<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-25202
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2564006
(State of Incorporation) (I.R.S. Employer
Identification No.)
1515 West 20th Street
P.O. Box 612787
Dallas/Fort Worth International Airport, Texas 75261
(972) 456-2200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares outstanding of the registrant's common stock, $0.01 par value,
as of August 14, 1997: 10,451,807.
<PAGE> 2
KITTY HAWK, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 ......................... 3
Condensed Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996, and
Six months ended June 30, 1997 and 1996 ..................... 4
Condensed Consolidated Statements of Stockholders' Equity
Six months ended June 30, 1997 .............................. 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 ..................... 6
Notes to Condensed Consolidated Financial Statements ........... 7 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 17
Item 2. Changes in Securities ...................................... 17
Item 3. Defaults upon Senior Securities ............................ 17
Item 4. Submission of Matters to a Vote of Security Holders ........ 17
Item 5. Other Information .......................................... 17
Item 6. Reports on Form 8-K and Exhibits ........................... 17- 18
Signatures ......................................................... 19
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
------------ -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents............................ $ 8,952,142 $ 27,320,402
Trade accounts receivable............................ 15,122,410 37,828,018
Deferred income taxes................................ 107,564 107,564
Inventory and aircraft supplies...................... 4,434,467 2,789,982
Prepaid expenses and other assets.................... 1,422,498 1,143,989
Deposits on aircraft................................. 3,835,909 5,438,628
------------ ------------
Total current assets.............................. 33,874,990 74,628,583
------------ ------------
Property and equipment
Aircraft............................................. 72,352,742 53,140,853
Aircraft work-in-progress............................ 22,508,984 6,732,878
Machinery and equipment.............................. 3,118,992 2,680,692
Leasehold improvements............................... 3,061,731 778,879
Building............................................. 1,798,119 --
Furniture and fixtures............................... 166,057 166,057
Transportation equipment............................. 325,764 289,499
------------ ------------
103,332,389 63,788,858
Less: accumulated depreciation and amortization..... (19,849,788) (15,390,015)
Net property and equipment......................... 83,482,601 48,398,843
------------ ------------
Total assets.......................................... $117,357,591 $123,027,426
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..................................... $ 5,986,169 $ 8,853,292
Accrued expenses..................................... 8,850,700 23,668,609
Income taxes payable................................. 1,077,057 2,526,737
Accrued maintenance reserves......................... 2,598,562 2,373,157
Current maturities of long-term debt................. 4,774,363 3,687,888
------------ ------------
Total current liabilities.......................... 23,286,851 41,109,683
Long-term debt........................................ 29,277,295 21,080,452
Deferred income taxes................................. 2,544,900 2,544,900
Commitments and contingencies
Stockholders' 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
--10,669,517........................................ 106,695 106,695
Additional paid-in capital........................... 33,949,825 33,968,700
Retained earnings.................................... 30,268,327 26,293,298
Less common stock in treasury,
217,710 shares...................................... (2,076,302) (2,076,302)
------------ ------------
Total stockholders' equity......................... 62,248,545 58,292,391
------------ ------------
Total liabilities and stockholders' equity............ $117,357,591 $123,027,426
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier............................ $18,349,228 $15,225,859 $33,237,034 $25,274,245
Air logistics.................................. 14,016,829 16,815,363 27,231,490 27,010,379
----------- ----------- ----------- ------------
Total revenues................................ 32,366,057 32,041,222 60,468,524 52,284,624
----------- ----------- ----------- ------------
Costs of revenues:
Air freight carrier............................ 11,970,913 12,084,665 22,843,865 20,340,217
Air logistics.................................. 12,944,248 15,112,762 24,818,999 24,267,931
----------- ----------- ----------- ------------
Total costs of revenues....................... 24,915,161 27,197,427 47,662,864 44,608,148
----------- ----------- ----------- ------------
Gross profit.................................... 7,450,896 4,843,795 12,805,660 7,676,476
General and administrative expenses............. 2,371,761 2,300,605 4,884,325 4,572,011
Non-qualified employee profit sharing expense... 400,571 58,194 671,757 (32,778)
Stock option grants to executives............... -- 4,232,204 -- 4,232,204
----------- ----------- ----------- ------------
Operating income (loss)......................... 4,678,564 (1,747,208) 7,249,578 (1,094,961)
Other income (expense):
Interest expense............................... (568,057) (503,533) (1,049,382) (1,023,278)
Other, net..................................... 157,974 35,533 424,853 137,680
----------- ----------- ----------- ------------
Income (loss) before income taxes............... 4,268,481 (2,215,208) 6,625,049 (1,980,559)
Income taxes.................................... 1,707,393 (926,879) 2,650,020 (831,242)
----------- ----------- ----------- ------------
Net income (loss)............................... $ 2,561,088 $(1,288,329) $ 3,975,029 $(1,149,317)
=========== =========== =========== ============
Net income (loss) per share..................... $ 0.25 $ (0.16) $ 0.38 $ (0.14)
=========== =========== =========== ============
Weighted average common and common
equivalent shares outstanding.................. 10,451,807 7,967,710 10,451,807 7,967,710
=========== =========== =========== ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
---------- --------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996..... 10,669,517 $ 106,695 $33,968,700 $26,293,298 $(2,076,302) $58,292,391
Additional costs relating to
initial public offering.......... -- -- (18,875) -- -- (18,875)
Net income....................... -- -- -- 3,975,029 -- 3,975,029
---------- --------- ----------- ----------- ------------ -----------
Balance at June 30, 1997......... 10,669,517 $ 106,695 $33,949,825 $30,268,327 $ (2,076,302) $62,248,545
========== ========= =========== =========== ============ ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Operating activities:
Net income (loss)................................. $ 3,975,029 $ (1,149,317)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 4,459,773 3,616,752
Deferred income taxes........................... -- (43,658)
Stock option grants to executives............... -- 4,230,954
Changes in operating assets and liabilities:
Trade accounts receivable...................... 22,705,608 21,617,441
Inventory and aircraft supplies................ (1,644,485) 307,547
Prepaid expenses and other assets.............. (278,509) 5,256,173
Deposits on aircraft........................... 1,602,719 --
Accounts payable and accrued expenses.......... (17,685,032) (17,008,776)
Income taxes payable........................... (1,449,680) (2,614,105)
Accrued maintenance reserves................... 225,405 (466,694)
----------- ------------
Net cash provided by operating activities.......... 11,910,828 13,746,317
Investing activities:
Capital expenditures.............................. (39,543,531) (17,007,546)
Financing activities:
Proceeds from issuance of long-term debt.......... 11,112,999 5,525,018
Repayments of long-term debt...................... (1,829,681) (1,618,350)
Additional costs relating to initial public
offering......................................... (18,875)
Proceeds from issuance of common stock............ -- 4,430
----------- ------------
Net cash provided by financing activities.......... 9,264,443 3,911,098
----------- ------------
Net increase (decrease) in cash and cash
equivalents...................................... (18,368,260) 649,869
Cash and cash equivalents at beginning of
period........................................... 27,320,402 3,355,293
----------- ------------
Cash and cash equivalents at end of period......... $ 8,952,142 $ 4,005,162
=========== ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
included in the Transition Report on Form 10-K/A filed with the Securities and
Exchange Commission for the four month period ended December 31, 1996, are
unaudited (except for the December 31, 1996 condensed consolidated balance
sheet which was derived from the Company's audited consolidated balance sheet
included in the aforementioned Form 10-K/A), but have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the three month and six month periods ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997.
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common and common equivalent shares outstanding
during the period. The effect of options to purchase 390,707 and 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 the
three month and six month periods ended June 30, 1996.
2. REGISTRATION OF STOCK OFFERING
In October 1996, the Company sold in an initial public offering 2,700,000
shares of Common Stock.
3. 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 awarded the Company $25,000 in damages plus its
attorneys' fees and denied Express One's counterclaims. The court entered
judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorney's 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 et tht the
outcome of this matter to have a material adverse effect on the Company's
financial condition or results of operations.
The U.S. Postal Service ("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.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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").
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
certain 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. 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 on the Company's financial condition
or results of operations.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. Early adoption of the new standard is not permitted. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure
of how the per share amounts were computed. Because the application of SAB No.
83, in calculation of per share amounts under FAS 128 is presently uncertain,
the Company is unable to determine the effect of this new standard on per share
amounts prior to 1997. The effect on 1997 per share amounts is not expected to
be material.
5. SUBSEQUENT EVENTS
On August 1, 1997 the Company announced that it had reached an agreement
(the "727 Purchase Agreement") with American International Airways, Inc.
("AIA") and certain of its affiliates to purchase sixteen Boeing 727-200
aircraft, fifteen of which are in freighter configuration, for approximately $51
million. The purchase of these aircraft is subject to financing, other
customary closing conditions, and receipt of certain regulatory approvals. If
the purchase closes, the Company will perform AIA's ACMI contracts under which
some of the aircraft are now operating.
In addition, the Company, Conrad Kalitta ("Kalitta"), AIA and Kalitta
Flying Services, Inc. ("KFS") have entered into a non-binding letter of intent
(the "Letter of Intent") relating to the proposed acquisition of AIA, KFS,
Flight One Logistics, Inc., OK Turbines, Inc. and American Internation
Travel, Inc. (collectively, the "Kalitta Companies") with the Company. It is
anticipated that under a proposed combination, Kalitta, the sole stockholder of
the Kalitta Companies, would receive both cash and Kitty Hawk common stock, and
that after closing, Kalitta would be a significant stockholder of the combined
companies and would maintain a significant management role. Any combination
would be conditioned on negotiation and execution of a mutually satisfactory
definitive agreement, obtaining of financing by the Company, satisfaction of
customary closing conditions, and receipt of certain regulatory approvals. It
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
is anticipated that the management and operations of the Kalitta Companies,
including operations of American International Freight and American
International Cargo, would continue without material change before and after
closing of a combination.
The 727 Purchase Agreement contains short-term put/call options
terminating no later than March 31, 1998, under which AIA could repurchase
thirteen of the aircraft under certain conditions if a combination does not
occur.
AIA, KFS and Kalitta have also agreed under the 727 Purchase Agreement
that until March 31, 1998 none of them, except as contemplated under the Letter
of Intent, will solicit, discuss, negotiate or agree to the sale of any stock
or other equity interest in any of the Kalitta Companies, the merger,
consolidation, share exchange, or other combination involving any of the
Kalitta Companies, or the sale or disposition of any of the business or
principal segments of any of the Kalitta Companies other than in the normal
course of business.
Wells Fargo Bank (Texas), National Association ("WFB"), as Agent under the
existing Amended and Restated Credit Agreement dated as of August 14, 1996, as
amended (the "Agreement"), has issued a commitment for financing a portion of
the Company's acquisition of the sixteen 727 aircraft. The Facility of $45.9
million bears interest at a Eurodollar rate plus 1.5% to 2.0% based upon a
Debt-to-Cash Flow ratio of Kitty Hawk plus an additional 1.0% beginning in 1999
and 1.5% beginning in 2000, with maturity on June 30, 2001.
9
<PAGE> 10
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 aircraft, crew, maintenance, and insurance
("ACMI") contracts 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. For those 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. General Motors Corporation ("GM"), the USPS and
Burlington Air Express, Inc. have each accounted for more than 10% of the
Company's revenues for the last fiscal year.
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 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 sub-charter 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 transportation expenses are allocated to the
air freight carrier and all related cargo ground handling and transportation
expenses are allocated to air logistics.
The FAA has reevaluated the engineering analysis which supported the grant
of the Boeing 727-200 cargo modification supplemental type certificates
("STCs") and has tentatively determined that the STC design features do not
meet FAA certification criteria in several respects. The FAA has issued a
proposed Airworthiness Directive ("AD") to address one of the first of the FAA's
concerns with the STC design features - the structural strength of the aircraft
floor structure. See "Liquidity and Capital Resources".
10
<PAGE> 11
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>
Three months ended June 30,
---------------------------------
1997 1996
---------------- ---------------
<S> <C> <C> <C> <C>
Air freight carrier:
Revenues............ $18,349 100.0% $15,226 100.0%
Costs of revenues... 11,971 65.2 12,085 79.4
------- ------ ------- -----
Gross profit........ $ 6,378 34.8% $ 3,141 20.6%
======= ====== ======= =====
Air logistics:
Revenues............ $14,017 100.0% $16,815 100.0%
Costs of revenues... 12,944 92.3 15,113 89.9
------- ------ ------- -----
Gross profit........ $ 1,073 7.7% $ 1,702 10.1%
======= ====== ======= =====
<CAPTION>
Six months ended June 30,
--------------------------------
1997 1996
--------------- --------------
<S> <C> <C> <C> <C>
Air freight carrier:
Revenues............ $33,237 100.0% $25,274 100.0%
Costs of revenues... 22,844 68.7 20,340 80.5
------- ------ ------- -----
Gross profit........ $10,393 31.3% $ 4,934 19.5%
======= ===== ======= =====
Air logistics:
Revenues............ $27,231 100.0% $27,010 100.0%
Costs of revenues... 24,819 91.1 24,268 89.8
------- ------ ------- -----
Gross profit........ $ 2,412 8.9% $ 2,742 10.2%
======= ====== ======= =====
</TABLE>
The following table presents, for the periods indicated, condensed
consolidated income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier......................... 56.7% 47.5% 55.0% 48.3%
Air logistics............................... 43.3 52.5 45.0 51.7
----- ----- ----- -----
Total revenues............................. 100.0 100.0 100.0 100.0
Total costs of revenues...................... 77.0 84.9 78.8 85.3
----- ----- ----- -----
Gross profit................................. 23.0 15.1 21.2 14.7
General and administrative expenses.......... 7.3 7.2 8.1 8.8
Non-qualified employee profit sharing expense 1.2 0.2 1.1 (0.1)
Stock option grants to executives............ -- 13.2 -- 8.1
----- ----- ----- -----
Operating income............................. 14.5 (5.5) 12.0 (2.1)
Interest expense............................. (1.8) (1.5) (1.7) (2.0)
Other income................................. 0.5 0.1 0.7 0.3
----- ----- ----- -----
Income before income taxes................... 13.2 (6.9) 11.0 (3.8)
Income taxes................................. 5.3 (2.9) 4.4 (1.6)
----- ----- ----- -----
Net income (loss)............................ 7.9% (4.0)% 6.6% (2.2)%
===== ===== ===== =====
</TABLE>
11
<PAGE> 12
QUARTER ENDED JUNE 30, 1997 COMPARED TO QUARTER ENDED JUNE 30, 1996
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $4.6 million and $13.4 million, or 25.3% and
73.1%, respectively, of total air freight carrier revenues for the quarter
ended June 30, 1997, as compared to $7.2 million and $7.6 million, or 47.2% and
50.2%, respectively, for the quarter ended June 30, 1996. ACMI contract
charter revenues for the quarter ended June 30, 1997 increased 75.6% over
quarter ended June 30, 1996, primarily as the result of adding Boeing 727-200
aircraft and therefore, additional ACMI contract charters flown. Revenues from
on-demand charters flown by Company aircraft for the quarter ended June 30,
1997 decreased 35.4% from the comparable prior year period due to aircraft
being shifted from on-demand to ACMI contract charter service. For the quarter
ended June 30, 1997, as compared to the quarter ended June 30, 1996, prices for
the Company's on-demand and ACMI contract charters remained relatively
constant.
Revenues -- Air Logistics. Air logistics revenues decreased $2.8 million,
or 16.6%, to $14.0 million in the quarter ended June 30, 1997, from $16.8
million in the quarter ended June 30, 1996. This decrease was primarily due to
decreased demand for on-demand charters from the automobile industry resulting
from labor disruptions. For the quarter ended June 30, 1997, as compared to
the quarter ended June 30, 1996, prices for the Company's air logistics
services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues decreased $114,000 or 0.9% to $12.0 million in the quarter ended June
30, 1997, from $12.1 million in the quarter ended June 30, 1996. This decrease
was primarily due to reduced depreciation costs resulting from the sale of four
JT8D-9A engines that were partially offset by costs associated with increased
fleet size and additional ACMI contract charters. The gross profit margin from
the air freight carrier increased to 34.8% in the quarter ended June 30, 1997,
from 20.6% in the quarter ended June 30, 1996. The increase was primarily the
result of decreased costs of revenues and greater operational efficiencies
associated with increased fleet size.
As reported to the FAA, overall aircraft utilization increased to 7,560
flight hours for the quarter ended June 30, 1997, from 5,754 in the quarter
ended June 30, 1996, a 31.4% increase. This increase was primarily due to
increased hours flown for ACMI contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $2.2 million, or 14.3%, to $12.9 million in the quarter ended June
30, 1997, from $15.1 million in the quarter ended June 30, 1996, reflecting a
decreased volume of business. The gross profit margin from air logistics
decreased to 7.7% in the three months ended June 30, 1997, from 10.1% in the
comparable prior year period, a decrease of 23.8%. This decrease was primarily
due to increased rates paid to third party air freight carriers.
General and Administrative Expenses. General and administrative expenses
increased $71,000, or 3.1%, to $2.4 million in the quarter ended June 30, 1997,
from $2.3 million in the quarter ended June 30, 1996. 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 volume of
business of the air freight carrier in the quarter ended June 30, 1997. As a
percentage of total revenues, general and administrative expenses remained
relatively constant at 7.3% in the quarter ended June 30, 1997, as compared to
the quarter ended June 30, 1996.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $342,000, to $401,000 in the quarter ended June 30, 1997,
from $58,000 in the quarter ended June 30, 1996, reflecting the increase of
income before income taxes in the quarter ended June 30, 1997.
Operating Income. As a result of the above, operating income increased
$6.4 million to $4.7 million in the quarter ended June 30, 1997, from ($1.7)
million in the quarter ended June 30, 1996. Operating income margin increased
to 14.5% in the quarter ended June 30, 1997, from (5.5%) in the quarter ended
June 30, 1996.
Interest Expense. Interest expense increased to $568,000 for the quarter
ended June 30, 1997, from $504,000 for the quarter ended June 30, 1996, a 12.8%
increase. The increase was primarily the result of the addition of long-term
debt used to finance aircraft acquisitions.
Other Income (Expense). Other income increased to $158,000 in the quarter
ended June 30, 1997, from
12
<PAGE> 13
$36,000 in the comparable prior year period. The increase was primarily due to
increased interest income in the quarter ended June 30, 1997, from the
investment of proceeds from the Company's initial public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40% for the quarter ended June 30, 1997, from 41.8% for the
comparable prior year period. The increase was primarily due to decreased state
income taxes.
Net Income. As a result of the above, net income increased to $2.6
million in the quarter ended June 30, 1997, compared to a net loss of ($1.3)
million in the quarter ended June 30, 1996. Net income as a percentage of
total revenues increased to 7.9% in the quarter ended June 30, 1997, from
(4.0%) in the comparable prior year period.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $7.5 million and $25.0 million, or 22.4% and
75.1%, respectively, of total air freight carrier revenues for the six months
ended June 30, 1997, as compared to $10.2 million and $14.3 million, or 40.3%
and 56.5%, respectively, for the six months ended June 30, 1996. ACMI contract
charter revenues for the six months ended June 30, 1997 increased 74.8% over
six months ended June 30, 1996, primarily as the result of adding Boeing
727-200 aircraft and therefore, additional ACMI contract charters flown.
Revenues from on-demand charters flown by Company aircraft for the six months
ended June 30, 1997 decreased 26.9% from the comparable prior year period due
to aircraft being shifted from on-demand to ACMI contract charter service. For
the six months ended June 30, 1997, as compared to the six months ended June
30, 1996, prices for the Company's on-demand and ACMI contract charters
remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues increased $221,000, or
0.8%, to $27.2 million in the six months ended June 30, 1997, from $27.0
million in the six months ended June 30, 1996. This increase was primarily due
to increased demand in the first three months of the period for on-demand
charters generally and specifically for charters that require larger aircraft
which generate greater revenues. For the six months ended June 30, 1997, as
compared to the six months ended June 30, 1996, prices for the Company's air
logistics services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $2.5 million or 12.3% to $22.8 million in the six months
ended June 30, 1997, from $20.3 million in the six months ended June 30, 1996,
reflecting increased costs associated with increased fleet size and additional
ACMI contract charters. The gross profit margin from the air freight carrier
increased to 31.3% in the six months ended June 30, 1997, from 19.5% in the six
months ended June 30, 1996. This increase was primarily the result of reduced
maintenance costs resulting from operational efficiencies associated with
increased fleet size and reduced depreciation costs resulting from the sale of
four JT8D-9A engines.
As reported to the FAA, overall aircraft utilization increased to 13,461
flight hours for the six months ended June 30, 1997, from 10,029 in the six
months ended June 30, 1996, a 34.2% increase. This increase was primarily due
to increased hours flown for ACMI contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $551,000, or 2.3%, to $24.8 million in the six months ended June 30,
1997, from $24.3 million in the six months ended June 30, 1996, reflecting an
increased volume of business. The gross profit margin from air logistics
decreased to 8.9% in the six months ended June 30, 1997, from 10.2% in the
comparable prior year period, a decrease of 12.7%. This decrease was primarily
due to increased rates paid to third party air freight carriers.
General and Administrative Expenses. General and administrative expenses
increased $312,000, or 6.8%, to $4.9 million in the six months ended June 30,
1997, from $4.6 million in the six months ended June 30, 1996. 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 volume of
business of the air freight carrier in the six months ended June 30, 1997. As a
percentage of total revenues, general and administrative expenses decreased to
8.1% in the six months ended June 30, 1997, from 8.8% in the six months ended
June 30, 1996.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $705,000, to
13
<PAGE> 14
$672,000 in the six months ended June 30, 1997, from ($33,000) in the six months
ended June 30, 1996, reflecting the increase of net income before taxes in the
six months ended June 30, 1997.
Stock Option Grants to Executives. During the six month period ended June
30, 1996, the Company granted two executive officers options to purchase
544,274 shares of Common Stock that resulted in a charge to earnings of
approximately $4,232,000.
Operating Income. As a result of the above, operating income increased
$8.3 million to $7.2 million in the six months ended June 30, 1997, from an
operating loss of ($1.1) million in the six months ended June 30, 1996.
Operating income margin increased to 12.2% in the six months ended June 30,
1997, from (2.1%) in the six months ended June 30, 1996.
Interest Expense. Interest expense remained relatively constant at $1.0
million for the six months ended June 30, 1997, as compared to the six months
ended June 30, 1996.
Other Income (Expense). Other income increased to $425,000 in the six
months ended June 30, 1997, from $138,000 in the comparable prior year period.
The increase was primarily due to increased interest income in the six months
ended June 30, 1997 from the investment of proceeds from the Company's initial
public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40% for the six months ended June 30, 1997, from 42% for the
comparable prior year period. The decrease was primarily due to decreased state
income taxes.
Net Income. As a result of the above, net income increased to $4.0
million in the six months ended June 30, 1997, compared to a net loss of ($1.1)
million in the six months ended June 30, 1996. Net income as a percentage of
total revenues increased to 6.6% in the six months ended June 30, 1997, from
(2.2%) in the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the acquisition and
modification of aircraft and working capital. In addition, the Company 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 primarily
from a combination of internally generated funds, bank borrowings and the
proceeds of its initial public offering. In addition to purchasing aircraft,
the Company has leased aircraft and entered into a sale leaseback for
acquisition transaction and may enter into similar transactions in the future.
Cash provided by operating activities was $11.9 million and $13.7 million
in the six months ended June 30, 1997 and 1996, respectively. As of June 30,
1997 and 1996, the Company had working capital of $10.6 million and $6.4
million, respectively.
On August 1, 1997 the Company announced that it had reached an agreement
(the "727 Purchase Agreement") with American International Airways, Inc.
("AIA") and certain of its affiliates to purchase sixteen Boeing 727-200
aircraft, fifteen of which are in freighter configuration, for approximately $51
million. The purchase of these aircraft is subject to financing, other
customary closing conditions, and receipt of certain regulatory approvals. If
the purchase closes, the Company will perform AIA's ACMI contracts under which
some of the aircraft are now operating.
On August 14, 1996, Kitty Hawk entered into a Credit Agreement with Wells
Fargo Bank (Texas), National Association ("WFB"), 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 14, 1997, approximately $3.5
million was outstanding under the Revolving Credit Facility, approximately
$10.6 million was outstanding under Term Loans A, approximately $10 million was
outstanding under Term Loans B, and $8.6 was outstanding under Term Loans C.
Borrowings under these 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 Revolving Credit Facility may be used for
general corporate purposes, including interim financing for acquired aircraft
that exceeds the limits that apply to the restricted portion. Term Loans C
must be used to finance the purchase of one DC9-15F hushkit and up to seven
major maintenance checks for jet aircraft.
14
<PAGE> 15
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 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 mature 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 Company has two loans with 1st Source Bank. As of August 14, 1997,
the outstanding balance of the first loan was approximately $835,000. The loan
bears interest at 9.75%, is secured by a DC9-15F and matures in May 2000. As
of August 14, 1997, the outstanding balance of the second loan was
approximately $1.2 million. The loan bears interest at 8.5%, is secured by a
DC9-15F and matures in July, 2002. The 1st Source loans contain certain
aircraft maintenance covenants and provides that a change in the Company's
business is an event of default upon which 1st Source may declare all or any
part of the remaining unpaid principal due and payable.
In November 1996, in connection with the Company's recent acquisition of a
one-third undivided interest in four Falcon 20 jet aircraft, the Company and
the two other co-owners of such aircraft entered into a five year, $4.3 million
term loan. The loan bears interest at a floating prime rate, is secured by the
four Falcon 20 jet aircraft and requires monthly payments of principal and
interest. The Company's liability under such loan is limited to $2.0 million.
Capital expenditures were $39.5 million and $17.0 million for the six
months ended June 30, 1997 and 1996, respectively. Capital expenditures for
the six months ended June 30, 1997 were primarily for the purchase of: (i) two
Boeing 727-200 aircraft, (ii) cargo and noise abatement modifications for two
Boeing 727-200 aircraft, (iii) noise abatement equipment with respect to one
DC9-15F aircraft, (iv) six reconditioned JT8D-7 jet engines, (v) leasehold
improvements to Boeing 727-200 aircraft, (vi) the leasehold and improvements of
its 40,000 square foot headquarters facility, (vii) major maintenance checks,
(viii) of ground service equipment and (ix) the overhaul of two JT8D-7 jet
engines. Capital expenditures for the six months ended June 30, 1996 were
primarily for the purchase of: (i) three Boeing 727-200 aircraft and (ii) cargo
and noise abatement modifications for two Boeing 727-200 aircraft.
Pursuant to a registration statement on Form S-1 "Reg. No. 333-8307",
effective October 9, 1996, the Company sold in an initial public offering
2,700,000 shares of Common Stock, raising net proceeds of approximately $29.4
million to purchase and modify to cargo configuration five Boeing 727-200
aircraft. As of August 14, 1997, the Company has purchased (i) one Boeing
727-200 freighter aircraft for $4.4 million, (ii) one Boeing 727-200 aircraft
for $2.3 million which is being modified to cargo configuration for an
additional cost of approximately $3.5 million (including approximately $2.2
million for noise abatement equipment), (iii) one Boeing 727-200 aircraft for
$3.5 million which was modified to cargo configuration for an additional cost of
approximately $5.0 million (including noise abatement equipment for
approximately $2.5 million), and (iv) one Boeing 727-200 aircraft for $3.5
million which was placed into revenue service as a leased passenger aircraft
until its next major maintenance check (approximately 3,000 flight hours) at
which time the Company currently anticipates modifying the aircraft to cargo
configuration for an additional cost of approximately $5.0 million (including
$2.5 million for noise abatement equipment). As of August 14, 1997, the Company
has used approximately $22.3 million of the net proceeds of the initial public
offering to fund these expenses.
In December 1996, the Company amended its agreement with the supplier of
noise abatement equipment to increase the number of hushkits it has firmly
committed to purchase and to establish fixed prices. In connection with this
new agreement, the Company paid the vendor an additional $350,000 in deposits
on seven future, firm orders valued between $13 and $17.5 million,
depending on type selected. In fiscal year 1997, the Company anticipates an
aggregate capital expenditure of $4.3 million for noise abatement
modifications, which the Company believes represents the total capital
expenditures that would currently be necessary to comply with the requirements
of existing applicable environmental regulations for such fiscal year. In
fiscal year 1998, the Company anticipates an aggregate capital expenditure
ranging from $9 million to $11 million for noise abatement modifications to
aircraft currently owned. In fiscal year 1998, the Company anticipates an
aggregate capital expenditure ranging from $18 million to $20 million for noise
abatement modifications to aircraft currently proposed to be purchased. In the
event the Company acquires more aircraft than currently proposed, the Company's
anticipated aggregate capital expenditures for noise abatement modifications in
fiscal year 1998 could materially increase.
15
<PAGE> 16
The Company's revenue fleet is comprised of 25 owned and 3 leased
aircraft, which includes 16 Boeing 727-200 aircraft manufactured between 1969
and 1978, 5 Douglas DC9-15F aircraft manufactured during 1967 and 1968, and 7
turbo-prop Convairs manufactured between 1948 and 1957. Of the Company's
revenue fleet of 28 aircraft, the Company operates 26 aircraft in active
revenue service and is in the process of converting two Boeing 727-200 aircraft
to cargo configuration. The Company anticipates converting an additional
Boeing 727-200 aircraft to cargo configuration in 1998. These aircraft do not
include the Company's undivided one-third interest in four Falcon 20 jet
aircraft leased to a third-party operator. Manufacturers' 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
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 such Directives and
Service Bulletins cannot currently be estimated, but could be substantial.
The Company currently operates a fleet of 16 Boeing 727-200 aircraft. All
of these aircraft had previously been converted from a passenger aircraft to a
freighter aircraft by the installation of a large cargo door (replacing the
smaller passenger access door) and numerous interior modifications related to
the installation of cargo container handling systems. The aircraft conversion
process was previously approved by the FAA, by the issuance of supplemental -
type certificates ("STCs") to four firms that engineered and designed the
conversion hardware and aircraft modification processes. The Company's
aircraft have previously been modified utilizing STC's held by two of these
four firms.
The FAA has reevaluated the engineering analysis which supported the grant
of the Boeing 727-200 cargo modification STC's and has tentatively determined
that the STC design features do not meet FAA certification criteria in several
respects. To address this issue the FAA has issued a proposed Airworthiness
Directive ("AD") to address the first of the FAA's concerns - the structural
strength of the aircraft floor structure. Other areas of concern for the
strength of various handling cargo-related components of the Boeing 727-200
aircraft will be addressed by the FAA in subsequently issued ADs.
The proposed AD provides that as of the date the AD becomes effective and
for 120 days thereafter, each operator of Boeing 727-200 freighter aircraft
modified by any of the four STC's will be required to limit the weight of each
container position and to adopt other aircraft operating restrictions depending
on the configuration of the aircraft. Based on the configuration of the
Company current fleet of Boeing 727-200 freighter aircraft, the Company would
be required to limit the weight per container position to approximately 4,000
pounds, reduced from a maximum of 8,000 pounds. After the 120 day period, the
maximum container position weight will be fixed at approximately 3,000 pounds
unless it can be demonstrated that the floor strength meets the FAA's
certification criteria.
The Company is responding to the FAA's proposal and urging that additional
time be allowed before requiring operators to modify the aircraft to bring them
into compliance. The Company is working with the STC holders which are
performing engineering analysis to seek a cost effective solution. There can be
no assurance as to the terms of the final AD and whether a satisfactory fix can
be engineered. If no such fix developed and is approved by the FAA, the
capacity of the Company's Boeing 727 fleet will be reduced which could have a
materially adverse financial impact on the Company.
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.
Two Convairs have been retired since December 31, 1996.
The Company believes that 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.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information pertaining to this item is incorporated from Part I.
Financial Information (Note 3 - Litigation).
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. REPORTS ON FORM 8-K AND EXHIBITS
(a) The Company did not file any reports on Form 8-K during the six
months ended June 30, 1997.
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference from previous filings with the Securities and Exchange
Commission.
17
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Addendum No. 6 to the Master Agreement for Air Charter
Transportation Services dated as of June 1, 1997 by and between
the Company and General Motors Corporation. (1)(4)
10.2 -- Agreement for Sale and Purchase of AIA 727 Fleet dated July 31,
1997 by and between the Company, Kitty Hawk Aircargo, Inc.,
American International Airways, Inc., Kalitta Flying Services,
Inc., and Conrad Kalitta. (1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
27.1 -- Financial Data Schedule.(1)
</TABLE>
___________
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and
incorporated herein by reference.
(4) Confidential treatment requested for certain portions thereof pursuant to
Rule 24b-2 promulgated pursuant to the Securities Exchange Act of 1934,
as amended.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 14th day of August, 1997.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
---------------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief Financial Officer, and Secretary
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Addendum No. 6 to the Master Agreement for Air Charter
Transportation Services dated as of June 1, 1997 by and between
the Company and General Motors Corporation. (1)(4)
10.2 -- Agreement for Sale and Purchase of AIA 727 Fleet dated July 31,
1997 by and between the Company, Kitty Hawk Aircargo, Inc.,
American International Airways, Inc., Kalitta Flying Services,
Inc., and Conrad Kalitta. (1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
27.1 -- Financial Data Schedule.(1)
</TABLE>
___________
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and
incorporated herein by reference.
(4) Confidential treatment requested for certain portions thereof pursuant to
Rule 24b-2 promulgated pursuant to the Securities Exchange Act of 1934,
as amended.
<PAGE> 1
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION.
EXHIBIT 10.1
ADDENDUM NO. 6 TO
MASTER AGREEMENT
FOR
AIR CHARTER TRANSPORTATION SERVICES
This Addendum extends and clarifies the Agreement dated June 4, 1990, between
KITTY HAWK CHARTERS, INC. and GENERAL MOTORS CORPORATION.
Kitty Hawk and GM agree to amend their Agreement dated June 4, 1990, by
extending the term through May 31, 2000. The term of this Agreement will
continue on a monthly basis thereafter, until terminated upon not less than
thirty (30) days written notice by either party.
Kitty Hawk and GM further agree to amend their agreement as follows:
Charter Aircraft Operator Selection, shall be clarified to include:
Air Charter Manager is encouraged to utilize aircraft owned by Air Charter
Manager affiliates up to a maximum of 70% of charter revenue or volume.
Manager will advise GM prior to acquiring any additional aircraft.
This agreement is further governed by the following Exhibits which superceed
any and all previous Exhibits associated with this contract.
Exhibit "A" - Domestic Aircraft and Accessorial Rates, effective Jenue 1, 1997
Exhibit "B" - Accessorial Charges, effective June 1, 1997
Exhibit "C" - Rules and Definitions, effective June 1, 1997
Exhibit "D" - Canadian Aircraft and Accessorial, effective 5-1-94.
GM will take a proactive roll in communicating Kitty Hawk charter routing
compliance to suppliers on prepaid shipments.
The parties agree the effective date of this Amendment will be the June 1, 1997
KITTY HAWK CHARTERS, INC. GENERAL MOTORS CORPORATION
By: By:
---------------------------------- ----------------------------------
Toby J. Skaar Joseph J. Casaroll
Title: Director Charter Operations Title: Director Material Transportation
Date: Date:
-------------------------------- --------------------------------
<PAGE> 2
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION.
AIR CHARTER TARIFF
(REVISED) Exhibit A
Eff. 6/1/97
<TABLE>
<CAPTION>
MANAGED KITTY HAWK U.S. CANADA CREDIT
AIRCRAFT AIRCRAFT * MIN. * MIN. REPOSITION GROUND GROUND HOUSE
AIR CRAFT TYPE PER STAT. MI. PER STAT. MI. TRIP LEG CHARGE CHARGE CHARGE TRUCK
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AZTEC
B-707
B-727-100
B-727-200
BANDEIRANTE
BARON
BEECH 18
BONANZA
CARAVAN
CASA
CESSNA 310
CESSNA 402
CESSNA 404
CV 640 & YS-11
CV 580
CV-240
CV-340/440
CV-600
DC-3 [BLACKED OUT]
DC-4 & DC-6
DC-8 LONG
DC-8 SHORT
DC-9
ELECTRA
FALCON 20
HANSA JET
JET COMM 1123
LEAR 23 & 24
LEAR 25
LEAR 35
LONG METRO
MU-2
NAVAJO
NAVAJOD
SENECA
SINGLE
SUPERSTAR
TURBIN COMM
TURBINE 18
VOPAR BEECH
HELICOPTERS
JET RANGER
LONG RANGER
BELL 222
</TABLE>
AIRCRAFT AND HELICOPTERS NOT LISTED WILL BE BILLED ON A PASS THRU BASIS.
NO CHARGE FOR MILES IN EXCESS OF ROUND TRIP IN KITTY HAWK DC9 & CV AIRCRAFT
ALL CHARGES BY MEXICAN CARRIERS WILL BE ON PASS THRU BASIS
* WILL ONLY BE BILLED IF KITTY HAWK IS BILLED BY OPERATOR. COPY OF OPERATOR
BILL WILL BE PROVIDED.
GROUND CHARGE INCLUDES LANDING FEE, LOAD, UNLOAD, PICKUP, AND DELIVERY.
CANADA GROUND CHARGE APPLIES TO ANY CHARTER TO or FROM CANADA
(See Exhibit D for Canadian registered aircraft rates)
6.25% WILL BE CHARGED ON DOMESTIC TRIPS TO COVER COST OF FEDERAL EXCISE TAX
<PAGE> 3
Exhibit "B" (Revised)
June 1, 1997
ACCESSORIAL CHARGES - PASS-THRU
1. Trip Cancellation Fees.
2. International Fees.
3. De-Icing Charges
4. Build-up and Break-down Charges.
5. Waiting Time (Loading & Unloading)
<PAGE> 4
Exhibit "C" (Revised)
June 1, 1997
RULES AND DEFINITIONS
I. GM AND KITTY HAWK APPLICATION
A. The Base Round Trip is defined as: From: The Pickup Point
To: The Destination
To: The Pickup Point
Note: Mileage to multiple pickup and drop off points will be added to
above calculation.
B. Cost Saver is defined as: Anything Less Than A Round Trip
C. Cost Saver Targets and Sharing Formula:
Cost Savings Targets will be evaluated bi-annually based on the
following goals and time lines.
<TABLE>
<CAPTION>
----------------------- ------------------ --------------------
COST SAVINGS TARGETS: FROM DATE: TO DATE:
----------------------- ------------------ --------------------
<S> <C> <C>
14% June 1, 1997 December 31, 1997
----------------------- ------------------ --------------------
January 1, 1998 June 30, 1998
----------------------- ------------------ --------------------
16% July 1, 1998 December 31, 1998
----------------------- ------------------ --------------------
January 1, 1999 June 30, 1999
----------------------- ------------------ --------------------
18% July 1, 1999 December 31, 1999
----------------------- ------------------ --------------------
January 1, 2000 June 30, 2000
----------------------- ------------------ --------------------
</TABLE>
Cost Saver Performance is the number of GM Cost Saver trips divided
by the total General Motor Trips.
The Cost Savings Net Change incentive is the Cost Saving Target minus
the Cost Saver Performance.
The Cost Saver Sharing Formula is:
If Net Change is a positive number, GM's cost savings percentage
is increased from a base of 65% by 2% for each 1% Net Change.
If Net Change is a negative number, Kitty Hawk's cost savings
percentage is increased from a base of 35% by 1% Net Change.
Incentive adjustments will become effective during the following
bi-annual period. At no time will the Kitty Hawk incentive adjustment
be greater than 45%.
Examples:
1. Saving Target is 14% and Kitty Hawk's performance is 12%.
GM's cost savings percentage is increased from 65% to 69%
and Kitty Hawk's cost savings percentage is decreased from
35% to 31%.
2. Saving Target is 14% and Kitty Hawk's performance is 16%.
GM's cost savings percentage is decreased from 65% to 63%
and Kitty Hawk's cost savings percentage is increased from
35% to 37%.
II. MULTIPLE CUSTOMER APPLICATION
A. Ferry Miles: Will be prorated to each plant based on the
loaded miles flown.
B. Aircraft Sharing: Plants will share equally in cost when sharing
the same aircraft.
NOTE: If aircraft size requirements are different, the plant requiring the
less expensive aircraft will be allocated cost based on one way miles of
the smaller plane. The plant requiring the larger aircraft will be
allocated the balance of the cost.
<PAGE> 5
BLACKED-OUT TEXT OMITTED
AND SEPARATELY FILED WITH
THE SECURITIES AND EXCHANGE
COMMISSION.
EXHIBIT D (Revised)
Effective: 5/1/94
<TABLE>
<CAPTION>
COST
PER CREDIT
STATUTE MIN MIN GROUND IN-HOUSE
AIRCRAFT TYPE MILE TRIP LEG CHARGE TRUCK
- ------------- ------- ---- --- ------ --------
<S> <C> <C> <C> <C> <C>
AZTEC
BANDEIRANTE
BARON
BEECH 100
BEECH 18
CARAVAN
CASA
CESSNA 310
CESSNA 402
CESSNA 404
CESSNA CITATION
CV-240/340/440
CV 580/600/640 [BLACKED-OUT]
DC-3
DC-4 & DC-6
FALCON 10
FALCON 20
LEAR 23 & 24
LEAR 25
LEAR 35
METROLINER
MU-2
NAVAJO
SMALL SINGLE
TURBINE 18
LARGE AIRCRAFT:
DC-8, DC-9, 707
727, C130, L188
</TABLE>
ALL OTHER AIRCRAFT AND HELICOPTERS WILL BE BILLED ON A PASS THRU BASIS.
* Will only be billed if Kitty Hawk is billed by Operator, copy of
Operator bill will be provided.
** Ground Charge includes Landing Fee, Load, Unload, Pickup, and
Delivery Charges.
VCC Charges will be billed monthly as Pass-Thru charges.
Canadian GST tax billed as Pass Thru charge when applicable.
<PAGE> 1
EXHIBIT 10.2
- ------------------------------------------------------------------------------
AGREEMENT FOR
SALE AND PURCHASE
OF AIA 727 FLEET
- -------------------------------------------------------------------------------
1.0 DATE AND PARTIES
1.1 Date. THIS AGREEMENT IS EFFECTIVE JULY 31, 1997.
1.2 Parties. THE PARTIES TO THIS AGREEMENT ARE:
A. American International Airways, Inc. ("AIA"), attention:
Conrad Kalitta, 2701 N. I-94 Service Drive, Ypsilanti, MI
48197, fax: 313-484-3686.
B. Kalitta Flying Services, Inc. ("KFS"), attention:
Don Schilling, Willow Run Airport, P.O. Box 842, Ypsilanti,
MI 48197, fax: 313-484-3686.
C. Conrad Kalitta ("Kalitta"), 2701 N. I-94 Service Drive,
Ypsilanti, MI 48197, fax: 313-484-3686.
D. Kitty Hawk Aircargo, Inc., ("Aircargo"), attention:
Richard R. Wadsworth, Jr., P.O. Box 612787, 1515 West 20th,
DFW Airport, TX 75261, fax: 972-456-2290.
E. Kitty Hawk, Inc. ("Kitty Hawk"), attention: M. Tom
Christopher, P.O. Box 612787, 1515 West 20th, DFW Airport,
TX 75261, fax: 972-456-2292.
2.0 RECITATIONS
2.1 LETTER OF INTENT. AIA, KFS and Kalitta have entered into a preliminary
and non-binding letter of intent (the "letter of intent") with Kitty Hawk
concerning the principal terms of a possible business combination or merger of
AIA, KFS and other corporate entities owned by Kalitta that engage in the
operation, maintenance and servicing of aircraft (collectively, the "Kalitta
companies") with Kitty Hawk or one or more of its subsidiaries, and that
provides the basis for further evaluation and negotiation toward a possible
definitive, binding merger agreement (a "definitive agreement").
2.2 PRE-CLOSING ACCOMMODATION. Under P. 3.14 of the letter of intent,
which is a non-binding provision, the parties to the letter of intent
contemplate that closing under a definitive agreement would occur as soon as
practicable, with a target closing date of not later than early October 1997;
and further contemplate that under a definitive agreement Kitty Hawk would
offer pre-closing advance purchase of appropriate operating segments of the
Kalitta companies for cash or cash equivalents of up to $50 million, to provide
working capital and assistance with servicing existing debt of the Kalitta
companies before closing under a definitive agreement, on the conditions that
any such pre-closing accommodation would not diminish the ultimate combined
results to Kalitta, and that Kalitta or the Kalitta companies would be entitled
to repurchase such operating segment under appropriate conditions if closing of
the entire transaction does not occur for any reason other than a breach by a
Kalitta company or Kalitta.
2.3 SALE AND PURCHASE OF AIA BOEING 727 FLEET. The operating segment of
the Kalitta companies that the parties to the letter of intent have selected
for advance purchase before closing under a definitive agreement is AIA's
entire operating Boeing 727 fleet as described in Exhibit A (the "AIA 727
fleet"). This agreement is a binding agreement intended to provide the
contractual basis for the advance purchase referred to in P. 3.14 of the letter
of intent. Under this agreement, and subject to its terms and conditions, AIA
agrees to sell the AIA 727 fleet to Aircargo, a wholly-owned subsidiary of
Kitty Hawk, and Aircargo agrees to purchase the AIA 727 fleet from AIA.
3.0 REPRESENTATIONS AND WARRANTIES
3.1 AIA AND KFS. AIA and KFS jointly and severally represent and warrant
to Aircargo and Kitty Hawk that:
<PAGE> 2
A. Exhibit A to this agreement is a correct listing of all of the
Boeing 727 airframes, engines and appliances that comprise the
aircraft of the AIA 727 fleet, with U.S. airframe registration
numbers; manufacturer's model and serial numbers, cycles and
hours to date, and cycles and hours to next major maintenance of
airframes, engines, landing gear, and auxiliary power units
under AIA's maintenance program (the "AIA maintenance program")
approved by the U.S. Federal Aviation Administration (the
"FAA"); scheduled values of each aircraft for purposes of P.
4.11(A)(1) and P. 4.18; hushkit status for each aircraft; and
other descriptive data.
B. The AIA 727 fleet, and the aircraft and engine records of the
AIA 727 fleet, have in all material respects been maintained and
kept in compliance with the AIA maintenance program,
manufacturer's recommendations, and FAA requirements.
C. In the opinion of AIA, the purchase price under this agreement
is the reasonably equivalent value at the date of this agreement
of the AIA 727 fleet and rights under the customer contracts
attributable to periods after closing; and the fair value of
AIA's assets exceeds the sum of its liabilities.
D. Exhibit B to this agreement is a correct listing of all leases
and operating agreements under which AIA uses or is obligated to
use any part of the AIA 727 fleet to provide air transport
services to customers (collectively, "customer contracts").
There are no material claims against AIA and no material uncured
defaults under any of the customer contracts. Each of the
customer contracts is enforceable in accordance with its terms.
E. Exhibit C to this agreement is a correct listing of all
operating schedules, and internal ACMI rates and other
aircraft-use charges, for current or planned aircraft operations
by AIA (collectively, the "ACMI support operations") in using
any part of the AIA 727 fleet to serve AIA's AIF, AIC and other
freight operations.
F. AIA and KFS are Michigan corporations. Each is duly formed and
in good standing. The execution, delivery and performance of
this agreement by each of them have been duly authorized, and
each of them has full power and authority to execute, deliver
and comply with the terms of this agreement.
G. AIA has operated the AIA 727 fleet complying in all material
respects with the requirements of the FAA and the U.S.
Department of Transportation (the "DOT"); is not currently under
investigation by the FAA or any other governmental agency with
respect to any potential or asserted failure to comply in any
respect with FAA or any other governmental requirements; and has
filed all required federal and state income and excise tax
returns and paid all taxes that are due.
H. No part of the AIA 727 fleet is subject to any lien or charge
for unpaid taxes or other governmental charges, or to any
materialmens' or artisan's lien.
I. Neither AIA nor KFS knows of any circumstance or claim that
might prevent or delay AIA's performing its obligations under
this agreement, except satisfaction of the conditions of closing
under P. 4.6(A).
J. Conrad Kalitta is president of AIA and is duly authorized to
execute and deliver this agreement and all closing documents
under it on behalf of AIA. Don Schilling is president of KFS and
is duly authorized to execute and deliver this agreement and all
closing documents under it on behalf of KFS.
K. This agreement constitutes the legal, valid and binding
obligation of AIA, KFS and Kalitta, enforceable against each of
them in accordance with its terms. This agreement does not
breach any obligation of AIA, KFS or Kalitta under any contract
to which any of them is a party. No consent of any person or
entity is required to enable AIA's performance of its closing
obligations under this agreement except those that are
conditions of AIA's closing obligations under P. 4.6(A).
<PAGE> 3
3.2 KALITTA. Kalitta represents and warrants to Aircargo and Kitty Hawk
that he has no knowledge of any untruth of any representation or warranty by
AIA or KFS in P. 3.1.
3.3 AIRCARGO AND KITTY HAWK. Aircargo and Kitty Hawk jointly and
severally represent and warrant to AIA, KFS and Kalitta that:
A. Aircargo is a Texas corporation and Kitty Hawk is a Delaware
corporation. Each is duly formed and in good standing. The
execution, delivery and performance of this agreement by each of
them have been duly authorized, and each of them has full power
and authority to execute, deliver and comply with the terms of
this agreement.
B. Christopher is chairman of the board of directors and chief
executive officer of Aircargo and Kitty Hawk, and is duly
authorized to execute and deliver this agreement and all closing
documents under it on behalf of Aircargo and Kitty Hawk.
C. Neither Aircargo nor Kitty Hawk knows of any circumstance or
claim that might prevent or delay Aircargo's performing its
closing obligations under this agreement except satisfaction of
the conditions of closing under P. 4.6(B).
D. This agreement constitutes the legal, valid and binding
obligation of Aircargo and Kitty Hawk, enforceable against each
of them in accordance with its terms. This agreement does not
breach any obligation of Aircargo or Kitty Hawk under any
contract to which either of them is a party. No consent of any
person or entity is required to enable Aircargo's performance of
its closing obligations under this agreement except those that
are conditions of Aircargo's closing obligations under P.
4.6(B).
4.0 PURCHASE PRICE, PAYMENT, CLOSING AND RELATED COVENANTS AND CONDITIONS
4.1 PURCHASE AND SALE. Subject to and under the terms and conditions of
this agreement AIA will sell and convey to Aircargo, and Aircargo will purchase
from AIA, the AIA 727 fleet as described in Exhibit A, and AIA will assign to
Aircargo its rights under the customer contracts identified in Exhibit B that
are attributable to periods following closing.
4.2 PURCHASE PRICE. The purchase price for the AIA 727 fleet and for the
assignment of the customer contracts is $51,000,000.
<PAGE> 4
4.3 INSPECTIONS AND REVIEWS.
A. AIA will extend to Aircargo the continuing opportunity after
execution of and before closing under this agreement to inspect
each airframe and engine of the AIA 727 fleet and their
respective ownership and maintenance records, and to perform
conformity checks on installation of cargo doors on each
airframe of the AIA 727 fleet; except that (i) no borescope test
may be performed on any engine, (ii) no intrusive inspection may
be performed beyond removal of inspection plates except for
conformity checks on cargo-door installations, which may involve
intrusive inspection with prompt return to pre-inspection
condition at Aircargo's expense, and (iii) no inspection may be
scheduled or performed under conditions that prevent use of the
aircraft that is being inspected in its regular scheduled or
charter operations.
B. AIA will promptly deliver to Aircargo true and complete copies
of all of the customer contracts identified in Exhibit B, and
will extend to Aircargo the opportunity to review and inspect
AIA's related accounting records and correspondence files
demonstrating the course of performance under the customer
contracts.
4.4 OTHER ACTIONS BEFORE CLOSING. Until the earlier of closing or
termination of these obligations under P.4.6(C):
A. AIA will exert its best efforts at AIA's expense to obtain from
Deloitte & Touche, L.L.P. ("D&T") and deliver to Aircargo at or
before closing such audited and unaudited statements, if any, of
AIA's revenues and direct expenses attributable to the AIA 727
fleet as Kitty Hawk may be required to file under regulations of
the U.S. Securities and Exchange Commission (the "SEC") to
report acquisition of the AIA 727 fleet and to permit Kitty Hawk
to have declared effective by the SEC any subsequent
registration statement filed under the Securities Act of 1933,
and (iv) D&T's written undertaking to Kitty Hawk to grant future
consents to Kitty Hawk's use of the D&T opinions accompanying
such audited statements in reporting the acquisition and in any
subsequent registration statements unless D&T after delivering
the undertaking discovers circumstances that under SEC rules or
AICPA standards prevent its granting such consents.
B. AIA may not, without Aircargo's prior written consent, dispose
of any airframe or engine that is a part of the AIA 727 fleet,
or make any material change in any customer contract.
C. No party may take any intentional action that would cause any of
its representations or warranties in section 3.0 to become
untrue; and each party will exert its reasonable efforts to
prevent any of its representations or warranties in section 3.0
from becoming untrue.
D. Each party must promptly notify the others of any event or
notice before closing that the notifying party believes in good
faith to have a potential material adverse effect on the value,
condition or serviceability of any material part of the AIA 727
fleet, or to that party's ability to perform any of its
obligations under this agreement; or that renders untrue any
representation or warranty by that party under this agreement.
E. All parties will comply with their reporting and other
obligations under HSR, and will diligently pursue obtaining all
required consents by the DOJ and FTC to close under this
agreement. AIA and Kitty Hawk will contribute equally to fund
all required HSR filing fees required before closing.
<PAGE> 5
4.5 PRE-CLOSING USE, OPERATION AND MAINTENANCE OF THE AIA 727 FLEET.
A. AIA promises to use, operate, maintain and preserve the AIA 727
fleet in a condition at least as good as its present condition
and in compliance with the AIA maintenance program and FAA
requirements until closing under this agreement. AIA must not
without Aircargo's prior written consent:
1. operate or permit operation of any of the AIA 727 fleet
except by AIA in the ordinary course of business and in
accordance with current use;
2. remove or exchange any avionics, appliances or other
component parts of the AIA 727 fleet except to substitute
equivalent items as a result of regular maintenance before
closing; or
3. perform any major modification, maintenance or repair of
any part of the AIA 727 fleet except as required under the
AIA maintenance program and FAA requirements or to repair
casualty damage, all of which maintenance and repair, if
any, will be at AIA's expense.
B. Aircargo will have no rights before closing under this agreement
to operate, use, control or exercise dominion over any part of
the AIA 727 fleet, except as it may receive express written
authority and designation to act as AIA's agent.
4.6 CLOSING CONDITIONS.
A. AIA's closing obligations under this agreement are conditioned
on:
1. AIA having obtained the consent of holders to release all
security interests in the AIA 727 fleet, which AIA promises
to exert its reasonable efforts to obtain; and
2. AIA having obtained the consent of certain lenders whose
financing agreements prohibit AIA's sale of aircraft other
than in the ordinary course of business, which AIA promises
to exert its reasonable efforts to obtain;
3. AIA having obtained the consent of customers to the
assignment of the customer contracts to the extent
required, which AIA promises to exert its reasonable
efforts to obtain;
4. the representations and warranties by Aircargo and Kitty
Hawk under P. 3.3 being true at and as of closing; and
5. closing being permissible under HSR.
B. Aircargo's closing obligations under this agreement are
conditioned on:
1. Aircargo having obtained financing for the cash portion of
the purchase price on terms and conditions reasonably
acceptable to Aircargo, which Aircargo promises to exert
its good-faith efforts without material cost or
disadvantage to obtain;
2. Aircargo having obtained the consent of a lender whose
financing agreement prohibits Aircargo's incurring material
debt without the lender's consent, which Aircargo promises
to exert its good-faith efforts without material cost or
disadvantage to obtain;
3. Aircargo having obtained the commitment of Federal Aviation
Title and Guaranty Company of Oklahoma City, Oklahoma
("FATC"), to issue an owner's title policy insuring
Aircargo's good and unencumbered title to the AIA 727 fleet
upon consummation of closing;
4. the representations and warranties by AIA, KFS and Kalitta
under P. 3.1 and P. 3.2 being true at and as of closing;
5. Aircargo having not discovered any condition of any
aircraft or engine of the AIA 727 fleet or of any aircraft
or engine records during its inspections under P. 4.3(A) or
otherwise that in Aircargo's reasonable opinion materially
diminishes the value, condition or serviceability of any
material part of the AIA 727 fleet;
6. no aircraft or engine of the AIA 727 fleet having been
destroyed or constructively lost; and no event having
occurred that is reasonably likely
<PAGE> 6
to have a material adverse effect on the value, condition
or serviceability of any material part of the AIA 727
fleet, or on AIA's ability to perform any of its material
obligations under this agreement or under the letter of
intent identified in P. 2.1;
7. Aircargo having not discovered any aspect of the customer
contracts during its review under P. 4.3(B) or otherwise
that in Aircargo's reasonable opinion is unacceptable
8. the terms of all customer consents to be delivered under
P. 4.8(D) being reasonably acceptable to Aircargo;
9. Aircargo having received the audited and unaudited
financial statements and undertaking described in P.
4.4(A), if any, in form and substance that in Aircargo's
reasonable opinion will enable Kitty Hawk to fulfill its
obligations under SEC regulations to file audited and
unaudited statements of the acquired business of the AIA
727 fleet to report the acquisition and to obtain from the
SEC effectiveness of its future registration statements ;
and
10. closing being permissible under HSR.
C. If any party to this agreement reasonably concludes before
closing that any condition under P. 4.6 to its closing
obligations cannot be satisfied, it must give prompt notice (a
"termination notice") to the other parties to this agreement. If
any party gives a termination notice, no party will have further
obligations under P. 4.1, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9,
4.11, 4.13, 4.14, 4.15 and 4.18; but if a party improperly gives
a termination notice, knowingly makes an untrue representation
or warranty under this agreement, or breaches any obligation
under P. 4.1, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 4.13,
4.14, 4.15 or 4.18 that causes the failure of a closing
condition, that party may be liable in damages to any other
party injured by such action or breach. No termination notice
will diminish the obligations of a party under P. 4.16, 4.17 or
4.19.
4.7 CLOSING AND CLOSING DATE. Closing will be accomplished by escrow
through FATC on the second business day after closing becomes permissible under
HSR.
4.8 AIA'S CLOSING OBLIGATIONS. At closing, AIA will:
A. execute and deliver to Aircargo a warranty bill of sale in the
form of Exhibit D, by which AIA will convey to Aircargo the AIA
727 fleet, with all avionics, auxiliary power units, and
appliances now comprising the AIA 727 fleet (or with equivalent
items substituted as a result of regular maintenance before
closing), and all aircraft and engine records, warranting good
title free and clear of all liens, security interests, lease or
possessory rights, and any other adverse claims and
encumbrances; and by which AIA will assign to
<PAGE> 7
Aircargo all of AIA's interests in existing assignable
warranties, service life policies and patent indemnities, if
any, of manufacturers and former owners with respect to any part
of the AIA 727 fleet and all of AIA's maintenance, condition and
warranty rights under agreements and bills of sale by which AIA
acquired any part of the AIA 727 fleet;
B. execute and deliver to Aircargo such other documents evidencing
the conveyance of the aircraft to Aircargo as may reasonably be
required for filing and registration of the conveyance with the
FAA;
C. execute and deliver to Aircargo an assignment in the form of
Exhibit E assigning to Aircargo all of AIA's rights in and under
the customer contracts attributable to periods following
closing, and warranting good title to the assigned rights, free
and clear of any security interest or adverse claim;
D. deliver to Aircargo all required customer consents to AIA's
assignment under P. 4.8(C);
E. execute and deliver with Aircargo customary ACMI aircraft
operating agreements for the ACMI support operation; and
F. deliver to Aircargo one or more certificates of insurance, in
form reasonably acceptable to Aircargo, evidencing the insurance
coverage that AIA is obligated to provide under P. 4.11(B) and
(C).
4.9 AIRCARGO'S CLOSING OBLIGATIONS. At closing, Aircargo will:
A. pay the purchase price by delivering to AIA $51,000,000 in
immediately-available cash funds;
B. assume and agree to operate and perform without interruption
AIA's obligations that initially arise following closing under
the customer contracts identified in Exhibit B; and agree to
perform without interruption the ACMI support operations
identified in Exhibit C at reasonable market rates for one year,
renewable at AIA's option for two additional years;
C. execute and deliver with Aircargo customary ACMI aircraft
operating agreements for the ACMI support operation; and
D. deliver to AIA one or more certificates of insurance, in form
reasonably acceptable to AIA, evidencing the insurance coverage
that Aircargo is obligated to provide under P. 4.11(A) and (C).
4.10 DELIVERY. At consummation of closing, AIA will deliver to Aircargo
the AIA 727 fleet and all records concerning the AIA 727 fleet, at such
location or locations in the continental United States as Aircargo requests.
All risk of loss of the AIA 727 fleet will be upon Aircargo upon consummation
of closing and delivery.
4.11 INSURANCE.
A. AIRCARGO.
1. Aircargo must at its expense at closing and until the first
anniversary of closing maintain in effect with insurers of
recognized reputation and responsibility, all-risk aircraft
hull damage and all-risk property damage insurance covering
the AIA 727 fleet (including, except with respect to
all-risk property damage insurance, aircraft war risk and
governmental confiscation and expropriation (except by the
U.S. government) and hijacking insurance, if and to the
extent an aircraft that is a part of the AIA 727 fleet is
operated on routes where the custom in the commercial
airline industry is for air carriers to carry such
insurance); which insurance must at all times be for an
amount not less than the aggregate purchase price of the
AIA 727 fleet, and as to each aircraft in an amount not
less than the insurance amount shown in Exhibit A, with
deductibles not greater than those Aircargo customarily
accepts for other Boeing 727 freighter aircraft in its
fleet.
2. Aircargo must at its expense at closing and until the
fourth anniversary of closing maintain in effect
comprehensive airline liability (including passenger,
contractual, bodily injury, cargo and property damage
liability) insurance with insurers of recognized reputation
and responsibility (i) in an amount not less than
$200,000,000 per occurrence combined single limit and (ii)
of the type and coverage as from time to time are
applicable to similar aircraft owned or leased by Aircargo.
Such insurance must extend to AIA, its shareholders,
directors, officers, employees, representatives and
affiliates as additional insureds, and must cover
Aircargo's indemnities under P. 4.16 against tort claims.
B. AIA. AIA must at its expense at closing and until the fourth
anniversary of closing maintain in effect comprehensive airline
liability (including passenger, contractual, bodily injury,
cargo and property damage liability) insurance with insurers of
recognized reputation and responsibility (i) in an amount not
less than $200,000,000 per occurrence combined single limit and
(ii) of the type and coverage as that maintained by AIA before
closing. Such insurance must extend to Aircargo, its
shareholders, directors, officers, employees, representatives
and affiliates as additional, and must cover AIA's indemnities
under P. 4.16(A).
<PAGE> 8
C. POLICY TERMS. Each insurance policy under P. 4.11(A)(2) and P.
4.11(B) must (i) require 30 days' advance notice (except no more
than 7 days with respect to war risk coverages in accordance
with standard industry practice) to the additional insureds
before the insurer cancels such insurance for any reason, or
before the insurance lapses for non-payment or premium, or
before any material change is made in the insurance that
adversely affects the interest of any additional insured,
cancellation or change, (ii) provide that the coverage of each
additional insured will not be invalidated by any action or
inaction of the primary insured, regardless of any breach or
violation of any warranty, declaration or condition, (iii) be
primary without any right of contribution from any other
insurance which is carried by any additional insured, (iii)
provide that all of the provisions except the limits of
liability will operate as if there were a separate policy
covering each additional insured, and (iv) waive any right of
the insurer to subrogation against an additional insured, and to
set-off, counterclaim and any other deduction in respect of any
liability of any additional insured.
4.12 LIMITATION OF WARRANTIES AND DAMAGES.
A. EXCEPT FOR EXPRESS WARRANTIES INP. 3.1 AND EXPRESS WARRANTIES OF
GOOD AND UNENCUMBERED TITLE CONTAINED IN THIS AGREEMENT AND TO
BE CONTAINED IN AIA'S BILL OF SALE, AND THE DESCRIPTION OF THE
AIA 727 FLEET IN EXHIBIT A, THE AIA 727 FLEET IS SOLD "AS IS,
WHERE IS," WITHOUT ANY EXPRESS OR IMPLIED WARRANTY BY AIA, KFS
OR KALITTA OF CHARACTER, CONDITION, OR MERCHANTABILITY OR
FITNESS FOR ANY USE, AND WITHOUT ANY IMPLIED WARRANTY ARISING
FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF
TRADE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AIA,
KFS AND KALITTA DISCLAIM ALL IMPLIED WARRANTIES (I) AS TO THE
AIRWORTHINESS, CONDITION OR DESIGN OF ANY PART OF THE AIA 727
FLEET, (II) OF FREEDOM OF THE AIA 727 FLEET FROM ANY RIGHTFUL
CLAIM BY WAY OF PATENT INFRINGEMENT OR THE LIKE, (III) OF THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCERNIBLE,
AND (IV) OF THE SUITABILITY OF THE AIA 727 FLEET FOR ANY USE OR
APPLICATION BY AIRCARGO.
B. EXCEPT FOR BREACH OF A REPRESENTATION, WARRANTY OR COVENANT
UNDER 4.19, TO WHICH THIS EXCLUSION DOES NOT APPLY, NO PARTY
WILL BE OBLIGATED UNDER THIS AGREEMENT FOR ANY INCIDENTAL,
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
4.13 TAXES. AIA will be solely responsible for and will timely pay any
sales, use and excise taxes lawfully imposed upon AIA or Aircargo as a result
of the sale, conveyance or delivery of the AIA 727 fleet under this agreement,
or as a result of any repurchase of any part of the AIA 727 fleet under P.
4.18; and AIA will indemnify Aircargo and hold it harmless from and against
liability, loss and cost of defense upon all such taxes.
4.14 ACTIONS AFTER CLOSING; TRANSITIONAL OPERATIONS.
A. All aircraft in the AIA 727 fleet will remain on the AIA
operation specifications at closing and thereafter until they
are transitioned to the Aircargo operation specifications under
the schedule in Exhibit F, which is Aircargo's best current
estimate of the time and transition rate required for efficient
and prompt transitioning of all of the aircraft to Aircargo's
operation specifications in accordance with FAA requirements and
sound practices, but Exhibit F is subject to amendment from time
to time by reasonable advance notice from Aircargo to AIA as
Aircargo's estimates are modified through experience in the
transitioning, except that no amendment may shorten the
transition schedule in a way that imposes a materially greater
burden on AIA to provide transition assistance.
B. AIA will at its cost diligently after closing perform all
transitional maintenance required to transition the AIA 727
fleet to Aircargo's maintenance program, or at Aircargo's
option, will permit Aircargo to use and have full access to
AIA's maintenance program so long as Aircargo retains any part
of the AIA 727 fleet. AIA will assist Aircargo in transitioning
the AIA 727 fleet to Aircargo's operation specifications in
accordance with Exhibit F, as it may be amended from time to
time. During the transition period AIA will provide qualified,
certified and rested flight crews timely to perform all flight
operations required by Aircargo for any aircraft included within
the AIA 727 fleet that has not yet been transitioned to
Aircargo's operation specifications.
C. AIA will have no rights of ownership, control or operation of
any aircraft of the AIA 727 fleet after closing, except as
required under FAA regulations while providing flight crews and
performing operations for Aircargo using aircraft of the AIA 727
fleet that have not yet been transitioned to Aircargo's
operation specifications. After closing, Aircargo will otherwise
at all times retain and exercise all rights of operation and
movement of the aircraft.
D. After closing and until all of the aircraft of the AIA 727
fleet have been transitioned to Aircargo's operation
specifications, AIA will perform at an AIA maintenance facility
all maintenance requested by Aircargo on any aircraft or engine
of the AIA 727 fleet that has not been transitioned to
Aircargo's operations specifications, at costs and rates not
exceeding reasonable market rates and upon schedules that give
equal priority to such aircraft and engine maintenance as AIA
would assign to aircraft and engines owned by AIA.
<PAGE> 9
E. AIA will after closing assist AIA in the enforcement of all
claims that AIA assigns to Aircargo in the bill of sale
delivered by AIA at closing, including without limitation but at
Aircargo's expense, pursuing any assigned claim in AIA's name
but for the benefit of Aircargo.
F. So long as the call option under P. 4.18(A) can be exercised,
Aircargo may not dispose of any part of the AIA 727 fleet, and
will operate and maintain the AIA 727 fleet in compliance with
the AIA or Aircargo maintenance program and in compliance with
all FAA requirements.
G. Aircargo may operate the AIA 727 fleet in AIA livery until the
second anniversary of closing.
4.15 LIMITATIONS ON ACQUISITION OF BOEING 727 AIRCRAFT. AIA, KFS and
Kalitta promise Aircargo and Kitty Hawk that none of them will acquire Boeing
727 aircraft before the second anniversary of closing under this agreement
unless (i) an option under P. 4.18 has been exercised and closed, or (ii) they
first offer to buy such aircraft from Aircargo at fair market values for cash.
4.16 GENERAL INDEMNITIES.
A. AIA, KFS AND KALITTA WILL JOINTLY AND SEVERALLY INDEMNIFY
AIRCARGO, KITTY HAWK AND THEIR RESPECTIVE SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES AND AFFILIATES,
AND HOLD THEM HARMLESS, FROM AND AGAINST LIABILITY, LOSS AND
COST OF DEFENSE UPON ALL CLAIMS:
1. FOR INJURY TO OR DEATH OF ANY PERSON OR DAMAGE TO OR
DESTRUCTION OF ANY PROPERTY, INCLUDING THE AIA 727 FLEET,
ARISING OUT OF THE OWNERSHIP, MANAGEMENT, POSSESSION, USE,
CONTROL, MAINTENANCE OR OPERATION OF THE AIA 727 FLEET
BEFORE CLOSING, EVEN IF SUCH INJURY, DEATH, DAMAGE OR
DESTRUCTION IS CAUSED BY AIRCARGO'S OR KITTY HAWK'S ACTUAL
OR IMPUTED NEGLIGENCE; EXCEPT THAT AIA'S, KFS'S AND
KALITTA'S OBLIGATIONS UNDER THIS PARAGRAPH ARE LIMITED TO
AN AGGREGATE OF $200,000,000, AND THIS INDEMNITY WILL NOT
EXTEND TO ANY CLAIM FOR INJURY, DEATH, DAMAGE OR
DESTRUCTION CAUSED BY AIRCARGO'S OR KITTY HAWK'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, OR WHICH IS COVERED BY
WORKER'S COMPENSATION INSURANCE; AND
2. FOR DEBT, CONTRACTUAL OBLIGATION, TAX OR GOVERNMENTAL
CHARGE OR PENALTY THAT IS BASED UPON ANY UNDERTAKING OR
ACTION BY AIA, KFS OR KALITTA AT ANY TIME BEFORE OR AFTER
CLOSING THAT IS NOT ATTRIBUTABLE TO AN OBLIGATION KNOWINGLY
INCURRED BY AIRCARGO OR KITTY HAWK OR FULLY DISCLOSED BY
AIA AND EXPRESSLY ASSUMED BY AIRCARGO AT CLOSING; INCLUDING
WITHOUT LIMITATION ALL CLAIMS UNDER CUSTOMER CONTRACTS OR
FROM ACMI SUPPORT OPERATIONS THAT ARE ATTRIBUTABLE TO
OCCURRENCES BEFORE CLOSING.
<PAGE> 10
B. AIRCARGO AND KITTY HAWK WILL JOINTLY AND SEVERALLY INDEMNIFY
AIA, KFS AND THEIR RESPECTIVE SHAREHOLDERS, OFFICERS, DIRECTORS,
EMPLOYEES AND REPRESENTATIVES, AND HOLD THEM HARMLESS, FROM AND
AGAINST LIABILITY, LOSS AND COST OF DEFENSE UPON ALL CLAIMS:
1. FOR INJURY TO OR DEATH OF ANY PERSON OR DAMAGE TO OR
DESTRUCTION OF ANY PROPERTY ARISING OUT OF THE OWNERSHIP,
MANAGEMENT, POSSESSION, USE, CONTROL, MAINTENANCE OR
OPERATION OF THE AIA 727 FLEET AFTER CLOSING, EVEN IF SUCH
INJURY, DEATH, DAMAGE OR DESTRUCTION IS CAUSED BY AIA'S,
KFS'S OR KALITTA'S ACTUAL OR IMPUTED NEGLIGENCE; EXCEPT
THAT AIRCARGO'S AND KITTY HAWK'S OBLIGATIONS UNDER THIS
PARAGRAPH ARE LIMITED TO AN AGGREGATE OF $200,000,000, AND
THIS INDEMNITY WILL NOT EXTEND TO ANY CLAIM FOR INJURY,
DEATH, DAMAGE OR DESTRUCTION CAUSED BY AIA'S, KFS'S OR
KALITTA'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR WHICH
IS COVERED BY WORKER'S COMPENSATION INSURANCE; AND
2. UNDER THE CUSTOMER CONTRACTS IDENTIFIED IN EXHIBIT C THAT
ARE ATTRIBUTABLE TO AIRCARGO'S PERFORMANCE OR
NON-PERFORMANCE AFTER CLOSING.
4.17 COMMISSION OR FINDERS' FEE. No party will owe any commission or
finder's fee under this agreement. Each party will indemnify the other and hold
it harmless against liability, loss and cost of defense upon any claim to a
commission or finders fee based upon agreement of the indemnitor.
4.18 CALL/PUT OPTIONS.
A. AIA has the option (the "call option") to repurchase no later
than March 31, 1998 all of the AIA 727 fleet except the three
aircraft and their engines, avionics and appliances (the
"initial aircraft") designated under Exhibit F as the first
three aircraft of the AIA 727 fleet to be transitioned to
Aircargo's operation specifications (the AIA 727 fleet less the
initial aircraft is the "option fleet").
1. AIA may exercise the call option only by giving notice (a
"call notice") to Aircargo no later than February 28, 1998.
If AIA gives a call notice, AIA will be responsible at its
expense for preparation and fees for any HSR reports
required for closing under the call option, and closing
will be conditioned on its being permissible under HSR.
2. At closing under the call option, AIA must tender the
repurchase price (the "call-option price") under the call
option. The call-option price will be the sum of (i) the
purchase price under P. 4.2, less the sum of the
<PAGE> 11
scheduled values under Exhibit A for the initial aircraft,
and (ii) Aircargo's unamortized portion of any expenditure
made after closing to install hushkits, to comply with FAA
airworthiness directives, or to perform major maintenance
on any aircraft or engine of the option fleet.
3. If any aircraft or engine of the option fleet has suffered
a casualty loss after closing and before closing under the
call option, Aircargo will not be obligated to redeliver or
replace the lost aircraft or engine, and the call-option
price will be reduced by the scheduled value for the lost
aircraft or engine that is set out in Exhibit A.
4. The call-option price will be payable in cash in
immediately-available funds.
5. At closing under the call option, Aircargo will convey and
deliver to AIA the option fleet in its then condition,
without express or implied warranty of condition,
merchantability or fitness except that it has authorized
AIA to perform or has otherwise performed all maintenance
required under P. 4.14(F), and otherwise only warranting no
deficiency in title or encumbrance by through or under
Aircargo; and all indemnity and post-closing obligations by
Aircargo under this agreement will be deemed modified so
that they do not extend to any occurrence after closing of
the call option except as to the initial aircraft.
6. AIA will at closing under the call option assume and agree
to perform without interruption all lease and operating
agreements (including without limitation customer contracts
and ACMI support operations) upon which Aircargo is then
obligated and for which Aircargo is then using any of the
option fleet, except any leases and operating agreements
negotiated by Aircargo after closing (i) that are not
renewals, extensions or novations of customer contracts and
(ii) that Aircargo wishes to continue to perform with other
aircraft or through subcontract.
7. AIA will after closing under the call option indemnify and
hold Aircargo and its shareholders, directors, officers,
employees and representatives harmless from and against all
claims attributable to ownership, use or operation of any
part of the option fleet after closing of the call option.
8. The call option will terminate and may not be exercised
(i) if any representation or warranty by AIA, KFS or
Kalitta under this agreement is untrue in any material
respect, (ii) if AIA, KFS or Kalitta
<PAGE> 12
breaches any covenant under P. 4.19, (iii) if AIA breaches
any post-closing obligation under this agreement and fails
to cure such breach within 10 days after Aircargo gives
notice to AIA of the breach, and (iv) if AIA loses its
certificates or authority to operate Boeing 727 aircraft.
9. Except for a collateral assignment to an institutional
lender, AIA may not assign the call option by operation of
law or otherwise except to Kalitta or KFS, and neither of
them may further assign the call option by operation of law
or otherwise without Aircargo's prior written consent.
B. Aircargo has the option (the "put option") to require AIA to
repurchase no later than December 31, 1997 all of the option
fleet as defined in P. 4.18(A) if (i) in Aircargo's reasonable
opinion any airworthiness directive issued by the FAA materially
diminishes the utility or value of the option fleet, or (ii) AIA
refinances any material part of its existing institutional debt
and for any reason except Kitty Hawk's material breach the
parties do not close by November 30, 1997 under a definitive
agreement for Kitty Hawk's acquisition of one or more of the
Kalitta companies.
1. Aircargo may exercise the put option only by giving notice
(a "put notice") to AIA no later than November 30, 1997. If
Aircargo gives a put notice, Aircargo will be responsible
at AIA's expense for preparation and fees for any HSR
reports required for closing under the put option, and
closing will be conditioned on its being permissible under
HSR.
2. At closing under the put option, AIA must tender the
repurchase price (the "put-option price") under the put
option. The put-option price will be the sum of (i) the
purchase price under P. 4.2, less the sum of scheduled
values for the initial aircraft and the put-option retained
aircraft that are set out in Exhibit A, and (ii) Aircargo's
unamortized portion of any expenditure made after closing
to install hushkits, to comply with FAA airworthiness
directives, or to perform major maintenance on any aircraft
or engine of the option fleet.
3. If any aircraft or engine of the option fleet has suffered
a casualty loss after closing and before closing under the
put option, Aircargo will not be obligated to redeliver or
replace the lost aircraft or engine, and the put-option
price will be reduced by the scheduled value for the lost
aircraft or engine that is set out in Exhibit A.
4. The put-option price will be payable in cash in
immediately-available funds.
5. At closing under the put option, Aircargo will convey and
deliver to AIA the option fleet in its then condition,
without express or implied warranty of condition,
merchantability or fitness except that it has authorized
AIA to perform or has otherwise performed all maintenance
required under P. 4.14(F), and otherwise only warranting no
deficiency in title or encumbrance by through or under
Aircargo; and all indemnity and post-closing obligations by
Aircargo under this agreement will be deemed modified so
that they do not extend to any occurrence after closing of
the put option except as to the initial and put-option
retained aircraft.
6. AIA will at closing under the put option assume and agree
to perform without interruption all lease and operating
agreements (including without limitation customer contracts
and ACMI support operations) upon which Aircargo is then
obligated and for which Aircargo is then using any of the
option fleet, except any leases and operating agreements
negotiated by Aircargo after closing (i) that are not
renewals, extensions or novations of customer contracts and
(ii) that Aircargo wishes to continue to perform with other
aircraft or through subcontract.
7. AIA will after closing under the put option indemnify and
hold Aircargo and its shareholders, directors, officers,
employees and representatives harmless from and against all
claims attributable to ownership, use or operation of any
part of the option fleet after closing of the put option.
<PAGE> 13
4.19 PROHIBITIONS AGAINST SHOPPING.
A. AIA, KFS and Kalitta jointly and severally represent and warrant
to Aircargo and Kitty Hawk that (i) they have made no agreement
to sell the stock, business or any material asset of any of the
Kalitta companies to another, or to merge, consolidate or
combine assets or business of any of the Kalitta companies with
another, except any asset sale shown in the Fieldstone model
identified in the letter of intent, and (ii) that none of them
are currently engaged in negotiations or discussions concerning
any other sale of the stock, or the sale, merger or combination
of any material asset or business of any of the Kalitta
companies to or with another (except the possible collateral
transfer of certain aircraft to a trustee in connection with
certain bond financing).
B. AIA, KFS and Kalitta jointly and severally promise Aircargo and
Kitty Hawk that until March 31, 1998, or until earlier exercise
and closing of an option under P. 4.18, none of them will
solicit, discuss, negotiate or agree to (i) the sale of any
stock or other equity interest in any of the Kalitta companies
except under the letter of intent identified in P. 2.1, (ii) a
merger or combination of any material asset or business, or any
exchange of shares, of any of the Kalitta companies except under
the letter of intent identified in P. 2.1, or (iii) a sale or
disposition of any of the business or operating aircraft assets
of any of the Kalitta companies (a) except under the letter of
intent identified in P. 2.1, (b) except for the possible
collateral transfer of certain aircraft to a trustee in
connection with certain bond financing, and (c) except asset
sails shown in the Fieldstone model identified in the letter of
intent, or sales of L-1011's or DC-8's to generate cash to
service debt or as required for ongoing operations of any of the
Kalitta companies.
C. AIA, KFS and Kalitta jointly and severally promise Aircargo and
Kitty Hawk that until March 31, 1998, or until earlier exercise
and closing of an option under P. 4.18, they will give prompt
notice to Aircargo if any of them receives any communication
from anyone who is not a party to this agreement and who
proposes any discussion, negotiation or agreement prohibited
under P. 4.19(B).
D. The third sentence of P. 4.2 of the letter of intent identified
in P. 2.1 is amended to incorporate the representations,
warranties and covenants in P. 4.19(A), (B) and (C) above, which
are effective both under this agreement and under the letter of
intent as so amended.
E. Aircargo and Kitty Hawk jointly and severally promise AIA, KFS
and Kalitta that until December 31, 1997 neither of them will
agree (i) to any merger or combination of any material asset or
business of Kitty Hawk except under the letter of intent
identified in P. 2.1, or (ii) to any acquisition of any material
equity interest in any business entity or any operating segment
of any business entity except under the letter of intent
identified in P. 2.1.
5.0 GENERAL PROVISIONS
5.1 AMENDMENTS AND WAIVERS. To amend this agreement or waive any
provision of this agreement, both parties must sign a written amendment or
waiver that identifies by section or paragraph number the provision that it
purports to amend or waive. No noncomplying course of dealing may be construed
to amend or waive any provisions of this agreement.
5.2 ASSIGNMENT. No party may assign its rights under this agreement
except as provided in P. 4.18(A)(9) without the prior written consent of all
other parties. Any attempted assignment
<PAGE> 14
in violation of the preceding sentence will be ineffective to transfer any
rights under this agreement to the purported assignee.
5.3 NOTICES. Notices required or permitted under this agreement must be
in writing. Notices may be given by Federal Express, fee prepaid, addressed to
the intended recipient at its address in P. 1.2, or to such other notice
address as that party designates by notice to the other parties, and any notice
so given will be effective one business day after deposit with Federal Express.
A business day is any day other than a Saturday, Sunday, or legal holiday in
Texas. A notice given by other means will be effective only when actually
received by the addressee.
5.4 REMEDIES. Each party to this agreement will be entitled to all
remedies at law and in equity for breach of obligations under this agreement.
No provision of P. 4.18(A)(7) or P. 4.19 is intended to limit the full
availability of all other legal and equitable remedies.
5.5 DISCLOSURE. Kitty Hawk may at any time after execution of this
agreement disclose the existence and terms of this agreement and the letter of
intent identified in P. 2.1 by releasing a public announcement in the form of
the draft press release in Exhibit G, and by such other methods in Kitty Hawk's
reasonable opinion are required or prudent. This provision modifies obligations
under P. 4.1 of the letter of intent and under P. 3.3 of the nondisclosure
agreement identified in P. 4.1 of the letter of intent.
5.6 CONSTRUCTION.
A. When used in this agreement, defined terms (in quotation marks
within parentheses immediately following the defining term or
phrase) have the defined meanings unless the context clearly
indicates otherwise. Defined terms may be used in the singular
or plural. Unless otherwise clearly indicated, paragraph ("P. ")
references are to paragraphs of this agreement.
B. Texas law and the Federal Arbitration Act govern the effect and
construction of this agreement.
C. Any action upon a claim arising out of this agreement must be
commenced by filing of an arbitration claim under P. 5.7 within
two years after the cause of action accrues.
D. If any provision of this agreement is invalid or unenforceable,
the remaining provisions of this agreement will be enforceable.
<PAGE> 15
E. This agreement binds and benefits the parties and their
respective successors and permitted assigns.
F. This agreement is the entire agreement between the parties with
respect to the AIA 727 fleet, and merges and supersedes all
former agreements, letters, promises or representations, whether
oral or written, express or implied, that relate to the AIA 727
fleet; with the exceptions that (i) P. 4.1 and P. P. 4.3 through
4.8 of the letter of intent are unaffected by this agreement and
remain in full force and effect in accordance with their
respective terms, (ii) P. 4.2 of the letter of intent as
modified by P. 4.19 above remains in full force and effect
independently of this agreement, (iii) all provisions of the
confidentiality agreement identified in P. 4.1 of the letter of
intent are unaffected by this agreement and remain in full force
and effect in accordance with their respective terms, except to
the extent they are modified by P. 5.5, and (iv) this agreement
in no way affects or amends any obligation of any party under or
in connection with the Settlement Agreement executed in August
1994 related to the U.S. Postal Service's ANET 93-01
solicitation.
G. All representations and warranties contained in this agreement
will survive investigation and closing.
H. No waiver of a claim or default under this agreement may be
construed to be a waiver of any other claim or default.
I. No rule of construction resolving any ambiguity against a
drafting party will apply.
J. Titles and headings are only for convenient reference and are
not to be construed in interpretation.
K. Exhibits A, B, C, D, E, F and G are attached to this agreement
and are incorporated as part of this agreement.
L. This agreement is not intended to create any relationship
between AIA and Aircargo except that of seller and buyer.
Neither this agreement nor any performance under it, including
without limitation any performance under P. 4.14, is intended to
create any partnership or joint venture relationship of any
kind.
M. Notwithstanding termination of any obligations under this
agreement, the provisions of P. 4.19 and section 5.0 will
continue to be effective except to the extent that any of them
is amended in accordance with P. 5.1.
5.7 BINDING AGREEMENT TO ARBITRATE DISPUTES. All disputes under or
relating to this agreement must exclusively be resolved by binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association
(the "AAA") in effect at the time the arbitration proceeding commences, except
that (i) P. P. 5.1 through 5.6 will govern the effect and construction of this
agreement, (ii) the locale of the arbitration must be the locale of the party
against whom arbitration is first demanded, (iii) any award must state material
findings of fact and conclusions of law, (iv) a party may seek preliminary
injunctive or other equitable relief from any court of competent jurisdiction
to preserve the status quo pending selection of an arbitrator, (v) an
arbitrator may by interim or final award grant declarative and injunctive and
other equitable relief (the parties acknowledge
<PAGE> 16
that remedies at law are unlikely to be adequate to protect against or remedy
breach of this agreement), and (vi) a prevailing party in litigation to require
arbitration or to obtain preliminary relief pending establishment of an
arbitration panel, in arbitration, or in litigation to confirm or enforce an
arbitration award will be entitled to recover its reasonable attorneys' fees
and costs. An arbitration award will be final and binding on all parties, and
judgment upon such arbitration award may be entered in any court having
jurisdiction.
AMERICAN INTERNATIONAL AIRWAYS, INC.
By:
------------------------------------
CONRAD KALITTA,
PRESIDENT
KALITTA FLYING SERVICES, INC.
By:
------------------------------------
DON SCHILLING,
PRESIDENT
---------------------------------------
CONRAD KALITTA
KITTY HAWK, INC.
By:
------------------------------------
M. TOM CHRISTOPHER
CHAIRMAN AND CEO
KITTY HAWK AIRCARGO, INC.
By:
------------------------------------
M. TOM CHRISTOPHER
CHAIRMAN AND CEO
<PAGE> 1
EXHIBIT 11.1
KITTY HAWK, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary net income (loss) per share (1):
Weighted average number of common shares
outstanding............................... 10,451,807 7,423,436 10,451,807 7,423,436
Common shares related to SAB No. 83 (2)... -- 544,274 -- 544,274
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding............. 10,451,807 7,967,710 10,451,807 7,967,710
=========== =========== =========== ===========
Net income (loss)......................... $ 2,561,088 $(1,288,329) $ 3,975,029 $(1,149,317)
=========== =========== =========== ===========
Net income (loss) per share............... $ 0.25 $ (0.16) $ 0.38 $ (0.14)
=========== =========== =========== ===========
Fully diluted net income (loss) per share:
Weighted average number of common shares
outstanding 10,451,807 7,423,436 10,451,807 7,423,436
Common shares related to SAB No. 83 (2)... -- 544,274 -- 544,274
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding............. 10,451,807 7,967,710 10,451,807 7,967,710
=========== =========== =========== ===========
Net income (loss)......................... $ 2,561,088 $(1,288,329) $ 3,975,029 $(1,149,317)
=========== =========== =========== ===========
Net income (loss) per share............... $ 0.25 $ (0.16) $ 0.38 $ (0.14)
=========== =========== =========== ===========
</TABLE>
(1) The Company reports primary net income per share as the effect of dilutive
securities is less than 3%.
(2) Stock options granted to executives within 12 months of the filing date
of the Company's initial public offering have been included in this line
item through the date of exercise. See Note 1 of Notes to Consolidated
Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,952,142
<SECURITIES> 0
<RECEIVABLES> 15,122,410
<ALLOWANCES> 0
<INVENTORY> 4,434,467
<CURRENT-ASSETS> 33,874,990
<PP&E> 103,332,389
<DEPRECIATION> (19,849,788)
<TOTAL-ASSETS> 117,357,591
<CURRENT-LIABILITIES> 23,286,851
<BONDS> 0
0
0
<COMMON> 106,695
<OTHER-SE> 62,141,850
<TOTAL-LIABILITY-AND-EQUITY> 117,357,591
<SALES> 0
<TOTAL-REVENUES> 60,468,524
<CGS> 0
<TOTAL-COSTS> 47,662,864
<OTHER-EXPENSES> 5,556,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,049,382
<INCOME-PRETAX> 6,625,049
<INCOME-TAX> 2,650,020
<INCOME-CONTINUING> 3,975,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,975,029
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
