timely and materially
to comply with any of its obligations hereunder; and if Kitty Hawk fails to
remedy such default within 20 business days after PEAC gives to Kitty Hawk
notice of such default; then PEAC may without prejudice to any claim against
Kitty Hawk terminate this Agreement for cause upon three business days' advance
notice to Kitty Hawk.
4.19 PEAC DEFAULT. If PEAC fails timely to pay any Rent and fails to
remedy such default within five business days after Kitty Hawk gives PEAC
notice of such default, Kitty Hawk may without further notice suspend
operations of the Aircraft hereunder. If PEAC fails timely and materially to
comply with any of its other performance, payment or indemnity obligations
hereunder, and (i) if PEAC fails to remedy such default within 20 business days
after Kitty Hawk gives PEAC notice of such default, and (ii) if GD Express
Worldwide fails to cure such PEAC default within five business days after Kitty
Hawk gives GD Express Worldwide notice of such default in accordance with
Paragraph 5.2, stating (i) that PEAC is in default of its obligations under the
Agreement, (ii) that Kitty Hawk will terminate the term of the Agreement and
seek to enforce its rights under the guaranty given under Paragraph 4.23(A)(2)
if the default is not cured within five business days after the date of the
notice, and (iii) the manner in which the default may be cured; then Kitty Hawk
may without prejudice to any claim against PEAC or under any guaranty given
under Paragraph 4.23(A)(2), terminate this Agreement for cause by notice to
PEAC, permanently cease operations hereunder, and return the Aircraft to the
U.S.
4.20 EARLY TERMINATION OF AGREEMENT. If this Agreement terminates
under Paragraph 4.4, 4.7(D), 4.18 or 4.19, Kitty Hawk shall end operations of
the Aircraft at the termination date, and Kitty Hawk shall promptly return to
PEAC any Rent prepaid to Kitty Hawk for any period after the termination and
any Earnest Money and Security Deposits to the extent that they in the
aggregate exceed PEAC's obligations hereunder to Kitty Hawk accrued but unpaid
to the date of such termination (including without limitation any damages for
any breach by PEAC).
4.21 OTHER REPRESENTATIONS AND WARRANTIES.
A. PEAC represents and warrants to Kitty Hawk that:
1. PEAC is a corporation that has been duly formed and is
in good standing under the laws of the Philippines, and
that
Aircraft Operating Lease Page 21
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4/19/96 rev
it has full authority to execute, deliver and perform
its obligations hereunder.
2. PEAC's execution, delivery and performance hereunder
have been duly authorized by all requisite actions, and
this Agreement, including without limitation the
arbitration provisions of Paragraph 5.4, is enforceable
against PEAC in accordance with its terms.
B. Kitty Hawk represents and warrants to PEAC that:
1. Kitty Hawk is a corporation that has been duly formed
and is in good standing under the laws of Texas, and
that it has full authority to execute, deliver and
perform its obligations hereunder.
2. Kitty Hawk's execution, delivery and performance
hereunder have been duly authorized by all requisite
action, and this Agreement, including without limitation
the arbitration provisions of Paragraph 5.4, is
enforceable against Kitty Hawk in accordance with its
terms.
4.22 INDEMNITIES.
A. Kitty Hawk shall indemnify PEAC and hold it harmless from and
against liability, loss and cost of defense attributable to:
1. breach by Kitty Hawk of any of its representations and
warranties in this Agreement, including without
limitation any of its representations, warranties and
covenants under Paragraphs 4.2(B) and 4.5; or
2. any claim that is the responsibility of Kitty Hawk
under Paragraph 4.13.
B. PEAC shall indemnify Kitty Hawk and hold it harmless from and
against liability, loss and cost of defense attributable to:
1. breach by PEAC of any of its representations and
warranties in this Agreement, including without
limitation its representation, warranty and covenant
under Paragraph 4.6;
2. any claim that is the responsibility of PEAC under
Paragraph 4.11; or
Aircraft Operating Lease Page 22
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4/19/96 rev
3. breach by PEAC of any of its obligations under Paragraph
4.11.
4.23 OPINION OF COUNSEL; ASSURANCE OF PEAC PERFORMANCE.
A. PEAC shall no later than three business days before the
Commencement Date deliver to Kitty Hawk:
1. an opinion of counsel, in form and substance reasonably
acceptable to Kitty Hawk, expressing favorable opinions
as to the matters warranted by PEAC under Paragraph
4.21(A); and
2. a guaranty by GD Express Worldwide N.V. ("GD Express
Worldwide"), or another entity acceptable to Kitty Hawk,
subject to enforcement by arbitration under the terms of
Paragraph 5.4, and otherwise in form and substance
reasonably acceptable to Kitty Hawk, guaranteeing the
performance, payment and collection of all of PEAC's
obligations hereunder, including without limitation its
payment obligations under Paragraphs 4.10 and 4.11 and
its indemnity obligations under Paragraph 4.22(B);
which guaranty may provide that the guarantor may
terminate the guaranty only as to obligations incurred
by PEAC after termination of the guaranty (and without
diminishing the enforceability of the guaranty as to
PEAC obligations incurred before the termination of the
guaranty), if:
(a) PEAC (or GD Express Worldwide, as PEAC's
attorney-in-fact for such purposes, as provided
in Paragraph 5.3(K)(1)) by notice to Kitty Hawk
requests an assignment of the Agreement that
complies with Paragraph 5.3(K)(1), so that
Kitty Hawk's withholding its consent to the
assignment would be unreasonable; and
(i) Kitty Hawk fails timely to grant its
consent to that requested assignment;
and
(ii) Kitty Hawk receives written notice from
the guarantor at least five business
days before the proposed termination of
the guaranty that it will terminate
unless Kitty Hawk grants its consent to
the requested assignment before the
proposed termination; or
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(b) the guarantor tenders a new and substitute
guaranty, otherwise in the form and substance
of, and subject to the requirements of, the
original guaranty, and by a guarantor reasonably
acceptable to Kitty Hawk, guaranteeing the
performance, payment and collection of all of
PEAC's obligations for the remainder of the
Lease Term.
B. If either of the conditions in Paragraph 4.23(A) is not timely
satisfied, Kitty Hawk may terminate this Agreement by notice to
PEAC, and if it does so shall promptly return to PEAC any
payments that it has then received from PEAC, less any cost or
expense incurred by Kitty Hawk to such time in connection with
this Agreement, after which neither party shall have further
obligation hereunder.
5.0 GENERAL PROVISIONS
5.1 AMENDMENTS. To amend this Agreement, Kitty Hawk and PEAC must
sign a written amendment that identifies by paragraph number the provision that
it purports to amend. No amendment shall be effective unless approved in writing
by GD Express Worldwide. No noncomplying course of dealing shall be construed
to amend this Agreement.
5.2 NOTICES. All notices hereunder must be in writing. Notices may
be given by facsimile, telex, SITA, TNT courier or other physical delivery to a
party at its initial notice address below, or to such other notice address as
that party designates from time to time by notice to the other party. Delivery
of a notice to a Kitty Hawk flight or maintenance crew member engaged in the
operating or maintaining the Aircraft shall never be deemed giving of a notice
to Kitty Hawk for purposes of this Agreement. Notices given by facsimile, telex
or SITA shall be deemed given when transmitted if confirmation of receipt is
obtained by answerback or fax confirmation. Other notices shall be deemed given
when received at the notice address. Initial notice addresses are:
A. if to PEAC:
Pacific East Asia Cargo Airlines, Inc.
P.O. Box No. 7776, Manila Domestic Airport
Philippines
Facsimile: (63-2) 832 3401
Attention: Captain B.S. Solis, Managing Director
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with a copy to:
TNT International Aviation Services
Archway House
114/116 St. Leonard's Road
Windsor SL4 3DG
Berkshire
England
Facsimile: (44-1753) 858172
SITA:
Attention: Managing Director
B. if to Kitty Hawk:
Kitty Hawk Aircargo, Inc.
P.O. Box 612787
1515 West 20th
DFW Airport, Texas 75261
U.S.A.
Facsimile: (214) 456-2296
Attention: Mr. Tilmon J. Reeves, President
C. if to GD Express Worldwide for purposes of Paragraph 4.19:
GD Express Worldwide N.V.
Hoogoorddreef 61
1101 BE Amsterdam
The Netherlands
5.3 CONSTRUCTION.
A. The substantive law of the State of New York shall govern the
effect and construction of this Agreement. The U.S. Federal
Arbitration Act, and to the extent applicable the 1958 United
Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, shall govern the effect and
enforceability of provisions of this Agreement concerning
arbitration, jurisdiction and venue.
B. All dollar amounts hereunder are in U.S. dollars.
C. A business day is any other than a Saturday, Sunday, or
legal holiday in Texas or Manila.
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D. This Agreement binds and benefits the parties and their
respective successors and assigns.
E. All warranties and indemnities hereunder shall survive
termination of this Agreement.
F. No rule of construction resolving any ambiguity against a
drafting party shall apply.
G. Failure to enforce a default hereunder shall not be construed
to be a waiver of such default or of any other default.
H. This Agreement is the entire agreement between Kitty Hawk and
PEAC with respect to the subject matter, and merges and
supersedes all former agreements, promises or representations,
whether oral or written, express or implied, including without
limitation the Preliminary Letter Agreement, that relate in any
way to the subject matter.
I. If any provision of this Agreement is invalid or unenforceable,
the remaining provisions shall be enforceable.
J. Titles and headings are only for convenient reference and are
not to be construed in interpretation.
K. No party may assign to another any rights hereunder without the
written consent of the other party, except as follows:
1. With the prior written consent of Kitty Hawk, which it
may not withhold unreasonably, PEAC (or GD Express
Worldwide, as PEAC's attorney-in-fact, and PEAC
represents and warrants to Kitty Hawk that Kitty Hawk
may at all times during the Lease Term rely upon the
continuing effective authority of GD Express Worldwide
to act as PEAC's attorney-in-fact for purposes of such
assignment) may assign its rights under this Agreement
to a company that forms part of the GD Express Worldwide
N.V. Group of Companies, with a view to transferring
the operation of the Aircraft from the South East Asia
region into the GD Express Worldwide European Air
Network, or into any other region in which GD Express
Worldwide has established an air network, if (i) the
assignee enforceably represents and warrants all matters
represented and warranted by PEAC hereunder, and
enforceably assumes and agrees to pay and perform all of
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PEAC's unperformed obligations hereunder, as they may be
modified, if at all, by the proposed assignment, (ii)
Kitty Hawk receives an opinion of counsel, in form and
substance reasonably acceptable to Kitty Hawk,
expressing a favorable opinion that the matters
represented and warranted by PEAC under Paragraph
4.22(A) are also true as to the assignee, (iii) Kitty
Hawk receives a new or renewed guaranty in form and
substance reasonably acceptable to Kitty Hawk,
guaranteeing the performance, payment and collection of
all of the assignee's obligations hereunder, including
without limitation its payment obligations under
Paragraphs 4.10 and 4.11 and its indemnity obligations
under Paragraph 4.22(B), with such modifications to the
Agreement, if any, as may be proposed with the
assignment, (iv) the assignment, with such modifications
to the Agreement, if any, as may be proposed with the
assignment, does not materially decrease Kitty Hawk's
reasonably-predictable income from performance of the
remainder of the Lease Term, or increase Kitty Hawk's
difficulty of performance hereunder, and (v) PEAC or the
assignee pays all costs and expenses reasonably incurred
by Kitty Hawk in connection with the assignment.
2. Any assignment under the preceding Paragraph 5.3(K)(1)
may also be a novation relieving PEAC of its obligations
hereunder if PEAC has fulfilled all of its payment and
indemnity obligations to the date of the assignment.
L. Kitty Hawk must consent to a security assignment of PEAC's
rights under this Agreement to GD Express Worldwide in
connection with the granting of a guaranty under Paragraph
4.23(A)(2), if such security assignment:
1. does not allow the security assignee to exercise powers
as assignee unless (a) PEAC defaults hereunder and fails
timely to cure that default, or (b) GD Express Worldwide
loses its ability to influence day-to-day operations of
PEAC through share holding and corporate and contractual
arrangements; and
2. does not otherwise modify the requirements in Paragraph
5.3(K), which GD Express Worldwide as security assignee
must nevertheless fulfill, if it obtains the authority
to exercise powers as assignee through the occurrence of
one or both
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of the conditions in Paragraph 5.3(L)(1), before Kitty
Hawk's obligations under this Agreement will be
altered.
M. Exhibits A, B and C are attached hereto and incorporated by
this reference as parts of this Agreement.
5.4 AGREEMENT TO ARBITRATE DISPUTES. Any controversy or claim
arising out of or relating to this Agreement, or to any breach of this
Agreement, shall be settled exclusively by arbitration under the International
Arbitration Rules of the American Arbitration Association (the "AAA"); but the
locale of any such arbitration shall be New York, New York, or London, England,
at the election of the party responding to the first arbitration demand filed
with the AAA; arbitrators shall be U.S. or English nationals; and the language
of the arbitration shall be English. Any suit to require arbitration hereunder,
or to enforce judgment upon an arbitration award, may be brought in the U.S.
District Court for the Southern District of New York or in a court of
appropriate jurisdiction in London, England. A prevailing party in litigation
to require arbitration, in arbitration, or in litigation to enforce an
arbitration award shall be entitled to recover reasonable attorneys' fees and
costs.
KITTY HAWK AIRCARGO, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
-----------------------------------------
Richard R. Wadsworth, Jr.
Vice President
PACIFIC EAST ASIA CARGO AIRLINES, INC.
By: /s/ BENJAMIN S. SOLIS
-----------------------------------------
Benjamin S. Solis
Authorized representative of
and on behalf of PEAC and of Amihan
Management Services, Inc., PEAC's manager
and agent
Aircraft Operating Lease Page 28
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EXHIBIT A
AIRCRAFT SPECIFICATION
Boeing 727-200 Aircraft bearing Manufacturer's Serial Number 19484 and U.S.
Registration Number N6809 powered by three (3) Pratt & Whitney JT8D-9A engines.
The Aircraft will be in a cargo configuration which will include cargo
restraint systems to allow for the carriage of 125" X 88" and 108" X 88" ULD
structural containers AAY and ABY IATA specifications in 12 positions.
The Aircraft shall be fresh out of "C" Check and have:
(i) Dual HF installation;
(ii) Dual GPS (Trimble TNL 8100) or single GPS plus VLF/Omega GNS; and
(iii) Corrosion Protection Corrosion Prevention cleared for a minimum of
two (2) years.
<PAGE> 30
EXHIBIT B
OPERATING SCHEDULE
<TABLE>
<CAPTION>
Flight No. Route Departure Time Arrival Time Days of Operation
- ---------- ----- -------------- ------------ -----------------
<S> <C> <C> <C> <C>
PEC316 CGK-SIN 203OLT 2305LT 1,2,3,4
PEC316 CGK-SIN 1450LT 1725LT 6
PEC316 SIN-MNL 1825LT 2200LT 6
PEC316 SIN-MNL 0005LT 0340LT 2,3,4,5
PEC315 MNL-SIN 0425LT 0755LT 2,3,4,5
PEC315 SIN-CGK 1005LT 1040LT 2,3,4,5
PEC315 MNL-SIN 0905LT 1235LT 7
PEC315 SIN-CGK 1335LT 1410LT 7
</TABLE>
Days of Operation: Monday is the first day of operation through to Sunday being
the seventh day of operation
All times quoted are Local Times for the respective points of departure and
arrival.
<PAGE> 31
EXHIBIT C
APPROVED FLIGHT DESTINATIONS
Cheju
Clark
Jakarta
Johor Bahru
Kaohsiung
Kuala Lumpur
Mactan
Manila
Pusan
Seoul
Singapore
Subic Bay
Taipei
and all such other airfields as may be mutually agreed between Kitty Hawk and
PEAC subject always to the appropriate government approvals to be obtained by
PEAC and Kitty Hawk.
<PAGE> 1
EXHIBIT 10.38
6/12/96
- -------------------------------------------------------------------------------
STOCK OPTION AGREEMENT
- -------------------------------------------------------------------------------
1.0 DATE AND PARTIES
1.1 DATE. This stock option agreement ("agreement") is dated and
effective as of June 12, 1996.
1.2 PARTIES. The parties to this agreement are:
A. Richard R. Wadsworth, Jr. ("Wadsworth")
4300 Stanford
Dallas, TX 75225
B. Kitty Hawk, Inc. ("Kitty Hawk")
Attention: Chief Executive Officer
P.O. Box 612787
1515 West 20th
DFW Airport, TX 75261
2.0 RECITATIONS
2.1 WADSWORTH. Wadsworth is vice-president of Kitty Hawk, a member
of its board of directors, and its chief financial officer. He has contributed
significantly to Kitty Hawk's success during his employment by Kitty Hawk, and
Kitty Hawk wishes to provide additional incentive for his future contributions
to Kitty Hawk's success.
2.3 CONSIDERATION. Kitty Hawk's covenants hereunder are in
consideration of Wadsworth's past services and contributions to Kitty Hawk's
success, and to supply additional incentives for his continuing contributions
to Kitty Hawk's success.
3.0 OPTION TERMS
3.1 GRANT OF OPTION. Kitty Hawk grants to Wadsworth an option (the
"option") to purchase from Kitty Hawk 125,000 shares (the "optioned shares") of
Kitty Hawk's common stock, whose par value is $.01 per share, on the terms
hereof.
3.2 TERM OF OPTION. The option shall be effective from the date
hereof until the earliest of (i) the date at which all optioned shares have
been delivered hereunder, (ii) December 31, 2015, or (iii) the date 12 months
after Wadsworth's death; but the option is subject to early termination under
Paragraph 3.10(D).
Stock Option Agreement Page 1
<PAGE> 2
6/12/96
3.3 EXERCISE. Wadsworth may exercise the option at any time, and
from time to time, in whole or in part, in whole-share increments of not less
than 5,000 shares at a time, by giving notice of exercise to Kitty Hawk,
stating the number of shares to be purchased and confirming that the
representations and warranties in paragraph 4.1 remain true as of the date of
the notice with respect to the shares to be purchased under such notice.
3.4 EXERCISE PRICE. The exercise price shall be $.01 per share.
The exercise price must be tendered in cash with the notice of exercise.
3.5 ISSUANCE. Kitty Hawk shall issue and deliver to Wadsworth the
shares stated in a notice of exercise complying with this agreement, no later
than 10 business days after receiving the notice.
3.6 INCOME TAX WITHHOLDING. If Kitty Hawk is required or entitled
by applicable law to withhold taxes in connection with the delivery of any
shares hereunder, at the time and as a condition of the delivery of such shares
Wadsworth shall either (i) tender to Kitty Hawk the amount of such withholding
in cash, or (ii) if then permitted by applicable law and with Kitty Hawk's
consent (which Kitty Hawk may not withhold unreasonably), authorize Kitty Hawk
to deduct from the number of shares to be delivered a number of shares of a
value, determined by their then fair market value, equal to the amount of such
withholding. Any shares deducted for withholding shall be deemed issued and
delivered in determining the number of optioned shares that have been delivered
hereunder.
3.7 OPTION VESTED, UNCONDITIONAL AND IRREVOCABLE. Wadsworth's
rights hereunder are fully vested, unconditional and irrevocable during the
term hereof. During Wadsworth's lifetime, termination of Wadsworth's employment
by Kitty Hawk or any of its affiliates for any reason (including without
limitation involuntary termination with or without cause, voluntary
resignation, retirement or disability) shall not affect Wadsworth's rights
hereunder. Nor are Wadsworth's rights hereunder conditioned on or subject to
loss or diminution if during or after Wadsworth's employment by Kitty Hawk or
any of its affiliates Wadsworth directly or indirectly engages in competition
with Kitty Hawk or discloses any proprietary and confidential business
information of Kitty Hawk or its affiliates in breach or violation of any
agreement with or implied obligation to Kitty Hawk or any of its affiliates;
but this sentence is not intended or to be construed as a waiver or
relinquishment by Kitty Hawk of any existing or future claim or other remedy
against Wadsworth for any such breach or violation.
3.8 RIGHTS AS STOCKHOLDER. Wadsworth shall have no rights as a
stockholder with respect to any optioned shares that have not been delivered.
3.9 RIGHTS AS EMPLOYEE. This agreement neither confers upon
Wadsworth any rights to continue in Kitty Hawk's employ, nor modifies any of
Wadsworth's rights or obligations under his employment or other agreements with
Kitty Hawk.
3.10 CHANGES IN CAPITALIZATION.
A. This agreement does not affect in any way the right or power of
Kitty Hawk to make adjustments, reclassifications,
reorganizations, or changes of its
Stock Option Agreement Page 2
<PAGE> 3
capital structure, to merge or consolidate, to dissolve or
liquidate, or to sell or transfer all or any part of its
business or assets.
B. If before the termination hereof, outstanding shares of Kitty
Hawk's common stock are changed into, or exchanged for a
different number or kind of shares or securities of Kitty Hawk
through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split, stock
dividend, or similar transaction, the description of the
undelivered optioned shares shall be deemed modified so that
the undelivered optioned shares shall be of the same class
and character as the holder of the optioned shares would
have been entitled to receive had such undelivered optioned
shares been delivered and outstanding before the change was
effected.
C. If Kitty Hawk is dissolved or liquidated, or is reorganized,
merged, or consolidated with one or more other entities so
that Kitty Hawk is not the surviving corporation; or if
substantially all of Kitty Hawk's property is sold; then
Wadsworth shall be entitled to receive for each undelivered
optioned share upon exercise of the option, the cash, securities
or property that Wadsworth would have been entitled to receive
with respect to such optioned share had such optioned share been
delivered and outstanding when the event was effected.
D. Kitty Hawk may terminate this agreement as of the effective date
of any reorganization, merger, consolidation, dissolution,
liquidation or other change of capitalization of the types
identified in Paragraphs 3.10(B) or (C), by notifying
Wadsworth or his personal representative at least 30 days
before the effective date of such event, and by permitting the
exercise of the option as to all undelivered optioned shares
during the 30-day period immediately preceding the effective
date of such event.
3.11 REGISTRATION. If at any time Kitty Hawk registers any of any
material portion of its common shares under the Securities Act of 1933, the
Securities Exchange Act of 1934, any other federal securities-regulation
statute, or any state securities act, or obtains exemption from such
registration for the public offer or sale of such share, Kitty Hawk shall
include in such registration or exemption Wadsworth's delivered shares and
undelivered optioned shares hereunder in at least the same ratio as Kitty
Hawk's common shares then held by or for M. Tom Christopher are included in
such registration or exemption.
4.0 REPRESENTATIONS, WARRANTIES AND OTHER COVENANTS
4.1 WADSWORTH'S REPRESENTATIONS AND WARRANTIES. Wadsworth
represents and warrants to Kitty Hawk that:
A. Wadsworth holds his rights hereunder for his own account,
without the participation of any other person, and with the
intent of holding this agreement and all shares delivered
hereunder ("delivered shares") for investment, and without the
intent of participating, directly or indirectly, in
Stock Option Agreement Page 3
<PAGE> 4
6/12/96
a distribution of Kitty Hawk shares, and not with a view to, or
for resale in connection with, any distribution of any part of
the delivered shares or undelivered optioned shares.
B. As chief financial officer and a member of the board of
directors of Kitty Hawk, president of its aircraft-leasing
subsidiary, and vice-president of its air-carrier subsidiary,
Wadsworth has had full access to all material information
relating to the business and affairs of Kitty Hawk, and has
received all information and data with respect to Kitty Hawk and
the optioned shares that he has requested and has deemed
relevant in connection with his receipt of his rights hereunder.
Wadsworth does not rely upon any representation or warranty by
any person or entity with respect to the future value of, or
income from, the optioned shares, but rather relies upon his own
independent examination and judgment as to Kitty Hawk's
prospects.
4.2 WADSWORTH'S SPECIAL COVENANTS. Wadsworth acknowledges,
covenants and agrees with Kitty Hawk that:
A. Neither this agreement nor the optioned shares are registered
under any federal or state law relating to the registration of
securities for sale, and this agreement is, and the optioned
shares will be, issued and delivered in reliance on exemptions
from registration under such laws.
B. Wadsworth shall not offer for sale, sell or transfer any rights
hereunder or any delivered shares except in accordance with
applicable securities laws and with the provisions hereof.
C. Except as provided in Paragraph 3.11, Kitty Hawk shall have no
obligation to register delivered shares or to comply with any
exemption available for Wadsworth sale of delivered shares
without registration, and Kitty Hawk shall have no obligation to
act in any manner so as to make Rule 144 under the Securities
Act of 1933 available with respect to the sale of delivered
shares by Wadsworth.
D. A legend indicating that delivered shares have not been
registered under the applicable securities laws, and referring
to any applicable restrictions on transferability and sale of
delivered shares, may be placed on any certificate delivered to
Wadsworth with respect to any delivered shares, and any transfer
agent of Kitty Hawk may be instructed to require compliance with
any such legend.
E. Wadsworth's exercise of this option as to any optioned shares,
and acceptance of delivery of any delivered shares shall
constitute Wadsworth's confirmation that all of his
representations, warranties and covenants under Section 4.0 are
true, correct and effective as of such time.
5.0 GENERAL PROVISIONS
Stock Option Agreement Page 4
<PAGE> 5
6/12/96
5.1 ASSIGNMENT. Wadsworth may not transfer, assign or grant any
security interest in any rights hereunder.
5.2 AMENDMENTS. To terminate, amend, modify, supplement or waive
any provision hereof, both parties must sign a written amendment that identifies
by paragraph number the provision that it purports to amend. No noncomplying
course of dealing shall be construed to amend this agreement.
5.3 NOTICES. Notices hereunder must be in writing. A notice may be
given by United States certified mail, postage prepaid, return receipt
requested, addressed to the intended recipient at its address in paragraph 1.2,
or to such other notice address as that party designates by notice to the other
party. If given by mail, a notice shall be effective three business days after
mailing. A business day is any day other than a Saturday, Sunday, or legal
holiday in Texas. A notice given by other means shall be effective only when
received by the addressee.
5.4 WAIVER OF PUNITIVE AND CONSEQUENTIAL DAMAGES. BOTH PARTIES
WAIVE, RELEASE, AND AGREE NOT TO SUE OR ASSERT ANY CLAIM (INCLUDING A CLAIM
SUBJECT TO ARBITRATION) AGAINST ANY PARTY TO THIS AGREEMENT, OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS, FOR PUNITIVE OR
CONSEQUENTIAL DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT
OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT.
5.5 CONSTRUCTION.
A. This agreement has been executed and delivered in Texas, whose
substantive law (excluding conflict of laws rules that might
apply the substantive law of another jurisdiction) shall govern
its effect and construction, except that Delaware corporate law
shall govern the internal affairs of Kitty Hawk and other
corporate matters where applicable. This agreement merges and
supersedes all prior oral or written agreements with respect to
the subject matter. It binds the parties and their respective
heirs, personal representatives, successors and assigns.
B. Representations and warranties expressed herein shall survive
investigation by either party and delivery of shares or other
performance.
C. No waiver of a noncompliance hereunder shall be construed to
be a waiver of any other noncompliance.
D. Titles and headings are only for convenient reference and are
not to be construed in interpretation.
E. When used herein, defined terms (in quotation marks within
parentheses immediately following the defining term or phrase)
have the defined meanings unless the context clearly indicates
otherwise. Defined terms may be used in the singular or plural.
The words "hereof," "herein," and
Stock Option Agreement Page 5
<PAGE> 6
6/12/96
"hereunder" always refer to this agreement as a whole, and never
to a particular provision. Unless otherwise clearly indicated,
section ("Section") and paragraph ("Paragraph") references are
to sections and paragraphs hereof.
5.6 BINDING AGREEMENT TO ARBITRATE DISPUTES. All disputes under or
relating to this agreement must be resolved exclusively by binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") in effect at the time the arbitration proceeding commences; except
that (i) the locale of any arbitration shall be Dallas, Texas, (ii) the
arbitrator or arbitrators shall with any final award supply written findings of
fact and conclusions of law, and (iii) any party may seek from a court of
competent jurisdiction any provisional remedy that may be necessary to protect
its rights or assets pending the commencement of the arbitration or its
determination of the merits of the controversy. The arbitration award shall be
final and binding on all parties, and judgment upon such arbitration award may
be entered in any court having jurisdiction. A prevailing party in arbitration
or litigation about this agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
KITTY HAWK:
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
------------------------------
M. Tom Christopher
Chairman of the Board and
Chief Executive Officer
WADSWORTH:
/s/ RICHARD R. WADSWORTH, JR.
------------------------------
Richard R. Wadsworth, Jr.
Stock Option Agreement Page 6
<PAGE> 1
EXHIBIT 10.39
- --------------------------------------------------------------------------------
STOCK OPTION AND LIFE INSURANCE AGREEMENT
- --------------------------------------------------------------------------------
1.0 DATE AND PARTIES
1.1 DATE. This stock option agreement ("agreement") is dated and
effective December 31, 1995.
1.2 PARTIES. The parties to this agreement are:
A. Tilmon J. Reeves ("Reeves")
3210 Green Glen Dr.
Carrollton, TX 75007
B. Kitty Hawk, Inc. ("Kitty Hawk")
Attention: Chief Executive Officer
P.O. Box 612787
1515 West 20th
DFW Airport, TX 75261
2.0 RECITATIONS
2.1 REEVES. Reeves is president of Kitty Hawk, a member of its
board of directors, and its chief operating officer. He has contributed
significantly to Kitty Hawk's success during his employment by Kitty Hawk, and
Kitty Hawk wishes to provide additional incentive for his future contributions
to Kitty Hawk's success.
2.2 CONSIDERATION. Kitty Hawk's covenants hereunder are in
consideration of Reeves past services and contributions to Kitty Hawk's
success, and to supply additional incentives for his continuing contributions
to Kitty Hawk's success.
3.0 OPTION TERMS
3.1 GRANT OF OPTION. Kitty Hawk grants to Reeves an option (the
"option") to purchase from Kitty Hawk 318,026 shares (the "optioned shares") of
Kitty Hawk's common stock, whose par value is $.01 per share, on the terms
hereof.
3.2 TERM OF OPTION. The option shall be effective from the date
hereof until the earliest of (i) the date at which all optioned shares have
been delivered hereunder, (ii) December 31, 2005, or (iii) the date 12 months
after Reeves' death; but the option is subject to early termination under
Paragraph 3.10(D) and Paragraph 5.2.
3.3 EXERCISE. Reeves may exercise the option at any time, and from
time to time, in whole or in part, in whole-share increments of not less than
5,000 shares at a time, by giving notice of exercise to Kitty Hawk, stating the
number of shares to be purchased and
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page l
<PAGE> 2
confirming that the representations and warranties in Paragraph 4.1 remain true
as of the date of the notice with respect to the shares to be purchased under
such notice.
3.4 EXERCISE PRICE. The exercise price shall be $.01 per share.
The exercise price must be tendered in cash with the notice of exercise.
3.5 ISSUANCE. Kitty Hawk shall issue and deliver to Reeves the
shares stated in a notice of exercise complying with this agreement, no later
than 10 business days after receiving the notice.
3.6 INCOME TAX WITHHOLDING. If Kitty Hawk is required or entitled
by applicable law to withhold taxes in connection with the delivery of any
shares hereunder, at the time and as a condition of the delivery of such shares
Reeves shall either (i) tender to Kitty Hawk the amount of such withholding in
cash, or (ii) if then permitted by applicable law and with Kitty Hawk's consent
(which Kitty Hawk may not withhold unreasonably), authorize Kitty Hawk to
deduct from the number of shares to be delivered a number of shares of a value,
determined by their then fair market value, equal to the amount of such
withholding. Any shares deducted for withholding shall be deemed issued and
delivered in determining the number of optioned shares that have been delivered
hereunder.
3.7 OPTION VESTED, UNCONDITIONAL AND IRREVOCABLE. Reeves' rights
hereunder are fully vested, unconditional and irrevocable during the term
hereof. During Reeves' lifetime, termination of Reeves' employment by Kitty
Hawk or any of its affiliates for any reason (including without limitation
involuntary termination with or without cause, voluntary resignation,
retirement or disability) shall not affect Reeves' rights hereunder. Nor are
Reeves' rights hereunder conditioned on or subject to loss or diminution if
during or after Reeves' employment by Kitty Hawk or any of its affiliates
Reeves directly or indirectly engages in competition with Kitty Hawk or
discloses any proprietary and confidential business information of Kitty Hawk
or its affiliates in breach or violation of any agreement with or implied
obligation to Kitty Hawk or any of its affiliates; but this sentence is not
intended or to be construed as a waiver or relinquishment by Kitty Hawk of any
existing or future claim or remedy against Reeves for any such breach or
violation.
3.8 RIGHTS AS STOCKHOLDER. Reeves shall have no rights as a
stockholder with respect to any optioned shares that have not been delivered.
3.9 RIGHTS AS EMPLOYEE. This agreement neither confers upon Reeves
any rights to continue in Kitty Hawk's employ, nor modifies any of Reeves'
rights or obligations under his employment or other agreements with Kitty Hawk.
3.10 CHANGES IN CAPITALIZATION.
A. This agreement does not affect in any way the right or power
of Kitty Hawk to make adjustments, reclassifications,
reorganizations, or changes of its capital structure, to merge
or consolidate, to dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
B. If before the termination hereof, outstanding shares of Kitty
Hawk's common stock are changed into, or exchanged for a
different number or kind of shares or securities of Kitty Hawk
through reorganization, merger, recapitalization,
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page 2
<PAGE> 3
reclassification, stock split, reverse stock split, stock
dividend, or similar transaction, the description of the
undelivered optioned shares shall be deemed modified so that
the undelivered optioned shares shall be of the same class and
character as the holder of the optioned shares would have been
entitled to receive had such undelivered optioned shares been
delivered and outstanding before the change was effected.
C. If Kitty Hawk is dissolved or liquidated, or is reorganized,
merged, or consolidated with one or more other entities so
that Kitty Hawk is not the surviving corporation; or if
substantially all of Kitty Hawk's property is sold; then
Reeves shall be entitled to receive for each undelivered
optioned share upon exercise of the option, the cash,
securities or property that Reeves would have been entitled to
receive with respect to such optioned share had such optioned
share been delivered and outstanding when the event was
effected.
D. Kitty Hawk may terminate this agreement as of the effective
date of any reorganization, merger, consolidation,
dissolution, liquidation or other change of capitalization of
the types identified in Paragraphs 3.10(B) or (C), by
notifying Reeves or his personal representative at least 30
days before the effective date of such event, and by
permitting the exercise of the option as to all undelivered
optioned shares during the 30-day period immediately preceding
the effective date of such event.
3.11 Registration. If at any time Kitty Hawk registers any material
portion of its common shares under the Securities Act of 1933, the Securities
Exchange Act of 1934, any other federal securities-regulation statute, or any
state securities act, or obtains exemption from such registration for the
public offer or sale of such share, Kitty Hawk shall include in such
registration or exemption Reeves' delivered shares and undelivered optioned
shares hereunder in at least the same ratio as Kitty Hawk's common shares then
held by or for M. Tom Christopher are included in such registration or
exemption.
4.0 REPRESENTATIONS, WARRANTIES AND OTHER COVENANTS
4.1 REEVES' REPRESENTATIONS AND WARRANTIES. Reeves represents and
warrants to Kitty Hawk that:
A. Reeves holds his rights hereunder for his own account, without
the participation of any other person, and with the intent of
holding this agreement and all shares delivered hereunder
("delivered shares") for investment, and without the intent of
participating, directly or indirectly, in a distribution of
Kitty Hawk shares, and not with a view to, or for resale in
connection with, any distribution of any part of the delivered
shares or undelivered optioned shares.
B. As a principal executive officer and member of the board of
directors of Kitty Hawk and its air-carrier subsidiary, Reeves
has had full access to all material information relating to
the business and affairs of Kitty Hawk, and has received all
information and data with respect to Kitty Hawk and the
optioned shares that he has requested and has deemed relevant
in connection
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page 3
<PAGE> 4
with his receipt of his rights hereunder. Reeves does not rely
upon any representation or warranty by any person or entity
with respect to the future value of, or income from, the
optioned shares, but rather relies upon his own independent
examination and judgment as to Kitty Hawk's prospects.
4.2 REEVES' SPECIAL COVENANTS. Reeves acknowledges, covenants and
agrees with Kitty Hawk that
A. Neither this agreement nor the optioned shares are registered
under any federal or state law relating to the registration of
securities for sale, and this agreement is, and the optioned
shares will be, issued and delivered in reliance on exemptions
from registration under such laws.
B. Reeves shall not offer for sale, sell or transfer any rights
hereunder or any delivered shares except in accordance with
applicable securities laws and with the provisions hereof.
C. Except as provided in Paragraph 3.11, Kitty Hawk shall have no
obligation to register delivered shares or to comply with any
exemption available for Reeves sale of delivered shares
without registration, and Kitty Hawk shall have no obligation
to act in any manner so as to make Rule 144 under the
Securities Act of 1933 available with respect to the sale of
delivered shares by Reeves.
D. A legend indicating that delivered shares have not been
registered under the applicable securities laws, and referring
to any applicable restrictions on transferability and sale of
delivered shares, may be placed on any certificate delivered
to Reeves with respect to any delivered shares, and any
transfer agent of Kitty Hawk may be instructed to require
compliance with any such legend.
E. Reeves' exercise of this option as to any optioned shares, and
acceptance of delivery of any delivered shares shall
constitute Reeves' confirmation that all of his
representations, warranties and covenants under Section 4.0
are true, correct and effective as of such time.
5.0 LIFE INSURANCE
5.1 INSURANCE POLICY AND PREMIUMS. During the term of the option,
in each calendar year in which at the beginning of the year there are
undelivered optioned shares hereunder, Kitty Hawk shall pay to a life insurance
company of Reeves' selection the annual premium (the "annual premium") required
to maintain in force a term life insurance policy (the "insurance policy")
insuring Reeves' life for an amount equal to the product of (i) $1,600,000.00
multiplied by (ii) a fraction of which (a) the numerator is the number, on the
first day of such calendar year, of undelivered optioned shares hereunder as to
which Reeves has given no notice of exercise, and (b) the denominator is
318,026; on the conditions that the insurance policy must be issued to and held
by Reeves; that the beneficiary must at all times be Reeves' estate or his
spouse; and that the annual premium does not exceed 150% of the standard
premium for such a policy for a man of Reeves' age. Kitty Hawk shall have no
interest in the insurance policy. Kitty Hawk shall also pay on Reeves' behalf
the federal income tax withholding attributable to Kitty Hawk's payment of
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page 4
<PAGE> 5
the annual premium. Annual premiums and related withholding paid by Kitty Hawk
hereunder shall be treated as compensation to Reeves, but shall not reduce any
other compensation to which Reeves is entitled under other compensation or
bonus agreements and plans.
5.2 CONDITIONAL TERMINATION OF OPTION. If Reeves dies when there
are undelivered optioned shares hereunder, and if Kitty Hawk has fulfilled its
obligations under Paragraph 5.1, then the option granted in Paragraph 3.1 shall
upon Reeves' death automatically terminate as to all undelivered optioned
shares, and no estate, personal representative, heir, or other person or entity
shall have any claim hereunder with respect to any undelivered optioned shares.
6.0 GENERAL PROVISIONS
6.1 ASSIGNMENT. Reeves may not transfer, assign or grant any
security interest in any rights hereunder.
6.2 AMENDMENTS. To terminate, amend, modify, supplement or waive
any provision hereof, both parties must sign a written amendment that
identifies by paragraph number the provision that it purports to amend. No
noncomplying course of dealing shall be construed to amend this agreement.
6.3 NOTICES. Notices hereunder must be in writing. A notice may be
given by United States certified mail, postage prepaid, return receipt
requested, addressed to the intended recipient at its address in paragraph 1.2,
or to such other notice address as that party designates by notice to the other
party. If given by mail, a notice shall be effective three business days after
mailing. A business day is any day other than a Saturday, Sunday, or legal
holiday in Texas. A notice given by other means shall be effective only when
received by the addressee.
6.4 WAIVER OF PUNITIVE AND CONSEQUENTIAL DAMAGES. BOTH PARTIES
WAIVE, RELEASE, AND AGREE NOT TO SUE OR ASSERT ANY CLAIM (INCLUDING A CLAIM
SUBJECT TO ARBITRATION) AGAINST ANY PARTY TO THIS AGREEMENT, OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS, FOR PUNITIVE OR
CONSEQUENTIAL DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT
OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT.
6.5 CONSTRUCTION.
A. This agreement has been executed and delivered in Texas, whose
substantive law (excluding conflict of laws rules that might
apply the substantive law of another jurisdiction) shall
govern its effect and construction, except that Delaware
corporate law shall govern the internal affairs of Kitty Hawk
and other corporate matters where applicable. This agreement
merges and supersedes all prior oral or written agreements
with respect to the subject matter. It binds the parties and
their respective heirs, personal representatives, successors
and assigns.
B. Representations and warranties expressed herein shall survive
investigation by either party and delivery of shares or other
performance.
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page 5
<PAGE> 6
C. No waiver of a noncompliance hereunder shall be construed to
be a waiver of any other noncompliance.
D. Titles and headings are only for convenient reference and are
not to be construed in interpretation.
E. When used herein, defined terms (in quotation marks within
parentheses immediately following the defining term or phrase)
have the defined meanings unless the context clearly indicates
otherwise. Defined terms may be used in the singular or
plural. The words "hereof," "herein," and "hereunder" always
refer to this agreement as a whole, and never to a particular
provision. Unless otherwise clearly indicated, section
("Section") and paragraph ("Paragraph") references are to
sections and paragraphs hereof.
6.6 BINDING AGREEMENT TO ARBITRATE DISPUTES. All disputes under or
relating to this agreement must be resolved exclusively by binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") in effect at the time the arbitration proceeding commences; except
that (i) the locale of any arbitration shall be Dallas, Texas, (ii) the
arbitrator or arbitrators shall with any final award supply written findings of
fact and conclusions of law, and (iii) any party may seek from a court of
competent jurisdiction any provisional remedy that may be necessary to protect
its rights or assets pending the commencement of the arbitration or its
determination of the merits of the controversy. The arbitration award shall be
final and binding on all parties, and judgment upon such arbitration award may
be entered in any court having jurisdiction. A prevailing party in arbitration
or litigation about this agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
KITTY HAWK:
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
------------------------------
M. Tom Christopher
Chairman of the Board and
Chief Executive Officer
REEVES:
/s/ TILMON J. REEVES
----------------------------------
Tilmon J. Reeves
STOCK OPTION AND LIFE INSURANCE AGREEMENT Page 6
<PAGE> 1
EXHIBIT 10.45
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
PURCHASE AGREEMENT
between
FEDERAL EXPRESS CORPORATION
and
POSTAL AIR, INC.
Dated: October 22, 1992
<PAGE> 2
TABLE OF CONTENTS
RECITALS ............................................................... 1
DEFINITIONS ............................................................ 2
ARTICLE 1 -- SUBJECT OF AGREEMENT
Section 1.1 Sale of Kits by Federal to Buyer ............... 5
Section 1.2 Installation Facility .......................... 5
Section 1.3 Delivery of Kits ............................... 5
Section 1.4 Condition of Aircraft at Modification .......... 5
Section 1.5 Grant of Limited License ....................... 6
Section 1.6 Kits to Conform to STC Specifications .......... 6
Section 1.7 Kit Delivery Schedule .......................... 6
ARTICLE 2 -- PRICE AND PAYMENT
Section 2.1 Payment Schedule and Amount .................... 7
Section 2.2 Late Payments .................................. 7
Section 2.3 Federal's Termination Right .................... 7
Section 2.4 Title .......................................... 8
Section 2.5 Taxes .......................................... 9
ARTICLE 3 -- DELIVERY AND RISK OF LOSS
Section 3.1 Delivery of Kits ............................... 10
Section 3.2 Risk of Loss ................................... 10
Section 3.3 Delivery of Manuals, Etc. ...................... 10
ARTICLE 4 -- INDEMNIFICATION
Section 4.1 Buyer's Indemnification ........................ 11
ARTICLE 5 -- WARRANTY
Section 5.1 Warranty by Federal ............................ 12
Section 5.2 Limitation of Warranty ......................... 12
Section 5.3 Assignment of Manufacturers' Warranties ........ 14
Section 5.4 Buyer's Acts or Omissions ...................... 14
Section 5.5 Exclusive Remedy ............................... 15
-i-
<PAGE> 3
ARTICLE 6 -- INSURANCE
Section 6.1 Buyer's Insurance .................................. 16
ARTICLE 7 -- RIGHTS IN DATA
Section 7.1 Data Rights ........................................ 17
Section 7.2 Confidentiality .................................... 17
ARTICLE 8 -- PATENT PROTECTION
Section 8.1 Patent Indemnity ................................... 19
Section 8.2 Limitations of Liability ........................... 19
ARTICLE 9 -- EXCUSABLE DELAY
Section 9.1 Excusable Delay .................................... 21
ARTICLE 10 -- EVENTS OF DEFAULT
Section 10.1 Events of Default ................................ 22
Section 10.2 Remedies ......................................... 23
ARTICLE 11 -- SUPPORT SERVICES
Section 11.1 Support Services ................................ 24
ARTICLE 12 -- APPLICABLE LAW, MERGER -- NOTICES
Section 12.1 Exclusive Agreement; Applicable Law ............. 25
Section 12.2 Notices ......................................... 25
Section 12.3 Waiver .......................................... 26
Section 12.4 Assignment ...................................... 26
Section 12.5 Non-Disclosure .................................. 26
Section 12.6 Transfer of Aircraft or Engines ................. 27
EXHIBITS
EXHIBIT A -- AIRCRAFT CONFIGURATION SPECIFICATION
EXHIBIT B -- STAGE 3 KIT SPECIFICATIONS
EXHIBIT C -- DELIVERY SCHEDULE
EXHIBIT D -- PURCHASE PRICE & PAYMENT SCHEDULE
EXHIBIT E -- DATA, MANUALS AND TECHNICAL DOCUMENTATION
EXHIBIT F -- ESCALATION FORMULA
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PURCHASE AGREEMENT
This Aircraft Equipment Sales Agreement, dated as of October 22, 1992
("Agreement"), between Federal Express Corporation, a Delaware Corporation
("Federal") and Postal Air, Inc., a Texas Corporation, ("Buyer").
RECITALS
1. Federal has developed a kit consisting of various component
parts (the "Kits") suitable for installation on Boeing Model 727 aircraft to
enable such aircraft to meet the Stage 3 noise standards of Part 36 of the
Federal Aviation Regulations in effect as of the date of this Agreement,
attached hereto as Exhibit A;
2. Federal has obtained a Supplemental Type Certificate ("STC"),
enabling Federal to license modification of such aircraft to comply with
Stage 3.
3. Buyer is the owner of certain Boeing 727 aircraft with
configurations as outlined in Exhibit A attached hereto and incorporated herein
(the "Aircraft") and desires to contract with Federal for the sale of the Kits,
and desires to have the Aircraft modified to meet Stage 3 through the
installation of the Kits by the Installation Facility, as hereinafter defined.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, Federal and Buyer agree as follows:
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DEFINITIONS
In addition to the words and terms elsewhere defined in this Agreement,
the following words and terms as used in this Agreement shall have the
following meanings unless some other meaning is apparent from the context in
which the words and terms are used:
Additional Work. Any repair, maintenance or modification of the
Aircraft deemed necessary prior to or during the Installation of the Kit by the
Installation Facility, as further described in Section 1.2 of the Agreement.
Aircraft. Buyer's Boeing Model 727 Aircraft, individually or
collectively, and including all engines, parts, components, equipment and
accessories installed thereon, on which the Kits shall be installed and as
specified in Exhibit A. All references to Boeing Model 727 and 727 aircraft
throughout this Agreement shall specifically mean the eligible aircraft
configurations identified in Exhibit A.
Aircraft Kit(s). The Heavyweight Kit(s), Heavyweight Upgrade Kit(s) or
the Lightweight Kit(s), collectively or individually.
Configuration Specification. The specification describing the required
configuration of the Aircraft, to be configured by Buyer, prior to installation
of the Kits as set forth in Exhibit A of the Agreement.
Delivery. The delivery of a Kit by Federal to Buyer.
Delivery Date. The date of delivery of a Kit by Federal to Buyer.
FAA. The United States Federal Aviation Administration, or any
successor.
Facility. The facility operated by the Installation Facility for
performance of the modification.
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Federal's Facility. The warehousing facility maintained or caused to be
maintained by Federal.
Heavyweight Kit. One shipset of noise reduction kit hardware,
consisting of various component parts suitable for Installation on the
Aircraft, for modification of an aircraft and the three Engines installed
thereon, together with relevant data, manuals and documents, and meeting the
requirements and specifications hereof and similar to those set forth in
Exhibit B.
Heavyweight Upgrade Kit. One shipset of noise reduction hardware,
consisting of various component parts suitable for Installation on an Aircraft
which has a Lightweight Kit properly installed, together with relevant data,
manuals and documents, and meeting the requirements hereof and as set forth in
Exhibit B.
Installation Facility. The third party, if any, selected by Buyer in
accordance with Section 1.2 hereof to perform the Installation.
Installation. The installation by the Installation Facility of the Kit
on Buyer's Aircraft in accordance with the STC Specifications.
Kit. The shipsets of noise reduction kits consisting of various
component parts suitable for installation on the Aircraft, purchased by Buyer
pursuant to the terms and conditions of the Agreement.
Kit Delivery Schedule. A schedule setting forth the Delivery Dates of
the Kits, as further described in Exhibit B, as amended from time to time.
Lightweight Kit. One shipset of noise reduction hardware, consisting of
various component parts suitable for Installation on the Aircraft, for
modification of an aircraft and the three Engines installed thereon, together
with relevant data, manuals and documents, and meeting the requirements and
specifications hereof and as set forth in Exhibit B.
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Stage 3. The Stage 3 noise standards of the Federal Aviation
Regulations, 14 C.F.R. Part 36, as in effect on the date hereof.
Purchase Price. The price to be paid by Buyer to Federal for the
purchase of the Kits as specified in Exhibit D.
STC. A Supplemental Type Certificate issued by the FAA.
Specifications. The specifications for the Kit as described in
Exhibit A.
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ARTICLE 1
SUBJECT OF AGREEMENT
Section 1.1 - Sale of Kits by Federal to Buyer. Federal hereby sells to
Buyer and Buyer purchases from Federal, the Kits for installation on Buyer's
Aircraft, pursuant to the terms and subject to the conditions of this Agreement.
Buyer agrees and represents to Federal that the Kits are being purchased for and
will be installed on the Aircraft and that such Aircraft are owned by Buyer.
Section 1.2 - Installation Facility. The Installation of the Kits shall
be performed by the Installation Facility designated by Buyer, provided,
however, that Buyer shall select the Installation Facility from the list of
approved Installation Facilities, to be furnished by Federal as such list may
be amended from time to time. Federal shall have the right, at any time and
upon notification to Buyer, to designate another or a different approved
Installation Facility and Buyer hereby consents to such designation.
Section 1.3 - Delivery of Kit. The Kit Delivery shall be F.O.B.
Federal's Facility.
Section 1.4 - Condition of Aircraft at Induction. At induction of the
Aircraft into the Facility, the Aircraft shall be airworthy, in operable
condition and suitable for the Installations specified in Exhibit A. The
Installation Facility shall perform an inspection of the Aircraft and provide
Buyer's representative at the Facility, with a copy to Federal, with the results
of the inspection as promptly as possible after arrival of the Aircraft at the
Facility, taking into account the need for the scheduling of Kit Installation
activity at the Facility. The Installation costs, including but not limited to,
any cost associated with upgrading to short-track cascade thrust reversers and
all costs for work necessary to put the Aircraft in the proper condition for
Installation, shall be paid by Buyer. Any repair, maintenance
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or modification of the Aircraft deemed necessary prior to or during the
Installation of the Kits and required as a prerequisite for performance of the
Installation ("Additional Work") will be determined by the Installation Facility
and Federal and may not be deferred or rejected by Buyer, and the charges and
costs, including but not limited to the charges and costs of the Installation
Facility, relating thereto shall be the obligation of Buyer and not of Federal.
Federal shall have no responsibility or liability whatsoever with respect to the
Installation or Additional Work performed by the Installation Facility. Buyer
hereby agrees that any repair, maintenance or modification of the Aircraft prior
to or during the Installation beyond those required by the STC shall be the sole
responsibility of the Buyer, and Buyer hereby indemnifies and holds harmless
Federal, its officers, directors, employees, agents, contractors or
subcontractors against any claims from Buyer or any party claiming through Buyer
or any third party, may hereafter assert with respect to such repairs,
maintenance or modifications.
Section 1.5 - Grant of Limited License. Upon Installation of the Kit,
and subject to the terms and conditions of this Agreement, Federal will grant
to Buyer, and Buyer will accept the grant of a paid-up, non-exclusive, limited
license to use the STC on the modified Aircraft.
Section 1.6 - Kits to Conform to STC Specifications. Subject to proper
Installation, Federal warrants that the Kits shall conform to the
Specifications, as described in Exhibit A, and the Aircraft will comply with
Stage 3 at the specified weights stated in the Specifications without
operational degradation.
Section 1.7 - Kit Delivery Schedule. Upon execution of this Agreement
and payment by Buyer of the portion of the Purchase Price stated herein,
Federal shall assign and reserve for Buyer a position for each of Buyer's Kits
on the Kit Delivery Schedule maintained by Federal for Kit deliveries as
specified in Exhibit B.
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ARTICLE 2
PRICE AND PAYMENT
Section 2.1 - Payment Schedule and Amount. In consideration for the
sale of the Kits, and granting of the limited license, Buyer agrees to pay
Federal the amount per Kit (the "Purchase Price") and at the times set forth in
Exhibit D, which amounts shall be paid in full, unless Federal has failed to
perform its obligations under this Agreement or this Agreement shall have been
terminated as to such Kits pursuant to Section 2.3. The Purchase Price is
subject to adjustment by Federal at any time to reflect any changes in the
Purchase Price due to taxes or any changes required pursuant to any law or
governmental regulation or requirement or interpretation thereof established by
any governmental agency in order for Federal to be able to maintain the STC.
All payments to be made hereunder shall be made in United States currency, and
in immediately available funds in accordance with the Payment Schedule set
forth in Exhibit D. Federal shall have no obligation to deliver the Kits until
Buyer has made all payments required under this Agreement.
Section 2.2 - Late Payments. If any payments due under this Agreement
from Buyer are not paid when due, the Buyer shall pay interest on such overdue
amounts at the rate of eighteen percent (18%) per annum or the highest legal
rate under applicable law, whichever is lower. Federal shall not be obligated
to perform any future obligation under this Agreement unless Buyer shall have
paid in full the Purchase Price and all other amounts due and owing to Federal
under this Agreement.
Section 2.3 - Federal's Termination Right. (a) In addition to the
remedies set forth in Article 10, if Buyer fails to make any payment under this
Agreement
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within ten (10) days of the date that such payment is due, Federal, may, in its
sole discretion, terminate this Agreement upon five (5) days written notice to
Buyer. Upon such termination, Federal shall be entitled to retain any monies,
including any deposits paid by Buyer pursuant to this Agreement, and shall
further be entitled to compensation for the value of all materials purchased
and any services performed pursuant to this Agreement, and any other damages
available to Federal under applicable laws. Upon such termination by Federal
neither party shall have any further obligations one to the other with respect
to any undelivered Kits except that the rights and obligations of the parties
under Section 2.4 and Articles 4 and 7 shall survive such termination.
(b) If Buyer fails to make timely payments according to the Payment
Schedule stated in Exhibit D, Federal shall, in addition to the remedies set
forth in Section 2.3(a) above and Section 10, be entitled, at its sole option,
to reassign Buyer's Delivery Date and notify Buyer of such reassignment and
advise Buyer of the next available Delivery Date. If Federal elects to reassign
Buyer's Delivery Date as described above, Federal shall have the right to
require Buyer to pay to Federal a penalty fee of $50,000.00 per rescheduled
Kit, plus any increase in the Purchase Price if such reassigned Delivery Date
occurs during a period in which Federal's standard purchase price for the sale
of the Kits is higher than the Purchase Price set forth in this Agreement.
Section 2.4 - Title. Title to the Kits shall not pass to Buyer (or any
other party) until Buyer has made all payments required by it under this
Agreement with respect to the Kits. Federal shall retain a purchase money
security interest in the Kits until full payment therefor is made. This
Agreement shall serve, for purposes of perfecting Federal's purchase money
security interest in the Kits, as a Security Agreement, and Federal as Buyer's
agent and attorney-in-fact, may file this
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Agreement with such governmental entitles as Federal deems advisable in order
to perfect its security interest in the Kits. Buyer agrees to execute any and
all documents as may be necessary to perfect the security interest granted
pursuant to this section. In no event shall Buyer have, obtain or assert any
right, title or interest in the STC except as specified in this Agreement.
Section 2.5 - Taxes. (a) The Purchase Price does not include, and Buyer
shall be liable for, all property, sales, use, excise or any other similar
taxes and customs or other duties which may be applicable to this Agreement, the
sales of Kits, the Installation, and the limited license of the STC under this
Agreement (the "Taxes"), other than taxes on or measured by Federal's net
income. Buyer shall promptly remit to Federal and shall indemnify, defend
and hold Federal, its officers, employees and directors, harmless from and
against all such Taxes, customs or other duties and all interest and any
penalties assessed in connection with such Taxes, customs or other duties.
(b) The provisions of this Section 2.5 shall survive the completion
of the transactions contemplated by this Agreement or its earlier cancellation
or termination, and if any such Taxes, duties, interest or penalties are at any
time levied against or sought from Federal, Buyer shall promptly reimburse
Federal in full with respect to any such levy.
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ARTICLE 3
DELIVERY AND RISK OF LOSS
Section 3.1 - Delivery of Kits. The Delivery shall be performed in
accordance with the Kit Delivery Schedule described in Exhibit C, F.O.B.
Federal's Facility.
Section 3.2 - Risk of Loss. Risk of loss and damage to or destruction
of the Kit shall transfer from Federal to Buyer upon Delivery of the Kits at
Federal's Facility.
Section 3.3 - Delivery of Manuals, Etc. Federal shall deliver to Buyer,
in accordance with the Kit Delivery Schedule, such data, manuals and other
documents as set forth in Exhibit E.
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BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
ARTICLE 4
INDEMNIFICATION
Section 4.1 - Buyer's Indemnification. (a) [BLACKOUT]
(b) [BLACKOUT]
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ARTICLE 5
WARRANTY
Section 5.1 - Warranty by Federal. (a) Subject to the limitations and
conditions set forth in Section 5.2 below and the proper Installation of the
Kits for which Federal takes no responsibility, Federal warrants to Buyer that
the Kits, at the time of Delivery of a Kit to Buyer, shall conform to the
Specifications and shall be free from defects arising from failure to conform
to the Specifications. The foregoing warranty shall not apply to accessories,
equipment or parts which are not manufactured by Federal.
(b) To obtain the benefit of the warranty provision above,
non-conformity to the Specification and defects arising from such failure to
conform to the Specification must become apparent within twenty four (24)
months from Delivery by Federal to Buyer of the Kits or four thousand (4000)
flight hours, from Installation by Buyer of the Kits as to which a warranty
claim is made by Buyer, whichever shall occur first (the "Warranty Period"),
failing which the above warranty shall expire and be of no force and effect.
Section 5.2 - Limitation of Warranty. (a) Federal's liability under
this Article 5 is limited to the repair of defects or to the repair or
replacement of articles or components (with a similar article or component free
from such defect) of any portions of the Kits which are defective. Any repair
or replacement shall not extend the Warranty Period beyond the period still
remaining on the original articles or components and any article or component
so replaced shall become the property of Federal. In addition, Federal reserves
the right to make changes in the design of parts, equipment and accessories
being replaced or repaired and to
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provide improvements without incurring any obligation to retrofit the same or
similar changes or improvements on other Kits of Buyer previously delivered
under this Agreement.
(b) Federal shall, as to each defect referred to above, be relieved
of all obligation and liability if:
(i) The Kit, or the Aircraft upon which it is installed, has been
operated in a manner not specifically approved under the STC,
unless Buyer establishes to the reasonable satisfaction of
Federal that such operation was not a cause of or contribute to
the defect;
(ii) The Aircraft upon which a Kit has been installed has not been
operated or maintained in accordance with the manuals of
instructions, data or other documentation furnished under
Section 3.3, unless Buyer establishes to the reasonable
satisfaction of Federal that such operation or maintenance, as
the case may be, was not a cause of the defect;
(iii) The Aircraft upon which a Kit has been installed shall have
been operated in a way not consistent with customary airline use
or Buyer's normal operations, unless Buyer establishes to the
reasonable satisfaction of Federal that such operation was not
the cause of or contribute to the defect;
(iv) The Kit shall have been altered, repaired or modified without
Federal's approval, unless Buyer establishes to the reasonable
satisfaction of Federal that such alteration, repair,
modification or operation was not a cause of or contribute to
the defect.
(v) Buyer does not (A) notify Federal within fifteen (15) days
following such defect becoming apparent to Buyer; and (B) return
the defective accessory, part or equipment to the location
directed by Federal (or, if such return is not feasible and
Federal so agrees in advance in writing, to Buyer's base repair
shop or other appropriate facility) within thirty (30) days of
such defect becoming apparent; or
(vi) Buyer does not submit reasonable proof to Federal within
fifteen (15) days after the defect becomes apparent that the
defect is due to a matter covered by Federal's warranty under
this Article 5.
(c) Federal shall approve or disapprove Buyer's substantiation of
its warranty claim in writing within sixty (60) days of the receipt thereof. In
the
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negotiation of the Purchase Price, the parties considered the limitations on,
and the exceptions to, the liability contained in this Article 5 and the
Purchase Price was based, in part, upon such limitations and exceptions.
(d) Normal wear and tear and the need for regular overhaul shall
not constitute a defect or failure under this Article 5.
(e) No warranty is given with respect to any equipment, accessory
or part which is not proprietary to Federal; however, Federal shall, pursuant
to Section 5.3, endeavor to obtain warranties from its vendors with respect to
such nonproprietary items which warranties shall either run to Buyer
specifically or be assignable to Buyer.
Section 5.3 - Assignment of Manufacturers' Warranties. Upon delivery
to Buyer of any Kits, Federal shall assign to Buyer all of Federal's rights
under any warranty (express or implied), service policy or product agreement of
the manufacturer or of any maintenance and overhaul agencies of any
accessories, equipment and parts incorporated in or a part of such Kits, or of
any subcontractor or supplier or vendor thereof, to the extent that such rights
are assignable and relate to such accessories, equipment and parts. Upon the
reasonable request of Buyer, Federal shall give notice to any such
manufacturers and maintenance and overhaul agencies of the assignment of such
warranty to Buyer.
Section 5.4 - Buyer's Acts or Omissions. Federal shall have no
liability whatsoever for any damages or claims of any nature arising in any
manner out of or from the acts or omissions of Buyer, Installation Facility or
any third party providing directly or indirectly services to Buyer, including
but not limited to the installation of any Kit on any aircraft or engine. Buyer
agrees to indemnify, defend and hold harmless Federal, its directors, officers
and employees from any and all liabilities, damages, losses, expenses, demands,
claims, suits or judgments,
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including reasonable attorneys' fees and expenses in any manner arising out of
such acts or omissions of Buyer, Installation Facility or any third party
providing directly or indirectly services to Buyer.
Section 5.5 - Exclusive Remedy. THE WARRANTIES PROVIDED IN THIS ARTICLE
5 AND THE OBLIGATIONS AND LIABILITIES OF FEDERAL HEREUNDER ARE EXCLUSIVE AND IN
LIEU OF, AND BUYER HEREBY WAIVES, ALL OTHER REMEDIES, WARRANTIES, GUARANTIES
OR LIABILITIES, EXPRESS OR IMPLIED, WITH RESPECT TO FEDERAL, ITS OFFICERS,
DIRECTORS, AGENTS AND EMPLOYEES, CONTRACTORS, VENDORS AND ITS SUBCONTRACTORS,
CONSULTANTS AND MATERIALMEN, ARISING BY LAW OR OTHERWISE, INCLUDING WITHOUT
LIMITATION ANY OBLIGATION OR LIABILITY OF FEDERAL AND SUCH OTHER PERSONS AND
ENTITIES ARISING FROM NEGLIGENCE OR WITH RESPECT TO FITNESS FOR A PARTICULAR
PURPOSE, MERCHANTABILITY, LOSS OF USE, REVENUE OR PROFIT OR FOR ANY SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES. BUYER HEREBY RELEASES AND HOLDS HARMLESS,
INDEMNIFIES AND DEFENDS FEDERAL AND SUCH OTHER PERSONS AND ENTITIES, WITH
COUNSEL ACCEPTABLE TO FEDERAL FROM AND AGAINST ANY AND ALL CLAIMS ARISING IN
ANY MANNER OUT OF OR IN CONNECTION WITH THIS AGREEMENT. THIS WARRANTY SHALL NOT
BE EXTENDED, ALTERED OR VARIED EXCEPT BY A WRITTEN INSTRUMENT SIGNED BY FEDERAL
AND BUYER.
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BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
ARTICLE 6
INSURANCE
Section 6.1 - Buyer's Insurance. [BLACKOUT]
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ARTICLE 7
RIGHTS IN DATA
Section 7.1 - Data Rights. All designs, drawings, specifications,
reports, computer software, photographs, instruction manuals, and other
technical information and data (the "Data") of Federal relating to the Kits or
the STC shall be deemed as confidential information to Federal and all
proprietary rights and interest in the subject matter thereof shall be and
remain the exclusive property of Federal. Buyer agrees that it will not use or
disclose any of Federal's Data for the manufacture or procurement of articles
which are the subject of this Agreement or any similar articles or cause said
articles to be manufactured by or procured from any other source, or reproduce
said Data and information or otherwise appropriate them without the written
authorization of Federal unless such rights are specifically authorized in this
agreement or in the data provided in Article 3.
Section 7.2 - Confidentiality. a) Buyer agrees that it will not
disclose or make available to any third party the details of this Agreement, any
of Federal's Data or other information pertaining to the Kits or the STC
obtained by Buyer from Federal without obtaining Federal's prior written
consent of unless such authorization is specifically authorized in this
Agreement or in the data provided in Article 3.
(b) Buyer acknowledges that any use or disclosure of any Data other
than for the sole benefit of Federal will be wrongful and will cause
irreparable injury to Federal and, therefore, agrees to hold such Data in
strictest confidence and not to make use of it other than for the benefit of
Federal.
(c) Buyer agrees that in the event of any violation or threatened
violation of this Section 7.2, Federal shall be entitled to obtain from any
court of competent jurisdiction preliminary and permanent injunctive relief as
well as an equitable
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accounting of all profits or benefits arising from such violation, which rights
and remedies shall be cumulative and in addition to any other rights or
remedies at law or in equity to which Federal may be entitled.
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ARTICLE 8
PATENT PROTECTION
Section 8.1 - Patent Indemnity. Federal hereby agrees to indemnify,
protect and hold harmless Buyer from and against all claims, demands,
proceedings, suits and actions and all liabilities, expenses and costs
(excluding any consequential damages, costs, expenses, liabilities and loss of
profits resulting from loss of use, but including costs of replacing the
infringing item or of otherwise curing any infringement on account of which use
of an Aircraft by Buyer is prevented) in case of any actual or alleged
infringement of any United States patent or any patent issued under the laws of
any other country into or out of which Buyer is from time to time lawfully
operating the Aircraft, provided such country is a signatory to Article 27 of
the convention on Civil Aviation signed by the United States at Chicago on
December 7, 1944 provided, however, that the foregoing agreement by Federal to
indemnify, protect and save harmless Buyer shall not apply to accessories,
equipment or parts which are not manufactured by Federal or pursuant to
Federal's detailed design or which are manufactured by or which are
incorporated in the Aircraft at Buyer's request in place of or in addition to
those proposed by Federal, or which were furnished by Buyer.
Section 8.2 - Limitations of Liability. (a) Federal's liability under
this Article 8 is conditioned upon commencement of suit against Buyer or
Buyer's receipt of written charge of such infringement, and upon written notice
by Buyer to Federal within ten (10) days after the receipt by Buyer of notice
of the institution of such suit after its receipt of such charge. Federal shall
have the option at any time to conduct negotiations with the party or parties
charging infringement, to intervene in any suit commenced, and to assume,
conduct or control the defense
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thereof.
(b) Federal's liability under this Article 8 is further conditioned
upon Buyer promptly furnishing to Federal all data, papers, records and other
assistance or defense against any such claim or suit for infringement; and
(except as to amounts payable under a judgment) upon Federal's prior written
approval of Buyer's payment or assumption of any expenses, damages, costs or
royalties for Federal is asked to respond pursuant hereto.
(c) The patent indemnity obligations above are in lieu of all other
patent indemnities whatsoever, whether oral, written, express or implied.
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ARTICLE 9
EXCUSABLE DELAY
Section 9.1 - Excusable Delay. (a) Neither Federal nor Buyer shall be
liable for nor be deemed to be in default on account of delays in the
performance of this Agreement due to causes not reasonably within their
respective control, including, but not limited to, civil war, insurrections,
strikes, riots, fires, floods, explosions, earthquakes, serious accidents,
acts of government, governmental priorities, allocation or orders affecting
materials, facilities, acts of God, acts of terrorism or sabotage, failure of
transportation systems, epidemics, quarantine restrictions or labor troubles or
other events causing cessation, slow-down or interruption of work, failures or
delays of vendors, contractors, subcontractors or materialmen to perform their
contracts, or due to any other cause reasonably beyond the control of,
respectively, Federal or Buyer ("Excusable Delay").
(b) Either Federal or Buyer shall have the absolute right, upon
thirty (30) days written notice to the other party, to terminate this Agreement
as to any Kits then undelivered without liability if an Excusable Delay covered
by this Article 9 continues for more than one hundred eighty (180) consecutive
days, inclusive of such thirty (30) day notice period.
(c) If an Excusable Delay causes a delay in the Kit Delivery
Schedule, the parties shall negotiate in good faith a revised schedule, as may
be applicable, mutually acceptable to both parties.
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ARTICLE 10
DEFAULT AND REMEDIES
Section 10.1. Events of Default. The occurrence of one or more of the
following events of default (the "Events of Default") shall entitle the
non-defaulting party to exercise those rights and remedies in Section 10.2:
(i) If either party shall fail in the performance of any of the
obligations contained in this Agreement, which failure shall
continue uncured for a period of five (5) business days
following written notice from the other party, unless the
defaulting party provides to the other adequate assurance of its
ability to cure such failure within a commercially reasonable
time, and thereafter so cures;
(ii) If either party shall file a voluntary petition in bankruptcy,
or shall be adjudicated as bankrupt or insolvent or shall file
any petition or answer seeking any reorganization, composition,
readjustment, liquidation or similar relief for itself under any
present or future statutes, law or regulation of the United
States or shall seek or consent to or acquiesce in the
appointment of any trustee, or shall make any general assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due;
(iii) If a petition shall be filed against either party seeking any
reorganization, composition, readjustment, liquidation or
similar relief under any present or future statute, law or
regulation of the United States and shall remain undismissed or
unstayed for an aggregate of ninety (90) days (whether or not
consecutive), or if any trustee, receiver or liquidator of
either party is appointed, which appointment shall remain
unvacated or unstayed for an aggregate of ninety (90) days
(whether or not consecutive); or
(iv) If any representation or warranty made by any party herein or
made in any statement or certificate furnished or required
hereunder, or in connection with the execution and delivery of
this Agreement proves untrue in any material respect as of the
date of the issuance or making thereof.
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Section 10.2. Remedies. (a) Upon the occurrence of an Event of Default
by Buyer, Federal shall be entitled to:
(i) terminate this Agreement with respect to any one or
more Kits scheduled to be delivered;
(ii) terminate this Agreement in its entirety;
(iii) reschedule the Kit Delivery Schedule;
(iv) retain possession of the Kit;
(v) retain the deposits and progress payments as
liquidated damages;
(vi) pursue all other remedies available at law or in
equity in addition to those set forth in this
Agreement, which remedies shall be cumulative and
not exclusive.
(b) Upon the occurrence of an Event of Default by Federal, Buyer
shall have the right to pursue all other remedies available at law or in equity
in addition to those set forth in this Agreement, which remedies shall be
cumulative and not exclusive.
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ARTICLE 11
TOOLING: SUPPORT SERVICES
Section 11.1 -- Support Services. (a) Federal will provide, at no
additional charge to Buyer, the services of an engineer experienced in Kit
Installation for up to ten business days to advise and assist Buyer's
Installation Facility with the initial Installation of an Aircraft Kit.
(b) Federal will maintain trained technical staff available to provide
consulting, technical, operational or trouble shooting services with respect to
the Kits.
(c) Buyer may submit a request for such services to FEASI Aviation
Products, 2600 Nonconnah Blvd., Suite 132, Memphis, Tennessee, 38132; Telephone:
(901) 922-6891, FAX: (901) 922-6872, Telex: 822101, SITA: MEMWZFM or to such
other contact as Federal may specify by Notice to Buyer. Off hours and weekend
A.O.G. and Technical Support can be obtained by calling "Sky Pager"
1-800-759-7243, Pin #52916, or to such other contact as Federal may specify by
notice to Buyer. A written request signed by appropriate management must be
submitted prior to initiation of the requested services.
(d) Services performed under this Section are available at no charge to
Buyer during the first three years following Installation. However, if such
services require FEASI or vendor personnel to perform services away from their
principal place of business in excess of five (5) days per request, Federal
reserves the right to be reimbursed for all or part of its actual reasonable
expenses of each occurrence of services so provided.
-24-
<PAGE> 28
ARTICLE 12
APPLICABLE LAW, NOTICES
Section 12.1 -- Exclusive Agreement: Applicable Law. This Agreement and
its Exhibits are the complete, exclusive and entire agreement between the
parties with respect to the subject matter hereof. This Agreement shall be
governed by and construed in accordance with the laws of the State of Tennessee,
U.S.A. and in executing this Agreement, the parties hereby submit to the
jurisdiction of the courts of the State of Tennessee and agree to Shelby County
as the appropriate venue for any claim or action brought under or arising from
this Agreement. This Agreement, and any term or condition hereof, shall not be
varied, contradicted, explained or supplemented by an oral agreement or
representation, by course of dealing or performance or by usage of trade, nor
amended or changed in any other manner except by an instrument in writing,
executed by both Federal and Buyer. Federal and Buyer agree that at the time of
execution hereof there are no other agreements, understandings, conditions,
warranties, guaranties or representations, oral or written, express or implied,
with respect to the subject matter of this Agreement that are not hereby merged
or superseded.
Section 12.2 -- Notices. Except as otherwise expressly provided in this
Agreement, all notices required or authorized shall be given in writing either
by personal delivery, by registered or certified mail or by Federal Express
Service, and the date on which any such notice is received by the addressee
shall be deemed to be the effective date of such notice. Notices to Federal and
Buyer shall be addressed as noted below, or to such other person or such other
address as a party may designate from time to time:
-25-
<PAGE> 29
<TABLE>
<S> <C>
If to Buyer: Postal Air, Inc.
2967 N. Air Field Drive
DFW Airport, TX 75261
Attn.: Mr. Jim Reeves
If to Federal: Federal Express Corporation
Attn.: Vice President,
Fleet Development & Acquisitions
2005 Corporate Ave.
Memphis, TN 38132
FAX: 901-395-3828
With a copy to: FEASI Aviation Products
Attn.: Managing Director
2600 Nonconnah Blvd., Suite 132
Memphis, TN 38132
FAX: 901-922-6872
</TABLE>
Section 12.3 - Waiver. The failure of either party to enforce at anytime
any of the provisions of this Agreement, or to require at any time performance
by the other party of any of the provisions hereof, shall in no way be construed
to be a present or future waiver of such provisions, nor in any way to effect
the validity of this Agreement or any part thereof, or the right of the other
party thereafter to enforce each and every such provision. The express waiver by
either party of any provision, condition or requirement to this Agreement shall
not constitute a waiver of any future obligation to comply with such provision,
condition or requirement.
Section 12.4 - Assignment. This Agreement shall inure to the benefit of
and be binding upon each of the parties hereto and their respective successors
and assigns, but neither the rights nor the duties of either party under this
Agreement may be assigned, in whole or part, by either party without the prior
written consent of the other party.
Section 12.5 - Non-Disclosure. Neither party hereto shall disclose the
price, payment or other terms of this Agreement or any agreement supplementing
or
-26-
<PAGE> 30
amending it, to third parties without the prior written consent of the other
party; provided, however, that either party may disclose this Agreement to the
extent required by law.
Section 12.6 - Transfer of Aircraft or Engines. Buyer may not resell or
lease any uninstalled Kits without Federal's prior written permission. Buyer may
sell, assign or transfer to any party an Aircraft or Engine upon which a Kit is
properly Installed at any time. The data, manuals and drawings provided with the
Kits by Federal may also be assigned upon obtaining execution of a
non-disclosure agreement reasonably satisfactory to Federal.
-27-
<PAGE> 31
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
first above written.
APPROVED FEDERAL EXPRESS CORPORATION
AS TO LEGAL FORM
CSB 10/22/92 By: /s/ JAMES R. PARKER
- ---------------- --------------------------------------
LEGAL DEPT.
Name: James R. Parker
--------------------------------------
Title: Vice President
--------------------------------------
("Federal")
POSTAL AIR, INC.
By: /s/ TILMON J. REEVES
--------------------------------------
Name: Tilmon J. Reeves
--------------------------------------
Title: Vice President
--------------------------------------
("Buyer")
-28-
<PAGE> 32
Exhibit A
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
------------------------------------------------------------
CONFIGURATION SPECIFICATION
I. FOR BOEING 727-100 SERIES LIGHTWEIGHT KIT
1. Airframe. Buyer is responsible for ensuring that the Aircraft described in
Exhibit C is a Boeing 727-100 airframe equipped with Pratt & Whitney JT8D-7
or -9 model Engines in serviceable condition under the Operator's
F.A.A.-approved maintenance manual, and is certified for operation at
maximum takeoff weights equal to the desired Stage 3 operating weight.
2. Engine, Nacelle, Pylon & Thrust Reverser.
A. Service Bulletins. The following manufacturer's service bulletins
(S.B.s) must be accomplished on the aircraft by Buyer at Buyer's expense
prior to or concurrent with the Installation:
<TABLE>
<S> <C>
P&W S.B. 4127 Incorporation of Double Wall Noise
Attenuation Treatment
P&W S.B. 5465 Incorporation of Improved No. 4 1/2 and 6
Bearing Outer Internal Oil Tube
Boeing S.B. 78-82 Cascade Vane Configuration
Boeing S.B. 78-84 and 78-86 (for thrust reversers equipped with long
track actuators; alternatively,
installation of track cover P/N
23-1110-55 must be accomplished)
Chin-duct mounted CSD oil cooler
installation (-7 engines only).
</TABLE>
Page 1 of 6
<PAGE> 33
<TABLE>
<S> <C>
P&W A.S.B. 5841 Improved first stage fan blade retaining
plate (-9, -9A, -15 & 15A) engines only.
P&W S.B. 6072 Re-angled Mid span shroud (-15A only)
</TABLE>
B. Parts. Buyer's Aircraft shall be equipped with the following parts
prior to or concurrent with Kit Installation:
Forward cone bolt #10-60517-39 or -53 for Elastomer type mounts or
#10-60517-47 or -51 for Metal-L-Flex type mounts.
Aft cone bolt #10-60517-46 or -54 for Elastomer type mounts or
#10-60517-12 or -52 for Metal-L-Flex type mounts.
3. Parts to be Conveyed to Federal Following Installation.
The following parts removed from the modified Engines will be conveyed to
Federal in servicable condition at Buyer's expense condition within 30 days
of Kit delivery:
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QUANTITY
--------------------------- --------------------------- ---------------------------
<S> <C> <C>
65-37963-xx Tailpipe Assy. 1 per Engine
or
65-27846-xx
or
65-57862-xx
or
24-1050-3, -5
23-1020-1, -11 Vane Assy, Cascade 2 per Engine
or
65-88232-xx
65-27811-xx Shroud Assy, Fwd 1 per Engine
or
22-80-xx
23-1110-1 Cover, Track 2 per Engine
or
65-37912-xx
or
65-37839-xx
750601 (typ -9) C-1 Fan Blades 27 per Engine
or
792101 (typ -7) C-1 Fan Blades 30 per Engine
65-19685-xx Boeing Inlet 2 per Aircraft
61-20194-xx Wiring Harness 3 per Aircraft
</TABLE>
Page 2 of 6
<PAGE> 34
II. FOR BOEING 727-200 SERIES LIGHTWEIGHT KIT
1. Airframe. Buyer is responsible for ensuring that the Aircraft described
in Exhibit C are Boeing 727-200 airframes equipped with Pratt & Whitney JT8D-7
or -9 model Engines in serviceable condition under the Operator's
F.A.A.-approved maintenance manual, and are certified for operation at
respective maximum takeoff and landing weights of up to 177,600 lbs. and 154,500
lbs. for -7 powered aircraft, or up to 169,500 lbs. and 154,500 lbs. for -9
powered aircraft.
2. Engine, Nacelle, Pylon & Thrust Reverser.
A. Service Bulletins. The following manufacturer's service bulletins
(S.B.s) must be accomplished on the aircraft by Buyer at Buyer's expense
prior to or concurrent with the Installation:
<TABLE>
<S> <C>
P&W S. B. 4127 Incorporation of Double Wall Noise
Attenuation Treatment
P&W S. B. 5465 Incorporation of Improved No. 4 1/2
and 6 Bearing Outer Internal Oil
Tube
Boeing S. B. 78-82 Cascade Vane Configuration
Boeing S. B. 78-84 and 78-86 (for thrust reversers equipped with
long track actuators; alternatively,
installation of track cover P/N
23-1110-55 must be accomplished)
Chin-duct mounted CSD oil cooler
installation (-7 engines only).
P&W A. S. B. 5841 Improved first stage fan blade
retaining plate (-9, -9A, -15 & 15A)
engines only.
P&W S. B. 6072 Re-angled Mid span shroud (-15A
only)
</TABLE>
B. Parts. Buyer's Aircraft shall be equipped with the following parts
prior to or concurrent with Kit Installation:
Forward cone bolt #10-60517-39 or -53 for Elastomer type mounts or
#10-60517-47 or -51 for Metal-L-Flex type mounts.
Aft cone bolt #10-60517-46 or -54 for Elastomer type mounts or
#10-60517-12 or -52 for Metal-L-Flex type mounts.
Page 3 of 6
<PAGE> 35
3. Parts to be Conveyed to Federal Following Installation.
The following parts removed from the modified Engines will be conveyed to
Federal in serviceable condition at Buyer's expense condition within 30
days of Kit delivery:
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QUANTITY
--------------------------- --------------------------- ---------------------------
<S> <C> <C>
65-37963-xx Tailpipe Assy 1 per Engine
or
65-27846-xx
or
65-57862-xx
or
24-1050-3, -5
23-1020-1, -11 Vane Assy, Cascade 2 per Engine
or
65-88232-xx
65-27811-xx Shroud Assy, Fwd 1 per Engine
or
22-80-xx
23-1110-1 Cover, Track 2 per Engine
or
65-37912-xx
or
65-37839-xx
750801 (typ -9) C-1 Fan Blades 27 per Engine
or
792101 (typ -7) C-1 Fan Blades 30 per Engine
65-19685-xx Boeing Inlet 2 per Aircraft
61-20194-xx Wiring Harness 3 per Aircraft
</TABLE>
III. FOR BOEING 727-200 SERIES HEAVYWEIGHT KIT
1. Airframe. Buyer is responsible for ensuring that the Aircraft described in
Exhibit C is a Boeing 727-200 airframe equipped with Pratt & Whitney
JT8D-9, -9A, -15, -15A, 17 or -17A model Engines in serviceable condition
under the Operator's F.A.A.-approved maintenance manual, and certified with
maximum takeoff weights and landing weights equivalent to the State 3
maximum takeoff and landing weights as may be desired, and as are offered
by Federal.
Page 4 of 6
<PAGE> 36
2. Engine, Nacelle, Pylon & Thrust Reverser.
A. Service Bulletins. The following manufacturer's service bulletins
(S.B.s) must be accomplished on the Aircraft by Buyer at Buyer's expense
prior to or concurrent with Kit installation:
<TABLE>
<S> <C>
P&W S.B. 2141 #1 Oil Damped Bearing
P&W S.B. 5532 Oil Cooler Outlet Fuel Tube
P&W A.S.B. 5841 Improved first Stage Blade Retaining Plate (-9, -9A, -15, -15A,
-17 & -17A Engines only)
P&W S.B. 6072 Re-Angled Midspan Shroud (-15A & -17A Engines only)
P&W S.B. 4127 Incorporation of Double Wall Noise Attenuation Treatment
P&W S.B. 5465 Incorporation of Improved No. 4 1/2 and 6 Bearing Outer Internal
Oil Tube
Boeing S.B. 78-82 Cascade Vane Configuration
Boeing S.B. 78-84 (for thrust reversers equipped with long track actuators;
and 78-86 alternatively, installation of track cover P/N 23-1110-55 must
be accomplished)
</TABLE>
B. Parts. Buyer's Aircraft shall be equipped with the following parts
prior to or concurrent with Kit Installation:
Elastomer-type forward and aft engine mounts if not already installed on
aircraft.
Forward cone bolt #10-60517-53 for Elastomer type engine mounts.
Aft cone bolt #10-60517-54 for Elastomer type engine mounts.
3. Parts to be Conveyed to Federal Following Installation.
The following parts removed from the modified Engines will be conveyed to
Federal at Buyer's expense in serviceable condition within 30 days of Kit
delivery:
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QUANTITY
- ----------------- -------------------- ---------------
<S> <C> <C>
24-1050-9 Tailpipe Assy 1 per Engine
or
65-57862-xx
</TABLE>
Page 5 of 6
<PAGE> 37
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QUANTITY
- ----------------- -------------------- ---------------
<S> <C> <C>
750801 (typical) C-1 Fan Blades 27 per Engine
or
790831
23-1020-1, -11 Vane Assy, Cascade 2 per Engine
or
65-88232-xx
65-27811-xx Shroud Assy, Fwd 1 per Engine
or
22-80-xx
23-1110-1 Cover, Track 2 per Engine
or
65-37912-xx
or
65-37839-xx
61-20194-xx Thrust Reverser 3 per Aircraft
Wiring Harness
65-37985-9 Actuator Fairing 3 per Aircraft
Assembly
65-25397-147 Body Fin Fairing 1 per Aircraft
Assembly
TBD Mach Airspeed 2 per Aircraft
Indicator
</TABLE>
Page 6 of 6
<PAGE> 38
EXHIBIT B
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
------------------------------------------------------------
I. B727-100 LIGHTWEIGHT KIT SPECIFICATIONS
1. Major Components. (a) Each Aircraft Kit consists of the following major
components:
<TABLE>
<CAPTION>
DESCRIPTION PART NUMBERS QUANTITY
- ------------------------ ---------------- --------
<S> <C> <C>
Center Mixer Kit 807896 1
Pod Mixer Kit 807895 2
Thrust Reverser Kit 33-1000-21 3
Airframe/Pylon Kit B27-54-003 1
Acoustical Inlet, Left 727-22000-xxx 1
Acoustical Inlet, Right 727-22000-xxx 1
C-1 Fan Blades 845601 (-9 typ) 81
or
844201 (-7 typ)
</TABLE>
2. Stage 3 Compliance. Each Aircraft Kit, after Installation on an Aircraft
meeting the Configuration Specification, will permit such Aircraft to
comply with Stage 3 when operated at -7 or -9 thrust.
3. Performance. The Aircraft described in Exhibit C, with an aircraft Kit
properly installed, will not suffer a reduction in operating performance as
a result of the Installation of such aircraft Kit with regard to thrust, N1
and N2 rotor speeds or exhaust gas temperature.
Page 1 of 3
<PAGE> 39
II. B727-200 LIGHTWEIGHT KIT SPECIFICATIONS
1. Major Components. (a) Each Aircraft Kit consists of the following major
components:
<TABLE>
<CAPTION>
DESCRIPTION PART NUMBERS QUANTITY
- ------------------------ ---------------- --------
<S> <C> <C>
Center Mixer Kit 807896 1
Pod Mixer Kit 807895 2
Thrust Reverser Kit 33-1000-21 3
Airframe/Pylon Kit B27-54-003 1
Acoustical Inlet, Left 727-11000-xxx 1
Acoustical Inlet, Right 727-10000-xxx 1
C-1 Fan Blades 845601 (-9 typ) 81
or
844201 (-7 typ)
</TABLE>
2. Stage 3 Compliance. Each Aircraft Kit, after Installation on an Aircraft
meeting the Configuration Specification, will permit such Aircraft to
comply with Stage 3 when operated at -7 thrust at a maximum takeoff weight
of up to 177,600 lbs. and a maximum landing weight of up to 154,500 lbs.,
or when operated at -9 thrust and a maximum takeoff weight of up to 169,500
lbs. and a maximum landing weight of up to 154,500 lbs.
3. Performance. The Aircraft described in Exhibit C, with an aircraft Kit
properly installed, will not suffer a reduction in operating performance as
a result of the Installation of such Aircraft Kit with regard to thrust, N1
and N2 rotor speeds or exhaust gas temperature.
III. HEAVYWEIGHT KIT SPECIFICATIONS
1. Major Components. (a) Each Heavyweight Kit consists of the following major
components:
<TABLE>
<CAPTION>
DESCRIPTION PART NUMBERS QUANTITY
- ----------------------------- ----------------- --------
<S> <C> <C>
Center Mixer Kit 807896-002 1
Pod Mixer Kit 807895 2
Thrust Reverser Kit 33-2000-3 3
Airspeed Indicator WL606AMA10 2
Respaced Inlet Guidevane Kit 808966 2
Double Chamfer C-1 Blades 808231 or 845601 81
</TABLE>
2. Stage 3 Compliance. Each Aircraft Kit, after Installation on an Aircraft
meeting the Configuration Specification, will permit such Aircraft, with a
maximum takeoff weight of up to 199,000 lbs. to comply with Stage 3 when
operated at -15 thrust; such other Heavyweight Kits for -9 and -17 powered
aircraft, as may be offered by Federal, shall similarly permit an Aircraft
to comply with Stage 3 at the certified Kit weight combinations.
Page 2 of 3
<PAGE> 40
3. Performance. The Aircraft described in Exhibit C, with an aircraft Kit
properly installed, will not suffer a reduction in operating performance as
a result of the Installation of such Aircraft Kit with regard to thrust, N1
and N2 rotor speeds or exhaust gas temperature.
III. HEAVYWEIGHT UPGRADE KIT SPECIFICATIONS
1. Major Components. (a) Each Heavyweight Upgrade Kit consists of the
following major components:
<TABLE>
<CAPTION>
DESCRIPTION PART NUMBERS QUANTITY
----------------------------- ----------------------- --------
<S> <C> <C>
Airframe Kit B27-53-019 2
B27-53-025 1
Pylon Kit B27-54-016 1
Airspeed Indicator WL606AMA10 2
Thrust Reverser Kit 24-1056-25 3
25-1000-1 3
23-1061-52 3
23-1061-54 3
23-1061-59 3
23-1061-66 3
23-1061-67 3
23-1118-1 3
25-1020-1 3
25-1021-1 3
Respaced Inlet Guidevane Kit 808966 2
Double Chamfer C-1 Blades 845431 or 845601 81
Acoustic Tailpipes 24-1050-23/25/27 or 29 3
Acoustic Tailpipe Extension 24-1056-25 3
</TABLE>
2. Stage 3 Compliance. Each Aircraft Kit, after Installation on an Aircraft
meeting the Configuration Specification, will permit such Aircraft, with a
maximum takeoff weight of up to 199,000 lbs. to comply with Stage 3 when
operated at -15 thrust; such other Heavyweight Kits for -9 and -17 powered
aircraft, as may be offered by Federal, shall similarly permit an Aircraft to
comply with Stage 3 at the certified Kit weight combinations.
3. Performance. The Aircraft described in Exhibit C, with an aircraft Kit
properly installed, will not suffer a reduction in operating performance as a
result of the Installation of such Aircraft Kit with regard to thrust, N1 and
N2 rotor speeds or exhaust gas temperature.
Page 3 of 3
<PAGE> 41
Exhibit C
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
------------------------------------------------------------
LIGHTWEIGHT KIT DELIVERY SCHEDULE
A. Not later than November 3, 1992, Buyer shall provide written notice to
Federal of its choice of one delivery schedule from the two options listed
below (1 or 2):
1. Delivery schedule option 1:
<TABLE>
<CAPTION>
AIRCRAFT MODEL/ SCHEDULED
KIT NO. ENGINE TYPE DELIVERY DATE
- ------- ----------------- -----------------
<S> <C> <C>
1 B727-100 / JT8D-7 November 17, 1992
2 B727-100 / JT8D-7 November 17, 1992
3 B727-100 / JT8D-7 December 2, 1992
4 B727-100 / JT8D-7 December 2, 1992
5 B727-100 / JT8D-7 December 2, 1992
6 B727-200 / JT8D-9 March 1, 1993
7 B727-200 / JT8D-9 March 1, 1993
8 B727-200 / JT8D-7 March 1, 1993
9 B727-200 / JT8D-9 April 1, 1993
10 B727-200 / JT8D-7 April 1, 1993
</TABLE>
2. Delivery schedule option 2:
<TABLE>
<CAPTION>
AIRCRAFT MODEL/ SCHEDULED
KIT NO. ENGINE TYPE DELIVERY DATE
- ------- ----------------- -----------------
<S> <C> <C>
1 B727-100 / JT8D-7 November 17, 1992
2 B727-100 / JT8D-7 November 17, 1992
3 B727-100 / JT8D-7 December 2, 1992
4 B727-100 / JT8D-7 December 2, 1992
5 B727-100 / JT8D-7 December 2, 1992
6 B727-200 / JT8D-9 December 17, 1992
7 B727-200 / JT8D-9 December 17, 1992
8 B727-200 / JT8D-7 January 14, 1993
9 B727-200 / JT8D-7 January 14, 1993
10 B727-200 / JT8D-9 January 14, 1993
</TABLE>
Page 1 of 1
<PAGE> 42
If Delivery Schedule Option 2 is selected, Buyer agrees to return one
shipset of exchange C-1 fan blades (as defined in Exhibit A) to Federal or
its designee within 5 business days of each Kit delivery. Buyer
acknowledges that Federal shall not be liable for any Kit delivery delays
resulting from not receiving the above referenced blades within 5 business
days.
B. Federal and Buyer agree to determine the Aircraft Serial Number for each Kit
upon Agreement execution for Kits 1-5, and not later than Sixty (60) days
prior to the delivery date established above for Kits 6-10. Buyer
acknowledges its understanding that the normal FAA processing time for the
aircraft flight manual supplement is 30-60 days and that Federal shall not
be liable for delays resulting from not receiving the above referenced
information at least 60 days prior to scheduled Kit delivery.
Page 2 of 2
<PAGE> 43
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Exhibit D
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
----------------------------------------------------------
PURCHASE PRICE AND PAYMENT SCHEDULE
Notwithstanding anything in this Agreement to the contrary, the entire Purchase
Price for any Kit must be paid not later than the Delivery Date of such Kit.
I. PURCHASE PRICE
The Purchase Price for the manufacture and delivery of Ten (10)
Lightweight Kits shall be: [BLACKOUT] for each B727-100 Lightweight Aircraft Kit
and [BLACKOUT] for each B727-200 Lightweight Aircraft Kit if such Kits shall be
delivered by May 31, 1993. In the event Buyer supplies Double Chamfer Cut C-1
Fan Blades for the three Engines on an Aircraft, Federal shall provide Buyer
with a credit in the amount of [BLACKOUT] toward the Kit Purchase Price. If any
Kit is scheduled for delivery after May 31, 1993, such Kit Price shall be
adjusted according to the formula outlined in Exhibit E.
II. PAYMENT AND DEPOSIT SCHEDULE
A. Within ten (10) days following execution of this Agreement, Buyer shall
pay to Federal an initial non-refundable deposit of [BLACKOUT] per Kit and shall
pay to Federal an additional non-refundable amount of [BLACKOUT] as an advance
payment for Kits number One (1) through Five (5). Buyer shall also, within ten
(10) days following execution of this Agreement, establish an irrevocable letter
of credit in a form acceptable to Federal, with Citibank N.A., Union Planters
National Bank of Tennessee or another bank acceptable to Federal, whose short
term credit rating shall be AA or higher, which letter of credit shall guarantee
payment of [BLACKOUT] per Kit to Federal on Kits number Six (6) through Ten (10)
in any event of default by Buyer.
Page 1 of 2
<PAGE> 44
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
B. All payments shall be made by wire transfer in immediately available
U.S. funds to the account of Federal Express Corporation, account number
0710784, at Union Planters National Bank (ABA number 084000084).
III. OPTIONS ON ADDITIONAL KITS
Subject to Buyer taking delivery of the ten (10) Kits specified in Paragraph I
above, Buyer shall have the option to purchase up to twelve (12) additional
Aircraft Kits for Delivery between April 1, 1993 and December 31, 1996 for use
on its aircraft, and subject to all other terms and conditions of this
Agreement. Buyer shall provide Federal with a minimum of 180 days written
notice of the date delivery of each Kit is requested. Federal shall make best
efforts to deliver the requested number of Kits in the requested month but
shall not be obligated to provide more than Two (2) Kits in any given month.
The Purchase Price of these Kits shall be [BLACKOUT] for each B727-100
Lightweight Kit, [BLACKOUT] for each B727-200 Lightweight Kit and [BLACKOUT]
Dollars U.S. [BLACKOUT] for each B727-200 Heavyweight Kit. These prices shall be
escalated for Kits delivered after August 31, 1993 according to the Price
Adjustment Formula in Exhibit F. In the event Buyer supplies Double Chamfer Cut
C-1 Fan Blades for the three Engines on an Aircraft with regard to Option Kits,
Federal shall provide Buyer with a credit in the amount of [BLACKOUT] toward the
Option Kit Purchase Price. Heavyweight Kits shall not be available for delivery
before July 1, 1993.
IV. HEAVYWEIGHT UPGRADE KITS
Between July 1, 1994 and December 31, 1996, Buyer shall have the option to
purchase from Federal shipset kits of components to allow the upgrade of its
B727-200 Lightweight Aircraft Kits to Heavyweight Kits, as available from
Federal. The Purchase Price of such upgrade Kits shall be [BLACKOUT]. Federal
shall issue Buyer a [BLACKOUT] credit toward the Purchase Price of each
Heavyweight Upgrade Kit if Buyer provides Boeing acoustical inlets and returns
to Federal in serviceable condition the Burbank Acoustical inlets furnished with
the Lightweight Aircraft Kit. Buyer shall provide Federal with at least 270 days
written notice of the desired Delivery Date of each Heavyweight Upgrade Kit and
shall pay Federal a non-refundable deposit of [BLACKOUT] for each Heavyweight
Upgrade Kit so ordered. The Purchase Prices of Heavyweight Upgrade Kits
described in this Paragraph shall be subject to adjustment according to the
formula in Exhibit F.
Page 2 of 2
<PAGE> 45
Exhibit E
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
_________________________________________________________
DATA, MANUALS AND TECHNICAL DOCUMENTATION
1. General. Federal shall furnish to Buyer the data, manuals and technical
documentation described in this Exhibit E in the quantities and media
specified, delivered to the indicated addressee. Unless otherwise
specified herein, such Data shall be furnished by Federal at no
additional charge to Buyer. All Data shall be in the English language
and units of measurement, except as otherwise specified.
2. Revisions. Federal shall provide Buyer with Data revision service as
necessary for the operation and maintenance of the Kits, in the
quantities and format specified in this Exhibit, for so long as Buyer
owns any aircraft with a Kit installed. Federal shall also provide
Buyer with revisions pertaining to such matters as FAA-required changes,
in-service experience, and changes involving safety for as long as Buyer
owns any aircraft with a Kit installed.
3. Buyer Addressee. All Data furnished by Federal hereunder, unless Buyer
notifies Federal otherwise, shall be shipped to:
Postal Air, Inc.
Attn: 2967 Airfield Drive
DFW Airport, TX 75261
Page 1 of 2
<PAGE> 46
DATA AND DOCUMENTS
Delivery
Item Description/Document No. Schedule Quantity Format
- ---- ------------------------ -------- -------- ------
1 Aircraft Flight Manual B 1 Print 1 side
Supplement
2 Stage 3 Kit Installation A 1 Print 1 side
Manual 727S307LW
3 Aviation Equipment Overhaul A 1 Print 1 side
Manuals 727-23-2 & 727-23-5
4 Pylon Installation Drawings A 1 Print 1 side
B727-54-003
Thrust Reverser Harness A 1 Print 1 side
Drawing (#B27-78-001-12)
5 Supplemental Type Certificate A 1 Print 1 side
Note: Parts Catalog information is included in Item No. 2
Delivery Schedule
Code Meaning
- ---- -------
A Concurrent with delivery of each Kit.
B Concurrent with delivery of each Kit, or within 60 days of receipt
of Aircraft Serial Number, whichever is later.
Page 2 of 2
<PAGE> 47
EXHIBIT F
to that certain
Purchase Agreement
between
Federal Express Corporation
("Federal")
and
Postal Air, Inc. ("Buyer")
Dated October 22, 1992
------------------------------------------
PURCHASE PRICE ESCALATION FORMULA
Kit Purchase Prices as agreed upon by the parties in this agreement will be
calculated in accordance with the formula set forth below:
P = [(P - P ) x (CPI CPI ) ] + P
i base pw1 Del / base pw2
Where P = Kit Purchase Price (rounded to the nearest whole number)
i
P = Base Kit price (September 1992 dollars)
base
P = Pratt & Whitney (PW) Commercial Parts Support
pw1 Price List prices as of September 1, 1992 for PW
parts included in the kit.
P = Pratt & Whitney (PW) Commercial Parts support Price List
pw2 as of the date of scheduled Delivery for
PW parts included in the kit.
CPI = U.S. Government Consumer Price Index for all Urban Areas
base as of September, 1992.
CPI = U.S. Government Consumer Price Index for all Urban Areas
Del as of Kit Delivery Date.
If the U.S. Department of Labor, by footnote, appendix or by any method,
discontinues or revises any of the data referred to above (not including
benchmark adjustments) or revises the methodology of obtaining them, Buyer
and Federal shall mutually agree upon a substitute for the revised or
discontinued data. Said
Page 1 of 2
<PAGE> 48
substitute is to lead in application to the same adjustment result, insofar as
possible, as would have been achieved by continuing the use of the original
data had it not been revised or discontinued. If escalation provisions are made
nonenforceable or otherwise rendered null and void by law or by any agency of
the United States Government, the parties agree, to the extent they may
lawfully do so, to adjust equitably the purchase price of each Kit to reflect
an allowance for increases in labor and materials costs occurring since
September 1, 1992 to the date of Delivery for such Kit.
Index values used at the time of Delivery are not subject to later adjustment.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.46
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Amendment 1
To that certain Purchase Agreement dated October 22, 1992
between Federal Express Corporation and Postal Air, Inc.
RECITALS
This Amendment (the "Amendment") is entered into by and between Federal Express
Corporation ("Federal") and Postal Air, Inc. ("Buyer") and amends the Purchase
Agreement dated as of October 22, 1992 (the "Purchase Agreement") by and between
Federal and Buyer. Terms capitalized herein which are not otherwise defined in
this Amendment shall have the meanings set forth for such terms as provided in
the Purchase Agreement unless the context clearly requires otherwise.
1. Federal and Buyer entered into the Purchase Agreement, which specifies the
purchase of Ten (10) Aircraft Kits from Federal by Buyer, and
2. A temporary restraining order by a Federal judge has resulted in the
imposition of an "ANET contract Stop work order" by the U.S. Postal
Service, which is affecting Buyer's ability to take delivery of Aircraft
Kits according to the original dates specified in the Agreement, Buyer and
Federal now therefore agree, in consideration of the foregoing and the
mutual covenants contained herein, as follows:
1. Exhibit C to the Purchase Agreement shall be replaced in its entirety
with the following:
A. Within Ten (10) business days following the lifting of the "ANET
Contract Stop Work Order" by the U.S. Postal Service, or January
30, 1993, whichever date shall occur first, Buyer shall negotiate
new delivery dates with Federal for Aircraft Kits for delivery
not later than September 1993. Federal shall use best efforts to
deliver Kits according to the schedule requested by Buyer, but
shall not be obligated to provide any kits until 210 days after
deposits are received from Buyer.
B. Federal and Buyer agree to determine the Aircraft serial number
for each kit not later than Sixty (60) days prior to the
negotiated delivery dates. Buyer acknowledges its understanding
that the normal FAA processing time for the Aircraft Flight
Manual Supplements is 30-60 days and that Federal shall not be
liable for any delays resulting from not receiving the above
referenced information at least 60 days prior to the negotiated
Kit delivery dates.
2. Exhibit D, Paragraph II is replaced in its entirety with the
following:
A. Within Ten (10) days following the lifting of the "ANET Contract
Stop Work Order" issued by the U.S. Postal Service in November
1992, or January 30, 1993, whichever date shall occur first,
Buyer shall pay to Federal the non-refundable deposits of
[BLACKOUT] per Kit required under the Agreement. The balance of
the Purchase Price for each Kit shall be due at Delivery.
<PAGE> 2
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
B. All payments shall be made by wire transfer in immediately
available U.S. funds to the account of Federal Express
Corporation, account number 0710784, at Union Planters National
Bank (ABA number 084000084).
3. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full effect.
IN WITNESS WHEREOF, the Parties have signed this Amendment to the Agreement on
this 17th day of November, 1992.
APPROVED FEDERAL EXPRESS CORPORATION
AS TO LEGAL FORM ("Federal")
/s/ CSB 11/17/92
- ------------------ By: JAMES R. PARKER
LEGAL DEPARTMENT ------------------------------
Name: James R. Parker
---------------------------------
Title: Vice President
---------------------------------
POSTAL AIR, INC.
("Buyer")
By: TILMON J. REEVES
------------------------------
Name: Tilmon J. Reeves
---------------------------------
Title: Vice President
---------------------------------
<PAGE> 1
EXHIBIT 10.47
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Amendment 2
To that certain Purchase Agreement dated October 22, 1992
between Federal Express Corporation and Postal Air, Inc.
RECITALS
This Amendment (the "Amendment") is entered into by and between Federal Express
Corporation ("Federal") and Postal Air, Inc. ("Buyer") and amends the Purchase
Agreement dated as of October 22, 1992 (the "Purchase Agreement") by and
between Federal and Buyer. Terms capitalized herein which are not otherwise
defined in this Amendment shall have the meanings set forth for such terms as
provided in the Purchase Agreement unless the context clearly requires
otherwise.
1. Federal and Buyer entered into the Purchase Agreement, which specifies the
purchase of Ten (10) Aircraft Kits from Federal by Buyer, and
2. A restraining order issued by a Federal judge has negated the award of the
ANET-93-01 contract to Buyer by the U.S. Postal Service, which is affecting
Buyer's ability to take delivery of Aircraft Kits according to the original
dates specified in the Agreement, Buyer and Federal now therefore agree, in
consideration of the foregoing and the mutual covenants contained herein,
as follows:
1. Exhibit C to the Purchase Agreement shall be replaced in its entirety
with the following:
A. Within Ten (10) business days following the reawarding of the
ANET-93-01 contract to Buyer by the U.S. Postal Service, Buyer
shall negotiate new delivery dates with Federal for the Ten (10)
Aircraft Kits. Federal shall use best efforts to deliver Kits
according to the schedule requested by Buyer, but shall not be
obligated to provide any kits until 210 days after deposits are
received from Buyer. Should Buyer not be reawarded the ANET-93-01
contract by April 30, 1993, or otherwise proceed with the terms
and conditions of the Agreement, Buyer shall elect One (1) of the
following options by written notice to Federal not later than
April 30, 1993:
i. Buyer may elect to terminate the Agreement by paying to
Federal a one-time cancellation fee of $300,000 not later
than May 10, 1993, upon which the Parties shall have no
further obligation to one another.
ii. Buyer may request one further extension of the dates on
which deposits and delivery date notice shall be required
<PAGE> 2
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
to a date not later than December 31, 1993. If Buyer
thereafter elects to terminate the Agreement, Buyer shall
pay to Federal a one-time cancellation fee of $500,000
within ten days of providing such notice or January 10,
1994, whichever date shall occur first. Upon the payment of
such cancellation fee by the above dates, the Parties shall
have no further obligation to one another.
iii. Buyer may elect to proceed with delivery of one (1) or more
Kits between August 1, 1993 and December 31, 1994 on dates
to be mutually agreed upon by the Parties. If this option
is elected, Buyer shall, not later than May 10, 1993,
place with Federal a non-refundable deposit of [BLACKOUT]
per Kit, which shall be applicable to the Purchase Price.
Such Kits shall be purchased at Federal's 1993 list price
of [BLACKOUT] per B727-100 Lightweight Kit, [BLACKOUT] per
B727-200 Lightweight Kit or [BLACKOUT] per B727-200
Heavyweight Kit. In the event this option is elected, and
the Kit(s) are delivered in accordance with the terms and
conditions of the Agreement, no further cancellation fees
shall be payable and the Parties shall have no further
obligations to one another.
B. Federal and Buyer agree to determine the Aircraft serial number
for each kit not later than sixty (60) days prior to the
negotiated delivery dates of such Kit. Buyer acknowledges its
understanding that the normal FAA processing time for the
Aircraft Flight Manual Supplements is 30-60 days and that Federal
shall not be liable for any delays resulting from not receiving
the above referenced information at least sixty (60) days prior
to the negotiated Kit delivery dates.
2. Exhibit D, Paragraph II is replaced in its entirety with the
following:
A. Within Ten (10) business days following the reawarding of the
ANET-93-01 contract to Buyer by the U.S. Postal Service or May
10, 1993 if Buyer elects to exercise the option outlined in
Section A.iii of Exhibit C, Buyer shall pay to Federal the
non-refundable deposits of [BLACKOUT] per Kit required under the
Agreement. The balance of the Purchase Price for each Kit shall
be due at Delivery.
B. All payments shall be made by wire transfer in immediately
available U.S. funds to the account of Federal Express
Corporation, account number 0710784, at Union Planters National
Bank (ABA number 084000084).
3. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full effect.
<PAGE> 3
IN WITNESS WHEREOF, the Parties have signed this Amendment to the Agreement on
this _____ day of February, 1993.
FEDERAL EXPRESS CORPORATION
("Federal")
By: JAMES R. PARKER
----------------------------
Name: James R. Parker
-------------------------------
Title: Vice President
-------------------------------
POSTAL AIR, INC.
("Buyer")
By: TILMON J. REEVES
----------------------------
Name: Tilmon J. Reeves
-------------------------------
Title: Vice President
-------------------------------
<PAGE> 1
EXHIBIT 10.48
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Amendment Three
To that certain Purchase Agreement dated October 22, 1992
between Federal Express Corporation and Postal Air, Inc.
This Amendment to Purchase Agreement (the "Amendment") is entered into by and
between Federal Express Corporation ("Federal") and Postal Air, Inc. ("Buyer")
and amends the Purchase Agreement dated as of October 22, 1992 (and as amended
by Amendments One and Two dated November 17, 1992 and February 1993
respectively, the "Purchase Agreement") by and between Federal and Buyer. Terms
capitalized herein which are not otherwise defined in this Amendment shall have
the meanings set forth for such terms as provided in the Purchase Agreement
unless the context clearly requires otherwise.
RECITALS
1. Federal and Buyer entered into the Purchase Agreement, which specifies the
purchase of Ten (10) Aircraft Kits from Federal by Buyer;
2. As a result of a federal district decision negating and voiding the award
by the United States Postal Service to Buyer of a material contract,
Buyer shall be unable to take delivery of the Aircraft Kits;
3. Federal and Buyer desire to amend the Purchase Agreement to reflect their
agreement with respect to Buyer's inability to perform under the Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing, and subject to the conditions
set forth herein, the parties hereto agree as follows:
1. Exhibit C to the Purchase Agreement shall be replaced in its entirety
with the following:
A. Buyer shall have the option to take delivery of one (1)
Lightweight Aircraft Kit between January 1, 1994 and December 31,
1994. Buyer shall provide Federal with a minimum of 210 days
notice of the date delivery of the Kit is desired.
B. Federal and Buyer agree to determine the Aircraft serial number
for each kit not later than Sixty (60) days prior to the
negotiated delivery dates. Buyer acknowledges its understanding
that the normal FAA processing time for the Aircraft Flight
Manual Supplements is 30-60 days and that Federal shall not be
liable for any delays resulting from not receiving the above
referenced information at least 60 days prior to the negotiated
Kit delivery dates.
Page 1 of 3
<PAGE> 2
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
2. Exhibit D, Paragraph I is replaced in its entirety with the following:
The Purchase Price for the manufacture and delivery of one (1)
Lightweight Kit in 1994 shall be [BLACKOUT] for each 727-100
Lightweight Kit and [BLACKOUT] for each 727-200 Lightweight Kit. In
the event Buyer provides the double chamfer-cut C-1 fan blades
required for the Installation, Federal shall provide to Buyer a credit
in the amount of [BLACKOUT] for each engine so installed.
3. Exhibit D, Paragraph II is replaced in its entirety with the
following:
A. In consideration of Federal's release of Buyer from its
obligations to purchase ten (10) Aircraft Kits, and for the
payment of damages incurred by Federal in connection with such
release, Buyer shall pay to Federal not later than June 18, 1993
a termination fee of Three Hundred Thousand Dollars U.S.
($300,000), which may, in the event Buyer exercises its option to
purchase the Kit, be applied toward the Purchase Price of the
Kit. The balance of the Purchase Price for the Kit shall be due
at Delivery. In the event Buyer does not exercise its option to
take delivery of the Kit, as indicated in Exhibit C, Federal
shall retain the termination fee and the Parties shall have no
further obligation to one another with respect to the Purchase
Agreement.
B. All payments shall be made by wire transfer in immediately
available U.S. funds to the account of Federal Express
Corporation, account number 0710784, at Union Planters National
Bank (ABA number 084000084).
4. Exhibit D, Paragraph III shall be deleted in its entirety.
5. Exhibit D, Paragraph IV shall be renumbered as Paragraph III.
6. The execution and delivery of this Amendment by Federal is expressly
conditioned upon the delivery of the $300,000 termination fee referred
to in Paragraph 3 above within the time frame set forth in such
paragraph. In the event such termination fee is not timely paid, this
Amendment shall be null and void, ab initio.
Page 2 of 3
<PAGE> 3
7. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full effect.
IN WITNESS WHEREOF, the Parties have signed this Amendment to this 11th day of
June, 1993.
APPROVED FEDERAL EXPRESS CORPORATION
AS TO LEGAL FORM ("Federal")
/s/ CSB 6/11/93
- ------------------ By: JAMES R. PARKER
LEGAL DEPARTMENT ----------------------------
Name: James R. Parker
-------------------------------
Title: Vice President
-------------------------------
POSTAL AIR, INC.
("Buyer")
By: TILMON J. REEVES
-----------------------------
Name: Tilmon J. Reeves
--------------------------------
Title: President
--------------------------------
SIGNED 6/18/93
Page 3 of 3
<PAGE> 1
EXHIBIT 10.49
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Amendment Four
To that certain Purchase Agreement dated October 22, 1992
between Federal Express Corporation and Postal Air, Inc.
This Amendment to the Purchase Agreement ("Amendment #4") is entered into by and
between Federal Express Corporation ("Federal") and Kitty Hawk Air Cargo, Inc.,
as successor-in-interest to Postal Air, Inc., and Aircraft Leasing, Inc., an
affiliate of Kitty Hawk Air Cargo, Inc. ("Buyer") and amends the Purchase
Agreement dated October 22, 1992 (and as amended by Amendments One, Two and
Three dated November 17, 1992, February 1993 and June 11, 1993 respectively, the
"Purchase Agreement") by and between Federal and Buyer. Terms capitalized herein
which are not otherwise defined in this Amendment shall have the meanings set
forth for such terms as provided in the Purchase Agreement unless the context
clearly requires otherwise.
RECITALS
1. Federal and Buyer entered into the Purchase Agreement, which originally
specified delivery of ten (10) Aircraft Kits from Federal to Buyer;
2. Federal and Buyer amended the Purchase Agreement in Amendment #3 to
reflect their agreement with respect to Buyer's inability to perform
under the Purchase Agreement;
3. Amendment #3 specified the payment by Buyer to Federal of a Termination
Fee in the amount of $300,000, with such Termination Fee being
applicable to the Purchase Price of one (1) Lightweight Kit if ordered
prior to May 31, 1994 for delivery not later than December 31, 1994;
4. Buyer paid to Federal the Termination Fee outlined in Paragraph 3,
above;
5. Buyer has notified Federal of is intent to purchase one (1) Lightweight
Aircraft Kit with a mutually agreed upon delivery date of June 16, 1994;
NOW, THEREFORE, in consideration of the foregoing, and subject to the terms and
conditions set forth herein, the parties hereto agree as follows:
1. Postal Air, Inc. has changed its legal operating name to Kitty Hawk Air
Cargo, Inc. All references to "Buyer" in the Purchase Agreement shall
mean Kitty Hawk Air Cargo, Inc. and Aircraft Leasing, Inc. Each of Kitty
Hawk Air Cargo, Inc. and Aircraft Leasing, Inc. shall be jointly and
severably liable for all of Buyer's obligations and liabilities which
may accrue hereunder. By its execution hereof, Aircraft Leasing, Inc.
Page 1 of 5
<PAGE> 2
agrees to adhere to and be bound by the terms and conditions of the
Purchase Agreement and to assume all obligations and liabilities
thereunder.
2. The notice address for Buyer in Section 12.2 and Exhibit E shall be
replaced with the following:
Kitty Hawk Air Cargo, Inc.
Attn.: Mr. Jim Reeves
1515 20th Street
DFW Airport, TX 75261
FAX: 214-456-2296
3. Exhibit C of the Purchase Agreement shall be replaced in its entirety
with the following:
A. Delivery Schedule:
<TABLE>
<CAPTION>
AIRCRAFT MODEL/ SCHEDULE
KIT NO. ENGINE/SERIAL NO. DELIVERY DATE
------- ----------------- -------------
<S> <C> <C>
1 B727-200/JT8D-9A/ June 16, 1994
20186
</TABLE>
The Aircraft Flight Manual Supplement provided by Federal for
the above aircraft shall allow Stage 3 operation with each of
the following engine and CSD oil cooler configurations:
<TABLE>
<CAPTION>
CSD OIL COOLER
ENGINE TYPE CONFIGURATION MTOGW (lbs.)
----------- -------------- ------------
<S> <C> <C>
JT8D-7B Chin 177,600
JT8D-9, -9A Fan 169,500
JT8D-9, -9A Chin 175,000*
</TABLE>
* This weight is offered pending final FAA certification
of this configuration. In the event this weight is not approved
by FAA, Federal will provide the highest MTOGW which can be
certified under the Lightweight Kit configuration.
B. Notice regarding Aircraft Flight Manual Data: Upon execution of
this Amendment, Buyer shall provide Federal with the
FAA-approved flight manual pages referencing the Aircraft serial
number and maximum takeoff and landing weights on which each Kit
shall be installed. Buyer acknowledges its understanding that
the normal FAA processing time for the Stage 3 aircraft flight
manual supplement is 30-60 days and that Federal
Page 2 of 5
<PAGE> 3
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
shall not be liable for delays resulting from not receiving the
above referenced information at least 60 days prior to each
schedules Delivery Date. This includes the June 16, 1994
delivery date scheduled in Exhibit C.
4. Exhibit D shall be replaced in its entirety with the following:
Notwithstanding anything in this Agreement to the contrary, the entire
Purchase Price for each Kit must be paid not later than the Delivery
Date of such Kit.
A. Purchase Price and Payment Schedule:
i. Firm Order Kit. The Purchase Price for the manufacture
and delivery of one (1) 727-200 Lightweight Kit before
December 31, 1994 shall be [BLACKOUT]. For any
deliveries after December 31, 1994, the above 1994 Kit
Price shall be adjusted according to the formula
outlined in Exhibit F.
ii. Option Kit. Subject to taking delivery of the Firm
Order Kit described in Paragraph A.i. above, Buyer shall
be granted one (1) option for delivery of a Lightweight
Kit upon 270 days written notice for delivery not later
than May 30, 1996. The Base Purchase Price for the
Option Kit shall be [BLACKOUT] for a 727-100 Lightweight
Kit, and [BLACKOUT] for a 727-200 Lightweight Kit. If
such option Kit is delivered after December 31, 1994,
the above 1994 Kit Price shall be adjusted according to
the formula outlined in Exhibit F.
iii. Credits. Federal shall extend to Buyer a credit of
[BLACKOUT] per Engine if such Engine is already
installed with double chamfer-cut C-1 fan blades
suitable for use in the Stage 3 conversion; a credit of
[BLACKOUT] shall also be extended toward the Purchase
Price of each Lightweight Kit if Buyer furnishes Boeing
Acoustical Inlets suitable for use in the Stage 3
installation.
iv. Delivery of Kits. All Kits shall be delivered F.O.B.
Federal's Facility in Memphis, Tennessee.
Page 3 of 5
<PAGE> 4
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
B. Payment and Deposit Schedule.
i. Termination Fee Applicability. Federal acknowledges that
Buyer has previously paid the Termination Fee of
$300,000, which amount is applicable to the balance of
the Purchase Price payable at delivery of the Firm Order
Kit.
ii. Additional Deposit on Firm Order Kit. Not later than May
12, 1994, Buyer shall pay to Federal an additional
non-refundable deposit of [BLACKOUT] as an advance
payment applicable to the Purchase Price.
iii. Option Kit. Upon exercising the Option Kit pursuant to
Paragraph 2.A.ii above, Buyer shall pay to Federal a
non-refundable deposit of [BLACKOUT] as an advance
payment applicable to the Purchase Price.
iv. Payment of Balance of the Purchase Price. Upon delivery
of each Kit to Buyer, Buyer shall pay Federal the
balance of the Kit Purchase Price. All payments shall be
made in immediately available U.S. funds to the account
of Federal Express Corporation, account number 0710784
at Union Planters National Bank (ABA number 084000084).
5. Exhibit F (Escalation Formula) shall be modified as follows:
A. The formula term for Pbase shall be defined as follows:
Pbase = Base Kit Price (September 1993 dollars).
B. The formula term for Ppw1 shall be defined as follows:
Ppw1 = Pratt & Whitney (PW) Commercial Parts Support Price List
prices as of September 1, 1993.
C. The formula for CPIbase shall be modified as follows:
CPIbase = U.S. Government Consumer Price Index for all urban
areas as of September, 1993.
Page 4 of 5
<PAGE> 5
6. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the Parties have signed this Amendment on this 10th day of
May, 1994.
FEDERAL EXPRESS CORPORATION
APPROVED ("Federal")
AS TO LEGAL FORM
/s/ KHS 5/10/94 By: /s/ JAMES R. PARKER
---------------- ----------------------
LEGAL DEPT. Name: James R. Parker
----------------------
Title: Vice President
----------------------
KITTY HAWK AIR CARGO, INC.
("Buyer")
By: /s/ TILMON J. REEVES
----------------------
Name: Tilmon J. Reeves
----------------------
Title: President
----------------------
AIRCRAFT LEASING, INC.
("Buyer")
By: /s/ R.R. WADSWORTH JR.
----------------------
Name: R.R. Wadsworth Jr.
----------------------
Title: President
----------------------
Page 5 of 5
<PAGE> 1
EXHIBIT 10.50
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMITTION
AMENDMENT FIVE
To that certain Purchase Agreement dated October 22, 1992
between Federal Express Corporation and Postal Air, Inc.
This Amendment to the Purchase Agreement ("Amendment #5") is entered into by
and between Federal Express Corporation ("Federal") and Kitty Hawk Air Cargo,
Inc., as successor-in-interest to Postal Air, Inc., and Aircraft Leasing, Inc.,
an affiliate of Kitty Hawk Air Cargo, Inc. ("Buyer") and amends the Purchase
Agreement dated October 22, 1992 (and as amended by Amendments One, Two, Three
and Four dated November 17, 1992, February 1993, June 11, 1993 and May 10, 1994
respectively, the "Purchase Agreement") by and between Federal and Buyer. Terms
capitalized herein which are not otherwise defined in this Amendment shall have
the meanings set forth for such terms as provided in the Purchase Agreement
unless the context clearly requires otherwise.
Recitals
1. Buyer has purchased one (1) Lightweight Aircraft Kit pursuant to the
Agreement, which Kit was delivered June 16, 1994;
2. Buyer and FedEx wish to amend the Agreement to provide for six (6)
additional Aircraft Kits to be Delivered to Buyer between December 1,
1995 and May 31, 1999 in accordance with the terms and conditions of
the Agreement;
NOW, THEREFORE, in consideration of the foregoing, and subject to the terms and
conditions set forth herein, the parties agree as follows:
1. With respect to Firm Order Kits #2 through #7, Exhibit C of the
Purchase Agreement shall be replaced in its entirety with the new
Delivery Schedule in Attachment I to this Amendment #5.
2. With respect to Firm Order Kits #2 through #7, Exhibit D shall be
replaced in its entirety with the new Attachment II to this Amendment
#5.
3. Exhibit F (Escalation Formula) shall be modified as follows:
A. The formula term for Pbase shall be defined as follows:
Pbase = Base Kit Price (December 1994 dollars).
B. The formula term for Ppwl shall be as follows:
Ppwl = Pratt & Whitney (PW) Commercial Parts Support Price List
prices as of December 1, 1994.
Page 1 of 2
<PAGE> 2
C. The formula for CPIbase shall be modified as follows:
CPIbase = U.S. Government Consumer Price Index for all urban
areas as of December 1994.
4. Except as otherwise specified in this Amendment, all terms and
conditions of the Purchase Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the Parties have signed this Amendment on this 29th day of
September, 1995.
FEDERAL EXPRESS CORPORATION
APPROVED ("Federal")
AS TO LEGAL FORM
/s/ KHS 10/06/95 By: /s/ JAMES R. PARKER
---------------- ----------------------
LEGAL DEPT. Name: James R. Parker
----------------------
Title: Vice President
----------------------
KITTY HAWK AIR CARGO, INC.
("Buyer")
By: /s/ TILMON J. REEVES
----------------------
Name: Tilmon J. Reeves
----------------------
Title: President
----------------------
AIRCRAFT LEASING, INC.
("Buyer")
By: /s/ R.R. WADSWORTH JR.
----------------------
Name: R.R. Wadsworth Jr.
----------------------
Title: President
----------------------
Page 2 of 2
<PAGE> 3
Amendment #5 Attachment I.
Exhibit C
to that certain
Purchase Agreement
between
Federal Express Corporation
("FedEx")
and
Kitty Hawk Air Cargo, Inc. and Aircraft Leasing, Inc.
as successors in interest to Postal Air, Inc. ("Buyer")
Dated October 22, 1992
AIRCRAFT KIT DELIVERY SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIRCRAFT MODEL/ SCHEDULED
KIT NO. TYPE OF KIT DELIVERY DATE
- ------- ---------------------- ------------------------------
<S> <C> <C>
2 B727-200 / Heavyweight On or about 31-Dec-95
3 TBD / TBD Between 1-Mar-95 & 31-May-96
4 TBD / TBD Between 1-Jun-95 & 31-Dec-96
5 TBD / TBD Between 1-Jun-95 & 31-May-98
6 TBD / TBD Between 1-Jun-95 & 31-May-99
7 TBD / TBD Between 1-Jun-95 & 31-May-99
</TABLE>
Buyer shall provide FedEx with the FAA-approved flight manual pages referencing
the Aircraft serial number, engine power rating, the maximum takeoff and
landing weights for the Aircraft on which each Kit shall be installed, and
copies of Airframe major repairs and installed supplemental type certificates,
not later than Sixty (60) days prior to the delivery date established above.
Buyer acknowledges its understanding that the normal FAA processing time for
the Stage 3 aircraft flight manual supplement is 30-60 days and that FedEx
shall not be liable for delays resulting from not receiving the above
referenced information at least 60 days prior to each scheduled Kit Delivery
Date.
Unless otherwise specified, Buyer shall also provide FedEx with at least 60
days notice of whether the double chamfer-cut C-1 fan blades should be
delivered concurrent with Delivery of each Kit or at a later date upon 30 days
notice from Buyer (i.e. to facilitate the 5 day return requirement on the
removed C-1 fan blades). Unless otherwise specified, Heavyweight Kit Buyers
shall also provide FedEx with at least 180 days notice of whether -15, -15A,
- -17 or -17A engines will be installed.
Page 1 of 1
<PAGE> 4
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Amendment #5 Attachment II.
Exhibit D
to that certain
Purchase Agreement
between
Federal Express Corporation
("FedEx")
and
Kitty Hawk Air Cargo, Inc. and Aircraft Leasing, Inc.
as successors in interest to Postal Air, Inc. ("Buyer")
Dated October 22, 1992
- -------------------------------------------------------------------------------
PURCHASE PRICE AND PAYMENT SCHEDULE
Notwithstanding anything in this Agreement to the contrary, the entire Purchase
Price for any Kit must be paid not later than the Delivery Date of such Kit.
I. PURCHASE PRICE AND DELIVERY OF KITS
A. Firm Order Kit. The 1995 Base Purchase Price for the manufacture and
delivery of six (6) Aircraft Kits shall be [BLACKOUT] per 727-100
Lightweight Kit, [BLACKOUT] 727-200 Lightweight Kit and [BLACKOUT] per
727-200 Heavyweight Kit before [BLACKOUT]. For any deliveries after
December 31, 1995, the above 1995 Base Kit Price shall be adjusted
according to the formula outlined in Exhibit F.
B. Option Kits. In addition to the Kits described in paragraph I.A. above,
Buyer shall be granted six (6) options exercisable upon at least 180
days written notice for delivery on dates to be mutually agreed upon
between June 1, 1996 and May 31, 1999, subject to availability. Option
Kits shall be available only following delivery of all Firm Order Kits
under the Agreement. The 1995 Base Purchase Price for Option Kits shall
be as follows:
<TABLE>
<CAPTION>
727-100 727-200 727-200
Light- Light- Heavy-
weight Kit weight Kit weight Kit
---------- ---------- ----------
<S> <C> <C> <C>
Option Kit #1-#3 [BLACKOUT] [BLACKOUT] [BLACKOUT]
Option Kit #4-#6 [BLACKOUT] [BLACKOUT] [BLACKOUT]
</TABLE>
Page 1 of 3
<PAGE> 5
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
For deliveries after December 31, 1995, the above Base Purchase Price
shall be adjusted according to the formula outlined in Exhibit F. All
costs of meeting the Configuration Specification in Exhibit A shall be
for Buyer's account.
C. Credits. FedEx shall extend to Buyer a credit of [BLACKOUT] per engine
if such Engine is already installed with Pratt & Whitney double chamfer
cut C-1 fan blades or is in compliance with Pratt & Whitney service
bulletin 6072 (as appropriate. These credits shall only be available if
specifically requested by Buyer prior to Kit Delivery.
D. Delivery of Kits: All Kits shall be delivered F.O.B. Memphis, Tennessee.
With respect to Option Kits, and Firm Order Kits which do not have a
specific Delivery Date, Buyer shall provide FedEx with at least 180
days written notice of the date delivery of each Kit is requested and
the type of Kit being ordered. Subject to delivery position
availability, FedEx shall confirm delivery position availability to
Buyer in writing within five (5) Business Days of Buyer's request.
E. Transfer of Kits Between Buyer's Aircraft: Following Aircraft Kit
Installation on an Aircraft, Buyer shall be permitted, upon 210 days
written notice to FedEx, to purchase Transfer Kits, as available from
FedEx, to allow the transfer to the Stage 3 Kit engines from such
Aircraft to another Buyer-owned or operated Aircraft, subject to the
payment of the following transfer fees:
i. The 1995 Base Purchase Price of each Transfer Kit to allow
transfer of a Lightweight Kit shall be [BLACKOUT].
ii. The 1995 Base Purchase Price of each Transfer Kit to allow the
transfer of a Heavyweight Kit shall be [BLACKOUT].
The Transfer Kit Prices in this paragraph shall be escalated, as
appropriate, in accordance with the formula in Exhibit F. All costs of
meeting the Configuration Specification in Exhibit A shall be at
Buyer's expense.
II. PAYMENT AND DEPOSIT SCHEDULE
A. Deposits
i Initial Deposits: Upon contract execution, Buyer shall pay to
FedEx a non-refundable deposit of [BLACKOUT] for Firm Order Kit
#2 and [BLACKOUT] per Kit for Firm Order Kits #3 through #7 as
an advance payment applicable to the Purchase Price at Delivery.
Page 2 of 3
<PAGE> 6
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION
ii. Progress Payments for Firm Order Kits #3 through #7 only: At
least 180 days prior to the scheduled Delivery Date of each Firm
Order Kit. Buyer shall pay to FedEx a nonrefundable deposit of
[BLACKOUT] as an advance payment applicable to the Purchase
Price at Delivery.
iii. Option Kits: Upon exercising each option pursuant to paragraph
I.B. above, Buyer shall pay to FedEx a non-refundable deposit of
[BLACKOUT] as an advance payment applicable to the Purchase
Price at Delivery.
iv. Transfer Kits: Upon ordering Transfer Kits, Buyer shall pay to
FedEx a non-refundable deposit of [BLACKOUT] for each
Lightweight Transfer Kit and [BLACKOUT] for each Heavyweight
Transfer Kit.
B. Payment of Balance of Purchase Price
Upon delivery of each Kit or Transfer Kit to Buyer, Buyer shall pay
FedEx the balance of the Kit price. All payments shall be made by wire
transfer in immediately available U.S. funds to the account of Federal
Express Corporation, account number 07701985, at Citibank N.A., New
York, NY (ABA number 021000089).
Page 3 of 3
<PAGE> 1
EXHIBIT 21.1
Kitty Hawk Charters, Inc., a Texas corporation
Kitty Hawk Aircargo, Inc., a Texas corporation
Aircraft Leasing, Inc., a Texas corporation
Skyfreighters Corporation, a Texas corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts"
and the use of our report dated June 28, 1996, in the Registration Statement
(Form S-1) and related Prospectus of Kitty Hawk, Inc. and subsidiaries for the
registration of 3,450,000 shares of its common stock.
ERNST & YOUNG LLP
Dallas, Texas
July 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 4,249
<SECURITIES> 0
<RECEIVABLES> 12,662
<ALLOWANCES> 0
<INVENTORY> 36
<CURRENT-ASSETS> 19,310
<PP&E> 55,022
<DEPRECIATION> 12,355
<TOTAL-ASSETS> 61,977
<CURRENT-LIABILITIES> 14,860
<BONDS> 21,392
<COMMON> 74
0
0
<OTHER-SE> 23,210
<TOTAL-LIABILITY-AND-EQUITY> 61,977
<SALES> 0
<TOTAL-REVENUES> 107,126
<CGS> 0
<TOTAL-COSTS> 89,734
<OTHER-EXPENSES> 3,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,344
<INCOME-PRETAX> 5,733
<INCOME-TAX> 2,322
<INCOME-CONTINUING> 3,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,411
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>