<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1996
REGISTRATION NO. 333-8307
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
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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:
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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
</TABLE>
---------------------
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. / /
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
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FORM S-1 REGISTRATION STATEMENT
(PART I) ITEM NO. AND CAPTION LOCATION IN PROSPECTUS BY CAPTION
---------------------------------------------------- -----------------------------------
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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.................... *
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* 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 SEPTEMBER 4, 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.
===============================================================================
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======================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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Per Share $ $ $ $
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Total(3) $ $ $ $
======================================================================================================================
</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]
[PICTURE OF KITTY HAWK
CONTROL ROOM]
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 (such as
weather and customer-related delays). 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 500 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
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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>
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(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
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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 15,183 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 2,601 2,530
Air Logistics
Number of on-demand charters
managed(3)...................... 6,514 8,708 9,748 16,713 14,198 11,209
</TABLE>
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AS OF MAY 31, 1996
------------------------
ACTUAL AS ADJUSTED(4)
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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>
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(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 $0.69. 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.
CAPITAL INTENSIVE NATURE OF 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 five Boeing
727-200s, two Douglas DC-9-15Fs. 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 addition, the Company's financial results can be adversely affected
by unexpected engine or airframe repairs to the extent uninsured. 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, General Motors Corporation, the U.S.
Postal Service, and Burlington Air Express, Inc., 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%),
8
<PAGE> 11
$48.9 million (47.1%), and $42.1 million (39.3%), 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. See "Business -- Relationship with GM."
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 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. See "Business -- Air Logistics -- United States Postal Service."
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 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 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
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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 OF CUSTOMERS' BUSINESSES
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
Domestic 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 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
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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.
Foreign Regulation. 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.
Excise Tax. On August 27, 1996, a 6.25% federal transportation excise tax
applicable to air freight transportation was reinstated. Reinstatement of the
tax 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.
Restrictions on Foreign Ownership and Control. 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. See "Business -- Government Regulation" and "Description of Capital
Stock."
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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. There can be no assurance that
the Company will be able to compete successfully with existing or new
competitors.
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; CHALLENGES
PRESENTED BY 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. The Company's future success also depends on
its continuing ability to attract and retain highly qualified mechanical,
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will retain its key mechanical,
managerial and technical employees or that it will be successful in attracting,
assimilating or retaining other highly qualified mechanical, technical and
managerial personnel in the future.
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 seven Boeing 727-200Fs that the
Company has either recently acquired or intends to acquire and place in service
during fiscal year 1997, five 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,
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<PAGE> 15
Kitty Hawk would seek other 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. Additionally, Kitty
Hawk's existing Amended and Restated Credit Agreement dated August 14, 1996 with
Wells Fargo Bank (Texas), N.A. and Bank One, Texas, N.A. (the "Credit
Agreement") restricts the Company's ability to make certain types of
acquisitions. See "Business -- Business Strategy" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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. In addition, the Credit Agreement is
terminable if Mr. Christopher ceases to be the Chief Executive Officer of Kitty
Hawk or active in the management of the Company. 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.
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SEASONALITY
The Company's air logistics business is seasonal, with its highest revenues
historically occurring in the Company's first, 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. The Company's results of operations would be adversely and
disproportionately affected if the Company's air logistics revenues were
substantially lower than those normally expected during such three fiscal
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality" and "Business."
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; POSSIBLE VOLATILITY OF STOCK 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 could be subject to
wide fluctuations in response to 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-
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<PAGE> 17
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 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, GM AGREEMENT AND CREDIT 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.
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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.
In addition, the Credit Agreement is terminable in the event: (i) Mr.
Christopher ceases to own a majority of the Company's outstanding voting stock,
(ii) if Mr. Christopher ceases to be the Chief Executive Officer of Kitty Hawk
or active in its management or (iii) a "group" within the meaning of Section
13(d)(3) of the Securities and Exchange Act of 1934, as amended, acquires
beneficial ownership of 25% or more of the outstanding voting stock of Kitty
Hawk.
ABILITY TO ISSUE 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 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.
IMMEDIATE SUBSTANTIAL 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
$31.3 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 $5.7 million of
the net proceeds to repay all but approximately $6.12 million of bank
indebtedness incurred to purchase, maintain, and modify (including cargo
reconfiguration and noise abatement modifications) two Boeing 727-200s acquired
during July 1996. Of the $5.7 million of indebtedness to be repaid, (i)
approximately $3.8 million bears interest at a Eurodollar rate plus 1.5%, is
secured by certain aircraft owned by the Company, all aircraft acquired with the
proceeds from the Credit Agreement, certain leases of aircraft and engines,
accounts, chattel paper, general intangibles and other personal property, and
has a final maturity date of December 1996 and (ii) approximately $1.9 million
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bears interest at a Eurodollar rate plus 1.5%, is secured by certain aircraft
owned by the Company, all aircraft acquired with the proceeds from the Credit
Agreement, certain leases of aircraft and engines, accounts, chattel paper,
general intangibles and other personal property, and has a final maturity date
of December 31, 1998. 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.
The following table illustrates the Company's intended use of the proceeds
of the offering:
<TABLE>
<CAPTION>
ESTIMATED
INTENDED USE OF PROCEEDS REQUIRED AMOUNT
---------------------------------------------------------------------- ---------------
<S> <C>
Purchase and Modify Five Additional Boeing 727-200F Aircraft.......... $31.3 million
Repay a Portion of the Indebtedness Incurred to Purchase, Maintain and
Modify Two Recently Acquired Boeing 727-200F Aircraft............... 5.7 million
---------------
Total Estimated Proceeds.................................... $37.0 million
============
</TABLE>
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 Credit
Agreement with Wells Fargo Bank, National Association and Bank One, Texas, N.A.
restrict Kitty Hawk's ability to declare and pay dividends to its stockholders
during any fiscal year to an amount not to exceed 25% of the Company's net
income during the immediately preceding fiscal year. 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."
17
<PAGE> 20
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% $ 5,430 .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 (i) includes 326,564 shares issued to Messrs. Reeves
and Wadsworth on June 26, 1996 and (ii) 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.
18
<PAGE> 21
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."
19
<PAGE> 22
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 15,183 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 2,601 1,811 2,530
Air Logistics
Number of on-demand charters managed(4)...... 6,514 8,708 9,748 16,713 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 $0.69. See "Management -- Employee
Compensation Plans and Arrangements."
(2) Reflects sums received in settlement of litigation. See "Business -- 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.
20
<PAGE> 23
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, 10.8%, 15.4%, 20.8%, and
18.8%, respectively, were attributable to the air freight carrier and 89.2%,
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
21
<PAGE> 24
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>
22
<PAGE> 25
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.
23
<PAGE> 26
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.
24
<PAGE> 27
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 15,183
flight hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994,
a 28.7% 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> 28
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> 29
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.
On August 14, 1996 Kitty Hawk entered into the Credit Agreement with Wells
Fargo Bank (Texas), National Association ("WFB"), successor in interest to First
Interstate Bank of Texas, N.A., and Bank One, Texas, N.A. ("BOT") for a $15
million Revolving Credit Loans Facility (the "Revolving Credit Facility"), an
approximately $12.7 million Term Loans A Facility (the "Term Loans A"), an
approximately $11.2 million Term Loans B Facility (the "Term Loans B") and a $10
million Term Loans C Facility (the "Term Loans C") (collectively, the
"Commitments"). As of August 28, 1996 approximately $11.9 million was
outstanding under the Revolving Credit Facility, approximately $12.7 million was
outstanding under the Term Loans A, approximately $11.2 million was outstanding
under the Term Loans B and $0 was outstanding under the Term Loans C. The
Commitments bear interest at WFB's prime rate or, at Kitty Hawk's option, a
Eurodollar rate plus 1.5% to 2.0% based upon a debt-to-cash flow ratio of Kitty
Hawk.
Under the Credit Agreement, $10 million of proceeds of the Revolving Credit
Facility are restricted to use from time to time for interim financing of up to
$6.5 million per aircraft for aircraft acquisitions by the Company; the
remaining $5 million of the Facility may be used for general corporate purposes,
including interim financing for acquired aircraft that exceeds the limits that
apply to the restricted portion. The outstanding balance of the Revolving Credit
Facility results from borrowing to pay revolving credit indebtedness to WFB
which was recently incurred by Kitty Hawk in connection with purchasing two
Boeing 727-200s that are being converted to freighter configuration, and to fund
such cargo conversion, noise abatement modifications and maintenance on those
two aircraft.
The Revolving Credit Facility expires on December 31, 1998. Any advance
under the portion of the Revolving Credit Facility that is restricted to interim
financing for aircraft acquisition must be repaid in full within 150 days of
first advance for the acquired aircraft. All advances under the commitment for
Term Loans C must be made by April 29, 1998. The Term Loans A matures on March
31, 2002 and the Term Loans B and C mature on March 31, 2003.
The Commitments are cross-collateralized and are secured by certain
aircraft owned by the Company, all aircraft acquired with advances under the
restricted portion of the Revolving Credit Facility while those advances are
outstanding, certain leases of aircraft and engines, accounts, chattel paper,
general intangibles and other personal property.
The Credit Agreement prohibits (i) the redemption or repurchase of the
Company's securities, (ii) the payment of dividends to Kitty Hawk's stockholders
in an amount over 25% of the Company's net income of the immediately preceding
fiscal year, (iii) certain investments, acquisitions of stock, acquisitions of
assets to the extent that the business acquired is not in the present lines of
business of the Company, and other business combinations, (iv) certain
transactions with affiliates and (v) the Company to incur any additional
indebtedness, liabilities or obligations other than debt incurred (a) with the
prior written consent of certain lenders, (b) with WFB or BOT or (c) in the
ordinary course of business not to exceed $25 million.
The Credit Agreement also contains certain other covenants, including
limitations on the ability of the Company to change its lines of business. If a
"Change of Control" occurs, WFB and BOT may accelerate or
27
<PAGE> 30
terminate the Commitments. "Change of Control" includes (a) the failure of Kitty
Hawk to own all of the outstanding stock of certain of its subsidiaries, (b) Mr.
Christopher failing to own at least 51% of the outstanding stock of Kitty Hawk,
(c) Mr. Christopher ceasing to be Chief Executive Officer of Kitty Hawk or
active in the management of the Company or (d) if, after the consummation of a
public offering, any person (or two or more persons acting as a group) acquiring
beneficial ownership of 25% or more of the outstanding shares of Common Stock.
During fiscal years 1994 and 1995 and the nine months ended May 31, 1996,
similar restrictions and prohibitions under the Company's other credit
facilities did not have a material impact on the Company's ability to meet its
cash obligations and the Company does not believe that the restrictions under
the Credit Agreement will have any such impact in the future.
In addition, the Company has a loan with 1st Source Bank. As of August 1,
1996, the outstanding balance of this loan was approximately $1 million. The
loan bears interest at 9.7%, 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 a event of default upon which 1st
Source may declare all or any part of the remaining unpaid principal.
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 year 1994
were primarily for the purchase of: (i) two 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 $5.0 million) for an aggregate capital expenditure
of approximately $31.3 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
$5.0 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
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<PAGE> 31
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.
In March 1995, the Financial Accounting Standard Board issued Statement No.
121 Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of fiscal year 1997 and, based on current
circumstances, does not believe that adopting Statement No. 121 will affect
materially its financial statements.
The Company accounts for stock-based compensation utilizing the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation". The Company is not required to adopt the
provisions of SFAS No. 123 until fiscal 1997. Under SFAS 123, companies are
allowed to continue to apply the provisions of APB Opinion No. 25 to their
stock-based compensation arrangements. As such, the Company will only be
required to supplement its financial statements with additional disclosures in
fiscal 1997.
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.
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 overall world cargo traffic growth was 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. Stage III noise control
standards require noncomplying aircraft to be modified with a noise suppression
kit (or "hushkit") designed to meet certain noise level limits (which are
significantly stricter than Stage II standards) during various phases of an
aircraft's operation and flight. With
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<PAGE> 33
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 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 "Risk Factors -- 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
31
<PAGE> 34
enable the Company to quickly exchange operating data between Company
headquarters and an aircraft, 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 revenue 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 (i) a Westwind 1124 jet
aircraft owned by the Company and utilized solely for the transport of Company
personnel and (ii) the Company's undivided one-third interest in two Falcon 20C
jet aircraft to be leased to a third-party operator. See
"Management -- Compensation Committee Interlocks and Insider Participation."
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 "Risk Factors -- 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 7.7%, 7.1%, 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 "Business -- 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."
The Company has recently acquired an undivided one-third interest in two
Falcon 20C jet aircraft and pursuant to an anticipated co-ownership agreement
will lease such aircraft to a third-party operator. The Company intends to
charter such jet aircraft in on-demand service. See "Management -- Compensation
Committee Interlocks and Insider Participation."
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. Kitty Hawk has arranged as many as
208 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
35
<PAGE> 38
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 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
36
<PAGE> 39
transportation and aircraft loading companies in North America that is similar
to its information concerning air carriers.
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.
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.
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%),
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<PAGE> 40
$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 was awarded a 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 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 National Transportation Safety Board 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
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<PAGE> 41
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 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.
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 (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. "Risk Factors -- Dependence on
Significant Customers."
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
39
<PAGE> 42
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 "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 located in Ypsilanti, Michigan 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 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
40
<PAGE> 43
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.
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 ten 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
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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 August 27, 1996, a 6.25% federal transportation excise tax applicable to
air freight transportation was reinstated. Reinstatement of the tax 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.
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 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 revenue fleet in amounts consistent with industry standards.
All-risk aircraft hull insurance is maintained for all aircraft in the revenue
fleet 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
42
<PAGE> 45
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.
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.
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<PAGE> 46
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.
44
<PAGE> 47
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................ 57 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.
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<PAGE> 48
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.
On August 17, 1996, the Company acquired an undivided one-third interest in
two Falcon 20C jet aircraft together with two individuals unaffiliated with the
Company who will each hold a one-third interest in such aircraft. An interim
acquisition note (the "Note") in the amount of $1,700,000 covering the purchase
price and immediately necessary maintenance was executed by Mr. Christopher and
Bruce Martin. The Company anticipates that this Note will be extended for five
years, will be secured by the Falcon 20C jet aircraft, and will be amended to
provide for monthly installments of principal and interest. The Company further
anticipates that the Company and Tom Wachendorfer will execute such extended
Note, following which the Company and Messrs. Martin and Wachendorfer will be
jointly and severally liable for repayment of the Note. Concurrent with the
extension of the Note, Mr. Christopher will be released from liability therefor.
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<PAGE> 49
The Company anticipates entering into a co-ownership and contribution
agreement (the "Co-Ownership Agreement") with Messrs. Martin and Wachendorfer
under which the parties will agree to lease the two Falcon 20C jet aircraft to
Martinaire. Currently, Messrs. Martin and Wachendorfer are the only shareholders
of Martinaire. The Company further anticipates that the Co-Ownership Agreement
will require the parties thereto to contribute equally to the payment of all
amounts due to the lender under the Note. The Company expects the lease with
Martinaire governing such aircraft will require Martinaire to (i) maintain hull
insurance on the aircraft in an amount at least equal to the fair market value
of the aircraft and liability insurance of at least $50 million combined single
limit coverage and (ii) name the co-owners, including the Company, as additional
insureds and as loss payees.
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.
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 of $2,975 to the Company's 401(k)
Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047
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 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 of $25,500 paid on Mr. Christopher's behalf,
and (iii) matching contributions of $1,663 to the Company's 401(k) Savings
Plan for Mr. Christopher.
47
<PAGE> 50
(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."
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."
48
<PAGE> 51
(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 and the outside directors of the
Company. 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 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
49
<PAGE> 52
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 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.
50
<PAGE> 53
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
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 $533,786 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 "Management -- Compensation Committee Interlocks
and Insider Participation."
51
<PAGE> 54
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of August 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.
52
<PAGE> 55
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 August 15, 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.
53
<PAGE> 56
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.
54
<PAGE> 57
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.
55
<PAGE> 58
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.
56
<PAGE> 59
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
57
<PAGE> 60
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.
58
<PAGE> 61
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. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
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.
59
<PAGE> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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 method 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> 69
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. As a result of the merger, there was no financial change in
basis of the Company.
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> 70
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> 71
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> 72
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> 73
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> 74
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 $1,325,446 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> 75
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> 76
[PICTURE OF KITTY
HAWK BUILDING]
[PICTURE OF KITTY HAWK CONTAINERS]
[PICTURE OF KITTY
HAWK BOEING 727]
[PICTURE OF
KITTY HAWK AIRCRAFT]
[PICTURE OF KITTY
HAWK AIRCRAFT
BEING LOADED]
[MAP OF KITTY HAWK
SCHEDULED PACIFIC RIM ROUTES]
<PAGE> 77
================================================================================
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....................... 17
Dilution.............................. 18
Capitalization........................ 19
Selected Consolidated Financial and
Operating Data...................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 30
Management............................ 45
Certain Transactions.................. 51
Principal Stockholders and Selling
Stockholder......................... 52
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 56
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Additional Information................ 59
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> 78
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................................... 150,000
Legal fees and expenses........................................... 210,000
Accounting fees and expenses...................................... 135,000
Blue sky fees and expenses........................................ 5,000
Transfer agent and registrar fees................................. 10,000
Miscellaneous expenses............................................ 84,821
--------
Total................................................... $665,000
========
</TABLE>
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> 79
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> 80
<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> 81
<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**** --
10.22**** --
10.23**** --
10.24**** --
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. Amended and Restated Omnibus Securities Plan, dated
as of September 3, 1996.
10.29**** --
10.30* -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan,
dated as of September 3, 1996.
10.31* -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation
Plan, dated as of September 3, 1996.
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.
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**** --
10.37**** --
10.38**** --
10.39**** --
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.
</TABLE>
II-4
<PAGE> 82
<TABLE>
<C> <S>
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.
10.51* -- Amended and Restated Credit Agreement, dated as of August 14, 1996,
by and among the Company, Wells Fargo Bank (Texas), National
Association, and Bank One, Texas, N.A.
21.1*** -- Subsidiaries of the Registrant.
23.1* -- Consent of Ernst & Young LLP.
23.2 -- Consent of Haynes and Boone, LLP (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.
** Previously filed and confidential treatment requested for certain portions
pursuant to the Commission's Rule 406.
*** Previously filed.
**** Exhibit deleted because it is no longer applicable.
(b) Financial Statement Schedules and Auditors' Reports on Schedules:
None
II-5
<PAGE> 83
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> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 3rd day of September, 1996.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
------------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on the 3rd day of September, 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
* /s/ RICHARD R. WADSWORTH
- ---------------------------------------------
Richard R. Wadsworth
(As Attorney-in-Fact for each
person as indicated)
</TABLE>
II-7
<PAGE> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
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> 86
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
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> 87
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
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**** --
10.22**** --
10.23**** --
10.24**** --
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. Amended and Restated Omnibus Securities Plan, dated
as of September 3, 1996.
10.29**** --
10.30* -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan,
dated as of September 3, 1996.
10.31* -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation
Plan, dated as of September 3, 1996.
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.
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**** --
10.37**** --
10.38**** --
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------------------- ------------------------------------------------------------------------
<S> <C>
10.39**** --
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.
10.51* -- Amended and Restated Credit Agreement, dated as of August 14, 1996,
by and among the Company, Wells Fargo Bank (Texas), National
Association, and Bank One, Texas, N.A.
21.1*** -- Subsidiaries of the Registrant.
23.1* -- Consent of Ernst & Young LLP.
23.2 -- Consent of Haynes and Boone, LLP (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>
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING
AGREEMENT
3,000,000 Shares
KITTY HAWK, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
September __, 1996
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
FIELDSTONE FPCG SERVICES, L.P.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Kitty Hawk, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell an aggregate of 2,700,000 shares of its common stock, $0.01 par
value per share, to the several Underwriters named in Schedule II hereto (the
"Underwriters") and the person named in Part A of Schedule I hereto (the
"Selling Stockholder") proposes to sell to the several Underwriters 300,000
shares of common stock of the Company. The Company and the Selling Stockholder
are hereinafter sometimes referred to as the "Sellers." The Company's common
stock, $0.01 par value, is hereinafter referred to as the "Common Stock" and
the 2,700,000 shares of Common Stock to be issued and sold to the Underwriters
by the Company and the 300,000 shares of Common Stock to be sold to the
Underwriters by the Selling Stockholder are hereinafter referred to as the
"Firm Shares." The Selling Stockholder also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up
to an additional 450,000 shares (the "Additional Shares") of Common Stock. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares."
The Company and the Selling Stockholder wish to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S--1 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the
<PAGE> 2
execution of this Agreement, as supplemented or amended prior to the execution
of this Agreement. If it is contemplated, at the time this Agreement is
executed, that a post--effective amendment to the registration statement will
be filed and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post--effective amendment. The term
"Registration Statement" shall also include any registration statement relating
to the Shares that is filed and declared effective pursuant to Rule 462(b)
under the Act. The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the addition of the
Rule 430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b), provided that if a prospectus that meets the
requirements of Section 10(a) of the Act is delivered pursuant to Rule 434(b)
under the Act, then (i) the term "Prospectus" as used in this Agreement means
the prospectus subject to completion (as defined in Rule 434(g) under the Act)
relating to the Shares as supplemented by the information contained in the term
sheet described in Rule 434(b)(3) under the Act, and (ii) the date of such
prospectus shall be deemed to be the date of such term sheet. The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus.
2. Agreements to Sell and Purchase. Subject to such adjustments as
you may determine in order to avoid fractional shares, the Company agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholder herein contained and
subject to all the terms and conditions set forth herein, each Underwriter,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $______ per Share (the "purchase price per share"), the number of Firm
Shares which bears the same proportion to the aggregate number of Firm Shares
to be issued and sold by the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Company and the Selling Stockholder.
Subject to such adjustments as you may determine in order to avoid
fractional shares, the Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholder herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from the Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholder.
The Selling Stockholder also agrees, subject to all the terms and
conditions set forth herein, to sell to the Underwriters, and, upon the basis
of the representations, warranties and agreements of the Company and the
Selling Stockholder herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right to purchase
from the Selling Stockholder at the purchase price per share, pursuant to an
option (the "over- -allotment option") which may be exercised at any time (but
not more than once) prior to 9:00 P.M., New York City time, on the 30th day
after the date of the Prospectus (or, if such
-2-
<PAGE> 3
30th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading), up to 450,000
shares from the Selling Stockholder. Additional Shares may be purchased only
for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. Upon any exercise of the over--allotment option,
each Underwriter, severally and not jointly, agrees to purchase from the
Selling Stockholder the number of Additional Shares (subject to such
adjustments as you may determine in order to avoid fractional shares) which
bears the same proportion to the number of Additional Shares to be sold by the
Selling Stockholder as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule II hereto (or such number of Firm Shares increased
as set forth in Section 12 hereof) bears to the aggregate number of Firm Shares
to be sold by the Company and the Selling Stockholder.
3. Terms of Public Offering. The Company and the Selling
Stockholder have been advised by you that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable and initially to offer the Shares upon the terms set
forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Haynes and Boone, LLP, 3100 NationsBank Plaza, 901 Main Street, Texas 75202,
at 9:00 A.M., Dallas time, on _________, 1996 (the "Closing Date"). The place
of closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and the Selling Stockholder.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Haynes and Boone, LLP, at such time and on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company and the Selling Stockholder of the Underwriters' determination to
purchase a number, specified in such notice, of Additional Shares. The place
of closing for any Additional Shares and the Option Closing Date for such
Shares may be varied by agreement among you, the Company and the Selling
Stockholder.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post--effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the Company will endeavor to cause the Registration Statement or such
post--effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post--effective amendment has
become effective.
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<PAGE> 4
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction or the initiation of any proceeding
for such purpose; and (iii) within the period of time referred to in paragraph
(f) below, of any material adverse change in the Company's financial condition,
business, properties, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, or of the happening of any event, which makes
any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, four (4)
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits thereto, and will also furnish to you, without charge, such number
of conformed copies of the registration statement as originally filed and of
each amendment thereto, but without exhibits, as you may reasonably request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall
reasonably object after being so advised or (ii) so long as, in the opinion of
counsel for the Underwriters, a Prospectus is required to be delivered in
connection with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") without delivering a copy of such information,
documents or reports to you, as Representatives of the Underwriters, prior to
or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
reasonably requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which the Shares
are offered by the several Underwriters and by dealers, prior to the date of
the Prospectus, of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto)
as you may reasonably request. The Company consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and
by all dealers to whom Shares may be sold, both in connection with the offering
and sale of the Shares and for such period of time thereafter as the Prospectus
is required by the Act to be delivered in connection with sales by any
Underwriter or dealer. If during such period of time
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<PAGE> 5
any event shall occur that is required to be set forth in the Prospectus (as
then amended or supplemented) or should be set forth therein in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with the Act or any other law, the Company will forthwith
prepare and, subject to the provisions of paragraph (d) above, file with the
Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of
the several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may designate and
will file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising out
of the offering or sale of the Shares, in any jurisdiction where it is not now
so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering
a twelve--month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure or
refusal on the part of the Company or the Selling Stockholder to comply with
the terms or fulfill any of the conditions of this Agreement, the Company
agrees to reimburse the Representatives for all out--of- -pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred by you
in connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
(m) For a period of 180 days after the date hereof, the Company
will not, without the prior written consent of Smith Barney Inc., (i) 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 or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by
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<PAGE> 6
delivery of Common Stock or such other securities, in cash or otherwise, except
for (x) sales to the Underwriters pursuant to this Agreement, (y) the sale
pursuant to options currently outstanding and described as outstanding in the
Prospectus provided that the exercising optionee is subject to a lock-up
agreement as described in this Agreement or (z) the grant of options,
securities or other rights under the Company's Omnibus Securities Plan.
(n) The Company has furnished "lock-up" letters, in form and
substance satisfactory to you, signed by each of its current officers and
directors and each of its stockholders.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Common
Stock listed, subject to notice of issuance, on the Nasdaq National Market
concurrently with the effectiveness of the registration statement.
6. Agreements of the Selling Stockholder. The Selling Stockholder
agrees with the several Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent
necessary to cause the registration statement or any post--effective amendment
thereto to become effective at the earliest practicable time.
(b) Such Selling Stockholder will pay all Federal and other
taxes, if any, on the transfer or sale of the Shares being sold by the Selling
Stockholder to the Underwriters.
(c) Such Selling Stockholder will do or perform all things
required to be done or performed by the Selling Stockholder under this
Agreement prior to the Closing Date or any Option Closing Date, as the case may
be, to satisfy all conditions precedent to the delivery of the Shares pursuant
to this Agreement.
(d) Such Selling Stockholder has executed a "lock-up" letter as
provided in Section 5(n) above and, for a period of 360 days after the date
hereof, will not, without the prior written consent of Smith Barney Inc., (i)
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 or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, except for sales to the Underwriters pursuant
to this Agreement.
(e) Except as stated in this Agreement and in any Prepricing
Prospectus and the Prospectus, such Selling Stockholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of
time referred to in Section 5(f) hereof, of any material
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<PAGE> 7
adverse change in the financial condition, business, properties, net worth or
results of operations of the Company and its subsidiaries, taken as a whole, or
of any change in information relating to such Selling Stockholder or the
Company or any new information relating to the Company or relating to any
matter stated in the Prospectus or any amendment or supplement thereto which
comes to the attention of such Selling Stockholder that suggests that any
statement made in the Registration Statement or the Prospectus (as then amended
or supplemented, if amended or supplemented) is or may be untrue in any
material respect or that the Registration Statement or Prospectus (as then
amended or supplemented, if amended or supplemented) omits or may omit to state
a material fact or a fact necessary to be stated therein in order to make the
statements therein not misleading in any material respect, or of the necessity
to amend or supplement the Prospectus (as then amended or supplemented, if
amended or supplemented) in order to comply with the Act or any other law.
7. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The registration statement in the form in which it became
or becomes effective and also in such form as it may be when any
post--effective amendment thereto shall become effective and the prospectus and
any supplement or amendment thereto when filed with the Commission under Rule
424(b) or Rule 462 under the Act, complied or will comply in all material
respects with the provisions of the Act and did not or will not at any such
times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the registration statement or the
prospectus or any amendment or supplement thereto made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of any Underwriter through you expressly for
use therein.
(c) All the outstanding shares of Common Stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable
and are free of any preemptive or similar rights; the Shares to be issued and
sold by the Company have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and free of any preemptive
or similar rights; and the capital stock of the Company conforms to the
description thereof in the registration statement and the prospectus.
(d) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to legally own or lease and use its properties
and to conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered or qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the financial condition, business, properties, net
worth or results of operations of the Company and the subsidiaries taken as a
whole (a "Material Adverse Effect"). Kitty Hawk Aircargo, Inc. is an "air
carrier" and a "citizen of the United States" within the meaning of that
portion of the United States Code comprising those provisions formerly referred
to as the Federal Aviation Act of 1958, and now primarily codified in
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<PAGE> 8
Title 49 of the United States Code, as amended (the "Aviation Act") and holds
an "air carrier operating certificate issued by the Secretary of
Transportation" within the meaning of 11 U.S.C. Section 1110.
(e) All the Company's subsidiaries that are required to be
listed in an exhibit to the Registration Statement (collectively, the
"Subsidiaries") are so listed. Each Subsidiary is a corporation duly
incorporated, validly existing and in good standing in the jurisdiction of its
incorporation, with full corporate power and authority to own or lease and use
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered or qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a Material Adverse Effect; all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and are owned by the Company
directly, or indirectly through one of the other Subsidiaries, free and clear
of any lien, adverse claim, security interest, equity or other encumbrance.
(f) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of its
subsidiaries, or to which the Company or any of its subsidiaries, or to which
any of their respective properties is subject, that are required to be
described in the Registration Statement or the Prospectus but are not described
as required, and there are no agreements, contracts, indentures, leases or
other instruments that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act. The
descriptions of the terms of any such contracts or documents contained in the
Registration Statement or the Prospectus are correct in all material respects.
(g) Neither the Company nor any of the Subsidiaries is in (i)
violation of its certificate or articles of incorporation or by--laws, or other
organizational documents, (ii) violation of any law, ordinance, administrative
or governmental rule or regulation applicable to the Company or any of its
subsidiaries or of any decree of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries (except for any
such violation or violations that, singly or in the aggregate, would not have a
Material Adverse Effect), or (iii) default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or
any other evidence of indebtedness or in any material agreement, indenture,
lease or other instrument to which the Company or any of its subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, and no condition or state of facts exists that, with the passage of time
or the giving of notice or both, would constitute such a default (except for
any such default or defaults that, singly or in the aggregate, would not have a
Material Adverse Effect).
(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby (A) requires any
consent, approval, authorization or other order of or registration or filing
with, any court, regulatory body, administrative agency or other governmental
body, agency or official (except such as may be required for the registration
of the Shares under the Act and the Exchange Act and compliance with the
securities or Blue Sky laws of various jurisdictions, all of which have been or
will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or (B)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties are bound, or violates or will violate
any current statute, law, regulation or filing or judgment, injunction, order
or decree applicable to the Company or any of the Subsidiaries or any of their
respective
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<PAGE> 9
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them are bound or to which any of the
property or assets of any of them is subject.
(i) The accountants, Ernst & Young LLP, who have certified or
shall certify the financial statements included in the Registration Statement
and the Prospectus (or any amendment or supplement thereto) are independent
public accountants as required by the Act.
(j) The consolidated historical and pro forma financial
statements, together with related schedules and notes, included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), comply as to form in all material respects with the requirements of
the Act. Such historical financial statements present fairly the consolidated
financial position, results of operations and changes in financial position of
the entities covered thereby on the basis stated in the Registration Statement
at the respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated, in accordance with generally
accepted accounting principles consistently applied throughout such periods.
The pro forma financial statements included in the Registration Statement and
the Prospectus and any amendment or supplement thereto, have been prepared on a
basis consistent with such historical financial statements, except for the pro
forma adjustments specified therein, and give effect to assumptions made on a
reasonable basis and present fairly the historical and proposed transactions
contemplated by this Agreement and the Prospectus (and any amendment or
supplement thereto). The other financial and statistical data included in the
Prospectus and in the Registration Statement, historical and pro forma, are, in
all material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the entities
covered thereby.
(k) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except (i) as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws, and (ii) as to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally and to
general equitable principles.
(l) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), (i)
neither the Company nor any of its subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and its
subsidiaries taken as a whole, (ii) there has not been any change in the
capital stock, or material increase in the short--term debt or long--term debt,
of the Company or any of its subsidiaries, or any material adverse change, or
any development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the financial condition, business, net
worth or results of operations of the Company and its subsidiaries taken as a
whole, (iii) there has not been any material restriction in the operation of
the Company's or the Subsidiaries' aircraft, including as a result of action by
the Federal Aviation Administration or the Department of Transportation, and
(iv) neither the Company nor any of its Subsidiaries have received an
indication, either orally or in writing, that any material contract described
in the Prospectus, including the agreements between the Company and General
Motors Corporation and Burlington Air Express, Inc., respectively, will or is
reasonably likely to be terminated prior to expiration of any such agreement or
that any such agreement will not be renewed.
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<PAGE> 10
(m) Neither the Company nor any of its subsidiaries own any
real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property and aircraft described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus or in a document filed as an exhibit
to the Registration Statement and all the real property described in the
Prospectus as being held under lease by each of the Company and its
subsidiaries is held by it under valid, subsisting and enforceable leases.
(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(o) The Company and each of its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and
to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus; the Company and each
of its subsidiaries has fulfilled and performed all its material obligations
with respect to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the holder of any
such permit, subject in each case to such qualification as may be set forth in
the Prospectus; and, except as described in the Prospectus, none of such
permits contains any restriction that is materially burdensome to the Company
or any of its subsidiaries.
(p) Each of the Company and its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(q) To the Company's knowledge, neither the Company nor any of
its subsidiaries nor any employee or agent of the Company or any subsidiary has
made any payment of funds of the Company or any subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(r) The Company and each of its subsidiaries have filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any subsidiary of the Company is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, except for (i) the grant of extensions for
the filing of such returns and payment of any taxes, interest and penalties due
thereon for which adequate reserves have been established with respect to such
returns and (ii) all such failures to file or pay that would not,
individually, or in the aggregate, have a Material Adverse Effect.
(s) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company because of the filing of the registration statement or consummation of
the transactions contemplated by this Agreement except as described in the
Prospectus.
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<PAGE> 11
(t) The Company and its subsidiaries own or possess all
patents, patent applications, trademarks, trademark registrations and
applications, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectus as being owned by them or any of them or necessary for the conduct
of their respective businesses, and the Company is not aware of any claim to
the contrary or any challenge by any other person to the rights of the Company
and the Subsidiaries with respect to the foregoing.
(u) The Company is not now, and after sale of the Shares to be
sold by it hereunder and application of the net proceeds from such sale as
described in the Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(v) The Company has complied with all provisions of Florida
Statutes, Section 517.075, relating to issuers doing business with Cuba.
(w) Except as disclosed in the Prospectus, the Company and its
subsidiaries (i) are in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a Material Adverse Effect.
(x) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which the Company is engaged and proposes to
engage and the Company has no reason to believe that it will not be able to
renew such insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
8. Representations and Warranties of the Selling Stockholder. The
Selling Stockholder represents and warrants to each Underwriter that:
(a) The Selling Stockholder now has, and on the Closing Date
and any Option Closing Date will have, good and valid title to the Shares to be
sold by the Selling Stockholder hereunder, free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation, any
restriction on transfer.
(b) The Selling Stockholder now has, and on the Closing Date
and any Option Closing Date will have, full legal right, power and
authorization, and any approval required by law, to sell, assign transfer and
deliver such Shares in the manner provided in this Agreement, and upon delivery
of and payment for such Shares hereunder, the several Underwriters will acquire
good and valid title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Stockholder and is the valid and binding agreement of
the Selling Stockholder enforceable against the Selling Stockholder in
accordance with its terms, except (i) as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws and (ii) as to
applicable bankruptcy,
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<PAGE> 12
insolvency, reorganization and moratorium laws and other laws relating to or
affecting the enforcement of creditors' rights generally and to general
equitable principles.
(d) Neither the execution and delivery of this Agreement by the
Selling Stockholder nor the consummation of the transactions herein
contemplated by the Selling Stockholder requires any consent, approval,
authorization or order of, or filing or registration with, any court,
regulatory body, administrative agency or other governmental body, agency or
official (except such as may be required under the Act or such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Shares) or conflicts or will conflict with or constitutes
or will constitute a breach of, or default under, or violates or will violate,
any agreement, indenture or other instrument to which the Selling Stockholder
is a party or by which the Selling Stockholder is or may be bound or to which
any of the Selling Stockholder's property or assets is subject, or any statute,
law, rule, regulation, ruling, judgment, injunction, order or decree applicable
to the Selling Stockholder or to any property or assets of the Selling
Stockholder.
(e) The Registration Statement and the Prospectus, insofar as
they relate to the Selling Stockholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(f) The Selling Stockholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(g) The Selling Stockholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares, except for the lock--up
arrangements described in the Prospectus.
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each of
you and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20(a) the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prepricing Prospectus or in the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several
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<PAGE> 13
Underwriters no later than 2:00 p.m., New York City time, on the business day
following the date hereof, in such quantity as the Underwriters shall have
reasonably requested. The foregoing indemnity agreement shall be in addition
to any liability which the Company may otherwise have.
(b) The Selling Stockholder agrees to indemnify and hold
harmless each of you and each other Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto (if used
within the period set forth in Section 5(d)(ii)), or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (b) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several Underwriters no later than
2:00 p.m., New York City time, on the business day following the date hereof,
in such quantity as the Underwriters shall have reasonably requested.
Notwithstanding the foregoing, the aggregate liability of the Selling
Stockholder for indemnification under this Section 9(b) shall be limited to an
amount equal to the aggregate amount of the net proceeds of the offering
(before expenses but after deduction of underwriting discounts and commissions)
received by such Selling Stockholder. The foregoing indemnity agreement shall
be in addition to any liability which the Selling Stockholder may otherwise
have.
(c) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or the Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties"), and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the indemnifying parties
have agreed in writing to pay such fees and expenses, (ii) the indemnifying
parties have failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying parties and such Underwriter or such controlling person shall have
been advised by its counsel that representation of such indemnified party and
any indemnifying party by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
party shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such Underwriter or such controlling person). It is
understood, however, that the indemnifying parties shall, in connection with
any one such action, suit or proceeding or separate
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<PAGE> 14
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without
their written consent, but if settled with such written consent, or if there be
a final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in paragraph (a) of this Section 9, and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Stockholder, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to each Underwriter, but only with respect to information relating
to such Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Company, any of its
directors, any such officer, the Selling Stockholder, or any such controlling
person based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (d),
such Underwriter shall have the rights and duties given to the Company by
paragraph (c) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, the Selling Stockholder, and any such
controlling person shall have the rights and duties given to the Underwriters
by paragraph (c) above. The foregoing indemnity agreement shall be in addition
to any liability which any Underwriter may otherwise have.
(e) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraphs (a), (b) or (d) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Selling Stockholder on the one hand and the Underwriters on
the other hand from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Stockholder on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholder bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus; provided that, in the event that the Underwriters shall have
purchased any Additional Shares hereunder, any determination of the relative
benefits received by the Company, the Selling Stockholder or the Underwriters
from the offering of the Shares shall include the net proceeds (before
deducting expenses) received by the Company and the Selling Stockholder, and
the underwriting
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<PAGE> 15
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company and the Selling Stockholder on the one hand and
the Underwriters on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Stockholder on the one hand
or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the aggregate liability
of the Selling Stockholder for contribution under this Section 9(e) shall be
limited to an amount equal to the aggregate amount of the net proceeds of the
offering (before expenses but after deduction of underwriting discounts and
commissions) received by such Selling Stockholder.
(f) The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (e) above. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages, liabilities and expenses referred
to in paragraph (e) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 9, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price of the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several in proportion to the respective numbers
of Firm Shares set forth opposite their names in Schedule II hereto (or such
numbers of Firm Shares increased as set forth in Section 12 hereof) and not
joint.
(g) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholder or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, any
person controlling the Company, or the Selling Stockholder shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 9.
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<PAGE> 16
10. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post--effective amendment
thereto to be declared effective before the offering of the Shares may
commence, the registration statement or such post--effective amendment shall
have become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 424 and 430A under the Act
shall have been timely made; no stop order suspending the effectiveness of the
registration statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company or the Selling
Stockholder which makes any statement made in the Prospectus untrue or which,
in the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be
stated therein or necessary in order to make the statements therein not
misleading, if amending or supplementing the Prospectus to reflect such event
or development would, in your opinion, as Representatives of the several
Underwriters, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Haynes and Boone, LLP, counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:
(i) The Company is a corporation duly
incorporated and validly existing under the laws of the State of Delaware with
full corporate power and authority to own or lease its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly qualified to
transact business as a foreign corporation under the laws of the State of
Texas;
(ii) Each of the Subsidiaries is a corporation
duly incorporated and validly existing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own or lease its
properties and to conduct its business as described in the Registration
Statement and the Prospectus (and any amendment or supplement thereto); and all
the outstanding shares of capital stock of each of the Subsidiaries have been
duly authorized and validly issued, are fully paid and nonassessable, and are
owned of record by the Company free and clear of any perfected security
interest;
(iii) The authorized and outstanding capital stock
of the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock";
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<PAGE> 17
(iv) All the shares of capital stock of the
Company outstanding prior to the issuance of the Shares to be issued and sold
by the Company hereunder, have been duly authorized and validly issued, and are
fully paid and nonassessable;
(v) The Shares to be issued and sold to the
Underwriters by the Company hereunder have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor in accordance
with the terms hereof, will be validly issued, fully paid and nonassessable
free of any preemptive rights under the Certificate of Incorporation or
Delaware General Corporation Law;
(vi) The form of certificates for the Shares
comply with all requirements of the Delaware General Corporation Law;
(vii) The Registration Statement and all
post--effective amendments, if any, have become effective under the Act and, to
the knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
are pending before or contemplated by the Commission; and any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b);
(viii) This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except for provisions contained in this Agreement purporting to limit rights of
third parties and except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally and by general equitable principles;
(ix) Neither the offer, sale or delivery of the
Shares, the execution, delivery or performance of this Agreement, compliance by
the Company with the provisions hereof, nor consummation by the Company of the
transactions contemplated hereby, conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the certificate
or articles of incorporation (or charter document by whatever name) or bylaws,
of the Company or any of the Subsidiaries or any agreement listed under Item 10
of the exhibits to the Registration Statement, nor will any such action result
in any violation of any existing law or regulation, (assuming compliance with
all applicable state securities and Blue Sky laws), applicable to the Company,
the Subsidiaries or any of their respective properties and excluding any
opinion concerning fraud under the laws of the State of Texas;
(x) No consent, approval, authorization or other
order of, or registration or filing with, any Federal or State of Texas court,
regulatory body, administrative agency or other governmental body, agency, or
official is required on the part of the Company (except as have been obtained
under the Act and the Exchange Act or such as may be required under state
securities or Blue Sky laws governing the offer, purchase and distribution of
the Shares) for the valid issuance and sale of the Shares to the Underwriters
as contemplated by this Agreement; and
(xi) The Registration Statement and the
Prospectus and any supplements or amendments thereto (except for the financial
statements and the notes thereto and the schedules and other financial and
statistical data included therein, as to which such counsel need not express
any opinion) appear on their face to be appropriate response in all material
respects with the requirements of the Act.
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<PAGE> 18
Haynes and Boone, LLP shall confirm in its opinion (i) that is
has received certificates of good standing for the Company from the States of
Texas and Delaware, which certificates shall be attached as an exhibit to such
opinion; and (ii) that it has received certificates of good standing for Kitty
Hawk Aircargo, Inc., from the States of Indiana, Michigan, Minnesota, Montana,
Ohio and Washington which certificates shall be attached as an exhibit to such
opinion. Haynes and Boone, LLP shall also confirm that, to its knowledge
(based solely upon the investigation described in such opinion letter), the
descriptions in the Registration Statement and the Prospectus under the
captions "Business - Relationship with GM," and "Business - Air Freight Carrier
- - ACMI Contracts - Burlington Air Express, Inc.," of the contracts between the
Company and The General Motors Corporation and the Company and Burlington Air
Express, Inc., respectively, constitute fair summaries in all material respects
of such contracts. Haynes and Boone, LLP shall further confirm that, to its
knowledge, the issue and sale of the Shares being issued at such Closing Date
or Option Closing Date and the performance of this Agreement and the
consummation of the transactions herein contemplated does not conflict with or
violate any order, judgment or decree of any court or governmental agency or
body having jurisdiction over the Company or any of its Subsidiaries or any of
their respective properties or assets.
Such counsel shall also state that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement, such counsel has
participated in the preparation of the Registration Statement and the
Prospectus, including review and discussion of the contents thereof, and
nothing has come to the attention of such counsel that has caused it to believe
that the Registration Statement at the time the Registration Statement became
effective, or the Prospectus, as of its date and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that any
amendment or supplement to the Prospectus, as of its respective date, and as of
the Closing Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no opinion with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectus).
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the General
Corporation Law of the State of Delaware or the laws of the State of Texas or
the federal laws of the United States, provided that (1) each such local
counsel is reasonably acceptable to the Representatives, (2) such reliance is
expressly authorized by each opinion so relied upon and a copy of each such
opinion is delivered to the Representatives and is, in form and substance
reasonably satisfactory to them and their counsel, and (3) counsel shall state
in their opinion that they believe that they and the Underwriters are justified
in relying thereon. Haynes and Boone, LLP, may expressly limit the expression
of the foregoing opinions to the laws of the State of Texas, the General
Corporation Law of the State of Delaware and the federal laws of the United
States and may exclude all laws, rules and regulations related to aviation and
the effect such laws, rules and regulations may have on such opinions. Such
counsel shall also provide that Alston & Bird shall be entitled to rely on such
opinion with respect to matters involving Texas law in connection with the
rendering of their opinion pursuant to subsection (e) of this Section.
(d) You shall have received on the Closing Date, an opinion of
Burke, Wright & Keiffer, P.C., corporate counsel for the Company and counsel
for the Selling Stockholder, dated the Closing Date and addressed to you, as
Representatives of the several Underwriters, to the effect that:
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<PAGE> 19
(i) The Company and each of the Subsidiaries has full corporate power
and authority, and all necessary governmental authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental regulatory officials and bodies (except where the failure so to
have any such authorizations, approvals, orders, licenses, certificates,
franchises or permits, individually or in the aggregate, would not have a
material adverse effect on the business, properties, operations or financial
condition of the Company and the Subsidiaries taken as a whole), to own their
respective properties and to conduct their respective businesses as now being
conducted, as described in the Prospectus;
(ii) Except as disclosed in the Prospectus, the Company owns of
record, directly or indirectly, all the outstanding shares of capital stock of
each of the Subsidiaries free and clear of any lien, adverse claim, security
interest, equity, or other encumbrance;
(iii) Other than as described or contemplated in the Prospectus (or
any supplement thereto), there are no legal or governmental proceedings pending
or threatened against the Company or any of the Subsidiaries, or to which the
Company or any of the Subsidiaries, or any of their property, is subject, which
are required to be described in the Registration Statement or Prospectus (or
any amendment or supplement thereto);
(iv) There are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement that are not described or filed as
required, as the case may be;
(v) Except as disclosed in the Prospectus, the Company and the
Subsidiaries own all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as being owned
by them or any of them or necessary for the conduct of their respective
businesses, and Burke, Wright & Keiffer, P.C. is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company and
the Subsidiaries with respect to the foregoing;
(vi) Neither the Company nor any of the Subsidiaries is in violation
of its respective certificate or articles of incorporation or bylaws, or other
organizational documents, or to the knowledge of such counsel, is in default in
the performance of any material obligation, agreement or condition contained in
any agreement filed as an exhibit under Item 10 of the exhibits to the
Registration Statement, except as may be disclosed in the Prospectus;
(vii) To the knowledge of such counsel, neither the Company nor any
of the Subsidiaries is in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any decree of any court or governmental agency or body
having jurisdiction over the Company or any of the Subsidiaries;
(viii) This Agreement has been duly executed and delivered by or on
behalf of the Selling Stockholder and is the valid and binding agreement of the
Selling Stockholder enforceable against the Selling Stockholder in accordance
with its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Selling Stockholder's obligations hereunder
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<PAGE> 20
may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditor's
rights generally and by general equitable principles;
(ix) To the knowledge of such counsel, the Selling Stockholder has
full legal right, power and authorization, and any approval required by law, to
sell, assign, transfer and deliver good and marketable title to the Shares
which the Selling Stockholder has agreed to sell pursuant to this Agreement;
(x) The execution and delivery of this Agreement by the Selling
Stockholder and the consummation of the transactions contemplated hereby will
not conflict with, violate, result in a breach of or constitute a default under
the terms or provisions of any agreement, indenture, mortgage or other
instrument known to such counsel to which the Selling Stockholder is a party or
by which he or any of his assets or property is bound, or any court order or
decree of any law, rule or regulation (assuming compliance with all applicable
state securities and Blue Sky laws governing the purchase and distribution of
the Shares) applicable to the Selling Stockholder or to any of the property or
assets of the Selling Stockholder;
(xi) The execution and delivery of this Agreement by the Company and
the consummation of the transactions contemplated hereby will not conflict
with, violate, result in a breach of or constitute a default under the terms or
provisions of any agreement, indenture, mortgage or other instrument known to
such counsel to which the Company is a party, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its Subsidiaries or any court order or decree of any law,
rule or regulation (assuming compliance with all applicable state securities
and Blue Sky laws governing the purchase and distribution of the Shares)
judgment, injunction, order or decree known to such counsel after reasonable
inquiry applicable to the Company or to any of the property or assets of the
Company;
(xii) Upon delivery of the Shares pursuant to this Agreement and
payment therefor as contemplated herein (assuming that the Underwriters are
bona fide purchasers within the meaning of the Uniform Commercial Code) the
Underwriters will acquire good and marketable title to the Shares free and
clear of any lien, claim, security interest, or other encumbrances, restriction
on transfer or other defect in title; and
(xiii) Except as described in the Prospectus, there are no
outstanding options, warrants or other rights calling for the issuance of, and
such counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company;
(xiv) Except as described in the Prospectus, there is no holder of
any security of the Company or any other person who has the right, contractual
or otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, the Shares or the right to have any
Common Stock or other securities of the Company included in the registration
statement or the right, as a result of the filing of the registration
statement, to require registration under the Act of any shares of Common Stock
or other securities of the Company;
(xv) Good and unencumbered title (except for security interests
granted by the Company to its secured lenders) to each of the aircraft owned by
the Company and its Subsidiaries is ensured by aircraft title insurance in
amounts equal to the most recent appraisal for each such aircraft; and
- 20 -
<PAGE> 21
(xvi) The Company and its Subsidiary Kitty Hawk Air Cargo,
Inc., is an "air carrier" and a "citizen of the United States" within the
meaning of that portion of the United States Code comprising those provisions
formerly referred to as the Federal Aviation Act of 1958, and now primarily
codified in Title 49 of the United States Code, as amended (the "Aviation Act")
and holds an "air carrier operating certificate" by the Secretary of
Transportation" issued by the Federal Aviation Administration. The statements
in the Prospectus and the Registration Statement, insofar as they are
descriptions of government regulation under the captions "Business -
Government Regulation" and "Risk Factors - Government Regulation" are accurate
and present fairly the information required to be shown. In addition, the
Company holds all requisite authority under certificates issued by the
Department of Transportation to conduct its worldwide cargo charter operations
as currently conducted, and no such certificate is the subject of any "show
cause" or other order, or any proceeding of any kind, including any that might
reasonably result in a final order impairing the validity of the certificate.
With respect to the preceding sentence, Burke, Wright & Keiffer shall be
entitled to rely on an opinion of Bagielo, Silverberg & Goldman.
(e) You shall have received on the Closing Date an opinion of Alston
& Bird, counsel for the Underwriters, dated the Closing Date and addressed to
you, as Representatives of the several Underwriters, with respect to the
matters referred to in clauses (v), (vii), (viii), (xii) and (xx) of the
foregoing paragraph (c) and such other related matters as you may request.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short--term or long--term debt of the Company (other
than in the ordinary course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and
the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall
not have any liabilities or obligations, direct or contingent (whether or not
in the ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date, and you shall
have received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect set forth in this Section
10(g) and in Section 10(h) hereof.
(h) The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
- 21 -
<PAGE> 22
(i) All the representations and warranties of the Selling Stockholder
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, and you shall have received a certificate, dated the Closing Date and
signed by or on behalf of the Selling Stockholder to the effect set forth in
this Section 10(i) and in Section 10(j) hereof.
(j) The Selling Stockholder shall not have failed at or prior to the
Closing Date to have performed or complied with any of his agreements herein
contained and required to be performed or complied with by him hereunder at or
prior to the Closing Date.
(k) The Shares shall have been listed or approved for listing upon
notice of issuance on the Nasdaq National Market.
(l) The Sellers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or the
Selling Stockholder and delivered to you, as Representatives of the
Underwriters, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company or the Selling Stockholder, as the
case may be, to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 10, except that, if
any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (i) shall be dated
the Option Closing Date in question and the opinions called for by paragraphs
(c), (d) and (e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of their
obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares; (iv) the
printing (or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the registration of the Shares under the Exchange Act and the listing of
the Shares on the Nasdaq National Market; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the fees and expenses of counsel for
the Underwriters in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; (viii) the transportation and
other expenses
- 22 -
<PAGE> 23
incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Shares; and (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company and the Selling
Stockholder.
12. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post--effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post--effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company and the Selling Stockholder.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one--tenth of the aggregate number of Shares which the Underwriters
are obligated to purchase on the Closing Date, each non--defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule II hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non--defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one--tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non- defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non--defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule II hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or the Selling Stockholder, by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York or Texas shall have been declared by either federal or
state authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis
or change in political, financial or economic conditions, the effect of which
on the financial markets of the
- 23 -
<PAGE> 24
United States is such as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the offering
price to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Shares by the Underwriters. Notice of such
termination may be given to the Company by telegram, telecopy or telephone and
shall be subsequently confirmed by letter.
14. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12
and 13 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at Kitty Hawk, Inc., 1515 West 20th Street, 2nd Floor, P. O. Box
612787, Dallas/Fort Worth Airport, Texas 612787, Attention: M. Tom
Christopher, Chief Executive Officer; or (ii) if to the Selling Stockholder, at
Kitty Hawk, Inc., 1515 West 20th Street, 2nd Floor, P.O. Box 612787,
Dallas/Fort Worth Airport, Texas 75261, Attention: M. Tom Christopher, Chief
Executive Officer, with a copy to Greg Samuel c/o of Haynes and Boone, LLP.
3100 NationsBank Plaza, 901 Main Street, Dallas, Texas 75202 or (iii) if to
you, as Representatives of the several Underwriters, care of Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, the Selling
Stockholder and the other controlling persons referred to in Section 9 hereof
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any Underwriter of any
of the Shares in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed
by and construed in accordance with the laws of the State of Texas applicable
to contracts made and to be performed within the State of Texas.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Stockholder and the several Underwriters.
Very truly yours,
KITTY HAWK, INC.
By:
------------------------------
M. Tom Christopher
Chairman of the Board
- 24 -
<PAGE> 25
The Selling Stockholder
---------------------------------
M. Tom Christopher
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
FIELDSTONE FPCG SERVICES, L.P.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By:
-------------------------------------------
Managing Director
- 25 -
<PAGE> 26
SCHEDULE I
KITTY HAWK, INC.
Part A -- Firm Shares
Number of
Selling Stockholder Firm Shares
------------------- -----------
---------------
Total........
---------------
Part B -- Additional Shares
Number of
Selling Stockholder Additional Shares
------------------- -----------------
---------------
Total........
---------------
- 26 -
<PAGE> 27
SCHEDULE II
KITTY HAWK, INC.
Number of Number of
Underwriter Firm Shares Underwriter Firm Shares
- ----------- ----------- ----------- -----------
Smith Barney Inc. ....
Alex. Brown & Sons Incorporated
Fieldstone FPCG Services, L.P.
---------------
Total........
---------------
- 27 -
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 4.1
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
- ----------------------------------- -------------------------------
NUMBER SHARES
[KITTY HAWK LOGO]
KH
- ----------------------------------- -------------------------------
THIS CERTIFICATE IS TRANSFERABLE IN COMMON STOCK
DALLAS, TEXAS AND NEW YORK, NEW YORK
CUSIP 498326 10 7
KITTY HAWK(R), INC. SEE REVERSE FOR CERTAIN LEGENDS
- -------------------------------------------------------------------------------------------------------------------------------
This Certifies that
SPECIMEN
is the owner of
- -------------------------------------------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES, $.01 PAR VALUE, OF THE COMMON STOCK OF
KITTY HAWK, INC.
transferable on the books of the Corporation by the holder hereof, in person or by duly authorized attorney, upon surrender of
this Certificate properly endorsed or accompanied by a proper assignment. This Certificate and the shares represented hereby
are issued and shall be held subject to all of the provisions of the Certificate of Incorporation and Bylaws of the Corporation
and all amendments thereof, to all of which the holder by the acceptance hereof consents. This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
/s/ RICHARD R. WADSWORTH, JR. /s/ M. TOM CHRISTOPHER [SEAL] BY
SPECIMEN SPECIMEN AUTHORIZED SIGNATURE
Secretary Chairman of the Board
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
KITTY HAWK, INC.
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of
the Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. A stockholder may make the request to the
Corporation at its principal executive offices.
The rights of persons who are not "citizens of the United States" (as
defined in 49 U.S.C. 40102(a)(15), as now in effect or as hereafter amended) to
vote the securities represented by this Certificate are subject to certain
restrictions contained in the Certificate of Incorporation of the Corporation,
copies of which are on file at the principal executive offices of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......... Custodian ..........
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act ..........................
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP
CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
---------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated,
----------------------------
NOTICE
THE SIGNATURES(S) TO THIS X
ASSIGNMENT MUST CORRESPOND ------------------------------
WITH THE NAME(S) AS WRITTEN (SIGNATURE)
UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT X
ALTERATION OR ENLARGEMENT OR ------------------------------
ANY CHANGE WHATEVER. (SIGNATURE)
-------------------------------
THIS SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION AS
DEFINED IN RULE 17Ad-15 UNDER
THE SECURITIES AND EXCHANGE
ACT OF 1934 AS AMENDED
-------------------------------
SIGNATURE(S) GUARANTEED BY:
-------------------------------
<PAGE> 1
EXHIBIT 5.1
[HAYNES AND BOONE LETTERHEAD]
September 3, 1996
Kitty Hawk, Inc.
1515 West 20th Street
Dallas/Fort Worth International Airport, Texas 75261
Re: Registration of 3,450,000 shares of Common Stock of Kitty
Hawk, Inc.
Gentlemen:
We have acted as counsel to Kitty Hawk, Inc., a Delaware corporation
(the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-1 (Registration No. 333-8307) and the
amendments thereto (the Registration Statement, as amended, is hereinafter
referred to as the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to (i) the offer and sale by the Company of up
to 2,700,000 shares of its Common Stock, par value $0.01 per share ("Common
Stock") and (ii) the offer and sale of up to 750,000 shares of Common Stock by
the Selling Stockholder (herein so called) identified in the Registration
Statement. The shares of Common Stock to be sold by the Company are
hereinafter referred to as the "Company Securities" and the shares of Common
Stock to be sold by the Selling Stockholder are hereinafter referred to as the
"Stockholder Securities." The opinions expressed herein relate solely to, are
based solely upon and are limited exclusively to, the internal substantive laws
of the State of Texas, the General Corporation Laws of the State of Delaware
and applicable federal laws of the United States of America.
In connection therewith, we have examined and relied upon the
original, or copies certified to our satisfaction, of (i) the Certificate of
Incorporation of the Company, as amended (the "Certificate of Incorporation"),
and the Bylaws of the Company, as amended; (ii) the minutes and records of the
corporate proceedings of the Company with respect to the issuance by the
Company of the shares of Company Securities and Stockholder Securities; (iii)
the Registration Statement and all exhibits thereto; (iv) the form of
Underwriting Agreement (herein so called), to be entered into among the
Company, the Selling Stockholder, and Smith Barney Inc., Alex. Brown & Sons
Incorporated and Fieldstone FPCG Services, L.P., as Underwriters named in the
Underwriting Agreement; (v) such other documents and instruments as we have
deemed
<PAGE> 2
Kitty Hawk, Inc.
September 3, 1996
Page 2
necessary for the expression of the opinions contained herein and (vi) the
specimen Common Stock certificate filed as Exhibit 4.1 to the Registration
Statement.
In making the foregoing examinations, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies thereof. As to various questions of
fact material to this opinion, where such facts have not been independently
established, and as to the content and form of certain minutes, records,
resolutions and other documents or writings of the Company, we have relied, to
the extent we have deemed reasonably appropriate, upon representations or
certificates of officers of the Company or governmental officials. We have
assumed that the Underwriting Agreement will be executed in substantially the
same form submitted to us. Finally, we have assumed that all formalities
required by the Company's Certificate of Incorporation, Bylaws and the Delaware
General Corporation Law will be complied with when the Stockholder Securities
and the Company Securities are issued.
Based upon the foregoing, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that (i) the
Stockholder Securities will, when sold, be validly issued, fully paid and
nonassessable and (ii) the Company Securities, upon receipt by the Company of
the full consideration for the Company Securities in accordance with the terms
of the Underwriting Agreement and upon passage of the pricing resolutions of
the Pricing Committee of the Company's Board of Directors, will, when sold, be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to this firm under "Legal Matters" in the Prospectus forming a part
of such Registration Statement.
Very truly yours,
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 10.28
KITTY HAWK, INC.
Amended and Restated
Omnibus Securities Plan
Dated September 3, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I Amendment and Restatement; Purpose.....................1
Article II Definitions............................................1
Article III Eligibility............................................5
Article IV Awards.................................................6
Article V Award Agreements......................................12
Article VI Shares Subject to the Plan............................16
Article VII Administration........................................18
Article VIII Adjustments Upon Changes in Capitalization............20
Article IX Change of Control.....................................23
Article X Rights of Employees...................................25
Article XI Compliance with Applicable Legal Requirements.........25
Article XII Amendment and Termination.............................26
Article XIII Unfunded Plan.........................................27
Article XIV Limits of Liability...................................27
Article XV Miscellaneous.........................................28
</TABLE>
i
<PAGE> 3
ARTICLE I
AMENDMENT AND RESTATEMENT; PURPOSE
Effective this September 3, 1996, Kitty Hawk, Inc. (the "Company") adopts
this Amended and Restated Omnibus Securities Plan (the "Plan"), which amends,
restates and supersedes in its entirely the 1994 Omnibus Securities Plan that
was adopted by the Company as of June 28, 1996 (the "Effective Date"), to
benefit the Company's stockholders by creating a flexible "omnibus" vehicle to
provide a variety of medium and long-term incentive compensation opportunities
to senior and executive management of the Company. In doing so, the Plan
provides an important link between the compensation of senior and executive
management and Company performance. The Awards under the Plan will compensate
management for the creation of shareholder value. In this way the Plan is
intended to encourage and reward superior performance by individuals whose
performance is a key element in achieving the Company's continued financial and
operational success. In addition, the Plan will assist the Company recruit,
reward, retain, and motivate management to achieve the Company's mission of
being a top performer in its industry by rewarding the creation of shareholder
value.
ARTICLE II
DEFINITIONS
2.1 "Award" or "Awards" means an award granted pursuant to Article IV.
1
<PAGE> 4
2.2 "Award Agreement" means an agreement described in Article V entered into
between the Company and a Participant, setting forth the terms, conditions and
any limitations applicable to the Award granted to the Participant.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
2.5 "Committee" means the Compensation Committee of the Board, which shall be
comprised solely of no less than two outside directors. For this purpose, the
term "outside director" means a director of the Board who (i) is not an
Employee or a former Employee of the Company, (ii) has never served as an
officer of an entity currently affiliated with the Company, and (iii) is not
paid remuneration (as defined in regulations under Code Section 162(m)) from
the Company, directly or indirectly, in any capacity other than as a director.
Each member of the Committee at the time of his appointment to the Committee
and while he is a member thereof, must also be a "Non-Employee Director" as
that term is defined in Rule 16b-3 promulgated under the Exchange Act.
2.6 "Company" means Kitty Hawk, Inc., a Delaware corporation or any successor
corporation.
2
<PAGE> 5
2.7 "Employee" means any individual who is an employee of the Company or any
Participating Affiliate, or a member of the Board.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, or any successor statute.
2.9 "Fair Market Value" of a Share means the value of a Share as of any date,
determined as follows:
(a) if the Shares are listed on a national securities exchange or if last
sales prices are reported for the Shares as of such date, the closing price
per Share as reported on such date;
(b) if the Shares are not listed on a national securities exchange and last
sale prices are not reported for the Shares, but the Shares are traded in
the over-the-counter market, the mean between the closing bid and asked
prices per Share on such date; or
(c) if there is no generally recognized market for the Shares as of such
date, the fair market value per Share as determined in good faith by the
Committee.
2.10 "Insider" means any person who is subject to Section 16.
2.11 "Participant" means an Employee who has been designated by the Committee
to be eligible for an Award pursuant to this Plan.
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2.12 "Participating Affiliate" means a subsidiary of the Company, of which the
Company beneficially owns, directly or indirectly, more than fifty percent
(50%) of the aggregate voting power of all outstanding classes and series of
stock, and which has one or more employees designated by the Committee to be
eligible for an Award pursuant to this Plan.
2.13 "Performance Awards" means performance-based compensation as described in
Section 162(m) of the Code.
2.14 "Restricted Stock" means Shares which have certain restrictions attached
to the ownership thereof, which may be issued under Section 4.4.
2.15 "Restricted Stockholder" means any person who (i) is the beneficial owner
(as such term is defined in Rule 16a-1 promulgated under the Exchange Act) of
ten percent or more of the outstanding Shares or any other class of equity
securities of the Company registered under Section 12 of the Exchange Act, and
(ii) is not an officer or director of the Company.
2.16 "Retirement" means termination of employment with the Company or a
Participating Affiliate upon attainment of normal retirement age of sixty-five
(65), or as otherwise determined under the Kitty Hawk, Inc. 401(k) Savings
Plan, or the applicable retirement plan of a Participating Affiliate.
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2.17 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16, as amended effective November 1, 1996
by Release No. 34-37260.
2.18 "Section 16" means Section 16 of the Exchange Act or any successor
regulation and the rules promulgated thereunder as they may be amended from
time to time.
2.19 "Share" means a share of common stock (par value $0.01) of the Company.
2.20 "Stock Appreciation Right" means a right, the value of which is
determined relative to the appreciation in value of Shares which may be
issued under Section 4.3.
2.21 "Stock Option" means a right to purchase Shares and includes Incentive
Stock Options and Non-Qualified Options as defined in Section 4.2.
ARTICLE III
ELIGIBILITY
Awards may be granted only to Employees who are designated as Participants from
time to time by the Committee. The Committee shall consider an
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individual's position, responsibilities, and importance to the Company among
other factors in determining which Employees shall be Participants. The types
of Awards to be made to Participants and the terms, conditions, and limitations
applicable to the Awards are left to the sole discretion of the Committee,
subject to the terms of the Plan. The Committee's decision as to eligibility
and the nature and timing of Awards under the Plan is final.
ARTICLE IV
AWARDS
4.1 Awards shall be made in the form of Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Awards, and other types of Awards
described in Section 4.6 hereof. Subject to the other provisions of this Plan,
Awards may also be granted individually, in combination, or in tandem with, in
replacement of, or as alternatives to, grants or rights under this Plan and any
other employee plan of the Company.
4.2 A Stock Option is a right to purchase a specified number of Shares at a
specified price during such specified time as the Committee shall determine.
(a) Stock Options granted may be either of a type that complies with
the requirements of incentive stock options as defined in Section 422
of the Code ("Incentive Stock Options") or of a type that does not
comply with such requirements ("Non-Qualified Stock Options");
provided, however, that the aggregate number of Shares which may be
offered for purchase pursuant to Incentive Stock Options under this Plan
shall not exceed three
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hundred thousand (300,000) Shares, and that the aggregate number of
Shares which may be offered to any Employee during any calendar year
shall not exceed one-hundred thousand (100,000) Shares.
(b) The exercise price per Share of any Stock Option shall be determined by
the Committee and set forth in the Award Agreement. However, a Stock Option
granted to a "covered employee" as defined in Section 162(m) of the Code
shall not have an exercise price less than the Fair Market Value of a Share
on the date the Stock Option is granted.
(c) A Stock Option may be exercised, in whole or in part, by the giving of
written notice of exercise to the Company specifying the number of Shares
to be purchased.
(d) The exercise price of the Shares subject to the Stock Option may be
paid in cash or may also be paid by the tender of Shares already owned by
the Participant (to the extent permitted by Rule 16b-3), or through a
combination of cash and Shares, or through such other means the Committee
determines are consistent with the Plan's purpose and applicable law. No
fractional Shares will be issued or accepted.
(e) If an Incentive Stock Option is granted to a Participant who owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company (or any parent or subsidiary), the exercise
price shall be at least one hundred ten percent (110%) of the Fair Market
Value per Share on the date such stock option is granted.
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No portion of any Incentive Stock Option may be exercised after
the expiration of ten (10) years from the date such stock option is
granted. However, if a Participant owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the combined voting power of all classes of stock of
the Company (or any parent or subsidiary) and an Incentive Stock Option
is granted to such Participant, the term of such Incentive Stock Option
(to the extent required by the Code at the time of grant) shall be no
more than five (5) years from the date such option is granted.
Upon termination of Participant's employment, the Participant may
not exercise any Incentive Stock Option later than three (3) months
after his termination of employment, except in the case of death or
disability as provided under Section 5.1(a) (ii).
If Shares acquired upon exercise of an Incentive Stock Option are
disposed of by a Participant prior to the expiration of either two (2)
years from the date such Incentive Stock Option is granted or one (1)
year from the transfer of Shares to the Participant pursuant to the
exercise of such Incentive Stock Option, or in any other disqualifying
disposition within the meaning of Section 422 of the Code, such
Participant shall notify the Company in writing of the date and terms
of such disposition. A disqualifying disposition by a Participant
shall not affect the status of any other Stock Option granted under the
Plan as an Incentive Stock Option within in the meaning of Section 422
of the Code.
The Committee may not grant Incentive Stock Options under the Plan
to any Participant which would permit the aggregate Fair Market Value
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(determined on the date such Stock Option is granted) of the Shares
with respect to which Incentive Stock Options under this and any other
plan of the Company and its subsidiaries) are exercisable for the first
time by such Participant during any calendar year to exceed one hundred
thousand dollars ($100,000).
4.3 A Stock Appreciation Right is a right to receive, upon surrender of the
right, but without payment, an amount payable in cash and/or Shares under
the terms and conditions as the Committee shall determine. The Committee
shall make all Stock Appreciation Rights awarded to Insiders subject to
Section 16 and shall include such terms and conditions in the Award
Agreements so as to comply with Section 16.
(a) A Stock Appreciation Right may be granted in tandem with part or
all of, in addition to, or completely independent of a Stock Option or
any other Award under this Plan; provided, however, the aggregate
number of Shares with respect to which such Stock Appreciation Rights
may be granted to any Participant shall not exceed one hundred thousand
(100,000) Shares. A Stock Appreciation Right issued in tandem with a
Stock Option may be granted at the time of grant of the related Stock
Option or at any time thereafter during the term of the Stock Option.
(b) The amount payable in cash and/or Shares with respect to each right
shall be equal in value to the amount by which the Fair Market Value per
Share on the exercise date exceeds the exercise price of the Stock
Appreciation Right. The applicable exercise price shall be established by
the Committee, but must be equal to or greater than the Fair Market Value
on the date of grant if granted to a "covered employee" as defined in
Section
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162(m) of the Code. The amount payable in Shares, if any, is
determined with reference to the Fair Market Value on the date of
exercise.
(c) Stock Appreciation Rights issued in tandem with Stock Options shall
be exercisable only to the extent that the Stock Options to which they
relate are exercisable. Upon exercise of the Stock Appreciation Right,
the Stock Option issued in tandem with the Stock Appreciation Right
shall automatically terminate, to the extent of such exercise, and the
Participant shall surrender to the Company such Stock Option, whereupon
agreements evidencing the unexercised portions of such Stock
Appreciation Rights and Stock Options will be issued to such
Participant, if applicable. Stock Appreciation Rights issued in tandem
with Stock Options shall automatically terminate upon the exercise of
such Stock Option, to the extent of such exercise, whereupon agreements
evidencing the unexercised portions of Stock Appreciation Rights and
Stock Options will be issued to such Participant, if applicable.
4.4 Shares of Restricted Stock are Shares that are issued to a Participant
and are subject to such terms, conditions, and restrictions as the
Committee deems appropriate (including without limitation those imposed in
order to exempt such grant from Section 162(m) of the Code), which may
include, but are not limited to, restrictions upon the sale, assignment,
transfer, or other disposition of the Restricted Stock and the requirement
of forfeiture of the Restricted Stock upon termination of employment under
certain specified conditions. As a condition to any Award hereunder, the
Committee may require a Participant to pay to the Company an amount equal
to, or in excess of, the par value of the
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shares of Restricted Stock awarded to him or her. Any such Restricted
Stock Award shall automatically expire if not purchased in accordance with
the Committee's requirements, if any, within thirty (30) days after the
date of grant. The Committee may provide for the lapse of any such term or
condition or waive any term or condition based on such factors or criteria
as the Committee may determine. The Participant shall have, with respect
to awards of Restricted Stock for which the Participant is the holder of
record, all of the rights of a shareholder of the Company, including the
right to vote the Restricted Stock and the right to receive any cash or
stock dividends on such Restricted Stock. The Committee shall have the
discretionary authority to determine the total number of Shares available
for Awards under the Plan as Restricted Stock to be issued during the
duration of the Plan, however, the maximum number of Shares that may be
issued to any Participant or Participants as Restricted Stock under the
Plan shall not exceed one hundred thousand (100,000) Shares.
4.5 Performance Awards may be granted under this Plan from time to time
based on the terms and conditions as the Committee deems appropriate
(including without limitation those imposed in order to exempt such grant
from Section 162(m) of the Code), provided that such Awards shall not be
inconsistent with the terms and purposes of this Plan. Performance Awards
may be in the form of performance units, performance shares and such other
forms of Performance Awards which the Committee shall determine. For this
purpose, "performance shares" are grants of Shares based on satisfying
preestablished Company performance criteria set by the Committee.
"Performance Units" are cash allotments of dollar-denominated units whose
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payment or value is contingent on performance as measured against
predetermined objectives over a multi-year period of time. The Committee
shall determine the performance measurements and criteria for such
Performance Awards.
4.6 The Committee may from time to time grant (i) Shares, (ii) other
stock-based and non-stock-based Awards under the Plan including, without
limitation, those Awards pursuant to which Shares are or may in the future
be acquired, (iii) Awards denominated in Share units, (iv) securities
convertible into Shares, (v) phantom securities (whereby Participants can
take advantage in the appreciation of Share prices without actual ownership
of Shares), (vi) dividend equivalents (whereby a Participant becomes
entitled through the use of a derivative security attached to an option to
dividends and other rights derived from the underlying Shares had the
Participant owned such Shares), and (vii) other forms or derivatives
related to the Shares as it deems appropriate. The Committee shall
determine the terms and conditions of such other stock, stock-based, and
non-stock based Awards (including without limitation those imposed in order
to exempt such grant from Section 162(m) of the Code), provided that such
Awards shall not be inconsistent with the terms and purposes of this Plan.
ARTICLE V
AWARD AGREEMENTS
5.1 Each Award under this Plan shall be evidenced by an Award Agreement
setting forth the number of Shares or other security, Stock Appreciation
Rights,
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or units subject to the Award and such other terms and conditions
applicable to the Award as determined by the Committee.
(a) Award Agreements shall include the following terms:
(i) A provision describing the treatment of an Award in the
event of the Retirement, Disability, death or other termination of
a Participant's employment with the Company, including, but not
limited to terms relating to the vesting, time for exercise,
forfeiture, or cancellation of an Award in such circumstances.
For this purpose, the term "Disability" shall have the same
meaning as it is given in the Kitty Hawk, Inc. 401(k) Savings
Plan.
(ii) A provision that a Participant shall have no rights as a
stockholder with respect to any securities covered by an Award
until the date the Participant becomes the holder of record.
Except as provided in Article VIII, no adjustment shall be made
for dividends or other rights, unless the Award Agreement
specifically requires such adjustment.
(iii) A provision requiring the withholding of applicable taxes
required by law from all amounts paid in satisfaction of an Award.
In the case of an Award paid in cash, the withholding obligation
shall be satisfied by withholding the applicable amount and paying
the net amount in cash to the Participant. In the case of Awards
paid in Shares or other securities of the Company, a Participant
may satisfy the withholding obligation by paying the amount of any
taxes in cash or, with the approval of the Committee (and with
respect to Insiders,
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compliance with Section 16), Shares or other securities may be
deducted from the payment to satisfy the obligation in full or in
part as long as such withholding of Shares does not violate any
applicable laws, rules, or regulations of federal, state, or local
authorities. The number of Shares or other securities to be
deducted shall be determined by reference to the Fair Market Value
of such Shares or the fair market value of such other securities
as determined by the Committee, on the applicable date.
(iv) In the discretion of the Committee, a provision requiring a
holding period. In the case of an Award to Restricted
Stockholder:
(A) of an equity security, a provision stating (or the effect
of which is to require) that such security must be held for a
least six months (or such longer period as the Committee in
its discretion specifies) from the date of acquisition; or
(B) of a derivative security with a fixed exercise price
within the meaning of Section 16, a provision stating (or the
effect of which is to require) that at least six months (or
such longer period as the Committee in its discretion
specifies) must elapse from the date of acquisition of the
derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion)
or its underlying equity security; or
(C) of a derivative security without a fixed exercise price
within the meaning of Section 16, if necessary to comply with
Section 16, a provision stating (or the effect of which is to
require) that at
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least six months (or such longer period as the Committee in
its discretion specifies) must elapse from the date upon which
such price is fixed to the date of disposition of the
derivative security (other than by exercise or conversion) or
its underlying equity security.
(b) Award Agreements may include the following terms:
(i) Any provisions
(A) permitting, subject to the provisions of Section 16 applicable
to Insiders, the surrender of outstanding Awards or securities
held by the Participant in order to exercise or realize rights
under other Awards, or in exchange for the grant of new Awards
under similar or different terms (including the grant of reload
options, which provide for granting of options with an exercise
price equal to the then Fair Market Value of a Share upon the
tender by a Participants of Shares already owned to exercise an
outstanding option), or
(B) requiring holders of Awards to surrender outstanding Awards as
a condition precedent to the grant of new Awards under the Plan.
(ii) Such other terms as are necessary and appropriate to effect an
Award to the Participant including but not limited to the term of the
Award, payment provisions, vesting provisions, deferrals, any
requirements for continued employment with the Company, any other
restrictions or conditions (including performance requirements) on the
Award and the method by which restrictions or conditions lapse, effect
on the Award of a Change of Control as defined in Article IX, and the
price, amount or value
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of Awards. Award Agreements may also contain such other terms as may
be necessary to comply with Section 16.
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ARTICLE VI
SHARES SUBJECT TO THE PLAN
6.1 Subject to the adjustment provisions of Article VIII, the number of
Shares for which Awards may be granted under the Plan shall not exceed
three hundred thousand (300,000) Shares.
6.2 To the extent permitted by Section 16, any unexercised or undistributed
portion of any terminated, expired, exchanged, or forfeited Award, or
Awards settled in cash in lieu of Shares, shall be available for further
Awards in addition to those available under Section 6.1.
6.3 For the purpose of computing the total number of Shares granted under
the Plan, the following rules shall apply to Awards payable in Shares or
other securities, where appropriate:
(a) except as provided in (e) of this Section, each Stock Option shall
be deemed to be the equivalent of the maximum number of Shares that may
be issued upon exercise of the particular Stock Option;
(b) except as provided in (e) of this Section, each other stock-based
Award payable in a security other than Shares shall be deemed to be
equal to the number of Shares to which it relates;
(c) except as provided in (e) of this Section, where the number of
Shares available under the Award is variable on the date it is granted,
the number
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of Shares shall be determined by reference to Section 16 and the rules
promulgated thereunder, or in the absence of any such applicable rules,
determined by the Committee in good faith;
(d) where one or more types of Awards (both of which are payable in Shares
or another security) are granted in tandem with each other, such that the
exercise of one type of Award with respect to a number of Shares cancels an
equal number of Shares of the other, the amount outstanding under the
tandem Award shall be deemed to be equal to the greater number of Shares
issuable under either Award; and
(e) each security awarded or deemed to be awarded under the preceding
subsections of this Section 6.3 shall be treated as a Share, even if the
Award is for a security other than a Share.
Additional rules for determining the number of Shares granted under
the Plan may be made by the Committee, as it deems necessary or
appropriate.
6.4 The Shares or other stock which may be issued pursuant to an Award
under the Plan may be treasury or authorized, but unissued stock, or stock
may be acquired, subsequently or in anticipation of the transaction, in the
open market or in private transactions to satisfy the requirements of the
Plan.
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ARTICLE VII
ADMINISTRATION
7.1 A majority of the members of the Committee shall constitute a quorum.
The vote of a majority of a quorum shall constitute action by the
Committee.
7.2 The Committee will be responsible for declaring the material terms
under which the Performance Awards are to be paid, including performance
goals. Prior to the payment of a performance-based Award, the Committee
shall certify that the predetermined performance goals and any other
material terms were in fact satisfied.
7.3 The Committee shall periodically determine the Participants in the Plan
and the nature, amount, pricing, timing, and other terms of Awards to be
made to such individuals.
7.4 The Committee shall have the power to interpret and administer the
Plan. All questions of interpretation with respect to the Plan, the number
of Shares or other securities, Stock Appreciation Rights, or units granted,
and the terms of any Award Agreements shall be determined by the Committee
and its determination shall be final and conclusive upon all parties in
interest. In the event of any conflict between an Award Agreement and the
Plan, the terms of the Plan shall govern.
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7.5 It is the intent of the Company that the Plan and Awards hereunder
satisfy and be interpreted in a manner, that, in the case of Participants
who are or may be Insiders, satisfies the applicable requirements of Rule
16b-3, so that such persons will be entitled to the benefits of Rule 16b-3
or other exemptive rules under Section 16 and will not be subjected to
avoidable liability thereunder. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of
Rule 16b-3 or its successors. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
Moreover, in the event the Plan does not include a provision required by
Rule 16b-3 to be stated therein, such provision (other than one relating to
eligibility requirements, or the price and amount of awards) shall be
deemed automatically to be incorporated by reference into the Plan insofar
as Insiders are concerned.
7.6 The Committee may delegate to the officers or employees of the Company
the authority to execute and deliver such instruments and documents, to do
all such acts and things, and to take all such other steps deemed
necessary, advisable or convenient for the effective administration of the
Plan in accordance with its terms and purpose, except that the Committee
may not delegate any discretionary authority with respect to substantive
decisions or functions regarding the Plan or Awards thereunder as these
relate to Insiders including but not limited to decisions regarding the
timing, eligibility, pricing, amount or other material terms of such
Awards.
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7.7 In the case of Awards that are intended to be Performance Awards,
before any such Performance Award is granted to a "covered employee" as
defined in Code Section 162(m), the Committee shall disclose to the
shareholders and the shareholders must approve the material terms of the
award, including:
(a) A description of the class of employees who are eligible to participate
in the Plan.
(b) A general description of the business criteria on which the performance
goals are based.
(c) Either the formula for computing the compensation or the maximum dollar
amount that will be paid if the performance goal is satisfied.
(d) Such other information as the Committee deems necessary to comply with
the requirements under Section 162(m) of the Code.
ARTICLE VIII
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
8.1 If, while any Awards are outstanding, the outstanding Shares are hereafter
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or similar transaction, appropriate and proportionate adjustments shall
be made by the Committee in the number and/or kind of shares which are subject
to purchase or award under outstanding Awards and in the purchase price or
prices applicable to such outstanding Awards in order to prevent the dilution
or enlargement of rights. In addition, in any such event, the number and/or
kind of Shares which may be offered under the Plan shall also be
proportionately adjusted to the same end. This Plan does not affect in any way
the right
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or power of the Company 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.
8.2 Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, the holder of each Award, then outstanding under the Plan,
will thereafter be entitled to receive with respect to such Award, as nearly as
reasonably may be determined, the cash, securities and/or property which a
holder of one Share was entitled to receive upon and at the time of such
transaction, upon payment of the purchase price required by the terms of the
Award, if any. Notwithstanding the foregoing, however, any Award under this
Plan that entitles an Employee to purchase securities of the Company may be
canceled by the Company as of the effective date of any such reorganization,
merger, or consolidation, or of any dissolution or liquidation of the Company,
by giving notice to the Employee or his personal representative of the
Company's intention to do so and by permitting the Employee to pay any amounts
that would otherwise be due under the terms of an Award Agreement to obtain
securities available to the Employee as an Award during the thirty (30) day
period next preceding such effective date.
8.3 In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with
par value into the same number of shares with a different par value or
without par value, the shares resulting from any such change shall be deemed
to be Shares within the meaning of this Plan.
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8.4 To the extent that the foregoing adjustments relate to Awards, Shares, or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding, and conclusive.
8.5 Except as expressly provided in this Article, the Participant shall have no
right to any adjustment of the number or price of Shares subject to any Award
under the Plan by reason of any subdivision or consolidation of shares of any
class or the payment of any dividend or any other increase or decrease in the
number of shares of any class or by reason of any dissolution, liquidation,
merger, or consolidation or spin-off of assets or stock of another corporation,
and except as provided, any issue by the Company of shares of any class, or
securities convertible into shares of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to the Award.
8.6 The grant of an Award pursuant to this Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
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ARTICLE IX
CHANGE OF CONTROL
9.1 The Committee shall determine the effect of a Change of Control and
specify such effect in Award Agreements that are issued pursuant to the
Plan. These effects may include, but are not limited to:
(a) offering to purchase any outstanding Award made pursuant to this
Plan from the holder for its Fair Market Value or such value
established under the Award Agreement, as determined by the Committee,
as of the date of the Change of Control; or
(b) making adjustments or modifications to outstanding Awards as the
Committee deems appropriate to maintain and protect the rights and
interests of Participants following such Change of Control.
9.2 For the purposes of this Section, a "Change of Control" shall mean the
earliest date on which any of the following events shall occur:
(a) there shall be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving
corporation or pursuant to which Shares would be converted into cash,
securities, or other property, other than a merger of the Company in
which the holders of the Shares immediately prior to the merger have
the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or any lease, exchange, or
other transfer (excluding transfer by way of pledge or hypothecation),
in one transaction or a series of related transactions, of all, or
substantially all, of the assets of the Company;
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(b) the stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company;
(c) any "person" (as such term is defined in Section 3(a)(9) or Section
13(d)(3) under the Exchange Act ) or any "group" (as such term is used
in Rule 13d-5 promulgated under the Exchange Act), other than the
Company or any successor of the Company or any subsidiary of the
Company or any employee benefit plan of the Company or any subsidiary
(including such plan's trustee), becomes a beneficial owner for
purposes of Rule 13d-3 promulgated under the Exchange Act, directly or
indirectly, of securities of the Company representing twenty percent
(20%) or more of the Company's then outstanding securities having the
right to vote in the election of directors; or
(d) during any period of two consecutive years, individuals who, at the
beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors,
unless the election, or the nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at
the beginning of the period.
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ARTICLE X
RIGHTS OF EMPLOYEES
10.1 Status as an eligible Employee shall not be construed as a commitment
that any Award will be made under the Plan to such eligible Employee or to
eligible Employees generally.
10.2 Nothing contained in the Plan (or in any other documents related to
this Plan or to any Award) shall confer upon any Employee or Participant
any right to continue in the employ or other service of the Company or
constitute any contract or limit in any way the right of the Company to
change such person's compensation or other benefits or to terminate the
employment of such person with or without cause.
ARTICLE XI
COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
11.1 No certificate for Shares distributable pursuant to this Plan shall
be issued and delivered unless the issuance of such certificate complies
with all applicable legal requirements including, without limitation,
compliance with the provisions of applicable state securities laws, the
Securities Act of 1933, as amended from time to time, or any successor
statute, the Exchange Act and the requirements of the exchanges or
interdealer quotation systems on which the Shares may, at the time, be
listed or quoted.
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11.2 Anything in this Plan to the contrary notwithstanding, if, at any
time specified herein for the issue of Shares or other securities to a
Participant, any law, or any regulation or requirement of the Securities
and Exchange Commission or any other governmental authority having
jurisdiction shall require either the Company or the Participant to take
any action in connection with the Shares or Awards then to be issued, the
issue of the Shares or Awards shall be deferred until the action shall have
been taken; however, the Company shall have no liability whatsoever as a
result of the non-issuance of the Shares or Awards, except to refund to
Participant any consideration tendered in respect of the purchase price.
ARTICLE XII
AMENDMENT AND TERMINATION
The Board may at any time amend, suspend, or terminate the Plan (provided
that the Board shall seek stockholder approval of any amendments to the
extent it deems necessary to maintain an exemption from Section 162(m) of
the Code). The Committee may at any time alter or amend any or all Award
Agreements under the Plan to comply with any laws that govern such
agreements. However, no such action may, without further approval of the
stockholders of the Company, be effective if such approval is required in
order that transactions in Company securities under the Plan, as they
relate to Insiders, be exempt from the operation of Section 16(b) of the
Exchange Act.
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ARTICLE XIII
UNFUNDED PLAN
The Plan shall be unfunded. Neither the Company, Board of Directors, nor
the Committee shall be required to segregate any assets that may at any
time be represented by Awards made pursuant to the Plan. Neither the
Company, the Committee, nor the Board of Directors shall be deemed to be a
trustee of any amounts to be paid under the Plan.
ARTICLE XIV
LIMITS OF LIABILITY
14.1 Any liability of the Company to any Participant with respect to an
Award shall be based solely upon contractual obligations created by the
Plan and the Award Agreement.
14.2 No member of the Board or the Committee, nor any Employee acting on
behalf of the Board or the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all members of the Board and the Committee and
each Employee acting on their behalf shall, to the extent permitted by law,
be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.
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ARTICLE XV
MISCELLANEOUS
15.1 The Plan shall, subject to stockholder approval, continue from its
Effective Date as set out in Article I until December 31, 2003, unless the
Plan is terminated in accordance with the provisions of Article XII.
15.2 The laws of the State of Texas shall govern all matters relating to this
Plan except to the extent superseded by the laws of the United States.
15.3 Any controversy or claim arising under this Plan must be settled
exclusively by arbitration under the Commercial Arbitration Rules of the
American Arbitration Association; except that the preceding paragraph shall
govern applicable law and construction, and the arbitration locale shall be
Dallas, Texas. Costs (excluding attorneys' fees) of any arbitration shall be
born by the Company. 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.
15.4 The Plan shall be submitted to the stockholders of the Company for their
approval and adoption. The Plan shall not be effective and no Award shall be
made hereunder, unless and until the Plan has been so approved and adopted at a
meeting of the Company's stockholders.
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15.5 The Company may require that there be presented to and filed with it by
any Participant under the Plan, such evidence as it may deem necessary to
establish that the options granted or Shares to be purchased or transferred are
being acquired for investment and not with a view to their distribution.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer to be effective immediately, subject to approval by the
stockholders of the Company within twelve (12) months after the date on which
this Plan is adopted by the Board of Directors of the Company.
KITTY HAWK, INC.
By: /s/ RICHARD WADSWORTH
---------------------------------
Title: SECRETARY
-------------------------------
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<PAGE> 1
EXHIBIT 10.30
KITTY HAWK, INC.
Amended and Restated
Employee Stock Purchase Plan
Dated September 3, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I Amendment and Restatement; Purpose..................1
Article II Definitions.........................................1
Article III Eligibility.........................................6
Article IV Participation.......................................7
Article V Payroll Deductions..................................8
Article VI Terms and Conditions of Options.....................9
Article VII Exercise of Option.................................10
Article VIII Death, Termination, or Withdrawal..................12
Article IX Shares Under Option................................13
Article X Administration.....................................14
Article XI Amendment and Termination of the Plan..............16
Article XII Nontransferability.................................17
Article XIII Use of Funds.......................................17
Article XIV Changes in Capitalization, Merger, Etc.............17
Article XV Adjustments to Shares..............................19
Article XVI Beneficiary Designation............................20
Article XVII Registration and Qualification of Shares...........21
Article XVIII Shareholder Approval...............................22
Article XIX Restrictions on Participants Subject to
Short-Swing Profit Rules.......................................22
Article XX Miscellaneous......................................23
</TABLE>
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<PAGE> 3
ARTICLE I
AMENDMENT AND RESTATEMENT;
PURPOSE
1.1 Effective as of September 3, 1996, Kitty Hawk, Inc. (the "Company") adopts
this Amended and Restated Employee Stock Purchase Plan, which amends, restates
and supersedes in its entirely the Kitty Hawk, Inc. Employee Stock Purchase
Plan that was adopted by the Company as of June 28, 1996.
1.2 The Plan is intended to encourage employees of Kitty Hawk, Inc. (the
"Company") and its participating subsidiary corporations to acquire an
ownership interest in the Company through the purchase of shares of common
stock of the Company on a tax-favored basis. The Plan is intended to enhance
shareholder value by aligning employee efforts with the financial success of
the Company. The Plan is also intended to enhance employee benefits and
improve employee retention through the use of a convenient payroll-based
savings vehicle that is tax favored. It is the intention of the Company to
have a broad-based nondiscriminatory plan under the Code. This Plan is also
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code; provided, however, that the provisions of the Plan shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of Section 423.
ARTICLE II
DEFINITIONS
2.1 "Change in Control" means the earliest date on which either of the
following events shall occur:
(a) there shall be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving
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<PAGE> 4
corporation or pursuant to which shares of the Company's common stock
would be converted into cash, securities, or other property, other than
a merger of the Company in which the holders of the Company's common
stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately
after the merger, or any lease, exchange or other transfer (excluding
transfer by way of pledge or hypothecation), in one transaction or a
series of related transactions, of all, or substantially all, of the
assets of the Company;
(b) the stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company;
(c) any "person" (as such is defined in Section 3(a)(9) or Section
13(d)(3) under the Securities Exchange Act of 1934 (the "1934 Act")) or
any "group" (as such term is used in Rule 13d-5 promulgated under the
1934 Act), other than the Company or any successor of the Company or
any subsidiary of the Company or any employee benefit plan of the
Company or any subsidiary (including such plan's trustee), becomes a
beneficial owner for purposes of Rule 13d-3 promulgated under the 1934
Act, directly or indirectly, of securities of the Company representing
20% or more of the Company's then outstanding securities having the
right to vote in the election of directors; or .
(d) during any period of two consecutive years, individuals who, at the
beginning of such period constituted the entire Board of Directors of
the Company, cease for any reason (other than death) to constitute a
majority of the directors, unless the election, or the nomination for
election, by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period.
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<PAGE> 5
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.3 "Committee" means the committee responsible for the administration of the
Plan provided for in Article X.
2.4 "Company" means Kitty Hawk, Inc., a Delaware corporation.
2.5 "Compensation" means base pay, plus overtime.
2.6 "Effective Date" means April 1, 1997, or a date established by the
Committee not to exceed thirty (30) days following registration of the Shares
reserved pursuant to the Plan with the United States Securities and Exchange
Commission, whichever is later.
2.7 "Eligible Employee" means an Employee of the Employer who is eligible for
participation in the Plan in accordance with Article III.
2.8 "Employee" means any current, common law employee of the Employer.
2.9 "Employer" means the Company and any Subsidiary, provided that
participation in the Plan by the Subsidiary is approved by the Board of
Directors of the Company.
2.10 "Exercise Date" means the last business day on which shares of common
stock of the Company are traded on an established market or quoted on an
inter-
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<PAGE> 6
dealer quotation system coinciding with or immediately prior to each June
30th, and December 31st during the Term of the Plan.
2.11 "Fair Market Value" of a Share means the value of a Share as of any
date, determined as follows:
(a)if the Shares are listed on a national securities exchange or if
last sales prices are reported for the Shares as of such date, the
closing price per Share as reported on such date;
(b) if the Shares are not listed on a national securities exchange and
last sale prices are not reported for the Shares, but the Shares are
traded in the over-the-counter market, the mean between the closing bid
and asked prices per Share on such date; or
(c)if there is no generally recognized market for the Shares as of such
date, the fair market value per Share as determined in good faith by
the Committee in any manner acceptable under Section 423 of the Code.
2.12 "Offering Commencement Date" means the first business day during the Term
of the Plan on which Shares are traded on an established market or quoted on an
inter-dealer quotation system coinciding with or immediately following an
Exercise Date; provided, however, that the initial Offering Commencement Date
shall mean the first business date on which Shares are traded on an established
market or quoted on an inter-dealer quotation system coinciding or immediately
following the Effective Date.
2.13 "Offering Period" means the period from the Offering Commencement Date to
the next succeeding Exercise Date.
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<PAGE> 7
2.14 "Parent" means an entity as described in Section 424(e) of the Code.
2.15 "Participant" means an Employee of the Employer who has satisfied the
eligibility requirements and who elects to participate in the Plan in
accordance with Article IV.
2.16 "Participation Date" means the first Offering Commencement Date on or
after an Eligible Employee enrolls to participate in the Plan under the terms
of Article IV, provided the initial Participation Date for Eligible Employees
as of such date shall be the Effective Date of the Plan.
2.17 "Plan" means this Amended and Restated Employee Stock Purchase Plan, as
amended from time to time.
2.18 "Rule 16b-3" means Rule 16b-3 promulgated under Section 16 of the
Securities Exchange Act of 1934, as amended effective November 1, 1996 by
Release No. 34-37260.
2.19 "Shares" means the shares of common stock of the Company, par value one
cent ($.01).
2.20 "Subsidiary" means an entity as described in Section 424(f) of the Code.
2.21 "Term of the Plan" means the time period from the initial Offering
Commencement Date to the Termination Date of the Plan.
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<PAGE> 8
2.22 "Termination Date" means the final Exercise Date on which all of the
Shares available to be purchased under the Plan have been purchased by Eligible
Employees.
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<PAGE> 9
ARTICLE III
ELIGIBILITY
3.1 Any Employee of the Employer who has completed at least one year of
continuous service, works a regular schedule of at least twenty (20) hours per
week, and is employed by the Company for at least five (5) months per calendar
year shall be eligible to participate in the Plan, subject to the limitations
imposed by Section 423 of the Code. For purposes hereof, service with any
corporation, partnership, or other entity acquired by the Employer shall be
deemed to be service with the Employer if the Employee is employed by the
Employer on the Employee's Participation Date. For purposes of the immediately
preceding sentence, a corporation, partnership, or other entity shall be deemed
to have been acquired by the Employer in the event the Employer has acquired a
substantial amount of the assets of such corporation, partnership, or other
entity or in the event the Employer has acquired more than fifty percent (50%)
of the stock of any such corporation.
3.2 Any Employee who is also a member of the Board of Directors of an Employer
shall be eligible to participate in the Plan; provided that an Employee that is
a director of the Company cannot serve as a member of the Committee.
3.3 Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option to purchase Shares under this Plan:
(a) if such Employee, immediately after the option is granted, owns stock
possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or a Parent or a
Subsidiary of the Company. For purposes of determining share ownership,
the rules of Section 424(d) of the Code shall apply, and stock which the
Employee may
7
<PAGE> 10
purchase under outstanding options shall be treated as stock owned by
the Employee; or
(b) which permits the stock which an Employee may purchase under all
employee stock purchase plans of the Company and its Parent and
Subsidiary corporations to accrue at a rate which exceeds $25,000 of the
Fair Market Value of such stock, determined as of the applicable Offering
Commencement Date, for each calendar year in which such option is
outstanding at any time. The term "accrue" shall be interpreted in
accordance with Section 423(b)(8) of the Code.
ARTICLE IV
PARTICIPATION
4.1 Participation in the Plan is completely voluntary. Subject to Article XIX,
an Eligible Employee may enroll to participate in the Plan by completing a
written payroll deduction authorization on such form(s) as may be provided from
time to time by the Committee and submitting the enrollment to the Employer's
payroll department in a manner prescribed by the Committee. Participation in
the Plan shall begin no earlier than the Participation Date coinciding with or
immediately following the date on which the Employee completes the eligibility
requirements under Article III.
4.2 Following initial enrollment, payroll deductions for a Participant shall
automatically continue as of each Participation Date, but shall end on the
Termination Date; provided, however, that such payroll deductions may be
terminated by the Participant at any time as provided in Article VIII.
8
<PAGE> 11
4.3 Following initial enrollment, payroll deductions for a Participant shall
automatically continue as of each Offering Commencement Date, but shall end on
the Termination Date; provided, however, that such payroll deductions may be
terminated by the Participant at any time as provided in Section 5.4 or Article
VIII.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 Upon enrollment, a Participant shall elect to make contributions to the
Plan by selecting a whole percentage of his compensation (e.g., three percent
of compensation) to be deducted from payroll (in full dollar amounts and in
amounts calculated to be as uniform as practicable throughout the Offering
Period) in an aggregate amount not in excess of fifteen percent (15%) of such
Participant's Compensation, as determined on the Offering Commencement Date.
The Committee may declare a minimum authorized payroll deduction in order to
limit administrative expenses associated with the Plan.
5.2 Payroll deductions shall be the exclusive method to accumulate proceeds to
purchase Shares under the Plan. Participants may not make any separate cash
payments outside payroll deductions under the Plan.
5.3 Payroll deductions made by Participants shall be accumulated under
individual accounts maintained for each Participant; provided, however, that
such separate accounting shall not limit the Company's use of the funds as
provided under Article XIII.
5.4 Subject to Article XIX, a Participant may terminate payroll deductions at
any time by fifteen days' prior written notice, in a manner prescribed by the
Committee.
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<PAGE> 12
Subject to Article XIX, a Participant who elects to terminate payroll
deductions may not resume payroll deductions until the next Offering
Commencement Date. Upon termination of payroll deductions under this Section
5.4, the Participant's individual account shall, subject to Article XIX, be
distributed in accordance with Section 8.3.
ARTICLE VI
TERMS AND CONDITIONS OF OPTIONS
6.1 Offerings made under this Plan shall be evidenced by agreements in such
form as the Committee shall approve, provided that all Employees shall have the
same rights and privileges and provided further that the terms of such offering
shall comply with and be subject to the terms and conditions of this Plan.
6.2 The Plan will be implemented with semi-annual offerings of Shares of the
Company as of each Offering Commencement Date until the total number of
Shares set aside for the Plan under Article IX have been issued under the
Plan.
6.3 Subject to Section 7.3, on each Offering Commencement Date the Participant
shall be deemed to have been granted an option to purchase two thousand (2,000)
Shares from the Participant's individual account during the Offering Period.
Subject to Section 7.3, on the Exercise Date the Participant's individual
account will be used to purchase the maximum number of full Shares that the
account balance will permit.
6.4 The Participant will have no interest in Shares covered by an option until
such option has been exercised.
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<PAGE> 13
6.5 All options that are not exercised on the first Exercise Date after being
granted shall lapse on such Exercise Date and all payroll deductions
attributable to these options shall be distributed to the Participants in cash
without interest or earnings as soon as practicable after the Exercise Date on
which such options lapse.
6.6 No certificate for Shares distributable pursuant to this Plan shall be
issued and delivered unless the issuance of such certificate complies with all
applicable legal requirements including, without limitation, compliance with
the provisions of applicable state securities laws, the Securities Act of 1933,
as amended from time to time or any successor statute, the 1934 Act and the
requirements of the exchanges or interdealer quotation systems on which the
Shares may, at the time, be listed or quoted.
ARTICLE VII
EXERCISE OF OPTION
7.1 The exercise price of all Shares to be purchased by a Participant under the
Plan shall be the lesser of eighty-five percent (85%) of the Fair Market Value
of the Shares of the Company on the Exercise Date or eighty-five percent (85%)
of the Fair Market Value of the Shares of the Company on the immediately
preceding Offering Commencement Date. For this purpose, the Fair Market Value
of the Shares shall be equal to the Fair Market Value of such Shares on the
Exercise Date or previous Offering Commencement Date, whichever is applicable,
or the nearest prior business day on which trading occurs. If Shares have not
been publicly traded during the five (5) business days immediately preceding
the Exercise Date or previous Offering Commencement Date, whichever is
applicable, then the fair market value of such Shares shall be determined in
good faith by the Committee in any manner acceptable under Section 423 of the
Code.
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<PAGE> 14
7.2 Unless a Participant gives written notice of intent to withdraw payroll
deductions as provided in Section 8.3, the Participant's option to purchase
Shares shall be exercised automatically on behalf of the Participant on each
Exercise Date. The exercise will be based on the number of full Shares which
can be purchased using accumulated payroll deductions in the Participant's
individual account at the applicable exercise price. Fractional Shares shall
not be issued under the Plan. If payroll deductions are applied to the
exercise of a Participant's option to purchase Shares as of an Exercise Date,
any amounts remaining in the Participant's individual account representing
fractional Shares will be carried over and applied to a subsequent offering.
7.3 In no event shall the number of Shares issued under the Plan exceed the
maximum number of Shares available for sale under Section 9.1. If the total
number of Shares for which options are to be granted on any date in accordance
with Article VI exceeds the number of Shares then available under the Plan
(after deduction of all Shares for which options have been exercised or are
then outstanding), the Committee shall make a pro rata allocation of the
remaining available Shares based on the respective payroll deduction amounts of
all Participants in as nearly a uniform manner as shall be practicable and as
it shall determine to be equitable. In such event, payroll deductions to be
made shall be reduced accordingly and the Committee shall give written notice
of such reduction to each Participant affected thereby and, if necessary,
excess payroll deductions previously credited to the Participants' accounts
shall be returned to the Participants without interest.
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<PAGE> 15
ARTICLE VIII
DEATH, TERMINATION, OR WITHDRAWAL
8.1 In the event of death of a Participant prior to the Termination Date, the
beneficiary or beneficiaries designated by the Participant under Article XVI
may give notice to the Committee, within ninety (90) days after the death of
the Participant, of the beneficiary's or beneficiaries' election to purchase
the number of full Shares which the accumulated payroll deductions in the
account of such deceased Participant will purchase at the option price
specified in Section 7.1 (which may not be less than 85% of the Fair Market
Value of the Shares on the previous Offering Commencement Date, if such
purchase occurs before the Exercise Date), and upon such notice the deceased
Participant's accumulated payroll deductions shall be used to purchase such
Shares within three (3) months after the date of the Participant's death. The
balance in the Participant's individual account after the purchase of such
Shares shall be distributed in cash without interest. If no such notice is
received by the Committee within said ninety (90) days, the Participant's
accumulated payroll deductions held in the individual account will be
distributed to such beneficiary or beneficiaries in cash without interest.
8.2 Upon termination of the Participant's employment with an Employer for any
reason other than the death of the Participant during an Offering Period, the
accumulated payroll deductions credited to the Participant's account shall be
returned to the Participant without interest.
8.3 Subject to Article XIX, a Participant who terminates payroll deductions
under Section 5.4 of the Plan may request a withdrawal of payroll deductions
credited to the Participant's individual account under the Plan at any time
prior to an Exercise Date by giving written notice as prescribed by the
Committee. All of the
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<PAGE> 16
Participant's payroll deductions credited to the Participant's account shall be
paid to the Participant, without interest, as soon as administratively
practicable and no sooner than two weeks after receipt of the Participant's
notice of withdrawal. No further payroll deductions shall be made from the
Participant's Compensation unless the Participant makes a request to commence
participation again in accordance with Section 8.4.
8.4 Subject to Article XIX, if a Participant makes a request to withdraw
accumulated payroll deductions under Section 8.3, the Participant will not be
eligible to participate in the Plan earlier than the first Offering
Commencement Date immediately following the date of such withdrawal request,
based on procedures established by the Committee.
ARTICLE IX
SHARES UNDER OPTION
9.1 The maximum number of Shares which shall be made available for sale under
the Plan shall be one hundred thousand (100,000), subject to adjustment upon
changes in capitalization of the Company as provided in Articles XIV and XV.
9.2 As promptly as practicable after the Exercise Date, the Company shall
deliver to such Participant certificates for the number of full Shares
purchased upon exercise of the option. The balance, without interest, of any
payroll deductions credited to the Participant's account which were not used
for the purchase of Shares shall be rolled over and applied toward the purchase
of Shares at the next Exercise Date. Shares issued pursuant to the Plan shall
be subject to a two year restriction on alienability as described in Section
9.3 and such other restrictions and for such
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<PAGE> 17
period as the Company shall designate and the certificates representing the
Shares shall include a legend reflecting such restrictions.
9.3 If the Participant transfers or otherwise disposes of any Shares purchased
under the Plan within two (2) years after an Offering Commencement Date
applicable to such Shares, or within one (1) year after the transfer of such
Shares to the Participant, other than by will or the laws of descent and
distribution, then the Participant shall notify the Employer immediately of
such disposition.
ARTICLE X
ADMINISTRATION
10.1 The Board of Directors of the Company shall appoint a Committee to
administer the Plan. Each member of the Committee at the time of his
appointment to the Committee and while he is a member thereof, must be a
"Non-Employee Director," as that term is defined in Rule 16b-3.
10.2 Each member of the Committee shall serve until his or her successor is
appointed. Any member of the Committee may be removed by the Board of
Directors, with or without cause, which shall have the power to fill any
vacancy which may occur. A Committee member may resign upon written notice to
the Board of Directors.
10.3 The Committee shall have the following powers and duties:
(a) to direct the administration of the Plan in accordance with the
provisions herein set forth;
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<PAGE> 18
(b) to adopt rules of procedure and regulations necessary for the
administration of the Plan, provided the rules are not inconsistent with
the terms of the Plan;
(c) to determine all questions with regard to rights of Participants of
the Plan, including but not limited to rights of eligibility of an
Employee to participate in the Plan;
(d) to enforce the terms of the Plan and the rules and regulations the
Committee adopts;
(e) to furnish the Employer with information which the Employer may
require for tax or other purposes;
(f) to engage the service of advisors, including consultants and counsel
(who may, if appropriate, be counsel for the Employer) and agents whom it
may deem advisable to assist it with the performance of its duties;
(g) to receive from the Employer and from Employees such information as
shall be necessary for the proper administration of the Plan;
(h) to select a secretary, who need not be a member of the Committee; and
(i) to otherwise interpret and construe the Plan.
10.4 The decision of a majority of the members of the Committee appointed shall
control. In case of a vacancy in the membership of the Committee, the
remaining members of the Committee may exercise any and all of the powers,
authorities, duties, and discretion conferred upon the Committee pending the
filling of the vacancy. The Committee may, but need not, call or hold formal
meetings. Any decisions made or action taken pursuant to written approval of
all of the then members shall be sufficient. The Committee shall maintain
adequate records of its decisions.
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10.5 The Committee may authorize any one of its members, or its secretaries, to
sign on its behalf any notices, directions, applications, certificates,
consents, approvals, waivers, letters, or other documents.
10.6 The Committee shall administer the Plan in a uniform, nondiscriminatory
manner for the exclusive benefit of the Participants.
10.7 The Committee shall maintain, or cause to be maintained, records which
will adequately disclose all required information about the Plan. The books,
forms, and methods of accounting shall be the responsibility of the Committee.
ARTICLE XI
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend, suspend, or terminate the
Plan, but the Board of Directors shall seek stockholder approval of any
amendments to the extent it deems necessary to maintain the exemption from
Section 162(m) of the Code. The Committee may at any time alter or amend
any or all Award Agreements under the Plan to comply with any laws that
govern such agreements.
(a) materially increase the number of Shares which may be issued under
the Plan;
(b) materially modify the requirements as to eligibility for
participation;
(c) materially increase the benefits accruing to Participants under the
Plan; or
(d) extend the duration of the Plan beyond the date approved by the
stockholders of the Company.
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ARTICLE XII
NONTRANSFERABILITY
12.1 Except as provided in Section 8.1 and Article XVI, neither payroll
deductions credited to a Participant's individual account nor any rights with
regard to the exercise of an option or to receive Shares under the Plan may be
assigned, transferred, pledged, or otherwise encumbered or disposed of in any
way by the Participant, and any such attempted assignment, transfer, pledge, or
other encumbrance or disposition shall be null and void and without effect, but
the Committee may, at its option, treat such act as an election to withdraw
funds in accordance with Article VIII.
ARTICLE XIII
USE OF FUNDS
13.1 All payroll deductions received or held by the Employer under this Plan
may be used by the Employer for any corporate purposes and the Employer shall
not be obligated to segregate such payroll deductions or to accrue or pay
interest (or other earnings) on such payroll deductions.
ARTICLE XIV
CHANGES IN CAPITALIZATION, MERGER, ETC.
14.1 If, while any options are outstanding, the outstanding shares of common
stock of the Company are decreased, changed into, or exchanged for a different
number or kind of shares or securities of the Company through reorganization,
merger, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or similar transaction, appropriate and proportionate
adjustments shall be made by the Committee in the number and/or kind of shares
which are subject to purchase
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under outstanding options and in the option exercise price or prices applicable
to such outstanding options in order to prevent the dilution or enlargement of
rights. In addition, in any such event, the number and/or kind of Shares which
may be offered under the Plan shall also be proportionately adjusted to the
same end. This Plan does not affect in any way the right or power of the
Company 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.
14.2 Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, the holder of each option then outstanding under the Plan
will thereafter be entitled to receive at the next Exercise Date upon the
exercise of such option for each Share as to which such option shall be
exercised, as nearly as reasonably may be determined, the cash, securities,
and/or property which a holder of one Share was entitled to receive upon and at
the time of such transaction. Alternatively, the Committee may designate that
the dissolution or liquidation of the Company shall cause each outstanding
option to terminate, provided in such event that immediately prior to such
dissolution or liquidation, each Participant shall be repaid the payroll
deductions credited to the Participant's account without interest.
14.3 In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with par
value into the same number of shares with a different par value or without par
value, the
19
<PAGE> 22
shares resulting from any such change shall be deemed to be Shares
within the meaning of this Plan.
ARTICLE XV
ADJUSTMENTS TO SHARES
15.1 To the extent that the foregoing adjustments relate to Shares or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding, and conclusive,
provided that each option granted pursuant to this Plan shall not be adjusted
in a manner that causes the option to fail to continue to satisfy the
requirements of an option issued pursuant to an "employee stock purchase plan"
within the meaning of Section 423 of the Code.
15.2 Except as expressly provided in Articles XIV and XV, the Participant shall
have no right to any adjustment of the number or price of Shares subject to any
option under the Plan by reason of any subdivision or consolidation of shares
of any class or the payment of any dividend or any other increase or decrease
in the number of shares of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of another
corporation, and except as so provided, any issue by the Company of shares of
any class, or securities convertible into shares of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares subject to the option.
15.3 The grant of an option pursuant to this Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to
20
<PAGE> 23
consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
ARTICLE XVI
BENEFICIARY DESIGNATION
16.1 A Participant may file with the Company a written designation of the
Participant's beneficiary or beneficiaries who may elect to purchase Shares or
receive cash to the Participant's credit under the Plan in the event of such
Participant's death prior to delivery to the Participant of such Shares and
cash. Such designation of beneficiary may be changed by the Participant at any
time by written notice. If no written designation is given, the beneficiary of
record under the Kitty Hawk Group, Inc. 401(k) Savings Plan will be considered
the beneficiary for this Plan.
16.2 Upon the death of a Participant and receipt by the Committee of proof
deemed adequate by it of the identity and existence at the Participant's death
of one or more beneficiaries validly designated by the Participant under the
Plan, the Company shall deliver such Shares and/or cash to such beneficiary or
beneficiaries in accordance with Section 8.1. If upon the death of a
Participant there is no surviving beneficiary duly designated as above
provided, the Committee shall deliver the Participant's accumulated payroll
deductions to the Participant's surviving spouse, if any, or if there is no
such surviving spouse, then to the executor or administrator of the estate of
the Participant (in accordance with Section 8.1).
16.3 The Employer, the Committee and the members thereof, shall not be liable
for any distribution made of Shares or cash pursuant to any will or other
21
<PAGE> 24
testamentary disposition made by such Participant, or because of the provisions
of law concerning intestacy, or otherwise. No designated beneficiary shall,
prior to the death of the Participant by whom he has been designated, acquire
any interest in the Shares or cash credited to the Participant under the Plan.
ARTICLE XVII
REGISTRATION AND QUALIFICATION OF SHARES
The offering of the Shares hereunder is expressly made subject to the
registration or qualification of such Shares under any federal or state law, or
the obtaining of consent or approval by any governmental regulatory body, which
the Company shall determine, in its sole discretion, is necessary or desirable
as a condition to, or in connection with, the offering, issuance or purchase of
such Shares. The Company shall make every reasonable effort to effect such
registration or qualification or to obtain such consent or approval. Anything
in this Plan to the contrary notwithstanding, if, at any time specified herein
for the issue of Shares to a Participant, any law, or any regulation or
requirement of the Securities and Exchange Commission or any other governmental
authority having jurisdiction shall require either the Company or the
Participant to take any action in connection with the Shares then to be issued,
the issue of the Shares shall be deferred until the action shall have been
taken; however, the Company shall have no liability whatsoever as a result of
the non-issuance of the Shares, except to refund to Participant any
consideration tendered in respect of the exercise price.
22
<PAGE> 25
ARTICLE XVIII
SHAREHOLDER APPROVAL
The Plan is expressly made subject to approval of the Company's shareholders in
accordance with the laws of the State of Delaware, and, at Company's election,
to the receipt by the Company from the Internal Revenue Service of a favorable
determination letter or ruling, in scope and content satisfactory to the
Committee's advisors, respecting the qualification of the Plan within the
meaning of Section 423 of the Code. If the Plan is not so approved by the
shareholders on or before one year after this Plan's adoption by the Board of
Directors and, if at the election of the Company, the aforesaid determination
letter or ruling from the Internal Revenue Service is not received, this Plan
shall be deemed not to have come into effect. In such case, the accumulated
payroll deductions credited to the account of each Participant shall be paid to
the Participant without interest.
ARTICLE XIX
RESTRICTIONS ON PARTICIPANTS SUBJECT TO
SHORT-SWING PROFIT RULES
Notwithstanding any provision of this Plan to the contrary, those Participants
that are directors, executive officers, and ten percent (10%) or greater
stockholders subject to Section 16 of the 1934 Act must effect transactions in
Shares, including without limitation initial or periodic transactions resulting
from an election to participate in the Plan or change levels of participation
with respect to the Shares, in accordance with Section 16 and the rules
promulgated thereunder. To the extent any provision of the Plan or action by
the Committee fails to comply with all applicable conditions of Rule 16b-
23
<PAGE> 26
3 or its successors, it shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 to be stated therein, such
provision (other than one relating to eligibility requirements, or the price
and amount of an option) shall be deemed automatically to be incorporated by
reference into the Plan insofar as Participants subject to Section 16 of the
1934 Act are concerned.
ARTICLE XX
MISCELLANEOUS
20.1 The Plan does not, directly or indirectly, create any absolute right for
the benefit of any Employee or class of Employees to purchase any Shares
under the Plan, or create in any Employee or class of Employees any right
with respect to continuation of employment by the Employer, and it shall not
be deemed to interfere in any way with the Employer's right to terminate, or
otherwise modify, an Employee's employment at any time.
20.2 The provisions of the Plan shall, in accordance with its terms, be
binding upon, and inure to the benefit of, all successors of each Employee,
including, without limitation, such Employee's estate and the executors,
administrators, or trustees thereof, heirs and legatees, and any receiver,
trustee in bankruptcy or representative of creditors of such Employee.
20.3 The laws of the State of Texas shall govern all matters relating to this
Plan except to the extent superseded by the laws of the United States.
20.4 Any controversy or claim arising under this Plan must be settled
exclusively by arbitration under the Commercial Arbitration Rules of the
American Arbitration Association; except that the preceding paragraph shall
govern applicable law and construction, and the arbitration locale shall be
Dallas, Texas. Costs (excluding
24
<PAGE> 27
attorneys' fees) of any arbitration shall be born by the Company. 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.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer to be effective as of the Effective Date, subject to
approval by the stockholders of the Company within twelve (12) months after the
date on which this Plan is adopted by the Board of Directors of the Company.
KITTY HAWK, INC.
By: /s/ RICHARD WADSWORTH
------------------------------
Title: Secretary
---------------------------
25
<PAGE> 1
EXHIBIT 10.31
KITTY HAWK, INC.
Amended and Restated
Annual Incentive
Compensation Plan
Dated September 3, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I Amendment and Restatement; Establishment and Purpose.....1
Article II Definitions..............................................1
Article III Eligibility..............................................3
Article IV Awards...................................................4
Article V Administration...........................................6
Article VI Amendment and Termination................................7
Article VII Miscellaneous............................................8
</TABLE>
i
<PAGE> 3
ARTICLE I
AMENDMENT AND RESTATEMENT;
ESTABLISHMENT AND PURPOSE
1.1 Effective as of the Effective Date described herein, Kitty Hawk, Inc. (the
"Company") adopts this Amended and Restated Annual Incentive Compensation Plan,
which amends, restates and supersedes in its entirely the Kitty Hawk, Inc.
Annual Incentive Compensation Plan that was adopted by the Company as of June
28, 1996.
1.2 The purpose of this Plan is to provide for the payment of incentive
compensation from the profits of Kitty Hawk, Inc. to employees who contribute
to the success of the Company. This Plan is expressly intended to be unfunded
and discretionary.
ARTICLE II
DEFINITIONS
2.1 "Award" means a Cash Bonus and/or Stock Bonus granted to a Participant
pursuant to Article IV hereof.
2.2 "Award Date" means the last business day in the month of February and
August each year during the Term of the Plan.
1
<PAGE> 4
2.3 "Award Period" means the period for which an Award is granted. An Award
Period shall be the six-calendar-month period immediately preceding the last
day in February and the six-calendar-month period immediately preceding August
31st each year.
2.4 "Base Salary" means the Participant's regular base pay and overtime pay,
excluding bonuses and all other forms of compensation from the Employer.
2.5 "Board" means the Board of Directors of Kitty Hawk, Inc.
2.6 "Cash Bonus" means the portion of an Award which is payable in cash.
2.7 "Committee" means a special subcommittee of the Compensation Committee of
the Board which is composed solely of no less than two outside directors. For
this purpose, the term "outside director" means a director of the Board who (i)
is not an Employee or a former Employee of the Employer, (ii) has never served
as an officer of an entity currently affiliated with the Employer, and (iii) is
not paid remuneration (as defined in regulations under Section 162(m) of the
Code) from the Employer, directly or indirectly, in any capacity other than as
a director. Each member of the Committee at the time of his appointment to the
Committee and while he is a member thereof, must be a "Non-Employee Director,"
as that term is defined in Rule 16b-3 promulgated under the Securities Exchange
Act of 1934.
2
<PAGE> 5
2.8 "Effective Date" means December 1, 1994.
2.9 "Employer" means Kitty Hawk, Inc., a Delaware corporation, and its direct
or indirect wholly-owned subsidiaries.
2.10 "Plan" means the Amended and Restated Annual Incentive Compensation Plan,
as amended from time to time.
2.11 "Restricted Stockholder" means any person who (i) is the beneficial owner
(as such terms is defined in Rule 16a-1 promulgated under the Exchange Act) of
ten percent or more of the outstanding Stock or any other class of equity
securities of the Employer registered under Section 12 of the Exchange Act, and
(ii) is not an officer or director of the Company.
2.12 "Rule 16b-3" means Rule 16b-3 promulgated under Section 16 of the Exchange
Act, as amended effective November 1, 1996, by Release No. 34-37260.
2.13 "Stock" means the common stock, par value $.01, of Kitty Hawk, Inc.
2.14 "Stock Bonus" means the portion of an Award payable in Stock.
2.15 "Term of the Plan" means the period from the Effective Date of the Plan to
the date on which the Plan is terminated.
3
<PAGE> 6
ARTICLE III
ELIGIBILITY
Each employee of an Employer who has completed at least six months of
continuous full time employment with the Employer, who regularly works at least
twenty (20) hours per week, who is employed by the Company for at least five
(5) months per calendar year, and who is actively employed on the Award Date
shall be eligible to participate in the Plan (the "Participant").
4
<PAGE> 7
ARTICLE IV
AWARDS
4.1 As soon as practicable following the close of an Award Period, the
Committee, in its sole discretion, shall determine the amount, if any, of the
Cash Bonus and the Stock Bonus to which each Participant is entitled with
respect to such Award Period. Awards shall not exceed in the aggregate ten
percent (10%) of the combined income before income taxes of the Company and its
consolidated subsidiaries for the Award Period, determined in accordance with
generally accepted accounting principles applied on a consistent basis, and
before the deduction of any Awards for such period.
4.2 The maximum aggregate number of Shares that may be awarded as Stock Bonuses
shall be two hundred thousand (200,000) Shares.
4.3 All Awards are fully vested and nonforfeitable from the Award Date, and
cash shall be paid or stock certificates issued as soon as practicable after
the Award is made.
4.4 All amounts payable under this Plan shall constitute a general obligation
of the Employer. No Participant shall have any right, title, or interest
whatever in or to, or any preferred claim in or to, any investment reserves,
accounts or funds that the Employer may purchase, establish, or accumulate to
aid in providing the payments described in this Plan. Nothing contained in this
Plan, and no action taken pursuant to its provisions, shall
5
<PAGE> 8
create or be construed to create a trust or a fiduciary relationship of any
kind between the Employer and a Participant or any other person.
4.5 The Employer may withhold or cause to be withheld from any Award payment
any federal, state, or local taxes required by law to be withheld with respect
to such payment and such sum as the Employer may reasonably estimate as
necessary to cover any taxes for which the Employer may be liable and which may
be assessed with regard to such payment. In the event that the Employer awards
a Stock Bonus and the Cash Bonus awarded, if any, for the same Award Period is
insufficient to enable the Company to pay such taxes, either a Cash Bonus for
each Participant will be awarded and withheld in an amount sufficient to cover
any taxes which would be required to be withheld from the combined Award, or an
amount sufficient to cover taxes required to be withheld from the Stock Bonus
shall be withheld from other compensation payable by the Employer to the
Participant.
4.6 No Participant shall have any rights by way of anticipation or otherwise to
assign or otherwise dispose of any interest under this Plan.
4.7 All Stock paid pursuant to an Award is freely transferable, subject to
compliance with applicable securities laws, except that Stock awarded to a
Restricted Stockholder, shall not be transferable for a period of six months
from the date such Stock is transferred to the Restricted Stockholder. The
Committee may, as a condition to the Award of a Stock Bonus, require a
6
<PAGE> 9
Participant to make such investment and other representations the Committee
deems reasonably necessary.
4.8 As a condition to any Award hereunder, the Committee may require a
Participant to pay to the Company an amount equal to, or in excess of, the par
value of the Shares awarded to him or her. Any such Stock Bonus shall
automatically expire if not purchased in accordance with the Committee's
requirements within thirty (30) days after the date of the Award.
ARTICLE V
ADMINISTRATION
5.1 The Committee shall have the right and the power to administer and
interpret the Plan, and to determine the amount and form of the Awards under
the Plan. The determination of the Committee as to any disputed questions of
construction and interpretation shall be final, binding, and conclusive upon
all persons.
5.2 The expenses of administering the Plan shall be borne by the Employer.
5.3 The members of the Committee, officers, directors, and employees of the
Company shall be indemnified and held harmless by the Company against and from
any and all loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by them in connection with or resulting from any claim,
action, suit, or proceeding to which they may be a party or in which they may
be involved by reason of any action taken or
7
<PAGE> 10
failure to act under this Plan, and against and from any and all amounts paid
by them in settlement or paid by them in satisfaction of a judgment in any such
action, suit, or proceeding. The foregoing provision shall not be applicable to
any person if the loss, cost, liability, or expense is due to such person's
gross negligence or willful misconduct.
ARTICLE VI
AMENDMENT AND TERMINATION
6.1 This Plan shall continue in the event of a merger, consolidation, or
acquisition where the Company is not the surviving corporation, unless the
successor or acquiring corporation shall elect to terminate the Plan.
6.2 The Company expressly reserves the right to amend the Plan by resolution of
the Board, at any time and in any manner, including the making of retroactive
amendments, and expressly reserves the right to terminate the Plan at any time
by resolution of the Board; provided, however, in the event of an amendment or
termination of the Plan, Awards previously made by the Committee shall continue
to be obligations of the Employer and shall be paid in accordance with the
terms of the Plan. Any such amendment or termination shall be evidenced in
writing.
6.3 With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934 ("1934 Act"), transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successors promulgated
under the 1934 Act. To the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the
8
<PAGE> 11
Committee. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 to be stated therein, such provision (other than one
relating to eligibility requirements, or the price and amount of an Award)
shall be deemed automatically to be incorporated by reference into the Plan
insofar as Participants subject to Section 16 of the 1934 Act are concerned.
ARTICLE VII
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
7.1 If, while any Awards are outstanding, the outstanding Shares are hereafter
increased, decreased, changed into, or exchanged for a different number or kind
of shares or securities of the Company through reorganization, merger,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or similar transaction, appropriate and proportionate adjustments shall
be made by the Committee in the number and/or kind of shares which are subject
to purchase or award under outstanding Awards and in the purchase price or
prices applicable to such outstanding Awards in order to prevent the dilution
or enlargement of rights. In addition, in any such event, the number and/or
kind of Shares which may be offered under the Plan shall also be
proportionately adjusted to the same end. This Plan does not affect in any way
the right or power of the Company 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.
7.2 Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
9
<PAGE> 12
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or stock of the Company to
another corporation, the holder of each Award, then outstanding under the Plan,
will thereafter be entitled to receive with respect to such Award, as nearly as
reasonably may be determined, the cash, securities and/or property which a
holder of one Share was entitled to receive upon and at the time of such
transaction, upon payment of the purchase price required by the terms of the
Award, if any. Notwithstanding the foregoing, however, any Award under this
Plan that entitles an Employee to purchase securities of the Company may be
canceled by the Company as of the effective date of any such reorganization,
merger, or consolidation, or of any dissolution or liquidation of the Company,
by giving notice to the Employee or his personal representative of the
Company's intention to do so and by permitting the Employee to pay any amounts
that would otherwise be due under the terms of an Award Agreement to obtain
securities available to the Employee as an Award during the thirty (30) day
period next preceding such effective date.
7.3 In the event of a change in the Shares of the Company as presently
constituted, which is limited to a change of all its authorized shares with
par value into the same number of shares with a different par value or
without par value, the shares resulting from any such change shall be deemed
to be Shares within the meaning of this Plan.
10
<PAGE> 13
7.4 To the extent that the foregoing adjustments relate to Awards, Shares, or
securities of the Company, such adjustments shall be made by the Committee, and
its determination in that respect shall be final, binding, and conclusive.
7.5 Except as expressly provided in this Article, the Participant shall have no
right to any adjustment of the number or price of Shares subject to any Award
under the Plan by reason of any subdivision or consolidation of shares of any
class or the payment of any dividend or any other increase or decrease in the
number of shares of any class or by reason of any dissolution, liquidation,
merger, or consolidation or spin-off of assets or stock of another corporation,
and except as provided, any issue by the Company of shares of any class, or
securities convertible into shares of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to the Award.
7.6 The grant of an Award pursuant to this Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
ARTICLE VIII
MISCELLANEOUS
8.1 In the event any provision of the Plan shall be held invalid or illegal for
any reason, any illegality or invalidity shall not affect the remaining parts
11
<PAGE> 14
of the Plan, but the Plan shall be construed and enforced as if the illegal or
invalid provision had never been part of the Plan, and Kitty Hawk, Inc. shall
have the right to correct and remedy any defect in the Plan.
8.2 Except when otherwise indicated by the context, any masculine terminology
when used in the Plan shall also include the feminine gender and the neuter
gender, and the definition of any term in the singular shall also include the
plural.
8.3 This plan shall be governed and construed in accordance with the laws of
the State of Texas.
8.4 This Plan shall not be interpreted or construed as an employment contract.
The Plan shall not give any person the right to be continued in employment, and
all employees shall remain subject to change of salary, transfer, change of
job, discipline, layoff, discharge, or any other change of employment status.
8.5 Any controversy or claim arising under this Plan must be settled
exclusively by arbitration under the Commercial Arbitration Rules of the
American Arbitration Association; except that the preceding paragraph shall
govern applicable law and construction, and the arbitration locale shall be
Dallas, Texas. Costs (excluding attorneys' fees) of any arbitration shall be
born by the Company. A prevailing party in litigation to require arbitration,
in
12
<PAGE> 15
arbitration, or in litigation to enforce an arbitration award shall be
entitled to recover reasonable attorneys' fees and costs.
8.6 The Plan shall be submitted to the stockholders of the Company for their
approval and adoption. The Plan shall not be effective and no Award shall be
made hereunder unless and until the Plan has been so approved and adopted at a
meeting of the Company's stockholders.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly
authorized officer to be effective as of the Effective Date, subject to
approval by the stockholders of the Company.
KITTY HAWK, INC.
By: /s/ RICHARD WADSWORTH
--------------------------------
Title: Secretary
-----------------------------
13
<PAGE> 1
EXHIBIT 10.51
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of August 14, 1996
among
KITTY HAWK, INC.
and
AIRCRAFT LEASING, INC.,
as Borrowers and Guarantors,
KITTY HAWK AIRCARGO, INC.
and
KITTY HAWK CHARTERS, INC.,
as Guarantors,
and
SKYFREIGHTERS CORPORATION,
as a Party,
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
as Agent
and
THE LENDERS NAMED HEREIN
$15,000,000.00 REVOLVING CREDIT LOANS FACILITY
$12,744,000.45 TERM LOANS A FACILITY
$11,225,000.00 TERM LOANS B FACILITY
$10,000,000.00 TERM LOANS C FACILITY
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 1.3 Accounting Terms and Determinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 1.4 Financial Covenants and Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 2 - Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.2 The Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.3 Repayment of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.4 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.5 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans . . . . . . . . . . . . . . . . . 34
Section 2.7 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.8 Minimum Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.9 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.12 Computations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.13 Termination or Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.14 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 3 - Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 3.1 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 3.2 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.3 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.4 Non-Receipt of Funds by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.5 Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.6 Withholding Tax Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 4 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.1 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.2 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.3 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.4 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.5 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.6 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.7 Additional Interest on Eurodollar Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.8 Mitigation of Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
i
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<TABLE>
<S> <C>
ARTICLE 5 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.1 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.3 New Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.4 Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.5 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.6 Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 6 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.1 Initial Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.2 All Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.3 Additional Conditions Precedent to Revolving Credit Loans . . . . . . . . . . . . . . . . . . . 60
Section 6.4 Additional Conditions Precedent to Term Loans C . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.5 Closing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 7 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.1 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.3 Corporate Action; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.4 Operation of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.6 Rights in Properties; Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.7 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.8 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.9 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.11 Margin Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.13 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.15 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.16 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.17 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.18 Public Utility Holding Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.20 Labor Disputes and Acts of God . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.21 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.22 Outstanding Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.23 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.24 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.25 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.26 Common Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.27 Compliance with the WFB Agreements and the Bank One Agreement . . . . . . . . . . . . . . . . 68
</TABLE>
ii
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<TABLE>
<S> <C>
ARTICLE 8 - Affirmative Covenants . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.2 Maintenance of Existence; Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.3 Maintenance of Properties; Hush Kits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.4 Taxes and Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.6 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.7 Keeping Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 8.12 Aircraft Registration, Maintenance, Operation, Insignia . . . . . . . . . . . . . . . . . . . 77
Section 8.13 Replacement of Parts; Alterations, Modifications and Additions. . . . . . . . . . . . . . . . 78
ARTICLE 9 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.2 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.3 Mergers, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 9.4 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 9.5 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.6 Limitation on Issuance of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.7 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.8 Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.9 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.10 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.11 Intercompany Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.12 Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.13 Modification of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.16 Territorial Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ARTICLE 10 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.1 Senior Funded Debt to Cash Flow Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.2 Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.3 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.4 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.5 Accounts Payable Turndays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>
iii
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<TABLE>
<S> <C>
ARTICLE 11 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 11.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 11.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 11.3 Performance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.4 Cash Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE 12 - Agency and Intercreditor Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 12.1 Appointment, Powers and Immunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 12.2 Rights of Agent as a Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 12.3 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 12.4 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 12.5 Independent Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 12.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 12.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 12.8 Initial Allocation of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 12.9 Beneficiaries of Article 12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ARTICLE 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 13.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 13.2 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 13.3 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 13.4 No Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 13.5 No Fiduciary Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 13.6 Equitable Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 13.7 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 13.8 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 13.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.10 ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT;
WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.11 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 13.12 Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 13.13 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.17 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.18 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.19 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.20 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.21 Approvals and Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 13.22 Joint and Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 13.23 AGREEMENT FOR BINDING ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
</TABLE>
iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
"A" Assignment and Acceptance
"B" Revolving Credit Loans Note
"C" Term Loans A Note
"D" Term Loans B Note
"E" Term Loans C Note
"F" Notice of Borrowing, Conversion,
Continuation or Prepayment
"G" Arbitration Program
"H" Aircraft Acquisition Letter
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1 Aircraft Release Amounts
7.5 Litigation
7.9 Debt
7.10 Taxes
7.12 ERISA Matters
7.14 Capitalization
7.21 Material Contracts
7.24 Employee Matters
7.25 Insurance
9.5 Investments
</TABLE>
v
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), dated as of
August 14, 1996, is among KITTY HAWK, INC., a Delaware corporation ("Kitty
Hawk"), AIRCRAFT LEASING, INC., a Texas corporation ("Leasing"), KITTY HAWK
AIRCARGO, INC., a Texas corporation ("Aircargo"), KITTY HAWK CHARTERS, INC., a
Texas corporation ("Charters"), SKYFREIGHTERS CORPORATION, a Texas corporation
("Skyfreighters"), WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national
banking association, BANK ONE, TEXAS, N.A., a national banking association, and
each of the lending institutions which may from time to time become a party
hereto or any successor or assignee thereof (individually, a "Lender" and,
collectively, "Lenders"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a
national banking association, as agent for itself and the other Lenders (in
such capacity, together with its successors and assigns in such capacity,
"Agent").
RECITALS:
A. Kitty Hawk, Leasing, Aircargo and Wells Fargo (as hereinafter
defined; then known as First Interstate Bank of Texas, N.A.) are parties to
that certain Amended and Restated Loan Agreement dated as of May 10, 1994 (as
amended by that certain First Amendment to Amended and Restated Loan Agreement
dated as of January 17, 1995, the "WFB Agreement No. 1");
B. Kitty Hawk, Leasing, Aircargo and Wells Fargo (then known as
First Interstate Bank of Texas, N.A.) are parties to that certain Loan
Agreement dated as of January 17, 1995 (the "WFB Agreement No. 2");
C. Kitty Hawk, Aircargo, Charters and Wells Fargo (then known as
First Interstate Bank of Texas, N.A.) are parties to that certain Loan
Agreement dated as of July 1, 1995 (the "WFB Agreement No. 3");
D. Kitty Hawk, Leasing, Aircargo and Bank One, Texas, N.A. ("Bank
One") are parties to that certain Loan Agreement dated as of December 18, 1995
(the "Bank One Agreement");
E. Kitty Hawk, Leasing, Aircargo and Charters have requested that
Wells Fargo and Bank One amend and restate the WFB Agreements (as hereinafter
defined) and the Bank One Agreement and provide the credit facilities to Kitty
Hawk and Leasing described herein;
F. The WFB Agreements and the Bank One Agreement and all
agreements, documents and instruments (including, without limitation,
promissory notes, guaranty agreements, aircraft mortgages, security agreements
and financing statements) relating thereto and all security interests, liens,
charges and encumbrances securing the indebtedness, liabilities and obligations
evidenced or created thereby are, concurrently herewith, being assigned to the
Agent for and on behalf of Lenders;
<PAGE> 8
G. The indebtedness, liabilities and obligations of Kitty Hawk,
Leasing, Aircargo, Charters and Skyfreighters provided for herein and in the
other Loan Documents (as hereinafter defined) (i) are to be secured by the
Collateral (as hereinafter defined) and (ii) are to be guaranteed by the
Guaranties (as hereinafter defined) provided for herein; and
H. Wells Fargo and Bank One are willing to make the credit
facilities described herein available to Kitty Hawk and Leasing upon the terms
and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following
terms have the following meanings:
"Accounts Payable Turndays" means, at any particular time for any
applicable period, an amount equal to (a) the aggregate accounts payable of the
Kitty Hawk Companies, on a consolidated basis, at such time, divided by (b) an
amount equal to the product of (i) the cost of goods sold of the Kitty Hawk
Companies, on a consolidated basis, during such period, multiplied by (ii) the
number of calendar days during such period.
"Acquired Aircraft" means any and all aircraft purchased or to be
purchased pursuant to an Aircraft Acquisition with proceeds of any Revolving
Credit Loans and all (i) airframes (including, without limitation, all parts,
appliances, components, instruments, accessories, accessions, attachments,
equipment or avionics, communications, radar, navigation systems or other
electronic equipment installed in, appurtenant to or delivered with or in
respect of such airframes), (ii) engines (including, without limitation, all
engines installed on, appurtenant to or delivered with or in respect of the
airframe of such aircraft, together with any and all parts, appliances,
components, accessories, accessions, attachments or equipment installed on,
appurtenant to or delivered with or in respect of such engines and any
replacement aircraft engine which is required or permitted to be installed upon
such airframe), and (iii) all loose equipment, spare parts, manuals, logbooks,
flight records, maintenance records and other historical records or information
relating to any of the foregoing items.
"Additional Costs" has the meaning specified in Section 4.1.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one percent determined by Agent (which determination shall
be conclusive in the absence of manifest error) to be equal to (a) the
Eurodollar Rate for such Eurodollar Loan for such Interest Period divided by
(b) one minus the Reserve Requirement for such Eurodollar Loan for such
Interest Period.
2
<PAGE> 9
"Adjusted LIBO Rate" means, for any Interest Period, a fixed interest
rate, per annum, equal to the lesser of: (a) the rate (rounded upwards if
necessary to the nearest whole one-hundredth of one percent (1/100%)),
determined as the quotient of (i) the Applicable LIBO Rate, divided by (ii) the
number equal to one hundred percent (100%) minus the Reserve Requirement; and
(b) the Maximum Rate. The Adjusted LIBO Rate shall be adjusted automatically
on the effective date of any change in the Reserve Requirement, such adjustment
to affect any advances outstanding on such effective date. Each determination
of an Adjusted LIBO Rate by Bank One (or, if Bank One is no longer a Lender
with respect to the Term Loans B, Agent or any Lender designated by Agent which
holds Term Loans B), including any determination as to the applicability or
allocability of reserves to Eurocurrency liabilities or as to the amount of
such reserves, shall be conclusive and final in the absence of manifest error.
"Advance Period" means the period from the Closing Date to but
excluding the Term Loans C Availability Termination Date.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds five percent or more of any
class of voting Capital Stock of such first Person, or (c) five percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise; provided, however, in no event shall
Agent or any Lender be deemed an Affiliate of Kitty Hawk or any its
Subsidiaries.
"Agent" has the meaning specified in the introductory paragraph of this
Agreement.
"Aggregate Loan Percentage" means, as to any Lender, the percentage
equivalent of a fraction, (a) the numerator of which is the sum of (i) the
outstanding Revolving Credit Loans Commitment (or, if such Commitment has
terminated or expired, the aggregate outstanding principal amount of the
Revolving Credit Loans and Letter of Credit Liabilities) of such Lender, plus
(ii) the outstanding Term Loans A of such Lender, plus (iii) the outstanding
Term Loans B of such Lender, plus (iv) the outstanding Term Loans C Commitment
(or, if such Commitment has terminated or expired, the outstanding principal
amount of the Term Loans C) of such Lender, and (b) the denominator of which is
the sum of (i) the outstanding Revolving Credit Loans Commitments (or, if such
Commitments have terminated or expired, the aggregate outstanding principal
amount of the Revolving Credit Loans and Letter of Credit Liabilities) of all
Lenders, plus (ii) the outstanding Term Loans A of all Lenders, plus (iii) the
outstanding Term Loans B of all Lenders, plus (iv) the outstanding Term Loans C
Commitments (or, if such Commitments have terminated or expired, the
outstanding principal amount of the Term Loans C) of all Lenders.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions, restatements or replacements
hereof.
3
<PAGE> 10
"Aircargo" means Kitty Hawk Aircargo, Inc., a Texas corporation and a
Wholly-Owned Subsidiary of Kitty Hawk directly owned by Kitty Hawk.
"Aircraft" means, collectively, "Aircraft A", "Aircraft B", "Aircraft
C", "Aircraft D", "Aircraft E", "Aircraft F", "Aircraft G", "Aircraft H",
"Aircraft I" and "Aircraft J" and includes, without limitation, the following:
(i) the Airframes; (ii) the Engines; (iii) all loose equipment and spare parts
relating to the foregoing items (i) and/or (ii); and (iv) any and all manuals,
logbooks, flight records, maintenance records and other historical records or
information relating to any of the foregoing items.
"Aircraft A" means, collectively, (i) one McDonnell Douglas DC9-15F
airframe, United States Aircraft Registration Number N562PC, Manufacturer's
Serial No. 47012, together with any and all parts, appliances, components,
instruments, accessories, accessions, equipment, and avionics installed in or
appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 654677, and (iii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 648994.
"Aircraft Acquisition Letter" means a letter executed by a Responsible
Officer of Leasing in the form of Exhibit "H" hereto, appropriately completed,
which contains information regarding a particular Acquired Aircraft.
"Aircraft Acquisitions" means the acquisition (by lease or purchase),
enhancement and/or modification of any aircraft, engine, propeller, appliance
or spare part owned by Leasing for use in the ordinary course of business of
Leasing.
"Aircraft B" means, collectively, (i) one McDonnell Douglas DC9-15F
airframe, United States Aircraft Registration Number N564PC, Manufacturer's
Serial No. 47062, together with any and all parts, appliances, components,
instruments, accessories, accessions, equipment, and avionics installed in or
appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 648989, and (iii) one Pratt & Whitney JT8D-7B Engine,
Manufacturer's Serial No. 654158.
"Aircraft C" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6833, Manufacturer's Serial No.
20186, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 665356, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665492, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665186.
"Aircraft D" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6827, Manufacturer's Serial No.
20180, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment and avionics installed in or appurtenant to
such airframe (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666174, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665198, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666277.
4
<PAGE> 11
"Aircraft E" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N854AA, Manufacturer's Serial No.
20995, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 665206, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666105, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
655014.
"Aircraft F" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N855AA, Manufacturer's Serial No.
20996, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment and avionics installed in or appurtenant to
such airframe (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 665851, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666353, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666113.
"Aircraft G" means, collectively, (i) one McDonnell Douglas DC9-15F
airframe, United States Aircraft Registration Number N561PC, Manufacturer's
Serial No. 47014, together with any and all parts, appliances, components,
instruments, accessories, accessions, equipment, and avionics installed in or
appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 653937, and (iii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 653897.
"Aircraft H" means, collectively, (i) one McDonnell Douglas DC9-15F
airframe, United States Aircraft Registration Number N563PC, Manufacturer's
Serial No. 47055, together with any and all parts, appliances, components,
instruments, accessories, accessions, equipment, and avionics installed in or
appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 653609, and (iii) one Pratt & Whitney JT8D-7 Engine,
Manufacturer's Serial No. 657666.
"Aircraft I" means, collectively, (i) one Boeing 727-251A airframe,
United States Aircraft Registration Number N278US, Manufacturer's Serial No.
21157, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-15 or JT8D-15A Engine,
Manufacturer's Serial No. 696499, (iii) one Pratt & Whitney JT8D-15 or JT8D-15A
Engine, Manufacturer's Serial No. 696502, and (iv) one Pratt & Whitney JT8D-15
or JT8D-15A Engine, Manufacturer's Serial No. 696538.
"Aircraft J" means, collectively, (i) one Boeing 727-251A airframe,
United States Aircraft Registration Number N279US, Manufacturer's Serial No.
21158, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-15 or JT8D-15A Engine,
Manufacturer's Serial No. 656997, and (iii) one Pratt & Whitney JT8D-15 or
JT8D-15A Engine, Manufacturer's Serial No. 700522, and (iv) one Pratt & Whitney
JT8D-15 or JT8D-15A Engine, Manufacturer's Serial No. 700579.
5
<PAGE> 12
"Aircraft Lease A" means that certain Lease of Aircraft and Engines
dated October 7, 1993, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft A from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease B" means that certain Lease of Aircraft and Engines
dated October 20, 1993, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft B from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease C" means that certain Lease of Aircraft and Engines
dated May 1, 1994, between Leasing and Aircargo and guaranteed by Kitty Hawk,
pursuant to which Aircargo has agreed to lease the Aircraft C from Leasing, as
the same may be amended, modified or supplemented from time to time.
"Aircraft Lease D" means that certain Lease of Aircraft and Engines
dated July 1, 1994, between Leasing and Aircargo and guaranteed by Kitty Hawk,
pursuant to which Aircargo has agreed to lease the Aircraft D from Leasing, as
the same may be amended, modified or supplemented from time to time.
"Aircraft Lease E" means that certain Lease of Aircraft and Engines
dated January 15, 1995, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft E from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease F" means that certain Lease of Aircraft and Engines
dated January 15, 1995, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft F from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease G" means that certain Lease of Aircraft and Engines
dated January 15, 1995, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft G from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease H" means that certain Lease of Aircraft and Engines
dated January 15, 1995, between Leasing and Aircargo and guaranteed by Kitty
Hawk, pursuant to which Aircargo has agreed to lease the Aircraft H from
Leasing, as the same may be amended, modified or supplemented from time to
time.
"Aircraft Lease I" means that certain Operating Lease of Aircraft,
Appliances and Engines dated December 18, 1995, between Leasing and Aircargo
and guaranteed by Kitty Hawk, pursuant to which Aircargo has agreed to lease
the Aircraft I from Leasing, as the same may be amended, modified or
supplemented from time to time.
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<PAGE> 13
"Aircraft Lease J" means that certain Operating Lease of Aircraft,
Appliances and Engines dated December 18, 1995, between Leasing and Aircargo
and guaranteed by Kitty Hawk, pursuant to which Aircargo has agreed to lease
the Aircraft J from Leasing, as the same may be amended, modified or
supplemented from time to time.
"Aircraft Mortgages" means the Aircraft Chattel Mortgage, Security
Agreement and Assignment of Rents executed by Leasing dated the Closing Date
(or such other date as Leasing may execute such Aircraft Chattel Mortgage,
Security Agreement and Assignment of Rents), and any Aircraft Chattel Mortgage,
Security Agreement and Assignment of Rents at any time executed pursuant to
Article 5 hereof, evidencing or creating a Lien as security for the Obligations
in form and substance reasonably satisfactory to Agent, and any and all
amendments, modifications, supplements, renewals, extensions, restatements or
replacements thereof.
"Aircraft Release Amount" means, with respect to each particular
Aircraft as of the date of determination, an amount determined by Agent in good
faith equal to (a) the amount for such Aircraft set forth under the heading
"Initial Aircraft Release Amount" on Schedule 1.1 hereto, minus (b) with
respect to any Aircraft constituting Term Loans A Collateral, the product of
the aggregate amount of principal of the Term Loans A repaid subsequent to the
Closing Date multiplied by the percentage for such Aircraft set forth under the
heading "Percentage Allocation" on Schedule 1.1 or, with respect to any
Aircraft constituting Term Loans B Collateral, the product of the aggregate
amount of principal of the Term Loans B repaid subsequent to the Closing Date
multiplied by the percentage for such Aircraft set forth under the heading
"Percentage Allocation" on Schedule 1.1, plus (c) the aggregate outstanding
principal amount of the Term Loans C which has been advanced to enhance or
otherwise with respect to such Aircraft, plus (d) the product of the aggregate
outstanding principal amount of the Term Loans C which has been advanced to
enhance or otherwise with respect to any Other Aircraft multiplied by ten
percent.
"Airframes" means those certain airframes identified in the
definitions of Aircraft A, Aircraft B, Aircraft C, Aircraft D, Aircraft E,
Aircraft F, Aircraft G, Aircraft H, Aircraft I and Aircraft J, together with
any and all parts, appliances, components, instruments, accessories,
accessions, attachments, equipment or avionics (including, without limitation,
communications, radar, navigation systems or other electronic equipment)
installed in, appurtenant to or delivered with or in respect of such airframes.
"Applicable Eurodollar Margin" means, for the period commencing with
the Closing Date and thereafter, the rate per annum set forth in the table
below that corresponds to the Fixed Charge Coverage Ratio for the four fiscal
quarters of the Kitty Hawk Companies on a consolidated basis then most recently
ended:
<TABLE>
Fixed Charge Coverage Ratio Applicable Eurodollar Margin
--------------------------- ----------------------------
<S> <C>
Less than 1.40 to 1.00 2.00%
Less than 1.60 to 1.00, but
greater than or equal to 1.40 to 1.00 1.75%
Greater than or equal to 1.60 to 1.00 1.50%
</TABLE>
7
<PAGE> 14
"Applicable Lending Office" means for each Lender and each Type of
Loan, the lending office of such Lender (or of an Affiliate of such Lender)
designated for such Type of Loan below its name on the signature pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant
to an assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to Agent as the
office by which its Loans of such Type are to be made and maintained.
"Applicable LIBO Rate" means, with respect to any Interest Period or
other period with respect to which interest is determined on the basis of a
Eurodollar Rate, a rate per annum (calculated on the basis of a 360-day year
and actual days elapsed) equal to the average (rounded up, if necessary, to the
nearest 1/16 of 1%) of the offered rates determined by Bank One (or, if Bank
One is no longer a Lender with respect to the Term Loans B, Agent or any Lender
designated by Agent which holds Term Loans B) (with notice to Leasing) by
reference to the Telerate Page 3750 as of 11:00 a.m. (London time) on the day
two Business Days prior to the first day of such Interest Period for a period
comparable to such Interest Period.
"Applicable Rate" means: (a) during the period that any Loan is a
Prime Rate Loan, the Prime Rate; and (b) during the period that any Loan is a
Eurodollar Loan, the Eurodollar Rate plus the Applicable Eurodollar Margin.
"Asset Disposition" means the disposition of any or all of the
Property (other than the grant of a Lien as security) of any Kitty Hawk
Company, whether by sale, lease, transfer, assignment, condemnation or
otherwise, but excluding any involuntary disposition resulting from casualty
damage to Property.
"Assignee" has the meaning specified in Section 13.8(b).
"Assigning Lender" has the meaning specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by Agent pursuant to Section
13.8(e), in substantially the form of Exhibit A hereto.
"Bank One" means Bank One, Texas, N.A., a national banking
association.
"Bank One Agreement" has the meaning specified in Recital D of this
Agreement.
"Bank One Interest Rate Protection Agreement" means that certain ISDA
Master Agreement dated as of December 19, 1995, between Bank One and Leasing,
as it may be amended, modified, supplemented or restated at any time and from
time to time with the prior
8
<PAGE> 15
written consent of Required Lenders, and all Confirmations (as defined therein)
issued pursuant thereto, including, without limitation, the two Confirmations
dated December 18, 1995.
"Bankruptcy Code" has the meaning specified in Section 11.1(e).
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or any replacement
thereof.
"Borrowers" means Kitty Hawk (with respect to the Revolving Credit
Loans) and Leasing, (with respect to the Term Loans) and "Borrower" means
either of such Borrowers, individually.
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Dallas, Texas, and (b) with respect to all
borrowings, payments, Conversions, Continuations, Interest Periods and notices
in connection with Eurodollar Loans, any day which is a Business Day described
in clause (a) above and which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Calculation Date" means the date occurring each quarter during the
term of this Agreement which is 15 days after the date on which quarterly
financial statements of the Kitty Hawk Companies are required by Section 8.1(b)
to be delivered to Agent.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal Property, which
obligations are required to be classified or accounted for as a capital lease
on a balance sheet of such Person under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all shares,
partnership interests, limited partnership interests, limited liability company
interests, membership interests, equity interests, participations, rights or
other equivalents (however designated) of corporate stock or any of the
foregoing issued by any entity (whether a corporation, a partnership or another
entity).
"Cash Flow" means, for any period, without duplication, the sum of the
following for the Kitty Hawk Companies (or other applicable Person) for such
period determined on a consolidated basis in accordance with GAAP: (a) Net
Income, plus (b) Interest Expense, plus (c) income and franchise taxes to the
extent deducted in determining Net Income, plus (d) depreciation and
amortization expense and other non-cash items to the extent deducted in
determining Net Income, plus (e) rent expense for Operating Leases to the
extent deducted in determining Net Income, minus (f) non-cash income to the
extent included in determining Net Income.
9
<PAGE> 16
"Change of Control" means any of the following events: (a) Kitty Hawk
shall at any time fail to own, legally and beneficially, 100% of the
outstanding Capital Stock of any of the Kitty Hawk Operating Subsidiaries; (b)
M. Tom Christopher or a successor reasonably acceptable to Required Lenders
shall at any time fail to own, legally and beneficially, at least fifty-one
percent (51%) of the outstanding voting Capital Stock of Kitty Hawk; (c) after
the consummation of a Public Offering, any Person or two or more Persons (other
than the Permitted Holders) acting as a group (as defined in Section 13d-3 of
the Securities Exchange Act of 1934) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 25% or more of the outstanding
shares of voting Capital Stock of Kitty Hawk; (d) individuals who, as of the
Closing Date, constitute the Board of Directors of Kitty Hawk (the "Kitty Hawk
Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of Kitty Hawk, provided, however, that any individual
becoming a director of Kitty Hawk subsequent to the Closing Date whose election
or nomination for election by Kitty Hawk's shareholders was approved by a vote
of at least a majority of the directors then comprising the Kitty Hawk
Incumbent Board shall be considered as though such individual were a member of
the Kitty Hawk Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934) or other
actual or threatened solicitation of proxies or contest by or on behalf of a
Person other than the Board of Directors of Kitty Hawk; or (e) M. Tom
Christopher or a successor reasonably acceptable to Required Lenders shall at
any time cease to be chief executive officer of Kitty Hawk or active in the
management of the Kitty Hawk Companies.
"Charters" means Kitty Hawk Charters, Inc., a Texas corporation and a
Wholly-Owned Subsidiary of Kitty Hawk directly owned by Kitty Hawk.
"Closing Date" means August 14, 1996, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" has the meaning specified in Section 5.1.
"Commitment Percentage" means, as to any Lender and as to any of its
Commitments (as may be applicable based upon the context in which such term is
used), the percentage equivalent of a fraction, the numerator of which is the
amount of the applicable outstanding Commitment of such Lender (or, if such
Commitment has terminated or expired, the aggregate outstanding principal
amount of the Loans and Letter of Credit Liabilities (with respect to the
Revolving Credit Loans Commitment) of such Lender made or issued, respectively,
pursuant to such Commitment) and the denominator of which is the aggregate
amount of such applicable outstanding Commitments of all Lenders (or, if such
Commitments have terminated or expired, the aggregate outstanding principal
amount of the Loans and Letter of Credit Liabilities (with respect to the
Revolving Credit Loans Commitments) of all Lenders made or issued,
respectively, pursuant to such Commitments), as adjusted from time to time in
accordance with Section 13.8.
10
<PAGE> 17
"Commitments" means the Revolving Credit Loans Commitments, the Term
Loans A Commitments, the Term Loans B Commitments and the Term Loans C
Commitments.
"Consolidated Liabilities" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as liabilities on a
consolidated balance sheet of the Kitty Hawk Companies.
"Consolidated Tangible Net Worth" means, at any particular time, all
amounts which, in conformity with GAAP, would be included as stockholders'
equity on a consolidated balance sheet of the Kitty Hawk Companies; provided,
however, there shall be excluded therefrom: (a) any amount at which shares of
Capital Stock of Kitty Hawk appear as an asset on Kitty Hawk's balance sheet;
(b) goodwill, including any amounts, however designated, that represent the
excess of the purchase price paid for assets or stock over the value assigned
thereto; (c) patents, trademarks, trade names and copyrights; (d) deferred
expenses; and (e) all other assets which are properly classified as intangible
assets.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of any Eurodollar Loan as a Eurodollar
Loan from one Interest Period to the next Interest Period.
"Contract Rate" has the meaning specified in Section 13.12(a).
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into another Type of
Loan.
"Current Date" means a date occurring no more than 30 days prior to
the Closing Date or such earlier date which is reasonably acceptable to Agent.
"Debt" means as to any Person at any time (without duplication): (a)
all indebtedness, liabilities and obligations of such Person for borrowed
money; (b) all indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments; (c) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or performed services, except trade accounts payable
of such Person arising in the ordinary course of business that are not past due
by more than 90 days; (d) all Capital Lease Obligations of such Person; (e) all
Debt of others Guaranteed by such Person; (f) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by such Person,
whether or not the indebtedness, liabilities or obligations secured thereby
have been assumed by such Person or are non-recourse to such Person (exclusive
of operating leases as to which such Person is lessee); (g) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments; (h) all indebtedness, liabilities and obligations of such Person
to redeem or retire shares of Capital Stock of such Person; (i) all liabilities
and obligations (exclusive of liabilities and obligations which are not yet
due) of such Person in connection with any interest rate swap, cap or collar
agreement or similar arrangement between such Person and one or more
counterparties providing for the transfer or mitigation of interest rate risks
either generally or under specified
11
<PAGE> 18
contingencies; and (j) all indebtedness, liabilities and obligations of such
Person in respect of unfunded vested benefits under any Plan.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan, any
Reimbursement Obligation or any other amount payable by Borrowers or any
Borrower under this Agreement or any other Loan Document which is not paid when
due (whether at stated maturity, by acceleration or otherwise), a rate per
annum during the period commencing on the due date until such amount is paid in
full equal to the sum of two percent plus the Applicable Rate as in effect from
time to time.
"Deposit Account" means a deposit account maintained by the applicable
Borrower with a bank selected by such Borrower and reasonably acceptable to
Agent.
"Dollars" and "$" mean lawful money of the U. S.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
a member of a group of entities, organizations or employers of which a Kitty
Hawk Company is also a member and which is treated as a single employer within
the meaning of Sections 414(b), (c), (m) or (o) of the Code.
"Eligible Assignee" means (a) any Affiliate of a Lender or (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership or other entity) acceptable to Agent.
"Engines" means those certain aircraft engines identified in the
definitions of Aircraft A, Aircraft B, Aircraft C, Aircraft D, Aircraft E,
Aircraft F, Aircraft G, Aircraft H, Aircraft I and Aircraft J and any other
aircraft engines which either now or in the future are installed on,
appurtenant to, or delivered with or in respect of the Airframes, together with
any and all parts, appliances, components, accessories, accessions, attachments
or equipment installed on, appurtenant to, or delivered with or in respect of
such engines. The term "Engines" shall also refer to any replacement aircraft
engine which is required or permitted, under this Agreement and the Aircraft
Mortgages, to be installed upon the Airframes and with respect to which the
Kitty Hawk Companies comply with each of the applicable requirements contained
in this Agreement and the Aircraft Mortgages.
"Environmental Law" means any federal, state, local or foreign law,
statute, code or ordinance, principle of common law, rule or regulation, as
well as any Permit, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution
12
<PAGE> 19
or the protection, cleanup or restoration of the environment or natural
resources, or to the public health or safety, or otherwise governing the
generation, use, handling, collection, treatment, storage, transportation,
recovery, recycling, discharge or disposal of Hazardous Materials, including,
without limitation as to U.S. laws, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the
Superfund Amendment and Reauthorization Act of 1986, 99-499, 100 Stat. 1613,
the Resource Conservation and Recovery Act of 1976, 42 U. S. C. Section 6901
et seq., the Occupational Safety and Health Act, 29 U S.C. Section 651 et
seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act,
33 U. S. C. Section 1251 et seq., the Emergency Planning and Community Right
to Know Act, 42 U. S. C. Section 11001 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., and the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., and any state or local
counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"Eurodollar Loans" means Loans the interest rate of which are
determined on the basis of the rates referred to in the definition of
"Eurodollar Rate" and "Adjusted Eurodollar Rate" in this Section 1.1.
"Eurodollar Rate" means, for any Eurodollar Loan, for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) quoted by the Reference Lender at approximately 11:00 a.m.
London time (or as soon thereafter as practicable) two Business Days prior to
the first day of such Interest Period for the offering by the Reference Lender
to leading banks in the London interbank market of Dollar deposits in
immediately available funds having a term comparable to such Interest Period
and in an amount comparable to the principal amount of the Eurodollar Loan made
by the Reference Lender to which such Interest Period relates; provided,
however, that, notwithstanding anything to the contrary contained in this
Agreement, with respect to any Eurodollar Loan which is a Term Loan B, the
"Eurodollar Rate" means the "Adjusted LIBO Rate" as such term is defined
herein. Subject to the proviso contained in the immediately preceding
sentence, if the Reference Lender is not participating in any Eurodollar Loans
during any Interest Period therefor (whether as a result of Section 4.4 or for
any other reason), the Eurodollar Rate and the Adjusted Eurodollar Rate for
such Loans for such Interest Period shall be determined by reference to the
amount of the Loans which the Reference Lender would have made had it been
participating in such Loans.
"Event of Default" has the meaning specified in Section 11.1.
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"Excess Insurance Proceeds" means any and all proceeds of any
Insurance Recovery which any Kitty Hawk Company (as applicable) (a) has elected
to not apply to the repair, construction or replacement of the Collateral
affected or to the purchase of other, similar Property for use in its business
or (b) has not both (i) elected to apply to the repair, construction or
replacement of the Collateral affected or to the purchase of other, similar
Property for use in its business within 90 days of the event giving rise to the
Insurance Recovery and (ii) actually applied to such repair, construction,
replacement or purchase commencing within 180 days after the earlier to occur
of the receipt of such proceeds by such Kitty Hawk Company or Agent and
continuing in a reasonably prompt and diligent fashion thereafter.
"FAA" means the United States Federal Aviation Administration (or any
successor or replacement Governmental Authority having the same or similar
authority and responsibilities).
"Federal Aviation Act" means the Federal Aviation Act of 1958, now
primarily codified in Title 49 of the United States Code, as amended.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one- sixteenth of one percent 1/16 of
1%)) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day provided, that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if
such rate is not so published on such next succeeding Business Day, the Federal
Funds Rate for any day shall be the average rate charged to the Reference
Lender on such day on such transactions as determined by Agent.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
the sum of the following (without duplication) for the Kitty Hawk Companies for
such period determined on a consolidated basis in accordance with GAAP (i) Cash
Flow, plus (ii) Maintenance Reserve Expense, to (b) the Fixed Charges of the
Kitty Hawk Companies for such period.
"Fixed Charges" means, for any period, the sum of the following for
the Kitty Hawk Companies for such period determined on a consolidated basis in
accordance with GAAP (a) Operating Lease Expense, plus (b) Interest Expense,
plus (c) the current portion of Funded Debt and Capital Lease Obligations, plus
(d) income and franchise taxes actually paid or payable during such period,
plus (e) the Maintenance Reserve Expense.
"Funded Debt" means, at any particular time without duplication,
Senior Funded Debt plus Debt which by its terms is subordinated to the
Obligations which would, but for such fact of subordination, be Senior Funded
Debt.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their
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<PAGE> 21
respective successors and which are applicable in the circumstances as of the
date in question. Accounting principles are applied on a "consistent basis"
when the accounting principles applied in a current period are comparable in
all material respects to those accounting principles applied in a preceding
period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, or other Governmental Authority or
any department, commission, board, court, agency or any other instrumentality
of any of them.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any indebtedness, liability or obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other indebtedness, liability or obligation as to the payment thereof or to
protect the obligee against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning. The amount of any Guarantee shall be deemed
to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made or, if not stated or
determinable, the maximum anticipated liability in respect thereof (assuming
such Person is required to perform thereunder).
"Guaranties" means the Guaranty Agreements executed by the Kitty Hawk
Companies, dated the Closing Date (or such other date as any Kitty Hawk Company
may execute such Guaranty Agreement), guaranteeing payment and performance of
the Obligations in form and substance reasonably satisfactory to Agent, and any
such Guaranty Agreement at any time executed pursuant to Article 5, hereof, and
any and all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is,
or is deemed to be, alone or in any combination, hazardous, hazardous waste,
toxic, a pollutant, a deleterious substance, a contaminant or a source of
pollution or contamination under any Environmental Law,
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including, without limitation, asbestos, petroleum, underground storage tanks
(whether empty or containing any substance) and polychlorinated biphenyls.
"Hush Kit" means a Stage 3 noise reduction kit for installation on the
engine of any Aircraft.
"Issuing Bank" means Wells Fargo or such other Lender which is a
commercial bank as Kitty Hawk and Agent may mutually designate from time to
time which agrees to be the issuer of a Letter of Credit.
"Insurance Recovery" means, with respect to any Collateral and any
single occurrence or related occurrences with respect thereto, the receipt or
constructive receipt by any Kitty Hawk Company, or the payment by an insurance
company to Agent, of proceeds of any such Collateral or casualty insurance.
"Interest Expense" means, for any period, and in accordance with GAAP,
all interest on Debt of the Kitty Hawk Companies (or other applicable Person)
paid or accrued during such period, including the interest portion of payments
under Capital Lease Obligations.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from a Prime Rate
Loan or, in the case of each subsequent, successive Interest Period applicable
to a Eurodollar Loan, the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second or third calendar month thereafter, as a Borrower may select as
provided in Section 2.9, except that each such Interest Period which commences
on the last Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day or, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day; (b) any Interest
Period which would otherwise extend beyond an applicable Maturity Date shall
end on such Maturity Date; (c) no more than three Interest Periods for
Eurodollar Loans shall be in effect at the same time for each of the Revolving
Credit Loans and the Term Loans C, and no more than one Interest Period for
Eurodollar Loans shall be in effect at the same time for each of the Term Loans
A and the Term Loans B; (d) no Interest Period for any Eurodollar Loan shall
have a duration of less than one month and, if the Interest Period for any
Eurodollar Loans would otherwise be a shorter period, such Loans shall not be
available hereunder; and (e) no Interest Period for a Term Loan may commence
before and end after any principal repayment date unless, after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans having Interest
Periods that end after such principal payment date shall be equal to or less
than the amount of the applicable Term Loans scheduled to be outstanding
hereunder after such principal payment date.
"Investments" has the meaning specified in Section 9.5.
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"Kitty Hawk" means Kitty Hawk, Inc., a Delaware corporation.
"Kitty Hawk Aircraft" means, collectively, Aircraft, Other Aircraft,
Acquired Aircraft and Non-Collateral Aircraft.
"Kitty Hawk Companies" means, collectively, Kitty Hawk, Aircargo,
Charters, Leasing and Skyfreighters, and "Kitty Hawk Company" means any of such
corporations.
"Kitty Hawk Operating Subsidiaries" means, collectively, Leasing,
Aircargo and Charters, and "Kitty Hawk Operating Subsidiary" means any of such
corporations.
"Leases" means, collectively, Aircraft Lease A, Aircraft Lease B,
Aircraft Lease C, Aircraft Lease D, Aircraft Lease E, Aircraft Lease F,
Aircraft Lease G, Aircraft Lease H, Aircraft Lease I and Aircraft Lease J.
"Lease Assignments" means the Lease Assignment executed by Leasing
dated the Closing Date (or such other date as Leasing may execute such Lease
Assignment), and any Lease Assignment at any time executed pursuant to Article
5 hereof, in favor of Agent for the benefit of Agent and Lenders, evidencing or
creating a Lien as security for the Obligations or any portion thereof in form
and substance reasonably satisfactory to Agent, and any and all amendments,
modifications, supplements, renewals, tensions, restatements or replacements
thereof.
"Leasing" means Aircraft Leasing, Inc., a Texas corporation and a
Wholly-Owned Subsidiary of Kitty Hawk directly owned by Kitty Hawk.
"Lender" and "Lenders" has the meaning specified in the introductory
paragraph of this Agreement, and includes, without limitation unless otherwise
provided herein, any Lender in its status as an Issuing Bank.
"Letter of Credit" means any standby letter of credit issued by the
Issuing Bank for the account of Kitty Hawk pursuant to this Agreement.
"Letter of Credit Agreement" means, with respect to each Letter of
Credit to be issued by the Issuing Bank therefor, the letter of credit
application and reimbursement agreement which such Issuing Bank requires to be
executed by Kitty Hawk in connection with the issuance of such Letter of
Credit.
"Letter of Credit Liabilities" means, at any time, the aggregate
undrawn face amounts of all outstanding Letters of Credit and all unreimbursed
drawings under Letters of Credit.
"Leverage Ratio" means, at any particular time, the ratio of (a) the
sum of the following for the Kitty Hawk Companies as of such date determined on
a consolidated basis in accordance with GAAP: (i) Consolidated Liabilities,
plus (ii) seven times the Operating Lease Expense for the four fiscal quarters
then ended, to (b) Consolidated Tangible Net Worth.
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"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law or otherwise.
"Loans" means the Revolving Credit Loans and the Term Loans, and
"Loan" means any of the Revolving Credit Loans or the Term Loans.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the Letter of Credit Agreements, the Bank One
Interest Rate Protection Agreement and any and all other promissory notes,
chattel mortgages, deeds of trust, security agreements, assignments, financing
statements, guaranties and other agreements, documents, instruments and
certificates now or hereafter executed and/or delivered pursuant to or in
connection with any of the foregoing and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Maintenance Reserve Expense" means, for any period, without
duplication, the aggregate of any and all reserves, sinking or other analogous
funds accruals or similar accounting treatment established or used for
accounting purposes, whether or not actually paid, for the maintenance, upkeep,
improvement, enhancement or repair of any aircraft of Kitty Hawk or any of its
Subsidiaries, such Maintenance Reserve Expense to be determined on a
consolidated basis in accordance with GAAP.
"Material Adverse Effect" means the occurrence of any event or the
existence of any condition that has materially and adversely affected, or is
reasonably expected (given the totality of circumstances then existing) to have
a material adverse effect on: (a) the Properties, business, operations,
financial condition or performance, cash flow, liabilities or capitalization of
any Kitty Hawk Company; (b) the ability of any Kitty Hawk Company to pay and
perform when due its Obligations under any Loan Document to which it is a
party; (c) the value or condition of the Collateral (provided, however, that
the phrase "value or" in this clause (c) shall be deemed to have been deleted
after all Term Loan C Commitments have been irrevocably terminated); or (d) the
validity or enforceability of (i) any of the Loan Documents, (ii) any Lien
created or purported to be created by any of the Loan Documents or the required
priority of any such Lien, or (iii) the rights and remedies of Agent or Lenders
under any of the Loan Documents.
"Material Contracts" means, as to any Person, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
which is deemed to be a material contract of such Person as provided in
Regulation S-K promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and any and all amendments, modifications,
supplements, renewals or restatements thereof.
"Maturity Date" means the Revolving Credit Loans Maturity Date, the
Term Loans A Maturity Date, the Term Loans B Maturity Date or the Term Loans C
Maturity Date, as the case may be.
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"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate, if any, that any time or from time to time may be
contracted for, taken, reserved, charged or received with respect to the
particular Obligations as to which such rate is to be determined, payable to
such Lender pursuant to this Agreement or any other Loan Document, under laws
applicable to such Lender which are presently in effect or, to the extent
allowed by law, under such applicable laws which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws
now allow. The Maximum Rate shall be calculated in a manner that takes into
account any and all fees, payments and other charges in respect of the Loan
Documents that constitute interest under applicable law. Each change in any
interest rate provided for herein based upon the Maximum Rate resulting from a
change in the Maximum Rate shall take effect without notice to the applicable
Borrower or Borrowers at the time of such change in the Maximum Rate. For
purposes of determining the Maximum Rate under Texas law, the applicable rate
ceiling shall be the indicated rate ceiling described in, and computed in
accordance with, Article 5069-1.04, Vernon's Texas Civil Statutes; provided,
however, that, to the extent permitted by applicable law, Agent shall have the
right to change the applicable rate ceiling from time to time in accordance
with applicable law.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from any Kitty Hawk Company or any ERISA Affiliate since 1974 and which is
covered by Title IV of ERISA.
"Net Income" means, for any period, the net income (or loss) of the
Kitty Hawk Companies (or other applicable Person) for such period, determined
on a consolidated basis in accordance with GAAP.
"Non-Collateral Aircraft" means (a) any and all aircraft, engines,
propellers, appliances and spare parts hereafter owned by any of the Kitty Hawk
Companies that (i) are not subject to any Lien in favor of Agent securing any
Obligation and (ii) are not required to be subject to such a Lien in accordance
with this Agreement or any other Loan Document (including, without limitation,
Aircraft and Acquired Aircraft that previously were subject to Liens securing
the Obligations, but which Liens, as of the date of determination, have been
released by Agent in accordance with this Agreement), and (b) all products and
proceeds thereof other than accounts (including, without limitation,
Receivables), chattel paper, general intangibles and other personal property
referred to in clause (d) of Section 5.1.
"Notes" means the Revolving Credit Loans Notes, the Term Loans A
Notes, the Term Loans B Notes, the Term Loans C Notes and any and all
amendments, modifications, supplements, renewals, extensions, restatements or
replacements thereof and all substitutions therefor (including promissory notes
issued by any Borrower pursuant to Section 13.8), and "Note" means any one of
such promissory notes.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Kitty Hawk Companies, or any of them, to Agent, the Issuing
Bank and Lenders, or any of them, evidenced by and/or arising pursuant to any
of the Loan Documents (including, without limitation, the Guaranties), now
existing or hereafter arising, whether direct, indirect, related, unrelated,
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fixed, contingent, liquidated, unliquidated, joint, several or joint and
several, including, without limitation, (i) the obligations of the Kitty Hawk
Companies, or any of them, to repay the Loans and the Reimbursement
Obligations, to pay interest on the Loans and the Reimbursement Obligations
(including, without limitation, interest accruing after any, if any,
bankruptcy, insolvency, reorganization or similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees and expenses)
provided for in the Loan Documents and (ii) the indebtedness constituting the
Loans, the Reimbursement Obligations and interest accrued thereon and such
fees, indemnities, costs and expenses, and (b) liabilities and obligations of
the Kitty Hawk Companies, or any of them, under the Bank One Interest Rate
Protection Agreement and under any other interest rate swap, cap or collar
agreement or similar arrangement between any Kitty Hawk Company and another
Person providing for the transfer or mitigation of interest rate risks approved
by Agent and Required Lenders as being a part of the "Obligations" hereunder.
"Operating Lease" means, with respect to any Person, any lease, rental
or other agreement for the use by that Person of any Property which is not a
Capital Lease Obligation.
"Operating Lease Expense" means, with respect to any Person, means all
payments of such Person with respect to any Operating Lease.
"Other Aircraft" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N69740, Manufacturer's Serial No.
20668, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, including, without limitation, one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665275, one Pratt & Whitney JT8D-9A Engine,
Manufacturer's Serial No. 665899, and one Pratt & Whitney JT8D-9A Engine,
Manufacturer's Serial No. 665564 and (ii) one Boeing 727-223 airframe, United
States Aircraft Registration Number N6809, Manufacturer's Serial No. 19484,
together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, including, without limitation, one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 666338, one Pratt & Whitney JT8D-9A Engine,
Manufacturer's Serial No. 655014, and one Pratt & Whitney JT8D-9A Engine,
Manufacturer's Serial No. 666256.
"Outstanding Revolving Credit" means, at any particular time, the sum
of (a) the aggregate outstanding principal amount of the Revolving Credit
Loans, plus (b) all Letter of Credit Liabilities.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Payor" means as specified in Section 3.4.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained
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or contributed to currently or at any time within the six years immediately
preceding the Closing Date or, in the case of a Multiemployer Plan, at any time
since September 2, 1974, by any Kitty Hawk Company or any ERISA Affiliate for
employees of any Kitty Hawk Company or any ERISA Affiliate.
"Peril" means as specified in Section 8.5(a).
"Permit" means any permit, certificate, approval, order, license or
other authorization.
"Permitted Holders" means (a) the officers and directors of the Kitty
Hawk Companies as of the Closing Date, (b) all other individuals who own
Capital Stock of Kitty Hawk on the Closing Date, and (c) any spouse, parent,
sibling, child or grandchild of any of the aforesaid individuals (in each case,
whether such relationship arises from birth, adoption or through marriage) or
any trust established for the benefit of any such individuals or any spouse,
parent, sibling, child or grandchild of any such individuals (in each case
whether such relationship arises from birth, adoption or through marriage).
"Permitted Liens" means:
(a) Liens in favor of Agent (for the benefit of Agent
and Lenders) securing the Obligations pursuant to the Loan Documents;
(b) Liens for taxes, assessments or other governmental
charges which (i) are not delinquent or (ii) are being contested in
good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the Property subject to
such Liens, and for which adequate reserves have been established in
accordance with GAAP;
(c) Liens of mechanics, materialmen, artisans or other
similar statutory Liens securing obligations incurred in the ordinary
course of business which (i) are not yet due or (ii) are being
contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the Property
subject to such Liens, and for which adequate reserves have been
established in accordance with GAAP;
(d) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be
extended or spread to cover any additional indebtedness or Property.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, Governmental
Authority, or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Kitty Hawk Company or
any ERISA Affiliate, including any Pension Plan.
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<PAGE> 28
"Prime Rate" means, at any time, the rate of interest per annum then
most recently established by Wells Fargo as its highest commercial prime rate
then in effect, which rate may not be the lowest rate of interest charged by
Wells Fargo to its commercial borrowers. Each change in any interest rate
provided for herein based upon the Prime Rate resulting from a change in the
Prime Rate shall take effect without notice to the applicable Borrower or
Borrowers at the time of such change in the Prime Rate.
"Prime Rate Loans" means any Loans that bear interest at rates based
upon the Prime Rate.
"Principal Office" means the principal office of Agent in Dallas,
Texas, presently located at 1445 Ross Avenue, Dallas, Texas 75202.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Property" means, unless the context otherwise requires, property of
all kinds, real, personal or mixed, tangible or intangible (including, without
limitation, all rights relating thereto), whether owned or acquired on or after
the Closing Date.
"Public Offering" means a public offering of any Capital Stock of
Kitty Hawk.
"Quarterly Payment Date" means the last day of each March, June,
September and December of each year, commencing September 30, 1996.
"RICO" means the Racketeer Influenced and Corrupt Organization Act of
1970, as amended from time to time.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of any Kitty
Hawk Company in respect of goods sold and shipped or services rendered by a
Kitty Hawk Company.
"Reference Lender" means Wells Fargo.
"Register" has the meaning specified in Section 13.8(d).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change
after the Closing Date in any U.S. federal or state, or any foreign, laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of lenders
including such Lender of or under any U.S. federal or state, or any foreign,
laws or
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<PAGE> 29
regulations (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.
"Reimbursement Obligations" means the obligation of Kitty Hawk to
reimburse the Issuing Bank for any drawing under a Letter of Credit.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, discharge, disposal, disbursement,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or in the air, soil,
surface water or ground water.
"Remedial Action" means all actions required to (a) clean up, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Required Lenders" means, at any date of determination, Lenders having
in the aggregate at least 66 2/3% (in Dollar amount as to any one or more of
the following) of the sum of (a) the aggregate outstanding Revolving Credit
Loans Commitments (or, if such Revolving Credit Loans Commitments have
terminated or expired, the aggregate outstanding principal amount of the
Revolving Credit Loans and Letter of Credit Liabilities), plus (b) the
aggregate outstanding principal amount of the Term Loans A, plus (c) the
aggregate outstanding principal amount of the Term Loans B, plus (d) the
aggregate outstanding Term Loans C Commitments (or, if such Term Loans C
Commitments have terminated or expired, the aggregate outstanding principal
amount of the Term Loans C).
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
or the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
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<PAGE> 30
"Responsible Officer" means, as to any Kitty Hawk Company, the chief
financial officer, chief operating officer or chief executive officer of such
Kitty Hawk Company.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of any Kitty Hawk Company now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
to the holders of that class; (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of Capital Stock of any
Kitty Hawk Company now or hereafter outstanding; (c) any payment or prepayment
of principal of, premium, if any, or interest on, or any redemption,
conversion, exchange, purchase, retirement or defeasance of, or payment with
respect to, any Subordinated Debt; (d) any loan, advance or payment to any
officer, director or shareholder of any Kitty Hawk Company (other than as may
be made in the ordinary course of business to Kitty Hawk as a shareholder),
exclusive of reasonable compensation paid to officers or directors paid in the
ordinary course of business; and (e) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of Capital Stock of any Kitty Hawk Company now or hereafter
outstanding.
"Revolving Credit Loans" has the meaning specified in Section 2.1(a).
"Revolving Credit Loans Commitment" means, as to any Lender, the
obligation of such Lender, in accordance with this Agreement, to make or
continue Revolving Credit Loans and to incur or participate in Letter of Credit
Liabilities hereunder in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set forth opposite the name of
such Lender on the signature pages hereto under the heading "Revolving Credit
Loans Commitment" or, if such Lender is a party to an Assignment and
Acceptance, the amount of the "Revolving Credit Loans Commitment" set forth in
the most recent Assignment and Acceptance of such Lender, as the same may be
reduced or terminated pursuant to Section 2.13 or 11.2, and "Revolving Credit
Loans Commitments" means such obligations of all Lenders. As of the Closing
Date, the aggregate principal amount of the Revolving Credit Loans Commitments
is $15,000,000.
"Revolving Credit Loans Lender" means, as of any date of
determination, each Lender which has a Revolving Credit Loans Commitment.
"Revolving Credit Loans Maturity Date" means December 31, 1998.
"Revolving Credit Loans Notes" means the promissory notes, in the form
of Exhibit B hereto, made by Kitty Hawk evidencing the Revolving Credit Loans.
"Securities" means any and all securities and other equity rights or
ownership interests of any type or character in any Person which is not a
natural Person, including, without limitation, (a) Capital Stock or other
equity rights, bonds, notes or other instruments convertible into Capital
24
<PAGE> 31
Stock or other equity interests, (b) options, warrants or other rights to
acquire Capital Stock or other equity interests, and (c) partnership and joint
venture interests.
"Security Agreements" means security agreements, pledge agreements and
other agreements, documents or instruments executed by the Kitty Hawk Companies
dated the Closing Date (or such other date as any Kitty Hawk Company may
execute such Security Agreement), and any such agreement, document or
instrument at any time executed pursuant to Article 5 hereof, evidencing or
creating a Lien on the Collateral referred to in clause (d) of Section 5.1 as
security for the Obligations and in form and substance reasonably satisfactory
to Agent, and any and all amendments, modifications, supplements, renewals,
extensions, restatements or replacements thereof.
"Security Documents" means the Guaranties, Aircraft Mortgages, the
Lease Assignments, and the Security Agreements, as they may be amended,
modified, supplemented, renewed, extended, restated or replaced from time to
time, and any and all other agreements, deeds of trust, mortgages, chattel
mortgages, security agreements, pledges, guaranties, assignments of proceeds,
assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, completion or surety bonds,
standby agreements, subordination agreements, undertakings and other
agreements, documents, instruments and financing statements now or hereafter
executed and/or delivered by any Kitty Hawk Company in connection with or as
security or assurance for the payment or performance of the Obligations or any
part thereof.
"Senior Funded Debt" means, at any particular time, exclusive of any
Debt which by its terms is subordinated to the Obligations and approved to be
excluded from the definition of Senior Funded Debt by Agent, (a) all Debt of
the Kitty Hawk Companies which matures by its terms, or is renewable at the
option of Kitty Hawk or any of its Subsidiaries, to a date more than one year
after the original creation of such Debt, (b) all other Debt which would be
classified as "funded indebtedness" or "long-term indebtedness" on a
consolidated balance sheet of the Kitty Hawk Companies as of such date in
accordance with GAAP, (c) all Debt of the Kitty Hawk Companies for borrowed
money, and (d) all Capital Lease Obligations of the Kitty Hawk Companies.
"Senior Funded Debt to Cash Flow Ratio" means, for any period, the
ratio of (a) the sum of the following (without duplication) for the Kitty Hawk
Companies for such period determined on a consolidated basis in accordance with
GAAP: (i) Senior Funded Debt, plus (ii) seven times the Operating Lease
Expense projected for the twelve month period from the date of determination to
the anniversary date of such date of determination, to (b) Cash Flow of the
Kitty Hawk Companies for the four fiscal quarters then ended.
"Skyfreighters" means Skyfreighters Corporation, a Texas corporation
and a Wholly-Owned Subsidiary of Kitty Hawk directly owned by Kitty Hawk.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present
25
<PAGE> 32
fair saleable value) is greater than the total liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business, (d) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
Property would constitute unreasonably small capital after giving due
consideration to current and anticipated future capital requirements and
current and anticipated future business conduct and the prevailing practice in
the industry in which such Person is engaged. In computing the amount of
contingent liabilities at any time, such liabilities shall be computed at the
amount which, in light of the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"Subordinated Debt" means any and all Debt of any Kitty Hawk Company
which is subordinate in right of payment to the payment of the Obligations or
any portion thereof.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.
"Term Loans" means the Term Loans A, the Term Loans B and the Term
Loans C.
"Term Loans A" has the meaning specified in Section 2.1(b).
"Term Loans A Collateral" means, collectively, Aircraft A, Aircraft B,
Aircraft C, Aircraft D, Aircraft E, Aircraft F, Aircraft G and Aircraft H.
"Term Loans A Commitment" means, as to any Lender, the obligation of
such Lender to make or continue Term Loans A hereunder in an aggregate
principal amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term Loans A
Commitment", as the same may be terminated pursuant to Section 11.2, and "Term
Loans A Commitments" means such obligations of all Lenders. As of the Closing
Date, the aggregate principal amount of the Term Loans A Commitments is
$12,744,000.45.
"Term Loans A Lenders" means, as of any date of determination, each
Lender which has a Term Loans A Commitment.
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<PAGE> 33
"Term Loans A Maturity Date" means June 30, 2002.
"Term Loans A Notes" means the promissory notes made by Leasing
evidencing the Term Loans A, in the form of Exhibit C hereto.
"Term Loans B" has the meaning specified in Section 2.1(c).
"Term Loans B Collateral" means, collectively, Aircraft I and Aircraft
J.
"Term Loans B Commitment" means, as to any Lender, the obligation of
such Lender to make or continue Term Loans B hereunder in an aggregate
principal amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term Loans B
Commitment", as the same may be terminated pursuant to Section 11.2, and "Term
Loans B Commitments" means such obligations of all Lenders. As of the Closing
Date, the aggregate principal amount of the Term Loans B Commitments is
$11,225,000.
"Term Loans B Lenders" means, as of any date of determination, each
Lender which has a Term Loans B Commitment.
"Term Loans B Maturity Date" means June 30, 2003.
"Term Loans B Notes" means the promissory notes made by Leasing
evidencing the Term Loans B, in the form of Exhibit D hereto.
"Term Loans C" has the meaning specified in Section 2.1(d).
"Term Loans C Availability Termination Date" means the earlier to
occur of either (a) the making of Term Loans C in the aggregate amount of the
Term Loans C Commitments or (b) April 30, 1998.
"Term Loans C Commitment" means, as to any Lender, the obligation of
such Lender to make or continue Term Loans C hereunder in an aggregate
principal amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term Loans C
Commitment" or, if such Lender is a party to an Assignment and Acceptance, the
amount of the "Term Loans C Commitment" set forth in the most recent Assignment
and Acceptance of such Lender, as the same may be reduced or terminated
pursuant to Section 2.13 or 11.2, and "Term Loans C Commitments" means such
obligations of all Lenders. As of the Closing Date, the aggregate principal
amount of the Term Loans C Commitments is $10,000,000.
"Term Loans C Lenders" means, as of any date of determination, each
Lender which has a Term Loans C Commitment.
"Term Loans C Maturity Date" means June 30, 2003.
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<PAGE> 34
"Term Loans C Notes" means the promissory notes made by Leasing
evidencing the Term Loans C, in the form of Exhibit E hereto.
"Title Company" means Federal Aviation Title and Guaranty Company,
Oklahoma City, Oklahoma.
"Type" means any type of Loan (i.e., Prime Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas and/or any other jurisdiction, the laws of which may be applicable to or
in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"U.S." means the United States of America.
"WFB Agreements" means, collectively, the WFB Agreement No. 1, the WFB
Agreement No. 2 and the WFB Agreement No. 3, as such agreements may have been
amended, modified or supplemented.
"WFB Agreement No. 1" has the meaning specified in Recital A of this
Agreement.
"WFB Agreement No. 2" has the meaning specified in Recital B of this
Agreement.
"WFB Agreement No. 3" has the meaning specified in Recital C of this
Agreement.
"Wells Fargo" means Wells Fargo Bank (Texas), National Association, a
national banking association formerly known as First Interstate Bank of Texas,
N.A.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock is owned by
such Person and/or one or more of its Wholly-Owned Subsidiaries.
Section 1.2 Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein" and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article and Section references pertain to this
Agreement. Terms used herein that are defined in the UCC, unless otherwise
defined herein, shall have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined
herein shall be construed in accordance with GAAP (subject to year end
adjustments, if applicable) consistent with such accounting principles
applied in the preparation of the audited financial statements
referred to in Section 7.2(a). All financial information delivered to
Agent pursuant to
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<PAGE> 35
Section 8.1 shall be prepared in accordance with GAAP (subject to year
end adjustments, if applicable) applied on a basis consistent with
such accounting principles applied in the preparation of the audited
financial statements referred to in Section 7.2(a) or in accordance
with Section 8.7.
(b) Kitty Hawk shall deliver to Agent and
Lenders, at the same time as the delivery of any annual, quarterly or
monthly financial statement under Section 8.1, (i) a description, in
reasonable detail, of any material variation between the application
of GAAP employed in the preparation of the next preceding annual,
quarterly or monthly financial statements as to which no objection has
been made in accordance with the last sentence of subsection (a)
preceding and (ii) reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) To enable the ready and consistent
determination of compliance with the covenants set forth in this
Agreement (including Article 10 hereof), neither Kitty Hawk nor any of
its Subsidiaries will change the last day of its fiscal year from
August 31 or, if changed in contemplation of a Public Offering,
December 31, or the last days of the first three fiscal quarters of
the Kitty Hawk Companies in each of its fiscal years from that
existing on the Closing Date except to reflect any such change to a
fiscal year ending December 31.
Section 1.4 Financial Covenants and Reporting. The financial
covenants contained in Article 10 shall be calculated on a consolidated basis
for the Kitty Hawk Companies in accordance with GAAP.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Revolving Credit Loans. Subject to the terms
and conditions of this Agreement (including, without limitation,
Section 2.13), each Revolving Credit Loans Lender severally agrees to
make one or more revolving credit loans to Kitty Hawk from time to
time from and including the Closing Date to but excluding the
Revolving Credit Loans Maturity Date in an aggregate principal amount
outstanding not to exceed the positive remainder of (i) the amount of
such Lender's Revolving Credit Loans Commitment as then in effect,
minus (ii) such Lender's Commitment Percentage of the Letter of Credit
Liabilities then outstanding (such revolving credit loans referred to
in this Section 2.1(a) now or hereafter made by Lenders to Kitty Hawk
from and including and after the Closing Date are hereinafter
collectively called the "Revolving Credit Loans"). Subject to the
foregoing limitations and the other terms and conditions of this
Agreement, Kitty Hawk may borrow, repay and reborrow the Revolving
Credit Loans hereunder. Kitty Hawk agrees to borrow Revolving Credit
Loans on the Closing Date for the purpose of paying the amounts
specified in the first sentence of Section 2.10(a).
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<PAGE> 36
(b) Term Loans A. Subject to the terms and
conditions of this Agreement, each Term Loans A Lender severally
agrees to make a term loan to Leasing in a single disbursement on the
Closing Date in an amount equal to such Lender's Term Loans A
Commitment (such term loans referred to in this Section 2.1(b) made by
the Term Loans A Lenders to Leasing are hereinafter collectively
called the "Term Loans A"). The Term Loans A Commitments shall
terminate upon the making of the Term Loans A.
(c) Term Loans B. Subject to the terms and
conditions of this Agreement, each Term Loans B Lender severally
agrees to make a term loan to Leasing in a single disbursement on the
Closing Date in an amount equal to such Lender's Term Loans B
Commitment (such term loans referred to in this Section 2.1(c) made by
the Term Loans B Lenders to Leasing are hereinafter collectively
called the "Term Loans B"). The Term Loans B Commitments shall
terminate upon the making of the Term Loans B.
(d) Term Loans C. Subject to the terms and
conditions of this Agreement (including, without limitation, Section
2.13), each Term Loans C Lender severally agrees to make term loans to
Leasing, at any time and from time to time, but no more than once each
month (exclusive of Continuations and Conversions of Term Loans C in
accordance with Section 2.1(e)) as provided for herein, during the
Advance Period, in an aggregate principal amount not to exceed the
amount of such Lender's Term Loans C Commitment then in effect (such
term loans referred to in this Section 2.1(d) made by the Term Loans C
Lenders to Leasing are hereinafter collectively called the "Term Loans
C"). Leasing may not repay and then reborrow any Term Loans C, the
Term Loans C Commitments shall reduce upon each making of the Term
Loans C by an aggregate amount equal to the aggregate amount of the
Term Loans C then made and the Term Loans C Commitments shall
terminate upon the making of the Term Loans C in the aggregate amount
of $10,000,000.
(e) Continuation and Conversion of Loans.
Subject to the terms of this Agreement, the applicable Borrower may
borrow the Loans as Prime Rate Loans or Eurodollar Loans and, until
the respective Maturity Date thereof, the applicable Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of
the other Type.
(f) Lending Offices. Loans of each Type made by
each Lender shall be made and maintained at such Lender's Applicable
Lending Office for Loans of such Type.
Section 2.2 The Notes. The Revolving Credit Loans made by each
Revolving Credit Loans Lender shall be evidenced by a single promissory note of
Kitty Hawk in substantially the form of Exhibit B hereto, dated the Closing
Date, payable to the order of such Lender in a principal amount equal to its
Revolving Credit Loans Commitment as originally in effect, and otherwise duly
completed. The Term Loans A made by each Term Loans A Lender shall be
evidenced by a single promissory note of Leasing in substantially the form of
Exhibit C hereto, dated the Closing Date, payable to the order of such Lender
in a principal amount equal to its
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<PAGE> 37
Term Loans A Commitment as originally in effect, and otherwise duly completed.
The Term Loans B made by each Term Loans B Lender shall be evidenced by a
single promissory note of Leasing in substantially the form of Exhibit D
hereto, dated the Closing Date, payable to the order of such Lender in a
principal amount equal to its Term Loans B Commitment as originally in effect,
and otherwise duly completed. The Term Loans C made by each Term Loans C
Lender shall be evidenced by a single promissory note of Leasing in
substantially the form of Exhibit E hereto, dated the Closing Date, payable to
the order of such Lender in a principal amount equal to its Term Loans C
Commitment as originally in effect, and otherwise duly completed. Each Lender
is hereby authorized by the applicable Borrower to endorse on the schedule (or
a continuation thereof) attached to each Note of such Lender, to the extent
applicable, the date, amount and Type of and the Interest Period for each Loan
made by such Lender to the applicable Borrower and the amount of each payment
or prepayment of principal of such Loan received by such Lender, provided that
any failure by such Lender to make any such endorsement shall not affect the
obligations of the applicable Borrower under such Note or this Agreement in
respect of such Loan.
Section 2.3 Repayment of Loans.
(a) Kitty Hawk shall pay to Agent for the account
of the Revolving Credit Loans Lenders the outstanding principal of the
Revolving Credit Loans (and the outstanding principal of the Revolving
Credit Loans shall be due and payable) on the Revolving Credit Loans
Maturity Date; provided, however, that, notwithstanding anything to
the contrary contained in this Agreement, with respect to Revolving
Credit Loans which are used for Aircraft Acquisitions, Kitty Hawk
shall pay to Agent for the account of the Revolving Credit Loans
Lenders the entire principal amount of such Revolving Credit Loans
(and the entire outstanding principal amount of such Revolving Credit
Loans shall be due and payable) on or before 150 days after the date
of the borrowing of such Revolving Credit Loans.
(b) Leasing shall pay to Agent for the account of
the Term Loans A Lenders the outstanding principal of the Term Loans A
(and the outstanding principal of the Term Loans A shall be due and
payable) in 23 installments, commencing on September 30, 1996 and
continuing on each Quarterly Payment Date thereafter through and
including March 31, 2002, each of which installments shall be in the
amount of $531,000.18. In addition, Leasing shall pay to Agent for
the account of the Term Loans A Lenders all outstanding principal of
the Term Loans A (and all outstanding principal of the Term Loans A
shall be due and payable) on the Term Loans A Maturity Date.
(c) Leasing shall pay to Agent for the account of
the Term Loans B Lenders the outstanding principal of the Term Loans B
(and the outstanding principal of the Term Loans B shall be due and
payable) in 27 installments, commencing on September 30, 1996 and
continuing on each Quarterly Payment Date thereafter through and
including March 31, 2003, each of which installments shall be in the
amount set forth below:
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<TABLE>
Quarterly Payment Date Principal Installment
---------------------- ---------------------
<S> <C>
September 30, 1996 $306,598.90
December 31, 1996 $312,477.93
March 31, 1997 $318,469.70
June 30, 1997 $324,576.36
September 30, 1997 $330,800.10
December 31, 1997 $337,143.20
March 31, 1998 $343,607.92
June 30, 1998 $350,196.60
September 30, 1998 $356,911.62
December 31, 1998 $363,755.40
March 31, 1999 $370,730.42
June 30, 1999 $377,839.17
September 30, 1999 $385,084.23
December 31, 1999 $392,468.23
March 31, 2000 $399,993.80
June 30, 2000 $407,663.68
September 30, 2000 $415,480.62
December 31, 2000 $423,447.48
March 31, 2001 $431,567.08
June 30, 2001 $439,842.38
September 30, 2001 $448,276.36
December 31, 2001 $456,872.07
March 31, 2002 $465,632.58
June 30, 2002 $474,561.08
September 30, 2002 $483,660.80
December 31, 2002 $492,934.99
March 31, 2003 $502,387.02
</TABLE>
In addition, Leasing shall pay to Agent for the account of the Term
Loans B Lenders all outstanding principal of the Term Loans B (and all
outstanding principal of the Term Loans B shall be due and payable) on
the Term Loans B Maturity Date.
(d) Leasing shall pay to Agent for the account of
the Term Loans C Lenders the principal of the Term Loans C outstanding
on the Term Loans C Availability Termination Date (and the outstanding
principal of the Term Loans C shall be due and
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<PAGE> 39
payable) in 20 installments, commencing on June 30, 1998 and
continuing on each Quarterly Payment Date thereafter through and
including March 31, 2003, each of which installments shall be in the
amount equal to (i) the aggregate principal amount of the Term Loans C
outstanding on the Term Loans C Availability Termination Date, divided
by (ii) 21. In addition, Leasing shall pay to Agent for the account
of the Term Loans C Lenders all outstanding principal of the Term
Loans C (and all outstanding principal of the Term Loans C shall be
due and payable) on the Term Loans C Maturity Date.
(e) In the event of any prepayment of the Term
Loans A, the Term Loans B or the Term Loans C in connection with any
release of any of the Aircraft in accordance with Section 5.4(b), such
prepayment shall be applied in accordance with the proviso contained
in clause (d) of Section 2.6 (if a voluntary prepayment) or the
proviso contained in the first sentence of Section 2.7(d) (if a
mandatory prepayment) with the effect that (i) the amount of each
subsequent installment of principal of the Term Loans A as provided in
Section 2.3(b) shall be reduced pro rata in connection with any such
prepayment of the Term Loans A such that the then remaining
outstanding principal amount of the Term Loans A shall be payable in
equal quarterly installments on each Quarterly Payment Date thereafter
and on the Term Loans A Maturity Date, (ii) the amount of each
subsequent installment of principal of the Term Loans B as provided in
Section 2.3(c) shall be reduced pro rata in connection with any such
prepayment of the Term Loans B such that each of the then remaining
principal installments are reduced by the same percentage, and (iii)
the amount of each subsequent installment of principal of the Term
Loans C as provided in Section 2.3(d) shall be reduced pro rata in
connection with any such prepayment of the Term Loans C such that the
then outstanding principal amount of the Term Loans C shall be payable
in equally quarterly installments on each Quarterly Payment Date
thereafter and on the Term Loans C Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The applicable Borrower shall pay
to Agent for the account of each applicable Lender interest on the
unpaid principal amount of each Loan made by such Lender to such
Borrower for the period commencing on the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following
rates per annum:
(i) during the periods any such Loan is
a Prime Rate Loan, the lesser of (A) the Prime Rate or (B) the
Maximum Rate; and
(ii) during the periods any such Loan is
a Eurodollar Loan, the lesser of (A) the Eurodollar Rate plus
the Applicable Margin or (B) the Maximum Rate.
(b) Payment Dates. Accrued interest on the Loans shall
be due and payable as follows:
(i) in the case of Prime Rate Loans, on
each Quarterly Payment Date;
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<PAGE> 40
(ii) in the case of each Eurodollar Loan,
on the last day of the Interest Period with respect
thereto;
(iii) upon the payment or prepayment of
any Loan or the Conversion of any Loan to a Loan of the
other Type (but only on the principal amount so paid,
prepaid or Converted); and
(iv) on the Maturity Date for such Loan.
(c) Default Interest. Notwithstanding the foregoing,
the applicable Borrower shall pay to Agent for the account of each
applicable Lender interest at the applicable Default Rate on any
principal of any Loan made by such Lender to such Borrower, any
Reimbursement Obligation and (to the fullest extent permitted by law)
any other amount payable by the applicable Borrower under this
Agreement or any other Loan Document to or for the account of such
Lender, which is not paid in full when due (whether at stated
maturity, by acceleration or otherwise), for the period from and
including the due date thereof to but excluding the date the same is
paid in full. Interest payable at the Default Rate shall be payable
from time to time on demand by Agent.
Section 2.5 Borrowing Procedure. Kitty Hawk, with respect to the
Revolving Credit Loans, and Leasing, with respect to the Term Loans, shall give
Agent notice of each borrowing hereunder in accordance with Section 2.9. Not
later than 12:00 noon (Dallas, Texas time) on the date specified for each
borrowing hereunder, each Lender will make available the amount of the Loan to
be made by it on such date to Agent, at the Principal Office, in immediately
available funds, for the account of the applicable Borrower. The amount so
received by Agent shall, subject to the terms and conditions of this Agreement,
be made available to the applicable Borrower by wire transfer of immediately
available funds to the applicable Deposit Account no later than 2:00 p.m.
(Dallas, Texas time).
Section 2.6 Optional Prepayments, Conversions and Continuations of
Loans. Subject to Section 2.7, the applicable Borrower shall have the right
from time to time to prepay the principal of the Loans, to Convert all or part
of a Loan of one Type into a Loan of another Type or to Continue Eurodollar
Loans; provided that: (a) Kitty Hawk, with respect to the Revolving Credit
Loans, and Leasing, with respect to the Term Loans, shall give Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9,
(b) Eurodollar Loans may only be Converted on the last day of the Interest
Period, (c) except for Conversions of Eurodollar Loans into Prime Rate Loans,
no Conversions or Continuations shall be made while a Default has occurred and
is continuing, and (d) optional prepayments of any Term Loans shall be applied
to the then remaining principal installments of such Term Loans, in the inverse
order of the maturities of such installments; provided, however, that any
optional prepayment of principal of the applicable Term Loans equal to the
Aircraft Release Amount for an Aircraft made in connection with the release of
such Aircraft pursuant to Section 5.4(b) shall be applied to the applicable
Term Loans in accordance with this Agreement (as provided or referred to in the
definition of Aircraft Release Amount) and shall be applied to each of the then
remaining principal installments of the applicable Term Loans pro rata based
upon the percentage that each such
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principal installment is to the then total outstanding principal amount of such
Term Loans (or, with respect to any prepayment of the Term Loans C prior to the
Term Loans C Availability Termination Date, to the then outstanding principal
amount of the Term Loans C).
Section 2.7 Mandatory Prepayments.
(a) Insurance Recovery. Each Kitty Hawk Company
shall, within two Business Days after it receives any Excess Insurance
Proceeds, pay (or cause to be paid) to Agent, as a prepayment of the
Term Loans, an aggregate amount equal to such Excess Insurance
Proceeds. The proceeds of any Excess Insurance Proceeds shall be
applied to the Term Loans A if such Excess Insurance Proceeds result
from a casualty loss to the Term Loans A Collateral and shall be
applied to the Term Loans B if such Excess Insurance Proceeds result
from a casualty loss to the Term Loans B Collateral. After such
application of the Excess Insurance Proceeds to either the Term Loans
A or the Term Loans B (as applicable), any remaining Excess Insurance
Proceeds shall, after the Term Loans A or the Term Loans B,
respectively, are paid in full (as applicable), be applied in order of
priority to (i) the Term Loans C (until such Loans are paid in full),
(ii) the Revolving Credit Loans, and (iii) the Term Loans B or the
Term Loans A, respectively. Notwithstanding anything to the contrary
contained in this Section 2.7(a), in the event of Leasing's receipt
of Excess Insurance Proceeds payable with respect to any Aircraft or
Acquired Aircraft in an amount in excess of the Aircraft Release
Amount for such Aircraft or the amount required to release such
Acquired Aircraft pursuant to Section 5.4(c), respectively, then
Leasing shall not be obligated to pay, pursuant to this Section
2.7(a), an amount of such Excess Insurance Proceeds in excess of the
Aircraft Release Amount for such Aircraft or the amount required to
release such Acquired Aircraft pursuant to Section 5.4(c),
respectively.
(b) Asset Dispositions. Each Kitty Hawk Company
shall, concurrently with any sale or other disposition of any
Collateral, pay (or cause to be paid) to Agent, as a prepayment of the
Term Loans, an aggregate amount equal to 100% of the proceeds
resulting from such sale or other disposition of such Collateral.
Such proceeds shall be applied to the Term Loans A if such Collateral
is Term Loans A Collateral and shall be applied to the Term Loans B if
such Collateral is Term Loans B Collateral. After such application of
proceeds to either the Term Loans A or the Term Loans B (as
applicable), any remaining proceeds shall, after the Term Loans A or
the Term Loans B, respectively, are paid in full (as applicable), be
applied in order of priority to (i) the Term Loans C (until such Loans
are paid in full), (ii) the Revolving Credit Loans, and (iii) the Term
Loans B or the Term Loans A, respectively. Notwithstanding anything
to the contrary contained in this Section 2.7(b), in the event that
the proceeds from any such sale or other disposition of an Aircraft or
Acquired Aircraft are in excess of the Aircraft Release Amount for
such Aircraft or the amount required to release such Acquired Aircraft
pursuant to Section 5.4(c), respectively, then Leasing shall not be
obligated to pay, pursuant to this Section 2.7(b), an amount of such
proceeds in excess of the Aircraft Release Amount for such Aircraft or
the amount required to release such Acquired Aircraft pursuant to
Section 5.4(c), respectively. Nothing contained in this Section 2.7
shall be
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construed to authorize or permit the sale or other disposition of any
Collateral other than in compliance with Section 9.8(a).
(c) Revolving Credit Loans. If at any time the
Outstanding Revolving Credit exceeds an amount equal to the Revolving
Credit Loans Commitments at such time, within one Business Day after
the occurrence thereof, Kitty Hawk shall pay to Agent the amount of
such excess as a prepayment of the Revolving Credit Loans.
(d) Application of Mandatory Prepayments. All
prepayments pursuant to subsections (a) and (b) preceding, if and to
the extent the same are required to be applied to the Term Loans in
accordance with such subsections, shall be applied to the then
remaining installments of principal of the Term Loans A, the Term
Loans B or the Term Loans C, as required by such subsections, in the
inverse order of the maturities of such installments; provided,
however, that any mandatory prepayment of principal of the applicable
Term Loans equal to the Aircraft Release Amount for an Aircraft made
in connection with the release of such Aircraft pursuant to Section
5.4(b) shall be applied to the applicable Term Loans in accordance
with this Agreement (as provided or referred to in the definition of
Aircraft Release Amount) and shall be applied to each of the then
remaining principal installments of the applicable Term Loans pro rata
based upon the percentage that each such principal installment is to
the then total outstanding principal amount of such Term Loans (or,
with respect to any prepayment of the Term Loans C prior to the Term
Loans C Availability Termination Date, to the then outstanding
principal amount of the Term Loans C). Notwithstanding anything to
the contrary contained in this Section 2.7, any prepayment required to
be applied to the Term Loans A or the Term Loans B pursuant to the
provisions of this Section 2.7 shall, if the Term Loans A or Term
Loans B, as applicable, shall have been paid in full, be applied to
the Term Loans C, and any prepayment required to be applied to the
Term Loans C pursuant to the provisions of this Section 2.7 shall, if
the Term Loans C shall have been paid in full, be applied in order of
priority to the Revolving Credit Loans and then to the remaining
balance of the Term Loans B or the Term Loans A, respectively.
Section 2.8 Minimum Amounts. Except for Conversions and
prepayments pursuant to Section 2.7 and Article 4, each borrowing, each
Conversion and each prepayment of principal of the Revolving Credit Loans used
for general corporate purposes shall be in an amount at least equal to $100,000
or an integral multiple in excess thereof (borrowings, prepayments or
Conversions of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder shall be
deemed separate borrowings, prepayments and Conversions for purposes of the
foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the applicable Borrower to
Agent of terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by Agent not later
than 10:00 a.m. (Dallas, Texas, time) on the Business Day prior to
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the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
<TABLE>
Number of
Notice Business Days Prior
------ -------------------
<S> <C>
Terminations or Reductions of Commitments 1
Borrowings of Revolving Credit Loans, Term Loans A and Term Loans B 1
Prime Rate Loans
Borrowings of Revolving Credit Loans, Term Loans A and Term Loans B 3
Eurodollar Loans
Borrowings of Term Loans C 3
Conversions or Continuations of Loans 3
Prepayments of Revolving Credit Loans which are Prime Rate Loans 1
Prepayments of Revolving Credit Loans which are Eurodollar Loans 3
Prepayments of Term Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Notices of borrowings, Conversions, Continuations or
prepayments shall be in the form of Exhibit F hereto, appropriately completed
as applicable. Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. Agent shall
promptly notify Lenders of the contents of each such notice. In the event the
applicable Borrower fails to select the Type of Loan, or the duration of any
Interest Period for any Eurodollar Loan, within the time period and otherwise
as provided in this Section 2.9, such Loan (if outstanding as Eurodollar Loan)
will be automatically Converted into a Prime Rate Loan on the last day of the
preceding Interest Period for such Loan or (if outstanding as a Prime Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Prime
Rate Loan. The applicable Borrower may not borrow any Eurodollar Loans,
Convert any Loans into Eurodollar Loans or Continue any Loans as Eurodollar
Loans if the interest rate for such Eurodollar Loans would exceed the Maximum
Rate. Bank One shall, promptly upon the making of any such Eurodollar Loan,
notify Agent of the Eurodollar Rate attributable to any Eurodollar Loan which
is a Term Loan B.
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Section 2.10 Use of Proceeds.
(a) Kitty Hawk agrees with Agent and Lenders that
it will, on the Closing Date, borrow Revolving Credit Loans in an
aggregate amount sufficient to pay in full all existing principal
indebtedness, accrued interest, fees, costs and expenses owed by Kitty
Hawk to Wells Fargo under the WFB Agreement No. 3, and Kitty Hawk
hereby irrevocably requests that Agent deliver such proceeds to Wells
Fargo to pay such indebtedness. Kitty Hawk agrees with Agent and
Lenders that the proceeds of the Revolving Credit Loans to be made on
and after the Closing Date shall be used by Kitty Hawk, Leasing,
Aircargo and Charters (i) for general corporate purposes, and (ii) to
provide interim financing for Aircraft Acquisitions by Leasing such
interim financing not to exceed at any time $6,500,000 attributable to
any single Acquired Aircraft; provided, however, that the sum of the
aggregate principal amount of the Revolving Credit Loans outstanding
at any time used for other than the purpose specified in clause (ii)
preceding plus the Letter of Credit Liabilities outstanding at any
time shall not, at any time, exceed $5,000,000. Each of Kitty Hawk
and Wells Fargo represents and warrants to Bank One that, as of the
Closing Date, the aggregate outstanding principal amount of the
indebtedness owed by Kitty Hawk to Wells Fargo under the WFB Agreement
No. 3 is $3,000,000.
(b) Leasing agrees with Agent and Lenders that
the proceeds of the Term Loans A shall be used by Leasing to pay in
full $12,744,000.45 of existing indebtedness owed by Leasing to Wells
Fargo under the WFB Agreement No. 1 and the WFB Agreement No. 2, and
Leasing hereby irrevocably requests that Agent deliver all of such
proceeds to Wells Fargo to pay such indebtedness (and Wells Fargo
agrees to apply such proceeds to pay such indebtedness). Each of
Leasing and Wells Fargo represents and warrants to Bank One that, as
of the Closing Date, the aggregate outstanding principal amount of the
indebtedness owed by Leasing to Wells Fargo under the WFB Agreement
No. 1 and the WFB Agreement No. 2 is $12,744,000.45.
(c) Leasing agrees with Agent and Lenders that
the proceeds of the Term Loans B shall be used by Leasing to pay in
full $11,225,000 of existing indebtedness owed by Leasing to Bank One
under the Bank One Agreement, and Leasing hereby irrevocably requests
that Agent deliver all of such proceeds to Bank One to pay such
indebtedness (and Bank One agrees to apply such proceeds to pay such
indebtedness). Each of Leasing and Bank One represents and warrants
to Wells Fargo that, as of the Closing Date, the aggregate outstanding
principal amount of the indebtedness owed by Leasing to Bank One under
the Bank One Agreement is $11,225,000.
(d) Leasing agrees with Agent and Lenders that
the proceeds of the Term Loans C shall be used by Leasing to finance
the purchase of one DC9 Hush Kit and up to seven heavy "C" checks for
the Aircraft and for labor relating thereto; provided, however, that
up to two of such heavy "C" checks may be performed with respect to
the Other Aircraft.
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(e) None of the proceeds of any Loan have been or
will be used to acquire any security in any transaction that is
subject to Section 13 or 14 of the Securities Exchange Act of 1934, as
amended, or to purchase or carry any margin stock (within the meaning
of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System).
Section 2.11 Fees.
(a) Kitty Hawk agrees to pay to Agent for the
account of each Revolving Credit Loans Lender a commitment fee on the
daily average unused or unfunded amount of such Lender's Revolving
Credit Loans Commitment, for the period from and including the Closing
Date to and including the Revolving Credit Loans Maturity Date, at the
rate of one-quarter of one percent (0.25%) per annum based on a 360
day year and the actual number of days elapsed, which accrued
commitment fees shall be payable in arrears on each Quarterly Payment
Date and on the Revolving Credit Loans Maturity Date.
(b) Leasing agrees to pay to Agent for the
account of each Term Loans C Lender a commitment fee on the daily
average unused or unfunded amount of such Lender's Term Loans C
Commitment, for the period from and including the Closing Date to and
including the Term Loans C Availability Termination Date, at the rate
of one-quarter of one percent (0.25%) per annum based on a 360 day
year and the actual number of days elapsed, which accrued commitment
fees shall be payable in arrears on each Quarterly Payment Date and on
the Term Loans C Availability Termination Date.
(c) Kitty Hawk agrees to pay to Agent, for its
own account, an agency fee in the amount of $10,000, which fee in such
amount shall be payable in advance on the Closing Date and on each
anniversary of the Closing Date through and including August 14, 2002.
(d) Leasing agrees to pay to Agent for the
account of the Term Loans A Lenders or the Term Loans C Lenders (as
applicable), a prepayment fee concurrently with each prepayment of
principal of the Term Loans A or the Term Loans C, respectively;
provided, however, that no such prepayment fee shall be required with
respect to (i) any mandatory prepayment required pursuant to Section
2.7(a) or 2.7(b), (ii) any prepayment made with the proceeds of a
Public Offering within 30 days after the consummation of such Public
Offering, (iii) any prepayment of up to 25% of the outstanding
principal amount of the Term Loans A or the Term Loans C prior to
August 14, 1997, or (iv) any prepayment made on or after August 14,
1998. Such prepayment fee shall be in an amount equal to (A) two
percent of the aggregate principal amount prepaid if such prepayment
occurs prior to August 14, 1997, or (B) one percent of the aggregate
principal amount prepaid if such prepayment occurs prior to August 14,
1998, but on or after August 14, 1997.
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Section 2.12 Computations. Interest and fees payable by the
applicable Borrower hereunder and under the other Loan Documents on all Loans
shall be computed on the basis of a year of 360 days and the actual number of
days elapsed (including the first day but excluding the last day) occurring in
the period for which payable unless, in the case of interest, such calculation
would result in a usurious rate, in which case interest shall be calculated on
the basis of a year of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary
contained in this Agreement:
(i) the Revolving Credit Loans
Commitments shall automatically terminate at 10:00 a.m.
(Dallas, Texas time) on the Revolving Loans Commitments
Maturity Date; and
(ii) the Term Loans C Commitments shall
automatically terminate at 10:00 a.m. (Dallas, Texas time) on
the Term Loans C Availability Termination Date (subject to
earlier termination if the Term Loans C are fully funded prior
to such time).
(b) Kitty Hawk and Leasing shall have the right
to terminate or reduce in part the unused portion of the Revolving
Credit Loans Commitments and the Term Loans C Commitments,
respectively, at any time and from time to time, provided that (i) it
shall give notice of each such termination or reduction as provided in
Section 2.9 and (ii) each partial reduction shall be in an aggregate
amount at least equal to $500,000 or an integral multiple of $100,000
in excess thereof. The Revolving Credit Loans Commitments and the
Term Loans C Commitments may not be reinstated after they have been
terminated or increased after they have been reduced.
Section 2.14 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Kitty Hawk may utilize the Revolving Credit Loans
Commitments by requesting that the Issuing Bank issue Letters of
Credit; provided, that the aggregate amount of outstanding Letter of
Credit Liabilities shall not at any time exceed $5,000,000. Upon the
date of issue of each Letter of Credit, the Issuing Bank shall be
deemed, without further action by any party hereto, to have sold to
each Revolving Credit Loans Lender, and each Revolving Credit Loans
Lender shall be deemed, without further action by any party hereto, to
have purchased from the Issuing Bank, a participation to the extent of
such Revolving Credit Loans Lender's Commitment Percentage of the
Revolving Credit Loans Commitments.
(b) Kitty Hawk shall give the Issuing Bank (with
a copy to Agent) at least five Business Days prior notice (effective
upon receipt and irrevocable unless appropriately revoked sufficiently
prior to issuance of the Letter of Credit) specifying the date of each
Letter of Credit and the nature of the transactions to be supported
thereby. Upon receipt
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of such notice the Issuing Bank shall promptly notify the Revolving
Credit Loans Lenders of the contents thereof and of each such Lender's
Commitment Percentage of the amount of the proposed Letter of Credit.
Each Letter of Credit shall have an expiration date that does not
exceed one year from the date of issuance and that does not extend
beyond the Revolving Credit Loans Maturity Date, shall be payable in
Dollars, shall support a transaction entered into in the ordinary
course of Kitty Hawk's or its Subsidiaries' business, shall be
satisfactory in form and substance to the Issuing Bank, and shall be
issued pursuant to such agreements, documents and instruments
(including a Letter of Credit Agreement) as the Issuing Bank may
reasonably require, none of which shall be inconsistent with this
Section 2.14. Each Letter of Credit shall (i) provide for the payment
of drafts presented for, on or thereunder by the beneficiary in
accordance with the terms thereof, when such drafts are accompanied by
the documents (if any) described in the Letter of Credit and (ii) to
the extent not inconsistent with the terms hereof or any applicable
Letter of Credit Agreement, be subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 (together with any subsequent
revision thereof approved by a Congress of the International Chamber
of Commerce and adhered to by the Issuing Bank, the "UCP"), and shall,
as to matters not governed by the UCP, be governed by, and construed
and interpreted in accordance with, the laws of the State of Texas.
(c) Kitty Hawk agrees to pay to Agent for the
account of each Lender, in arrears on each Quarterly Payment Date
(beginning on September 30, 1996) and on the expiration date of each
Letter of Credit, a nonrefundable letter of credit fee with respect to
each Letter of Credit issued in an amount equal to one percent (1.00%)
per annum of the daily average face amount of the Letter of Credit in
effect during the period then ended. Agent agrees to pay to each
Lender, promptly after receiving any payment of such Letter of Credit
fees, such Lender's Commitment Percentage of such fees. Kitty Hawk
agrees to pay to Issuing Bank for its own account, in arrears on each
Quarterly Payment Date (beginning on September 30, 1996) and on the
expiration date of each Letter of Credit, a nonrefundable letter of
credit fee with respect to each Letter of Credit issued by the Issuing
Bank in an amount equal to one-quarter of one percent (0.25%) per
annum of the daily average face amount of the Letter of Credit in
effect during the period then ended. In addition to the foregoing
fees, Kitty Hawk shall pay or reimburse the Issuing Bank for such
normal and customary costs and expenses, including, without
limitation, administrative, issuance, amendment, payment and
negotiation charges, as are incurred or charged by the Issuing Bank in
issuing, effecting payment under, amending or otherwise administering
any Letter of Credit.
(d) Upon receipt from the beneficiary of any
Letter of Credit of any demand for payment or other drawing under such
Letter of Credit, the Issuing Bank shall promptly notify Kitty Hawk
and each Revolving Credit Loans Lender as to the amount to be paid as
a result of such demand or drawing and the respective payment date.
If at any time the Issuing Bank shall make a payment to a beneficiary
of a Letter of Credit pursuant to a drawing under such Letter of
Credit, each Revolving Credit Loans Lender will pay to the Issuing
Bank, immediately upon the Issuing Bank's demand at any time
commencing after
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<PAGE> 48
such payment until reimbursement therefor in full by Kitty Hawk, an
amount equal to such Lender's Commitment Percentage of such payment,
together with interest on such amount for each day from the date of
such payment to the date of payment by such Lender of such amount at a
rate of interest per annum equal to the Federal Funds Rate.
(e) Kitty Hawk shall be irrevocably and
unconditionally obligated to immediately reimburse the Issuing Bank
for any amounts paid by the Issuing Bank upon any drawing under any
Letter of Credit, without presentment, demand, protest or other
formalities of any kind. The Issuing Bank will pay to each Revolving
Credit Loans Lender such Revolving Credit Loans Lender's Commitment
Percentage of all amounts received from or on behalf of Kitty Hawk for
application in payment, in whole or in part, of the Reimbursement
Obligation in respect of any Letter of Credit, but only to the extent
such Revolving Credit Loans Lender has made payment to the Issuing
Bank in respect of such Letter of Credit pursuant to subsection (d)
above. Outstanding Reimbursement Obligations shall bear interest at
the Default Rate and such interest shall be payable on demand.
(f) The Reimbursement Obligations of Kitty Hawk
under this Agreement and the other Loan Documents shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and the other Loan
Documents under all circumstances whatsoever, including, without
limitation, the following circumstances:
(i) Any lack of validity or
enforceability of any Letter of Credit or any other Loan
Document;
(ii) Any amendment or waiver of or any
consent to departure from any Loan Document;
(iii) The existence of any claim, setoff,
counterclaim, defense or other right which any Kitty Hawk
Company or other Person may have at any time against any
beneficiary of any Letter of Credit, Agent, the Issuing Bank,
Lenders or any other Person, whether in connection with this
Agreement or any other Loan Document or any unrelated
transaction;
(iv) Any statement, draft or other
document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect whatsoever;
(v) Payment by the Issuing Bank under
any Letter of Credit against presentation of a draft or other
document that does not comply with the terms of such Letter of
Credit, provided, that such payment shall not have constituted
gross negligence or willful misconduct of the Issuing Bank;
and
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(vi) Any other circumstance whatsoever,
whether or not similar to any of the foregoing, provided that
such other circumstance or event shall not have been the
result of the gross negligence or willful misconduct of the
Issuing Bank.
(g) Kitty Hawk assumes all risks of the acts or
omissions of any beneficiary of any Letter of Credit with respect to
its use of such Letter of Credit. Neither Agent, the Issuing Bank,
Lenders nor any of their respective officers or directors shall have
any responsibility or liability to Kitty Hawk or any other Person for:
(a) the failure of any draft to bear any reference or adequate
reference to any Letter of Credit, or the failure of any documents to
accompany any draft at negotiation, or the failure of any Person to
surrender or to take up any Letter of Credit or to send documents
apart from drafts as required by the terms of any Letter of Credit, or
the failure of any Person to note the amount of any instrument on any
Letter of Credit, (b) errors, omissions, interruptions or delays in
transmission or delivery of any messages, (c) the validity,
sufficiency or genuineness of any draft or other document, or any
endorsement(s) thereon, even if any such draft, document or
endorsement should in fact prove to be in any and all respects
invalid, insufficient, fraudulent or forged or any statement therein
is untrue or inaccurate in any respect, (d) the payment by the Issuing
Bank to the beneficiary of any Letter of Credit against presentation
of any draft or other document that does not comply with the terms of
the Letter of Credit, or (e) any other circumstance whatsoever in
making or failing to make any payment under a Letter of Credit;
provided, however, that, notwithstanding the foregoing, Kitty Hawk
shall have a claim against the Issuing Bank, and the Issuing Bank
shall be liable to Kitty Hawk, to the extent of any direct, but not
indirect or consequential, damages suffered by Kitty Hawk which Kitty
Hawk proves in a final nonappealable judgment were caused by (i) the
Issuing Bank's willful misconduct or gross negligence in determining
whether documents presented under any Letter of Credit complied with
the terms thereof or (ii) the Issuing Bank's willful failure to pay
under any Letter of Credit after presentation to it of documents
strictly complying with the terms and conditions of such Letter of
Credit. The Issuing Bank may accept documents that appear on their
face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal,
interest, fees and other amounts to be made by the applicable Borrower under
this Agreement and the other Loan Documents shall be made to Agent at the
Principal Office for the account of each Lender's Applicable Lending Office in
Dollars and in immediately available funds, without setoff, deduction or
counterclaim, not later than 11:00 a.m. (Dallas, Texas time) on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day). The applicable Borrower shall, at the time of making each such payment,
specify to Agent the sums payable by such Borrower under this Agreement and the
other Loan Documents to which such payment is to be applied (and
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in the event that the applicable Borrower fails to so specify, or if an Event
of Default has occurred and is continuing or if a Default would exist after the
making of such payment, Agent may apply such payment to such Borrower's Loans,
Reimbursement Obligations and other Obligations in such order and manner as
Agent may elect, subject to Section 3.2). Upon the occurrence and during the
continuation of an Event of Default, all proceeds of any Collateral and all
other funds of any Borrower or Guarantor in the possession of Agent or any
Lender may be applied by Agent to the Obligations in such order and manner as
Agent may elect, subject to the provisions of Section 3.2 and 12.8.
Notwithstanding the foregoing, however, but subject to and except as otherwise
provided in Section 12.8, if an Event of Default has occurred and is
continuing, Agent and Lenders agree among themselves that all such payments,
proceeds and funds, shall be applied (or, in the case of Letter of Credit
Liabilities consisting of the undrawn face amount of Letters of Credit, held by
Agent as cash collateral for application against) pro rata to the Outstanding
Revolving Credit and to the outstanding principal amount of the Term Loans A,
the Term Loans B and the Term Loans C (based upon (a) the Outstanding Revolving
Credit, (b) the outstanding principal amount of the Term Loans A, (c) the
outstanding principal amount of the Term Loans B and (d) the outstanding
principal amount of the Term Loans C, in each case as a percentage of the sum
of the Outstanding Revolving Credit plus the aggregate outstanding principal
amount of all of the Term Loans). Each payment received by Agent under this
Agreement or any other Loan Document for the account of a Lender shall be paid
promptly to such Lender, in immediately available funds, for the account of
such Lender's Applicable Lending Office. Whenever any payment under this
Agreement or any other Loan Document shall be stated to be due on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided in this Agreement: (a) each Loan shall be made by Lenders under
Section 2.1, each payment of commitment fees under Section 2.11(a) or 2.11(b)
shall be made for the account of Lenders, and each termination or reduction of
the Commitments under Section 2.13 shall be applied to the appropriate
Commitments of the applicable Lenders, pro rata according to the respective
unused Commitments; (b) the making, Conversion and Continuation of Loans of a
particular Type (other than Conversions provided for by Section 4.4) shall be
made pro rata among Lenders holding Loans of such Type according to the amounts
of their respective appropriate Commitments; (c) each payment and prepayment by
the applicable Borrower of principal of or interest on Loans of a particular
Type shall be made to Agent for the account of Lenders holding Loans of such
Type pro rata in accordance with the respective unpaid principal amounts of
such Loans held by such Lenders; (d) Interest Periods for Loans of a particular
Type shall be allocated among Lenders holding Loans of such Type pro rata
according to the respective principal amounts held by such Lenders; and (e)
Lenders (other than the Issuing Bank) shall purchase participations in the
Letters of Credit pro rata in accordance with their respective Commitment
Percentages of the Revolving Credit Loans Commitments.
Section 3.3 Sharing of Payments, Etc. Subject to Section 12.8, if
a Lender shall obtain payment of any principal of or interest on any of the
Obligations due to such Lender hereunder through the exercise of any right of
setoff, banker's lien, counterclaim or similar right, or
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otherwise, it shall promptly purchase from the other Lenders participations in
the Obligations held by other Lenders in such amounts, and make such
adjustments from time to time, as shall be equitable to the end that all
Lenders shall share pro rata in accordance with the unpaid principal and
interest on the Obligations then due to each of them. To such end, all Lenders
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if all or any portion of such excess payment
is thereafter rescinded or must otherwise be restored. Each Borrower agrees,
to the fullest extent it may effectively do so under applicable law, that any
Lender so purchasing a participation in the Obligations by the other Lenders
may exercise all rights of setoff, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if such Lender were a
direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other indebtedness, liability or
obligation of any Borrower.
Section 3.4 Non-Receipt of Funds by Agent. Unless Agent shall have
been notified by a Lender or the applicable Borrower ("Payor") prior to the
date on which such Lender is to make payment to Agent of the proceeds of a Loan
to be made by it hereunder or the applicable Borrower is to make a payment to
Agent for the account of one or more of Lenders, as the case may be (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that Payor does not intend to make the Required Payment
to Agent, Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if Payor has not
in fact made the Required Payment to Agent, the recipient of such payment
shall, on demand, pay to Agent the amount made available to it together with
interest thereon in respect of the period commencing on the date such amount
was so made available by Agent until the date Agent recovers such amount at a
rate per annum equal to the Federal Funds Rate for such period.
Section 3.5 Withholding Taxes.
(a) All payments by any Borrower of principal of
and interest on the Loans and the Letter of Credit Liabilities and of
all fees and other amounts payable under the Loan Documents shall be
made free and clear of, and without deduction by reason of, any
present or future taxes, levies, duties, imposts, assessments or other
charges levied or imposed by any Governmental Authority (other than
any taxes imposed on the overall net income of Agent or any Lender or
any lending office of Agent or such Lender by any jurisdiction in
which Agent or such Lender or any such lending office is located). If
any such taxes, levies, duties, imposts, assessments or other charges
are so levied or imposed, each appropriate Borrower (as applicable
depending upon which Borrower was obligated with respect to the
original payment) will (i) make additional payments in such amounts so
that every net payment of principal of and interest on the Loans and
the Letter of Credit Liabilities and of all other amounts payable by
it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured
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by net income of a Lender attributable to payments made to or on
behalf of a Lender pursuant to this Section 3.5 and any penalties or
interest attributable to such payments), will not be less than the
amount provided for herein or therein absent such withholding or
deduction (provided that no Borrower shall have any obligation to pay
such additional amounts to any Lender to the extent that such taxes,
levies, duties, imposts, assessments or other charges are levied or
imposed by reason of the failure of such Lender to comply with the
provisions of Section 3.6), (ii) make such withholding or deduction
and (iii) remit the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law. Without
limiting the generality of the foregoing, each Borrower will, upon
written request of any Lender, reimburse each such Lender for the
amount of (A) such taxes, levies, duties, imports, assessments or
other charges so levied or imposed by any Governmental Authority and
paid by such Lender as a result of payments made by such Borrower
under or with respect to the Loans other than such taxes, levies,
duties, imports, assessments and other charges previously withheld or
deducted by such Borrower which have previously resulted in the
payment of the required additional amount to Lender, and (B) such
taxes, levies, duties, assessments and other charges so levied or
imposed with respect to any Lender reimbursement under the foregoing
clause (A), so that the net amount received by such Lender (net of
payments made under or with respect to the Loans and the Letter of
Credit Liabilities) after such reimbursement will not be less than the
net amount such Lender would have received if such taxes, levies,
duties, assessments and other charges on such reimbursement had not
been levied or imposed. Each Borrower shall furnish promptly to Agent
for distribution to each affected Lender, as the case may be, upon
request of such Lender, official receipts evidencing any such payment,
withholding or reduction.
(b) Each Borrower will indemnify Agent and each
Lender (without duplication) against, and reimburse Agent and each
Lender for, all present and future taxes, levies, duties, imposts,
assessments or other charges (including interest and penalties) levied
or collected (whether or not legally or correctly imposed, assessed,
levied or collected), excluding, however, any taxes imposed on the
overall net income of Agent or such Lender or any lending office of
Agent or such Lender by any jurisdiction in which Agent or such Lender
or any such lending office is located, on or in respect of this
Agreement, any of the Loan Documents or the Obligations or any portion
thereof ("reimbursable taxes"). Any such indemnification shall be on
an after- tax basis, taking into account any such reimbursable taxes
imposed on the amounts paid as indemnity.
(c) If and to the extent actually known by such
Lender, each Lender will use reasonable efforts to notify Kitty Hawk
and Agent, in a reasonably prompt fashion after such assignment is
made, of any assignment of the Commitments or the Loans by such Lender
to an Eligible Assignee which is subject to a withholding tax that
will impose any payment obligation upon a Borrower pursuant to this
Section 3.5. Each Lender will use reasonable efforts to notify Kitty
Hawk and Agent of any amounts to be paid by any Borrower pursuant to
this Section 3.5 in a reasonably prompt fashion after such Lender
becomes aware of the circumstances which require the payment of such
amounts by such Borrower. A Borrower shall not be obligated to pay
any amounts to a Lender pursuant to
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this Section 3.5 which accrued more than 90 days prior to the date
upon which such Lender initially notified such Borrower of the general
circumstances which require such payment.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it becomes a party to this Agreement, deliver to Kitty Hawk, for and on
behalf of Borrowers, and Agent two duly completed copies of U.S. Internal
Revenue Service Form 1001, 4224 or W-8, as appropriate, certifying in any case
that such Lender is entitled to receive payments from Borrowers under any Loan
Document without deduction or withholding of any U.S. federal income taxes.
Each Lender which so delivers a Form 1001, 4224 or W-8 further undertakes to
deliver to Kitty Hawk, for and on behalf of Borrowers, and Agent two additional
copies of such form (or a successor form) on or before the date such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by any
Borrower or Agent, in each case certifying that such Lender is entitled to
receive payments from Borrowers under any Loan Document without deduction or
withholding of any U.S. federal income taxes, unless an event (including
without limitation any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form with respect to it and such Lender
advises Kitty Hawk, for and on behalf of Borrowers, and Agent that it is not
capable of receiving such payments without any deduction or withholding of U.S.
federal income tax.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The applicable Borrower (i.e., Kitty Hawk or
Leasing) shall pay directly to each Lender from time to time, within
ten days after the request of such Lender, the costs incurred by such
Lender which such Lender reasonably determines are attributable to its
making or maintaining of any Eurodollar Loans or its obligation to
make any of such Loans, or any reduction in any amount receivable by
such Lender hereunder in respect of any such Loans or obligations
(such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory
Change occurring after the Closing Date which:
(i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement or its
Notes in respect of any of such Loans (other than income taxes
and franchise taxes attributable to net income of such Lender
or its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Lender has its principal office or
such Applicable Lending Office);
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(ii) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, such Lender (including any of such Loans or
any deposits referred to in the definition of "Eurodollar
Rate" in Section 1.1 hereof, but excluding the Reserve
Requirement to the extent it is included in the calculation of
the Adjusted Eurodollar Rate); or
(iii) imposes any other condition
affecting this Agreement or the Notes or any of such
extensions of credit or liabilities or commitments.
Each applicable Lender will notify Kitty Hawk (with a copy to Agent),
with respect to the Revolving Credit Loans, and Leasing (with a copy
to Agent), with respect to the Term Loans, of any event occurring
after the Closing Date which will entitle such Lender to compensation
pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation,
and (if so requested by the applicable Borrower) will, if and to the
extent that it is reasonably feasible for such Lender to do so given
administrative and other considerations, designate a different
Applicable Lending Office for the Eurodollar Loans of such Lender if
such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the reasonable opinion of such
Lender, violate any law, rule or regulation or be in any way
disadvantageous to such Lender. Each applicable Lender will furnish
Kitty Hawk or Leasing, as applicable, with a certificate setting forth
the basis and the amount of each request of such Lender for
compensation under this Section 4.1(a). If any Lender requests
compensation from a Borrower under this Section 4.1(a), the applicable
Borrower may, by notice to such Lender (with a copy to Agent), suspend
the obligation of such Lender to make or Continue making, or Convert
Prime Rate Loans into, Eurodollar Loans until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the
provisions of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing
provisions of this Section 4.1, in the event that, by reason of any
Regulatory Change, any Lender either (i) incurs Additional Costs based
on or measured by the excess above a specified level of the amount of
a category of deposits or other liabilities of such Lender which
includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Lender which
includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may
hold, then, if such Lender so elects by notice to Kitty Hawk or
Leasing, as applicable (with a copy to Agent), the obligation of such
Lender to make or Continue making, or Convert Prime Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory
Change ceases to be in effect (in which case the provisions of Section
4.4 hereof shall be applicable).
(c) Determinations and allocations by any Lender
for purposes of this Section 4.1 of the effect of any Regulatory
Change on its costs of maintaining its obligation to
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make Loans or of making or maintaining Loans or on amounts receivable
by it in respect of Loans or bankers' acceptances, and of the
additional amounts required to compensate such Lender in respect of
any Additional Costs, shall be conclusive in the absence of manifest
error, provided that such determinations and allocations are made on a
reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) Agent determines (which determination shall
be made reasonably and in good faith and shall be conclusive absent
manifest error) that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Rate" in Section
1.1 hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest
for such Loans as provided in this Agreement; or
(b) any Lender determines (which determination
shall be in good faith and shall be conclusive absent manifest error)
and notifies Agent that the relevant rates of interest referred to in
the definition of "Eurodollar Rate" or "Adjusted Eurodollar Rate" in
Section 1.1 hereof on the basis of which the rate of interest for such
Loans for such Interest Period is to be determined do not accurately
reflect the cost to such Lender of making or maintaining such Loans
for such Interest Period;
then Agent shall give the applicable Borrower prompt notice thereof and, so
long as such condition remains in effect, such Lender shall be under no
obligation to make Eurodollar Loans or to Convert Prime Rate Loans into
Eurodollar Loans and the applicable Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Loans or Convert such Loans into Prime Rate Loans in accordance
with the terms of this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
applicable Borrower thereof (with a copy to Agent) and such Lender's obligation
to make or maintain Eurodollar Loans and to Convert Prime Rate Loans into
Eurodollar Loans hereunder shall be suspended until such time as such Lender
may again make and maintain Eurodollar Loans (in which case the provisions of
Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
Lender to make or Continue, or to Convert Prime Rate Loans into, Eurodollar
Loans is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Prime Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans
(or, in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on
such earlier date as such Lender may specify to the applicable Borrower (with a
copy to Agent) and, unless and until such
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Lender gives notice as provided below that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to such Conversion no longer exist:
(a) To the extent that such Lender's Eurodollar
Loans have been so Converted, all payments and prepayments of
principal which would otherwise be applied to such Lender's Eurodollar
Loans shall be applied instead to its Prime Rate Loans; and
(b) All Loans which would otherwise be made or
Continued by such Lender as Eurodollar Loans shall be made as or
Converted into Prime Rate Loans and all Loans of such Lender which
would otherwise be Converted into Eurodollar Loans shall be Converted
instead into (or shall remain as) Prime Rate Loans.
If such Lender gives notice to the applicable Borrower (with a copy to Agent)
that the circumstances specified in Section 4.1 or 4.3 hereof which gave rise
to the Conversion of such Lender's Eurodollar Loans pursuant to this Section
4.4 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans are
outstanding, such Lender's Prime Rate Loans shall be automatically Converted,
on the first day(s) of the next succeeding Interest Period(s) for such
outstanding Eurodollar Loans, to the extent necessary so that, after giving
effect thereto, all Loans held by Lenders holding Eurodollar Loans and by such
Lender are held pro rata (as to principal amounts, Types and Interest Periods)
in accordance with their respective Commitments.
Section 4.5 Compensation. The applicable Borrower(s) shall pay to
Agent for the account of each Lender, promptly upon the request of such Lender
through Agent, such amount or amounts as shall be sufficient (in the reasonable
opinion of such Lender) to compensate it for any loss, cost or expense incurred
by it as a result of:
(a) any payment, prepayment or Conversion of a
Eurodollar Loan for any reason (including, without limitation, the
acceleration of the outstanding Loans pursuant to Section 11.2) on a
date other than the last day of an Interest Period for such Loan; or
(b) any failure by any Borrower for any reason
(including, without limitation, the failure of any conditions
precedent specified in Article 6 to be satisfied) to borrow, Convert
or prepay a Eurodollar Loan on the date for such borrowing, Conversion
or prepayment specified in the relevant notice of borrowing,
prepayment or Conversion under this Agreement.
The loss (as opposed to cost or expense) to be compensated under clause (a) of
this Section 4.5 shall not exceed an amount equal to the excess, if any, of (i)
the amount of interest which otherwise would have accrued on the principal
amount so paid, prepaid or Converted to the last day of the Interest Period at
the applicable rate for such Eurodollar Loan over (ii) the cost to the
applicable Lender of the interest component of such Eurodollar Loan which
otherwise would have accrued.
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Section 4.6 Capital Adequacy. If, after the Closing Date, any
Lender shall have determined that the adoption or implementation of any
applicable law, rule or regulation regarding capital adequacy (excluding any
law, rule or regulation in existence as of the Closing Date which implements
the Basle Accord as it exists as of the Closing Date but including any other
law, rule or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(excluding any guideline or other requirement in existence as of the Closing
Date which implements the Basle Accord as it exists as of the Closing Date but
including any other guideline or other requirement implementing the Basle
Accord), has or would have the effect of reducing the rate of return on such
Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender
to be material, then from time to time, within ten Business Days after demand
by such Lender (with a copy to Agent), the applicable Borrower(s) shall pay to
such Lender such additional amount or amounts as will compensate such Lender
(or its parent) for such reduction. A certificate of such Lender claiming
compensation under this Section 4.6 and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive absent manifest error,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Lender may use any reasonable
averaging and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. The
applicable Borrower(s) shall pay, directly to Agent for the account of each
Lender from time to time, additional interest on the unpaid principal amount of
each Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest
rate per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan; provided, however, that this sentence shall not apply to any Eurodollar
Loan which is a Term Loan B the additional interest on which is included in the
definition of Adjusted LIBO Rate herein. Each payment of additional interest
pursuant to this Section 4.7 shall be payable by the applicable Borrower(s) on
each date upon which interest is payable on such Eurodollar Loan pursuant to
Section 2.4(b); provided, however, that the applicable Borrower(s) shall not be
obligated to make any such payment of additional interest until the first
Business Day after the date when such Borrower(s) has been informed (i) that
such Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the applicable Borrower(s) shall be
obligated to make all such payments of additional interest, including, without
limitation, such payment of additional interest that otherwise would have been
payable by such Borrower(s) on or prior to such time had such Borrower(s) been
earlier informed).
Section 4.8 Mitigation of Additional Costs. It is the general
intent of the parties hereto that, with respect to the matters referred to in
Sections 3.5, 4.1(a) and 4.6, no Borrower shall be
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discriminated against by any Lender relative to such Lender's general practice
with respect to borrowers of comparable credits extended by such Lender under
comparable circumstances. Accordingly, for purposes of Sections 3.5, 4.1(a)
and 4.6, each Lender agrees to use reasonable efforts to ensure that the
applicable Borrower is not requested to pay increased costs of a kind or type
which are not also generally requested to be paid by borrowers of comparable
credits extended by such Lender under comparable circumstances. In connection
with any request that a Borrower pay increased costs pursuant to Section 3.5,
4.1(a) or 4.6, the Lender requesting such payment shall deliver to such
Borrower and Agent information in reasonable detail specifying the events
giving rise to such increased costs, the basis for determining and allocating
such increased costs and a good faith estimate (if and to the extent feasible)
of the amounts of such particular increased costs which may be incurred in the
future.
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment
and performance of the Obligations, each of Kitty Hawk and the Kitty Hawk
Operating Subsidiaries shall, on or before the Closing Date or, with respect to
any Acquired Aircraft, on or before the date of the funding of the Revolving
Credit Loans the proceeds of which are or are to be used to purchase such
Acquired Aircraft, grant to Agent for the benefit of Agent and Lenders a
perfected, first priority Lien on all of its right, title and interest in and
to the following Property, whether now owned or hereafter acquired, pursuant to
the Security Documents as more specifically provided in the Security Documents,
all of which Collateral shall secure payment and performance of all of the
Obligations:
(a) all Aircraft and all engines, propellers,
appliances and spare parts installed in or appurtenant to any such
Aircraft and all products and proceeds thereof;
(b) all Acquired Aircraft and all engines,
propellers, appliances and spare parts installed in or appurtenant to
any such Acquired Aircraft and all products and proceeds thereof;
(c) all Leases; and
(d) all accounts (including, without limitation,
Receivables), chattel paper and general intangibles and other personal
property specified in the Security Agreements.
Section 5.2 Guaranties. Each of Kitty Hawk and the Kitty Hawk
Operating Subsidiaries shall guarantee the payment and performance of the
Obligations pursuant to the applicable Guaranty.
Section 5.3 New Collateral. Notwithstanding anything to the
contrary contained in this Agreement or any Aircraft Mortgage, Leasing shall,
contemporaneously with each acquisition of any equipment or enhancement to any
Aircraft or any Acquired Aircraft, execute, acknowledge
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and deliver to Agent, in favor of Agent for the benefit of Agent and Lenders,
such agreements, documents and instruments, including, without limitation,
Aircraft Mortgages or Security Agreements or amendments or modifications to
Aircraft Mortgages or Security Agreements, covering such acquired equipment or
enhancements as may reasonably be requested by Agent, together with evidence
reasonably satisfactory to Agent and its counsel of Agent's valid, first
priority Lien on the equipment and enhancements acquired.
Section 5.4 Release of Collateral.
(a) Accounts and Related Collateral. Subject to
Section 5.4(d), Agent and Lenders agree that, upon five Business Days
prior written request by Kitty Hawk and if (but only if) (i) all
Revolving Credit Loans have been irrevocably paid in full, (ii) no
Letter of Credit Liabilities are outstanding, and (iii) the Revolving
Credit Loans Commitments have been fully terminated or expired, Agent
shall (at Kitty Hawk's expense) release its Lien on the Collateral
consisting of accounts created by the Security Agreements executed by
Kitty Hawk and the Operating Companies; provided, however, that Agent
shall not have any obligation to release its Lien on any chattel paper
or any rental or other payments due or payable under any Lease or
other lease of any Aircraft.
(b) Single Aircraft Release. Subject to Section
5.4(d), Agent and Lenders agree that, upon five Business Days prior
written request from Leasing and if (but only if) Leasing prepays the
applicable outstanding principal amount of (i) the Term Loans A (with
respect to any requested release of any Term Loans A Collateral) or
the Term Loans B (with respect to any requested release of Term Loans
B Collateral) and (ii) the Term Loans C (to the extent that proceeds
of Term Loans C were used for enhancement or other purposes with
respect to such Aircraft) by an aggregate amount equal to the Aircraft
Release Amount attributable to a particular Aircraft, Agent shall (at
Leasing's expense) release its Lien on such Aircraft; provided,
however, that Agent shall have no obligation to release its Lien on
such Aircraft unless Agent shall have received a then current
appraisal of all Aircraft that will remain subject to Agent's Lien
under the Aircraft Mortgages after giving effect to such requested
release (the "Remaining Aircraft"), which appraisal must be in form,
substance and content reasonably satisfactory to Agent and must be
performed by an appraiser reasonably satisfactory to Agent and must
show that, after giving effect to such prepayment, the aggregate
outstanding principal amount of the Term Loans will be less than or
equal to 80% of the appraised value of the Remaining Aircraft.
(c) Acquired Aircraft Release. Subject to
Section 5.4(d), Agent and Lenders agree that, upon five (5) business
days prior written request from Leasing and if (but only if) Leasing
prepays the applicable outstanding principal amounts of the Revolving
Credit Loans used for Aircraft Acquisition of an Acquired Aircraft and
attributable to such Acquired Aircraft, Agent shall (at Leasing's
expense) release its Lien on such Acquired Aircraft.
(d) Additional Conditions to Releases.
Notwithstanding anything to the contrary contained in Section 5.4(a),
5.4(b) or 5.4(c), (i) Agent shall not be required to
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release any Lien on any Collateral if a Default shall have occurred
and be continuing, (ii) Agent shall not be required to execute any
document effectuating any release of a Lien on terms which, in Agent's
reasonable opinion, would expose Agent to liability or create any
obligation not reimbursed by Borrowers or entail any warranty by Agent
(other than that Agent holds the Lien and enforceably releases it),
and (iii) such release shall not in any manner discharge, affect or
impair any of the Obligations or any of Agent's Liens on any
Collateral not required to be so released or proceeds thereof.
Section 5.5 Setoff. If an Event of Default shall have occurred and
be continuing, each Lender is hereby authorized at any time and from time to
time, without notice to the applicable Borrower or any other Person (any such
notice being hereby expressly waived by Borrowers), to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of the applicable Borrower against any and all of the
Obligations of the applicable Borrower now or hereafter existing under this
Agreement, any of such Lender's Notes or any other Loan Document, irrespective
of whether or not Agent or such Lender shall have made any demand under this
Agreement, any of such Lender's Notes or any such other Loan Document and
although such Obligations may be unmatured. Each Lender agrees promptly to
notify Kitty Hawk (with a copy to Agent), with respect to the Revolving Credit
Loans, and Leasing (with a copy to Agent), with respect to the Term Loans,
after any such setoff and application, provided that the failure to give such
notice shall not affect the validity of such setoff and application. The
rights and remedies of each Lender hereunder are in addition to other rights
and remedies (including, without limitation, other rights of setoff) which such
Lender may have.
Section 5.6 Title Insurance. Leasing shall (at its sole cost and
expense) purchase owner and mortgagee policies of title insurance (or, if
acceptable to Required Lenders, amendments or endorsements to existing polices
of title insurance) insuring that Leasing has indefeasible title to each of the
Aircraft and the Acquired Aircraft and that Agent, for the benefit of Agent and
Lenders, holds a perfected, first priority Lien on each of the Aircraft and the
Acquired Aircraft pursuant to the Loan Documents. The mortgagee policy of
title insurance in favor of Agent shall be in an amount, shall be issued by the
Title Company or another title insurance company reasonably acceptable to Agent
and shall contain such terms and provisions as are reasonably acceptable to
Agent.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each
Lender to make its initial Loan under this Agreement and the obligation of the
Issuing Bank to issue the initial Letter of Credit under this Agreement are
subject to the conditions precedent that Agent shall have received, on or
before the Closing Date, all of the following in form and substance reasonably
satisfactory to Agent and, in the case of actions to be taken, evidence that
the following required actions have been taken to the satisfaction of Agent:
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(a) Resolutions. Resolutions of the Board of
Directors of each Kitty Hawk Company certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery and
performance by such Kitty Hawk Company of the Loan Documents to which
it is or is to be a party (including, without limitation, with respect
to Leasing, resolutions which authorize the Aircraft Mortgages and the
other Security Documents relating to any Acquired Aircraft that may be
purchased);
(b) Incumbency Certificate. A certificate of
incumbency certified by the Secretary or an Assistant Secretary of
each Kitty Hawk Company certifying the name of each officer or other
representative of such Kitty Hawk Company (i) who is authorized to
sign the Loan Documents to which such Kitty Hawk Company is or is to
be a party (including any certificates contemplated therein), together
with specimen signatures of each such officer or other representative,
and (ii) who will, until replaced by other officers or representatives
duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other
communications in connection with the Loan Documents and the
transactions contemplated thereby;
(c) Articles or Certificates of Incorporation,
etc. The articles or certificates of incorporation, certificate of
formation, certificate of limited partnership, partnership agreement
or other applicable constitutional document of each Kitty Hawk Company
certified by the Secretary of State or other applicable Governmental
Authority of the jurisdiction of incorporation or organization of such
Kitty Hawk Company and dated as of a Current Date;
(d) Bylaws. The bylaws of each Kitty Hawk
Company certified by the Secretary or an Assistant Secretary of such
Kitty Hawk Company;
(e) Governmental Certificates. Certificates of
appropriate officials confirming (i) the existence and good standing,
status or compliance, as applicable, of each Kitty Hawk Company in
their respective jurisdictions of incorporation or organization and
any and all jurisdictions where such Kitty Hawk Company is qualified
to do business as a foreign corporation or other entity, each such
certificate to be dated as of a Current Date, (ii) that Aircargo is an
air carrier certified by the FAA and qualifies in all respects as a
citizen of the U.S. as defined in the Federal Aviation Act, (iii) that
Leasing is the registered owner of each of the Aircraft pursuant to
proper registrations under the Federal Aviation Act, and (iv) that
each of the Aircraft is airworthy as evidenced by a valid, current
Certificate of Airworthiness issued by the FAA with respect to such
Aircraft;
(f) Revolving Credit Loans Notes. The Revolving
Credit Loans Notes duly completed and executed by Kitty Hawk;
(g) Term Loans A Notes. The Term Loans A Notes
duly completed and executed by Leasing;
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(h) Term Loans B Notes. The Term Loans B Notes
duly completed and executed by Leasing;
(i) Term Loans C Notes. The Term Loans C Notes
duly completed and executed by Leasing;
(j) Guaranties. A Guaranty executed by each of
Kitty Hawk and the Kitty Hawk Operating Subsidiaries;
(k) Security Documents. The Security Documents
executed by each of Kitty Hawk and the Kitty Hawk Operating
Subsidiaries, including, without limitation, Security Agreements
executed by each of Kitty Hawk and the Kitty Hawk Operating
Subsidiaries and Aircraft Mortgages and Lease Assignments executed by
Leasing;
(l) Assignment of Notes and Liens. Documentation
reasonably satisfactory to Agent executed by Wells Fargo and Bank One
pursuant to which (i) all Debt of Kitty Hawk and the Kitty Hawk
Operating Subsidiaries owed to Wells Fargo and Bank One and all Liens
securing such Debt, and (ii) the WFB Agreements and the Bank One
Agreement and all other material "Loan Documents", as such term is
defined in the WFB Agreements and the Bank One Agreement, are assigned
to Agent, and Agent shall have received an originally executed
counterpart or a photocopy (as Agent may require) of the WFB
Agreements, the Bank One Agreement and such other material "Loan
Documents" and copies of all material agreements, documents,
instruments and certificates required to have been delivered to Bank
One in connection with the "First Drawdown", the "Second Drawdown" and
the "Third Drawdown" (as such terms are defined in the Bank One
Agreement) in accordance with Sections 6.1, 6.2 and 6.3 of the Bank
One Agreement.
(m) Insurance Policies. Copies of all insurance
policies required by this Agreement and the other Loan Documents,
together with loss payable endorsements naming Agent as loss payee
under all such casualty insurance policies and Agent as an additional
insured party under all such liability policies;
(n) Financing Statements. Financing statements
and all other requisite filing documents executed by Kitty Hawk and
the Kitty Hawk Operating Subsidiaries necessary to perfect the Liens
created pursuant to the Security Documents and to assign any
previously existing Liens in favor of Wells Fargo and Bank One to
Agent;
(o) Title and Lien Searches. (i) Title and Lien
searches performed by the Title Company confirming that (A) each of
the Aircraft is duly registered with the FAA in the name of Leasing,
(B) Agent, for the benefit of Agent and Lenders, has a perfected,
first priority Lien in the Term Loans A Collateral and the Term Loans
B Collateral as security for the payment and performance of the
Obligations; (ii) a policy of title insurance (or amendments or
endorsements thereto) for each of the Aircraft with Agent as named
insured as required pursuant to Section 5.6; and (iii) Lien searches
in the names of each of Kitty Hawk and the Kitty Hawk Operating
Subsidiaries (and in all names under which each such
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Person has done business within the last five years and in all names
of Persons who previously owned any of the material Properties
constituting Collateral as Agent may reasonably require) in each state
where each such Person maintains an office or has Property, showing no
financing statements or other Lien instruments of record except for
Permitted Liens and Liens not otherwise prohibited by Section 9.2
(including, without limitation, Liens on Non-Collateral Aircraft);
(p) Aircraft Leases, etc. The originals of the
Leases and copies of the Leases as recorded with the FAA, and the
originals of all other leases pursuant to which Leasing, as lessor,
leases any Aircraft or other Collateral and the originals of all
chattel paper which constitutes Collateral, all of which shall be
marked "Lessor's Chattel Paper Copy";
(q) Consents. Copies of all material consents
necessary for the execution, delivery and performance by each of the
Kitty Hawk Companies of the Loan Documents to which it is a party,
including, without limitation, any consents or waivers to the grant of
a Lien in the Collateral or execution of a Guaranty, which consents
shall be certified by a Responsible Officer of the applicable Kitty
Hawk Company as true and correct copies of such consents as of the
Closing Date;
(r) Permits. If and to the extent required by
Agent, copies of all material Permits affecting Kitty Hawk or any of
its Subsidiaries in connection with its businesses or any of the
Properties owned or leased by it, and evidence reasonably satisfactory
to Agent that such Permits are in full force and effect;
(s) Payment of Fees and Expenses. Kitty Hawk
shall have paid to Agent the agency fee referred to in Section 2.11
that is payable on the Closing Date and, to the extent required by
Agent, the applicable Borrower shall have paid all fees, costs and
expenses of or incurred by Agent and its counsel referred to in
Section 13.1 to the extent billed on or before the Closing Date and
payable pursuant to this Agreement;
(t) Regulatory Approvals. Evidence reasonably
satisfactory to Agent that all filings, consents or approvals with or
of Governmental Authorities necessary to consummate the transactions
contemplated by the Loan Documents have been made and obtained, as
applicable;
(u) Compliance with Laws. As of the Closing
Date, each Kitty Hawk Company shall have complied with all
Governmental Requirements necessary to consummate the transactions
contemplated by this Agreement and the other Loan Documents;
(v) No Prohibitions. No Governmental Requirement
shall prohibit the consummation of the transactions contemplated by
this Agreement or any other Loan Document, and no order, judgment or
decree of any Governmental Authority or arbitrator shall, and no
litigation or other proceeding shall be pending or threatened which
would, enjoin, prohibit, restrain or otherwise adversely affect the
consummation of the
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transactions contemplated by this Agreement or the other Loan
Documents or otherwise have a Material Adverse Effect;
(w) No Material Adverse Change. As of the
Closing Date, no material adverse change shall have occurred with
respect to the financial condition, results of operations, business,
operations, capitalization, liabilities or prospects of Kitty Hawk or
any of its Subsidiaries since May 31, 1996;
(x) Wiring Instructions. Prior to the Closing
Date, written instructions to Agent from Kitty Hawk, with respect to
the Revolving Credit Loans, and from Leasing, with respect to the Term
Loans, regarding the disbursement of the proceeds of the Loans on the
Closing Date, which instructions shall request that: (i) the
appropriate amount of proceeds of Revolving Credit Loans to be
advanced on the Closing Date shall be disbursed to Wells Fargo in
payment of all existing Debt of Kitty Hawk owing to Wells Fargo under
the WFB Agreement No. 3, (ii) the proceeds of the Term Loans A to be
advanced on the Closing Date shall be disbursed to Wells Fargo in
payment of all existing Debt owing to Wells Fargo by Leasing under the
WFB Agreement No. 1 and the WFB Agreement No. 2, and (iii) the
proceeds of the Term Loans B to be advanced on the Closing Date shall
be disbursed to Bank One in payment of all existing Debt of Leasing
owing to Bank One by Leasing under the Bank One Agreement (in each
case to the extent necessary to pay in full such Debt of Kitty Hawk or
Leasing, as applicable) shall be immediately wire transferred, or
otherwise paid, directly to the holders of such Debt;
(y) Financial Statements. Copies of each of the
financial statements referred to in Section 7.2;
(z) Opinions of Counsel. Favorable opinions of
counsel for the Kitty Hawk Companies relating to the Loan Documents
and the Kitty Hawk Companies and such other matters as Agent may
reasonably request;
(aa) Accountant's Letter. A letter from Kitty
Hawk authorizing the independent public accountant of the Kitty Hawk
Companies to communicate with Agent and Lenders and acknowledging
reliance by Agent and Lenders on past, present and future financial
statements;
(bb) Schedules. All schedules attached or to be
attached to this Agreement (if any, to the extent that such schedules
are not attached as of the execution of this Agreement) shall be
satisfactory in form and substance to Agent in its sole discretion;
(cc) Appraisals. A current "desk top" appraisal
of each of the Aircraft, which appraisal must be in form, substance
and content reasonably satisfactory to Agent and must be performed by
an appraiser reasonably satisfactory to Agent and must show that the
aggregate appraisal value of the Aircraft is $42,700,000 or more;
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(dd) Letters of Credit. With respect to the
issuance of a Letter of Credit, the Letter of Credit Agreement in the
form required by the Issuing Bank with respect thereto executed by
Kitty Hawk; and
(ee) Payment of Amounts owed under the WFB
Agreements and the Bank One Agreement. Kitty Hawk or Leasing (as
applicable), i.e., whichever is the primary obligor with respect to
such indebtedness under the WFB Agreements and the Bank One Agreement,
shall have paid to Wells Fargo or Bank One (as applicable), i.e.,
whichever is the obligee with respect to such indebtedness under the
WFB Agreements and the Bank One Agreement, all accrued interest, fees,
costs and expenses and other amounts payable by it under the WFB
Agreements and the Bank One Agreement, respectively.
The Kitty Hawk Companies shall deliver, or cause to be delivered, to Agent
sufficient counterparts of each agreement, document or instrument to be
received by Agent under this Section 6.1 to permit Agent to distribute a copy
of the same to each of Lenders. After the request of either Kitty Hawk or
Leasing, Agent shall inform Kitty Hawk and Leasing in writing as to the status
of satisfaction of the conditions precedent set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each
Lender to make any Loan (including the initial Loans) under this Agreement and
the obligation of the Issuing Bank to issue any Letter of Credit (including the
initial Letter of Credit) under this Agreement are subject to the satisfaction
of each of the conditions precedent set forth in Section 6.1 and each of the
following additional conditions precedent:
(a) No Default or Material Adverse Effect. No
Default or Material Adverse Effect shall have occurred and be
continuing, or would result from such Loan or Letter of Credit;
(b) Representations and Warranties. All of the
representations and warranties of the Kitty Hawk Companies contained
in Article 7 hereof and in the other Loan Documents shall be true and
correct on and as of the date of such Loan or Letter of Credit with
the same force and effect as if such representations and warranties
had been made on and as of such date; and
(c) Additional Documentation. Agent shall have
received such additional approvals, opinions, agreements, documents,
instruments and certificates as Agent may reasonably request.
Each notice of borrowing or request for the issuance of a Letter of Credit by
the applicable Borrower hereunder shall constitute a representation and
warranty by such Borrower that the conditions precedent set forth in Sections
6.2(a) and (b) have been satisfied (both as of the date of such notice and,
unless Kitty Hawk, with respect to the Revolving Credit Loans, or Leasing, with
respect to the Term Loans, otherwise notifies Agent prior to the date of such
borrowing or Letter of Credit, as of the date of such borrowing or Letter of
Credit).
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Section 6.3 Additional Conditions Precedent to Revolving Credit
Loans. The obligation of each Revolving Credit Loans Lender to make any
Revolving Credit Loan (other than a Revolving Credit Loan which Leasing
specifies to Agent is being used for, and may be used for, general corporate
purposes as provided in clause (i) of Section 2.10(a)), the proceeds of which
will be used in whole or in part for any Aircraft Acquisition, is subject to
the satisfaction of each of the conditions precedent set forth in Sections 6.1
and 6.2 and each of the following additional conditions precedent, all of which
must be in form and substance or otherwise satisfactory to Agent:
(a) Leasing shall have delivered the Aircraft
Acquisition Letter to Agent relating to the Acquired Aircraft to be
purchased pursuant to such Aircraft Acquisition;
(b) Leasing shall have executed and delivered to
Agent an Aircraft Mortgage identical in form and substance to the
Aircraft Mortgage relating to the Aircraft (except for the description
of the Acquired Aircraft and the reference to amendment and
restatement of prior aircraft mortgages) pursuant to which Agent for
the benefit of Agent and Lenders shall have a perfected, first
priority Lien on such Acquired Aircraft as security for payment and
performance of the Obligations and such Aircraft Mortgage shall have
been appropriately filed with the FAA;
(c) Leasing shall have delivered to Agent:
(i) Title and Lien searches performed by
the Title Company or another aircraft title company reasonably
acceptable to Agent confirming that (A) the Acquired Aircraft
is duly registered with the FAA in the name of Leasing, (B)
Agent, for the benefit of Agent and Lenders, has a perfected,
first priority Lien in the Acquired Aircraft as security for
the payment and performance of the Obligations;
(ii) A policy or the Title Company's
unconditional commitment to issue a policy of mortgagee title
insurance (or amendments or endorsements thereof) for the
Acquired Aircraft with Agent as named insured as required
pursuant to Section 5.6; and
(iii) Lien Searches in the name of Leasing
(and in all names under which Leasing has done business within
the last five years and in the names of all Persons who
previously owned the Acquired Aircraft, as Agent may require)
in each state where each such Person maintains an office or
has Property, showing no financing statements or other Lien
instruments of record affecting the Acquired Aircraft;
(d) Leasing shall have received or filed (and
shall have confirmed to Agent that it has received or filed and
provided a copy thereof to Agent) each of the following:
(i) an executed warranty bill of
sale for such Property executed by the seller;
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(ii) an executed FAA Bill of Sale (AC
Form 8050-2) (acceptable to the FAA and Agent for recording
with the FAA) for such Property, executed by the seller, and
validly transferring title to such Property to Leasing on the
FAA's records;
(iii) an executed FAA Aircraft
Registration Application (AC Form 8050-1) for such Property
for registering such Property in the name of the Leasing;
(iv) a valid airworthiness certificate
for such Property (FAA Form 8100-2); and
(v) releases of all Liens (if any)
encumbering such Property or any part thereof, other than
materialmen's or mechanic's Liens not filed of record;
(e) Additional Documentation. Agent shall have
received such additional approvals, opinions or documents as it or its
legal counsel, Jenkens & Gilchrist, P.C., may reasonably request, in
connection with the perfection and priority of its Lien on such
Acquired Aircraft.
Section 6.4 Additional Conditions Precedent to Term Loans C. The
obligation of each Term Loans C Lender to make any Term Loan C is subject to
the satisfaction of each of the conditions precedent set forth in Sections 6.1
and 6.2 and each of the following additional conditions precedent, all of which
must be in form and substance or otherwise satisfactory to Agent:
(a) Leasing shall have notified Agent of the
proposed specific use of the proceeds of such Term Loans C (which use
of proceeds shall comply with Section 2.10(d)) including, without
limitation, the specific Aircraft or Other Aircraft to be enhanced or
modified with such proceeds, and the principal amount of such Term
Loans C then requested to be made shall not exceed 80% of the cost of
the labor and/or enhancements to the Aircraft or Other Aircraft to be
financed with such proceeds; and
(b) Leasing shall have delivered to Agent a
certificate certifying as to the matters referred to in clause (a)
preceding, together with a true and correct copy of each invoice for
materials, supplies and/or labor to be financed with the proceeds of
such Term Loans C.
Section 6.5 Closing Certificates. The Kitty Hawk Companies shall,
concurrently with the Closing Date, execute and deliver to Agent a Closing
Certificate in form and substance reasonably satisfactory to Agent certifying
as to the satisfaction of each of the conditions precedent set forth in Section
6.1 and 6.2 which are required to be satisfied on or before the Closing Date.
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ARTICLE 7
Representations and Warranties
Each of the Kitty Hawk Companies jointly and severally represents and
warrants to Agent and Lenders that the following statements are, and after
giving effect to the funding of the initial Loans on the Closing Date will be,
true, correct and complete:
Section 7.1 Corporate Existence. Each Kitty Hawk Company (a) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, (b) has all
requisite power and authority to own its Properties and carry on its business
as now being or as proposed to be conducted, and (c) is qualified to do
business in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect. Each Kitty Hawk Company has the power, authority and legal
right to execute, deliver and perform its obligations under the Loan Documents
to which it is or may become a party. Except for Leasing, Aircargo and
Charters, neither Kitty Hawk nor any of its Subsidiaries owns any Subsidiary
which is an operating company or is engaged in any material business
operations.
Section 7.2 Financial Statements. Kitty Hawk has delivered to
Agent and Lenders (i) audited consolidated and consolidating financial
statements of the Kitty Hawk Companies as of and for the fiscal years ended
August 31, 1994 and 1995 and (ii) unaudited interim financial statements as of
and for the periods ended November 30, 1995 and February 29, 1996 and audited
interim financial statements as of and for the period ended May 31, 1996. Such
financial statements are complete, true and correct, have been prepared in
accordance with GAAP and fairly and accurately present, on a consolidated and
consolidating (where applicable) basis, the financial condition of Kitty Hawk
and its consolidated Subsidiaries as of the respective dates indicated therein
and the results of operations for the respective periods indicated therein.
Neither Kitty Hawk nor any of its Subsidiaries has any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments,
or unrealized or anticipated losses from any unfavorable commitments except as
referred to or reflected in such financial statements. There has not been, as
of the Closing Date, any material adverse change in the business, condition
(financial or otherwise), operations, prospects or Properties of any Kitty Hawk
Company since the effective dates of the most recent applicable financial
statements referred to in this Section 7.2.
Section 7.3 Corporate Action; No Breach. The execution, delivery
and performance by each Kitty Hawk Company of the Loan Documents to which it is
or may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite corporate or other entity
action on the part of each Kitty Hawk Company and do not and will not (a)
violate or conflict with, or result in a breach of, or require any consent
under (i) the articles or certificates of incorporation or bylaws of any Kitty
Hawk Company, (ii) any Governmental Requirement or any order, writ, injunction
or decree of any Governmental Authority or arbitrator, or (iii) any agreement,
document or instrument to which any Kitty Hawk Company is a party or by which
any Kitty Hawk Company or any of its Property is bound or
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subject, or (b) constitute a default under any such agreement, document or
instrument, or result in the creation or imposition of any Lien (except a Lien
in favor of Agent for and on behalf of Lenders under the Security Documents as
provided in Article 5) upon any of the revenues or Property of any Kitty Hawk
Company.
Section 7.4 Operation of Business. Each Kitty Hawk Company
possesses all Permits, franchises, licenses, patents, copyrights, trademarks,
tradenames and authorizations or rights thereto necessary or appropriate to
conduct its business substantially as now conducted and as presently proposed
to be conducted. None of such Persons is in violation of any valid rights of
others with respect to any of the foregoing.
Section 7.5 Litigation and Judgments. Except as disclosed on
Schedule 7.5 hereto, there is no action, suit, investigation or proceeding
before or by any Governmental Authority or arbitrator pending or, to the
knowledge of any Kitty Hawk Company, threatened against or affecting any Kitty
Hawk Company that could, if adversely determined, reasonably be expected to
have a Material Adverse Effect. There are no outstanding judgments against any
Kitty Hawk Company. No Kitty Hawk Company has received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed
to any liability or disadvantage that could reasonably be expected to have a
Material Adverse Effect.
Section 7.6 Rights in Properties; Liens. Leasing is the true and
lawful owner of each of the Aircraft and is the registered owner of each of the
Aircraft pursuant to proper registrations under the Federal Aviation Act.
Aircargo is an air carrier certified by the FAA and qualifies in all respects
as a citizen of the U.S. as defined in the Federal Aviation Act. Each of the
Aircraft is in freight configuration and is presently leased by Leasing as
lessor to Aircargo as lessee pursuant to the applicable Lease. Each of the
Leases is valid and enforceable in accordance with its terms. Each of the
Kitty Hawk Companies has good and indefeasible title to or, with respect to
leasehold interests, valid leasehold interests in its Properties and assets,
real and personal, including the Properties, assets and leasehold interests
reflected in the financial statements described in Section 7.2, and none of the
Properties or leasehold interests (excluding Non-Collateral Aircraft) of any
Kitty Hawk Company is subject to any Lien, except Permitted Liens.
Section 7.7 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Kitty Hawk Companies that is a
party thereto as of the Closing Date, and such Loan Documents constitute the
legal, valid and binding obligations of the Kitty Hawk Companies, enforceable
against the Kitty Hawk Companies in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights and general
principles of equity.
Section 7.8 Approvals. No authorization, approval or consent of,
and no filing or registration with or notice to, any Governmental Authority or
third party is or will be necessary for the execution, delivery or performance
by any Kitty Hawk Company of any of the Loan Documents to which it is or will
be a party or for the validity or enforceability thereof, except for such
consents, approvals and filings as have been (or will have been as of the
Closing Date) validly obtained or made and are in full force and effect. None
of the Kitty Hawk Companies has
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failed to obtain any material governmental consent, approval, license, Permit,
franchise or other governmental authorization necessary for the ownership or
use of any of its Properties or the conduct of its business.
Section 7.9 Debt. As of the Closing Date, neither Kitty Hawk nor
any of its Subsidiaries has any Debt except for (a) the Obligations, and (b)
the Debt disclosed on Schedule 7.9 hereto.
Section 7.10 Taxes. Except as disclosed on Schedule 7.10 hereto,
the Kitty Hawk Companies have filed all tax returns (federal, state and local)
required to be filed, including all income, franchise, employment, Property and
sales tax returns, and have paid all of their respective liabilities for taxes,
assessments, governmental charges and other levies that are due and payable.
No Kitty Hawk Company is aware of any pending investigation of any Kitty Hawk
Company or any of its Subsidiaries by any taxing authority or of any pending
but unassessed tax liability of any Kitty Hawk Company or any of its
Subsidiaries. No tax Liens have been filed and, except as disclosed on
Schedule 7.10, no claims are being asserted against any Kitty Hawk Company or
any of its Subsidiaries with respect to any taxes. Except as disclosed on
Schedule 7.10 hereto, as of the Closing Date, none of the income tax returns of
any Kitty Hawk Company or any of its Subsidiaries is under audit. The charges,
accruals and reserves on the books of the Kitty Hawk Companies in respect of
taxes or other governmental charges are in accordance with GAAP.
Section 7.11 Margin Securities. Neither any Kitty Hawk Company nor
any of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying margin stock.
Section 7.12 ERISA. Neither any Kitty Hawk Company nor any ERISA
Affiliate maintains or contributes to, or has any obligation under, any Pension
Plan other than the Pension Plans identified on Schedule 7.12. Each Plan of
each Kitty Hawk Company is in compliance in all material respects with all
applicable provisions of ERISA and the Code. Neither a Reportable Event nor a
Prohibited Transaction has occurred within the last 60 months with respect to
any Plan. No notice of intent to terminate a Pension Plan has been filed, nor
has any Pension Plan been terminated. No circumstances exist which constitute
grounds entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Pension Plan, nor has the PBGC instituted any such
proceedings. Neither any Kitty Hawk Company nor any ERISA Affiliate has
completely or partially withdrawn from a Multiemployer Plan. Each Kitty Hawk
Company and each ERISA Affiliate has met its minimum funding requirements under
ERISA and the Code with respect to all of its Plans subject to such
requirements, and, as of the Closing Date, except as specified on Schedule
7.12, the present value of all vested benefits under each funded Plan
(exclusive of any Multiemployer Plan) do not and will not exceed the fair
market value of all such Plan assets allocable to such benefits, as determined
on the most recent valuation date of such Plan and in accordance with ERISA.
Neither any Kitty Hawk Company nor any ERISA Affiliate has incurred any
liability to the PBGC under ERISA. No litigation is pending or threatened
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concerning or involving any Plan. There are no unfunded or unreserved
liabilities (on either a going-concern basis or a wind-up basis) relating to
any Plan that could, individually or in the aggregate, have a Material Adverse
Effect if such Kitty Hawk Company were required to fund or reserve such
liability in full. As of the Closing Date, no funding waivers have been or
will have been requested or granted under Section 412 of the Code with respect
to any Plan. As of the Closing Date, no unfunded or unreserved liability for
benefits under any Plan exceed $100,000, with respect to any Plan, or $100,000
in the aggregate with respect to all such Plans or Plans (exclusive of any
Multiemployer Plans) on either a going-concern basis or a wind-up basis.
Section 7.13 Disclosure. No written statement, information,
report, representation or warranty made by any Kitty Hawk Company in any Loan
Document or furnished to Agent or any Lender by any Kitty Hawk Company in
connection with the Loan Documents or any transaction contemplated hereby or
thereby contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein not
misleading. There is no fact known to any Kitty Hawk Company which has had a
Material Adverse Effect or which could reasonably be expected to have a
Material Adverse Effect.
Section 7.14 Capitalization.
(a) On and as of the Closing Date, the number and
class of the authorized Capital Stock, the par value per share and the
number of shares issued and outstanding with respect to the Capital
Stock of each of the Subsidiaries of Kitty Hawk is as set forth on
Schedule 7.14. Kitty Hawk owns all of the issued and outstanding
Capital Stock each of its Subsidiaries.
(b) On and as of the Closing Date, Kitty Hawk has
no Subsidiaries other than Leasing, Aircargo, Charters and
Skyfreighters (an inactive Texas corporation), and none of Kitty
Hawk's Subsidiaries has any Subsidiaries. Skyfreighters is not an
operating company, is not engaged in any business and does not have
any material assets or Properties.
(c) All of the issued and outstanding Capital
Stock of each of the Subsidiaries of Kitty Hawk has been validly
issued and is fully paid and nonassessable, and there are no
outstanding subscriptions, options, warrants, calls or rights
(including preemptive rights) to acquire, and no outstanding
securities or instruments convertible into, Capital Stock of any
Subsidiary of Kitty Hawk.
Section 7.15 Agreements. No Kitty Hawk Company is a party to any
indenture, loan, credit agreement, stock purchase agreement or any lease or
other agreement, document or instrument, or subject to any charter or corporate
restriction, that could reasonably be expected to have a Material Adverse
Effect. No Kitty Hawk Company is in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement, document or instrument material to its
business to which it is a party.
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Section 7.16 Compliance with Laws. No Kitty Hawk Company is in
violation in any material respect of any Governmental Requirement.
Section 7.17 Investment Company Act. No Kitty Hawk Company is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.18 Public Utility Holding Company Act. No Kitty Hawk
Company is a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or a "public utility" within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or
exceptions to any of the following representations and warranties that
could not have, individually or in the aggregate, a Material Adverse
Effect:
(i) Each Kitty Hawk Company and all of
its Properties and operations is in full compliance with all
Environmental Laws. No Kitty Hawk Company is aware of, or has
received any written notice of, any past, present or future
conditions, events, activities, practices or incidents which
may interfere with or prevent the compliance or continued
compliance by any Kitty Hawk Company with all Environmental
Laws;
(ii) Each Kitty Hawk Company has obtained
all Permits that are required under applicable Environmental
Laws, and all such Permits are in good standing and all such
Persons are in compliance with all of the terms and conditions
thereof;
(iii) No Hazardous Materials exist on,
about or within or have been (to the knowledge of any Kitty
Hawk Company) or are being used, generated, stored,
transported, disposed of on or Released from any of the
Properties of any Kitty Hawk Company except in compliance with
applicable Environmental Laws. The use which each Kitty Hawk
Company makes and intends to make of its respective Properties
will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any
Hazardous Material on, in or from any of its Properties except
in compliance with applicable Environmental Laws;
(iv) No Kitty Hawk Company nor any of its
currently or previously owned or leased Properties or
operations are subject to any outstanding or, to the knowledge
of any Kitty Hawk Company, threatened order from or agreement
with any Governmental Authority or other Person or subject to
any judicial or administrative proceeding with respect to (A)
any failure to comply with Environmental Laws, (B) any
Remedial Action, or (C) any Environmental Liabilities;
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(v) There are no conditions or
circumstances associated with the currently or previously
owned or leased Properties or operations of any Kitty Hawk
Company that could reasonably be expected to give rise to any
Environmental Liabilities or claims resulting in any
Environmental Liabilities. No Kitty Hawk Company is subject
to, or has received written notice of, any claim from any
Person alleging that any Kitty Hawk Company is or will be
subject to any Environmental Liabilities;
(vi) No Property of any Kitty Hawk
Company is a treatment facility (except for the recycling of
Hazardous Materials generated on-site and the treatment of
liquid wastes subject to the Clean Water Act or for temporary
storage of Hazardous Materials generated on-site prior to
their disposal off-site) or disposal facility requiring a
permit under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., regulations thereunder or any
comparable provision of state law. Each Kitty Hawk Company is
in compliance with all applicable financial responsibility
requirements of all Environmental Laws; and
(vii) No Kitty Hawk Company has failed to
file any notice required under applicable Environmental Law
reporting a Release.
(b) No Lien arising under any Environmental Law
that could have, individually or in the aggregate, a Material Adverse
Effect has attached to any Property or revenues of any Kitty Hawk
Company.
Section 7.20 Labor Disputes and Acts of God. Neither the business
nor the Properties of any Kitty Hawk Company are affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could have a Material
Adverse Effect.
Section 7.21 Material Contracts. Attached hereto as Schedule 7.21
is a complete list, as of the Closing Date, of all Material Contracts of the
Kitty Hawk Companies, other than the Loan Documents. All of the Material
Contracts are in full force and effect and no Kitty Hawk Company is in default
under any Material Contract and no other Person that is a party thereto is, to
the knowledge of any Kitty Hawk Company, in default under any of the Material
Contracts. None of the Material Contracts prohibit the transactions
contemplated under the Loan Documents.
Section 7.22 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended,
or any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of each Kitty Hawk Company have been offered,
issued, sold and delivered in compliance with all applicable Governmental
Requirements.
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Section 7.23 Solvency. Each of Kitty Hawk and the Kitty Hawk
Operating Subsidiaries, as a separate entity, is Solvent, both before and after
giving effect to the Loans.
Section 7.24 Employee Matters. Except as set forth on Schedule
7.24, as of the Closing Date (a) neither Kitty Hawk nor any of its Subsidiaries
is subject to any collective bargaining agreement, and (b) no petition for
certification or union election is pending with respect to the employees of
Kitty Hawk or any of its Subsidiaries, and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of Kitty Hawk or any of its Subsidiaries. There are no strikes, slowdowns,
work stoppages or controversies pending or, to the knowledge of the Kitty Hawk
Companies, threatened against any Kitty Hawk Company which could have, either
individually or in the aggregate, a Material Adverse Effect. Except as set
forth on Schedule 7.24, as of the Closing Date, no Kitty Hawk Company is
subject to an employment contract with any executive officer or director of a
Kitty Hawk Company.
Section 7.25 Insurance. Schedule 7.25 sets forth an accurate
summary description of all policies of insurance (including, without
limitation, the coverage and deductibles thereunder, the limits of such
insurance and the issuers of such insurance) that will be in effect as of the
Closing Date for the Kitty Hawk Companies. To the extent such policies have
not been replaced, no notice of cancellation has been received for such
policies and the Kitty Hawk Companies are in compliance with all of the terms
and conditions of such policies.
Section 7.26 Common Enterprise. Each of the Kitty Hawk Companies
is a member of an affiliated group, and the Kitty Hawk Companies are
collectively engaged in a common enterprise with one another. Each of Kitty
Hawk and the Kitty Hawk Operating Subsidiaries expects to derive substantial
benefit (and may reasonably be expected to derive substantial benefit),
directly and indirectly, from all Loans and Letters of Credit contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group. Each of Kitty Hawk and the Kitty Hawk Operating
Subsidiaries will receive reasonably equivalent value in exchange for the
Collateral and Guaranties being provided by it as security for the payment and
performance of the Obligations.
Section 7.27 Compliance with the WFB Agreements and the Bank One
Agreement. Each Kitty Hawk Company is in compliance, in all material respects,
with the WFB Agreements and the Bank One Agreement and all other "Loan
Documents" as such term is defined in the WFB Agreements and the Bank One
Agreement. Without limiting the generality of the foregoing, to the knowledge
of each Kitty Hawk Company, all conditions precedent to the obligations of
Wells Fargo and Bank One to make loans to Kitty Hawk or Leasing (as applicable)
under the WFB Agreements and the Bank One Agreement, respectively, were
previously complied with in all material respects.
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ARTICLE 8
Affirmative Covenants
Each Kitty Hawk Company jointly and severally covenants and agrees
that, as long as the Obligations or any part thereof are outstanding or any
Lender has any Commitment hereunder or any Letter of Credit remains
outstanding, it will perform and observe, or cause to be performed and
observed, the following covenants:
Section 8.1 Reporting Requirements. Kitty Hawk will furnish to
Agent and each Lender:
(a) Annual Financial Statements. As soon as
available, and in any event within 90 days after the end of each
fiscal year of Kitty Hawk, beginning with the fiscal year ending
August 31, 1996: (i) a copy of the annual audit report of the Kitty
Hawk Companies for such fiscal year containing, on a consolidated
basis, a balance sheet and statements of income, shareholders' equity
and sources and uses of cash as at the end of such fiscal year and for
the 12-month period then ended, in each case setting forth in
comparative form the figures for the preceding fiscal year, all in
reasonable detail and audited and certified by Ernst & Young or other
independent certified public accountants of recognized standing
reasonably acceptable to Agent and containing no qualification thereto
except as may be reasonably acceptable to Agent, to the effect that
such report has been prepared in accordance with GAAP; (ii)
consolidating schedules with respect to the balance sheet, statement
of income, shareholders' equity and sources and uses of cash for each
of the Kitty Hawk Companies; and (iii) a certificate of such
independent certified public accountants to Agent (A) stating that to
their knowledge no Default has occurred and is continuing, or if in
their opinion a Default has occurred and is continuing, stating the
nature thereof, and (B) confirming the calculations set forth in the
officer's certificate referred to in Section 8.1(c) delivered
concurrently therewith;
(b) Quarterly Financial Statements. As soon as
available, and in any event within 45 days after the end of each of
the quarters of each fiscal year of Kitty Hawk, beginning with the
fiscal quarter ending November 30, 1996, unless Kitty Hawk's fiscal
year end shall have previously been changed to December 31, then
September 30, 1996, an unaudited financial report of the Kitty Hawk
Companies as of the end of such fiscal quarter and for the portion of
the fiscal year then ended containing, on a consolidated and
consolidating basis, balance sheets and statements of income,
shareholders' equity and sources and uses of cash, together with
consolidating schedules and worksheets, in each case setting forth in
comparative form the figures for the corresponding period of the
preceding fiscal year, all in reasonable detail certified by a
Responsible Officer of Kitty Hawk to have been prepared in accordance
with GAAP and to fairly and accurately present (subject to year-end
audit adjustments) the financial condition and results of operations
of the Kitty Hawk Companies, on a consolidated and consolidating
basis, at the date and for the periods indicated therein;
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(c) Compliance Certificate. Concurrently with
the delivery of each of the financial statements referred to in
Sections 7.1(a) and 7.1(b), a certificate of a Responsible Officer of
Kitty Hawk (i) stating that to the best of such officer's knowledge,
no Default has occurred and is continuing, or if a Default has
occurred and is continuing, stating the nature thereof and the action
that has been taken and is proposed to be taken with respect thereto,
and (ii) showing in reasonable detail the calculations demonstrating
compliance with Sections 10.1, 10.2, 10.3, 10.4 and 10.5.
(d) Applicable Eurodollar Margin Certificate.
Concurrently with the delivery of each of the financial statements
referred to in Section 8.1(b), a certificate of a Responsible Officer
of each Borrower showing in reasonable detail the calculation of the
Applicable Eurodollar Margin as of the next Calculation Date;
(e) Management Letters. Promptly upon receipt
thereof, a copy of any management or comment letter submitted to Kitty
Hawk or any of its Subsidiaries by independent certified public
accountants with respect to the business, condition (financial or
otherwise), operations, prospects, or Properties of Kitty Hawk or any
of its Subsidiaries;
(f) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any Governmental Authority or arbitrator affecting Kitty Hawk
or any of its Subsidiaries which, if determined adversely to Kitty
Hawk or such Subsidiary, could reasonably be expected to have a
Material Adverse Effect;
(g) Notice of Default. As soon as possible and
in any event within 5 days after the occurrence of each Default, a
written notice setting forth the details of such Default and the
action that the Kitty Hawk Companies have taken and propose to take
with respect thereto;
(h) ERISA Reports. Promptly after the filing or
receipt thereof, copies of all reports, including annual reports, and
notices which any Kitty Hawk Company or any of its ERISA Affiliates
files with or receives from the PBGC or the U.S. Department of Labor
under ERISA, and as soon as possible and in any event within five days
after such Person knows or has reason to know that any Pension Plan is
insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the
PBGC or any Kitty Hawk Company or any ERISA Affiliate has instituted
or will institute proceedings under ERISA to terminate or withdraw
from or reorganize any Pension Plan, a certificate of a Responsible
Officer of such Kitty Hawk Company setting forth the details as to
such insolvency, withdrawal, Reportable Event, Prohibited Transaction
or termination and the action such Kitty Hawk Company has taken and
proposes to take with respect thereto;
(i) Reports to Other Creditors. Promptly after
the furnishing thereof, copies of each written statement or report
required to be furnished by any Kitty Hawk Company to any other party
pursuant to the terms of any indenture, loan, or credit or similar
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agreement and not otherwise required to be furnished to Agent pursuant
to this Section 8.1;
(j) Notice of Material Adverse Effect. As soon
as possible and in any event within five days after the occurrence
thereof, written notice of any matter that could reasonably be
expected to have a Material Adverse Effect;
(k) Proxy Statements, Etc. As soon as available,
one copy of each financial statement, report, notice or proxy
statement sent by any Kitty Hawk Company to its stockholders generally
and one copy of each regular, periodic or special report, registration
statement or prospectus filed by any Kitty Hawk Company with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and of all press releases and other statements made
by any of the Kitty Hawk Companies to the public containing material
developments in its business;
(l) Notice of New Subsidiaries. Concurrently
with the delivery of each of the financial statements referred to in
Sections 8.1(a) and 8.1(b), notice of the creation or acquisition of
any Subsidiary of any Kitty Hawk Company after the Closing Date and
subsequent to the last delivery of such information;
(m) Appraisals. From time to time upon the
request of Agent, (i) appraisals of the Aircraft reasonably
satisfactory in form and substance to Agent (which appraisals shall be
at the expense of Leasing except if and to the extent that such
appraisals are required by Agent on more than one occasion during any
fiscal year of Kitty Hawk) and (ii) within 30 days of Agent's request
therefor, an appraisal of each Acquired Aircraft reasonably
satisfactory in form and substance to Agent (which appraisal shall be
at the expense of Leasing) and based on an as modified or completed
basis;
(n) Insurance. Within 60 days prior to the end
of each fiscal year of Kitty Hawk, a report in form and substance
reasonably satisfactory to Agent summarizing all material insurance
coverage maintained by the Kitty Hawk Companies as of the date of such
report and all material insurance coverage planned to be maintained by
such Persons in the subsequent fiscal year;
(o) Plan Information. From time to time, as
reasonably requested by Agent or any Lender, such books, records and
other documents relating to any Pension Plan as Agent or any Lender
shall specify; prior to any termination, partial termination or merger
of a Pension Plan covering employees of any Kitty Hawk Company or any
ERISA Affiliate, or a transfer of assets of a Pension Plan covering
employees of any Kitty Hawk Company or any ERISA Affiliate, written
notification thereof; promptly upon any Kitty Hawk Company's receipt
thereof, a copy of any determination letter or advisory opinion
regarding any Pension Plan received from any Governmental Authority
and any amendment or modification thereto as may be necessary as a
condition to obtaining a favorable determination letter or advisory
opinion; and promptly upon the occurrence
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thereof, written notification of any action requested by any
Governmental Authority to be taken as a condition to any such
determination letter or advisory opinion;
(p) Environmental Assessments and Notices.
Promptly after the receipt thereof, a copy of each environmental
assessment (including any analysis relating thereto) prepared with
respect to any real Property of any Kitty Hawk Company and each notice
sent by any Governmental Authority relating to any failure or alleged
failure to comply with any Environmental Law or any liability with
respect thereto; and
(q) General Information. Promptly, such other
information concerning any Kitty Hawk Company as Agent may from time
to time reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. Each
Kitty Hawk Company will preserve and maintain its corporate or other entity
existence (except for mergers of Subsidiaries permitted by Section 9.3) and all
of its material leases, privileges, licenses, Permits, franchises,
qualifications, patents, trademarks, copyrights, intangible Property and rights
that are necessary or appropriate in the ordinary conduct of its business
(including, without limitation and as to Aircargo, its Federal Aviation Act
Part 121 air carrier operating certificate). Each Kitty Hawk Company will
conduct its business in an orderly and efficient manner in accordance with good
business practices. All Aircraft and Other Aircraft, other than Non-Collateral
Aircraft, will be maintained as ready and available for regular, uninterrupted
revenue generating operation in compliance with all laws and FAA regulations.
Section 8.3 Maintenance of Properties; Hush Kits. Leasing will, at
all times, have good and indefeasible title to each of the Aircraft and each of
the Leases free and clear of any Lien other than the perfected, first priority
Liens of Agent for the benefit of Agent and Lenders pursuant to the Loan
Documents as security for the Obligations. Each Kitty Hawk Company will
maintain, keep and preserve all of its material Properties necessary, useful or
appropriate in the proper conduct of its business in good repair, working order
and condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals, replacements, betterments and improvements thereof. All Aircraft and
Other Aircraft maintenance and service will be performed in compliance with all
airworthiness directives and mandatory service bulletins and any and all
repairs, modifications and conversions of the Aircraft and of Other Aircraft
and the installation of Hush Kits shall be done in accordance with any and all
FAA specifications and requirements. The Kitty Hawk Companies (a) will cause a
Hush Kit to be added to each of the Aircraft (which does not presently have a
Hush Kit) on or before December 31, 1998, or (b) if and to the extent that such
a Hush Kit is not added to any such Aircraft by such date, will, from time to
time within 30 days after any request by Agent and pursuant to an Aircraft
Mortgage and other Security Documents reasonably satisfactory to Agent, grant
to Agent a perfected, first priority Lien (as security for the Obligations) on
other Stage 3 (as so qualifying under the Airport Noise and Capacity Act of
1990 and the regulations promulgated thereunder) Kitty Hawk Aircraft reasonably
acceptable to Agent that have an aggregate fair market value at least equal to
the value of the Aircraft specified by Agent which does not then have a Hush
Kit in exchange for Agent's release of its Lien on such Aircraft specified by
Agent.
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Section 8.4 Taxes and Claims. Each Kitty Hawk Company will pay or
discharge at or before maturity or before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material
and supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that no Kitty Hawk Company will be required to pay or
discharge any tax, levy, assessment or governmental charge or claim for labor,
material or supplies whose amount, applicability or validity is being contested
in good faith by appropriate proceedings being diligently pursued and for which
adequate reserves have been established under GAAP.
Section 8.5 Insurance.
(a) Public Liability and Property Damage
Insurance. The Kitty Hawk Companies shall carry or cause to be
carried with respect to the Aircraft and Acquired Aircraft, other than
Non-Collateral Aircraft, and with respect to all other Kitty Hawk
Aircraft in operation, at their expense, comprehensive airline
liability (including, without limitation, passenger, contractual,
bodily injury, cargo and property damage liability) insurance (i) in
an amount for each such aircraft of not less than (a) $50,000,000 per
occurrence combined single limit with respect to each of Aircraft A,
Aircraft B, Aircraft G and Aircraft H and all other Kitty Hawk
Aircraft except Boeing 727-200 series aircraft and (b) $200,000,000
per occurrence combined single limit with respect to each of Aircraft
C, Aircraft D, Aircraft E, Aircraft F, Aircraft I and Aircraft J and
all other Kitty Hawk Aircraft that are Boeing 727-200 series aircraft,
(ii) of the type and covering the same risks as from time to time are
applicable to similar aircraft owned or leased by the Kitty Hawk
Companies, (iii) of the type customarily carried by U.S. commercial
air carriers similarly situated with the applicable Kitty Hawk Company
and operating similar aircraft and engines and covering risks of the
kind customarily insured against by such carriers, and (iv) which is
maintained in effect with insurers of recognized reputation and
responsibility.
(b) Insurance Against Loss or Damage. The Kitty
Hawk Companies shall maintain or cause to be maintained in effect, at
their expense, with insurers of recognized reputation and
responsibility, all-risk aircraft hull insurance covering the Aircraft
and Acquired Aircraft, other than Non-Collateral Aircraft, and
all-risk property damage insurance covering engines and parts while
removed from such aircraft and not replaced by similar components
title to which is vested in Leasing free and clear of all Liens, which
insurance shall include, without limitation, except with respect to
all-risk property damage insurance and to the extent commercially
available, aircraft war risk and governmental confiscation and
expropriation and hijacking insurance; provided, that such insurance
shall at all times be for an amount not less than the greater of 110%
of the aggregate outstanding principal amount of the Loans advanced
against such aircraft or the amount which, in the judgment of Kitty
Hawk, is sufficient to fully insure the fair market value of such
aircraft (but shall not be required to exceed such fair market value
as of the Closing Date). In addition, the Kitty Hawk Companies shall
maintain or cause to be maintained in effect, at their expense,
insurance of the types and in the amounts specified in this Section
8.5(b) preceding covering all other Kitty Hawk Aircraft in operation
if and to the extent that such insurance is commercially available;
provided, however, that
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aircraft war risk and governmental confiscation and expropriation and
hijacking insurance shall not be required to be maintained with
respect to such other Kitty Hawk Aircraft.
(c) Adjustment. Except during a period when a
Default has occurred and is continuing, all losses covered by
insurance will be adjusted by the Kitty Hawk Companies with the
insurers.
(d) Application of Insurance Proceeds if no
Default. Each Kitty Hawk Company will cause each Insurance Recovery
relating to the Collateral to be deposited promptly with Agent as
security for the Obligations. If no Default shall have occurred and
be continuing, the applicable Kitty Hawk Company may use each such
Insurance Recovery to repair, restore or replace the Property that was
the subject of such Insurance Recovery. An Insurance Recovery will
only be released to a Kitty Hawk Company pursuant to this Section
8.5(d) upon delivery by such Kitty Hawk Company to Agent of evidence
reasonably satisfactory to Agent of the expenditure of amounts in
repair, restoration or replacement of the Property that was the
subject of the Insurance Recovery or the purchase of other, similar
Property for use in the Kitty Hawk Company's business in which Agent,
for the benefit of Agent and Lenders, shall have a perfected, first
priority Lien as security for the Obligations. Each Kitty Hawk
Company will promptly pay all Excess Insurance Proceeds to Agent for
application against the Obligations in accordance with Section 2.7(a).
(e) Application of Insurance Proceeds if a
Default. If a Default shall have occurred and be continuing, each
Kitty Hawk Company will cause all proceeds of insurance paid on
account of the loss of or damage to any Property of a Kitty Hawk
Company and all awards of compensation for any Property of any Kitty
Hawk Company taken by condemnation or eminent domain to be paid
directly to Agent to be applied against or held as security for the
Obligations, at the election of the Required Lenders.
(f) Certificates. The Kitty Hawk Companies shall
furnish, or cause to be furnished, to Agent, on or before the Closing
Date and concurrently with the renewal of each insurance policy (but in
no event less frequently than once each calendar year commencing in
1997), a certificate signed by an authorized representative of the
insureds (the "Insurance Broker"), describing in reasonable detail the
hull and liability insurance (and property insurance for detached
engines and parts) then carried and maintained with respect to the
Aircraft, Other Aircraft and Acquired Aircraft, and stating the opinion
of such Insurance Broker that (i) such insurance complies with the
terms hereof and (ii) that such insurance provides coverages against
risks that are customarily insured against by U.S. air carriers, and
that such coverages are in substantially similar forms, are of such
types and have limits within the range of limits as are customarily
carried by U.S. carriers. The Kitty Hawk Companies shall cause such
Insurance Brokers to agree to advise Agent in writing of any default in
the payment of any premium and of any other act or omission on the part
of any Kitty Hawk Company of which it has knowledge and which might
invalidate or render unenforecable, in whole or in part, any insurance
on the Aircraft, Other Aircraft and Acquired Aircraft, and to advise
Agent in writing at least 30 days
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(except a maximum of 7 days with respect to war risk coverages) prior
to the cancellation (but not scheduled expiration if renewed prior
thereto) or material adverse change of any insurance maintained
pursuant to this Section 8.5. The Kitty Hawk Companies shall also
cause such Insurance Brokers to agree to deliver to Agent, at or
before the expiration of any insurance policy referenced in a
previously delivered certificate of insurance, a new certificate
substantially in the form delivered on the Closing Date except for
changes in the coverage consistent with the terms hereof. If the Kitty
Hawk Companies fail to maintain or cause to be maintained insurance as
herein provided, the Required Lenders may at their sole option, but
shall be under no duty to, provide such insurance and, in such event,
the Kitty Hawk Companies shall, upon demand, reimburse the Required
Lenders for the costs thereof; provided, however, that no exercise by
the Required Lenders of said option shall affect the provisions of
this Agreement, including the provisions that failure by the Kitty
Hawk Companies to maintain the prescribed insurance shall constitute
an Event of Default.
(g) Deductibles. The Kitty Hawk Companies shall have the
right to self-insure to the extent of any applicable mandatory minimum
per aircraft (or, if applicable, per annum or other period) hull or
liability insurance deductible imposed by the aircraft hull or
liability insurer.
(h) Terms of Insurance Policies. Any policies of
insurance carried in accordance with this Sections 8.5 covering the
Aircraft, Other Aircraft and Acquired Aircraft, and any policies taken
out in substitution or replacement for any such policies, (i) shall
name Agent, for and on behalf of each of the Lenders, and the Lenders
as additional insured, with respect to liability policies, and Agent,
for and on behalf of each of the Lenders as loss payee, with respect
to casualty policies (but without imposing on any such party liability
to pay premiums with respect to such insurance), (ii) may provide for
self-insurance to the extent permitted in Section 8.5(g), (iii) shall
provide that, if the insurers cancel such insurance for any reason
whatever or if the same is allowed to lapse for non-payment of premium
or if any material change is made in the insurance which adversely
affects the interest of Agent, such lapse, cancellation or change
shall not be effective as to Agent for 30 days (except a maximum of
seven days with respect to war risk coverages in accordance with
standard industry practice) after receipt by Agent of written notice
by such insurers of such lapse, cancellation or change, (iv) shall
provide that the interests of Agent and the Lenders in such policies
shall not be invalidated by any action or inaction of any Kitty Hawk
Company or any other Person having possession and shall insure the
interests of Agent and the Lenders, as they appear, regardless of any
breach or violation of any warranty, declaration or condition
contained in such policies by any Kitty Hawk Company or by any such
Person having possession, (v) shall be primary without any right of
contribution from any other insurance which is carried by Agent or the
Lenders, (vi) shall expressly provide that all of the provisions
thereof, except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each insured, (vii)
shall waive any right of the insurers to set-off or counterclaim or
any other deduction, whether by attachment or otherwise, in respect of
any liability of Agent, and (viii) shall provide that, in the event of
loss involving the Aircraft, Other Aircraft or Acquired Aircraft,
Agent shall be sole loss payee for the account of all interests.
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Section 8.6 Inspection Rights. At any reasonable time and from
time to time, each Kitty Hawk Company will permit representatives and agents of
Agent and each Lender to examine, copy and make extracts from its books and
records, to visit and inspect its Properties and to discuss its business,
operations and financial condition with its officers and independent certified
public accountants. Each Kitty Hawk Company will authorize their accountants
in writing (with a copy to Agent) to comply with this Section 8.6.
Section 8.7 Keeping Books and Records. The Kitty Hawk Companies
will maintain appropriate books of record and account in accordance with GAAP
consistently applied in which true, full and correct entries will be made of
all their respective dealings and business affairs. If any changes in
accounting principles from those used in the preparation of the financial
statements referenced in Section 8.1 are hereafter required or permitted by
GAAP and are adopted by any Kitty Hawk Company with the concurrence of its
independent certified public accountants and such changes in GAAP result in a
change in the method of calculation or the interpretation of any of the
financial covenants, standards or terms found in Section 8.1 or Article 10 or
any other provision of this Agreement, the Kitty Hawk Companies and the
Required Lenders agree to amend any such affected terms and provisions so as to
reflect such changes in GAAP with the result that the criteria for evaluating
the Kitty Hawk Companies' financial condition shall be the same after such
changes in GAAP as if such changes in GAAP had not been made; provided that,
until any necessary amendments have been made, the certificate required to be
delivered under Section 8.1(c) hereof demonstrating compliance with Article 10
shall include calculations setting forth the adjustments from the relevant
items as shown in the current financial statements based on the changes to GAAP
to the corresponding items based on GAAP as used in the financial statements
referenced in Section 7.2(a), in order to demonstrate how such financial
covenant compliance was derived from the current financial statements. All
airframe and engine logs for the Aircraft and other aircraft will be correct,
complete and accurate.
Section 8.8 Compliance with Laws. Each Kitty Hawk Company will
comply in all material respects with all applicable Governmental Requirements.
Section 8.9 Compliance with Agreements. Each Kitty Hawk Company
will comply in all material respects with all material agreements, contracts,
documents and instruments binding on it or affecting its Properties or
business.
Section 8.10 Further Assurances. Each Kitty Hawk Company will
execute and deliver such further agreements, documents and instruments and take
such further action as may be requested by Agent to carry out the provisions
and purposes of this Agreement and the other Loan Documents, to evidence the
Obligations and to create, preserve, maintain and perfect the Liens of Agent
for the benefit of itself and Lenders in and to the Collateral and the required
priority of such Liens. Without limiting the generality of the foregoing, each
Kitty Hawk Company will use all reasonable efforts to obtain agreements (e.g.,
landlord and mortgagee consents and waivers) of the owners of the leased real
properties and the lenders of such owners, in form and substance reasonably
satisfactory to Agent, as Agent may request from time to time.
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Section 8.11 ERISA. Each Kitty Hawk Company will, and will cause
each of its ERISA Affiliates to, comply with all minimum funding requirements
and all other material requirements of ERISA so as not to give rise to any
liability thereunder.
Section 8.12 Aircraft Registration, Maintenance, Operation,
Insignia.
(a) Registration and Maintenance. The Kitty Hawk
Companies, at their own cost and expense, shall:
(i) cause the Aircraft, Other Aircraft
and Acquired Aircraft to be duly registered in the name of
Leasing and to remain duly registered in the name of Leasing
under the Federal Aviation Act;
(ii) maintain, service, repair and
overhaul each of the Aircraft, Other Aircraft and Acquired
Aircraft, other than Non-Collateral Aircraft, (A) so as to
keep such aircraft in good operating condition and so as to
keep the such aircraft in such condition as may be necessary
to enable the airworthiness certification for such aircraft to
be maintained in good standing at all times under the Federal
Aviation Act, (B) so as to comply with all airworthiness
directives (at the time and to the extent applicable to the
Kitty Hawk Companies or other operator of such aircraft),
manufacturer manuals and mandatory service bulletins and all
applicable insurance policies, and (C) in substantially the
same manner as the applicable Kitty Hawk Company maintains,
services, repairs or overhauls similar aircraft and without in
any way discriminating against such aircraft (or in such other
manner as shall have been approved by Required Lenders in
writing);
(iii) maintain or cause to be maintained
all records, logs and other materials required to be
maintained in respect of the Aircraft, Other Aircraft and
Acquired Aircraft, other than Non-Collateral Aircraft, by the
Federal Aviation Act or any applicable Government Authority;
and
(iv) continuously cause the Aircraft,
Other Aircraft and Acquired Aircraft, other than
Non-Collateral Aircraft, to remain in normal revenue
generating operation (subject to maintenance requirements in
the ordinary course of business).
(b) Insignia. On or before September 1, 1996,
the Kitty Hawk Companies agree to affix and maintain (or cause to be
affixed and maintained), conspicuously displayed, on the cockpit
bulkhead of each Aircraft, other than Non-Collateral Aircraft, and on
each engine, a nameplate (or, with respect to engines, a stencil)
bearing the inscription:
Mortgaged To
Wells Fargo Bank (Texas), National Association
(as Agent for itself and other Lenders)
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(such nameplate to be replaced, if necessary, with a nameplate
reflecting the name of any successor mortgagee). The Kitty Hawk
Companies shall not allow the name of any Person to be placed on any
Aircraft, other than Non- Collateral Aircraft, as a designation that
might be interpreted as a claim of ownership; provided, that nothing
herein shall prohibit a Kitty Hawk Company from placing its or its
vendee's customary colors and insignia on the Aircraft.
Section 8.13 Replacement of Parts; Alterations, Modifications and
Additions.
(a) Replacement of Parts. The Kitty Hawk
Companies shall, at their own cost and expense, promptly replace or
cause to be replaced all parts for any Aircraft or Acquired Aircraft,
other than Non- Collateral Aircraft, which may from time to time
become worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair, obsolete or permanently rendered unfit for use for any
reason whatsoever. All replacement parts shall be owned by Leasing
free and clear of all Liens (other than Liens in favor of Agent
securing the Obligations) and shall be in as good an operating
condition as, and shall have a value at least equal to, the parts
replaced, assuming such replaced parts were in the condition and
repair required to be maintained by the terms hereof. All parts at
any time removed from the Aircraft and Acquired Aircraft, other than
Non-Collateral Aircraft, shall remain the property of Borrower and
remain subject to the Lien of the Loan Documents, no matter where
located, until such time as (i) such parts shall be replaced by parts
which are free and clear of all Liens and have become subject to the
Lien of the Loan Documents or (ii) with respect to parts removed from
Acquired Aircraft, the Lien on the Acquired Aircraft has been released
by Agent.
(b) Alterations, Modifications and Additions.
The Kitty Hawk Companies shall, at their own expense, make (or cause
to be made) such alterations and modifications in and additions to the
Aircraft and Acquired Aircraft, other than Non-Collateral Aircraft, as
may be required to meet the applicable standards of the FAA and to
maintain the standard certificate of airworthiness for such aircraft.
In addition, the Kitty Hawk Companies may, at their own expense, from
time to time make such alterations and modifications in and additions
to the Aircraft and Acquired Aircraft, other than Non-Collateral
Aircraft, as they may deem desirable in the proper conduct of their
business; provided, that no such alteration, modification or addition
impairs the condition or airworthiness of any such Aircraft and
Acquired Aircraft or diminishes the value below the value thereof
immediately prior to such alteration, modification or addition
assuming any such Aircraft and Acquired Aircraft were then in the
condition required to be maintained by the terms of the Loan
Documents. All parts incorporated or installed in or attached or
added to the Aircraft and Acquired Aircraft, other than Non-
Collateral Aircraft, as the result of any such alteration,
modification or addition (the "Additional Parts") shall, without
further act, become subject to the Lien of the Loan Documents. The
Kitty Hawk Companies may, at their own expense at any time, so long as
no Default shall have occurred and be continuing, remove or suffer to
be removed any Additional Part, provided that such Additional Part:
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(i) is in addition to, and not in
replacement of or substitution for, (A) any part originally
incorporated or installed in or attached to such aircraft upon
the cargo conversion of and installation of Hush Kits on such
aircraft, or (B) any part in replacement of or substitution
for any such part;
(ii) is not required to be incorporated
or installed in or attached or added to such aircraft pursuant
to the terms hereof or under any contract; and
(iii) can be removed from such aircraft
without impairing the condition or airworthiness or
diminishing the value of such aircraft which such aircraft
would have had at such time had such alteration, modification
or addition not occurred.
Upon the removal thereof as provided above, such Additional Part shall
no longer be deemed subject to the Lien of the Loan Documents.
Section 8.14 Ownership of Subsidiaries. Kitty Hawk shall at all
times own all issued and outstanding Capital Stock of the Kitty Hawk Operating
Subsidiaries and Skyfreighters.
ARTICLE 9
Negative Covenants
Each Kitty Hawk Company jointly and severally covenants and agrees
that, as long as the Obligations or any part thereof are outstanding or any
Lender has any Commitment hereunder or any Letter of Credit remains
outstanding, it will perform and observe, or cause to be performed and
observed, the following covenants:
Section 9.1 Debt. No Kitty Hawk Company will, without the prior
written consent of Required Lenders, incur, create, assume or permit to exist
any Debt, except:
(a) Debt of the Kitty Hawk Companies to Agent and
Lenders pursuant to the Loan Documents;
(b) Debt owed to Bank One under the Bank One
Interest Rate Protection Agreement as in effect on the Closing Date;
and
(c) Debt (in addition to the Debt referred to in
clauses (a) and (b) preceding) incurred in the ordinary course of
business (including, without limitation, Debt incurred to finance the
acquisition of additional aircraft) not to exceed $25,000,000 in
aggregate principal amount at any time outstanding.
Section 9.2 Limitation on Liens. No Kitty Hawk Company will incur,
create, assume or permit to exist any Lien upon any Collateral (including,
without limitation, Aircraft and Acquired Aircraft during such time as such
Aircraft and Acquired Aircraft are subject to, or are required to be subject
to, a Lien in accordance with this Agreement or the other Loan Documents)
except
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Permitted Liens. No Kitty Hawk Company will incur, create, assume or permit to
exist any Lien upon any Capital Stock issued by any Subsidiary of Kitty Hawk.
Section 9.3 Mergers, Etc. No Kitty Hawk Company will, without the
prior written consent of the Required Lenders, (a) become a party to a merger
or consolidation, (b) wind-up, dissolve or liquidate itself, (c) form, purchase
or acquire a Subsidiary, or (d) purchase or acquire all or a material or
substantial part of the business or Properties of any Person; provided,
however, that any Subsidiary of Kitty Hawk may merge with and into Kitty Hawk
or any Kitty Hawk Operating Subsidiary if (but only if) (i) the surviving
entity in such merger is Kitty Hawk or a Wholly-Owned Subsidiary of Kitty Hawk,
(ii) if a Kitty Hawk Operating Subsidiary is a party to such merger, the
surviving entity in such merger is Kitty Hawk or a Kitty Hawk Operating
Subsidiary, (iii) at the time of such merger, each entity that is a party
thereto is Solvent, and (iv) the parties to such merger execute and deliver to
Agent such agreements, documents and instruments as Agent may reasonably
request in order to ensure that the Loan Documents and the Liens in the
Collateral in favor of Agent are not affected by such merger; and provided,
further, however, that Kitty Hawk or a Kitty Hawk Operating Subsidiary may
acquire the business or Properties of any Person pursuant to an asset
acquisition (as opposed to an acquisition of Capital Stock) if and to the
extent that the business or Properties acquired are used in the present lines
of business of Kitty Hawk and the Kitty Hawk Operating Subsidiaries.
Section 9.4 Restricted Payments. No Kitty Hawk Company will make
or permit to be made any Restricted Payments, except:
(a) subject to the subordination provisions
relating thereto, the Kitty Hawk Companies may make regularly
scheduled payments (as opposed to prepayments) of principal and
accrued interest on any Subordinated Debt permitted to be incurred in
accordance with Section 9.1;
(b) Subsidiaries of Kitty Hawk other than the
Kitty Hawk Operating Subsidiaries may declare and pay dividends to
Kitty Hawk to the extent permitted by applicable law;
(c) the Kitty Hawk Operating Subsidiaries may
declare and pay dividends to Kitty Hawk to the extent permitted by
applicable law and consistent with prudent business practices;
(d) purchases by Kitty Hawk of shares of Capital
Stock of Kitty Hawk from employees of the Kitty Hawk Companies upon
the termination of the employment of such employees, provided that the
amount paid therefor shall not exceed the fair market value of such
shares to be purchased and shall not exceed $100,000 in the aggregate
during any fiscal year; and
(e) Kitty Hawk may declare and pay dividends to
its shareholders during any fiscal year in an aggregate amount not to
exceed 25% of Net Income of the Kitty Hawk Companies during the
immediately preceding fiscal year;
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provided, however, that no Restricted Payments may be made pursuant to any of
clauses (a), (d) or (e) preceding or may be made by Leasing pursuant to clauses
(c) preceding if a Default exists at the time of such Restricted Payment or
would result therefrom.
Section 9.5 Investments. No Kitty Hawk Company will make or permit
to be made or remain outstanding any advance, loan or extension of credit
(except an advance, loan or extension of credit to customers and suppliers in
the ordinary course of business not to exceed $2,000,000 in aggregate amount at
any time outstanding) or any capital contribution to or investment in any
Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to a Kitty Hawk Company;
(b) existing Investments identified on Schedule
9.5 hereto;
(c) Investments in securities issued or
guaranteed by the U.S. with maturities of one year or less from the
date of acquisition;
(d) Investments in certificates of deposit and
Eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with
any Lender or with any domestic commercial bank having capital and
surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a
term of not more than seven days for securities of the types described
in clause (c) preceding with any Lender or with any domestic
commercial bank having capital and surplus in excess of $500,000,000;
(f) Investments in commercial paper of a domestic
issuer rated A-1 or better or P-1 or better by Standard & Poor's
Corporation or Moody's Investors Services, Inc., respectively,
maturing not more than six months from the date of acquisition; and
(g) Investments by Kitty Hawk in the Kitty Hawk
Operating Subsidiaries existing on the Closing Date and, if a Default
does not exist at the time of such Investment or would not result
therefrom, additional Investments by Kitty Hawk in any Kitty Hawk
Operating Subsidiary made after the Closing Date.
Without limiting the generality of the foregoing, neither Kitty Hawk nor any
Kitty Hawk Operating Subsidiary will, except as may be expressly permitted by
the preceding clauses (a) through (g), make any Investment in (i) Skyfreighters
(except for the Investment of Kitty Hawk in Skyfreighters made prior to the
Closing Date), (ii) any other Subsidiary other than a Kitty Hawk Operating
Subsidiary, or (iii) any other entity.
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Section 9.6 Limitation on Issuance of Capital Stock. No Subsidiary
of Kitty Hawk will at any time issue, sell, assign or otherwise dispose of (a)
any of its Capital Stock, (b) any securities exchangeable for or convertible
into or carrying any rights to acquire any of its Capital Stock, or (c) any
option, warrant or other right to acquire any of its Capital Stock; provided,
however, that, if and to the extent not otherwise prohibited by this Agreement
or the other Loan Documents, a Kitty Hawk Operating Subsidiary may issue
additional shares of its Capital Stock to Kitty Hawk.
Section 9.7 Transactions with Affiliates. No Kitty Hawk Company
will enter into any transaction, including, without limitation, the purchase,
sale or exchange of Property or the rendering of any service, with any
Affiliate of any Kitty Hawk Company except in the ordinary course of and
pursuant to the reasonable requirements of such Kitty Hawk Company's business
and upon fair and reasonable terms no less favorable to such Kitty Hawk Company
than would be obtained in a comparable arms-length transaction with a Person
not an Affiliate of a Kitty Hawk Company.
Section 9.8 Disposition of Property. No Kitty Hawk Company will
sell, lease, assign, transfer or otherwise dispose of any of its Property,
except:
(a) dispositions of Property, other than
Collateral, in the ordinary course of business or consistent with
prudent business practices (including, without limitation, sales of
Aircraft and Acquired Aircraft concurrently with Agent's release of
its Lien thereon in accordance with Sections 5.4(b) and 5.4(c),
respectively); and
(b) with respect to Aircraft and Acquired
Aircraft and which constitute Collateral, leases of such Aircraft by
Leasing to Aircargo for fair consideration pursuant to the applicable
Leases and leases of such Acquired Aircraft for fair consideration,
each of which Leases or leases shall be Operating Leases and none of
which Leases or leases shall be finance leases or shall grant to the
lessee any option to purchase the Aircraft or Acquired Aircraft or any
portion thereof.
Section 9.9 Lines of Business. No Kitty Hawk Company will (a)
engage in any air transportation of passengers for hire, or in any material
line or lines of business activity other than the businesses in which it is
engaged on the Closing Date and lines of business reasonably related thereto or
(b) discontinue any material line or lines of business in which it is engaged
on the Closing Date. Each of Leasing and Aircargo acknowledges and agrees that
(i) each of the Leases is subject and subordinate to the Aircraft Mortgages and
this Agreement and that all indebtedness, liabilities and obligations of
Leasing and Aircargo under the Aircraft Mortgages and the Agreement shall be
deemed to be incorporated into each of the Leases as if independently stated
therein, and (ii) it shall not, without the prior written consent of Required
Lenders, permit any lease or sublease of any of the Aircraft or Acquired
Aircraft while it is, or is required to be, subject to a Lien in accordance
with this Agreement or the other Loan Documents, except an operating lease of
any such aircraft to a customer of a Kitty Hawk Company under which such
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Aircraft or Acquired Aircraft remains listed on Aircargo's operations
specifications and Aircargo remains fully responsible for maintenance and
operation of such Aircraft or Acquired Aircraft.
Section 9.10 Environmental Protection. No Kitty Hawk Company will
(a) use (or permit any tenant to use) any of its Properties for the handling,
processing, storage, transportation or disposal of any Hazardous Material
except in compliance with applicable Environmental Laws, (b) generate any
Hazardous Material except in compliance with applicable Environmental Laws, (c)
conduct any activity that is likely to cause a Release or threatened Release of
any Hazardous Material in violation of any Environmental Law, or (d) otherwise
conduct any activity or use any of its Properties in any manner, that violates
or is likely to violate any Environmental Law or create any Environmental
Liabilities for which any Kitty Hawk Company would be responsible, except for
circumstances or events described in clauses (a) through (d) preceding that
could not, individually or in the aggregate, have a Material Adverse Effect.
Section 9.11 Intercompany Transactions. Except as may be expressly
permitted or required by the Loan Documents, no Kitty Hawk Company will create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary of
Kitty Hawk to (a) pay dividends or make any other distribution to any Kitty
Hawk Company in respect of the Capital Stock of any such Subsidiary or with
respect to any other interest or participation in, or measured by, its profits,
(b) pay any indebtedness owed to any Kitty Hawk Company, (c) make any loan or
advance to any Kitty Hawk Company, or (d) sell, lease or transfer any of its
Property to any Kitty Hawk Company.
Section 9.12 Management Fees. No Kitty Hawk Company will pay any
management, consulting or similar fees (excluding directors' fees and regular
professional fees for services rendered) to any Affiliate of any Kitty Hawk
Company or to any director, officer or employee of any Kitty Hawk Company or
any Affiliate of any Kitty Hawk Company.
Section 9.13 Modification of Other Agreements. No Kitty Hawk
Company will consent to or implement any termination, amendment, modification,
supplement or waiver of (a) any Subordinated Debt or any agreement, document or
instrument evidencing or governing such Debt, (b) the certificate or articles
of incorporation or bylaws (or analogous constitutional documents) of any Kitty
Hawk Company, or (c) any Material Contract to which it is a party or any Permit
which it possesses unless such termination, amendment, modification, supplement
or waiver could not be materially adverse to Kitty Hawk or any of its
Subsidiaries or Agent or any Lender.
Section 9.14 ERISA. No Kitty Hawk Company will:
(a) allow, or take (or permit any ERISA Affiliate
to take) any action which would cause, any unfunded or unreserved
liability for benefits under any Plan (exclusive of any Multiemployer
Plan) to exist or to be created that exceeds $100,000 with respect to
any such Plan or $200,000 with respect to all such Plans in the
aggregate on either a going concern or a wind-up basis; or
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(b) with respect to any Multiemployer Plan,
allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits
under any Multiemployer Plan to exist or to be created, either
individually as to any such Plan or in the aggregate as to all such
Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material
Adverse Effect.
Section 9.15 Leases. No Kitty Hawk Company will consent or agree
to or implement any termination, amendment, modification, supplement or waiver
of or to any of the Leases so long as the Aircraft to which such Lease relates
is, or is required to be, subject to a Lien in favor of Agent in accordance
with this Agreement or the other Loan Documents.
Section 9.16 Territorial Restrictions. No Kitty Hawk Company will:
(a) use, repair, maintain, overhaul or operate
any Kitty Hawk Aircraft, or permit any other Person to use, repair,
maintain, overhaul or operate any Kitty Hawk Aircraft, in violation of
any applicable law or any applicable rule, regulation, treaty, order
or certification of any government or Governmental Authority (domestic
or foreign), or in violation of any airworthiness certificate, license
or registration issued by any such authority; or
(b) operate or permit any other Person to operate
a Kitty Hawk Aircraft, while it is, or is required to be, subject to a
Lien in favor of Agent in accordance with this Agreement or the other
Loan Documents, to or in any area (i) excluded from coverage by any
insurance policy or policies required to be carried or maintained by
the terms of this Agreement, unless with U.S. governmental indemnity
or with other insurance or governmental indemnity reasonably
acceptable to Agent and (ii) in the event that such aircraft is not
covered by aircraft war risk and governmental confiscation and
expropriation and hijacking insurance, unless the Geneva Convention on
the International Recognition of Rights in Aircraft shall be in effect
in such jurisdictions in which such area lies and any agreements,
documents or instruments evidencing Agent's Lien in and to such
aircraft as Agent may reasonably require have been executed by the
appropriate Persons and appropriately filed in such jurisdictions.
ARTICLE 10
Financial Covenants
Each Kitty Hawk Company jointly and severally covenants and agrees
that, as long as the Obligations or any part thereof are outstanding or any
Lender has any Commitment hereunder or any Letter of Credit remains
outstanding, it will perform and observe, or cause to be performed and
observed, the following covenants:
Section 10.1 Senior Funded Debt to Cash Flow Ratio. The Kitty Hawk
Companies will not permit the Senior Funded Debt to Cash Flow Ratio, calculated
as of the end of each fiscal
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quarter of Kitty Hawk, commencing with the fiscal quarter ended August 31,
1996, for the four fiscal quarters then ended, to be greater than 3.00 to 1.00.
Section 10.2 Fixed Charge Coverage Ratio. The Kitty Hawk Companies
will not permit the Fixed Charge Coverage Ratio, calculated as of the end of
each fiscal quarter of Kitty Hawk, commencing with the fiscal quarter ended
August 31, 1996, for the four fiscal quarters of Kitty Hawk then ended, to be
less than 1.20 to 1.00.
Section 10.3 Leverage Ratio. The Kitty Hawk Companies will not
permit the Leverage Ratio, calculated as of the end of each fiscal quarter of
Kitty Hawk, commencing with the fiscal quarter ended August 31, 1996, to be
greater than 3.00 to 1.00.
Section 10.4 Net Income. The Kitty Hawk Companies will not permit
the Net Income, exclusive of noncash extraordinary gains and exclusive of
noncash extraordinary losses to the extent included or deducted, respectively,
in determining Net Income, calculated as of the end of each fiscal quarter of
Kitty Hawk, commencing with the fiscal quarter ended August 31, 1996, for the
four fiscal quarters then ended, to be less than $1.00.
Section 10.5 Accounts Payable Turndays. The Kitty Hawk Companies
will maintain Accounts Payable Turndays, calculated as of the end of each
fiscal quarter of Kitty Hawk, commencing with the fiscal quarter ended August
31, 1996, for the portion of the fiscal year then ended, of not more than 60
days.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) Any Kitty Hawk Company shall fail to pay,
repay or prepay when due any amount of principal or interest owing to
Agent or any Lender pursuant to this Agreement or any other Loan
Document or any fee, expense or other amount or other Obligation owing
to Agent or any Lender pursuant to this Agreement or any other Loan
Document, in each case within three Business Days after the due date
thereof.
(b) Any representation or warranty made or deemed
made by any Kitty Hawk Company in any Kitty Hawk Company or in any
certificate, report, notice or financial statement furnished at any
time in connection with this Agreement or any other Loan Document
shall be false, misleading or erroneous in any material respect when
made or deemed to have been made.
(c) Any Kitty Hawk Company shall fail to perform,
observe or comply with any covenant, agreement or term contained in
Sections 5.1, 5.2, 8.1(g), 8.1(j), 8.1(l), 8.1(n), 8.2 (other than the
last two sentences of Section 8.2), clause (i) of 8.12(a), 8.14,
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Article 9 or Article 10 of this Agreement; any Kitty Hawk Company
shall fail to perform, observe or comply with any covenant, agreement
or term contained in Sections 8.5, 8.6, 8.7, 8.8, 8.9, 8.10 and 8.12
(other than clause (i) of Section 8.12(a)) and such failure is not
remedied or waived within three days after such failure commenced; any
Kitty Hawk Company shall fail to perform, observe or comply with any
covenant, agreement or term contained in Sections 5.3, 8.1 (other than
Sections 8.1(g), 8.1(j), 8.1(l) or 8.1(n)), 8.4, or 8.13 and such
failure is not remedied or waived within ten days after such failure
commenced; any Kitty Hawk Company shall fail to perform, observe or
comply with any covenant, agreement or term contained in any Lease,
Guaranty, Aircraft Mortgage, Security Agreement or any other Security
Document, subject to any grace period (if any) applicable to such
covenant, agreement or term contained in such Lease, Guaranty,
Aircraft Mortgage, Security Agreement or other Security Document,
respectively; or any Kitty Hawk Company shall fail to perform, observe
or comply with any other covenant, agreement or term contained in this
Agreement or any other Loan Document (other than covenants to pay the
Obligations) and such failure is not remedied or waived within the
earlier to occur of 30 days after such failure commenced or, if a
different grace period is expressly made applicable in such other Loan
Document, such applicable grade period.
(d) Any of Kitty Hawk or any Kitty Hawk Operating
Subsidiary ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due.
(e) Any Kitty Hawk Company shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner, liquidator or the like of
itself or of all or any substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the U. S. Bankruptcy Code (11 U.S.C. Section
101, et seq.) (as now or hereafter in effect, the "Bankruptcy Code"),
(iv) institute any proceeding or file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, winding-up or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code, or (vi)
take any corporate or other action for the purpose of effecting any of
the foregoing.
(f) A proceeding or case shall be commenced,
without the application, approval or consent of any Kitty Hawk Company
in any court of competent jurisdiction, seeking as to such Kitty Hawk
Company (i) its reorganization, liquidation, dissolution, arrangement
or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a receiver, custodian, trustee, examiner,
liquidator or the like of all or any substantial part of its Property,
or (iii) similar relief under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of
debts, and such proceeding or case shall continue undismissed, or an
order, judgment or decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect, for a period of
60 or more days; or an order for relief against any Kitty Hawk Company
shall be entered in an involuntary case under the Bankruptcy Code.
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(g) Any Kitty Hawk Company shall fail to
discharge within a period of 30 days after the commencement thereof
any attachment, sequestration, forfeiture or similar proceeding or
proceedings involving an aggregate amount in excess of $250,000
against any of its Properties.
(h) A final judgment or judgments for the payment
of money in excess of $1,000,000 in the aggregate shall be rendered by
a court or courts against the Kitty Hawk Companies or any of them on
claims not covered by insurance or as to which the insurance carrier
has denied responsibility and the same shall not be discharged, or a
stay of execution thereof shall not be procured, within five days from
the date of entry thereof and the Kitty Hawk Companies or any of them
shall not, within said period of five days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal.
(i) Any Kitty Hawk Company shall fail to pay when
due any principal of or interest on any Debt (other than the
Obligations) having (either individually or in the aggregate) a
principal amount of at least $500,000, or the maturity of any such
Debt shall have been accelerated, or any such Debt shall have been
required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred (and shall not have been waived or otherwise
cured) that permits (or, with the giving of notice or lapse of time or
both, would permit) any holder or holders of such Debt or any Person
acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment.
(j) This Agreement or any other Loan Document
shall cease to be in full force and effect or shall be declared null
and void or the validity or enforceability thereof shall be contested
or challenged by any Kitty Hawk Company or any of its shareholders, or
any Kitty Hawk Company shall deny that it has any further liability or
obligation under any of the Loan Documents, or any Lien created by the
Loan Documents shall for any reason cease to be a valid, first
priority perfected Lien (except for Permitted Liens, if any, which are
permitted by the Loan Documents to have priority over the Liens in
favor of Agent) upon any of the Collateral purported to be covered
thereby.
(k) Any of the following events shall occur or
exist with respect to any Kitty Hawk Company or any ERISA Affiliate:
(i) any Prohibited Transaction involving any Plan; (ii) any Reportable
Event with respect to any Pension Plan; (iii) the filing under Section
4041 of ERISA of a notice of intent to terminate any Pension Plan or
the termination of any Pension Plan; (iv) any event or circumstance
that could reasonably be expected to constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Pension Plan, or the institution by the PBGC of any such proceedings;
(v) any "accumulated funding deficiency" (as defined in Section 406 of
ERISA or Section 412 of the Code), whether or not waived, shall exist
with respect to any Plan; or (vi) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Plan or the reorganization,
insolvency or termination of any Pension Plan; and in each case above,
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such event or condition, together with all other events or conditions,
if any, have subjected or could in the reasonable opinion of Required
Lenders subject any Kitty Hawk Company or any ERISA Affiliate to any
tax, penalty or other liability to a Plan, a Multiemployer Plan, the
PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $250,000.
(l) The occurrence of a Change of Control.
(m) The occurrence of a default under any
Subordinated Debt or any agreement, document or instrument creating or
evidencing such Debt, unless (i) such default has been waived, cured
or consented to in accordance with such agreement, document or
instrument, (ii) such default is not a payment default, (iii) the
maturity of the Debt affected thereby has not been accelerated, and
(iv) such waiver or consent is not made in connection with any
amendment or modification of any such agreement, document or
instrument or in connection with any payment to the holders of any
such Debt.
(n) If, at any time, any event or circumstance
shall occur which gives any holder of any Subordinated Debt the right
to request or require Kitty Hawk or any of its Subsidiaries to redeem,
purchase or prepay any such Debt.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, Agent may and, if directed by the Required Lenders, Agent shall do
any one or more of the following:
(a) Acceleration. Declare all outstanding
principal of and accrued and unpaid interest on the Loans and
Reimbursement Obligations and all other amounts payable by any
Borrower under the Loan Documents immediately due and payable, and the
same shall thereupon become immediately due and payable, without
notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest or other
formalities of any kind, all of which are hereby expressly waived;
(b) Termination of Commitments. Terminate the
Commitments (including, without limitation, any obligation of Issuing
Bank to issue Letters of Credit) without notice to Borrowers or any
other Kitty Hawk Company;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce
any Lien granted to Agent for the benefit of Agent and Lenders to
secure payment and performance of the Obligations in accordance with
the terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and
remedies afforded by the laws of the State of Texas or any other
jurisdiction, by any of the Loan Documents, by equity or otherwise;
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provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or Section 11.1(f), the Commitments of all of Lenders
(including, without limitation, any obligation of Issuing Bank to issue Letters
of Credit) shall immediately and automatically terminate, and the outstanding
principal of and accrued and unpaid interest on the Loans and all other amounts
payable under the Loan Documents shall thereupon become immediately and
automatically due and payable, all without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived.
Section 11.3 Performance by Agent. If any Kitty Hawk Company shall
fail to perform any covenant or agreement in accordance with the terms of the
Loan Documents, Agent may, at the direction of the Required Lenders, perform or
attempt to perform such covenant or agreement on behalf of such Kitty Hawk
Company. In such event, Borrowers shall, at the request of Agent, promptly pay
any amount expended by Agent or Lenders in connection with such performance or
attempted performance to Agent at the Principal Office, together with interest
thereon at the applicable Default Rate from and including the date of such
expenditure to but excluding the date such expenditure is paid in full.
Notwithstanding the foregoing, it is expressly agreed that neither Agent nor
any Lender shall have any liability or responsibility for the performance of
any obligation of Borrowers or any other Kitty Hawk Company under this
Agreement or any of the other Loan Documents.
Section 11.4 Cash Collateral. If an Event of Default shall have
occurred and be continuing, Kitty Hawk shall, if requested by Agent or Required
Lenders, pledge to Agent as security for the Obligations an amount in
immediately available funds equal to the then outstanding Letter of Credit
Liabilities, such funds to be held in a cash collateral account satisfactory to
Agent without any right of withdrawal by Kitty Hawk or any other Kitty Hawk
Company.
ARTICLE 12
Agency and Intercreditor Provisions
Section 12.1 Appointment, Powers and Immunities. Each Lender
hereby irrevocably appoints and authorizes Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. Neither
Agent nor any of its Affiliates, officers, directors, employees, attorneys or
agents shall be liable for any action taken or omitted to be taken by any of
them hereunder or otherwise in connection with this Agreement or any of the
other Loan Documents except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the preceding sentence, Agent
(a) may treat the payee of any Note as the holder thereof until Agent receives
written notice of the assignment or transfer thereof signed by such payee and
in form satisfactory to Agent, (b) shall have no duties or responsibilities
except those expressly set forth in this Agreement and the other Loan
Documents, and shall not by reason of this Agreement or any other Loan Document
be a trustee or fiduciary for any Lender, (c) shall not be required to initiate
any
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litigation or collection proceedings hereunder or under any other Loan Document
except to the extent requested by the Required Lenders, (d) shall not be
responsible to Lenders for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, enforceability or sufficiency of this Agreement or any
other Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder, (e) may consult with legal counsel (including counsel
for any Kitty Hawk Company), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or
sent by the proper party or parties. As to any matters not expressly provided
for by this Agreement, Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with instructions signed
by the Required Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of
Lenders; provided, however, that Agent shall not be required to take any action
which exposes Agent to liability or which is contrary to this Agreement or any
other Loan Document or applicable law.
Section 12.2 Rights of Agent as a Lender. With respect to its
Commitments, the Loans made by it and the Notes and Letters of Credit issued to
or by it, Wells Fargo (and any successor acting as Agent) in its capacity as a
Lender or Issuing Bank hereunder shall have the same rights and powers
hereunder as any other Lender or Issuing Bank and may exercise the same as
though it were not acting as Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include Agent in its individual
capacity. Agent and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to, act as trustee under
indentures of, provide merchant banking services to, own securities of, and
generally engage in any kind of banking, trust or other business with, the
Kitty Hawk Companies or any of their Affiliates and any other Person who may do
business with or own securities of the Kitty Hawk Companies or any of their
Affiliates, all as if it were not acting as Agent and without any duty to
account therefor to Lenders.
Section 12.3 Defaults. Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than the non-payment of
principal of or interest on the Loans or Reimbursement Obligations or of
commitment fees) unless Agent has received notice from a Lender or a Kitty Hawk
Company specifying such Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice of the occurrence of
a Default, Agent shall give prompt notice thereof to Lenders (and shall give
each Lender prompt notice of each such non-payment). Agent shall (subject to
Section 12.1) take such action with respect to such Default as shall be
directed by the Required Lenders, provided that unless and until Agent shall
have received such directions, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
as it shall seem advisable and in the best interest of Lenders.
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Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO
INDEMNIFY AGENT FROM AND HOLD AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE OBLIGATIONS
OF ANY KITTY HAWK COMPANY UNDER SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE
WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE AGGREGATE LOAN
PERCENTAGES), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND
EXPENSES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (BUT EXCLUDING
NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF AGENT'S
DUTIES AS AGENT HEREUNDER) WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY AGENT UNDER OR IN
RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL
BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING,
IT IS THE EXPRESS INTENTION OF LENDERS THAT AGENT SHALL BE INDEMNIFIED
HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES AND EXPENSES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY OTHER PROVISION OF
THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND
FOR ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE AGGREGATE LOAN
PERCENTAGES) OF ANY AND ALL OUT-OF- POCKET EXPENSES (INCLUDING ATTORNEYS' FEES
AND EXPENSES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION,
DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER
THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN
RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT
THAT AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY KITTY HAWK OR THE
OPERATING COMPANIES.
Section 12.5 Independent Credit Decisions. Each Lender agrees that
it has independently and without reliance on Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Kitty Hawk Companies and its
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own decision to enter into this Agreement and that it will, independently and
without reliance upon Agent or any other Lender, and based upon such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by any Kitty Hawk Company of this
Agreement or any other Loan Document or to inspect the Properties or books of
any Kitty Hawk Company. Except for notices, reports and other documents and
information expressly required to be furnished to Lenders by Agent hereunder or
under the other Loan Documents, Agent shall not have any duty or responsibility
to provide any Lender with any credit or other financial information concerning
the affairs, financial condition or business of any Kitty Hawk Company (or any
of their Affiliates) which may come into the possession of Agent or any of its
Affiliates.
Section 12.6 Several Commitments. The Commitments and other
obligations of Lenders under this Agreement are several. The default by any
Lender in making a Loan in accordance with its Commitment shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event
shall any Lender be required to advance an amount or amounts with respect to
any of the Loans which would in the aggregate exceed such Lender's Commitment
with respect to such Loans. No Lender shall be responsible for any act or
omission of any other Lender.
Section 12.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to Lenders and Borrowers. Upon any such resignation,
the Required Lenders will have the right to appoint another Lender as a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the U.S. or any state thereof or of
a foreign country if acting through its U.S. branch and having combined capital
and surplus of at least $100,000,000. Upon the acceptance of its appointment
as successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges, immunities and duties of the
resigning Agent, and the resigning Agent shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents. After any
Agent's resignation as Agent, the provisions of this Article 12 shall continue
in effect for its benefit in respect of any actions taken or omitted to be
taken by it while it was Agent. Each Agent (including each successor Agent)
agrees that, so long as it is acting as Agent under this Agreement, it shall be
a Lender under this Agreement.
Section 12.8 Initial Allocation of Collateral. Agent and Lenders
agree that, notwithstanding anything to the contrary contained in this
Agreement, if an Event of Default has occurred and, as a result thereof, any
Term Loans A Collateral or any Term Loans B Collateral is sold, transferred or
disposed of or retained in cancellation of any Debt, all proceeds of such sale,
transfer or other disposition or retention shall be applied as follows:
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(a) if such Collateral is Terms Loans A
Collateral, first, to payment of all principal of and accrued interest
on the Term Loans A, second, to the payment of all principal of and
accrued interest on the Term Loans C, third, to the payment (or, with
respect to outstanding Letters of Credit, held as security for
payment) of all principal of and accrued interest on the Revolving
Credit Loans and Letter of Credit Liabilities, fourth, to the payment
of all principal of and accrued interest on the Term Loans B and the
Bank One Interest Rate Protection Agreement, and, fifth, to the
remaining Obligations as Agent may determine; and
(b) if such Collateral is Terms Loans B
Collateral, first, to payment of all principal of and accrued interest
on the Term Loans B and the Bank One Interest Rate Protection
Agreement, second, to the payment of all principal of and accrued
interest on the Term Loans C, third, to the payment (or, with respect
to outstanding Letters of Credit, held as security for payment) of all
principal of and accrued interest on the Revolving Credit Loans and
Letter of Credit Liabilities, fourth, to the payment of all principal
of and accrued interest on the Term Loans A, and, fifth, to the
remaining Obligations as Agent may determine.
Section 12.9 Beneficiaries of Article 12. Notwithstanding anything
to the contrary contained in this Agreement, each Kitty Hawk Company
acknowledges and agrees that the terms and provisions of this Article 12 other
than Section 12.6 are intended solely for the benefit of Agent and Lenders and
that no Kitty Hawk Company is a beneficiary of any of such terms or provisions
or may enforce any of such terms or provisions against Agent or any Lender.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Whether or not the transactions
contemplated hereby are consummated, each of Borrowers hereby jointly and
severally agrees, on demand, to pay or reimburse Agent and each of Lenders for
paying: (a) all reasonable out-of-pocket costs and expenses of Agent in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, and any and all waivers, amendments,
modifications, renewals, extensions and supplements thereof and thereto, and
the syndication of the Commitments and the Loans, including, without
limitation, the reasonable fees and expenses of legal counsel for Agent, (b)
all out-of-pocket costs and expenses of Agent and Lenders in connection with
any Default, the exercise of any right or remedy and the enforcement of this
Agreement or any other Loan Document or any term or provision hereof or
thereof, including, without limitation, the fees and expenses of all legal
counsel for Agent and/or any Lender (unless, with respect to legal counsel of
any Lender other than Wells Fargo, Agent has not approved of the payment by
Borrowers of the fees and expenses of such counsel), (c) all transfer, stamp,
documentary or other similar taxes, assessments or charges levied by any
Governmental Authority in respect of this Agreement or any of the other Loan
Documents, (d) all costs, expenses, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any Lien
contemplated by this Agreement or any other Loan Document, and (e) all
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out-of-pocket costs and expenses incurred by Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports.
Section 13.2 INDEMNIFICATION. EACH KITTY HAWK COMPANY HEREBY
JOINTLY AND SEVERALLY AGREES TO INDEMNIFY AGENT AND EACH LENDER AND EACH
AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES,
ATTORNEYS AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES),
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' AND CONSULTANTS' FEES AND EXPENSES) TO WHICH
ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR
RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION
OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) THE RELATED TRANSACTIONS, (D) ANY
BREACH BY ANY KITTY HAWK COMPANY OF ANY REPRESENTATION, WARRANTY, COVENANT OR
OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (E) THE USE OR PROPOSED
USE OF ANY LOAN OR LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVEES, DEDUCTIONS
AND CHARGES IMPOSED ON AGENT, ISSUING BANK OR ANY LENDER IN RESPECT OF ANY LOAN
OR LETTER OF CREDIT (EXCLUSIVE OF INCOME AND FRANCHISE TAXES ATTRIBUTABLE TO
NET INCOME), (G) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL
OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY
OF THE PROPERTIES OF ANY KITTY HAWK COMPANY, EXCEPT TO THE EXTENT THAT THE
LOSS, DAMAGE OR CLAIM IS THE DIRECT RESULT OF AN INTENTIONAL AND AFFIRMATIVE
ACT BY THE PERSON TO BE INDEMNIFIED THAT CONSTITUTES GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH PERSON, OR (H) ANY INVESTIGATION, LITIGATION OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING
ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF
THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF
THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2
SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES,
LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF OR RESULTING FROM THE
SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. THE OBLIGATIONS OF EACH OF THE
KITTY HAWK COMPANIES
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UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS AND OTHER
OBLIGATIONS AND TERMINATION OF THE COMMITMENTS.
Section 13.3 Limitation of Liability. None of Agent, any Issuing
Bank, any Lender or any Affiliate, officer, director, employee, attorney or
agent thereof shall be liable for any error of judgment or act done in good
faith, or be otherwise liable or responsible under any circumstances whatsoever
(including such Person's negligence), except for such Person's gross negligence
or willful misconduct. None of Agent, any Issuing Bank, any Lender or any
Affiliate, officer, director, employee, attorney or agent thereof shall have
any liability with respect to, and each of the Kitty Hawk Companies hereby
waives, releases and agrees not to sue any of them upon, any claim for any
special, indirect, incidental or consequential damages suffered or incurred by
any Borrower or any other Kitty Hawk Company in connection with, arising out of
or in any way related to this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the other Loan
Documents. Each Kitty Hawk Company hereby waives, releases and agrees not to
sue Agent, any Issuing Bank or any Lender or any of their respective
Affiliates, officers, directors, employees, attorneys or agents for exemplary
or punitive damages in respect of any claim in connection with, arising out of
or in any way related to this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the other Loan
Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and
other professional Persons and consultants retained by Agent and Lenders shall
have the right to act exclusively in the interest of Agent and Lenders and
shall have no duty of disclosure, duty of loyalty, duty of care or other duty
or obligation of any type or nature whatsoever to Kitty Hawk or any of its
Subsidiaries or any of their shareholders or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between
each Kitty Hawk Company and Agent and each Issuing Bank and Lender is solely
that of debtor and creditor, and neither Agent, any Issuing Bank nor any Lender
has any fiduciary or other special relationship with any Borrower or any other
Kitty Hawk Company, and no term or condition of any of the Loan Documents shall
be construed so as to deem the relationship between any Borrower and Agent or
any Issuing Bank or Lender, or any other Kitty Hawk Company and Agent or any
Issuing Bank or Lender, to be other than that of debtor and creditor. No joint
venture or partnership is created by this Agreement between or among Agent or
any Issuing Bank or any Lender or between or among any Borrower or any other
Kitty Hawk Company and Agent or any Issuing Bank or any Lender.
Section 13.6 Equitable Relief. Each Kitty Hawk Company recognizes
that, in the event it fails to pay, perform, observe or discharge any or all of
the Obligations, any remedy at law may prove to be inadequate relief to Agent
and Lenders. Each Kitty Hawk Company therefore agrees that Agent and Lenders,
if Agent or Lenders so request, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the
part of Agent or any Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right,
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power or privilege under this Agreement or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies provided for in this
Agreement and the other Loan Documents are cumulative and not exclusive of any
rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns. Neither any Borrower nor any other Kitty Hawk
Company may assign or transfer any of its rights or obligations under
this Agreement or any other Loan Document without the prior written
consent of Agent and Lenders. Any Lender may sell participations in
all or a portion of its rights and obligations under this Agreement
and the other Loan Documents (including, without limitation, all or a
portion of its Commitments and the Loans owing to it and the Letters
of Credit issued by it); provided, however, that (i) such Lender's
obligations under this Agreement and the other Loan Documents
(including, without limitation, its Commitments) shall remain
unchanged, (ii) such Lender shall remain solely responsible to
Borrowers for the performance of such obligations, (iii) such Lender
shall remain the holder of its Notes for all purposes of this
Agreement, and (iv) Borrowers shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents.
(b) Each Kitty Hawk Company and each of Lenders
agree that any Lender (the "Assigning Lender") may at any time assign
to one or more Eligible Assignees all, or a proportionate part of all,
of its rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitments and Loans and
Letters of Credit) (each an "Assignee"); provided, however, that (i)
each such assignment may be of a varying percentage of the Assigning
Lender's rights and obligations under this Agreement and the other Loan
Documents and may relate to some but not all of such rights and/or
obligations, (ii) except in the case of an assignment of all of a
Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitments and Loans and Letters of
Credit of the Assigning Lender being assigned pursuant to each
assignment (determined as of the date of the Assignment and Acceptance
with respect to such assignment) shall in no event be less than the
lesser of (A) an aggregate amount equal to $1,000,000 calculated based
upon the sum of the Revolving Credit Loans Commitment assigned (or, if
such Commitment has terminated or expired, the aggregate outstanding
principal amount of the Revolving Credit Loans and face amount of
outstanding Letters of Credit assigned) plus the aggregate outstanding
principal amount of the Term Loans assigned, or (B) an aggregate amount
equal to five percent of the sum of the aggregate outstanding Revolving
Credit Loans Commitments (or, if such Commitments have terminated or
expired, the aggregate outstanding principal amount of the Revolving
Credit Loans and aggregate outstanding face amount of the Letters of
Credit) plus the aggregate outstanding principal amount of the Term
Loans, and (iii) the
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parties to each such assignment shall execute and deliver to Agent for
its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Notes subject to such
assignment, and a processing and recordation fee of $2,500. Upon such
execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by Agent, (1)
the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and under the Loan Documents, and
(2) the Assigning Lender thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement and the other Loan Documents
(and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's rights and obligations under the Loan
Documents, such Lender shall cease to be a party thereto, provided
that such Lender's rights under Article 4, Section 13.1 and Section
13.2 accrued through the date of assignment shall continue).
(c) By executing and delivering an Assignment and
Acceptance, the Assigning Lender thereunder and the Assignee
thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and
Acceptance, such Assigning Lender makes no representation or warranty
and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other
instrument or document furnished pursuant thereto; (ii) such Assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition or results of
operations of any Kitty Hawk Company or the performance or observance
by any Kitty Hawk Company of its obligations under the Loan Documents;
(iii) such Assignee confirms that it has received a copy of the other
Loan Documents, together with copies of the financial statements
referred to in Section 7.2 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision
to enter into such Assignment and Acceptance; (iv) such Assignee will,
independently and without reliance upon Agent or such Assigning Lender
and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan
Documents; (v) such Assignee confirms that it is an Eligible Assignee;
(vi) such Assignee appoints and authorizes Agent to take such action
as agent on its behalf and exercise such powers under the Loan
Documents as are delegated to Agent by the terms thereof, together
with such powers as are reasonably incidental thereto; and (vii) such
Assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.
(d) Agent shall maintain at its Principal Office
a copy of each Assignment and Acceptance delivered to and accepted by
it and a register for the recordation of the names
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and addresses of Lenders and the Commitments of, and principal amount
of the Loans owing to and Letters of Credit issued by, each Lender
from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and
Borrowers, Agent and Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under
the Loan Documents. The Register shall be available for inspection by
any Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and
Acceptance executed by an Assigning Lender and Assignee representing
that it is an Eligible Assignee, together with the Notes subject to
such assignment, Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit A hereto,
(i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt written
notice thereof to the applicable Borrower or Borrowers. Within five
Business Days after its receipt of such notice the applicable Borrower
or Borrowers, at its or their expense, shall execute and deliver to
Agent in exchange for each surrendered Note evidencing particular
Loans, a new Note evidencing such Loans payable to the order of such
Eligible Assignee in an amount equal to such Loans assigned to it and,
if the Assigning Lender has retained any Loans, a new Note evidencing
such Loans payable to the order of the Assigning Lender in the amount
of such Loans retained by it (each such promissory note shall
constitute a "Note" for purposes of the Loan Documents). Such new
Notes shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of
Exhibits B, C, D and/or E hereto, as applicable.
(f) Any Lender may, in connection with any
assignment or participation or proposed assignment or participation
pursuant to this Section 13.8, disclose to the Assignee or participant
or proposed Assignee or participant any information relating to Kitty
Hawk or any of its Subsidiaries or any other Kitty Hawk Company
furnished to such Lender by or on behalf of Kitty Hawk or any of its
Subsidiaries or any other Kitty Hawk Company; provided that each such
actual or proposed Assignee or participant shall agree to be bound by
the provisions of Section 13.20.
(g) Any Lender may assign and pledge all or any
of the Notes held by it to any Federal Reserve Bank or the U.S.
Treasury as collateral security pursuant to Regulation A of the Board
of Governors of the Federal Reserve System and any operating circular
issued by the Federal Reserve System and/or Federal Reserve Bank;
provided, however, that any payment made by a Borrower for the benefit
of such assigning and/or pledging Lender in accordance with the terms
of the Loan Documents shall satisfy such Borrower's obligations under
the Loan Documents in respect thereof to the extent of such payment.
No such assignment and/or pledge shall release the assigning and/or
pledging Lender from its obligations hereunder.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and
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the other Loan Documents and the making of the Loans, and no investigation by
Agent or any Lender or any closing shall affect the representations and
warranties or the right of Agent or any Lender to rely upon them. Without
prejudice to the survival of any other obligation of each of the Kitty Hawk
Companies hereunder, the obligations of each of the Kitty Hawk Companies under
Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans, the
Reimbursement Obligations and the other Obligations.
Section 13.10 ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT; WAIVER
OF CLAIMS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN
EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY
AND ALL PRIOR COMMITMENTS, TERM SHEETS, AGREEMENTS (INCLUDING, WITHOUT
LIMITATION THE WFB AGREEMENTS AND THE BANK ONE AGREEMENT), REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. This Agreement amends and
restates in their entirety (but does not extinguish the indebtedness,
liabilities or obligations evidenced by or outstanding under) the WFB
Agreements and the Bank One Agreement. The execution of this Agreement and the
other Loan Documents executed in connection herewith does not extinguish the
indebtedness, liabilities or obligations evidenced by or outstanding under the
WFB Agreements or the Bank One Agreement, nor does such execution constitute a
novation with respect to any such indebtedness, liabilities or obligations.
Each Kitty Hawk Company represents and warrants to Agent and Lenders that, as
of the Closing Date, there are no claims or offsets against, or defenses or
counterclaims to, its indebtedness, liabilities and obligations under the WFB
Agreements and the Bank One Agreement, or the promissory notes or the other
"Loan Documents" as defined therein. TO INDUCE AGENT AND LENDERS TO ENTER INTO
THIS AGREEMENT, KITTY HAWK AND THE OPERATING COMPANIES WAIVE ANY AND ALL SUCH
CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING
PRIOR TO THE DATE HEREOF AND RELATING TO ANY OF THE WFB AGREEMENTS, THE BANK
ONE AGREEMENT OR SUCH "LOAN DOCUMENTS" OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
Section 13.11 Amendments. No amendment or waiver of any term or
provision of this Agreement, the Notes or any other Loan Document to which any
Kitty Hawk Company is a party, nor any consent to any departure by any Kitty
Hawk Company therefrom, shall in any event be effective unless the same shall
be agreed or consented to by the Required Lenders and any Kitty Hawk Company
(as applicable) in writing, and each such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, that no amendment, waiver or consent shall, unless in writing and
signed by all of Lenders and the Kitty Hawk Companies, do any of the following:
(a) increase the Commitments of Lenders or subject Lenders to any additional
obligations; (b) reduce the principal of, or interest on, the Loans or any fees
or other amounts payable hereunder; (c) postpone any date fixed for any payment
(including, without limitation, any mandatory prepayment) of principal of, or
interest on, the Loans or any
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fees or other amounts payable hereunder; (d) waive any of the conditions
precedent specified in Article 6; (e) change the Commitment Percentages or the
Aggregate Loan Percentages or the aggregate unpaid principal amount of the
Loans, the Reimbursement Obligations or other Obligations or the number or
interests of Lenders which shall be required for Lenders or any of them to take
any action under this Agreement; (f) change any provision contained in Section
3.2, Section 3.3 or this Section 13.11 or modify the definition of "Required
Lenders" contained in Section 1.1; or (g) except as expressly authorized by
this Agreement, release any Collateral from any of the Liens created by the
Security Documents or release any guaranty of all or any portion of the
Obligations. Notwithstanding anything to the contrary contained in this
Section 13.11, no amendment, waiver or consent shall be made with respect to
Article 12 hereof without the prior written consent of Agent and Agent and
Lenders may, without the agreement of any Kitty Hawk Company, amend the terms
and provisions of Article 12 other than Section 12.6.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement
or any other Loan Document shall at any time exceed the Maximum Rate.
If at any time the interest rate (the "Contract Rate") for any
Obligation shall exceed the Maximum Rate, thereby causing the interest
accruing on such Obligation to be limited to the Maximum Rate, then
any subsequent reduction in the Contract Rate for such Obligation
shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such
Obligation equals the aggregate amount of interest which would have
accrued on such Obligation if the Contract Rate for such Obligation
had at all times been in effect.
(b) Notwithstanding anything to the contrary
contained in this Agreement or the other Loan Documents, none of the
terms and provisions of this Agreement or the other Loan Documents
shall ever be construed to create a contract or obligation to pay
interest at a rate in excess of the Maximum Rate, and neither Agent
nor any Lender shall ever charge, receive, take, collect, reserve or
apply, as interest on the Obligations, any amount in excess of the
Maximum Rate. The parties hereto agree that any interest, charge,
fee, expense or other obligation provided for in this Agreement or in
the other Loan Documents which constitutes interest under applicable
law shall be, ipso facto and under any and all circumstances, limited
or reduced to an amount equal to the lesser of (i) the amount of such
interest, charge, fee, expense or other obligation that would be
payable in the absence of this Section 13.12(b) or (ii) an amount,
which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If,
notwithstanding the foregoing, Agent or any Lender ever contracts for,
charges, receives, takes, collects, reserves or applies as interest
any amount in excess of the Maximum Rate, such amount which would be
deemed excessive interest shall be deemed a partial payment or
prepayment of principal of the Obligations and treated hereunder as
such, and if the Obligations, or applicable portions thereof, are paid
in full, any remaining excess shall promptly be paid to the applicable
Borrower or Borrowers (as appropriate). In determining whether the
interest paid or payable, under any specific contingency, exceeds the
Maximum Rate, Borrowers, Agent and Lenders shall, to the maximum
extent permitted by applicable law, (i) characterize any nonprincipal
payment
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as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equal or unequal parts the total
amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate
does not exceed the Maximum Rate at any time during the term of the
Obligations; provided that, if the unpaid principal balance is paid
and performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Agent and/or Lenders, as
appropriate, shall refund to the applicable Borrower or Borrowers (as
appropriate) the amount of such excess and, in such event, Agent and
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or
applying interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15,
Subtitle 79, Revised Civil Statutes of Texas 1925, as amended, each
Kitty Hawk Company agrees that such Chapter 15 (which regulates
certain revolving credit loan accounts and revolving tri-party
accounts) shall not govern or in any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications
provided for in this Agreement and the other Loan Documents to which any Kitty
Hawk Company is a party shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof (or, with respect to a Lender that becomes a party
to this Agreement pursuant to an assignment made in accordance with Section
13.8, in the Assignment and Acceptance executed by it); or, as to any party, at
such other address as shall be designated by such party in a notice to each
other party given in accordance with this Section 13.13. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telecopy or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid; provided, however, that notices to Agent shall be deemed given when
received by Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE
U.S. EACH OF KITTY HAWK AND THE OPERATING COMPANIES HEREBY SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, AND (2) ANY TEXAS STATE COURT SITTING IN DALLAS COUNTY,
TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY. EACH OF KITTY HAWK AND THE OPERATING COMPANIES HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS
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IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO
SUCH PERSON AT ITS ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. EACH OF
KITTY HAWK AND THE OPERATING COMPANIES HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Construction. Each of each Kitty Hawk Company, Agent
and each Lender acknowledges that it has had the benefit of legal counsel of
its own choice and has been afforded an opportunity to review this Agreement
and the other Loan Documents with its legal counsel and that this Agreement and
the other Loan Documents shall be construed as if jointly drafted by the
parties hereto.
Section 13.19 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or such
condition exists.
Section 13.20 Confidentiality. Each Lender agrees to exercise its
best efforts to keep any information delivered or made available by any Kitty
Hawk Company to it which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by such Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
Lender from disclosing such information (a) to any other Lender, (b) to any
Person if reasonably incidental to the administration of the Loans, (c) upon
the order of any court or administrative agency, (d) upon the request or demand
of any regulatory agency or authority having jurisdiction over such Lender, (e)
which has been publicly disclosed, (f) in connection with any litigation to
which Agent, any Lender or their respective Affiliates may be a party, (g) to
the extent reasonably required in connection with the exercise of any right or
remedy under the Loan Documents, (h) to such Lender's legal counsel,
independent auditors and affiliates, and (i) to any actual or proposed
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participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 13.20.
Section 13.21 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of Agent or any Lender is
requested or required, (a) the granting or denial of such approval or consent
and the exercise of such judgment shall be within the sole discretion of Agent
or such Lender, respectively, and Agent and such Lender shall not, for any
reason or to any extent, be required to grant such approval or consent or to
exercise such judgment in any particular manner, regardless of the
reasonableness of the request or the action or judgment of Agent or such
Lender, and (b) no approval or consent of Agent or any Lender shall in any
event be effective unless the same shall be in writing and the same shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 13.22 Joint and Several Obligations. Each and every
representation, warranty, covenant or agreement of the Kitty Hawk Companies,
Kitty Hawk and any Kitty Hawk Operating Subsidiary or the Kitty Hawk Operating
Subsidiaries contained herein shall be, and shall be deemed to be, the joint
and several representation, warranty, covenant and agreement of each such Kitty
Hawk Company.
Section 13.23 AGREEMENT FOR BINDING ARBITRATION. EACH OF THE
PARTIES HERETO AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF THE CURRENT
ARBITRATION PROGRAM OF WELLS FARGO, WHICH ARBITRATION PROGRAM IS ATTACHED
HERETO AS EXHIBIT G. ALL DISPUTES AMONG THE PARTIES HERETO SHALL BE RESOLVED
BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY HERETO.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
KITTY HAWK:
----------
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
-------------------------------------
Name: M. Tom Christopher
Title: Chairman of the Board of Directors
and Chief Executive Officer
LEASING:
-------
AIRCRAFT LEASING, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
-------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: President
AIRCARGO:
--------
KITTY HAWK AIRCARGO, INC.
By: /s/ TILMON J. REEVES
-------------------------------------
Name: Tilmon J. Reeves
Title: President
CHARTERS:
--------
KITTY HAWK CHARTERS, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
-------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
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SKYFREIGHTERS:
--------------
SKYFREIGHTERS CORPORATION
By: /s/ RICHARD R. WADSWORTH, JR.
---------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
Address for Notices to each Kitty Hawk
--------------------------------------
Company:
-------
Kitty Hawk, Inc., Aircraft Leasing, Inc.,
Kitty Hawk Aircargo, Inc., Kitty Hawk
Charters, Inc. or Skyfreighters Corporation
(as applicable)
P.O. Box 612787
Dallas, Texas 75261
Attention: Mr. M. Tom Christopher
1515 W. 20th Street
DFW Airport, Texas 75261
Fax No.: (214) 456-2210
Telephone No.: (214) 456-2220
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AGENT AND A LENDER:
------------------
COMMITMENTS: WELLS FARGO BANK (TEXAS) NATIONAL
Revolving Credit Loans ASSOCIATION
Commitment: $ 7,500,000.00
By: /s/ DREW KEITH
-----------------------
Term Loans A Name: Drew Keith
Commitment: $12,744,000.45 Title: Vice President
Term Loans C
Commitment: $ 8,000,000.00 Address for Notices to Applicable
----------------------------------
Lending Office and Principal Office:
-------------- --------------------
Wells Fargo Bank (Texas) National
Association
1445 Ross Avenue, Suite 300
Dallas, Texas 75202
Attention: Drew Keith
Fax No.: (214) 855-1340
Telephone No.: (214) 740-0099
ADDITIONAL LENDERS:
------------------
COMMITMENTS: BANK ONE, TEXAS, N.A.
Revolving Credit Loans
Commitment: $ 7,500,000.00 By: /s/ KEITH WRIGHT
-------------------------------
Name: Keith Wright
Term Loans B Title: Vice President
Commitment: $11,225,000.00
Term Loans C
Commitment: $ 2,000,000.00
Address for Notices to Applicable
----------------------------------
Lending Office:
--------------
Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attention: Keith Wright
Fax No.: (214) 290-2447
Telephone No.: (214) 290-2683
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and the use of our report dated June 28, 1996, in the Registration Statement
(Form S-1 No. 333-8307) 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
August 30, 1996
