<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1997
REGISTRATION NO. 333-36125
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4731 75-2564006
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
M. TOM CHRISTOPHER
CHIEF EXECUTIVE OFFICER
1515 WEST 20TH STREET 1515 WEST 20TH STREET
P.O. BOX 612787 P.O. BOX 612787
DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS
75261 75261
(972) 456-2200 (972) 456-2200
(Address, including zip code, and telephone (Name, address, including zip code, and telephone
number, including number,
area code, of registrant's principal executive including area code, of agent for service)
offices)
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Copies of communications to:
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<S> <C>
MICHAEL M. BOONE JOEL S. KLAPERMAN
GREG R. SAMUEL JAMES S. SCOTT, SR.
HAYNES AND BOONE, LLP SHEARMAN & STERLING
3100 NATIONSBANK PLAZA 599 LEXINGTON AVENUE
901 MAIN STREET NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75202-3789 (212) 848-4000
(214) 651-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is to be made pursuant to Rule 434, please
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject To Completion)
Issued October 27, 1997
4,100,000 Shares
[KITTY HAWK, INC. LOGO]
KITTY HAWK, INC.
COMMON STOCK
------------------------
Of the 4,100,000 shares of Common Stock offered hereby (the "Common Stock
Offering"), 3,000,000 shares of Common Stock are being sold by the Company and
1,100,000 shares are being sold by stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the net proceeds from the sale of shares of Common Stock by the
Selling Stockholders. The Common Stock is quoted on the Nasdaq National Market
System under the symbol "KTTY." On October 23, 1997, the last reported sale
price of the Common Stock on the Nasdaq National Market System was $19 15/16 per
share.
Concurrently with the Common Stock Offering, the Company is offering
$340,000,000 aggregate principal amount of Senior Secured Notes (the "Notes") of
the Company due 2004 (the "Note Offering"). The closing of the Common Stock
Offering is subject to the concurrent consummation of the Merger (as defined)
and the Note Offering and entering into the New Credit Facility (as defined) and
Term Loan (as defined). See "The Merger," "Use of Proceeds" and "Description of
Certain Indebtedness."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities including liabilities under the
Securities Act of 1933. See "Underwriters."
(2) Before deducting expenses payable solely by the Company estimated to be
$ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 615,000
additional shares of Common Stock at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. See "Underwriters." If the Underwriters exercise
such option in full, the total price to public, underwriting discounts and
commissions and proceeds to Company will be $ , $ and
$ , respectively.
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the several Underwriters, subject to approval of certain legal matters by
Shearman & Sterling, counsel for the Underwriters. It is expected that delivery
of the Shares will be made on or about , 1997 at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
SCOTT & STRINGFELLOW, INC.
FIELDSTONE
FPCG SERVICES, L.P.
, 1997
<PAGE> 3
KEEPING BUSINESS IN MOTION
[This page contains a series of photographs of airplanes flying and being
loaded and unloaded and of Kitty Hawk's corporate headquarters. This page also
unfolds to display a route map of Kitty Hawk, including short-term, seasonal
passenger charter routes.]
2
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NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, ANY SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary...................... 4
Risk Factors............................ 14
The Merger.............................. 25
Use of Proceeds......................... 30
Price Range of Common Stock and Dividend
Policy................................ 31
Capitalization.......................... 32
Unaudited Pro Forma Combined Financial
Information........................... 33
Selected Financial and Operating Data... 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 44
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PAGE
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Business................................ 65
Management.............................. 80
Certain Transactions.................... 88
Principal and Selling Stockholders...... 91
Description of Capital Stock............ 92
Description of Certain Indebtedness..... 94
Shares Eligible for Future Sale......... 96
Underwriters............................ 98
Legal Matters........................... 100
Experts................................. 100
Available Information................... 100
Index to Financial Statements........... F-1
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
---------------------
Industry statistics and projections presented herein were obtained from the
1996/97 World Air Cargo Forecast published by the Boeing Company (the "Boeing
Report") which the Company has not independently verified.
---------------------
FORWARD LOOKING STATEMENTS
STATEMENTS CONTAINED IN THIS PROSPECTUS REGARDING THE COMPANY'S
EXPECTATIONS WITH RESPECT TO THE INTEGRATION OF KITTY HAWK AND THE KALITTA
COMPANIES, INCLUDING THE SYNERGIES RELATED THERETO, FUTURE OPERATIONS AND OTHER
INFORMATION, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "EXPECT," "COULD," "ANTICIPATE," "ESTIMATE" OR "CONTINUE"
OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY,
ARE FORWARD LOOKING STATEMENTS. SEE "RISK FACTORS" FOR CAUTIONARY STATEMENTS
IDENTIFYING IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD LOOKING STATEMENTS,
INCLUDING IMPORTANT RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM RESULTS REFERRED TO IN THE FORWARD LOOKING STATEMENTS.
THERE CAN BE NO ASSURANCE THAT THE COMPANY'S EXPECTATIONS REGARDING ANY OF THESE
MATTERS WILL BE FULFILLED.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and pro forma
financial information appearing elsewhere in this Prospectus. The closing of
this Common Stock Offering is conditioned on (i) the concurrent consummation of
the mergers (collectively, the "Merger") of American International Airways, Inc.
("AIA"), American International Travel, Inc. ("AIT"), Flight One Logistics, Inc.
("FOL"), Kalitta Flying Service, Inc. ("KFS") and O.K. Turbines, Inc. ("OK")
(collectively, the "Kalitta Companies") with and into separate subsidiaries of
Kitty Hawk pursuant to the Merger Agreement (as defined), (ii) the concurrent
consummation of the Note Offering and (iii) entering into the New Credit
Facility (as defined) and the Term Loan (as defined). This Common Stock
Offering, the Merger and the Note Offering are referred to herein collectively
as the "Transactions". Unless otherwise indicated or the context otherwise
requires, references in this Prospectus to (i) "Kitty Hawk" refer to Kitty Hawk,
Inc. and its consolidated subsidiaries prior to giving effect to the
consummation of the Transactions, (ii) the "Company" refer to Kitty Hawk and the
Kalitta Companies on a combined basis after giving effect to the consummation of
the Transactions, including the combination of the businesses conducted by Kitty
Hawk and the Kalitta Companies prior to the Merger and (iii) "Refinancings"
refers to the refinancing of substantially all of the currently outstanding
indebtedness of Kitty Hawk and the Kalitta Companies with a portion of the net
proceeds of this Common Stock Offering, the Note Offering and the Term Loan.
THE COMPANY
BUSINESS
The Company is a leading U.S. and international air freight carrier and a
leading provider of air freight charter logistics services in the U.S. The
Company also provides airframe and engine maintenance services for third parties
as well as for its own fleet. On a pro forma basis, after giving effect to the
Merger, the Company's total revenues for the twelve months ended December 31,
1996 and the six months ended June 30, 1997 were $552 million and $256 million,
respectively.
Air Freight Carrier Services. The Company is a leading provider of
scheduled and charter air freight carrier services. The Company's scheduled air
freight operations include an overnight freight service operating within a
network of 47 North American cities and a service between Los Angeles, the
Hawaiian Islands and several Pacific Rim countries. The Company's charter air
freight operations include (i) contractual charters under which the Company
generally supplies aircraft, crew, maintenance and insurance ("ACMI") and (ii)
on-demand charters. The Company also provides air passenger charter services on
a contractual and on-demand basis.
Air Freight Logistics Services. The Company is a leading provider of
same-day air freight charter logistics services in the U.S. The Company arranges
the delivery of time sensitive freight using aircraft of third party air freight
carriers as well as its own fleet. During 1996 the air logistics business
managed over 14,000 on-demand flights.
Aircraft Maintenance Services. The Company is one of the few dedicated air
freight carriers in the world that provides comprehensive aircraft maintenance
services, including airframe repair and engine overhaul (with the exception of
certain aircraft engine components), to other aircraft operators as well as for
its own fleet. This capability allows the Company to reduce its overall
maintenance costs, including reduced aircraft downtime. The Company has major
maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas.
FLEET
The Company operates a fleet of 120 aircraft, including (i) four Boeing
747s, six Lockheed L-1011s, 19 Douglas DC-8s, 31 Boeing 727s and five Douglas
DC-9-15Fs for its air freight carrier business, (ii) two
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Boeing 747s and two Lockheed L-1011s for its air passenger charter business and
(iii) 51 small jet and prop aircraft (which include primarily Lear jets and
Convairs) in air freight and/or air passenger charter service.
AIR FREIGHT MARKET
According to the Boeing Report, the world air cargo market grew at an
average rate of more than 8% per year from 1970 to 1995 as measured in revenue
ton kilometers, more than 2.5 times the growth rate of world Gross Domestic
Product. Also, according to the Boeing Report, the world air freight market is
expected to grow at 6.7% annually through 2015. Management believes this
projected growth in the world air freight market will be fueled by many factors,
including economic growth, relaxation of international trade barriers,
increasingly time-sensitive product delivery schedules, increased use of
"just-in-time" inventory management systems and increasing levels of Internet
commerce. In addition, according to the Boeing Report, there is a trend towards
shipping freight in dedicated freighter aircraft rather than in cargo space of
passenger aircraft.
COMPETITIVE STRENGTHS
The Company believes that the following factors are competitive strengths
and promote strong relationships with its diversified customer base.
- Established Market Position. The Company, including its predecessors, has
provided air freight carrier services for more than 30 years. The
Company's extensive fleet and the diversity of its air freight carrier
services (scheduled, contract charters and on-demand charters) have
enabled it to become a leading U.S. and international air freight
carrier. The Company has a diversified customer base, including (i)
freight forwarders such as Burlington Air Express, Eagle USA and Emery
Worldwide Airlines, (ii) U.S. government agencies such as the U.S. Postal
Service and the U.S. Military and (iii) businesses such as General Motors
and Boeing.
- Attractive Fleet Characteristics. The Company believes that it has been
successful in purchasing and modifying aircraft for its own fleet at
favorable costs. The aircraft in the Company's fleet range from Boeing
747s to prop aircraft, enabling the Company to provide its customers with
the aircraft type best suited to their particular transportation needs.
The size and diversity of its fleet also allows the Company to deploy
aircraft among its three air freight carrier service lines in a manner
which improves fleet utilization.
- Broad Service Capabilities. The Company believes that its air freight
carrier services are attractive to its customers for several reasons,
including (i) its history of providing reliable service, (ii) its ability
to provide time-definite air transportation of almost any type or size of
freight to most destinations worldwide upon short notice, (iii) its
ability to manage critical freight shipments in North America from
pick-up through delivery and (iv) its ability to provide its customers
with real time updates of aircraft location and progress. In addition,
the Company is able to coordinate its domestic and international
scheduled services to offer customers reliable freight delivery service
to and from North America and the Pacific Rim and Central and South
America. The Company's capabilities are enhanced by its management
information systems which enable the Company to continually monitor its
flight operations, thereby facilitating aircraft and flight crew
scheduling.
RATIONALE FOR THE MERGER
The combination of Kitty Hawk and the Kalitta Companies pursuant to the
Merger makes the Company one of the leading U.S. and international air freight
carriers as well as a leading provider of air freight charter logistics services
in the U.S. The Merger also permits the Company to achieve a number of strategic
and financial objectives, including:
- Increased Utilization of On-Demand Aircraft. Prior to the Merger, less
than 10% of the on-demand charters arranged by Kitty Hawk were flown on
Kitty Hawk's aircraft. With the addition of the Kalitta Companies'
aircraft, the Company will direct a larger percentage of its on-demand
charters to its own aircraft, rather than to third parties. Because
on-demand charters flown on the Company's aircraft
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generate a higher gross margin than charters subcontracted to third
parties, the Company believes this strategy will improve its
profitability over time.
- Opportunities for Cost Savings. The Company believes the Merger will
permit it to achieve annual cost savings by enabling it to increase the
Kalitta Companies' crew utilization, reduce Kitty Hawk's reliance on
third party maintenance, reduce parts inventory and consolidate
duplicative airport support bases as well as through other economies of
scale, including lower aircraft insurance premiums.
- Integration of Fleet Operations. The Company believes the Merger will
permit it to integrate the Kalitta Companies' scheduled air freight
operations with Kitty Hawk's air freight carrier services, resulting in
expanded customer services and increased revenues. The combined fleet
should also enhance operating efficiencies by better matching aircraft
size and operating capabilities with route systems and customer needs.
Finally, the Company believes the resultant combination of services and
fleet capabilities will provide new domestic and international marketing
opportunities.
GROWTH STRATEGIES
The Company's revenue has grown significantly over the last several years
and the Company believes it can continue to increase revenues through the
following opportunities:
- Expansion of ACMI Charter Business. The Company believes there are, and
will continue to be, opportunities to obtain ACMI contracts with
international air carriers due to the projected shortage of wide-body
aircraft needed to service those carrier's markets. The Company plans to
focus its expansion efforts in the European, South American and
Asia/Pacific markets and to connect route systems in those markets with
its scheduled North American route systems. The Company recently acquired
one Boeing 747 which it is currently converting to freighter
configuration and has an option to acquire two additional used Boeing
747s (the "Optioned Boeing 747s") which it expects to convert to
freighter configuration in 1998.
- Expansion of On-Demand Charter Business. The Company believes there are
significant opportunities to grow its on-demand charter business because
of continuing demand for expedited air freight services, especially in
the case of "just-in-time" inventory systems and other time sensitive
shipments. In addition to improving the utilization of the Kalitta
Companies' aircraft, the Company anticipates purchasing additional
aircraft to capitalize on this expected growth.
- Expansion of Third Party Maintenance Services. The Company is one of the
few dedicated air freight carriers in the world capable of maintaining
and repairing aircraft which range in size from Boeing 747s to prop
aircraft. Although the Company currently provides aircraft maintenance
services to several customers, including Lufthansa, the Company intends
to significantly increase marketing of its third party maintenance
services. In particular, the Company intends to focus on marketing jet
engine overhauls and maintenance, for which management believes there is
a trend toward a limited number of service providers.
- Expansion of Scheduled Freight Business. Because of the growth in the
amount of freight shipped through its scheduled overnight freight hub in
Terre Haute, Indiana, the Company anticipates moving its hub from Terre
Haute to a new facility in Fort Wayne, Indiana in the spring of 1999.
This new facility is expected to have nearly twice the sorting capacity
of the Terre Haute, Indiana facility. In addition, the new facility is
designed to improve productivity by reducing the time to load and unload
aircraft and by decreasing sorting times.
- Strategic Acquisitions. The Company will, from time to time, pursue
acquisitions that enable it to (i) acquire complementary aircraft at
favorable costs, (ii) expand its operations in selected geographic areas
or (iii) achieve other strategic or operational benefits.
RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES
The Kalitta Companies posted net losses in 1996 and net losses and a
negative gross profit for the first six months of 1997. The Kalitta Companies'
management believes that the recent negative financial performance
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can be attributed to a number of factors, including (i) the incurrence of
abnormally high engine overhaul expenses due to Federal Aviation Administration
Airworthiness Directives ("Directives"), (ii) the loss of revenue resulting from
the effective grounding of two Boeing 747s in January 1996 due to a series of
Directives, (iii) the incurrence principally in 1997 of start-up costs
associated with establishing the Kalitta Companies' wide-body passenger charter
business, (iv) the incurrence of costs to add and maintain flight crews in
anticipation of increased air freight carrier business which has not yet
materialized in part due to delays in acquiring aircraft and (v) lower revenues
from the U.S. Military which the Company believes will be mitigated as the
Company has recently become eligible to operate passenger charters for the U.S.
Military. Kitty Hawk has taken these factors into account in evaluating the
merits of the Merger and the Kalitta Companies' future financial performance.
Kitty Hawk has also considered that the Kalitta Companies' management focused
primarily on growing revenues and fleet size, rather than on profitability.
After the Merger, the Company's management will focus on meeting profit
objectives in day-to-day operations and believes the Kalitta Companies' recent
financial performance can be substantially improved following the Merger,
although there can be no assurance in this regard. See "The Merger -- Recent
Financial Performance of the Kalitta Companies and the Merger Rationale."
RECENT DEVELOPMENTS -- THIRD QUARTER FINANCIAL RESULTS
Kitty Hawk. For the three months ended September 30, 1997, Kitty Hawk had
total revenues of $41.2 million, an increase of 35.2% from $30.5 million in the
same period of 1996. Total costs of revenues were $32.5 million in the three
months ended September 30, 1997, an increase of 34.0% from $24.2 million in same
period of 1996. Operating income was $5.6 million in the three months ended
September 30, 1997 an increase of 61.1% from $3.5 million in the same period of
1996, and net income was $3.0 million in the three months ended September 30,
1997 an increase of 113.6% from $1.4 million in the same period of 1996. For the
three months ended September 30, 1997, net income per share was $0.29, an
increase of 61.1% from $0.18 in the three months ended September 30, 1996. The
foregoing financial information represents unaudited financial results of Kitty
Hawk.
Revenues for the air freight carrier increased $8.2 million in the third
quarter of 1997 compared to 1996, due principally to an increase in fleet size
from 23 aircraft to 44 aircraft, including the 16 Boeing 727 aircraft acquired
from the Kalitta Companies on September 17, 1997. Revenue for air logistics
increased $2.5 million in the third quarter of 1997 compared to 1996 due to an
increase in number of charters flown and an increase in the revenue per charter
due to the provision of a larger proportion of higher revenue aircraft. General
and administrative expenses increased approximately $0.4 million due to an
increase in support functions and administrative costs associated with the
growth in the aircraft fleet and increased volume in the business of the air
freight carrier. Compared to the prior year period, interest expense increased
approximately $0.3 million due to additional debt incurred during the period for
aircraft maintenance costs and the acquisition of the 16 Boeing 727 aircraft
from the Kalitta Companies.
The Kalitta Companies. Based on preliminary unaudited information, the
Kalitta Companies expect to report revenues of approximately $128.8 million for
the third quarter of 1997, an increase of 16.7% from $110.4 million for the
third quarter of 1996. Operating income for the third quarter of 1997 is
expected to be approximately $10.4 million, an increase of 19.5% from $8.7
million in the third quarter of 1996. The increase in revenues is primarily
attributable to increased large aircraft air passenger charter revenues of
approximately $17.4 million (the large aircraft air passenger charter business
for tour operators was not started until the fourth quarter of 1996), increased
revenues from flying for Kitty Hawk's air logistics business (in 1996, Kitty
Hawk did not use the Kalitta Companies for a material portion of flights
arranged by its air logistics business) and increased flights in the Hawaiian
Islands and an additional aircraft on the Los Angeles-Honolulu route. The
increase in revenues was partially offset by a $9.5 million reduction in
revenues from the U.S. Military.
The Kalitta Companies' operating expenses for the third quarter of 1997
generally increased in proportion to the increase in revenues, except that
maintenance expense and selling, general and administrative expense increased at
a greater rate. Maintenance expense increased due to an increased number of
engine overhauls (after the Merger, to conform with Kitty Hawk's accounting
policies, the Kalitta Companies will capitalize and amortize a larger proportion
of such maintenance expense). Selling, general and administrative expense
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increased due to increased legal and accounting fees, as well as additional
personnel and information technology costs incurred to support anticipated
increases in revenues.
In the third quarter of 1997, the Kalitta Companies expect to report
approximately $2.1 million of increased interest expense compared to the third
quarter of 1996 and approximately $1.3 million of Merger-related costs. As a
result of the foregoing, the Kalitta Companies' net income for the third quarter
of 1997 is expected to be approximately $.2 million, compared to approximately
$2.8 million in the third quarter of 1996.
The Kalitta Companies' business is seasonal, with a substantial majority of
its operating income occurring in the third and fourth quarters.
NEW CREDIT FACILITY AND TERM LOAN
Concurrently with the consummation of the Transactions, the Company will
enter into a new $100 million senior secured revolving credit facility (the "New
Credit Facility") and a new $45.9 million term loan (the "Term Loan") with Wells
Fargo Bank (Texas), National Association ("WFB"), individually and as agent for
other lenders. The New Credit Facility and Term Loan will be secured by accounts
receivable, all inventory (including rotables), intangibles and contract rights,
cash and 16 Boeing 727 aircraft and related engines acquired by Kitty Hawk from
the Kalitta Companies in September 1997.
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THE OFFERING
Common Stock offered:
Total Common Stock offered......... 4,100,000 shares
By the Company................ 3,000,000 shares
By the Selling Stockholders... 1,100,000 shares
Common Stock to be outstanding
after the offering................. 17,550,957 shares(1)(2)
Concurrent Transactions............ Concurrently with the Common Stock
Offering, the Company is conducting the
Note Offering under Rule 144A of the
Securities Act, consummating the Merger
and entering into the New Credit
Facility. The Common Stock Offering will
be closed concurrently with and is
conditioned upon, the consummation of the
Note Offering and the Merger and entering
into the New Credit Facility. See
"Description of Certain Indebtedness."
Use of proceeds.................... For (i) the repayment or refinancing of
substantially all of the indebtedness of
Kitty Hawk and the Kalitta Companies,
(ii) the acquisition and conversion to
freighter configuration of the Optioned
Boeing 747s, (iii) the payment of $20.0
million in cash pursuant to the Merger
Agreement, (iv) working capital purposes
and (v) the payment of approximately $2.0
million in miscellaneous expenses. See
"Use of Proceeds" and "Description of
Certain Indebtedness."
Nasdaq National Market Symbol...... KTTY
- ---------------
(1) Does not include (i) 300,000 shares of Common Stock available for issuance
under the Company's Amended and Restated Omnibus Securities Plan, (ii)
198,193 shares of Common Stock available for issuance under the Company's
Amended and Restated Annual Incentive Compensation Plan and (iii) 100,000
shares of Common Stock available for issuance under the Company's Amended
and Restated Employee Stock Purchase Plan. See "Management -- Employee
Compensation Plans and Arrangements."
(2) Includes the issuance of 4,099,150 shares of Common Stock pursuant to the
Merger Agreement. See "The Merger."
All information in this Prospectus assumes (i) a public offering price of
$19 15/16 per share for the shares offered hereby, which was the closing price
of the Common Stock as reported by the Nasdaq National Market on October 23,
1997, (ii) no exercise of the Underwriters' over-allotment option and (iii) an
interest rate of 10% on the Notes and 8.5% on the Term Loan. Unless otherwise
indicated, the pro forma financial information in this Prospectus gives effect
to the Transactions and the Refinancings.
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under "Risk Factors" for risks involved with an investment in
the Common Stock offered hereby.
GENERAL
The Company is a Delaware corporation. The Company's principal executive
offices are located at 1515 West 20th Street, Dallas/Fort Worth International
Airport, Texas 75261 and its telephone number at that address is (972) 456-2200.
9
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The following summary historical financial and operating data and pro forma
financial and operating data, giving effect to the Transactions and Refinancings
as if they occurred on January 1, 1996 and, in the case of balance sheet data,
as if they occurred on June 30, 1997, should be read in conjunction with Kitty
Hawk's Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus and the Kalitta Companies' Combined Financial Statements and
Notes thereto included elsewhere in this Prospectus as well as the information
appearing in "Unaudited Pro Forma Combined Financial Information," "Selected
Financial and Operating Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The pro forma results have not been adjusted to eliminate abnormally high
engine overhaul expenses associated with responding to certain Directives, costs
incurred to add and maintain flight crews in anticipation of increased air
freight carrier business which has not yet materialized in part due to delays in
acquiring aircraft and start-up costs associated with establishing the Kalitta
Companies' wide-body passenger charter business. In addition, although
approximately $56 million of the proceeds of the Common Stock Offering and the
Note Offering are expected to be used to purchase and modify the Optioned Boeing
747s, no adjustments have been made to reflect revenues or operating costs
expected to be generated by these aircraft. The Company experiences its lowest
quarterly revenue and profitability during the first quarter of the calendar
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------- ------------------------
KALITTA
KITTY HAWK(1) COMPANIES ADJUSTMENTS COMBINED
-------------- --------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier................... $ 55,504 $388,193 $ (5,432) $438,265
Air logistics......................... 77,168 -- -- 77,168
Maintenance and other................. -- 36,348(2) -- 36,348
-------- -------- -------- --------
Total revenues.......................... 132,672 424,541 (5,432) 551,781
Gross profit (loss)..................... 23,874 44,395 (1,297) 66,972
Stock option grants to executives....... 4,231(3) -- -- 4,231
Operating income (loss)................. 9,457 21,495 (1,297) 29,655
Interest expense........................ (2,062) (21,632) (15,765) (39,459)(4)
Minority interest....................... -- (1,146) -- (1,146)
Income (loss) before income taxes....... 7,686 (17) (17,062) (9,393)
Net income (loss)....................... $ 4,648(3) $ (17)(5) $(14,024) $ (9,393)
Net income (loss) per share............. $ 0.55(3) -- -- $ (0.60)
Weighted average common and common
equivalent shares outstanding......... 8,477 -- 7,099 15,576
OTHER FINANCIAL DATA:
Capital expenditures.................... $ 47,159 $ 53,413 $ -- $100,572
Adjusted EBITDA(6)...................... $ 22,372 $ 53,586 $ 3,555(7) $ 79,513
Ratio of adjusted EBITDA to total
interest expense...................... 10.8x 2.4x -- 2.0x
Ratio of earnings to fixed charges...... 4.5x 1.0x(8) -- --(8)
OPERATING DATA:
Aircraft (at end of period)............. 26 97 (1)(9) 122
Flight hours(10)........................ 21,587 91,690 -- 113,277
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------------------
HISTORICAL PRO FORMA
------------------------ -----------------------
KALITTA
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier..................................... $33,237 $182,352 $(1,588) $214,001
Air logistics........................................... 27,232 -- -- 27,232
Maintenance and other................................... -- 14,488(2) -- 14,488
------- -------- ------- --------
Total revenues............................................ 60,469 196,840 (1,588) 255,721
Gross profit (loss)....................................... 12,806 (7,475) 9,916 15,247
Operating income (loss)................................... 7,250 (19,443) 9,916 (2,277)
Interest expense.......................................... (1,049) (12,098) (6,583) (19,730)(4)
Minority interest......................................... -- (893) -- (893)
Income (loss) before income taxes......................... 6,625 (30,943) 3,333 (20,985)
Net income (loss)......................................... $ 3,975 $(30,943)(5) $ 5,983 $(20,985)
Net income (loss) per share............................... $ 0.38 -- -- $ (1.20)
Weighted average common and common equivalent
shares outstanding...................................... 10,452 -- 7,099 17,551
OTHER FINANCIAL DATA:
Capital expenditures...................................... $39,544 $ 14,101 $ -- $ 53,645
Adjusted EBITDA(6)........................................ $12,134 $ (1,976) $12,284(7) $ 22,442
Ratio of adjusted EBITDA to total interest expense........ 11.6x --(11) 1.1x
Ratio of earnings to fixed charges........................ 5.0x --(8) --(8)
OPERATING DATA:
Aircraft (at end of period)............................... 28 97 (1)(9) 124
Flight hours(10).......................................... 13,461 43,161 56,622
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ----------------------
KALITTA
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................... $ 10,588 $(222,422)(12) $361,786 $144,952
Total assets............................................... 117,358 366,848 204,564 688,770
Total debt................................................. 34,051 248,256 103,893 386,200
Stockholders' equity....................................... $ 62,249 $ 35,531 $ 80,962 $178,742
</TABLE>
- ---------------
(1) On December 4, 1996, Kitty Hawk changed its fiscal year end to December 31
from August 31. The financial and operating data presented above is based
on the unaudited twelve month period ended December 31, 1996.
(2) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements of the Kalitta Companies.
(3) Includes nonrecurring grants of stock options to two executive officers
that resulted in a charge to earnings of approximately $4,231. Had these
grants of stock options not occurred, net income for the twelve months
ended December 31, 1996 would have been approximately $7,187 and net income
per share would have been $0.85. See "Management -- Stock Option Grants."
(4) Pro forma interest expense assumes a rate of 10% on the Notes and 8.5% on
the Term Loan. Each 1/4 percentage point change in the interest rate on the
Notes results in a change in interest expense of $850 for 1996 and $425 for
the six months ended June 30, 1997. Each 1/4 percentage point change in the
interest rate on the Term Loan results in a change in interest expense of
$115 for 1996 and $57 for the six months ended June 30, 1997.
(5) Prior to the Merger, the Kalitta Companies filed income tax returns under
Subchapter S of the U.S. Federal Income Tax Code. Therefore, all taxable
income or losses of each of the Kalitta Companies have passed through to
the sole shareholder of the Kalitta Companies.
(6) Adjusted EBITDA represents net income (loss) before income tax expense,
interest expense, depreciation, amortization (and, with respect to the
Kalitta Companies, minority interest) and certain items described below.
Kitty Hawk's adjusted EBITDA excludes approximately $4,231 from stock
options granted to executives in fiscal year 1996. The Kalitta Companies'
adjusted EBITDA excludes gains and losses from dispositions of aircraft
held for resale in each period presented (see "Selected Financial and
Operating Data -- The Kalitta Companies") and approximately $1,123 from a
gain from settlement of a contract dispute in 1996 and a gain on an
insurance settlement of approximately $542 for the six months ended June
30, 1997. Adjusted EBITDA is presented because it is a financial indicator
of the Company's ability to incur and service debt. However, adjusted
EBITDA is not calculated under generally accepted accounting principles
("GAAP"), is not necessarily comparable to similarly titled measures of
other companies and should not be considered in isolation, as a substitute
for operating income, net income or cash flow data prepared in accordance
with GAAP, or as a measure of the Company's profitability or liquidity.
(7) Includes the effect of conforming the Kalitta Companies' aircraft
maintenance policy to that of Kitty Hawk and decreased insurance costs for
the combined fleet.
(8) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) prior to income tax expense (benefit) (and, with respect to
the Kalitta Companies, minority interest) and fixed charges (less
capitalized interest). Fixed charges consist of capitalized interest,
interest expense, amortization of debt expense and one-third of rental
payments on operating leases (such factor having been deemed by the Company
to represent the interest portion of such payments). The Kalitta Companies'
historical earnings were not sufficient to cover fixed charges by
approximately $30,050 for the six months ended June 30, 1997. On a pro
forma basis, the Company's earnings would not have been sufficient to cover
fixed charges by $8,809 for 1996 and $20,092 for the six months ended June
30, 1997.
(9) Includes the effect of the Hawker Acquisition (as defined).
(10) As reported to the Federal Aviation Administration. Flight hours reported
are less than block hours, which also include the time an aircraft is
operating under its own power whether or not airborne. The Company
generally bills its customers on a block hour basis.
(11) For the six months ended June 30, 1997, the Kalitta Companies' adjusted
EBITDA was $(1,976) and interest expense was $12,098, resulting in a
failure to cover interest expense.
(12) Includes long-term debt and notes payable reclassified as current of
$203,016 and $201,443 at December 31, 1996 and June 30, 1997, respectively.
11
<PAGE> 13
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA OF KITTY HAWK
The summary historical financial and operating data below represents
financial information of Kitty Hawk and its subsidiaries for each of the fiscal
years indicated in the five year period ended August 31, 1996 and the six months
ended June 30, 1996 and 1997, which information was derived from the audited
consolidated financial statements of Kitty Hawk for each of the fiscal years
indicated in the five year period ended August 31, 1996 and from the unaudited
condensed consolidated financial statements of Kitty Hawk for the six months
ended June 30, 1996 and 1997. Operating results for the six months ended June
30, 1996 and 1997 are not necessarily indicative of results that may be expected
for a calendar year. In the opinion of management of Kitty Hawk, the selected
statement of operations data presented as of and for the six months ended June
30, 1996 and 1997, which are derived from Kitty Hawk's unaudited Consolidated
Financial Statements appearing elsewhere in this Prospectus, reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for such
periods. On December 4, 1996, Kitty Hawk changed its fiscal year end from August
31 to December 31.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, JUNE 30,
-------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier......................... $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $25,274 $33,237
Air logistics............................... 45,893 52,840 79,415 62,593 89,493 27,010 27,232
------- ------- -------- -------- -------- ------- -------
Total revenues................................ 52,653 65,779 107,700 103,710 142,415 52,284 60,469
Gross profit.................................. 4,188 10,578 14,749 18,178 23,515 7,676 12,806
Stock option grants to executives(1).......... -- -- -- -- 4,231 4,231 --
Operating income (loss)....................... 1,258 5,934 8,004 9,345 9,034 (1,095) 7,250
Interest expense.............................. (157) (134) (343) (1,185) (1,859) (1,023) (1,049)
Net income (loss)............................. 1,013 4,105 5,261 4,416 4,109 (1,149) 3,975
Net income (loss) per share................... $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52 $ (0.14) $ 0.38
Weighted average common and common equivalent
shares outstanding.......................... 8,671 7,968 7,968 7,968 7,928 7,968 10,452
OTHER FINANCIAL DATA:
Capital expenditures.......................... $ 3,019 $ 1,318 $ 13,876 $ 17,929 $ 33,538 $17,008 $39,544
Adjusted EBITDA(2)............................ $ 2,149 $ 7,104 $ 9,507 $ 12,839 $ 19,840 $ 6,890 $12,134
Ratio of adjusted EBITDA to interest
expense..................................... 13.7x 53.0x 27.7x 10.8x 10.7x 6.7x 11.6x
Ratio of earnings to fixed charges(3)......... 7.9x 33.6x 20.6x 6.9x 4.4x -- 5.0x
OPERATING DATA:
Aircraft owned (at end of period)............. 11 10 15 21 22 23 28
Flight hours(4)............................... 3,567 7,030 11,795 15,183 20,237 10,029 13,461
Number of on-demand charters flown............ 292 752 1,182 1,238 1,918 879 580
Number of ACMI contract charters flown........ 655 1,314 1,734 2,601 3,514 1,741 2,415
Number of on-demand charters managed(5)....... 8,708 9,748 16,713 14,198 19,578 7,459 6,640
</TABLE>
- ---------------
(1) Results for fiscal year ended August 31, 1996 and six months ended June 30,
1996 lack comparability to other periods because such periods include
nonrecurring grants to two executive officers of stock options that resulted
in a charge to earnings of approximately $4,231. Had these grants of stock
options not occurred, net income for the fiscal year ended August 31, 1996
and the six months ended June 30, 1996, would have been approximately $6,648
and $1,390, respectively, and net income per share would have been $0.84 and
$0.17, respectively. See "Management -- Stock Option Grants."
(2) Adjusted EBITDA represents net income (loss) before interest expense, income
tax expense, depreciation, amortization and certain items described below.
Adjusted EBITDA excludes approximately $4,231 from stock options granted to
executives in 1996 and approximately $725 and $1,178 in contract settlements
in fiscal 1993 and 1994, respectively. Adjusted EBITDA is presented because
it is a financial indicator of Kitty Hawk's ability to incur and service
debt. However, adjusted EBITDA is not calculated under GAAP, is not
necessarily comparable to similarly titled measures of other companies and
should not be considered in isolation, as a substitute for operating income,
net income or cash flow data prepared in accordance with GAAP or as a
measure of Kitty Hawk's profitability or liquidity.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) prior to income tax expense (benefit) and fixed charges (less
capitalized interest.) Fixed charges consist of capitalized interest,
interest expense, amortization of debt expense and one-third of rental
payments on operating leases (such factor having been deemed by Kitty Hawk
to represent the interest portion of such payments). Earnings were not
sufficient to cover fixed charges by $1,980 for the six month period ended
June 30, 1996.
(4) As reported by Kitty Hawk to the Federal Aviation Administration. Flight
hours reported are less than block hours, which also include the time an
aircraft is operating under its own power whether or not airborne. Kitty
Hawk generally bills its customers on a block hour basis.
(5) Includes on-demand charters flown by Kitty Hawk aircraft.
12
<PAGE> 14
SUMMARY HISTORICAL COMBINED FINANCIAL AND OPERATING DATA
OF THE KALITTA COMPANIES
The summary historical combined financial and operating data below
represents financial information of the Kalitta Companies for each of the fiscal
years indicated in the five year period ended December 31, 1996 and the six
months ended June 30, 1996 and 1997 which information was derived from the
audited combined financial statements of the Kalitta Companies for each of the
fiscal years indicated in the five year period ended December 31, 1996 and from
the unaudited combined financial statements of the Kalitta Companies for the six
months ended June 30, 1996 and 1997. The selected statement of operations data
for the six months ended June 30, 1996 and 1997 have been derived from the
unaudited Combined Financial Statements of the Kalitta Companies, which, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. Operating results for the six months ended June 30, 1996 and 1997
are not necessarily indicative of results that may be expected for a calendar
year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Air freight carrier.................... $95,144 $194,525 $298,081 $359,404 $388,193 $177,431 $182,352
Maintenance and other(1)............... 2,606 5,584 7,449 14,279 36,348 13,164 14,488
------- -------- -------- -------- -------- -------- --------
Total revenues........................... 97,750 200,109 305,530 373,683 424,541 190,595 196,840
Gross profit (loss)...................... 12,870 34,323 54,023 26,010 44,395 15,133 (7,475)
Operating income (loss).................. 7,081 23,222 38,519 2,471 21,495 3,608 (19,443)
Interest expense, net.................... (4,396) (6,745) (8,007) (14,749) (21,632) (10,187) (12,098)
Minority interest........................ (424) (1,458) (2,758) (3,092) (1,146) (511) (893)
Net income (loss)(2)..................... $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (5,558) $(30,943)
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income
(loss)(3).............................. $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (5,558) $(30,943)
OTHER FINANCIAL DATA:
Capital expenditures..................... $55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 29,697 $ 14,101
Adjusted EBITDA(4)....................... $16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 19,454 $ (1,976)
Ratio of adjusted EBITDA to total
interest expense(5).................... 3.7x 5.3x 6.4x 1.6x 2.4x 1.9x --
Ratio of earnings to fixed charges (6)... 2.0x 2.4x 3.3x 1.2x 1.0x -- --
OPERATING DATA:
Aircraft (at end of period).............. 59 65 86 95 98 94 98
Flight hours(7).......................... 39,404 55,220 76,346 84,058 91,690 43,347 43,161
</TABLE>
- ---------------
(1) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements of the Kalitta Companies.
(2) The Kalitta Companies filed income tax returns under Subchapter S of the
U.S. Federal Income Tax Code. Therefore, all taxable income or losses of the
Kalitta Companies have passed through to the sole shareholder of the Kalitta
Companies.
(3) Represents net income adjusted for the approximate federal and state income
taxes (by applying statutory rates) assuming the Kalitta Companies had been
subject to tax as a C corporation. No tax benefit has been provided for 1996
and for the six months ended June 30, 1996 and 1997 due to the uncertainty
of the Kalitta Companies' ability to recover such benefits.
(4) Adjusted EBITDA represents net income (loss) before minority interest,
interest expense (net of capitalized interest), depreciation, amortization
and certain items described below. Adjusted EBITDA excludes approximately
$8,148 and $542 from gains on insurance settlements in 1995 and the six
months ended June 30, 1997, respectively, $1,123 from a gain from settlement
of a contract dispute in 1996 and the six months ended June 30, 1996 and net
gains from disposition of aircraft held for resale in each period presented.
Adjusted EBITDA is presented because it is a financial indicator of the
Kalitta Companies' ability to incur and service debt. However, adjusted
EBITDA is not calculated under GAAP, is not necessarily comparable to
similarly titled measures of other companies and should not be considered in
isolation, as a substitute for operating income, net income or cash flow
data prepared in accordance with GAAP or as a measure of the Kalitta
Companies' profitability or liquidity.
(5) For the six months ended June 30, 1997, the Kalitta Companies' adjusted
EBITDA was $(1,976) and interest expense was $12,098, resulting in a failure
to cover interest expense.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before minority interest and fixed charges (less capitalized
interest). Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by the Kalitta Companies to represent
the interest portion of such payments). Earnings were not sufficient to
cover fixed charges by approximately $5,368 and $30,050 for the six months
ended June 30, 1996 and June 30, 1997, respectively.
(7) As reported to the Federal Aviation Administration. Flight hours reported
are less than block hours, which also include the time an aircraft is
operating under its own power whether or not airborne. The Kalitta Companies
generally bill customers on a block hour basis.
13
<PAGE> 15
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. In
addition to the other information in this Prospectus, prospective investors
should carefully consider the following risk factors relating to the Company and
its Common Stock before making an investment. This Prospectus contains
forward-looking statements which involve risk and uncertainties. The discussions
set forth below constitute cautionary statements regarding important matters
that could cause actual results to differ significantly from the results
discussed in the forward-looking statements. If the Company should experience
the adverse effects of any of these risks, it could have a material adverse
effect on the Company and the value of the Common Stock.
COMPANY RELATED RISKS
RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES
The Kalitta Companies' operations will constitute a majority of the
combined operations of the Company after the Merger is consummated. For 1996 and
the first six months of 1997, the financial operating results of the Kalitta
Companies have shown a significant negative trend. For the first six months of
1997, the Kalitta Companies sustained a negative gross profit of $7.5 million,
an operating loss of $19.4 million and a net loss of $30.9 million. The Kalitta
Companies' operating losses for the six months ended June 30, 1997 were
primarily the result of abnormally high engine overhaul expenses, the continued
grounding of certain aircraft, certain continuing start-up costs, low flight
crew utilization and lower U.S. military revenues. See "The Merger -- Recent
Financial Performance of the Kalitta Companies and the Merger Rationale" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- The Kalitta Companies." While the Company believes the Kalitta
Companies are taking steps necessary to improve their financial performance,
there can be no assurance that any such improvement will occur or that the
Kalitta Companies will become profitable. The failure to improve the financial
performance of the Kalitta Companies would have a material adverse effect on the
Company and the value of the Common Stock.
The Kalitta Companies have been and continue to be in default under certain
bank loan agreements, including defaults arising from failure to make certain
principal payments. The defaults entitle the affected lenders to accelerate
repayment of their loans and to foreclose on collateral securing these loans,
including aircraft. The outstanding indebtedness of the Kalitta Companies under
these loan agreements will be refinanced with the net proceeds of this Common
Stock Offering and the Note Offering. See " -- Substantial Leverage and Debt
Service" and "Use of Proceeds." For additional information on recent financial
performance of the Kalitta Companies, see "The Merger -- Third Quarter Financial
Results of the Kalitta Companies."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company will incur substantial indebtedness through the issuance of the
Notes and will enter into the New Credit Facility, which will allow revolving
borrowings up to $100 million. In addition, Kitty Hawk will enter into the Term
Loan to refinance a $45.9 million loan which was incurred in September 1997 in
connection with the acquisition of 16 Boeing 727s from the Kalitta Companies.
See "Description of Certain Indebtedness." As of June 30, 1997, after giving
effect to the Transactions and Refinancings, on a pro forma basis, the Company's
total indebtedness would have been approximately $386 million (substantially all
of which would have been secured) and its stockholders' equity would have been
$178.7 million. On a pro forma basis, assuming the Transactions and Refinancings
had occurred at the beginning of each of the following fiscal periods, earnings
would not have been sufficient to cover fixed charges by approximately $8.8
million and $20.1 million for 1996 and for the six months ended June 30, 1997,
respectively. The Indenture under which the Notes will be issued (the
"Indenture") will permit the Company to incur substantial amounts of additional
indebtedness, including an unlimited amount to acquire aircraft and
aircraft-related assets. The Company's Term Loan and the New Credit Facility
will mature prior to the maturity date of the Notes.
The degree to which the Company is leveraged could have important
consequences to holders of Common Stock, including (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired in
the future; (ii) a
14
<PAGE> 16
substantial portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds available to the Company for other purposes; and (iii) the Company's
substantial leverage may place the Company at a competitive disadvantage, hinder
its ability to adjust rapidly to changing market conditions and make it more
vulnerable in the event of a downturn in general economic conditions or its
business or in the event of a strike or other labor problems at one of its
significant customers.
The Company's ability to make scheduled principal and interest payments, or
to refinance its indebtedness (including the Notes) will depend on its future
financial performance, which to a certain extent will be subject to economic,
financial, competitive and other factors beyond its control. Based upon the
Company's current operations and anticipated growth, management believes that
future cash flows from operations, together with the proceeds of this Common
Stock Offering and the Note Offering and available borrowings under the New
Credit Facility, will be adequate to meet its anticipated requirements for
working capital, capital expenditures and scheduled principal and interest
payments for at least the next twelve months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance, however, that the Company's
business will generate sufficient cash flow from operations to service its
indebtedness and make necessary capital expenditures. If unable to do so, the
Company may be required to refinance all or a portion of its indebtedness,
including the Notes, to sell assets or to obtain additional financing. There can
be no assurance that any such refinancing would be possible, that any assets
could be sold (or, if sold, of the timing of such sales and the amount of
proceeds realized therefrom) or that additional financing could be obtained, any
of which could have a material adverse effect on the Company and the value of
the Common Stock.
RISKS OF BUSINESS INTEGRATION
There can be no assurance that the Company will be able to integrate the
operations of Kitty Hawk and the Kalitta Companies successfully or achieve the
potential benefits of the Merger. The benefits of the Merger will require (i)
the integration of administrative, finance, purchasing, dispatching,
maintenance, sales and marketing organizations, (ii) the coordination of
aircraft operations and (iii) the implementation of appropriate operational,
financial and management systems and controls. This will require substantial
attention from the Company's management. The failure to successfully integrate
Kitty Hawk and the Kalitta Companies would have a material adverse effect on the
Company and the value of the Common Stock. Moreover, no assurance can be given
that the impact of integrating the Kalitta Companies as presented in such
Unaudited Pro Forma Combined Financial Information will be as presented. See
"Unaudited Pro Forma Combined Financial Information."
CONTROL BY MESSRS. CHRISTOPHER AND KALITTA
Immediately after completion of this Common Stock Offering, M. Tom
Christopher as Chairman and Chief Executive Officer will own 5,673,436 shares,
or approximately 32.3%, of the outstanding Common Stock, and Conrad A. Kalitta
as Vice Chairman will own 4,099,150 shares, or approximately 23.4%, of the
outstanding Common Stock, of which 650,000 shares will be held in escrow to
secure Mr. Kalitta's indemnification obligations under the Merger Agreement. As
a consequence, the success of the Company will depend, in some part, upon the
ability of Messrs. Christopher and Kalitta to work together. Prior to the
Merger, Messrs. Christopher and Kalitta were competitors and had disagreements,
one of which resulted in litigation between Kitty Hawk and the Kalitta
Companies. See "Business -- Legal Proceedings -- U.S. Postal Service Contract."
Disagreements between Messrs. Christopher and Kalitta in the future could delay
or disrupt the Company's operations and have a material adverse effect on the
Company and the value of the Common Stock. Messrs. Christopher and Kalitta will
enter into a voting agreement that, among other things, provides that for
thirty-six months after the Merger, Messrs. Christopher and Kalitta will vote
their shares of Common Stock in favor of director nominees selected by a
Nominating Committee or in certain cases, the Board of Directors. See "The
Merger -- Bylaw Amendments Concerning Governance of the Company and
Stockholders' Agreement."
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CYCLICALITY AND SEASONALITY
The Company's services are provided to numerous industries and customers
that experience significant fluctuations in demand based on economic conditions
and other factors beyond the control of the Company. The demand for the
Company's services could be materially adversely affected by downturns in the
businesses of the Company's customers. The Company believes a significant
percentage of its revenues will continue to be generated from services provided
to the U.S. automotive industry, which has historically been a cyclical
industry. A contraction in the U.S. automotive industry, a prolonged work
stoppage or other significant labor dispute involving that industry, or a
reduction in the use of air freight charters by that industry, could have a
material adverse effect on the Company and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Certain customers of the Company engage in seasonal businesses, especially
the U.S. Postal Service, General Motors Corp. ("GM") and other customers in the
automotive industry. As a result, the Company's air carrier business and air
freight charter logistics business have historically experienced their highest
quarterly revenues and profitability during the fourth quarter of the calendar
year due to the peak Christmas season activity of the U.S. Postal Service and
during the period from June 1 to November 30 when production schedules of the
automotive industry typically increase. Consequently, the Company generally
experiences its lowest quarterly revenue and profitability during the first
quarter of the calendar year. In addition, the Company has provided charter
carrier services to the U.S. Military during periods of heightened military
activity, such as the Persian Gulf conflict, which has caused its results of
operations to fluctuate. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality" and "Business."
AVAILABILITY OF FACILITIES
The Company leases the majority of its facilities from third parties. If
the Company continues to grow, it must be able to expand its current facilities
or relocate to new ones.
The Company's scheduled air freight operations utilize a sorting space at
the Hulman Regional Airport in Terre Haute, Indiana. This sorting space is
licensed from Roadway Global Air for a term which expires in August 1998.
Because of the growth in the amount of freight sorted at this facility, the lack
of available expansion space and the limited airport facilities in Terre Haute,
the Company plans to move this sorting operation to Fort Wayne, Indiana in the
spring of 1999. The Company is currently negotiating a lease with the airport
authority in Fort Wayne and an interim lease for its current space in Terre
Haute. There can be no assurance that the Company will be able to complete
either of these negotiations or do so on favorable terms. Moreover, the move to
Fort Wayne is dependent on the issuance of bonds by the Fort-Wayne-Allen County
Airport Authority (the "Fort Wayne Authority"). There can be no assurance that
the Fort Wayne Authority will complete the bond issuance in a timely manner or
at all. The failure of the Company to successfully obtain sufficient space to
operate would have a material adverse effect on the Company and the value of the
Common Stock. See "Business -- Scheduled Freight Services" and
"Business -- Ground Facilities."
The Company also leases its Oscoda, Michigan maintenance facilities under
various subleases from the Oscoda-Wurtsmith Airport Authority (the "Wurtsmith
Authority"). These subleases expire on dates ranging from October 1997 to
December 2013 and are subject to earlier termination upon termination of the
prime lease between the U.S. Government and the Wurtsmith Authority. The Company
is highly dependent on its facilities in Oscoda. There can be no assurance that
the Company will be successful in extending these subleases or do so on
favorable terms. Failure to extend one or more of the subleases would force the
Company either to reduce substantially its maintenance capabilities or relocate
the Oscoda maintenance operations, either of which could increase costs and
reduce revenues. If the Company were forced to relocate these maintenance
operations, there can be no assurance that the Company would be able to find
alternative space on acceptable terms. In addition, the cost to move to another
site would be significant. The occurrence of any of these events, or the failure
in general of the Company to obtain facilities to conduct efficiently any of its
operations, would have a material adverse effect on the Company and the value of
the Common Stock. See "Business -- Maintenance" and "Business -- Ground
Facilities."
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DEPENDENCE ON AIRCRAFT AVAILABILITY
The Company's revenues are dependent on the availability of its aircraft.
In the event that one or more of the Company's aircraft are lost or out of
service for an extended period of time, the Company may be forced to lease or
purchase replacement aircraft or, if necessary, convert an aircraft from
passenger to freighter configuration. There can be no assurance that suitable
replacement aircraft could be located on acceptable terms. The Company does not
maintain business interruption insurance to cover this risk. Loss of revenue
resulting from any such business interruption or costs to replace aircraft could
have a material adverse effect on the Company and the value of the Common Stock.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends and will continue
to depend, on the services of Mr. Christopher, the founder of Kitty Hawk and
Chairman of the Board of Directors and Chief Executive Officer of the Company,
Mr. Kalitta, the Vice Chairman (upon consummation of the Merger), Tilmon J.
Reeves, the President of the Company and Richard R. Wadsworth, the Senior Vice
President -- Finance, Chief Financial Officer and Secretary. The loss of the
services of any of Messrs. Christopher, Kalitta, Reeves or Wadsworth,
particularly Mr. Christopher, could have a material adverse effect on the
Company and the value of the Common Stock. Each of Messrs. Christopher, Reeves
and Wadsworth have entered into employment agreements with the Company. Mr.
Kalitta will enter into an employment agreement with the Company upon
consummation of the Merger. See "Management -- Employment Agreements."
EMPLOYEE RELATIONS
The Company believes that it has good relations with its employees. One of
the Kalitta Companies is, and after the Merger will continue to be, subject to a
collective bargaining agreement (the "Collective Bargaining Agreement") with the
Airline Division of the International Brotherhood of Teamsters (the "Teamsters
Union") covering its employee pilots and flight engineers. The Collective
Bargaining Agreement became amendable on August 29, 1997, and the parties have
commenced "interest-based" bargaining for a successor agreement. Although the
parties have commenced "interest-based" bargaining, there can be no assurance
that a new collective bargaining agreement can be reached or that negotiations
will not result in work stoppages, a substantial increase in salaries or wages,
changes in work rules or other changes adverse to the Company. The cockpit crews
of Kitty Hawk are not unionized. There can be no assurance that upon
consummation of the Merger, Kitty Hawk's cockpit crews will remain
non-unionized. Unionization of Kitty Hawk's cockpit crews, work stoppages,
increased wages or other labor related matters could have a material adverse
effect on the Company and the value of the Common Stock. See
"Business -- Employees."
RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
One of the Company's business strategies is to continue its growth by
pursuing the strategic acquisition of both domestic and international providers
of air freight carrier or logistics services. Growing through acquisitions
involves substantial risks, including overvaluing the acquired business and
inadequately or unsuccessfully integrating the acquired business. There can be
no assurance that suitable acquisition candidates will be available, that the
Company will be able to acquire, profitably manage or successfully integrate
such additional companies or that any such future acquisitions will produce
returns justifying the investment by the Company. In addition, the Company may
compete for acquisition candidates with its competitors or other companies that
have significantly greater resources than the Company. Additionally, the terms
of the New Credit Facility and Term Loan will restrict the Company's ability to
make certain acquisitions. Further, acquisitions can result in an increase in
goodwill on the Company's balance sheet, which would be amortized in subsequent
periods, reducing earnings per share. See "Business -- Growth Strategies" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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The Company may finance future acquisitions by issuing shares of Common
Stock. Any future issuance of Common Stock may result in substantial dilution to
purchasers of the shares of Common Stock offered hereby. In addition, any
acquisition could result in the Company increasing the amount of goodwill
reflected on its consolidated balance sheet, which will be charged against net
earnings in future periods as such goodwill is amortized.
DEPENDENCE ON COMPUTER SYSTEMS
The Company utilizes a number of computer systems to schedule flights and
personnel, track aircraft and freight, bill customers, pay expenses and monitor
a variety of its activities, ranging from safety compliance to financial
performance. The failure of the hardware or software that support these computer
systems, or the loss of data contained in any of them, could significantly
disrupt the Company's operations, which could have a material adverse effect on
the Company and the value of the Common Stock. See "Business -- Air Freight
Charter Logistics Services -- Database, Information Software and Tracking
Systems."
In addition, like most businesses which are highly dependent on their
computer systems, some of the Company's computer software may not correctly
record, manipulate and retrieve dates from the year 2000 and beyond.
Accordingly, the Company may be forced to expend significant sums to overcome
this problem. The failure of the Company to adequately address this problem
could have a material adverse effect on the Company and the value of the Common
Stock.
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, the Company's ability to pay
dividends or make certain other restricted payments, to incur additional
indebtedness, to encumber or sell assets, to enter into transactions with
stockholders and affiliates, to guarantee indebtedness, to merge or consolidate
with any other entity and to transfer or lease all or substantially all of its
assets.
The Company's New Credit Facility and Term Loan also will contain
restricted financial and operating covenants with respect to liens,
indebtedness, capital expenditures, investments, prepayments of debt, dividends
and certain requirements to maintain financial ratios. See "Description of
Certain Indebtedness."
Immediately following the consummation of the Transactions and the
Refinancings, the Company will be in compliance with the financial and other
covenants in the New Credit Facility and Term Loan. The ability of the Company
to comply with such covenants, including financial maintenance covenants, in the
future will depend on the Company's future financial performance. The Company's
failure to comply with such covenants would constitute an event of default under
the New Credit Facility and Term Loan, which could result in (i) the
acceleration of debt maturities, including under the Notes, the New Credit
Facility and the Term Loan, (ii) the loss of the Company's borrowing capacity
and (iii) the foreclosure upon the Company's pledged assets securing such
indebtedness. The declaration of an event of default under the New Credit
Facility and Term Loan could result in a default by the Company under other loan
agreements or leases that contain cross-default or cross-acceleration
provisions. Under these circumstances, there can be no assurance that the
Company would have sufficient funds or other resources to satisfy all of its
obligations on a timely basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Certain
Indebtedness."
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION, BYLAWS AND AGREEMENTS
The Certificate of Incorporation and Bylaws of the Company include certain
provisions that have anti-takeover effects and may delay, defer or prevent a
takeover attempt that a stockholder of the Company might consider to be in the
best interests of the Company or its stockholders, including provisions which
(i) classify the Company's Board of Directors into three classes, each of which
serve for different three year periods, (ii) provide that only the Board of
Directors, the Chairman of the Board of Directors or the beneficial owners of
25% or more of the outstanding voting capital stock may call special
stockholders' meetings, (iii) require the vote of the holders of at least
two-thirds of the outstanding shares of each class of the
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Company's capital stock then entitled to vote thereon to amend or repeal the
Bylaws or certain provisions of the Certificate of Incorporation, (iv) require
the vote of at least two-thirds of the members of the Board of Directors to
amend or repeal the Bylaws, (v) establish certain advance notice procedures for
nomination of candidates for election as directors and for stockholder proposals
to be considered at stockholders' meetings, (vi) subject the Company to a
provision of Delaware law that restricts certain "business combinations"
involving a stockholder who owns 15% or more of the Company's outstanding voting
stock, (vii) limit the aggregate voting power of non-U.S. persons to 22 1/2% of
the votes voting on or consenting to any matter and (viii) prohibit non-U.S.
citizens from serving as directors or officers of the Company. See "Description
of Capital Stock -- Special Provisions of the Certificate of Incorporation and
Bylaws" and "Business -- Government Regulation." In addition, the requirement
that the vote of the holders of at least two-thirds of the outstanding shares of
each class of the Company's capital stock is necessary to amend or repeal the
Bylaws or certain provisions of the Certificate of Incorporation may adversely
affect the extent to which stockholders, other than Messrs. Christopher and
Kalitta acting together, exercise control over the Company. In addition, holders
of the Notes will have the right to require the Company to repurchase the Notes
upon a Change of Control (as defined in the Indenture) and all indebtedness
under the New Credit Facility and Term Loan must be repaid on a Change of
Control (as defined therein). Any of the foregoing provisions could have a
material adverse effect on the value of the Common Stock.
ABILITY TO ISSUE PREFERRED STOCK
The authorized capital stock of the Company includes 1,000,000 shares of
preferred stock (the "Preferred Stock"). The Board of Directors, in its sole
discretion, may designate and issue one or more series of Preferred Stock from
the authorized and unissued shares of Preferred Stock. Subject to limitations
imposed by law or the Company's Certificate of Incorporation, the Board of
Directors is empowered to determine (i) the designation of and the number of
shares constituting each series of Preferred Stock, (ii) the dividend rate for
each series, (iii) the terms and conditions of any voting, conversion and
exchange rights for each series, (iv) the amounts payable on each series upon
redemption or the Company's liquidation, dissolution or winding-up, (v) the
provisions of any sinking fund for the redemption or purchase of shares of any
series and (vi) the preferences and the relative rights among the series of
Preferred Stock. At the discretion of the Board of Directors and subject to its
fiduciary duties, the Preferred Stock could be used to deter any takeover
attempt, by tender offer or otherwise. In addition, Preferred Stock could be
issued with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock could also
result in a series of securities outstanding that would have preferences over
the Common Stock with respect to dividends and in liquidation. Any of the
foregoing could have a material adverse effect on the value of the Common Stock.
The Board of Directors has no current intention to issue shares of Preferred
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering, or the market perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. Upon completion
of this offering, 17,550,957 shares (18,165,957 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock will be outstanding.
The 4,100,000 shares (4,715,000 shares, if the Underwriters' over-allotment
option is exercised in full) offered hereby will be freely tradable by persons
who are not "affiliates" of the Company without restriction under the Securities
Act of 1933, as amended (the "Securities Act"). Pursuant to Rule 144 under the
Securities Act, upon completion of this Common Stock Offering, 9,929,150 shares
of Common Stock will be deemed "restricted securities" that may be resold to the
extent permitted under Rule 144 and Rule 701 of the Securities Act or under any
exemption under the Securities Act.
Under the terms of a Stockholders' Agreement to be entered into
contemporaneously with the Merger, Messrs. Christopher and Kalitta will have
registration rights for the ten-year period commencing with the Closing, subject
to customary cutback and exclusion provisions; provided, that the number of
shares proposed
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to be sold by either Mr. Christopher or Mr. Kalitta in any such registration
shall not be less than 50,000 shares.
The Company has filed registration statements under the Securities Act
covering 600,000 shares of Common Stock reserved for issuance under the
Company's Amended and Restated Omnibus Securities Plan, Amended and Restated
Annual Incentive Compensation Plan and Amended and Restated Employee Stock
Purchase Plan (collectively, the "Plans"). See "Management -- Employee
Compensation Plans and Arrangements." As of the date hereof, 1,807 shares had
been issued under these Plans. Shares registered under such registration
statements are available for sale in the open market when issued pursuant to the
Plans, subject to Rule 144 volume limitations applicable to affiliates and to
provisions of the Plans, including vesting.
Messrs. Christopher, Kalitta, Reeves and Wadsworth, who collectively will
hold 9,929,150 shares of Common Stock in the aggregate after this Common Stock
Offering and the Merger, along with the Company and its other directors and
executive officers have agreed that, for a period of 90 days from the date of
this Prospectus, they will not, without the prior written consent of Morgan
Stanley & Co. Incorporated, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for, Common Stock, except for up to 10,000
shares issuable pursuant to the Plans. Such consent of Morgan Stanley & Co.
Incorporated may be provided without notice to purchasers of the Common Stock or
to officials of the Nasdaq National Market System. See "Management -- Employee
Compensation Plans and Arrangements."
INDUSTRY RELATED RISKS
GOVERNMENT REGULATION
General. The Company is subject to Title 49 of the United States Code
(formerly the Federal Aviation Act of 1958, as amended), under which the
Department of Transportation ("DOT") and the Federal Aviation Administration
("FAA") exercise regulatory authority over air carriers. The DOT is primarily
responsible for regulating economic issues affecting air service, including,
among other things, air carrier certification and fitness, insurance, consumer
protection, unfair competition and transportation of hazardous materials. The
FAA is primarily responsible for regulating air safety and flight operations,
including, among other things, airworthiness requirements for aircraft, pilot
and crew certification, aircraft maintenance and operational standards, noise
abatement, airport slots and other safety-related factors. Certain of the
Company's aircraft are subject to Directives which require modifications to the
affected aircraft. See "Business -- Fleet" and "Business -- Government
Regulation." In addition, the Company is subject to regulation by various other
federal, state, local and foreign authorities, including the Department of
Defense and the Environmental Protection Agency. The Company understands that
the Inspector General's office of the DOT is conducting an investigation of
certain FAA regional offices. The Company is not a subject of any such
investigation. However, the Company does not know the effect, if any, that any
such investigation could have on it.
The Company's international operations are governed by bilateral air
services agreements between the United States and foreign countries where the
Company operates. Under some of these bilateral air services agreements, traffic
rights in those countries are available to only a limited number of and in some
cases only one or two, U.S. carriers and are subject to approval by the DOT and
applicable foreign regulators, limiting growth opportunities in such countries.
The DOT and the FAA have the authority to modify, amend, suspend or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulations. In addition, the DOT and the FAA
may impose civil or criminal penalties for violations of applicable rules and
regulations. Such actions by the FAA or the DOT, if taken, could have a material
adverse effect on the Company and the value of the Common Stock. The adoption of
new laws, policies or regulations or changes in the interpretation or
application of existing laws, policies or regulations, whether by the FAA, the
DOT, the U.S. government or any foreign, state or local government, could have a
material adverse effect on the Company and the value of the Common Stock.
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Safety, Training and Maintenance Regulations. The Company's operations are
subject to routine, and periodically more intensive, inspections and oversight
by the FAA. Following a review of safety procedures at ValuJet, Inc.
("ValuJet"), the FAA adopted changes to procedures concerning oversight of
contract maintenance and training. The Company believes it is currently in
compliance with such changes. It is possible that subsequent events, such as the
recent crash of a cargo aircraft owned by Fine Air Services Inc., ("Fine Air")
could result in additional Directives, which could have a material adverse
effect on the Company and the value of the Common Stock.
In September 1996, pursuant to the FAA's National Aviation Safety
Inspection Program, the Kalitta Companies underwent a broad inspection of all of
the Kalitta Companies' aircraft and maintenance operations. This inspection
resulted in a report from the FAA citing the Kalitta Companies with a number of
regulatory infractions, none of which were sufficiently serious to cause the FAA
to curtail or otherwise restrict any of the Kalitta Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Kalitta Companies
entered into a Consent Order in January 1997 which required the Kalitta
Companies to revise certain internal policies and procedures to address the
regulatory violations noted in the inspection report as well as enforcement
actions that had been pending prior to the inspection. Without admitting any
fault, the Kalitta Companies agreed to pay a fine of $450,000, one-third of
which is suspended and will be forgiven if the Kalitta Companies comply with all
the terms of the Consent Order. At this time, the Kalitta Companies' management
believes the Kalitta Companies are in compliance with the Consent Order and
expects the FAA to conduct another inspection of similar scope in the fourth
quarter of 1997 to verify such compliance. The Consent Order also provides that
it is a full and conclusive settlement of any civil penalties the Kalitta
Companies could incur for regulatory violations occurring before January 1,
1997, but does not preclude the FAA from taking enforcement action to revoke the
Kalitta Companies' air carrier operating certificate, which could have a
material adverse effect on the Company and the value of the Common Stock.
Modification of Aircraft. The Company owns 36 aircraft and leases three
aircraft (not including aircraft held for sale) that do not meet FAA noise
abatement standards. All of these aircraft must be brought into compliance with
these standards by January 1, 2000. The Company may retire or terminate the
leases related to some of these aircraft instead of modifying them. If all 39
aircraft are brought into compliance, the Company estimates that the cost would
be approximately $93.4 million, not including aircraft downtime. There can be no
assurance regarding the actual cost or that the Company will have or be able to
raise the necessary funds. See "Business -- Government Regulation." In addition,
the Company expects to purchase the Optioned Boeing 747s and convert the
Optioned Boeing 747s and one recently acquired Boeing 747 to freighter
configuration so they can be placed into revenue service during 1998. However,
there can be no assurance as to when these aircraft will be purchased or how
quickly and at what cost they can be modified or placed in revenue service.
Aging Aircraft Regulations; Potential Compliance Costs. All of the
Company's aircraft are subject to Manufacturer's Service Bulletins ("Service
Bulletins") and Directives issued under the FAA's "Aging Aircraft" program or
issued on an ad hoc basis. These Service Bulletins or Directives could 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, particularly in light of recent aircraft crashes at
ValuJet and Fine Air. The cost of compliance with such Directives and Service
Bulletins cannot currently be estimated, but could be substantial.
COMPETITION
The market for air freight services is highly competitive. Because the
Company offers a broad range of air freight services, its competitors vary by
geographic market and type of service. The Company competes on the basis of size
and availability of aircraft with required performance characteristics, price
and reliability. The Company's air freight carrier services are also subject to
competition from other modes of transportation, including, but not limited to,
railroads and trucking. Additional demand for air freight carrier services over
the
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last few years has resulted in numerous new entrants in this business. The
Company believes there are limited barriers to entry into this business and that
increased demand may stimulate additional competition.
The Company's air freight business competes primarily with air freight
carriers, and from time to time, with integrated carriers such as Burlington Air
Express and Emery Air Freight. The Company also competes on a limited basis with
scheduled freight operations of passenger airlines and overnight delivery
services such as Airborne Express, Inc., DHL Airways, Inc., Federal Express and
United Parcel Service. Numerous competitors of the Company provide or coordinate
door-to-door air freight charters on an expedited basis. The Company also
competes with other dedicated air freight carriers such as Atlas Air, Cargolux,
Challenge Air Cargo, Emery Worldwide, Evergreen International Airlines, Gemini
Air Cargo, Polar Air Cargo and Southern Air Transport.
The market for air logistics also has been and is expected to remain highly
competitive. The Company's principal competitors for on-demand air logistics
services are other air logistics companies, air freight carriers which seek to
book charters directly with customers and air freight companies that offer
expedited service.
The Company's ability to attract and retain business also is affected by
whether and to what extent its customers decide to coordinate their own
transportation needs. For example, prior to 1990, GM conducted its air logistics
business in-house. GM and certain other customers maintain transportation
departments that could be expanded to manage charters in-house which could have
a material adverse effect on the Company and the value of the Common Stock. With
respect to the Company's ACMI contract charter business, the Company could be
adversely affected by the decision of certain of its certificated customers to
acquire additional aircraft or by its uncertificated customers to acquire and
operate their own aircraft. In this regard, many of the Company's competitors
and customers have substantially greater financial resources than the Company.
ENVIRONMENTAL MATTERS
The Company's operations must comply with numerous environmental laws
ordinances and regulations. Under current federal, state and local environmental
laws ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to remediate
such contaminated property properly, may adversely affect the ability of the
owner of the property to use such property as collateral for a loan or to sell
such property. Environmental laws also may impose restrictions on the manner in
which a property may be used or transferred or in which businesses may be
operated and may impose remedial or compliance costs. The costs of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could have a material adverse effect on the
Company and the value of the Common Stock. See "Business -- Environmental."
The Company is aware of the presence of environmental contamination on
properties that the Kalitta Companies lease or own. The Company does not believe
that the costs of responding to the known contamination should or will be borne
solely by the Company, if at all. While the Company does not believe that the
costs of responding to the presence of such contamination is likely to have a
material adverse effect on the Company or the value of the Common Stock there
can be no assurance in this regard. Pursuant to the Merger Agreement, Mr.
Kalitta has agreed, subject to certain limitations, to indemnify the Company for
a period of 42 months against any losses arising with respect to environmental
liabilities related to contamination at any of the Kalitta Companies'
facilities. See "The Merger -- Indemnitees."
In part because of the highly industrialized nature of many of the
locations at which the Company operates, there can be no assurance that the
Company has discovered all environmental contamination for which it may be
responsible.
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CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP AND OPERATION
Capital Investment. The Company's air carrier business is highly capital
intensive. In order to further expand the Company's air carrier business, the
Company intends to purchase used jet aircraft that typically require certain
modifications, including reconfiguring the aircraft from passenger to cargo use
and installing equipment to comply with noise abatement regulations. See
"Business -- Government Regulation -- Noise Abatement Regulations." The market
for used jet aircraft is volatile and can be negatively affected by limited
supply, increased demand and other market factors and recently has experienced
significant price increases. Therefore, there can be no assurance that the
Company will be able to purchase and modify additional aircraft at favorable
prices or that the Company will have or be able to obtain sufficient resources
with which to make such purchases and modifications. See "Business -- Growth
Strategies," "Business -- Government Regulation" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Operating Costs. The operation of the Company's air freight and passenger
carrier business incurs considerable operational, maintenance, fuel and
personnel costs. The Company's financial results can be adversely affected by
unexpected engine or airframe repairs, compliance with maintenance directives
and regulations of the FAA and associated aircraft downtime. In addition, spare
or replacement parts and components may not be readily available in the
marketplace. Failure to obtain necessary parts or components in a timely manner
or at favorable prices could have a material adverse effect on the Company and
the value of the Common Stock.
Fuel is a significant cost of operating the Company's aircraft for
on-demand services and the aircraft of third party providers of charter
services. Both the cost and availability of fuel are subject to many economic
and political factors and events occurring throughout the world and recently the
cost of fuel has fluctuated markedly. The Company has no agreement with any fuel
supplier assuring the availability or price stability of fuel and such
agreements are generally not available in the industry. The Company generally
passes on fuel cost increases to its customers under ACMI charter contracts, but
under certain contracts and the Company's scheduled operations, the Company's
ability to pass on increased fuel costs is limited. Accordingly, the future cost
and availability of fuel to the Company cannot be predicted and substantial
price increases in, or the unavailability of adequate supplies of, fuel may have
a material adverse effect on the Company and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Maintenance" and "Business -- Government Regulation."
VOLATILITY OF AIR FREIGHT SERVICES MARKET
The demand for air freight services is highly dependent on the strength of
both the domestic and global economy. Although the air freight services industry
has experienced strong growth over the last several years (see
"Business -- Industry Overview"), general economic downturns could have a
material adverse effect on the Company and the value of the Common Stock.
UTILIZATION OF AIRCRAFT
The Company's operating results are highly dependent on its ability to
effectively utilize its diverse fleet of aircraft. There can be no assurance,
however, that operation of any of the various types of aircraft in the Company's
fleet will prove to be profitable. The failure of the Company to keep its
aircraft in revenue service or achieve an acceptable level of aircraft
utilization could have a material adverse effect on the Company and the value of
the Common Stock.
RISK OF ACCIDENT; INSURANCE COVERAGE AND EXPENSES
The Company's operations involve risks of potential liability against the
Company in the event of aircraft accidents and, in the case of the Company's air
ambulance services, for medical malpractice. The Company is required by the DOT
to carry liability insurance on each of its aircraft. The Company also carries
medical liability insurance for its air ambulance business. Although the Company
believes its current insurance coverage is adequate and consistent with current
industry practice, there can be no assurance that the amount
23
<PAGE> 25
of such coverage will not be changed or that the Company will not bear
substantial losses and lost revenues from accidents. Substantial claims
resulting from an accident in excess of related insurance coverage could have a
material adverse effect on the Company and the value of the Common Stock. In
addition, any significant increase in the Company's current insurance expense
could have a material adverse effect on the Company and the value of the Common
Stock. Moreover, any aircraft accident, even if fully insured, could cause a
public perception that some of the Company's aircraft are less safe or reliable
than other aircraft, which could have a material adverse effect on the Company
and the value of the Common Stock. During the last five years, the Kalitta
Companies have had eight accidents and several other safety related incidents
involving its aircraft with varying degrees of damage to the aircraft involved.
In 1992, the pilot of one of the Kalitta Companies' small aircraft was fatally
injured in one of these accidents. See "Business -- Insurance" and
"Business -- Training and Safety."
INTERNATIONAL BUSINESS RISK
The Company expects to continue to derive a substantial portion of its
revenues from providing air freight carrier services to customers in South and
Central America and the Pacific Rim. The risks of doing business in foreign
countries include potential adverse changes in the diplomatic relations between
foreign countries and the U.S., hostility from local populations directed at a
U.S. flag carrier, government policies against foreign-owned businesses, adverse
effects of currency exchange controls, restrictions on the withdrawal of foreign
investment and earnings and the risk of insurrections that could result in
losses against which the Company is not insured. The Company's international
operations also are subject to economic uncertainties, including risks of
renegotiation or modification of existing agreements or arrangements with
exchange restrictions and changes in taxation. Any of these events could have a
material adverse effect on the Company and the value of the Common Stock.
Nearly all of the Company's revenue is denominated in U.S. dollars.
However, a meaningful portion of the Company's revenue is derived from customers
whose revenue is denominated in foreign currencies. Therefore, any significant
devaluation in such currencies relative to the U.S. dollar could have an adverse
effect on such customer's ability to pay the Company or to continue to use its
services, which could have a material adverse effect on the Company and the
value of the Common Stock.
CONTRABAND RISK
Although required to do so, customers may fail to inform the Company about
hazardous or illegal cargo. If the Company fails to discover any undisclosed
weapons, explosives, illegal drugs or other hazardous or illegal cargo or
mislabels or otherwise ships hazardous materials, it may suffer possible
aircraft damage or liability, as well as fines, penalties or flight bans,
imposed by both the country of origin and of destination. Any of these events
could have a material adverse effect on the Company and the value of the Common
Stock. The Company is a member of the U.S. Super Carrier Initiative. Members of
the U.S. Super Carrier Initiative work with representatives of the U.S. Customs
Service and the U.S. Drug Enforcement Agency to prevent the importation of
illegal drugs into the U.S.
24
<PAGE> 26
THE MERGER
THE MERGER AGREEMENT
On September 22, 1997, Kitty Hawk, Mr. Christopher, the Kalitta Companies
and Mr. Kalitta entered into an Agreement and Plan of Merger, which was
subsequently amended (as so amended, the "Merger Agreement"). Pursuant to the
Merger Agreement, upon the satisfaction of the conditions to the Merger, each of
the respective Kalitta Companies will be merged with and into separate
subsidiaries of Kitty Hawk, with each of the respective Kalitta Companies
surviving the Merger as a direct, wholly owned subsidiary of Kitty Hawk. At the
effective time ("Effective Time") of the Merger, the outstanding shares of
capital stock of four of the Kalitta Companies will be converted, in the
aggregate, into the right to receive 4,099,150 shares of Common Stock and the
outstanding shares of the remaining Kalitta Company will be converted into the
right to receive $20 million cash. Prior to the execution of the Merger
Agreement, the respective Boards of Directors of Kitty Hawk and the Kalitta
Companies and Mr. Kalitta, as the sole shareholder of each of the Kalitta
Companies, voted affirmatively to approve the Merger in accordance with the
terms of the Merger Agreement and applicable law. No other corporate action is
required for obtaining board of directors' and stockholders' approval of Kitty
Hawk or the Kalitta Companies for the Merger.
RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES AND THE MERGER RATIONALE
In 1996, the Kalitta Companies reported a small net loss. During the first
six months of 1997, the financial performance deteriorated substantially with
the Kalitta Companies sustaining a negative gross profit of $7.5 million, an
operating loss of $19.4 million and a net loss of $30.9 million. In addition,
the Kalitta Companies are heavily leveraged. Since 1995, the Kalitta Companies
have from time to time been in default under certain covenants of their loan
agreements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview of the Kalitta Companies." These financial
issues contributed to the Kalitta Companies (i) entering into an agreement on
July 31, 1997 to sell 16 Boeing 727s to Kitty Hawk in order to generate cash for
the acquisition and modification of wide-body aircraft and to provide working
capital and (ii) pursuing the Merger.
In evaluating the merits of the Merger, among other things, the management
teams of the two companies focused on the primary factors that have contributed
to the recent deterioration in the financial performance of the Kalitta
Companies and whether these factors would be expected to have a continuing
negative impact on the financial performance of the Kalitta Companies. Moreover,
they examined whether the combination of Kitty Hawk and the Kalitta Companies
would help eliminate, or at least mitigate, the effect of these factors. As a
result of their analysis, the management of the two companies expects the
financial performance of the Kalitta Companies to improve and significant
financial benefits to result following the consummation of the Merger.
Management's expectation is based on the following:
- Diminishing Impact of Recent Adverse Factors. The Kalitta Companies
believe that the following five factors have primarily accounted for the
decline in their financial performance since January 1, 1996 (i) the
incurrence of abnormally high jet engine overhaul expenses resulting from
the Kalitta Companies compliance with a series of Directives issued in
early 1996, (ii) beginning in January 1996, the loss of revenues
resulting from the effective grounding of two Boeing 747s pursuant to a
series of Directives, (iii) the incurrence principally in 1997 of
start-up costs associated with establishing the Kalitta Companies' large
aircraft passenger charter business, (iv) the incurrence of costs to add
and maintain flight crews in anticipation of increased air carrier
business which has not yet materialized in part due to delays in
acquiring aircraft and (v) a decline in revenues from the U.S. Military
resulting from a decrease in the air freight-only charter requirements of
the U.S. Military and an increase in competition for that business. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview of the Kalitta Companies."
The Kalitta Companies expect engine overhaul expense to return to
normalized levels in future periods and do not expect passenger charter
service start-up costs to recur. They also believe that crew and aircraft
utilization can be improved because the Merger will afford the Company
opportunities to
25
<PAGE> 27
(i) direct more on-demand charters to the Kalitta Companies' small
aircraft, rather than to third parties and (ii) direct on-demand charters
to Boeing 727s used in the Company's scheduled overnight freight
operations which have been used infrequently for on-demand charters in the
past. After the Merger, the Company also expects to increase its charter
business with the U.S. Military because the Kalitta Companies recently
became eligible to fly passenger charters for the U.S. Military.
Management also expects to partially mitigate the ongoing effects of the
Directive that effectively grounded the Boeing 747s by returning one of
them to limited load service in the latter half of 1998.
- Expense Reductions. Several means were identified for substantially
reducing the current levels of certain operating expenses of the Kalitta
Companies following the consummation of the Transactions. By insuring all
the aircraft of the combined companies under one hull and liability
policy, it is estimated that the Company's annual insurance premium costs
will be reduced by approximately $1.5 million during the first year
following the Merger. Management also expects that Kitty Hawk's
maintenance expense can be reduced by shifting previously outsourced
maintenance to the Kalitta Companies' maintenance facilities.
Furthermore, there are potential cost savings to be gained (i) from
purchasing in bulk certain supplies, including fuel and (ii) through
parts inventory reduction permitted by the scale of the combined
operations.
- Improved Capital Resources. The consummation of this Common Stock
Offering and the Note Offering and entering into the New Credit Facility
will enable the Company to refinance indebtedness of the Kalitta
Companies on more favorable terms and provide working capital. In
particular, the Company will have sufficient capital resources to enable
it to acquire and modify the Optioned Boeing 747s. Recently, the Kalitta
Companies have been hindered due to their liquidity problems and lack of
capital resources.
- Adoption of Kitty Hawk Management Discipline. Finally, in examining ways
for improving the financial performance of the Kalitta Companies, it was
recognized that Kitty Hawk's management has emphasized profitability, as
contrasted to the Kalitta Companies which have primarily focused on
growing revenues and fleet size. After the Merger, the Company intends to
apply the management discipline of Kitty Hawk to the day-to-day
operations of the Kalitta Companies.
There can be no assurance that the expectations described above for
improving the performance of the Kalitta Companies will be realized. The failure
to achieve the contemplated improvement of the financial performance of the
Kalitta Companies could have a material adverse effect on the Company and the
value of the Common Stock. For a description of important factors that could
cause actual results to differ materially from those referenced in the foregoing
forward looking statements, see "Risk Factors."
26
<PAGE> 28
THIRD QUARTER FINANCIAL RESULTS OF THE KALITTA COMPANIES
The Kalitta Companies. Based on preliminary unaudited information, the
Kalitta Companies expect to report revenues of approximately $128.8 million for
the third quarter of 1997, an increase of 16.7% from $110.4 million for the
third quarter of 1996. Operating income for the third quarter of 1997 is
expected to be approximately $10.4 million, an increase of 19.5% from $8.7
million in the third quarter of 1996. The increase in revenues is primarily
attributable to increased large aircraft air passenger charter revenues of
approximately $17.4 million (the large aircraft air passenger charter business
for tour operators was not started until the fourth quarter of 1996), increased
revenues from flying for Kitty Hawk's air logistics business (in 1996, Kitty
Hawk did not use the Kalitta Companies for a material portion of flights
arranged by its air logistics business) and increased flights in the Hawaiian
Islands and an additional aircraft on the Los Angeles-Honolulu route. The
increase in revenues was partially offset by a $9.5 million reduction in
revenues from the U.S. Military.
The Kalitta Companies' operating expenses for the third quarter of 1997
generally increased in proportion to the increase in revenues, except that
maintenance expense and selling, general and administrative expense increased at
a greater rate. Maintenance expense increased due to an increased number of
engine overhauls (after the Merger, to conform with Kitty Hawk's accounting
policies, the Kalitta Companies will capitalize and amortize a larger proportion
of such maintenance expense). Selling, general and administrative expense
increased due to increased legal and accounting fees, as well as additional
personnel and information technology costs incurred to support anticipated
increases in revenues.
In the third quarter of 1997, the Kalitta Companies expect to report
approximately $2.1 million of increased interest expense compared to the third
quarter of 1996 and approximately $1.3 million of Merger-related costs. As a
result of the foregoing, the Kalitta Companies' net income for the third quarter
of 1997 is expected to be approximately $.2 million, compared to approximately
$2.8 million in the third quarter of 1996.
The Kalitta Companies' business is seasonal, with a substantial majority of
its operating income occurring in the third and fourth quarters.
CONDITIONS TO THE MERGER
Pursuant to the Merger Agreement, the consummation of the Merger is subject
to the satisfaction or waiver of certain conditions to the closing of the
Merger, including (i) the respective representations and warranties set forth in
the Merger Agreement made by Kitty Hawk, Mr. Kalitta and the Kalitta Companies
shall be true and correct, (ii) Mr. Christopher, Kitty Hawk, Mr. Kalitta and the
Kalitta Companies shall have performed or complied with their respective
covenants and conditions set forth in the Merger Agreement, (iii) all required
regulatory approvals and consents of third parties shall have been obtained,
(iv) there shall have been no change in Kitty Hawk's or the Kalitta Companies'
respective business, labor relations, financial condition, properties, assets,
liabilities or results of operations (or the occurrence of any events which
might reasonably be expected to result in any such change), which in the
respective judgment of Kalitta or Kitty Hawk, made in good faith, has had or
would reasonably be expected to have a material adverse effect (as defined in
the Merger Agreement) on Kitty Hawk or the Kalitta Companies (as the case may
be), (v) the last reported sale price of a share of Common Stock on the Nasdaq
National Market immediately preceding the closing date of the Merger and the
average of the last reported sales price of a share of Common Stock on the
Nasdaq National Market for the 20 consecutive trading days ending on the trading
day immediately preceding the closing date shall be at least $12.00, (vi) the
Note Offering shall have been consummated and the net proceeds to the Company
from the Common Stock Offering and the Note Offering shall be greater than or
equal to $380 million, (vii) Mr. Kalitta shall have been released from all of
his personal guaranties of the indebtedness of the Kalitta Companies to be
repaid as a consequence of the Refinancings, (viii) the fairness opinion
rendered to the Board of Directors of Kitty Hawk shall have not been withdrawn
or materially and adversely modified, (ix) certain aspects of the Merger as
related to Mr. Kalitta must qualify as a tax-free reorganization and (x) Kitty
Hawk shall have obtained certain confirmations from the Securities and Exchange
Commission (the "Commission") regarding future financial reporting requirements.
27
<PAGE> 29
INDEMNITIES
Under the terms of the Merger Agreement, Mr. Kalitta has agreed to
indemnify Kitty Hawk and certain of its affiliates against any loss, damage,
deficiency, liability, judgment, claim or expense (collectively, the "Losses")
incurred by Kitty Hawk or such affiliates that arise out of (i) a breach or
alleged breach by Mr. Kalitta or any of the Kalitta Companies (other than KFS)
of the Merger Agreement or (ii) certain environmental matters relating to the
Kalitta Companies (other than KFS) as described in the Merger Agreement.
Separate indemnity is provided by Mr. Kalitta and KFS to Kitty Hawk and certain
of its affiliates for Losses that arise out of (i) a breach or alleged breach by
Mr. Kalitta or KFS of the Merger Agreement or (ii) certain environmental claims
relating to KFS. Under the terms of the Merger Agreement, Kitty Hawk has agreed
to indemnify Mr. Kalitta against any Losses incurred by Mr. Kalitta and certain
affiliates that arise out of (i) a breach or alleged breach of the Merger
Agreement by the Company or Mr. Christopher. No party has the right to any
indemnification until the aggregate amount of its indemnity claims exceeds $1.0
million. The indemnification obligations of Mr. Kalitta are limited generally to
the sum of (i) the fair market value from time to time of 1,150,000 shares of
Common Stock with respect to Losses, other than those relating to KFS, and (ii)
$6 million for certain Losses relating to KFS. Mr. Kalitta will place 650,000
shares of Common Stock and $3 million cash in escrow to secure these respective
indemnity obligations. The indemnification obligations of Kitty Hawk are limited
generally to $10 million. Generally, no claims for indemnification may be
brought by any party after 30 months from the date of the Merger, except that
Kitty Hawk and certain affiliates may make indemnity claims for certain
environmental matters for up to 42 months from the date of the Merger.
BYLAW AMENDMENTS CONCERNING GOVERNANCE OF THE COMPANY
Pursuant to the Merger Agreement, effective at or prior to the Effective
Time (i) the Bylaws of Kitty Hawk shall be amended to provide that the number of
directors comprising the full Board of Directors will be seven and (ii) such
persons named as directors under "Management" shall be the directors of the
Company to serve in the classes so indicated in "Management."
Pursuant to the Merger Agreement, on or prior to the Effective Time, the
Bylaws of the Company also shall be amended to provide that (i) a joint
nominating committee (the "Joint Nominating Committee"), a Christopher
Nominating Committee (herein so called) and a Kalitta Nominating Committee
(herein so called) of the Board of Directors shall be created for a 36-month
period commencing with the Effective Time, (ii) such Joint Nominating Committee
shall consist of Messrs. Christopher and Kalitta for so long as each is a
director of the Company, (iii) the Christopher Nominating Committee shall
consist of Mr. Christopher for so long as he is a director of the Company and
(iv) the Kalitta Nominating Committee shall consist of Mr. Kalitta for so long
as he is a director of the Company. To the extent permitted by applicable law,
such Joint Nominating Committee shall have the exclusive power on behalf of the
Board of Directors to nominate persons for election as a director of the Company
as a Joint Designee and to fill any vacancy of the Joint Designee on the Board
of Directors. The Christopher Nominating Committee shall have the exclusive
power on behalf of the Board of Directors of Kitty Hawk to nominate Mr.
Christopher and persons for election as directors of Kitty Hawk as Christopher
designees and to fill vacancies on the Board of Directors vacated by Christopher
designees, and the Kalitta Nominating Committee shall have the exclusive power
on behalf of the Board of Directors to nominate Mr. Kalitta and persons for
election as directors of Kitty Hawk as Kalitta designees and to fill vacancies
on the Board of Directors vacated by the Kalitta designees. Messrs. Christopher
and Kalitta have agreed under the Merger Agreement and the Stockholders'
Agreement (described below) to (i) vote, and cause each of their respective
affiliates to vote (x) for the nominees of the Joint Nominating Committee (or
the nominee as a Joint Designee of the entire Board of Directors in accordance
with the Bylaws if the Joint Nominating Committee cannot agree within 10 days)
except for cause, (y) for Christopher and the nominees of the Christopher
Nominating Committee for election as a director of Kitty Hawk as a Christopher
designee and against removal except for cause and (z) for Kalitta and the
nominees of the Kalitta Nominating Committee for election as a director of Kitty
Hawk as a Kalitta designee and against removal except for cause and (ii) not
vote, nor permit any of their respective affiliates to vote, any shares of
Common Stock they beneficially own in favor of any person to serve as a director
of the Company unless such person has
28
<PAGE> 30
been so nominated. Each of the nominating committees shall nominate the persons
named in this Prospectus under "Management" for re-election when their terms
expire unless any such persons are unable or unwilling to serve or if such
persons have been removed for "cause" within the meaning of the Certificate of
Incorporation of the Company. However, Mr. Christopher will have the right to
fill any vacancy in the board seats of Messrs. Coonfield or Reeves and Mr.
Kalitta will have the right to fill any vacancy in the board seats of Messrs.
Kelsey or Sauder.
If the Joint Nominating Committee does not agree within 10 days upon a
nominee or a person to fill a vacancy, then either member may by written notice
require a meeting of the Board of Directors to resolve such disagreement. Any
individual selected to serve as a member of the Board of Directors, if the Joint
Nominating Committee is unable to agree upon a nominee or a person to fill a
vacancy, must (i) not be a Family Member (as defined in the Merger Agreement) of
either Messrs. Kalitta or Christopher, (ii) not be a former or current employee
of any Kalitta Company, AIC or Kitty Hawk, (iii) have within the preceding 60
months been a director, chief financial officer or chief executive officer of a
company whose capital stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on the Nasdaq National Market System and (iv)
be a citizen of the United States. The rights and obligations of Messrs.
Christopher and Kalitta relating to the selection of directors and director
nominees shall terminate upon the earlier of (a) 36 months after the Effective
Time, (b) the death, Disability (as defined in the Merger Agreement) or
voluntary resignation as a director of Kitty Hawk of either Mr. Christopher or
Mr. Kalitta or (c) the sale of all shares beneficially owned by both Messrs.
Christopher and Kalitta; provided, that in the event of the voluntary
resignation as a director of Mr. Christopher or Mr. Kalitta, the resigning
director will remain subject to his obligations to vote the Common Stock and
other voting securities of the Company as provided above. If the Board is unable
to agree on a nominee or person to fill a vacancy, stockholders have a statutory
right to petition a Delaware court to resolve the deadlock or any other
deadlock.
The Bylaws of Kitty Hawk also shall be amended to provide that until the
first anniversary of the Effective Time, (a) the Chairman of the Board and Chief
Executive Officer shall be elected exclusively by the stockholders and shall
serve as the chief executive officer of Kitty Hawk and, subject to the
supervision of the Board of Directors, shall have the general management and
control of the Company and (b) the Vice Chairman shall be elected exclusively by
the stockholders and shall serve as an officer of Kitty Hawk. Pursuant to the
Merger Agreement, Kitty Hawk has agreed to cause the election of Mr. Kalitta as
President of AIA until the first anniversary of the Effective Time and Messrs.
Christopher and Kalitta have agreed to vote their Common Stock or other voting
securities in favor of Mr. Christopher as Chairman of the Board and Chief
Executive Officer and Mr. Kalitta as Vice Chairman until the first anniversary
of the Effective Time.
The Bylaws of the Company also shall be amended to provide that the
provisions of the Bylaws concerning the number and classification of directors,
the powers and duties of the Joint Nominating Committee, the Christopher
Nominating Committee and the Kalitta Nominating Committee the provisions
concerning a deadlock of the Joint Nominating Committee and the offices of
Chairman of the Board and Chief Executive Officer and Vice Chairman and related
Bylaw provisions may be amended or repealed prior to the end of the 36-month
period commencing with the Effective Time only by the affirmative vote of 70% of
the members of the entire Board of Directors or the holders of 75% of the
outstanding Common Stock.
STOCKHOLDERS' AGREEMENT
Messrs. Christopher and Kalitta and the Company will, contemporaneously
with the Closing and pursuant to the terms of the Merger Agreement, enter into a
Stockholders' Agreement. Under the terms of the Stockholders' Agreement, Messrs.
Christopher and Kalitta will have incidental registration rights for the ten-
year period commencing with the Effective Time, subject to customary cutback and
exclusion provisions; provided, that the number of shares proposed to be sold by
Mr. Christopher or Mr. Kalitta in any such registration shall not be less than
50,000 shares. The expenses relating to such registrations will be paid by the
Company. In addition to the voting provisions described above, the Stockholders'
Agreement permits transfers to certain Affiliates that agree to be bound by the
terms of the Stockholders' Agreement.
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<PAGE> 31
THE NOTE OFFERING AND REFINANCINGS
Concurrently with this Common Stock Offering, the Company is offering $340
million aggregate principal amount of Senior Secured Notes. The consummation of
the Note Offering is conditioned upon (i) the consummation of the Merger and
this Common Stock Offering and (ii) entering into the New Credit Facility. The
Company intends to use the net proceeds of this Common Stock Offering and the
Note Offering, along with the new Term Loan, to accomplish the Refinancings. The
Company believes the Refinancings will provide the Company with greater
financial flexibility by, among other things, (i) extending maturities of
certain indebtedness, (ii) reducing the weighted average interest rate of
outstanding indebtedness and (iii) increasing operating flexibility. See
"Description of Certain Indebtedness."
To the extent the foregoing constitutes a summary of the material terms of
the Merger Agreement and the Stockholders' Agreement, it is qualified in its
entirety by reference to the agreements which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
USE OF PROCEEDS
This Common Stock Offering is conditioned on (i) the concurrent
consummation of the Merger and the Note Offering and (ii) entering into the New
Credit Facility and Term Loan. The net proceeds from this Common Stock Offering,
the Note Offering and the Term Loan, after deducting underwriting discounts,
placement fees and estimated offering expenses, are estimated to be
approximately $430.0 million ($441.6 million if the Underwriters' over-allotment
option is exercised in full). The estimated sources and uses of net proceeds to
the Company from this Common Stock Offering, the Note Offering and the Term Loan
are summarized as follows (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Note Offering, net of underwriting discounts and estimated
expenses.................................................. $329.1
Common Stock Offering, net of underwriting discounts and
estimated expenses........................................ 55.0
Term Loan(1)................................................ 45.9
------
Total............................................. $430.0
======
USES:
Refinancings(2)............................................. $330.9
Escrow for acquisition and conversion to freighter
configuration of the Optioned Boeing 747s................. 56.0
Cash paid pursuant to the Merger Agreement.................. 20.0
Working capital............................................. 20.6
Estimated expenses(3)....................................... 2.5
------
Total............................................. $430.0
======
</TABLE>
- ---------------
(1) The Company anticipates contemporaneously borrowing a de minimis amount
under the New Credit Facility.
(2) This indebtedness has interest rates ranging from 6.4% to 18.0% and maturity
dates ranging from less than one year to September 2006. This amount
includes approximately $3.0 million of prepayment penalties related to the
Refinancings. For a description of the indebtedness being refinanced, see
"Description of Certain Indebtedness."
(3) Represents estimated expenses to be incurred in connection with the Merger,
the New Credit Facility and the acquisition of 16 Boeing 727s from the
Kalitta Companies.
The Company will not receive any proceeds from the sale of shares of Common
Stock offered by the Selling Stockholders.
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<PAGE> 32
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock has traded on the Nasdaq National Market System
under the symbol "KTTY" since the Company's initial public offering on October
9, 1996. The following table sets forth the range of high and low sale prices of
the Common Stock for the periods shown below.
<TABLE>
<CAPTION>
PRICE RANGE
------------
HIGH LOW
---- ----
<S> <C> <C>
October 9, 1996 through November 30, 1996................... $14 3/4 $ 10
One Month Ended December 31, 1996........................... 13 1/2 8
Three Months Ended March 31, 1997........................... 12 3/4 10
Three Months Ended June 30, 1997............................ 17 1/4 11 7/8
Three Months Ended September 30, 1997....................... 20 3/4 13 3/8
Three Months Ending December 31, 1997 (through October 24,
1997)..................................................... 23 3/4 18 7/8
</TABLE>
See the cover page of this Prospectus for a recent sale price of the Common
Stock on the Nasdaq National Market. At October 13, 1997, the Company had
approximately 1,300 holders of record and beneficial owners of the Company's
Common Stock.
Kitty Hawk has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain earnings, if any, for development
and growth of its business and does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. The New Credit Facility and the
Indenture contain significant limitations on the Company's ability to pay
dividends. See "Description of Certain Indebtedness." Payment of future
dividends, if any, will be at the discretion of the Company's Board of
Directors, after taking into account various factors, including the Company's
earnings, capital requirements and surplus, financial position, contractual
restrictions and other relevant business considerations and there can be no
assurance that dividends will be paid. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- the Company."
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<PAGE> 33
CAPITALIZATION
The following table sets forth the capitalization of Kitty Hawk at June 30,
1997 and the Company on a pro forma basis to give effect to the consummation of
(i) the Common Stock Offering and the Note Offering, (ii) the Merger, including
the issuance of 4,099,150 shares of Common Stock in connection therewith, (iii)
the Refinancings and (iv) the application of the estimated net proceeds to be
received by the Company from the Common Stock Offering and the Note Offering as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
KITTY THE
HAWK COMPANY
------- ---------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt........................ $ 4,774 $ --
======= ========
Long-term debt:
New Credit Facility(1).................................... $ -- $ --
Term Loan................................................. -- 45,900
Notes..................................................... -- 340,000
Other long-term debt(2)................................... 29,277 --
------- --------
29,277 385,900
------- --------
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued........................... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 10,669,517 shares issued and outstanding;
17,768,667 shares issued and outstanding
pro forma(3)........................................... 107 178
Paid-in capital........................................... 33,950 150,372
Retained earnings......................................... 30,268 30,268
Common stock in treasury -- 217,710 shares................ (2,076) (2,076)
------- --------
Total stockholders' equity........................ 62,249 178,742
------- --------
Total capitalization.............................. $91,526 $564,642
======= ========
</TABLE>
- ---------------
(1) Approximately $100 million will be available for borrowing under the New
Credit Facility upon consummation of the Refinancings.
(2) Consists of indebtedness owed to WFB, Bank One Texas, N.A. and 1st Source
Bank, all of which will be refinanced in connection with the Refinancings.
(3) Does not include (i) 300,000 shares of Common Stock available for the future
grant under the Company's Amended and Restated Omnibus Securities Plan, (ii)
198,193 shares of Common Stock available for issuance under the Company's
Amended and Restated Annual Incentive Compensation Plan and (iii) 100,000
shares of Common Stock available for issuance under the Company's Amended
and Restated Employee Stock Purchase Plan. See "Management -- Employee
Compensation Plans and Arrangements."
32
<PAGE> 34
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for 1996 and the six months ended June 30, 1997, in each
case giving effect to the Transactions, the Refinancings and the acquisition of
a Hawker Siddeley HS-125 aircraft from the Kalitta Companies by Mr. Kalitta on
or prior to the closing date (the "Hawker Acquisition"). The Company's Unaudited
Pro Forma Combined Statement of Operations Information gives effect to the
Transactions, the Refinancings and the Hawker Acquisition, as if they had been
consummated at the beginning of 1996. The Company's Unaudited Pro Forma Combined
Balance Sheet Information gives effect to the Transactions, the Refinancings and
the Hawker Acquisition as if they had been consummated on June 30, 1997.
The Unaudited Pro Forma Combined Financial Information of the Company is
presented for illustrative purposes only and does not purport to present the
financial position or results of operations of the Company had the Transactions,
the Refinancings and the Hawker Acquisition occurred on the dates indicated, nor
are they necessarily indicative of the results of operations which may be
expected to occur in the future. The Unaudited Pro Forma Combined Financial
Information should be read in conjunction with the separate historical financial
statements of Kitty Hawk and the Kalitta Companies appearing elsewhere in this
Prospectus. Certain amounts reported in the Kalitta Companies' historical
combined financial statements have been reclassified to conform with the Kitty
Hawk presentations in the Unaudited Pro Forma Combined Financial Information
The accompanying Unaudited Pro Forma Combined Financial Information has
been prepared under guidelines established by Article 11 of Regulation S-X under
the Securities Act. Under those guidelines, there are limitations on the
adjustments that can be made in the presentation of pro forma financial
information. Accordingly, no pro forma adjustments have been applied to reflect
(i) revenues or operating costs expected to be generated from the Optioned
Boeing 747 aircraft expected to be purchased and modified with approximately $56
million of the net proceeds from this Common Stock Offering and the Note
Offering or the recent purchase of one Boeing 747 or (ii) operating efficiencies
or cost savings (other than approximately $1.5 million of insurance savings)
expected to result from the Merger. In addition, pro forma results have not been
adjusted to eliminate abnormally high engine overhaul expenses, costs incurred
to add and maintain flight crews in anticipation of increased air freight
carrier business which has not yet materialized in part due to delays in
acquiring aircraft and start-up costs associated with establishing the Kalitta
Companies' wide-body passenger charter business.
The historical balance sheet information for Kitty Hawk and the Kalitta
Companies has been derived from the unaudited June 30, 1997 balance sheets of
Kitty Hawk and the Kalitta Companies included elsewhere in this Prospectus. The
historical statement of operations data for 1996 has been derived from unaudited
information presented in Footnote 10 to Kitty Hawk's audited financial
statements included elsewhere in this Prospectus and from the audited combined
statements of operations of the Kalitta Companies for the year ended December
31, 1996 included elsewhere in this Prospectus. The historical statement of
operations data for Kitty Hawk and the Kalitta Companies for the six months
ended June 30, 1997 has been derived from their respective unaudited statements
of operations for the six months ended June 30, 1997 included elsewhere in this
Prospectus.
The pro forma adjustments relating to the purchase of the Kalitta Companies
represent the Company's preliminary determinations of these adjustments and are
based upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth therein and those differences could be material. The Company will finalize
its purchase price allocation subsequent to the completion of these
Transactions. The unaudited interim financial statements of Kitty Hawk referred
to above include, in the opinion of management of Kitty Hawk, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of Kitty Hawk for the unaudited interim period. The
unaudited interim financial statements of the Kalitta Companies referred to
above include, in the opinion of management of the Kalitta Companies, all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results of the Kalitta Companies for the unaudited
interim period.
33
<PAGE> 35
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....................... $ 8,952 $ 2,701 $ 55,4713a $ 67,124
Restricted cash................................. -- 2,868 67,0003b 69,868
Trade accounts receivable....................... 15,122 54,700 69,822
Accounts receivable -- related parties.......... -- 2,642 2,642
Inventory and aircraft supplies................. 4,435 23,213 27,648
Prepaid expenses and other current assets....... 5,366 19,229 (186)3c 24,409
-------- -------- --------- --------
Total current assets.................... 33,875 105,353 122,285 261,513
Property and equipment, net....................... 83,483 260,616 72,2583d 416,357
Other assets...................................... -- 879 10,0213e 10,900
-------- -------- --------- --------
Total assets............................ $117,358 $366,848 $ 204,564 $688,770
======== ======== ========= ========
Current Liabilities
Accounts payable and accrued expenses........... $ 18,513 $ 79,819 $ 13,2293f $111,561
Notes payable to bank, reclassified as
current...................................... -- 56,483 (56,483)3g --
Long-term debt, reclassified as current......... -- 188,782 (188,782)3g --
Note payable and bank line of credit............ -- 2,691 (2,691)3g --
Current maturities of long-term debt............ 4,774 (4,774)3g --
-------- -------- --------- --------
Total current liabilities............... 23,287 327,775 (239,501) 111,561
Note payable...................................... -- 300 300
Existing long-term debt........................... 29,277 -- (29,277)3g --
Notes............................................. -- -- 340,0003g 340,000
Term Loan......................................... -- -- 45,9003g 45,900
Deferred income taxes............................. 2,545 -- 6,4803h 9,025
Minority interest................................. -- 3,242 3,242
Stockholders' equity, net......................... 62,249 35,531 80,9624 178,742
-------- -------- --------- --------
$117,358 $366,848 $ 204,564 $688,770
======== ======== ========= ========
</TABLE>
See accompanying notes.
34
<PAGE> 36
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier.............................. $ 55,504 $388,193 $ (5,432)2a $438,265
Air logistics.................................... 77,168 -- 77,168
Maintenance and other............................ -- 36,348 36,348
-------- -------- -------- --------
Total revenues........................... 132,672 424,541 (5,432) 551,781
Cost of Revenues:
Air freight carrier.............................. 40,860 357,830 (4,135)2b 394,555
Air logistics.................................... 67,938 -- 67,938
Maintenance and other............................ -- 22,316 22,316
-------- -------- -------- --------
Total costs of revenues.................. 108,798 380,146 (4,135) 484,809
-------- -------- -------- --------
Gross profit (loss)................................ 23,874 44,395 (1,297) 66,972
General and administrative expenses................ 8,943 22,900 31,843
Non-qualified employee profit sharing.............. 1,243 -- 1,243
Stock option grants to executive................... 4,231 -- 4,231
-------- -------- -------- --------
Total operating expenses................. 14,417 22,900 -- 37,317
-------- -------- -------- --------
Operating income (loss)............................ 9,457 21,495 (1,297) 29,655
Other Income (expense):
Interest expense, net............................ (2,062) (21,632) (15,765)2c (39,459)
Other, net....................................... 291 1,266 1,557
-------- -------- -------- --------
Income (loss) before income taxes and minority
interest......................................... 7,686 1,129 (17,062) (8,247)
Minority interest.................................. -- 1,146 1,146
-------- -------- -------- --------
Income (loss) before income taxes.................. 7,686 (17) (17,062) (9,393)
Income taxes (benefit)............................. 3,038 -- (3,038)2d --
-------- -------- -------- --------
Net income (loss)........................ $ 4,648 $ (17) $(14,024) $ (9,393)
======== ======== ======== ========
Net income (loss) per share........................ $ 0.55 $ (0.60)
======== ========
Weighted average common and common equivalent
shares outstanding............................... 8,477 7,099 15,576
======== ======== ========
</TABLE>
See accompanying notes.
35
<PAGE> 37
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
KALITTA ------------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier...................... $33,237 $182,352 $ (1,588)2a $214,001
Air logistics............................ 27,232 -- 27,232
Maintenance and other.................... -- 14,488 14,488
------- -------- -------- --------
Total revenues................... 60,469 196,840 (1,588) 255,721
Cost of Revenues:
Air freight carrier...................... 22,844 194,115 (11,504)2b 205,455
Air logistics............................ 24,819 -- 24,819
Maintenance and other.................... -- 10,200 10,200
------- -------- -------- --------
Total costs of revenues.......... 47,663 204,315 (11,504) 240,474
------- -------- -------- --------
Gross profit (loss)........................ 12,806 (7,475) 9,916 15,247
General and administrative expenses........ 4,884 11,968 16,852
Non-qualified employee profit sharing...... 672 -- 672
------- -------- -------- --------
Total operating expenses......... 5,556 11,968 -- 17,524
------- -------- -------- --------
Operating income (loss).................... 7,250 (19,443) 9,916 (2,277)
Other Income (expense):
Interest expense, net.................... (1,049) (12,098) (6,583)2c (19,730)
Other, net............................... 424 1,491 1,915
------- -------- -------- --------
Income (loss) before income taxes and
minority
interest................................. 6,625 (30,050) 3,333 (20,092)
Minority interest.......................... -- (893) (893)
------- -------- -------- --------
Income (loss) before income taxes.......... 6,625 (30,943) 3,333 (20,985)
Income taxes (benefit)..................... 2,650 -- (2,650)2d --
------- -------- -------- --------
Net income....................... $ 3,975 $(30,943) $ 5,983 $(20,985)
======= ======== ======== ========
Net income per share....................... $ 0.38 $ (1.20)
======= ========
Weighted average common and common
equivalent shares outstanding............ 10,452 7,099 17,551
======= ======== ========
</TABLE>
See accompanying notes.
36
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1. Allocation of Purchase Price -- Based upon the Kalitta Companies' June 30,
1997 unaudited balance sheet, the purchase price would have been calculated
and allocated as follows:
<TABLE>
<S> <C>
PURCHASE PRICE DETERMINATION:
Cash...................................................... $ 20,000
4,099,150 shares of Kitty Hawk common stock at an assumed
value of $15.00 per share.............................. 61,487
Related expenses.......................................... 2,528
Plus fair value of liabilities assumed:
Accounts payable and accrued expenses (including
$13,229 maintenance accrual to conform to Kitty Hawk
accounting method).................................... 93,048
Notes payable, reclassified as current................. 59,174
Long-term debt, reclassified as current, including
approximately $3,000 in early payment penalties....... 191,782
Note payable........................................... 300
Deferred income taxes.................................. 6,480
Minority interest...................................... 3,242
---------
Total purchase price to allocate.................. $ 438,041
=========
PURCHASE PRICE ALLOCATION:
Current assets............................................ $ 105,167
Property and equipment, principally aircraft.............. 332,874
---------
$ 438,041
=========
</TABLE>
The foregoing purchase price determination and allocation are based on the
June 30, 1997 Kalitta Companies' balance sheet and preliminary estimates of
fair value of assets acquired and liabilities assumed. The final purchase
price allocation is contingent upon final assessment or appraisal of the fair
value of the net assets acquired and the final consideration given.
37
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
2. Pro Forma Combined Statement of Operations -- The Company's Pro Forma
Combined Statement of Operations data for the year ended December 31, 1996
and the six months ended June 30, 1997 includes the following adjustments:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
a. Revenue:
- Elimination of intercompany revenue.................... $ (4,914) $ (1,373)
- Elimination of revenue on aircraft to be purchased by
Mr. Kalitta............................................ (518) (215)
-------- --------
(5,432) (1,588)
-------- --------
b. Cost of revenues:
- Elimination of intercompany revenue.................... (4,914) (1,373)
- Elimination of the cost of revenues associated with the
aircraft to be purchased by Mr. Kalitta................ (466) (194)
- Conforming the Kalitta Companies' aircraft maintenance
accounting policy to that of Kitty Hawk................ (2,107) (11,555)
- Decreasing insurance costs for the combined fleet...... (1,500) (750)
- Increase in depreciation expense from the step-up in
fair value of acquired property and equipment,
principally aircraft, and adjusting the useful lives of
the acquired aircraft.................................. 4,852 2,368
-------- --------
(4,135) (11,504)
-------- --------
c. Interest expense:
- Repaying existing Kalitta Company credit facilities.... 21,632 12,098
- Repaying existing Kitty Hawk credit facilities......... 2,062 1,049
- The Notes.............................................. (34,000) (17,000)
- Term Loan.............................................. (3,902) (1,951)
- Amortizing deferred financing costs.................... (1,557) (779)
-------- --------
(15,765) (6,583)
d. Adjustments to reduce income tax expense by the amount
incurred by Kitty Hawk................................... (3,038) (2,650)
-------- --------
$(14,024) $ 5,983
======== ========
</TABLE>
The tax effects of the remaining pro forma net operating loss carryforward at
December 31, 1996 and at June 30, 1997 have not been reflected as an income
tax benefit in the pro forma income statements due the uncertainty of future
realization.
Interest expense on the Notes is calculated assuming an interest rate of 10%.
Each 1/4 percentage point change in the interest rate of the Notes results in
a change in interest expense of $850 and $425 for 1996 and the six months
ended June 30, 1997, respectively. Interest expense on the Term Loan is
calculated assuming an interest rate of 8.5%. Interest on the Term Loan will
accrue initially at LIBOR plus 2.75% or the Base Rate plus 1.25%, subject to
reduction. See "Description of Certain Indebtedness." Each 1/4 percentage
point change in the interest rate of the Term Loan results in a change in
interest expense of $115 and $57 for 1996 and the six months ended June 30,
1997, respectively.
38
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. Pro Forma Balance Sheet -- For purposes of preparing the Unaudited Pro Forma
Combined Balance Sheet, the Kalitta Companies' assets and liabilities assumed
have been recorded at their estimated fair values, the final determination of
which has not yet been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the unaudited pro forma financial
information reflect the Company's best estimate based upon currently
available information. However, such adjustments could change and such
changes may be material.
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997
---------------------
<S> <C> <C>
a. Cash:
- Issuing 3,000,000 shares of common stock at an assumed
price of $19 15/16 per share........................... $ 59,813
- Cash payment to Mr. Kalitta............................ (20,000)
- Proceeds of the Notes.................................. 340,000
- Repaying existing credit facilities including an early
payment penalties of approximately $3,000.............. (285,007)
- Restricted cash........................................ (56,000)
- Expenses of the Transactions and the Refinancing....... (17,885)
- Remaining proceeds from the Term Loan, net of
expenses............................................... 34,550
---------
$ 55,471
b. Restricted Cash:
- Proceeds from the sale of the 16 Boeing 727 aircraft to
Kitty Hawk used to fund modification costs on the
recently acquired Boeing 747........................... 11,000
- Proceeds from the Note Offering used to fund the
acquisition of the Optioned Boeing 747s................ 56,000
---------
67,000
c. Other current assets..................................... (186)
d. Property and equipment................................... 72,258
e. Other assets, principally deferred debt costs............ 10,021
f. Adjusting accrued maintenance to conform the Kalitta
Companies' accounting policy to that of Kitty Hawk...... 13,229
g. Adjusting notes payable, reclassified as current,
long-term debt, reclassified as current and note payable
for the following:
- The Note Offering...................................... 340,000
- Repayment of existing credit facilities................ (282,007)
- Term Loan.............................................. 45,900
---------
103,893
h. Recording deferred income taxes related to the book and
tax basis differences of the assets acquired and
liabilities assumed in the Merger........................ 6,480
</TABLE>
On September 17, 1997, Kitty Hawk acquired 16 Boeing 727 aircraft from the
Kalitta Companies for $51 million, $45.9 million of which was financed with a
term loan that will be refinanced with the Term Loan on the Closing Date. The
Kalitta Companies used a portion of these proceeds to acquire a Boeing 747
aircraft for approximately $21 million and to fund the anticipated
modification costs of approximately $8 million (for which $11 million has
been placed in escrow and is reflected as restricted cash). The remaining
proceeds have been reflected in the Unaudited Pro Forma Combined Balance
Sheet as cash.
4. Stockholders' Equity -- Stockholders' equity has been adjusted to reflect the
issuance of 4,099,150 shares of Kitty Hawk's common stock in conjunction with
the Merger and the issuance of 3,000,000 shares at an assumed offering price
of $19 15/16 per share.
39
<PAGE> 41
SELECTED FINANCIAL AND OPERATING DATA
KITTY HAWK
The following table sets forth selected financial and operating data with
respect to Kitty Hawk for each of the fiscal years indicated, for the four
months ended December 31, 1995 and 1996 and for the six months ended June 30,
1996 and 1997. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. The selected statement of operations and balance
sheet data as of and for each of the fiscal years ended August 31, 1992 through
1996 and for the four months ended December 31, 1996 has been derived from
audited Consolidated Financial Statements of Kitty Hawk appearing elsewhere in
this Prospectus. Operating results for the four months ended December 31, 1995
and 1996 and for the six months ended June 30, 1996 and 1997 are not necessarily
indicative of results that may be expected for a calendar year. In the opinion
of management of Kitty Hawk, the selected statement of operations and balance
sheet data presented as of and for the four months ended December 31, 1995 and
for the six months ended June 30, 1996 and 1997, which are derived from Kitty
Hawk's unaudited Consolidated Financial Statements appearing elsewhere in this
Prospectus, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods.
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, JUNE 30,
-------------------------------------------------- ----------------- -------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Air freight carrier revenues..... $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $17,994 $20,577 $25,274 $33,237
Air logistics revenues........... 45,893 52,840 79,415 62,593 89,493 51,734 39,408 27,010 27,232
------- ------- -------- -------- -------- ------- ------- ------- -------
Total revenues................... 52,653 65,779 107,700 103,710 142,415 69,728 59,985 52,284 60,469
Total costs of revenues.......... 48,465 55,201 92,951 85,532 118,900 57,682 47,580 44,608 47,663
------- ------- -------- -------- -------- ------- ------- ------- -------
Gross profit..................... 4,188 10,578 14,749 18,178 23,515 12,046 12,405 7,676 12,806
General and administrative
expenses....................... 2,930 4,394 6,013 7,832 9,080 2,862 2,725 4,572 4,884
Non-qualified profit sharing
expense........................ -- 250 732 1,001 1,170 889 962 (32) 672
Stock option grants to
executives..................... -- -- -- -- 4,231(1) -- -- 4,231(1) --
------- ------- -------- -------- -------- ------- ------- ------- -------
Operating income................. 1,258 5,934 8,004 9,345 9,034 8,295 8,718 (1,095) 7,250
Interest expense................. (157) (134) (343) (1,185) (1,859) (482) (684) (1,023) (1,049)
Contract settlement income,
net(2)......................... -- 725 1,178 -- -- -- -- -- --
Loss on asset disposal........... -- -- -- -- (589) -- -- -- --
Other income (expense)........... 287 193 (432) (601) 291 38 626 138 424
------- ------- -------- -------- -------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 1,388 6,718 8,407 7,559 6,877 7,851 8,660 (1,980) 6,625
Income taxes..................... 375 2,613 3,146 3,143 2,768 3,097 3,367 (831) 2,650
------- ------- -------- -------- -------- ------- ------- ------- -------
Net income (loss)................ $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) $ 4,754 $ 5,293 $(1,149)(1) $ 3,975
======= ======= ======== ======== ======== ======= ======= ======= =======
Net income (loss) per share...... $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) $ 0.60 $ 0.55 $ (0.14)(1) $ 0.38
======= ======= ======== ======== ======== ======= ======= ======= =======
Weighted average common and
common equivalent shares
outstanding.................... 8,671 7,968 7,968 7,968 7,928 7,968 9,610 7,968 10,452
OTHER FINANCIAL DATA:
Capital expenditures............. $ 3,019 $ 1,318 $ 13,876 $ 17,929 $ 33,538 $ 175 $13,796 $17,008 $39,544
Adjusted EBITDA(3)............... $ 2,149 $ 7,104 $ 9,507 $ 12,839 $ 19,840 $10,014 $12,546 $ 6,890 $12,134
Ratio of adjusted EBITDA to total
interest expense............... 13.7x 53.0x 27.7x 10.8x 10.7x 20.8x 18.3x 6.7x 11.6x
Ratio of earnings to fixed
charges(4)..................... 7.9x 33.6x 20.6x 6.9x 4.4x 15.9x 12.9x -- 5.0x
OPERATING DATA:
Air freight carrier
Aircraft owned (at end of
period)........................ 11 10 15 21 22 21 26 23 28
Flight hours(5).................. 3,567 7,030 11,795 15,183 20,237 6,320 7,670 10,029 13,461
Number of on-demand charters
flown.......................... 292 752 1,182 1,238 1,918 827 243 879 580
Number of ACMI contract charters
flown.......................... 655 1,314 1,734 2,601 3,514 1,049 1,586 1,741 2,415
Air freight charter logistics
Number of on-demand charters
managed(6)..................... 8,708 9,748 16,713 14,198 19,578 9,356 4,185 7,459 6,640
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31, JUNE 30,
---------------------------------------------- ------------------ ------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------ ------- ------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............. $ 895 $ 4,679 $ 4,223 $ 1,747 $(6,962)(7) $12,722 $ 33,519 $ 6,370 $ 10,588
Total assets.......................... 9,874 18,598 37,911 47,954 79,828 80,109 123,027 68,136 117,358
Total debt............................ 2,367 976 9,145 16,981 36,912 21,695 24,768 25,602 34,051
Stockholders' equity.................. $3,184 $ 7,289 $12,550 $16,966 $23,639 $21,721 $ 58,292 $24,796 $ 62,249
</TABLE>
- ---------------
(1) Results for the fiscal year ended August 31, 1996 and the six months ended
June 30, 1996 lack comparability to other periods because such periods
include nonrecurring grants to two executive officers of stock options that
resulted in a charge to earnings of approximately $4,231. Had these grants
of stock options not occurred, net income for fiscal year ended August 31,
1996 and the six months ended June 30, 1996 would have been approximately
$6,648 and $1,390, respectively, and net income per share would have been
$0.84 and $0.17, respectively. See "Management -- Stock Option Grants."
(2) Reflects sums received in settlement of litigation. See "Legal
Proceedings -- Litigation and Arbitration Related to Postal Contract" and
Note 5 of Notes to Consolidated Financial Statements.
(3) Adjusted EBITDA represents net income (loss) before income tax expense,
interest expense, depreciation, amortization and certain items described
below. Adjusted EBITDA excludes approximately $4,231 from stock options
granted to executives in 1996 and approximately $725 and $1,178 in contract
settlements in fiscal 1993 and 1994, respectively. Adjusted EBITDA is
presented because it is a financial indicator of Kitty Hawk's ability to
incur and service debt. However, adjusted EBITDA is not calculated under
GAAP, is not necessarily comparable to similarly titled measures of other
companies and should not be considered in isolation, as a substitute for
operating income, net income or cash flow data prepared in accordance with
GAAP or as a measure of Kitty Hawk's profitability or liquidity.
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) prior to income tax expense (benefit) and fixed charges (less
capitalized interest). Fixed charges consist of capitalized interest,
interest expense, amortization of debt expense and one-third of rental
payments on operating leases (such factor having been deemed by Kitty Hawk
to represent the interest portion of such payments). Earnings were not
sufficient to cover fixed charges by $1,980 for the six month period ended
June 30, 1996.
(5) As reported by Kitty Hawk to the FAA. Flight hours reported are less than
block hours, which also include the time an aircraft is operating under its
own power whether or not airborne. Kitty Hawk generally bills its customers
on a block hour basis.
(6) Includes on-demand charters flown by Kitty Hawk aircraft.
(7) Working capital includes a $10 million Revolving Credit Facility classified
as a current liability that was subsequently repaid.
41
<PAGE> 43
THE KALITTA COMPANIES
The following table sets forth selected financial and operating data with
respect to the Kalitta Companies for each of the fiscal years indicated and for
the six months ended June 30, 1996 and 1997. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Combined Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus. The selected statement of
operations and balance sheet data as of and for each of the fiscal years
indicated in the five year period ended December 31, 1996 have been derived from
the audited Combined Financial Statements of the Kalitta Companies. The selected
statement of operations and balance sheet data for the six months ended June 30,
1996 and 1997 have been derived from the unaudited Combined Financial Statements
of the Kalitta Companies, which, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The information
presented under the captions "Other Financial Data" and "Aircraft Data" have not
been derived from audited data for any periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results which may be expected for the full year.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUES:
Air freight carrier services....................... $ 95,144 $194,525 $298,081 $359,404 $388,193 $177,431 $182,352
Maintenance and other(1)........................... 2,606 5,584 7,449 14,279 36,348 13,164 14,488
-------- -------- -------- -------- -------- -------- --------
Total revenues....................................... 97,750 200,109 305,530 373,683 424,541 190,595 196,840
OPERATING COSTS AND EXPENSES(2):
Flight............................................. 37,259 62,877 115,614 168,775 150,256 68,663 82,229
Maintenance........................................ 22,114 51,933 64,722 103,389 115,082 50,337 69,121
Fuel............................................... 16,508 38,554 57,362 54,538 82,717 40,616 35,498
Depreciation....................................... 8,999 12,422 13,809 20,972 32,091 15,846 17,467
Selling, general and administrative................ 4,232 9,554 13,273 21,676 21,889 10,088 11,284
Provision for doubtful accounts.................... 1,557 1,547 2,231 1,862 1,011 1,437 684
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses................... 90,669 176,887 267,011 371,212 403,046 186,987 216,283
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations........................ 7,081 23,222 38,519 2,471 21,495 3,608 (19,443)
OTHER INCOME (EXPENSE):
Interest expense................................... (4,396) (6,781) (8,121) (15,064) (22,012) (10,402) (12,371)
Interest income.................................... -- 36 113 315 379 216 273
Gain on disposition of aircraft held for resale and
property and equipment, net...................... 3,018 1,945 3,390 11,708 131 395 949
Gain on contract termination....................... -- -- -- -- 1,123 1,123 --
Gain on insurance settlement(3).................... -- -- -- 8,148 -- -- 542
Miscellaneous...................................... (118) (421) (550) -- 13 13 --
-------- -------- -------- -------- -------- -------- --------
Total other income (expense)......................... (1,496) (5,221) (5,168) 5,107 (20,365) (8,655) (10,607)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest............... 5,585 18,001 33,351 7,578 1,129 (5,047) (30,050)
Minority interest(4)................................. (424) (1,458) (2,758) (3,092) (1,146) (511) (893)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(5)................................. $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (5,558) $(30,943)
======== ======== ======== ======== ======== ======== ========
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income (loss)(6)............. $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (5,558) $(30,943)
OTHER FINANCIAL DATA:
Capital expenditures................................. $ 55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 29,697 $ 14,101
Adjusted EBITDA(7)................................... $ 16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 19,454 $ (1,976)
Ratio of adjusted EBITDA to total interest
expense(8)......................................... 3.7x 5.3x 6.4x 1.6x 2.4x 1.9x --
Ratio of earnings to fixed charges(9)................ 2.0x 2.4x 3.3x 1.2x 1.0x -- --
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)(10)..................... $ (6,242) $ 4,299 $(12,037) $(19,700) $(195,413) $(195,330) $(222,422)
Total assets...................................... 123,773 163,925 272,461 377,597 380,103 355,080 366,848
Total debt........................................ 80,010 84,936 137,405 220,471 238,350 222,504 248,256
Stockholder's equity.............................. $ 31,043 $ 46,461 $ 77,099 $ 66,292 $ 67,085 $ 58,232 $ 35,531
OPERATING DATA:
Aircraft under operating leases................... 7 8 4 4 2 3 4
Aircraft owned.................................... 52 57 82 91 96 91 94
-------- -------- -------- -------- --------- --------- ---------
Total aircraft.................................... 59 65 86 95 98 94 98
======== ======== ======== ======== ========= ========= =========
Flight hours(11).................................. 39,404 55,220 76,346 84,058 91,690 43,347 43,161
</TABLE>
- ---------------
(1) Includes revenues from related parties. See "Certain Transactions" and Note
8 of Notes to Combined Financial Statements.
(2) Includes expenses to related parties. See "Certain Transactions" and Note 8
of Notes to Combined Financial Statements.
(3) The gain for the year ended December 31, 1995 represents the amount by
which the insurance settlement received by AIA by reason of damage to one
of its aircraft exceeded the actual costs incurred to repair the damage.
The difference occurred because AIA was able to effect the repair using its
own maintenance capability and obtain the replacement parts from an unused
airframe having no book value. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) American International Cargo is a general partnership in which AIA holds a
60% interest. See "Business -- Scheduled Cargo Services."
(5) The Kalitta Companies filed income tax returns under Subchapter S of the
U.S. Federal Income Tax Code. Therefore, all taxable income or losses of
the Kalitta Companies have passed through to the sole shareholder of the
Kalitta Companies.
(6) Represents net income adjusted for the approximate federal and state income
taxes (by applying statutory rates) assuming the Kalitta Companies had been
subject to tax as a C corporation. No tax benefit has been provided for the
year ended December 31, 1996 and for the six months ended June 30, 1996 and
1997 due to the uncertainty of the Kalitta Companies' ability to recover
such benefits.
(7) Adjusted EBITDA represents net income (loss) before minority interest,
interest expense (net of capitalized interest), depreciation, amortization
and certain items described below. Adjusted EBITDA excludes approximately
$8,148 and $542 from gains on insurance settlements in 1995, and the six
months ended June 30, 1997, respectively, $1,123 from a gain from
settlement of a contract dispute in 1996 and the six months ended June 30,
1996, and net gains from disposition of aircraft held for resale in each
period presented. Adjusted EBITDA is presented because it is a financial
indicator of the Kalitta Companies' ability to incur and service debt.
However, adjusted EBITDA is not calculated under GAAP, is not necessarily
comparable to similarly titled measures of other companies and should not
be considered in isolation, as a substitute for operating income, net
income or cash flow data prepared in accordance with GAAP or as a measure
of the Kalitta Companies' profitability or liquidity.
(8) For the six months ended June 30, 1997, the Kalitta Companies' adjusted
EBITDA was ($1,976) and interest expense was $12,098, resulting in a
failure to cover interest expense.
(9) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before minority interest and fixed charges (less capitalized
interest). Fixed charges consist of capitalized interest, interest expense,
amortization of debt expense and one-third of rental payments on operating
leases (such factor having been deemed by the Kalitta Companies to
represent the interest portion of such payments). Earnings were not
sufficient to cover fixed charges by approximately $5,368 and $30,050 for
the six months ended June 30, 1996 and June 30, 1997, respectively.
(10) Includes long-term debt and notes payable reclassified to current of
$203,016, $173,765 and $201,443 at December 31, 1996, June 30, 1996 and
June 30, 1997, respectively.
(11) As reported to the FAA by the Kalitta Companies. Flight hours reported are
less than block hours, which also include the time an aircraft is operating
under its own power whether or not airborne. The Kalitta Companies
generally bill its customers on a block hour basis.
43
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF KITTY HAWK
Change of Fiscal Year. On December 4, 1996, Kitty Hawk changed its fiscal
year end from August 31 to December 31. The following discussion is of Kitty
Hawk's financial condition and results of operations (i) for the six months
ended June 30, 1996 and 1997, (ii) for the four months ended December 31, 1995
and December 31, 1996 and (iii) for the fiscal years ended August 31, 1994, 1995
and 1996.
Revenues. Kitty Hawk's revenues are derived from two related businesses (i)
air freight carrier and (ii) air logistics. Air freight carrier revenues are
derived substantially from ACMI contract and on-demand charters flown with Kitty
Hawk's aircraft. Air logistics revenues are derived substantially from on-demand
air freight charters arranged by Kitty Hawk for its customers utilizing the
flight services of third party air freight carriers. With respect to on-demand
charters that are arranged by Kitty Hawk and flown with its own aircraft,
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.
The principal factors that have contributed to revenue growth over the past
several years have been increases in the size of Kitty Hawk's fleet (from 10
aircraft at December 31, 1993 to 28 aircraft at June 30, 1997), the general U.S.
economic expansion since 1992 and the increased global demand for time sensitive
air freight services.
Costs of Revenues. The principal components of the costs of revenues
attributable to the air freight carrier business 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 the customer 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
on Kitty Hawk's aircraft, all related air transportation expenses are allocated
to the air freight carrier business and all related cargo ground handling and
transportation expenses are allocated to the air logistics business.
Under the Kitty Hawk Amended and Restated Annual Incentive Compensation
Plan, Kitty Hawk awards semiannual cash bonuses to its employees. The aggregate
amount of the bonuses for each of fiscal years 1994, 1995 and 1996, the
Transition Period and the six months ended June 30, 1996 and 1997, have equaled
8.0%, 11.7%, 9.5%, 10.0%, (1.5%) and 9.2%, respectively, of Kitty Hawk's income
before the deduction of income taxes, stock option grants to executives and the
bonuses that were expensed under this plan.
Kitty Hawk's gross margins have been substantially higher in its air
freight carrier business (which uses Kitty Hawk aircraft) than in its air
logistics business (which principally uses third party aircraft). However, the
air freight carrier business provides a more predictable revenue base.
Accordingly, Kitty Hawk is shifting its planes from on-demand to ACMI contracts.
Of the 16 Boeing 727s acquired in September 1997, 14 operate under ACMI
contracts.
Significant Events Affecting Comparability of Results of Operations. Since
September 1, 1993, several events have affected the comparability of results of
operations for each of the last three fiscal years. In fiscal year 1996, Kitty
Hawk granted Messrs. Reeves and Wadsworth options to purchase 390,707 and
153,567 shares of Common Stock, respectively, for an exercise price of $0.01 per
share, that resulted in a charge to earnings of approximately $4,231,000. In
fiscal year 1995, Kitty Hawk expensed approximately $727,000 relating to its
attempted initial public offering. In fiscal year 1994, contract settlement
income amounted to approximately $1,178,000. See Note 5 of Notes to Consolidated
Financial Statements.
Post-Merger Results. Beginning in the fourth quarter of 1997, the Company's
results will be affected by the Transactions and the Refinancings. Expenses will
be increased by the amortization of the stepped up value
44
<PAGE> 46
of the Kalitta Companies' fleet (approximately $4.9 million of non-cash annual
expense), the amortization of deferred financing costs associated with the Note
Offering, the New Credit Facility and the Term Loan (approximately $1.5 million
of non-cash annual expense) and cash interest expense with respect to the Notes
(approximately $34.0 million of annual expense) and the Term Loan (approximately
$3.9 million of annual expense). After the Merger, the Company may incur
Merger-related integration costs in the fourth quarter of 1997. If incurred,
these costs are not expected to exceed approximately $2 million.
Reduced Dependence on Significant Customers. Historically, Kitty Hawk
derived a substantial amount of revenue from a limited number of customers. Upon
consummation of the Merger, the Company will be significantly less dependent on
revenues from these customers.
RESULTS OF OPERATIONS OF KITTY HAWK
The following table sets forth, on a comparative basis for the periods
indicated, the components of Kitty Hawk's gross profit (in thousands) and the
gross profit margin by revenue type:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
AIR FREIGHT CARRIER:
Revenues.................................................. $28,285 100.0% $41,117 100.0% $52,922 100.0%
Costs of revenues......................................... 19,550 69.1 28,104 68.4 38,760 73.2
------- ----- ------- ----- ------- -----
Gross profit.............................................. $ 8,735 30.9% $13,013 31.6% $14,162 26.8%
======= ===== ======= ===== ======= =====
AIR LOGISTICS:
Revenues.................................................. $79,415 100.0% $62,593 100.0% $89,493 100.0%
Costs of revenues......................................... 73,402 92.4 57,428 91.7 80,140 89.5
------- ----- ------- ----- ------- -----
Gross profit.............................................. $ 6,013 7.6% $ 5,165 8.3% $ 9,353 10.5%
======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
FOUR MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AIR FREIGHT CARRIER:
Revenues..................................... $17,994 100.0% $20,577 100.0% $25,274 100.0% $33,237 100.0%
Costs of revenues............................ 11,685 64.9 13,784 67.0 20,340 80.5 22,844 68.7
------- ----- ------- ----- ------- ----- ------- -----
Gross profit................................. $ 6,309 35.1% $ 6,793 33.0% $ 4,934 19.5% $10,393 31.3%
======= ===== ======= ===== ======= ===== ======= =====
AIR LOGISTICS:
Revenues..................................... $51,734 100.0% $39,408 100.0% $27,010 100.0% $27,231 100.0%
Costs of revenues............................ 45,997 88.9 33,796 85.8 24,268 89.8 24,819 91.1
------- ----- ------- ----- ------- ----- ------- -----
Gross profit................................. $ 5,737 11.1% $ 5,612 14.2% $ 2,742 10.2% $ 2,412 8.9%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
45
<PAGE> 47
The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR FOUR MONTHS SIX MONTHS
ENDED ENDED ENDED
AUGUST 31, DECEMBER 31, JUNE 30,
--------------------- ------------- -------------
1994 1995 1996 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Air freight carrier....................................... 26.3% 39.6% 37.2% 25.8% 34.3% 48.3% 55.0%
Air logistics............................................. 73.7 60.4 62.8 74.2 65.7 51.7 45.0
----- ----- ----- ----- ----- ----- -----
Total revenues.............................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total costs of revenues..................................... 86.3 82.5 83.5 82.7 79.3 85.3 78.8
----- ----- ----- ----- ----- ----- -----
Gross profit................................................ 13.7 17.5 16.5 17.3 20.7 14.7 21.2
General and administrative expenses......................... 5.6 7.6 6.4 4.1 4.5 8.8 8.1
Non-qualified profit sharing expense........................ 0.7 0.9 0.8 1.3 1.6 (0.1) 1.1
Stock option grants to executives........................... -- -- 3.0 -- -- 8.1 --
----- ----- ----- ----- ----- ----- -----
Operating income (loss)..................................... 7.4 9.0 6.3 11.9 14.6 (2.1) 12.0
Interest expense............................................ (0.3) (1.1) (1.3) (0.7) (1.2) (2.0) (1.7)
Contract settlement income, net............................. 1.1 -- -- -- -- -- --
Loss on asset disposal...................................... -- -- (0.4) -- -- -- --
Other income (expense)...................................... (0.4) (0.6) 0.2 0.1 1.0 0.3 0.7
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes........................... 7.8 7.3 4.8 11.3 14.4 (3.8) 11.0
Income taxes................................................ 2.9 3.0 1.9 4.4 5.6 (1.6) 4.4
----- ----- ----- ----- ----- ----- -----
Net income (loss)........................................... 4.9% 4.3% 2.9% 6.9% 8.8% (2.2)% 6.6%
===== ===== ===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues -- Air Freight Carrier. Air freight carrier revenues increased to
$33.2 million, or 31.5%, from $25.3 million for the six months ended June 30,
1997 as compared to the six months ended June 30, 1996, principally from an
increase in fleet size from 23 aircraft at June 30, 1996 to 28 aircraft at June
30, 1997. 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. Revenues from on-demand charters flown by Kitty Hawk
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 charters which is consistent with Kitty Hawk's strategy of using
more of its fleet in ACMI business which produces relatively stable revenues.
Prices for Kitty Hawk's on-demand and ACMI contract charters remained relatively
constant.
Revenues -- Air Logistics. Air logistics revenues were relatively flat
registering $27.2 million in the six months ended June 30, 1997, compared to
$27.0 million in the six months ended June 30, 1996. Prices for Kitty Hawk'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 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. The increase was primarily the result of reduced
maintenance costs 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,
46
<PAGE> 48
1996. 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. This
decrease was primarily due to increased costs paid to third party air freight
carriers temporarily resulting from increased carrier costs that Kitty Hawk was
not able to pass through to customers.
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 air
freight carrier business. 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 $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. There was no stock option grant expense
during the six months ended June 30, 1997. During the six month period ended
June 30, 1996, Kitty Hawk granted two executive officers options to purchase
544,274 shares of Common Stock that resulted in a charge to earnings of
approximately $4,231,000.
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 ($1.1)
million in the six months ended June 30, 1996. Operating income margin increased
to 12.0% 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.
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, based on state apportionment factors.
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 ($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.
FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31,
1995
Revenues -- Air Freight Carrier. Air freight carrier revenues increased to
$20.6 million, or 14.4%, from $18.0 million for the four months ended December
31, 1996 compared to the four months ended December 31, 1995, principally from
an increase in fleet size from 21 aircraft to 26 aircraft during the comparable
periods. Air freight carrier on-demand and ACMI contract charter revenues were
$3.0 million and $16.9 million, or 14.5% and 82.3%, respectively, of total air
freight carrier revenues for the four months ended December 31, 1996, as
compared to $7.8 million and $9.2 million, or 43.2% and 51.3%, respectively, for
the four months ended December 31, 1995. Revenues from on-demand charters flown
by Kitty Hawk aircraft for the four months ended December 31, 1996 decreased
61.6% from the comparable prior year period primarily as the result of Kitty
Hawk's strategy to use as many aircraft as possible under ACMI contracts, which
provide more stable, predictable revenues. Prices for Kitty Hawk's on-demand and
ACMI contract charters remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues decreased $12.3 million,
or 23.8%, to $39.4 million in the four months ended December 31, 1996, from
$51.7 million in the four months ended December 31, 1995.
47
<PAGE> 49
This decrease was primarily due to decreased demand for on demand charters from
the automobile industry in the fourth quarter of calendar year 1996 and is
partially offset by an increase in the number of managed charters for the U.S.
Postal Service during December 1996. Prices for Kitty Hawk's air logistics
services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $2.1 million, or 18.0%, to $13.8 million in the four months
ended December 31, 1996, from $11.7 million in the four months ended December
31, 1995, reflecting the increased volume of business from Boeing 727-200 ACMI
contract charters. Gross profit margin from the air freight carrier decreased to
33.0% in the four months ended December 31, 1996, from 35.1% in the comparable
prior year period. This decrease reflects the increase in ACMI contract
charters, which produce lower gross margins than on-demand charters.
As reported to the FAA, overall aircraft utilization increased to 7,670
flight hours for the four months ended December 31, 1996, from 6,320 in the four
months ended December 31, 1995, a 21.4% increase. This increase was primarily
due to the increased hours flown for ACMI contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $12.2 million, or 26.5%, to $33.8 million in the four months ended
December 31, 1996, from $46.0 million in the four months ended December 31,
1995, reflecting the decreased volume of business. The gross profit margin from
air logistics increased to 14.2% in the four months ended December 31, 1996,
from 11.1% in the comparable prior year period, an increase of 27.9%. This
increase was primarily due to Kitty Hawk's additional revenues and increased
gross profit margin from the U.S. Postal Service Christmas contract in December
1996 and Kitty Hawk's success in reducing its costs paid to third party air
freight carriers and ground service providers.
General and Administrative Expenses. General and administrative expenses
decreased $137,000, or 4.8%, to $2.7 million in the four months ended December
31, 1996, from $2.9 million in the four months ended December 31, 1995. This
decrease was primarily due to a reduction of professional fees and bank charges
in the four months ended December 31, 1996. As a percentage of total revenues,
general and administrative expenses increased to 4.5% in the four months ended
December 31, 1996, from 4.1% in the four months ended December 31, 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $73,000, or 8.2%, to $962,000 in the four months ended
December 31, 1996, from $889,000 in the four months ended December 31, 1995,
reflecting the increased profitability from operating activities of Kitty Hawk
in the four months ended December 31, 1996.
Operating Income. Operating income increased $423,000, or 5.1%, to $8.7
million in the four months ended December 31, 1996, from $8.3 million in the
four months ended December 31, 1995. Operating income margin increased to 14.6%
from 11.9%, for the four months ended December 31, 1996 and 1995, respectively.
Interest Expense. Interest expense increased to $684,000 for the four
months ended December 31, 1996 from $482,000 in the four months ended December
31, 1995, a 42.0% increase. The increase was primarily the result of the
incurrence of additional long-term debt to finance the acquisition of Boeing
727-200 aircraft subsequent to December 31, 1995.
Other Income (Expense). Other income increased to $626,000 in the four
months ended December 31, 1996, from $38,000 in the comparable prior year
period. The increase was primarily due to the temporary investment of the net
proceeds of Kitty Hawk's initial public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 38.9% for the four months ended December 31, 1996, from 39.4% 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 $5.3 million
in the four months ended December 31, 1996, from $4.8 million in the four months
ended December 31, 1995, a 11.3% increase. Net income as a percentage of total
revenues increased to 8.8% in the four months ended December 31, 1996, from 6.9%
in the comparable prior year period.
48
<PAGE> 50
FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995
Revenues -- Air Freight Carrier. Air freight carrier revenues increased
$11.8 million or 28.7% from $41.1 million for fiscal year 1995 to $52.9 million
for fiscal year 1996. Air freight carrier on-demand and ACMI contract charter
revenues were $20.7 million and $30.1 million, or 39.2% and 56.8%, respectively,
of total air freight carrier revenues for fiscal year 1996, as compared to $18.1
million and $20.9 million, or 44.2% and 50.8%, respectively, for fiscal year
1995. Revenues from on-demand charters flown by Kitty Hawk aircraft for fiscal
year 1996 increased 14.0% from the prior year. The increase in ACMI revenues of
$9.2 million from 1995 to 1996 was principally due to Kitty Hawk's strategy to
increase its Boeing 727 fleet and dedicate more aircraft to ACMI contract
service. Prices for Kitty Hawk's on-demand and ACMI contract charters remained
relatively constant.
Revenues -- Air Logistics. Air logistics revenues increased $26.9 million,
or 43.0%, to $89.5 million in fiscal year 1996, from $62.6 million in fiscal
year 1995. This increase was primarily due to increased demand for on demand
charters from the automobile industry in the fourth quarter of calendar year
1995 and a substantial increase in the number of managed charters for the U.S.
Postal Service during December 1995. Prices for Kitty Hawk's air logistics
services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $10.7 million, or 37.9%, to $38.8 million in fiscal year
1996, from $28.1 million in fiscal year 1995, reflecting the increased volume of
business from Boeing 727-200 ACMI contract charters. Gross profit margin from
the air freight carrier decreased to 26.8% in fiscal year 1996, from 31.6% in
the comparable prior year period. This decrease reflects the increase in ACMI
contract charters, which produce lower gross margins than on-demand charters.
As reported to the FAA, overall aircraft utilization increased to 20,237
flight hours for fiscal year 1996, from 15,183 in fiscal year 1995, a 33.3%
increase. This increase was primarily due to the increased hours flown for ACMI
contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $22.7 million, or 39.5%, to $80.1 million in fiscal year 1996, from
$57.4 million in fiscal year 1995, reflecting the increased volume of business.
The gross profit margin from air logistics increased to 10.5% in fiscal year
1996, from 8.3% in the comparable prior year period, a 26.5% increase. This
increase was primarily due to Kitty Hawk's success in reducing its costs paid to
third party air freight carriers and ground service providers and increased
gross profit margin from the U.S. Postal Service Christmas contract in December
1995.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million, or 15.9%, to $9.1 million in fiscal year 1996, from $7.8
million in fiscal year 1995. This increase was primarily due to an increase in
support functions and administrative costs associated with the growth in the
aircraft fleet and the increased revenue volume for the air freight carrier in
fiscal year 1996. As a percentage of total revenues, general and administrative
expenses decreased to 6.4% in fiscal year 1996, from 7.6% in fiscal year 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $169,000, or 16.9%, to $1.2 million in fiscal year 1996, from
$1.0 million in fiscal year 1995, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1996.
Stock Option Grants to Executives. During fiscal year 1996, Kitty Hawk
granted two executive officers options to purchase 544,274 shares of Common
Stock that resulted in a charge to earnings of approximately $4,231,000.
Operating Income. Operating income decreased $311,000, or 3.3%, to $9.0
million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating
income margin decreased to 6.3% from 9.0%, for fiscal year 1996 and 1995,
respectively.
Interest Expense. Interest expense increased to $1.9 million for fiscal
year 1996 from $1.2 million in fiscal year 1995, a 56.9% increase. The increase
was primarily the result of the incurrence of additional long-term debt to
finance the acquisition of two Boeing 727-200 aircraft in the second half of
fiscal year 1995 and two additional Boeing 727-200 aircraft in fiscal year 1996.
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<PAGE> 51
Loss on Asset Disposal. Loss on asset disposal for fiscal year 1996 was
$589,000, which resulted from write-downs associated with equipment
dispositions. There were no losses on asset disposal in fiscal year 1995.
Other Income (Expense). Other income increased to $291,000 in fiscal year
1996, from an expense of $601,000 in the comparable prior year period. The
increase was primarily due to the write-off of costs associated with Kitty
Hawk's attempted initial public offering in fiscal year 1995 and increased
interest income in fiscal year 1996.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40.3% for fiscal year 1996, from 41.6% 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 decreased to $4.1 million
in fiscal year 1996, from $4.4 million in fiscal year 1995, a 7.0% decrease. Net
income as a percentage of total revenues decreased to 2.9% in fiscal year 1996,
from 4.3% in the comparable prior year period.
FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
Revenues -- Air Freight Carrier. Air freight carrier revenue increased
$12.8 million, or 45.4% from $28.3 million for fiscal year 1994 to $41.1 million
for fiscal year 1995, principally as a result of an increase in the fleet size
from 15 to 21 aircraft for the same period. Air freight carrier on-demand and
ACMI contract charter revenues were $18.1 million and $20.9 million, or 44.2%
and 50.8%, respectively, of total air freight carrier revenues for fiscal year
1995, as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%,
respectively, for fiscal year 1994. The increase in on-demand and ACMI contract
charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and
97.1%, respectively. The increase in ACMI revenues of $10.3 million from 1994 to
1995 was principally due to Kitty Hawk's strategy to increase its Boeing 727
fleet and dedicate more aircraft to ACMI contract service. Prices for Kitty
Hawk's ACMI contract charter services and U.S. Postal Service Christmas
contracts remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million,
or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year
1994 primarily due to the substantial decline in volume of on-demand charters
for the automobile industry in the first half of calendar 1995 as compared to
the same period in 1994. This decline was primarily the result of the temporary
decision by GM to significantly reduce use of expedited transportation,
including Kitty Hawk's air logistics services, as part of a cost containment
initiative. Prices for Kitty Hawk's on-demand charters decreased slightly due to
a rate reduction in the GM Agreement which took effect on May 1, 1994.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995
from $19.5 million in fiscal year 1994, reflecting the increased volume of
business from ACMI contract and on-demand charters flown by Kitty Hawk's jet
aircraft. Gross profit margin from the air freight carrier increased slightly to
31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase. As
reported to the FAA, overall aircraft utilization increased to 15,183 flight
hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994, a 28.7%
increase. This increase was primarily the result of the inclusion of an
additional four Boeing 727-200s and two Douglas DC-9-15F aircraft into Kitty
Hawk's operations during fiscal year 1995.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $16.0 million, or 21.8%, to $57.4 million in fiscal year 1995 from
$73.4 million in fiscal year 1994, reflecting the decrease in the volume of
business. The gross profit margin from air logistics increased to 8.3% in fiscal
year 1995 from 7.6% in fiscal year 1994, a 9.2% increase. This increase was
primarily due to Kitty Hawk's success in reducing its costs paid to third party
air freight carriers and ground service providers in the second half of fiscal
year 1995.
General and Administrative Expenses. General and administrative expenses
increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6.0
million in fiscal year 1994. As a percentage of total revenues, general and
administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in
fiscal year 1994. This increase was primarily due to an increase in support
functions and number of personnel associated with the growth in the aircraft
fleet and the revenue volume for the air freight carrier in fiscal year 1995.
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<PAGE> 52
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased to $1.0 million in fiscal year 1995 from $732,000 in fiscal
year 1994, a 36.8% increase, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1995.
Operating Income. Operating income increased $1.3 million, or 16.8%, to
$9.3 million in fiscal year 1995 from $8.0 million in fiscal year 1994.
Operating income margin increased to 9.0% from 7.4% for fiscal year 1995 and
1994, respectively.
Interest Expense. Interest expense increased to $1.2 million for fiscal
year 1995 from $343,000 in fiscal year 1994, a 246.0% increase. The increase was
primarily the result of the incurrence of additional long-term debt to finance
the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year
1994 and two Douglas DC-9-15F aircraft and two Boeing 727-200 aircraft in fiscal
year 1995.
Other Income (Expense). Other expense increased to $601,000 in fiscal year
1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was
primarily due to the write off of costs associated with Kitty Hawk's attempted
initial public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The
increase was primarily due to higher state income taxes.
Net Income. As a result of the above, net income decreased to $4.4 million
for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16.0% decrease.
Net income as a percentage of total revenues was 4.3% in fiscal year 1995
compared to 4.9% for fiscal year 1994.
OVERVIEW OF THE KALITTA COMPANIES
Revenues. The Kalitta Companies derive their revenues primarily from two
types of services: air freight carrier services and third party maintenance.
During the past three years, the Kalitta Companies' revenues increased at a
compound annual rate of 29.5% to $424.5 million in 1996 from $200.1 million in
1993. The Kalitta Companies revenue growth has been substantially the result of
new scheduled freight contracts and an increase in aircraft capacity.
Revenues from air freight carrier services are derived from three sources
(i) scheduled cargo services, (ii) on-demand cargo charter services, and (iii)
passenger charter services.
Scheduled cargo services are generally utilized by other airlines and
freight forwarders. These services range in type from a commitment by the
Kalitta Companies to transport freight on its scheduled freight routes to the
lease of the entire capacity of one or more aircraft with crew, also known as a
"wet-lease." Also included in scheduled cargo services is revenue generated from
the Kalitta Companies' overnight freight service operating within a network of
45 North American cities, and from the Kalitta Companies' consolidated 60%
partnership interest in American International Cargo ("AIC"), which flies
scheduled routes from the West Coast of the United States to the Pacific Rim.
On-demand cargo services are derived from single trip or short-term
airfreight customers. Customers may be charged in one of two ways, (i) an
"all-inclusive" flat fee on the basis of the aircraft type and number of miles
to be flown, or, (ii) the customer may charter the aircraft on an ACMI basis
where the customer pays a negotiated rate for each "block hour" during which the
aircraft is operating under its own power. This rate covers the cost to operate
the aircraft, including crew, the cost of scheduled maintenance, insurance and
ground support. Additional fees may be applicable for such costs as fuel,
handling and ramp fees, customs support and ground transport.
With both scheduled and contract services, operating costs such as fuel,
landing rights and cargo handling are either (i) paid directly by the customer
or (ii) included in the contract price and paid by the Kalitta Companies.
Revenues from passenger charter services consist principally of
arrangements with tour operators for the transport of leisure travelers to
domestic and international locations. The tour operators generally pay a fixed
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<PAGE> 53
price for the use of the aircraft and assume the risk for both the sale of seats
and any increase in fuel prices after a date fixed in the contract.
Revenues from third party maintenance services are generated from engine,
airframe and component repairs and overhauls provided to third parties.
Operating Expenses. Operating expenses consist of flight expenses,
maintenance, fuel, depreciation and selling, general and administrative ("SG&A")
expenses. Flight expenses are comprised principally of salaries and benefits for
crews and other flight related personnel, hull and liability insurance of
aircraft, aircraft and engine lease expense, crew travel and meal expenses, crew
training costs, navigational expenses and other expenses necessary to conduct
flight operations. Flight expenses attributable to crew salaries and benefits
are particularly sensitive to crew utilization. Crews are guaranteed a fixed
salary based upon 60 block hours per month. To the extent they actually fly less
than 60 hours, the expense attributable to the fixed portion of their salaries
is not offset by revenue. Crew utilization is measured by the actual hours flown
as a percentage of the crew member's 60-hour guaranty. Flight expenses also
include aircraft lease, or subcharter, expense incurred to lease or charter
aircraft from other airlines, as well as costs associated with the Kalitta
Companies' ground handling and flight planning operations.
Flight expenses associated with scheduled and charter services, such as
landing and parking fees and overflight fees are either paid directly by the
Kalitta Companies' customer or billed to the customer on a direct pass-through
basis. Pass-through expenses are offset by an equal amount of revenue derived
from inclusion of those expenses in the aggregate amount charged to the
customer.
Maintenance expenses are comprised principally of labor, parts and supplies
associated with the maintenance, repair and overhaul of the Kalitta Companies'
aircraft and engines and maintenance services provided by others. Costs
associated with major maintenance checks have been expensed when incurred. Kitty
Hawk capitalizes the costs of major maintenance checks and, after the Merger,
the Kalitta Companies' policies will be adjusted to conform with Kitty Hawk's
policies. Costs associated with the modification of aircraft from passenger to
freight capacity are capitalized when incurred and amortized over their expected
useful lives, ranging from 7 to 14 years, depending on the type of aircraft.
Maintenance expenses also include the cost of sales associated with third party
maintenance revenues.
Fuel expenses are comprised principally of fuel costs associated with the
Kalitta Companies' scheduled and chartered cargo and passenger services. Fuel
costs are either paid directly by the Kalitta Companies' customer or billed to
the customer on a direct pass-through basis and are offset by an equal amount of
revenue derived from inclusion of the fuel expense in the total price paid by
the customer.
Depreciation expenses are comprised principally of depreciation on
aircraft, aircraft components and ground equipment and the amortization of
capitalized airframe modifications and repairs.
SG&A expenses are comprised principally of salaries and benefits for sales,
administrative, accounting and information system personnel and corporate
executives. Also included in administrative expenses are commissions paid to
third party sales agents, advertising and marketing expenses and legal expenses.
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<PAGE> 54
RESULTS OF OPERATIONS OF THE KALITTA COMPANIES
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Kalitta Companies' gross profit (in thousands)
and the gross profit margin by revenue type:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Air freight carrier services:
Revenues........................ $298,081 100.0% $359,404 100.0% $388,193 100.0%
Costs of revenues............... 247,023 82.9 338,538 94.2 357,830 92.2
-------- ----- -------- ----- -------- -----
Gross profit.................... $ 51,058 17.1% $ 20,866 5.8% $ 30,363 7.8%
======== ===== ======== ===== ======== =====
Maintenance and other:
Revenues........................ $ 7,449 100.0% $ 14,279 100.0% $ 36,348 100.0%
Costs of revenues............... 4,484 60.2 9,135 64.0 22,316 61.4
-------- ----- -------- ----- -------- -----
Gross profit.................... $ 2,965 39.8% $ 5,144 36.0% $ 14,032 38.6%
======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1996 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Air freight carrier services:
Revenues............................................ $177,431 100.0% $182,352 100.0%
Costs of revenues................................... 167,520 94.4 194,115 106.5
-------- ----- -------- -----
Gross profit (loss)................................. $ 9,911 5.6% $(11,763) (6.5)%
======== ===== ======== =====
Maintenance and other:
Revenues............................................ $ 13,164 100.0% $ 14,488 100.0%
Costs of revenues................................... 7,942 60.3 10,200 70.4
-------- ----- -------- -----
Gross profit........................................ $ 5,222 39.7% $ 4,288 29.6%
======== ===== ======== =====
</TABLE>
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<PAGE> 55
The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUES:
Air freight carrier services...... 97.6% 96.2% 91.4% 93.1% 92.6%
Maintenance and other............. 2.4 3.8 8.6 6.9 7.4
----- ----- ----- ----- -----
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Flight............................ 37.8 45.2 35.4 36.0 41.8
Maintenance....................... 21.2 27.7 27.1 26.4 35.1
Fuel.............................. 18.8 14.6 19.5 21.3 18.0
Depreciation...................... 4.5 5.6 7.6 8.3 8.9
Selling, general and
administrative................. 4.3 5.8 5.2 5.3 5.7
Provision for doubtful accounts... 0.7 0.5 0.2 0.8 0.3
----- ----- ----- ----- -----
Total operating expenses............ 87.3 99.4 95.0 98.1 109.8
----- ----- ----- ----- -----
Operating income (loss)............. 12.7 0.6 5.0 1.9 (9.8)
----- ----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest expense, net............. (2.6) (3.9) (5.1) (5.3) (6.1)
Other income net.................. 0.9 5.3 0.3 0.8 0.8
----- ----- ----- ----- -----
Total other income (expense)........ (1.7) 1.4 (4.8) (4.5) (5.3)
----- ----- ----- ----- -----
Income (loss) before minority
interest.......................... 11.0 2.0 0.2 (2.6) (15.1)
Minority interest................... (0.9) (0.8) (0.2) (0.3) (0.5)
----- ----- ----- ----- -----
Net income (loss)(1)................ 10.1% 1.2% 0.0% (2.9)% (15.7)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Prior to the Merger, the Kalitta Companies filed income tax returns under
Subchapter S of the U.S. Federal Income Tax Code. Therefore, all taxable
income or losses of each of the Kalitta Companies have passed through to the
sole shareholder of the Kalitta Companies.
SIX MONTHS ENDED AS OF JUNE 30, 1997 AS COMPARED TO THE SIX MONTHS ENDED AS OF
JUNE 30, 1996
Revenues. Revenues increased $6.2 million, or 3.3%, to $196.8 million in
first six months of 1997 as compared to $190.6 million in first six months of
1996. This increase reflected the increase of four aircraft available to the
Kalitta Companies on a weighted average basis over the first six months of 1997
compared to the first six months of 1996, including two Lockheed L-1011-200s
(one of which was modified from passenger to freighter configuration), one
Boeing 727-200 freighter and one Douglas DC-8-50 freighter.
Air freight carrier service revenue increased $4.9 million, or 2.8%, to
$182.3 million in the first six months of 1997 from $177.4 million in the first
six months of 1996. This increase resulted from three factors. First, the
addition of a Lockheed L-1011-200 freighter in late 1996 to the Los
Angeles-Honolulu route for AIC. Second, the Kalitta Companies realized the full
period effect of contract charter flights into and out of Brazil and Columbia,
which commenced late in the second quarter of 1996 when the Kalitta Companies
was awarded operating authority for these countries. Third, the Kalitta
Companies experienced an increase in the number of customers serviced in
on-demand cargo services.
Offsetting these increases, however, was (i) a reduction in the number of
aircraft leased to DHL Airways, Inc., (ii) a reduction in the number of aircraft
operated by the Kalitta Companies for Burlington and (iii) a decline in revenue
generated from flights operated for the U.S. Military. The decline in revenues
from the U.S. Military occurred because of increased competition for this
business, as well as an increase in contract awards to airlines able to provide
both freight and passenger service, the latter of which AIA was not qualified
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<PAGE> 56
by the military to provide. The Kalitta Companies have recently become eligible
to provide passenger charter service for the U.S. Military.
Third party maintenance and other revenue increased $1.3 million or 10.1%,
to $14.5 million in the first six months of 1997 from $13.2 million in the first
six months of 1996. The Kalitta Companies increased third-party engine
maintenance work during the second half of 1996 and throughout the first six
months of 1997 as a result of new contracts with Lufthansa and International
Turbine.
Operating Expenses. Operating expenses increased by $29.3 million, or
15.7%, to $216.3 million for the first six months of 1997 from $187.0 million in
the same period in 1996. As a percent of revenues, operating expenses increased
to 109.8% for the first six months of 1997 from 98.1% in the same period in
1996. Flight expenses increased $13.6 million, or 19.8%, to $82.2 million for
the first six months of 1997 from $68.7 million in the same period in 1996. The
increase was due primarily to (i) an increase in crew labor and training costs,
(ii) increased subcharter expense and (iii) an increase in the overall level of
operating activity. Crew labor and training costs increased and average crew
utilization dropped to approximately 45% in the first six months of 1997
compared to approximately 53% in the prior year period, primarily as a result of
an increased number of crews hired and trained in advance of anticipated
increased levels of flight activity which did not materialize in part due to
delays in acquiring aircraft. Expenses also increased because the Kalitta
Companies were forced to subcharter three aircraft from third parties in order
to meet service commitments during periods of unscheduled maintenance on their
aircraft.
Maintenance expenses increased $18.8 million, or 37.3%, to $69.1 million in
the first six months of 1997, as compared to $50.3 million in the same six month
period in 1996. Maintenance expenses increased as a percentage of revenues to
35.1% from 26.4%. The increase was primarily attributable to (i) engine repairs
beginning in August 1996 relating to a Directive affecting the RB211 engines
that power the Lockheed L-1011 aircraft and unanticipated repairs and overhauls
on the JT3, JT8 and JT9 engines, (ii) start-up costs associated with the
preparation of two L-1011 aircraft to initiate the Company's wide-body passenger
charter service, (iii) a substantial increase in the number of aircraft serviced
at the Oscoda maintenance facility and the related costs of components and
aircraft parts and (iv) the addition of personnel required to perform the
increased levels of aircraft maintenance and repair in the Kalitta Companies'
facilities.
Fuel costs decreased $5.1, million, or 12.6%, to $35.5 million for the six
months ended June 30, 1997, as compared to $40.6 million in the same period in
1996. This decrease was attributable to a drop in the amount of charter activity
for the U.S. Military. The Kalitta Companies' contracts with the U.S. Military
include the cost of fuel in the contract price. Consequently, fuel expense is
directly offset by revenue attributable to the fuel cost portion of the contract
price.
Depreciation expense increased $1.6 million, or 10.2%, to $17.5 million for
the six months ended June 30, 1997 from $15.8 million for the same period in
1996, primarily as a result of the increase in the number of aircraft in the
Kalitta Companies' fleet during the latter part of 1996 and in 1997.
Selling, general and administrative expenses increased $1.2 million, or
11.9%, to $11.3 million for the six months ended June 30, 1997 from $10.1
million for the six months ended June 30, 1996, primarily due to increased
payroll related costs. Administrative understaffing, the expansion of
maintenance operations and increases in overall activity generated the need for
increased support personnel in the areas of information systems, human resources
and sales and marketing. In addition, the Kalitta Companies experienced an
increase in fees associated with its indebtedness over the latter part of 1996
and into the first six months of 1997.
As a result of the above facts, the Kalitta Companies experienced an
operating loss of $19.4 million (9.9% of revenue) during the six months ended
June 30, 1997 compared to an operating income of $3.6 million during the six
months ended June 30, 1996.
Other Income (Expense). Net interest expense increased $1.9 million, or
18.8%, to $12.1 million in the six months ended June 30, 1997 from $10.2 million
in the six months ended June 30, 1996. The increase was due to increased
borrowings relating to the acquisition of new aircraft and ground support
equipment, as well
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<PAGE> 57
as increased borrowings under the Kalitta Companies' revolving credit line. The
average interest rate on the Kalitta Companies' borrowings decreased to 9.5%
from 9.9% in the prior year period.
Gain on disposition of property and equipment, net, increased $0.5 million
to $0.9 million for the six months ended June 30, 1997, as compared to $0.4
million for the first six months of 1996. The increase resulted from the sale of
one Boeing 727-100 passenger aircraft in January 1997.
Minority Interest. Minority interest represents the earnings attributable
to the 40% of AIC owned by a third party. Minority interest increased $0.4
million to $0.9 million for the first six months of 1997, as compared to $0.5
million for the same period in 1996. The increase is attributable to higher
earnings at AIC resulting from the addition of a Lockheed L-1011 aircraft to the
Los Angeles-Honolulu route and the implementation of inter-island service in
Hawaii.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased $50.8 million, or 13.6%, to $424.5 million in
1996 from $373.7 million in 1995. This was due to an increase in scheduled cargo
revenues and to an increase in the average number of aircraft available. In
1996, the Kalitta Companies added four Lockheed L-1011s, three Boeing 727s, one
DC-8-50 and three additional Hansa aircraft to their fleet.
Air freight carrier service revenues increased $28.8 million, or 8.0%, to
$388.2 million in 1996 from $359.4 million in 1995. This increase was due to
four factors. First, the Kalitta Companies increased the number of cities served
by its overnight cargo service and introduced a second-day product. Second, AIC
introduced inter-island flights in the Hawaiian Islands in December 1995, and
added a second Lockheed L-1011 to its Los Angeles-Honolulu route. Third, the
Kalitta Companies obtained new contract work for International Air Charter,
AeroFloral and Fast Air, as well as additional charter work for the U.S.
Military. Fourth, passenger charter revenues increased as a result of the
Kalitta Companies decision to enter the passenger charter market for leisure
travel in the fourth quarter of 1996.
Offsetting these increases was a decrease in revenues due to the loss of
the U.S. Postal Service (the "Postal Service") Christmas Network ("CNET")
contract. In 1995, the Kalitta Companies' revenues from CNET were approximately
$42.9 million, $4.1 million of which represented fuel and other charges passed-
through to the Postal Service and booked by the Kalitta Companies as an expense.
Third party maintenance revenue increased $22.0 million or 153.8%, to $36.3
million in 1996 from $14.3 million in 1995. This is due to engine maintenance
contracts with Lufthansa and Spirit Airlines which were executed in 1996, as
well as increased activity for the Kalitta Companies' small engine maintenance
division because of continuous expansion of its customer base and the business
failure of a competitor.
Operating Expenses. As a percentage of total revenues, operating expenses
decreased to 95.0% of revenues in 1996 from 99.4% in 1995. This decrease was
largely due to the costs to hire and train flight and maintenance crews in 1995
in anticipation of the expansion of the Kalitta Companies' fleet in 1995.
Flight expenses decreased $18.5 million, or 11%, to $150.3 million in 1996
from $168.8 million in 1995. The operation of additional aircraft in the latter
part of 1995 with crews hired and trained in 1995 caused crew utilization in
1996 to increase to 52.0%, as compared to 44.0% in 1995. As a consequence, the
Kalitta Companies were able to better absorb labor and benefit costs associated
with these crews in 1996 than in 1995. Training costs associated with the
reduction in the average number of crews decreased $0.4 million in 1996, as
compared to 1995. Flight expenses also decreased because (i) the Kalitta
Companies lost the 1996 CNET contract to Kitty Hawk which eliminated costs
associated with the subcharter in 1995 of several aircraft required to fulfill
the contract, (ii) the Kalitta Companies purchased a Boeing 747 freighter in
June of 1996 that it had been leasing and (iii) subcharter expense for KFS
decreased $1.6 million in 1996 as compared to 1995 because of an increase in
available aircraft. These decreases were offset by increases in revenue related
costs such as parking, air navigation and landing fees and ground handling costs
resulting from increased flight activity in 1996 as compared to 1995.
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Maintenance expense increased $11.7 million, or 11.3%, to $115.1 million in
1996 from $103.4 million in 1995. The increase was due to extensive engine
maintenance and overhaul costs incurred in 1996 as compared to 1995 and, in
part, as a consequence, an increase in employee-related maintenance costs. The
increase was partially offset by a decrease in both maintenance work performed
for the Kalitta Companies by outside parties and in the number of contract
laborers which had both been used in 1995 to complete significant maintenance
checks on a number of the Kalitta Companies' aircraft.
Fuel costs increased $28.2 million, or 51.7%, to $82.7 million in 1996 from
$54.5 million in 1995 because of an increase in charter activity for the U.S.
Military, increased flight activity for on-demand charters, and fuel price
increases during the latter half of 1996. This increase, however, did not have
as significant an effect on the Kalitta Companies' results of operations because
the increased fuel costs were included in the charges to customers and booked as
revenues which offsets fuel expense.
Depreciation expense increased $11.1 million, or 53.0%, to $32.1 million in
1996, as compared to $21.0 million in 1995 due to an increase in the number of
aircraft brought into the Kalitta Companies' fleet during the latter part of
1995 and present during all of 1996.
Selling, general and administrative expenses increased $0.2 million, or
1.0%, to $21.9 million in 1996 from $21.7 million in 1995. This increase was
attributable to increases in administrative payroll related costs during 1996
over 1995.
Other Income (Expense). Interest expense net increased $6.9 million, or
46.7%, to $21.6 million in 1996 from $14.7 million in 1995, due to an increase
in indebtedness relating to the acquisition of aircraft and ground support
equipment and to an increase in the Kalitta Companies' revolving credit line.
Gain on disposition of property and equipment, net, decreased to $0.1 million
for 1996 from $11.7 million for 1995. The net gain in 1995 mainly represents the
sale of an aircraft engine, four Boeing 727-200 freighter aircraft, one Beech
aircraft, one Boeing 727-200 passenger aircraft and one Douglas DC-8-50
freighter aircraft.
Minority Interest. Minority interest in AIC decreased $2.0 million, or
64.5%, to $1.1 million in 1996 from $3.1 million in 1995. This decrease was due
to increased costs associated with additional aircraft service, the start-up of
inter-island service in Hawaii and an increase in cost for the use of aircraft.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased $68.2 million, or 22.3%, to $373.7 million in
1995 from $305.5 million in 1994. This was due to new contract cargo business
and additional aircraft capacity resulting from the completion of modification
from passenger to freighter configuration of 13 aircraft acquired by the Kalitta
Companies from late 1994 through the end of 1995, including one Lockheed
L-1011-200, one Douglas DC-8 and 11 Boeing 727-200s. KFS also added three
aircraft to its fleet in 1995.
Air freight carrier service revenues increased $61.3 million, or 20.6%, to
$359.4 million in 1995 from $298.1 million in 1994. This increase was due
primarily to three factors. First, an increase in the number of cities serviced
during 1995 over 1994 as well as an overall increase in lift capacity resulting
from both an increase in the average number of aircraft operated per night by
AIA and a change in the mix of the types of aircraft used by the Kalitta
Companies. Second, the impact of the full year effect of AIC's service to
Australia which commenced in the third quarter of 1994 led to increased revenues
along with the addition by AIC of a weekend round trip between San Francisco and
Honolulu in 1995. Third, six new contracts for which a majority of the revenues
were realized in 1995, as well as AIA's 1995 CNET contract for the Postal
Service during the holiday season led to increased revenues.
Offsetting these increases were decreases in revenues generated in 1995
from flights for the U.S. Military as compared to 1994.
Third party maintenance revenue increased $6.9 million or 93.2%, to $14.3
million in 1995 from $7.4 million in 1994. This was due to an increase in
maintenance work for third parties.
Operating Expenses. As a percentage of total revenues, operating expenses
increased to 99.4% of revenues in 1995 from 87.3% in 1994. Most of the increase
resulted from the cost to hire and train flight and
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maintenance crews in connection with the expansion of the Kalitta Companies'
fleet of aircraft with Boeing 747-200, Lockheed L-1011 and Boeing 727-200
freighters. Also contributing to the increased percentage of costs to revenue
during 1995 was the one-time cost associated with the relocation of hub
operations from Ypsilanti, Michigan to Terre Haute, Indiana in May 1995 at a
cost of $2.6 million. The Kalitta Companies made the move to overcome operating
restrictions at Willow Run Airport in Ypsilanti, Michigan relating to adverse
weather conditions and inadequate facilities.
Flight expenses increased $53.2 million, or 46.0%, to $168.8 million in
1995, as compared to $115.6 million in 1994. In anticipation of the expansion of
its fleet, the Kalitta Companies increased its number of pilots by an average of
182 pilots, a 54.0% increase. Because not all of the new aircraft for which
these pilots had been hired had yet been acquired or were still in modification,
crew utilization for 1995 was approximately 44% as compared to approximately 53%
in 1994. Additionally, travel and training costs associated with the new and
current crew members increased approximately $3.9 million. Aircraft lease
expense also increased 50.4% to $19.4 million in 1995 from $12.9 million in 1994
for three reasons. First, the Kalitta Companies leased a Boeing 747 aircraft to
fulfill its obligations while casualty damage to one of its own Boeing 747s was
being repaired. Second, the increase in the number of cities serviced forced the
Kalitta Companies to subcharter additional aircraft. Finally, flight expenses
were higher in 1995 than in 1994 because of an increase in revenue-related costs
such as landing, air navigation and parking fees and ground handling costs.
Maintenance expenses increased $38.7 million, or 59.8%, to $103.4 million
in 1995 from $64.7 million in 1994 due to (i) an increase in regular, recurring
maintenance on aircraft resulting from the growth in size of the fleet, (ii)
unusually high maintenance costs because of special maintenance on damaged
aircraft, (iii) a decision to perform "C-Check" level maintenance on all of its
Boeing 727-200s while they were undergoing modification to freighters and (iv)
additional maintenance required on the Boeing 727-200s to meet FAA "Aging
Aircraft" requirements. See "Business -- Regulation." In conjunction with these
costs, employee-related costs increased $12.4 million, or 49.6%, to $37.4
million in 1995, as compared to $25.0 million in 1994. In addition, costs for
aircraft parts increased $12.8 million, or 50.8%, to $38.3 million in 1995 from
$25.5 million in 1994. Finally, outside maintenance labor costs increased during
1995 to meet peak maintenance demands throughout the year.
Fuel costs decreased $2.9 million, or 5.1%, to $54.5 million in 1995 from
$57.4 million in 1994 because of a decrease in contract cargo service for
customers where the Kalitta Companies were directly responsible for the cost of
fuel.
Depreciation expense increased $7.2 million, or 52.2%, to $21.0 million in
1995 from $13.8 million in 1994. This increase was the result of the significant
number of aircraft which were modified to freighters and placed in revenue
service during the second half of 1994 and in 1995, including two Boeing
747-200s, ten Boeing 727-200s, three Douglas DC-8s and one Lockheed L-1011
aircraft. KFS also added three aircraft to its fleet during 1995.
Selling, general and administrative expenses increased $8.4 million, or
63.2%, to $21.7 million in 1995 from $13.3 million in 1994. The majority of this
increase resulted from the addition of administrative staff to support
expansion. In addition, during 1995, the Kalitta Companies incurred $1.9 million
in professional services primarily consisting of consulting costs associated
with improving its support systems.
Other Income (Expense). Interest expense net increased $6.7 million, or
83.8%, to $14.7 million in 1995 from $8.0 million in 1994 due to an increase in
indebtedness relating to the acquisition of aircraft, as well as the purchase of
related ground support equipment. Net gain on disposition of property and
equipment was $11.7 million in 1995, as compared to $3.4 million in 1994. The
gain in 1995 resulted from the sale of an aircraft engine, four Boeing 727-200
freighters, one Douglas DC-8 freighter, one Boeing 727-200 passenger aircraft
and one Beech aircraft.
In June 1995, one of the Kalitta Companies' Boeing 747 aircraft sustained
damage to the underside of its fuselage when wind shear conditions experienced
on approach to the Panama City airport caused the fuselage to drag over some
fixed landing lights and received an insurance award of $11.2 million (net of a
$250,000
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deductible) as a result of the casualty. The Kalitta Companies were able to use
its own maintenance capability to complete repairs to the aircraft and obtain
spare parts from an owned airframe which had zero book value. The cost incurred
by the Kalitta Companies to complete the repair was approximately $3.1 million.
The excess insurance proceeds resulted in a gain. However, the Kalitta Companies
lost revenue during the 14 weeks while the aircraft was out of service, incurred
costs to maintain crews and maintenance personnel and experienced the higher
cost of increased use of a Boeing 747-200 freighter dry-leased to meet
obligations to third parties while the damaged aircraft was in repair.
Minority Interest. Minority interest in AIC increased $0.3 million, or
10.7%, to $3.1 million in 1995, as compared to $2.8 million in 1994 due to
increased revenue activities.
LIQUIDITY AND CAPITAL RESOURCES
A discussion of the liquidity and capital resources of the Company after
the Transactions and Refinancings is set forth below under "The Company's
Liquidity and Capital Resources."
Kitty Hawk. Kitty Hawk's capital requirements have been primarily for the
acquisition and modification of aircraft and working capital. In addition, Kitty
Hawk has and will continue to have capital requirements for the requisite
periodic and major overhaul maintenance checks for its fleet and, subsequent to
the Note Offering, Kitty Hawk will have substantial debt service expenses. Kitty
Hawk'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, Kitty Hawk has
leased aircraft and entered into a sale leaseback transaction to acquire
aircraft 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, Kitty Hawk had working capital of $10.6 million and $6.4 million,
respectively.
Cash provided/(used) by investing activities was $(33.5 million), $4.7
million and $(39.5 million) for the fiscal year ended August 31, 1996, the
Transition Period and the six months ended June 30, 1997, respectively. Cash
provided/(used) by financing activities was $18.3 million, $17.2 million and
$9.3 million for the fiscal year ended August 31, 1996, the Transition Period
and the six months ended June 30, 1997, respectively.
As of September 30, 1997, Kitty Hawk had approximately $34.8 million of
indebtedness with WFB, Bank One, Texas, N.A. and 1st Source Bank. In addition,
in November 1996, in connection with Kitty Hawk's acquisition of a one-third
undivided interest in four Falcon 20 jet aircraft, Kitty Hawk and the two other
co-owners of such aircraft entered into a five year, $4.3 million term loan. See
"Description of Certain Indebtedness."
Capital expenditures were $39.5 million and $17 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 overhaul of two JT8D-7 jet
engines and 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 DC-9-15F aircraft, (iv) six
reconditioned JT8D-7 jet engines, (v) leasehold improvements to Boeing 727-200
aircraft, (vi) the lease and improvements of its 40,000 square foot headquarters
facility, (vii) major maintenance checks and (viii) ground service equipment for
use in the USPS Christmas 1997 Contract. 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.
In October 1996, Kitty Hawk sold in an initial public offering 2,700,000
shares of Common Stock, raising net proceeds of approximately $29.3 million to
purchase and modify to cargo configuration five Boeing 727-200 aircraft. As of
October 24, 1997, Kitty Hawk has used approximately $28.9 million of the net
proceeds of the initial public offering to fund these expenses. Kitty Hawk has
purchased (i) one Boeing 727-200 freighter aircraft for $4.7 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
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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), (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 Kitty Hawk 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) and (v) $5.0 million for
partial payment on the 16 Boeing 727 aircraft acquired from the Kalitta
Companies.
In December 1996, Kitty Hawk amended its agreement with its 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, Kitty Hawk paid the vendor an additional $350,000 in deposits on
future, firm orders valued between $13 and $17.5 million, depending on type
selected. In fiscal year 1997, Kitty Hawk anticipates an aggregate capital
expenditure of $8.0 million for noise abatement modifications. In fiscal year
1998, Kitty Hawk anticipates an aggregate capital expenditure ranging from $9
million to $11 million for noise abatement modifications to aircraft currently
owned. In fiscal year 1998, Kitty Hawk anticipates an aggregate capital
expenditure ranging from $18 million to $20 million for noise abatement
modifications to the Boeing 727 aircraft acquired from the Kalitta Companies in
September 1997. In the event Kitty Hawk acquires more aircraft than currently
proposed, Kitty Hawk's anticipated aggregate capital expenditures for noise
abatement modifications in fiscal year 1998 could materially increase.
As of September 30, 1997, Kitty Hawk's fleet was comprised of 41 owned and
3 leased aircraft, which includes 32 Boeing 727 aircraft, 5 Douglas DC-9-15F
aircraft and 7 turbo-prop Convairs. Kitty Hawk anticipates converting one
passenger configured Boeing 727-200 aircraft to cargo configuration in 1998.
These aircraft do not include Kitty Hawk's undivided one-third interest in four
Falcon 20 jet aircraft leased to a third party operator. Service Bulletins and
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 Kitty Hawk'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. See
"Risk Factors -- Government Regulation."
As of September 30, 1997, Kitty Hawk owned 29 and leased 3 Boeing 727
aircraft, 29 of which were previously converted from passenger configuration to
freighter configuration by the installation of a large cargo door and numerous
interior modifications related to the installation of cargo container handling
systems. The FAA has issued a proposed Directive, which if adopted, would limit
the cargo capacity of 28 of these Boeing 727s until certain modifications are
made. See "Business -- Aircraft Fleet."
Kitty Hawk historically has followed and currently intends to follow, a
policy of retiring Convairs at the time of their next scheduled major overhaul
maintenance checks rather than expending the amounts necessary to complete such
checks. Two Convairs have been retired since December 31, 1996.
The Kalitta Companies. The Kalitta Companies' capital requirements have
been primarily for the acquisition and modification of aircraft and for the
expansion and improvement of maintenance and support facilities and
infrastructure. In addition, the Kalitta Companies had capital requirements for
the requisite and periodic routine overhaul maintenance on aircraft. The Kalitta
Companies also lease aircraft from time to time. Capital needs have historically
been funded with a combination of cash flow from operations, aircraft sales and
bank borrowings.
Cash provided by operating activities was $2.8 million and $22.7 million
for the first six months of 1997 and 1996, respectively. As of June 30, 1997,
the Kalitta Companies had cash and cash equivalents of $2.7 million, as compared
to $2.4 million as of June 30, 1996. The Kalitta Companies had a working capital
deficit of $222.4 million at June 30, 1997, compared to a deficit of $195.3
million at June 30, 1996. The decrease in cash flow from operating activities
was due primarily to the increase in net loss and a decrease in accounts
receivable for the first six months of 1997 as compared to the first six months
of 1996. Net cash
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provided by operating activities was $26.4 million, $49.5 million and $33.8
million in 1996, 1995 and 1994, respectively.
Net cash used in investing activities was $10.6 million and $19.8 million
for the six months ended June 30, 1997 and 1996, respectively. Total capital
expenditures decreased 52.5% to $14.1 million for the six months ended June 30,
1997 from $29.7 million for the same period in 1996. Expenditures in the first
six months of 1996 represented the purchase of additional aircraft and
capitalization of costs to modify the aircraft to freighter configuration. Net
cash used in investing activities was $42.4 million, $120.9 million and $72.5
million in 1996, 1995 and 1994, respectively, and primarily represented
additional aircraft added to the fleet, flight equipment acquired and
capitalized airframe maintenance. Net cash used in investing activities in 1995
included costs of modification of the Kalitta Companies' Boeing 727-200 aircraft
to freighters as a majority of these aircraft were acquired in 1994 and were
placed in revenue service throughout 1995.
Net cash provided by financing activities was $8.1 million for the six
months ended June 30, 1997 as compared to net cash used in financing activities
of $1.6 million in the six months ended June 30, 1996. Net cash provided by
financing activities was $17.2 million, $67.8 million and $42.3 million in 1996,
1995 and 1994, respectively. Cash provided by financing activities for each year
primarily represented additional borrowings to fund the Kalitta Companies'
acquisition of aircraft and equipment and to assist in funding operations during
those years.
The Kalitta Companies' liquidity is affected by the seasonal nature of
their businesses. Primarily because of the increase in airfreight during the
Christmas holiday season, a significant portion of the revenues are earned in
the fourth calendar quarter. During the first quarter, the Kalitta Companies
typically experience lower levels of utilization and yields as demand for cargo
charters is reduced relative to other times of the year.
The Kalitta Companies have a revolving credit and term loan facility under
an Amended and Restated Credit Agreement, as amended (the "Kalitta Companies
Credit Agreement"), with Comerica Bank, Detroit, Michigan ("Comerica") and
Heller Financial, Inc. ("Heller"). Under the Kalitta Companies Credit Agreement,
the Kalitta Companies may borrow up to $55 million on a revolving credit basis,
subject to a borrowing base formula (the "Credit Facility"). In addition, the
Kalitta Companies may borrow up to an additional $5 million, subject to a
borrowing base formula (the "Second Credit Facility"). As of June 30, 1997, the
outstanding principal balance on the Credit Facility was $55 million and the
outstanding principal balance of the Second Credit Facility was approximately
$4.6 million.
Amounts outstanding under the Credit Facility bear interest at a per annum
variable rate equal to Comerica's prime rate plus 1.25% (subject to certain
adjustments as set forth in the Credit Agreement), and AIA and KFS are obligated
to make monthly payments of accrued interest. All of the indebtedness under the
Credit Facility must be repaid by December 9, 1999.
Pursuant to the Credit Agreement, Comerica has made two additional loans to
AIA to finance aircraft acquisitions, one in the principal amount of $13.8
million outstanding on June 30, 1997 (the "Bridge Loan"), and the other in the
principal amount of $3.9 million outstanding on June 30, 1997 (the "Mortgage
Loan"). Both the Bridge Loan and the Mortgage Loan are payable in monthly
installments of principal and interest with interest accruing at Comerica's
prime rate, plus 2% and 1.75%, respectively. The Bridge Loan is due on December
9, 1999, and the Mortgage Loan on May 19, 1999.
In addition, AIA has a term loan from Comerica (the "Comerica Term Loan")
under a separate term loan agreement (the "Comerica Term Loan Agreement") to
which Heller is not a party. AIA used the Comerica Term Loan to refinance
certain other indebtedness owed to Comerica. As of June 30, 1997, the
outstanding principal balance of the Comerica Term Loan was $13.9 million. The
principal balance accrues interest at a per annum variable rate equal to
Comerica's prime rate plus two percent, subject to certain adjustments. The
Comerica Term Loan is payable in equal monthly principal installments of
approximately $309,090 plus accrued interest until February 15, 2001, when the
entire outstanding principal amount and all accrued interest is due.
The loans under the Credit Agreement and the Comerica Term Loan Agreement
are secured by substantially all of the assets of AIA, KFS and FOL, except for
certain assets pledged to other lenders and for
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certain real estate. In addition, the Credit Agreement contains restrictions on
the ability of AIA, KFS and FOL to pledge assets to their respective future
lenders. AIA and Mr. Kalitta have guaranteed all indebtedness owing to Heller
and Comerica by KFS or FOL; and Mr. Kalitta, KFS and FOL have guaranteed all
indebtedness owed to Heller and Comerica by AIA.
The Credit Agreement, Comerica Term Loan Agreement and related documents
contain a number of restrictive covenants, as well as affirmative covenants
requiring the maintenance of certain financial conditions. At December 31, 1996
and continuing in 1997, the Kalitta Companies were in violation of these
covenants, as well as other covenants contained in the Credit Agreement and the
related documents. See "Risk Factors -- Recent Financial Performance of the
Kalitta Companies."
The Kalitta Companies have generally financed the acquisition and, when
necessary, the modification of aircraft to freighter configuration, with the
proceeds of financings secured by airframes, engines and, in some cases, ground
handling equipment. Sources for this type of financing presently include
Comerica, FINOVA Capital Corporation ("Finova"), First National Bank of Ohio,
Sanwa Business Credit Corporation, NationsBank (formerly known as Boatmen's
National Bank of Saint Louis), 1st Source Bank, Fleet Credit Corporation,
General Electric Capital Corporation, First Security Bank National Association,
as trustee, Morgans Waterfall, BSI Nassau (Bahamas), Michigan National Bank and
Concord Capital Corporation.
As of June 30, 1997, total indebtedness of the Kalitta Companies (excluding
payables, accrued liabilities, minority interest and indebtedness incurred under
the Credit Facility and the Second Credit Facility) was approximately $188.8
million, approximately $71.5 million of which was held by Finova. Approximately
$128.5 million of this indebtedness accrues interest at fixed rates ranging from
6.4% to 18.0% per annum, while the remainder accrues interest at variable rates
ranging from one to four percent over a specified per annum prime or other base
rate. Maturities of term indebtedness range between one and seven years, with
current maturities at June 30, 1997 of approximately $43.8 million.
The Kalitta Companies have been and continue to be in default with respect
to essentially all of their lenders, including Comerica and Finova. The defaults
relate to non-compliance with certain financial, operating and other covenants
that restrict the activities of the Kalitta Companies. These covenants restrict,
among other things, the ability to grant liens, incur indebtedness, make capital
expenditures, make investments, prepay debt, pay dividends and redeem equity.
See "Risk Factors -- Recent Financial Performance of the Kalitta Companies."
All of the indebtedness of the Kalitta Companies will be retired with the
net proceeds of this Common Stock Offering and the Note Offering, subject to the
payment of approximately $3 million in prepayment penalties. See "Use of
Proceeds."
THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are expected to be primarily for the
acquisition and modification of aircraft, working capital and the expansion and
improvement of maintenance and support facilities. In addition, the Company has,
and will continue to have, capital requirements for the requisite periodic and
major overhaul maintenance checks for its fleet and for debt service. The
Company also has seasonal working capital needs, because it generates higher
revenue and cash flow in the fourth quarter and lower revenue and cash flow in
the first quarter. Funding of capital requirements has historically been through
internally generated funds, bank borrowings, aircraft sales and, in the case of
Kitty Hawk, its initial public offering. From time to time, the Company has
entered into sale/leaseback transactions to acquire aircraft and may continue to
do so in the future.
Upon consummation of the Transaction and the Refinancings, all of the
existing debt of Kitty Hawk and the Kalitta Companies will be refinanced. The
net proceeds of this Common Stock Offering, the Note Offering and the Term Loan
will be used to refinance this indebtedness. See "Use of Proceeds" and
"Descriptions of Certain Indebtedness."
The Term Loan will be incurred to refinance the indebtedness incurred in
September 1997 to finance the acquisition of 16 Boeing 727s from the Kalitta
Companies. The Term Loan will have an initial principal amount of $45.9 million,
will mature five years after issuance and will be payable in equal quarterly
principal installments of $2.25 million commencing in 1999 and ending in 2002,
with a balance of approximately
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$12.15 million due at maturity. Interest on the Term Loan will accrue initially
at LIBOR plus 2.75% or the Base Rate plus 1.25%, subject to reduction. See
"Description of Certain Indebtedness." The Term Loan will be secured by accounts
receivable, all inventory (including rotables), intangibles and contract rights,
cash and the 16 Boeing 727s and related engines recently acquired from the
Kalitta Companies.
In addition, to fund ongoing capital requirements, including possible
acquisitions, the Company will enter into the New Credit Facility with WFB,
individually and as agent for various lenders. The New Credit Facility will
provide the Company with up to $100.0 million in revolving loans to be secured
by the same collateral as the Term Loan. The facility will bear interest
initially at LIBOR plus 2.5% or a Base Rate plus 1%, subject to adjustment
within the same parameters as the Term Loan. The Base Rate is WFB's Prime Rate
or the Federal Funds Rate plus 5%. Borrowings under the New Credit Facility will
be subject to borrowing base limitations based on eligible inventory and
accounts receivable and will mature five years from execution of the New Credit
Facility.
The Company currently estimates that it will make in the fourth quarter of
1997 and in 1998 an aggregate capital expenditure of $100 million and will make
substantial capital expenditures thereafter. However, the foregoing
forward-looking statement is only a current estimate and actual capital
expenditures could be substantially different. The amount of capital
expenditures will depend on the extent and timing of purchases of aircraft
(including the Optioned Boeing 747s), the cost and availability of parts to
modify aircraft to freighter configuration and the timing and content of Service
Bulletins and Directives, all of which are beyond the Company's control. See
"Risk Factors -- Capital Intensive Nature of Aircraft Ownership and Operation."
In October 1997, the Company acquired one Boeing 747 and expects to make
approximately $8.0 million of capital expenditures in the fourth quarter of 1997
to modify this Boeing 747 to freighter configuration. In the fourth quarter of
1997 and/or 1998 the Company expects to acquire the Optioned Boeing 747s for $40
million and to modify these aircraft to freighter configuration for
approximately $16.0 million. There can be no assurance that the costs to acquire
or modify these aircraft will not exceed these amounts. Additionally, the
Company anticipates converting one Boeing 727 aircraft from passenger to
freighter configuration during 1998 at a cost of approximately $5.0 million.
During 1998, the Company anticipates capital expenditures ranging from $27
million to $32 million for noise abatement modifications to DC-9 and Boeing 727
aircraft currently owned. The Company's total capital expenditures for noise
abatement modifications for its existing fleet is expected to be approximately
$93.4 million. The entire fleet must be Stage III compliant by the year 2000. In
the event more aircraft are acquired, anticipated capital expenditures for noise
abatement modifications could materially increase.
Service Bulletins and Directives issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of the Company's aircraft to
be subject to extensive aircraft examinations and require certain of the
Company's 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
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. See "Risk Factors -- Government Regulation."
The Company operates a fleet of 31 Boeing 727s, all of which were
previously converted from passenger configuration to freighter configuration by
the installation of a large cargo door and numerous interior modifications
related to the installation of cargo container handling systems. The FAA has
issued a proposed Directive, which if adopted, would limit the cargo capacity of
30 of these Boeing 727s until certain modifications are made. The cost to make
such modifications and the amount of revenue that could be lost securities or
obtain additional credit facilities. However, there can be no assurance that the
Company will be able to obtain additional financing.
SEASONALITY
Certain of the Company's customers engage in seasonal businesses,
especially the U.S. Postal Service and customers in the automotive industry. As
a result, the Company's air freight charter logistics business has historically
experienced its highest quarterly revenues and profitability during the fourth
quarter of the
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calendar year due to the peak Christmas season activity of the U.S. Postal
Service and during the period from June 1 to November 30 when production
schedules of the automotive industry typically increase. Consequently, the
Company experiences its lowest quarterly revenue and profitability during the
first quarter of the calendar year.
The following tables reflect certain selected quarterly operating results,
which have not been audited or reviewed. The information has been prepared on
the same basis as the Consolidated Financial Statements appearing elsewhere in
this Prospectus and includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information
shown. The Company's results vary significantly from quarter to quarter and the
operating results for any quarter are not necessarily indicative of the results
that may be expected for any future period.
KITTY HAWK
<TABLE>
<CAPTION>
QUARTER ENDED ONE MONTH QUARTER ENDED
----------------------------------------------------------------- ENDED --------------------
NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31, NOVEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1996 1996 1996 1996 1996 1997 1997
------------ ------------ ------- ---------- ------------ ------------ --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $36,045 $48,577 $22,504 $35,289 $25,414 34,572 $28,102 $32,366
Gross profit......... 5,936 8,190 3,265 6,124 5,118 7,288 5,355 7,451
Operating income..... 3,564 2,447 897 2,126 2,851 5,868 2,571 4,679
Net income........... 1,956 1,273 182 698 1,632 3,661 1,414 2,561
Net income per
share.............. $ 0.25 $ 0.16 $ 0.02 $ 0.09 $ 0.18 $ 0.37 $ 0.14 $ 0.25
</TABLE>
THE KALITTA COMPANIES
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1996 1996 1997 1997
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total revenue............................ $ 84,303 $106,292 $110,417 $123,529 $ 92,898 $103,943
Gross profit (loss)...................... (1,440) 16,573 14,921 14,341 (12,058) 4,583
Operating income (loss).................. (6,626) 10,233 8,707 9,180 (17,940) (1,503)
Net Income (loss)........................ $$(12,019) $ 6,461 $ 2,771 $ 2,770 $(22,786) $ (8,157)
</TABLE>
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<PAGE> 66
BUSINESS
The description of the business of the Company that follows is the business
of Kitty Hawk and the Kalitta Companies on a combined basis as if the Merger had
been consummated. The closing of this Common Stock Offering is conditioned on
(i) the concurrent consummation of the Merger and the Note Offering and (ii)
entering into the New Credit Facility.
GENERAL
The Company is a leading U.S. and international air freight carrier and a
leading provider of air freight logistics services for the delivery of freight
on a highly-reliable, time sensitive basis. The Company also provides air
passenger charter services and aircraft maintenance services.
INDUSTRY OVERVIEW
Air Freight Carrier Services. The market for air freight services is served
by an industry which is composed of (i) "door-to-door" express package delivery
companies such as Federal Express and United Parcel Service, (ii)
"freight-forwarders" that contract for air freight carrier service, (iii) air
freight carriers that provide scheduled air freight delivery service and (iv)
air freight carriers that provide on-demand charter service. These participants
in the air freight services industry provide same-day, next-day and/or two-day
delivery services. A number of air freight carriers, including the Company,
provide a combination of these services.
The Company directly participates in the same-day service segment of this
industry by providing (i) regularly scheduled air freight service between
certain airports, (ii) contract charter services and (iii) on-demand charter
services. The Company also participates indirectly in the next-day and two-day
freight delivery business by providing primary and additional lift capacity
through contract charters for integrated air freight companies (such as
Burlington Air Express, Inc., DHL Airways, Inc. and Emery Worldwide Airlines,
Inc.) on designated routes for specified time periods. The Company has also
historically provided contract charters for mail delivery for the U.S. Postal
Service. The Company does not engage directly in the next-day or two-day
"door-to-door" delivery business and, therefore, does not compete directly with
its customers in this segment.
According to the Boeing Report, the world air cargo market grew at an
average rate of more than 8% per year from 1970 to 1995 as measured in revenue
ton kilometers, more than 2.5 times the growth rate of world Gross Domestic
Product. Also, according to the Boeing Report, the world air freight market is
expected to increase at 6.7% annually through 2015. Management believes this
projected growth in the world air freight market will be fueled by many factors,
including economic growth, relaxation of international trade barriers,
increasingly time-sensitive product delivery schedules and increased use of
"just-in-time" inventory management systems as well as a shift towards dedicated
air freight carriers and away from utilizing cargo space in commercial airlines
due to the higher levels of service and reliability. The foregoing projected
growth rate is only an estimate and there can be no assurance that such rate of
growth will be achieved. See "Risk Factors."
Air Freight Logistics Services. Demand for air freight charter logistics
services is driven by demand for same day delivery of time sensitive freight.
Factors which have contributed to the growth in demand for air logistics
services include (i) outsourcing -- an increasing number of companies requiring
same-day delivery of freight have decided to outsource air freight delivery
operations; (ii) "just-in-time" inventory management -- many manufacturers have
adopted just-in-time inventory management techniques which, while enhancing such
manufacturers' inventory turnover, increases the importance of just-in-time
delivery of needed component parts; and (iii) increased customer
expectations -- more companies are requiring suppliers to meet specified
delivery requirements in order to remain qualified as suppliers and such
suppliers will utilize same day air freight as necessary to meet these delivery
requirements.
In contrast to the market for next-day and two-day freight delivery
services, the Company believes that the market in North America for on-demand
charters is served by hundreds of air freight carriers, the vast
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<PAGE> 67
majority of which are privately held, operate from only one location and do not
coordinate "door-to-door" charter delivery services to the extent of the
Company's air logistics business.
Other. The Company believes there is a substantial market for aircraft
maintenance services in the United States and a trend towards a limited number
of providers of all levels of maintenance checks on large and small jet engines.
Because of the Company's comprehensive engine and aircraft maintenance
capabilities, management believes it is well positioned to capitalize on this
trend.
The Company's passenger charter airline primarily caters to leisure
travelers booking scheduled trips through tour operators and does not generally
compete with scheduled passenger airlines. In addition, U.S. passenger charter
operators have traditionally provided service to the U.S. Military to supplement
its lift capacity, particularly during times of conflict.
COMPETITIVE STRENGTHS
The Company believes that the following factors are competitive strengths
and promote strong relationships with its diversified customer base.
- Established Market Position. The Company, including its predecessors, has
provided air freight carrier services for more than 30 years. The
Company's extensive fleet and the diversity of its air freight carrier
services (scheduled, contract charters and on-demand charters) have
enabled it to become a leading U.S. and international air freight
carrier. The Company has a diversified customer base, including (i)
freight forwarders such as Burlington Air Express, Eagle USA and Emery
Worldwide Airlines, (ii) U.S. government agencies such as the U.S. Postal
Service and the U.S. Military and (iii) businesses such as General Motors
and Boeing.
- Attractive Fleet Characteristics. The Company believes that it has been
successful in purchasing and modifying aircraft for its own fleet at
favorable costs. The aircraft in the Company's fleet range from Boeing
747s to prop aircraft, enabling the Company to provide its customers with
the aircraft type best suited to their particular transportation needs.
The size and diversity of its fleet also allows the Company to deploy
aircraft among its three air freight carrier service lines in a manner
which improves fleet utilization.
- Broad Service Capabilities. The Company believes that its air freight
carrier services are attractive to its customers for several reasons,
including (i) its history of providing reliable service, (ii) its ability
to provide time-definite air transportation of almost any type or size of
freight to most destinations worldwide upon short notice, (iii) its
ability to manage critical freight shipments in North America from
pick-up through delivery and (iv) its ability to provide its customers
with real time updates of aircraft location and progress. In addition,
the Company is able to coordinate its domestic and international
scheduled services to offer customers reliable freight delivery service
to and from North America and the Pacific Rim and Central and South
America. The Company's capabilities are enhanced by its management
information systems which enable the Company to continually monitor its
flight operations, thereby facilitating aircraft and flight crew
scheduling.
GROWTH STRATEGIES
The Company's revenue has grown significantly over the last several years
and the Company believes it can continue to increase revenues through the
following opportunities:
- Expansion of ACMI Charter Business. The Company believes there are, and
will continue to be, opportunities to obtain ACMI contracts with
international air carriers due to the projected shortage of wide-body
aircraft needed to service those carrier's markets. The Company plans to
focus its expansion efforts in the European, South American and
Asia/Pacific markets and to connect route systems in those markets with
its scheduled North American route systems. The Company recently acquired
one Boeing 747 which it is currently converting to freighter
configuration and has an option to acquire the Optioned Boeing 747s which
it expects to convert to freighter configuration.
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<PAGE> 68
- Expansion of On-Demand Charter Business. The Company believes there are
significant opportunities to grow its on-demand charter business because
of continuing demand for expedited air freight services, especially in
the case of "just-in-time" inventory systems and other time sensitive
shipments. In addition to improving the utilization of the Kalitta
Companies' aircraft, the Company anticipates purchasing additional
aircraft to capitalize on this expected growth.
- Expansion of Third Party Maintenance Services. The Company is one of the
few dedicated air freight carriers in the world capable of maintaining
and repairing aircraft which range in size from Boeing 747s to prop
aircraft. Although the Company currently provides aircraft maintenance
services to several customers, including Lufthansa, the Company intends
to significantly increase marketing of its third party maintenance
services. In particular, the Company intends to focus on marketing jet
engine overhauls and maintenance, for which management believes there is
a trend toward a limited number of service providers.
- Expansion of Scheduled Freight Business. Because of the growth in the
amount of freight shipped through its scheduled overnight freight hub in
Terre Haute, Indiana, the Company anticipates moving its hub from Terre
Haute to a new facility in Fort Wayne, Indiana in the spring of 1999.
This new facility is expected to have nearly twice the sorting capacity
of the Terre Haute, Indiana facility. In addition, the new facility is
designed to improve productivity by reducing the time to load and unload
aircraft and by decreasing sorting times.
- Strategic Acquisitions. The Company will, from time to time, pursue
acquisitions that enable it to (i) acquire complementary aircraft at
favorable costs, (ii) expand its operations in selected geographic areas
or (iii) achieve other strategic or operational benefits.
SERVICES
AIR CARRIER SERVICES
The Company uses a diversified fleet of four Boeing 747s, six Lockheed
L-1011s, 19 Douglas DC-8s, five Douglas DC-9s, 31 Boeing 727s and seven
turbo-prop Convairs to provide air freight services on (i) a regularly scheduled
basis between certain airports, (ii) a contract charter basis and (iii) an
on-demand charter basis.
Scheduled Freight Services
Domestic. The Company operates a scheduled airport-to-airport air freight
carrier service which provides overnight delivery to and from 47 cities in the
United States. Freight received each evening is delivered by 8:00 a.m. the next
day, Tuesday through Friday mornings, throughout the year. The majority of
overnight deliveries are routed through the Company's 90,000 square foot sorting
center located at the Hulman Regional Airport in Terre Haute, Indiana. In the
first six months of 1997, an average of 1,055 shipments, totaling approximately
442 tons of freight, were processed during each nightly primary sorting
operation at the Hulman Regional Airport. The Company's right to use its space
at the Hulman Regional Airport expires in August 1998. The Company is currently
negotiating an extension of this lease through the spring of 1999, at which time
the Company anticipates relocating its sorting operations from the Hulman
Regional Airport to the Fort Wayne-Allen County Airport in Fort Wayne, Indiana
in the spring of 1999. This new facility is expected to permit the Company to
handle nearly twice the sorting capacity of the Terre Haute facility. In
addition, the facility is designed to improve productivity by reducing the time
to load and unload aircraft and decreasing sorting times. See "Risk
Factors -- Availability of Facilities" and "Business -- Ground Facilities."
The Company's overnight operation caters primarily to freight-forwarders
and other cargo airlines which either handle ground transport themselves or
contract with others to do so. The Company competes with certain of these
companies that ship large and odd-sized freight, including the United Parcel
Service, Emery Air Freight and Burlington Air Express, as well as commercial
passenger airlines which provide freight service on their scheduled flights.
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<PAGE> 69
The Company's scheduled air freight service currently transports air
freight to and from airports located in 23 cities. In addition, the Company
contracts with third parties to transport freight between those 23 airports and
24 other airport locations at which the Company receives and delivers freight at
scheduled times. The following is a list of the current delivery locations for
the Company's scheduled operations:
<TABLE>
<CAPTION>
AIRPORT DELIVERY LOCATIONS TRUCK DELIVERY LOCATIONS
-------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA El Paso, TX Newark, NJ Albany, NY Grand Rapids, MI Omaha, NE
Baltimore, MD Hartford, CT Orlando, FL Chicago, IL Indianapolis, IN Pittsburgh, PA
Boston, MA Houston, TX Philadelphia, PA Cincinnati, OH Jacksonville, FL San Diego, CA
Charlotte, NC Kansas City, KS San Francisco, CA Columbus, OH Joplin, MO South Bend, IN
Cleveland, OH Los Angeles, CA Seattle, WA Dayton, OH Louisville, KY Springfield, MO
Dallas/Fort Miami, FL Terre Haute, IN Detroit, MI Milwaukee, WI St. Louis, MO
Worth, TX Minneapolis, MN Toronto, Ontario (Canada) Washington, D.C. Nashville, TN Tampa, FL
Denver, CO Memphis, TN Ypsilanti, MI Fort Wayne, IN New York, NY Wichita, KS
</TABLE>
International. The Company provides scheduled international service through
American International Cargo, a general partnership in which the Company owns a
60% interest. AIC was formed in October 1992. The 40% interest in AIC which is
not owned by the Company is owned by Pacific Aviation Logistics, Inc., which
also serves as the managing partner of AIC.
AIC operates scheduled air freight service between Los Angeles and Honolulu
every Tuesday through Saturday and each Saturday, from Honolulu to the South
Pacific and Asia, including Pago Pago, Auckland, Melbourne, Singapore, Hong Kong
and Anchorage. AIC also operates scheduled air freight service five times per
week between Los Angeles and Honolulu and the Hawaiian Islands. AIC charters
from the Company under ACMI contracts a Boeing 747, a Lockheed L-1011 and a
Boeing 727 to provide these scheduled air freight services. The Company believes
the contracts for these services contain hourly rates that are below market
rates. However, the Company can adjust these rates at any time, other than the
hourly rate for the Boeing 747 which is fixed through the end of 1997. AIC is
responsible for the cost of fuel, landing fees and ground handling charges.
Contract Charter Freight Services
The Company provides air freight charter services on a contractual basis
for a variety of customers, including the U.S. Postal Service, the U.S. Military
and freight forwarders and other airlines including Burlington Air Express,
Emery Worldwide Air Freight Co., DHL Airways, Inc., Ting Hong Oceanic
Enterprises Co., Ltd., Pacific East Asia Cargo Airlines, Inc., Japan Airlines
and AeroLineas Argentina S.A.
ACMI Domestic. The terms of the Company's ACMI contracts vary, but they
typically require the Company to supply aircraft, crew, maintenance and
insurance, while its customers are responsible for substantially all other
aircraft operating expenses, including fuel, fuel servicing, airport freight
handling, landing and parking fees, ground handling expenses and aircraft
push-back costs. These ACMI contracts also typically require the Company to
operate specific aircraft and/or provide minimum air freight capacity and
generally are terminable if the Company (i) fails to meet certain minimum
performance levels, (ii) otherwise breaches the contract or (iii) becomes
subject to other customary events of default. The Company is permitted under its
ACMI Contracts to utilize and, in fact often does utilize, its aircraft in
on-demand service in the periods between ACMI contract flights.
ACMI International. The Company operates ACMI contracts in foreign
countries as well as between the U.S. and foreign countries. The ACMI contracts
provide that the Company has exclusive operating control and direction of each
aircraft the Company operates and that certain foreign-based customers must
obtain any government authorizations and permits required to service the
designated routes. See "Risk Factors -- Government Regulation." Therefore, the
Company's route structure is limited to areas in which customers gain authority
from the relevant governments.
The Company currently supplies supplemental airlift capacity to the flag
carriers of five Central American countries, including Aviateca (Guatemala),
Taca International Airlines (El Salvador), Nica
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(Nicaragua), Copa (Panama) and Lacsa (Costa Rica). Because these airlines are
the national airlines of their respective countries, the Company receives
operating authority for each of those countries. The Company also has operating
authority for Brazil, Columbia and Ecuador. From its Miami location, the Company
currently operates four trips per week to Brazil pursuant to a contract with
International Air Charter and six trips per week to Cali and Medellin, Columbia
for AeroFloral for the shipment of fresh flowers. In addition, the Company
operates two Boeing 727 aircraft in ACMI service between countries in the
Pacific Rim.
U.S. Postal Service. The Company has historically performed a variety of
services for the U.S. Postal Service, ranging from regularly scheduled delivery
throughout the year to special contracts bid by the U.S. Postal Service to meet
increased demand during the Christmas holiday season. Similar to an ACMI
contract, the Company's contracts with the U.S. Postal Service generally allow
the Company to pass-through its fuel costs, landing charges and other variable
costs. Accordingly, the Company is not generally at risk of loss in the event
these variable costs increase during the term of these fixed-price arrangements.
Since 1993, the Company has been the prime contractor for the "Christmas
Network" established by the U.S. Postal Service to provide air transportation
and ground handling services primarily for second-day mail among a network of
domestic cities during the December holiday rush. The U.S. Postal Service awards
contracts periodically pursuant to a public bidding process that considers
quality of service and other factors, including to a lesser extent price.
Recently, the U.S. Postal Service notified the Company that it intends to renew
the Company's contract for the 1997 "Christmas Network." The Company is
currently making scheduled mail flights from Seattle to Anchorage for the U.S.
Postal Service six days per week. The Company's contract for this service runs
through February 1998 and is subject to annual renewal by either the Company or
the U.S. Postal Service. In general, the Company's contracts with the U.S.
Postal Service can be canceled by either party upon 30 days notice.
U.S. Military. The Company has historically provided air freight charter
services for the U.S. Military. The U.S. Military pays the Company's fuel costs,
landing fees and other variable charges. The Company has recently become
eligible to operate passenger charters for the U.S. Military. The Company
believes that its ability to provide both air freight and air passenger charter
service to the U.S. Military will enhance its ability to obtain contract
charters for the U.S. Military.
On-Demand Charter Freight Services
The Company's aircraft are utilized to fly on-demand charters for customers
of the Company's air logistics business. Approximately 7.1%, 8.7%, 9.8% and 8.7%
of the on-demand charters managed by Kitty Hawk during fiscal years 1994, 1995
and 1996 and the six months ended June 30, 1997, respectively, were flown on
Kitty Hawk's aircraft. With the addition of the Kalitta Companies aircraft upon
consummation of the Merger, the Company will direct a higher percentage of
on-demand charters to its fleet, rather than to third party carriers. On-demand
contract charters flown on the Company's aircraft generate a higher gross margin
to the Company than charters subcontracted to third party carriers. Another
on-demand service provided by the Company is medical air ambulance services.
Air Passenger Charters
The Company operates a fleet of 33 passenger configured aircraft, including
two Boeing 747s, two Lockheed L-1011s, 20 Lear jets and 9 other small aircraft.
The Company's principal customers for large aircraft air passenger charters are
independent tour operators, cruise lines, sponsors of incentive travel packages
and specialty charters and passenger airlines that "wet" lease aircraft. Sales
to tour operators represent the most significant portion of the Company's
passenger charter business. These leisure-market programs are generally
contracted for repetitive, round-trip patterns, operating during seasonal
periods. The tour operator pays a fixed price for use of the aircraft and
assumes responsibility and risk for the actual sale of the available aircraft
seats and fuel increases. The Company also operates on-demand passenger charter
flights using large and small aircraft.
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AIR FREIGHT CHARTER LOGISTICS SERVICES
General. The Company is a leading provider of same-day air freight charter
logistics services in North America. The Company arranges the delivery of time
sensitive freight utilizing aircraft of third party air freight carriers as well
as its own fleet. On-demand air charters of freight generally are used when
"next-flight-out" delivery services of commercial airlines or the next-day
delivery services of air freight companies or other service providers cannot
meet the customer's delivery deadline. The Company's air freight logistics
services involve coordinating "door-to-door" transportation by arranging for
ground pick-up, loading, air transportation, unloading and ground delivery of
the freight. The Company has managed a broad variety of freight shipments
including military equipment, satellites, rescue/disaster recovery supplies and
exotic animals.
The customers of the Company's on-demand air freight charter logistics
services include companies that are engaged in industries such as automotive,
chemical, computer, mail and bulk package delivery, retail merchandising and oil
field service and equipment. Typically, the premium costs incurred in utilizing
on-demand charters to achieve expedited same-day delivery are justified by the
Company's customers on the basis that greater costs would otherwise be incurred
as a result of a work stoppage or having to maintain greater inventory levels.
For the six months ended June 30, 1997, Kitty Hawk arranged an average of
approximately 37 on-demand charters per day and has arranged as many as 208
charters in a single day. The Company believes it provides dependable service on
a cost-effective basis because of its computerized database, information
software and tracking systems, its training of account managers and its
standardized charter management procedures. The Company provides logistics
services 24 hours per day, 365 days per year.
Database, Information Software and Tracking Systems. The Company believes
that its database is critical to its ability to arrange on-demand air charters
in a timely and reliable manner. The Company maintains in its database a
detailed carrier profile for over 500 air freight carriers that provide
on-demand charter service and information concerning ground transportation and
aircraft loading companies in North America. The Company has implemented an
Internet system to provide its account managers with real-time updates on
available third party on-demand charter aircraft across North America. The
Company believes that this system enables it to meet customer demands more
efficiently and quickly. In addition, the Company anticipates marketing its
services to firms engaged in direct marketing over the Internet.
The Company's logistics system was developed in 1990 to automate access to
the Company's database and has been frequently revised and improved. This system
provides on-screen information regarding air carriers, aircraft type and
specifications, fuel suppliers, cargo handlers and surface carriers, along with
relevant cost information. In addition, the Company is an on-line subscriber to
Jeppesen's Flight Planning and Kavouras Meteorological services. The flight
planning services provided by Jeppesen integrate airport analyses (comprised of
runway lengths, altitudes, hours of operation and noise abatement procedures)
with current weather data and other information necessary to provide an
automated flight plan. This flight planning service then transmits
electronically the automated flight plan to the pilot and to the FAA
contemporaneously.
The Company operates a proprietary software system ("HawkEye"), which was
developed internally by its full time programming and computer support staff.
HawkEye allows account managers to track an aircraft's progress from origin to
destination on his or her computer screen and on the control room's main
projection board. Aircraft icons show each flight, its direction and information
about the flight including the type of aircraft, the flight number, its current
altitude, ground speed, distance to destination and times of departure and
estimated arrival. The data supporting HawkEye is a direct data feed obtained
from the FAA's Air Traffic Control computer system. The Company believes that
its computer systems are generally year 2000 compliant. The Company does not
know whether the computer systems of its customers, suppliers, vendors and air
logistics services providers are generally year 2000 compliant.
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AIRCRAFT MAINTENANCE SERVICES
General. The Company is one of the few dedicated air freight carriers in
the world capable of maintaining and repairing its own aircraft fleet (with the
exception of certain aircraft engine components), which range in size from its
Boeing 747s to its small prop aircraft. As a result, the Company has the
capacity to provide aircraft maintenance services to other aircraft operators.
The Company's maintenance services to third parties include primarily engine
overhauls and air frame repairs. In the last year, the Company serviced the
aircraft of Lufthansa, Spirit Airlines and Aero California. The Company has
extensive maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas,
Texas. Maintenance services at these facilities operate twenty-four hours per
day, seven days per week. See "Business -- Ground Facilities" below.
Engine and Airframe Maintenance. The Company provides FAA-certified
inspection, maintenance, overhaul and repair services for large and small jet
engines and auxiliary power units (with the exception of certain aircraft engine
components) at both the Ypsilanti and Oscoda facilities, including all levels of
maintenance checks on large and small jet engines and auxiliary power units. The
Company also performs all levels of aircraft maintenance checks, as well as
modifying certain aircraft from passenger to freighter configuration. In
addition, the Company performs avionics maintenance, component overhaul, strip
and paint operations, sheet metal fabrications and repair and other related
services. The Company believes that it is one of a limited number of providers
of all levels of maintenance checks on large and small jet engines for third
parties.
Aircraft Components, Instruments and Accessories. The Company is certified
by the FAA to service the aircraft and engine accessories used in its fleet.
These accessories include hydraulic, pneumatic, electrical, mechanical and
electronic aircraft components. The Company also maintains an FAA-approved
station for repair of a wide variety of cockpit instrumentation. This portion of
the Company's business, operated as the Aerodata Aircraft Instrument Division,
services instrumentation, not only for the Company, but also for outside
customers, including the Pentastar Aviation Division of the Chrysler
Corporation, Reliant Airlines and American Trans Air, Inc.
AIRCRAFT FLEET
The Company currently owns 124 aircraft and leases 5 aircraft from third
parties, not including three aircraft held for sale and the Company's undivided
one-third interest in four Falcon 20C jet aircraft. Of these aircraft, the
Company operates 120 aircraft in revenue service. The following is a summary of
certain information on these aircraft:
Large Aircraft
<TABLE>
<CAPTION>
NUMBER
OPERATED
NUMBER NUMBER IN
MANUFACTURER OWNED BY LEASED BY REVENUE NUMBER STAGE III
AND MODEL SERIES(1) THE COMPANY THE COMPANY SERVICE CONFIGURATION MAXIMUM PAYLOAD(2) COMPLIANT(3)
- --------------- --------- ----------- ----------- -------- ------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing 747 200 4 -- 2(4)(5) Freight 213,000-245,000 lbs. 4
Boeing 747 100 3 -- 2(5) Freight 218,000 lbs. 3
Boeing 747 100 2 -- 2 Passenger 476 passengers 2
Lockheed L-1011 200 6 -- 6 Freight 125,000 lbs. 6
Lockheed L-1011 200 2 -- 2 Passenger 354 passengers 2
Douglas DC-8 60 11 -- 11 Freight 80,000-112,000 lbs. 6
Douglas DC-8 50 9 -- 8(6) Freight 58,500-97,300 lbs. 0
Boeing 727 200 24 4 28 Freight 44,000-63,000 lbs. 10
Boeing 727 200 3 -- --(7) Passenger 160 passengers 1
Boeing 727 100 2 1 3 Freight 40,000-54,500 lbs. 0
Douglas DC-9 15F 5 -- 5 Freight 22,000-24,000 lbs. 3
-- -- --
Total 71 5 69 37
== === == ==
</TABLE>
- ---------------
(1) The series designation for certain models of aircraft shown varies within
the designation listed. The Company, for example, owns Douglas DC-8-60
series aircraft with sub-series designations of 61, 62 and 63.
(2) All figures are approximate and vary from aircraft to aircraft.
(continued on following page)
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<PAGE> 73
(3) This column indicates how many of the listed aircraft are now compliant with
the Stage III noise control standards. Aircraft not meeting this standard
must either be modified to do so or removed from domestic service before
January 1, 2000. See "Risk Factors -- Government Regulation" and
"Business -- Government Regulation."
(4) One of these Boeing 747s was recently acquired by the Company and is
currently being modified to freighter configuration. In addition, the
Company expects to purchase the Optioned Boeing 747s.
(5) One of these Boeing 747s is currently effectively grounded due to a series
of Directives restricting its payload. See "-- Boeing 747 Airworthiness
directives."
(6) One of these DC8s is currently leased to Trans Continental Airlines, Inc.
See "Certain Transactions."
(7) Two of these Boeing 727s are currently leased to third parties and one was
recently returned to the Company by a lessee.
The aircraft described above do not include one passenger configured Boeing
727-100 and one passenger configured Boeing 727-200 which the Company is
currently negotiating to sell in one transaction. This transaction is expected
to be consummated before the end of 1997.
Small Aircraft
<TABLE>
<CAPTION>
PROPULSION
MANUFACTURER MODEL(1) NUMBER(2) CONFIGURATION(3) TYPE MAXIMUM PAYLOAD(4)
------------ -------- --------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Convair 640 2 Freight Turbo-prop 18,000 lbs.
Convair 600 5 Freight Turbo-prop 12,000-14,000 lbs.
Falcon(5) 20C 1 Freight Jet turbine 6,000 lbs
Lear L-36-A 1 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-35-A 1 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-25 8 Freight/Passenger/Ambulance Jet turbine 3,000 lbs./8 passengers
Lear L-24 6 Freight/Passenger/Ambulance Jet turbine 2,000 lbs./5 passengers
Lear L-23 4 Freight/Passenger/Ambulance Jet turbine 2,000 lbs./5 passengers
Hansa HFB-320 3 Freight Jet turbine 4,000 lbs.
Westwind 1124 1 Passenger Jet turbine 8 passengers
Mitsubishi MU-2B 2 Freight/Passenger Turbo-prop 1,500 lbs./6 passengers
Mitsubishi MU-2B 1 Freight/Passenger/Ambulance Turbo-prop 2,000 lbs./7 passengers
Beechcraft BE8T 13 Freight Turbo-prop 3,400 lbs.
Cessna C-152 2 Passenger Piston prop 4 passengers
Cessna C-172 1 Passenger Piston prop 4 passengers
Piper PA-32-300 2 Freight/Passenger Piston prop 1,200 lbs./6 passengers
--
Total 53
==
</TABLE>
- ---------------
(1) The series designation for each model of aircraft shown varies within the
designation listed. For example, Mitsubishi MU-2B aircraft have series
designations of 20, 25 and 35.
(2) Each of these aircraft is owned by the Company and operated by the Company
in revenue service, except the Westwind 1124 which is utilized solely to
transport Company personnel and the Falcon 20C which currently being
modified from passenger to freighter configuration.
(3) Not all aircraft of a particular type are configured for each of the
multiple uses shown.
(4) All figures are approximate.
(5) This aircraft is currently being converted from passenger to freighter
configuration.
The aircraft described above do not include (i) the Company's undivided
one-third interest in four Falcon 20C jet aircraft presently leased to a third
party operator and (ii) one Hawker Siddeley HS-125 which the Kalitta Companies
anticipate selling to Mr. Kalitta prior to closing. See "Certain Transactions."
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 to complete such
checks.
Boeing 747 Airworthiness Directives. In January 1996, the FAA issued a
series of Directives on certain Boeing 747 aircraft which were modified for
freight hauling by GATX-Airlog Company, a subsidiary of General American
Transportation Corp ("GATX"). The Directives, which became effective on January
30, 1996, were issued because of concerns relating to the integrity of the cargo
door and surrounding floor area in the event the aircraft were operated at their
maximum cargo capacity of approximately 220,000 pounds. In spite of the fact
that the aircraft affected by the Directives have flown over 83,000 hours
without incident, the Directives require certain modifications to be made to the
aircraft. Absent such modifications, the Directives limit the cargo capacity of
these aircraft to 120,000 lbs., a limit which significantly restricts the
Company's ability to profitably operate the aircraft.
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<PAGE> 74
One of each of the Kalitta Companies' Boeing 747-200 and Boeing 747-100
freighters are affected by these Directives and have been out of service since
January 1996. GATX has proposed a solution to the problem identified by one of
the Directives which has been approved by the FAA. An appropriate means to test
the proposed solution, however, has not yet been identified. Currently, the
Company anticipates modifying the Boeing 747-100 to be in compliance with a
portion of the Directive for which the FAA has approved a solution by the latter
half of 1998, which will allow the Company to operate it with a reduced cargo
capacity of 160,000 lbs. The Company is awaiting engineering solutions to
address the remaining Directives. If the cost necessary to implement fully these
solutions and return both the Boeing 747-100 and -200 to maximum cargo capacity
is uneconomical, the Company may either operate one or both of the aircraft at
limited load or use one or both of them for spare parts. The Company is
currently involved in litigation against GATX to recover the cost to the repair
these aircraft as well as revenues lost as a consequence of the aircraft
downtime. See "Business -- Litigation."
Acquisition of Optioned Boeing 747s. In September 1997, the Kalitta
Companies acquired one Boeing 747, its associated engines and one spare engine
for approximately $21 million. The Company is currently converting this Boeing
747 to freighter configuration for an estimated additional $8.0 million. In
October 1997, the Kalitta Companies entered into an option to purchase for $40.0
million (i) the Optioned Boeing 747s and associated engines, (ii) two additional
spare engines and (iii) certain other related spare parts and support equipment.
The Company expects to complete the purchase of the Optioned Boeing 747s by the
end of January 1998. In addition, the Company expects to spend an additional
approximately $16.0 million to convert the Optioned Boeing 747s from passenger
to freighter configuration. The Optioned Boeing 747s and the one recently
acquired Boeing 747 are not affected by the Directive related to Boeing 747s
modified by GATX. See "Use of Proceeds."
Adding the Optioned Boeing 747s and the recently acquired Boeing 747 to the
Company's operating fleet will substantially increase the Company's long-haul
lift capacity and enable expansion of its current ACMI operations in Central and
South America. The addition of these aircraft will also enable the Company to
expand its service in the Middle East market and to Asia where the need for
long-haul, heavy-lift air cargo service is expected to grow.
Boeing 727 Cargo Door and Floor Modifications Regulations. The Company
currently operates a fleet of 31 Boeing 727s, all of which were previously
converted from passenger configuration to freighter configuration by the
installation of a large cargo door and numerous interior modifications for cargo
container handling systems. The aircraft conversions were approved by the FAA
upon the issuance of supplemental type certificates ("STCs") to four firms that
engineered and designed the conversion hardware and aircraft modification
processes. Thirty of the Company's aircraft have been modified utilizing STCs
held by three of these four firms.
The FAA has reevaluated the engineering analysis which supported the
issuance of the Boeing 727 cargo modification STCs and has preliminarily
determined that the STC design features do not meet FAA certification criteria
in several respects. The FAA has issued a proposed Directive to address the
first of the FAA's concerns -- the structural strength of the aircraft floor
structure. Other areas of concern relate to the strength of various
cargo-handling system components of the Boeing 727 aircraft and are expected to
be addressed by the FAA in subsequently issued Directives.
If the proposed Directive is adopted, each operator of Boeing 727 freighter
aircraft modified by any of the four firms will be required to limit the weight
of each container (or pallet) position and to adopt other aircraft operating
restrictions depending on the configuration of the aircraft, until the operator
can demonstrate that the floor strength meets the FAA's certification criteria.
Under the proposed Directive, the Company would be required to limit the weight
per container/pallet position to approximately 4,000 pounds from a current
maximum of 8,000 pounds. After a period of 120 days from the date the Directive
becomes effective, the maximum per position weight will be fixed at
approximately 3,000 pounds, until the Company can demonstrate that the floor
strength meets the FAA's certification criteria. The Company believes this
Directive will not have a material adverse effect on the Company and value of
the Common Stock.
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<PAGE> 75
The Company is urging the FAA to allow additional time before requiring
operators to modify the aircraft to bring them into compliance. In addition, 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 Directive and whether a satisfactory solution can be
engineered. If no such solution is developed and approved by the FAA, the
capacity of the Company's Boeing 727 fleet will be reduced. The FAA's proposed
Directive is being opposed on its merits by a number of Boeing 727 operators.
One of the Company's Boeing 727 aircraft was converted to freighter
configuration by Boeing and is not subject to the foregoing proposed Directive.
TRAINING AND SAFETY
The Company's management believes that high quality personnel and intensive
training programs are key to the Company's success and the maintenance of a good
safety record. As a result, the Company hires experienced flight crews and
maintenance personnel and ensures that both receive ongoing training. The
Company maintains its own Douglas DC-8 simulator in Miami which it both uses to
train its own pilots and hires out for use by other airlines. The Company also
makes use of the training facilities of other airlines, including American
Airlines, Northwest Airlines, TWA and United Airlines.
The Company has an ongoing safety program that employs an industry standard
database to track safety performance. Open facsimile and phone lines are
available for crews to report safety problems which are entered into the
database and monitored for any re-occurrence. Direct communication between
flight crews and Company management is available at all times through the
Company's dispatch system. The Company also maintains on-line communications
with other airlines and agencies.
During the last five years, the Kalitta Companies had eight accidents and
several other safety related incidents involving its aircraft with varying
degrees of damage to the aircraft involved. In 1992, the pilot of one of the
Kalitta Companies' small aircraft was fatally injured in one of these accidents.
In September 1996, pursuant to the FAA's National Aviation Safety Inspection
Program, the Kalitta Companies underwent a broad but routine inspection of all
of the Kalitta Companies' aircraft and maintenance operations. As a consequence
of the FAA's inspection, the FAA and the Kalitta Companies entered into a
Consent Order in January 1997 which required the Kalitta Companies to revise
certain internal policies and procedures to address certain regulatory
violations noted in the inspection report. See "Risk Factors -- Government
Regulation" and "Business -- Government Regulation."
SALES AND MARKETING
The Company's marketing focus is on major users of air freight
transportation services and other logistics providers. In connection with the
Company's emphasis on developing and maintaining long-term relationships with
major customers, the Company employs 25 account managers who are dedicated to
major accounts. An account manager is responsible for educating the client about
the Company's service capabilities, ensuring quality service and determining how
the Company can best serve the customer. The marketing effort on behalf of the
air freight carrier business is primarily focused on selected freight forwarders
and integrators and existing customers. The Company also dedicates two
individuals to passenger air charter marketing and intends to increase its sales
efforts for third party maintenance services. The Company does not engage in
mass media advertising. The Company, however, does promote its business through
trade specific publications and trade shows as well as through its sponsorship
of drag and short-track racing.
The Company believes that retaining existing customers is equally as
important as generating new clients and is a direct result of customer
satisfaction. The Company will continue to upgrade its database, information
software and tracking systems to maintain high quality service. The Company has
developed a feature that enables customers to access the Company's aircraft
tracking system on a "real time" basis to monitor their own freight. This
feature contributes to customer satisfaction and allows account managers to be
more productive by reducing time spent updating customers on the status of
shipments.
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<PAGE> 76
MAINTENANCE
The Company's aircraft require considerable maintenance in order to remain
in compliance with FAA regulations. Any equipment being placed on the Company's
operating certificate is inspected and repaired prior to being utilized by the
Company for either on-demand or contract charters. The Company has extensive
maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas. The
Company also has significant maintenance capability in Los Angeles, Miami and
Terre Haute, Indiana. Maintenance services at Ypsilanti, Oscoda, Dallas, Los
Angeles and Miami operate twenty-four hours per day, seven days per week. See
"Business -- Services -- Aircraft Maintenance Services."
GROUND FACILITIES
General. The Company's facilities consist of office space, hangars,
maintenance facilities and warehouse and storage space. Some of the Company's
hangar facilities are constructed on property ground leased from airport owners.
Accordingly, the hangar improvements revert to the owner when the ground lease
expires. These leases expire on various dates through November 2021. The Company
also has various agreements with municipalities and governmental authorities
that own and operate airports throughout the United States. These agreements
generally relate to the Company's use of general airport facilities, but may
also include leases or licenses to use hangar and maintenance space.
The following is a summary of the Company's major facilities:
<TABLE>
<CAPTION>
LOCATION USE OF SPACE OWNED/LEASED/LICENSED
-------- ------------ ---------------------
<S> <C> <C>
1515 West 20th Street, Company headquarters Owned (1)
Dallas/Fort Worth International Airport, TX
1349 South Huron, Ypsilanti, MI Offices(2) Leased
Willow Run Airport, Ypsilanti, MI Office, hangar, maintenance, fuel farm & Leased
storage
N. I-94 Service Drive, Ypsilanti, MI Office, storage & maintenance Owned
Oscoda, MI Office, hangar, maintenance, housing, fuel Leased
farm & storage
Hulman Regional Airport, Terre Haute, IN Office, hangar and sorting space Licensed
Los Angeles International Airport Office, hangar & ramp Leased
Honolulu International Airport(3) Office & warehouse Leased
Miami International Airport Office, hangar, ramp & maintenance Leased
</TABLE>
- ---------------
(1) The Company owns the building and improvements and leases the land from the
Dallas/Fort Worth International Airport.
(2) The Kalitta Companies lease their headquarters building from a limited
liability company owned by Mr. Kalitta, his son Scott Kalitta and his nephew
Doug Kalitta. See "Certain Transactions."
(3) The Company has constructed a warehouse at the Honolulu International
Airport which it leases to AIC. See "Certain Transactions."
Proposed New Sorting Facility. The Company currently licenses its sorting
space at the Hulman Regional Airport in Terre Haute, Indiana from Roadway Global
Air for a term which will expire in August 1998. Because of the growth in the
volume of freight shipped in its domestic scheduled service, the lack of
available expansion space and the limited airport facilities in Terre Haute, the
Company plans to move this sorting center to Fort Wayne, Indiana in the spring
of 1999. As part of a proposed $33.1 million bond issue by the Fort Wayne
Authority, the Fort Wayne Authority would develop an air trade center with the
Company as its principal tenant. This center would be a foreign free trade zone
and have customs support for international operations. Other planned
improvements include the addition of a second runway to the airport's existing
11,000 foot runway and the expansion and improvement of associated ramp and
other facilities and infrastructure. Under a proposed 20 year lease from the
Fort Wayne Authority, the Company would occupy a sorting facility with 264,000
square feet of space (including office space), a 17,000 square foot operations
building, a 79,000 square foot maintenance hangar (large enough to
simultaneously accommodate a wide- and narrow-bodied aircraft) and a new fuel
facility. The Company has entered into discussions with the Hulman Regional
Airport Authority to obtain an interim lease of its current space in Terre Haute
until it is able to
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<PAGE> 77
move to Fort Wayne. There is no assurance that the Company will be able to
extend the term of the sort space sublease. See "Risk Factors -- Availability of
Facilities."
Oscoda Base. The Company subleases its maintenance facility at the former
Wurtsmith Air Force Base in Oscoda, Michigan from the Oscoda-Wurtsmith Airport
Authority pursuant to a prime lease from the U.S. Government. The terms of the
various subleases expire on dates ranging from October 1997 to December 2013.
Under the subleases, the Company has access to an 11,800 foot lighted runway
equipped for full instrument approach, as well as office, hangar, maintenance
and storage space. The hangar space includes seven hangars, two of which can
completely enclose a single wide-bodied aircraft or two narrow-bodied aircraft.
This ability to completely enclose aircraft is critical to meeting important FAA
maintenance requirements. Because the Oscoda facility is a former Air Force
base, it is also complete with living quarters and support buildings, which the
Company leases from Oscoda Township under leases which expire on dates ranging
from October 1997 to August 2005. Until 2011, the Oscoda facility is part of a
"renaissance" zone which means that the Company does not pay real or personal
property taxes on its facilities and equipment in Oscoda.
EMPLOYEES
General. At June 30, 1997, on a pro forma basis assuming the Merger had
occurred prior to such time, the Company would have employed approximately 3,600
full-time personnel, of which approximately 200 would have been involved in
sales and administrative functions and approximately 3,400 in maintenance and
flight operations (including approximately 800 pilots). The Company considers
its relations with its employees to be satisfactory. The Company intends to
motivate certain employees through ownership of Common Stock and options to
purchase Common Stock and to encourage all employees to own Common Stock.
Collective Bargaining Agreement with Flight Crews of the Kalitta Companies.
Certain employee pilots and flight engineers of the Kalitta Companies are
members of the Teamsters Union and are employed pursuant to the Collective
Bargaining Agreement. The Collective Bargaining Agreement became amendable on
August 29, 1997, but remains in effect while the parties are in negotiation for
a successor collective bargaining agreement. Pilots and flight engineers subject
to the agreement are guaranteed pay based upon a minimum of 60 block hours per
month. The agreement requires that all flight crew personnel must meet minimum
qualifications and includes typical seniority, furlough, grievance, group health
insurance, sick leave and vacation provisions. The seniority provisions require
that the most senior flight crews have the opportunity to operate larger
aircraft or move to new crew positions as aircraft or crew positions become
available by reason of flight crew attrition or aircraft acquisitions. As a
consequence, the contract obligates the Company to incur costs to retrain crews
as they advance in seniority and progress to new aircraft or crew positions. In
addition, the Company may incur costs to train flight crews to fill positions
vacated by more senior flight crews. The collective bargaining agreement
provides that so long as it is in effect, the Teamsters Union will not authorize
a strike and the Kalitta Companies will not lockout union employees. Although
the Kalitta Companies and the Teamsters Union have commenced "interest-based"
bargaining, there can be no assurance that a new collective bargaining agreement
can be reached or that negotiations will not result in work stoppages, a
substantial increase in salaries or wages, changes in work rules or other
changes adverse to the Company.
ENVIRONMENTAL
The Company's operations must comply with numerous environmental laws
ordinances and regulations regarding air quality and other matters. Under
current federal, state and local environmental laws ordinances and regulations,
a current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. In addition, the presence of contamination from hazardous or
toxic substances, or the failure to remediate such contaminated property
properly, may adversely affect the ability of the owner of the property to use
such property as collateral for a loan or to sell such property. Environmental
laws also may impose restrictions on the manner in which a property may be used
or transferred or in which businesses may be
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<PAGE> 78
operated and may impose remedial or compliance costs. The costs of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could have a material adverse effect on the
Company and the value of the Common Stock.
The Company leases office space, hangar space, ramp space and unimproved
area at various airport locations throughout the U.S. See "Business -- Ground
Facilities." Most of these leases require the Company to indemnify the lessor
for any environmental contamination caused by the Company. In particular, the
Company leases an underground fuel storage facility from Wayne County, Michigan
at Willow Run Airport. If the soil or groundwater in the vicinity of this
underground facility is found to be contaminated by environmental regulators,
the Company will lose its right to continue to use the facility. Moreover, the
lease provides that the Company will be solely responsible for the costs to
remediate any such contamination. If such contamination occurs or is otherwise
discovered by governmental authorities during the term of the lease with Wayne
County, the Company may incur significant expense to effect either or both of
required relocation of operations or the required clean-up.
The Company is aware of the presence of environmental contamination on
properties that the Kalitta Companies lease or own. The Company does not believe
that the costs of responding to the known contamination should or will be borne
solely by the Company, if at all. While the Company does not believe that the
costs of responding to the presence of such contamination is likely to have a
material adverse effect on the Company or the value of the Common Stock there
can be no assurance in this regard. Pursuant to the Merger Agreement, Mr.
Kalitta has agreed, subject to certain limitations, to indemnify the Company for
a period of four years against any losses arising with respect to environmental
liabilities related to contamination at any of the Kalitta Companies'
facilities. See "The Merger -- Indemnitees."
In part because of the highly industrialized nature of many of the
locations at which the Company operates, there can be no assurance that the
Company has discovered all environmental contamination for which it may be
responsible.
GOVERNMENT REGULATION
General. The Company is subject to Title 49 of the United States Code
(formerly the Federal Aviation Act of 1958, as amended), under which the DOT and
the FAA exercise regulatory authority over air carriers. The DOT is primarily
responsible for regulating economic issues affecting air service, including,
among other things, air carrier certification and fitness, insurance, consumer
protection, unfair methods of competition and transportation of hazardous
materials. The FAA is primarily responsible for regulating air safety and flight
operations, including, among other things, airworthiness requirements for each
type of aircraft the Company operates, pilot and crew certification, aircraft
maintenance and operational standards, noise abatement, airport slots and other
safety-related factors. Certain of the Company's aircraft are subject to
Directives which require modifications to the affected aircraft. See "-- Fleet."
In addition, the Company is subject to regulation by various other federal,
state, local and foreign authorities, including the Department of Defense and
the Environmental Protection Agency.
The Company's international operations are governed by bilateral air
services agreements between the United States and foreign countries where the
Company operates. Under some of these bilateral air services agreements, traffic
rights in those countries are available to only a limited number of and in some
cases only one or two, U.S. carriers and are subject to approval by the
applicable foreign regulators, limiting growth opportunities in such countries.
The DOT and the FAA have the authority to modify, amend, suspend or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulations. In addition, the DOT and the FAA
may impose civil or criminal penalties for violations of applicable rules and
regulations.
Safety, Training and Maintenance Regulations. The Company's operations are
subject to routine, and periodically more intensive, inspections and oversight
by the FAA. Following a review of safety procedures at ValuJet, the FAA adopted
changes to procedures concerning oversight of contract maintenance and training.
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<PAGE> 79
The Company believes it is currently in compliance with such changes. It is
possible that subsequent events, such as the recent crash of a cargo aircraft
owned by Fine Air could result in additional Directives, which could have a
material adverse effect on the value of the Common Stock.
In September 1996 pursuant to the FAA's National Aviation Safety Inspection
Program, the Kalitta Companies underwent a broad inspection of all of the
Kalitta Companies' aircraft and maintenance operations. This inspection resulted
in a report from the FAA citing the Kalitta Companies with a number of
regulatory infractions, none of which were sufficiently serious to cause the FAA
to curtail or otherwise restrict any of the Kalitta Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Kalitta Companies
entered into a Consent Order in January 1997 which required the Kalitta
Companies to revise certain internal policies and procedures to address the
regulatory violations noted in the inspection report as well as enforcement
actions that had been pending prior to the inspection. Without admitting any
fault, the Kalitta Companies agreed to pay a fine of $450,000, one-third of
which is suspended and will be forgiven if the Kalitta Companies comply with all
the terms of the Consent Order. At this time, the Kalitta Companies' management
believes they are in compliance with the Consent Order and expects the FAA to
conduct another inspection of similar scope in the fourth quarter of 1997 to
verify such compliance. The Consent Order also provides that it is a full and
conclusive settlement of any civil penalties the Kalitta Companies could incur
for regulatory violations occurring before January 1, 1997, but does not
preclude the FAA from taking enforcement action to revoke Kalitta Companies' air
carrier operating certificate.
Aging Aircraft Regulations; Potential Compliance Costs. All of the
Company's aircraft are subject to Service Bulletins and Directives issued under
the FAA's "Aging Aircraft" program or issued on an ad hoc basis. These Service
Bulletins or Directives could 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, particularly in light of recent
aircraft crashes at ValuJet and Fine Air. The cost of compliance with such
Directives and Service Bulletins cannot currently be estimated, but could be
substantial.
Noise Abatement Regulations. Airline operators must comply with FAA noise
standard regulations primarily promulgated under the Airport Noise and Capacity
Act of 1990 (the "Noise Regulations"). Currently, Kitty Hawk and the Kalitta
Companies are, and upon consummation of the Merger, the Company will be, in
compliance with the Noise Regulations. The Company owns 71 aircraft and leases 5
aircraft which are affected by the Noise Regulations, including nine Boeing 747s
(two of which are effectively grounded due to a series of Directives unrelated
to Noise Regulations), eight Lockheed L-1011s, 20 Douglas DC-8s, 34 Boeing 727s
(not including aircraft held for sale) and five Douglas DC-9-15Fs (collectively,
the "Jet Fleet"). Of the aircraft in the Jet Fleet, 37 are currently in
compliance with Stage III noise control standards, including all of the
Company's Boeing 747s and Lockheed L-1011s. The Company must bring the Jet Fleet
into Stage III compliance by January 1, 2000. Any aircraft in the Jet Fleet that
is not in compliance with the Stage III noise control standards on January 1,
2000 may not be operated in the U.S. until it complies with such standards.
There can be no assurance that the Company will have sufficient funds or be able
to obtain financing to cover the costs of modifying additional aircraft to meet
these deadlines. The failure to modify these aircraft could have a material
adverse effect on the Company's financial condition or results of operations. In
addition, certain airport operators have adopted local regulations which, among
other things, impose curfews and other noise abatement requirements. Finally,
the Company's international operations are affected by noise regulations in
foreign countries which may be stricter than those in effect in the U.S.
Only six of the Company's 20 Douglas DC-8 aircraft comply with the Stage
III noise control standards. The Company may elect not to modify the 14
remaining Douglas DC-8 aircraft to meet the Stage III noise control standards
because the anticipated cost of approximately $3.5 million per aircraft (not
including aircraft downtime) may exceed the economic benefits of such
modifications. If the Company cannot or does not modify these 14 Douglas DC-8
aircraft, the Company will have to remove these aircraft from service in the
United States before January 1, 2000 and may have to replace them with other
aircraft. In addition, 23 of the Company's Boeing 727 aircraft currently do not
comply with the Stage III noise control standards. The Company currently
anticipates modifying its Boeing 727 fleet (at an anticipated cost of
approximately
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$41.4 million, not including aircraft downtime) to be in compliance with the
Stage III noise control standards by the applicable deadlines. However, there
can be no assurance regarding the actual cost or that the Company will have
sufficient funds or be able to obtain financing to cover the costs of these
modifications or to replace such aircraft.
Hazardous Materials Regulations. The DOT exercises regulatory jurisdiction
over the transportation of hazardous materials. The Company may from time to
time transport articles that are subject to these regulations. Shippers of
hazardous materials share responsibility for compliance with these regulations
and are responsible for proper packaging and labeling. Substantial civil
monetary penalties can be imposed on both shippers and air carriers for
infractions of these regulations.
Foreign Operations Regulated. Certain of the Company's operations are
conducted between the U.S. and foreign countries, as well as wholly between two
or more points that are all located outside of the United States. As with the
certificates and licenses obtained from U.S. authorities, the Company must
comply with all applicable rules and regulations imposed by these foreign
aeronautical authorities or be subject to the suspension, amendment or
modification of its operating licenses issued by those authorities.
Stock Ownership by Non-U.S. Citizens. Under current federal aviation law,
the Company's air freight carriers could cease to be eligible to operate as air
freight carriers if more than 25% of the voting stock of the Company were owned
or controlled by non-U.S. citizens. Moreover, in order to hold an air freight
carrier certificate, the president and two-thirds of the directors and officers
of an air freight carrier must be U.S. citizens. All of the Company's directors
and officers are U.S. citizens. Furthermore, (i) the Certificate of
Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2%
of the votes voting on or consenting to any matter and (ii) the Bylaws do not
permit non-U.S. citizens to serve as directors or officers of the Company.
INSURANCE
The Company is vulnerable to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims involving injury to persons or
property. The Company is required by the DOT to carry liability insurance on
each of its aircraft and many of the Company's aircraft leases and contracts
also require the Company to carry such insurance. The Company also carries
medical liability insurance. Any extended interruption of the Company's
operations due to the loss of an aircraft could have a material adverse effect
on the Company and the value of the Common Stock. The Company currently
maintains public liability and property damage insurance and aircraft liability
insurance for each of the aircraft in the revenue fleet in amounts consistent
with industry standards. All-risk aircraft hull insurance is maintained for all
aircraft in the revenue fleet other than the Convairs and Beechcraft BE8Ts. The
Company maintains baggage and cargo liability insurance if not provided by its
customers under contracts. Although the Company believes that its insurance
coverage is adequate, there can be no assurance that the amount of such coverage
will not be changed upon renewal or that the Company will not be forced to bear
substantial losses from accidents. Substantial claims resulting from an accident
could have a material adverse effect on the Company and the value of the Common
Stock. The Company attempts to monitor the amount of liability insurance
maintained by the third party carriers utilized in its air logistics business
through, among other things, the obtaining of certificates of insurance.
LEGAL PROCEEDINGS
GATX Litigation. In January 1997, the Kalitta Companies filed suit against
GATX (the "GATX Litigation") to recover damages related to the January 1996
effective grounding of two of the Kalitta Companies' Boeing 747s pursuant to the
Directive affecting GATX-modified Boeing 747s. See "Business -- Aircraft
Fleet -- Boeing 747 Airworthiness Directive." Other defendants include Pemco
Aeroplex Co. (the successor to Hayes International, Inc.) which developed the
design for the STC relating to the modifications and Central Texas Airborne
Systems, Inc. (successor to Chrysler Technologies Airborne Systems, Inc.)
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<PAGE> 81
which modified the Kalitta Companies' Boeing 747s as a subcontractor for GATX.
The suit is pending in the Federal District Court for the Northern District of
California and covers a variety of claims.
In connection with the consummation of the Merger, the Company will enter
into an agreement with Mr. Kalitta that will provide that any amounts recovered
by the Company through the GATX Litigation shall be applied first to reimburse
the Company for its legal costs incurred in connection with the GATX Litigation
and then to correct the mechanical problems associated with the grounded Boeing
747s. Any additional amounts will be allocated 10% to the Company and 90% to Mr.
Kalitta. In the event the amounts recovered by the Company, if any, are
insufficient to reimburse the Company for its legal costs incurred in connection
with the GATX Litigation, Mr. Kalitta will reimburse the Company for the
unreimbursed portion of its legal costs related to the GATX Litigation incurred
after October 23, 1997.
U.S. Postal Service Contract. In September 1992, the U.S. Postal Service
awarded an air freight services contract to Kitty Hawk and one of the Kalitta
Companies, as co-bidders. Emery Worldwide Airlines, Inc. ("Emery") (the
incumbent) sued to enjoin the award. This litigation (the "ANET Litigation") was
settled in April 1993 by agreements under which the U.S. Postal Service
terminated the contract for convenience and awarded the contract to Emery. In
lieu of damages for the contract's termination, the U.S. Postal Service paid
$10.0 million into an escrow account to be divided between Kitty Hawk and one of
the Kalitta Companies. Also under the settlement, Emery paid $2.7 million into
the escrow account and agreed to pay $162,500 into the escrow account each
quarter for up to 10 years, so long as the Emery contract remained in effect.
Before settling the ANET Litigation, Kitty Hawk, one of the Kalitta Companies
and Messrs. Christopher and Kalitta agreed, among other things, to hold the
escrowed funds in escrow until they had agreed upon an allocation and
distribution, or until the matter was resolved by binding arbitration.
Subsequent disagreements led to litigation and arbitration among Kitty Hawk, one
of the Kalitta Companies and Messrs. Christopher and Kalitta that were resolved
pursuant to a comprehensive settlement reached in August 1994. Under the
comprehensive settlement, Kitty Hawk received approximately $3.5 million in cash
from the escrowed funds and obtained a Boeing 727-200. Also under the
comprehensive settlement agreement, Mr. Christopher received rights to one-half
of any future contingent quarterly payments from Emery.
Routine Litigation. The Company from time to time is involved in various
routine legal proceedings incidental to the conduct of its business. As of the
date of this Prospectus, the Company was not engaged in any legal proceeding
expected to have a material adverse effect upon the Company and the value of the
Common Stock.
MANAGEMENT
The following table sets forth the executive officers and directors of the
Company, their ages and positions, immediately prior to the Merger. As of the
date hereof, there was one vacancy on the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
M. Tom Christopher(1)................. 50 Chairman of the Board of Directors and
Chief Executive Officer
Tilmon J. Reeves...................... 58 President, Chief Operating Officer and
Director
Richard R. Wadsworth.................. 50 Senior Vice President -- Finance,
Chief Financial Officer, Secretary and
Director
Ted J. Coonfield(1)(2)................ 49 Director
James R. Craig........................ 59 Director
Lewis S. White(1)(2).................. 57 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
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<PAGE> 82
Concurrently with the consummation of the Merger, Messrs. Craig and
Wadsworth will resign from the Board of Directors and Mr. Reeves will resign as
Chief Operating Officer of the Company, but will continue to serve as the
President of Kitty Hawk. Pursuant to the Merger Agreement, the vacancies in the
Board of Directors will be filled with Messrs. Kalitta, George W. Kelsey and
Philip J. Sauder. Immediately after the effectiveness of the Merger, the
executive officers and directors of the Company, their ages and positions will
be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
M. Tom Christopher(1)................. 50 Chairman of the Board of Directors and
Chief Executive Officer
Conrad A. Kalitta..................... 59 Vice Chairman and Director
Tilmon J. Reeves...................... 58 President and Director
Richard R. Wadsworth.................. 50 Senior Vice President -- Finance,
Chief Financial Officer and Secretary
Ted J. Coonfield...................... 49 Director
George W. Kelsey...................... 57 Director
Philip J. Sauder(1)(2)................ 44 Director
Lewis S. White(1)(2).................. 57 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Immediately after effectiveness of the Merger, the members of the Company's
Board of Directors will be classified as follows:
Class I -- Serves until the 1998 Annual Meeting of Stockholders
Ted J. Coonfield
George W. Kelsey
Class II -- Serves until the 1999 Annual Meeting of Stockholders
Tilmon J. Reeves
Philip J. Sauder
Class III -- Serves until the 2000 Annual Meeting of Stockholders
M. Tom Christopher
Conrad A. Kalitta
Lewis S. White
M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in 1985 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 2000 annual meeting of stockholders. He has over 20 years of
experience in the air freight industry.
CONRAD A. KALITTA. Upon consummation of the Merger, Mr. Kalitta will serve
as Vice Chairman of the Company and will serve in the class of directors whose
terms expire at the 2000 annual meeting of stockholders. Mr. Kalitta founded
each of the Kalitta Companies and has been the Chief Executive Officer of each
of the Kalitta Companies since that time. He also founded several other aircraft
service companies, some of which are now part of the Company. Mr. Kalitta is
also a professional drag racer in the "top-fuel" class and has won three
national championships.
TILMON J. REEVES has served as President and Chief Operating Officer of the
Company since May 1993 and has over 30 years of aviation experience.
Concurrently with the consummation of the Merger, Mr. Reeves will resign as the
Chief Operating Officer of the Company, but will continue to serve as the
President of Kitty Hawk. Prior to assuming his current positions, he served as
Vice President of the Company's air freight carrier from March 1992 to May 1993.
Mr. Reeves became a director in October 1994
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<PAGE> 83
and after effectiveness of the Merger, will serve in the class of directors
whose terms expire at the 1999 annual meeting of stockholders.
RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since
October 1992, Chief Financial Officer since September 1994 and Secretary since
October 1994. Mr. Wadsworth became a director in October 1994 and pursuant to
the Merger Agreement will resign from the Board of Directors concurrently with
the consummation of the Merger.
TED J. COONFIELD became a director of the Company in October 1994 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 1998 annual meeting of stockholders. Since October 1997, Mr.
Coonfield has been in private consulting practice. From April 1996 to October
1997, Mr. Coonfield has been a consultant with Performance Consulting Group, a
firm specializing in change management consulting primarily in the banking and
insurance industry. From January 1993 to April 1996, Mr. Coonfield was a
consultant with the Richard-Rogers Group, a consulting firm specializing in
total quality issues, where he primarily engaged in consulting for firms in the
transportation industry. Since 1985, Mr. Coonfield has been the President of
Oregon Wine Designs, Inc., a wine production and marketing firm.
JAMES R. CRAIG became a director of the Company in October 1994 and
pursuant to the Merger Agreement will resign from the Board of Directors
concurrently with the consummation of the Merger. Mr. Craig is an attorney who
has served of counsel to Burke, Wright & Keiffer, P.C. since 1990. Prior to his
affiliation with Burke, Wright & Keiffer, P.C., Mr. Craig was in private law
practice in Dallas since 1971 and in 1989 served as President of Whitehall
Development Company, a real estate development firm, of which he is now a
director.
GEORGE W. KELSEY. Upon consummation of the Merger, Mr. Kelsey will become a
director of the Company and will serve in the class of directors whose terms
expire at the 1998 annual meeting of stockholders. Mr. Kelsey has served as a
director of AIA since July 1995. Mr. Kelsey is currently the owner of Kelsey Law
Offices, P.C., a law firm located in Ann Arbor, Michigan. Mr. Kelsey has
practiced law in Michigan for 27 years, and has been the principal outside
counsel for the Kalitta Companies. Mr. Kelsey currently specializes in
commercial transactions and commercial litigation with emphasis in aviation law.
PHILIP J. SAUDER. Upon consummation of the Merger, Mr. Sauder will become a
director of the Company and will serve in the class of directors whose terms
expire at the 1999 annual meeting of stockholders. Mr. Sauder has served as a
director of AIA since July 1995. Mr. Sauder is currently a limited partner of
Carlisle Enterprises, L.P. which acquires manufacturers of engineered products
and the Chairman and Chief Executive Officer of Alpha Technologies, U.S., L.P.,
which manufactures high tech instrumentation for the polymer and rubber
industries. He participates in locating and evaluating acquisition targets. From
1989 through 1994, Mr. Sauder was employed by Abex, Inc., first as the general
manager of its Cleveland Pneumatic Division and then as the group vice president
of its Aerospace Division.
LEWIS S. WHITE became a director of the Company in October 1994 and after
effectiveness of the Merger, will serve in the class of directors whose terms
expire at the 2000 annual meeting of stockholders. Since 1988, Mr. White has
been President of L. S. White & Co., a firm engaged in business planning and
corporate finance. Prior to 1988, he held senior management positions with
Paramount Communications Inc. and Union Carbide Corporation. Mr. White is also a
director of Whitehall Corporation, a company principally involved in aircraft
maintenance.
DIRECTOR COMPENSATION
Pursuant to the Company's Bylaws, the members of the Board of Directors may
be compensated in a manner and at a rate determined from time to time by the
Board of Directors. Directors who are employees of the Company do not receive
additional compensation for service as a director. Under the Company's Omnibus
Securities Plan, directors who are not employees of the Company shall receive
shares of Common Stock in an amount equal to their net annual retainer (which is
currently approximately $14,000).
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<PAGE> 84
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to Kitty Hawk's October 1996 initial public offering (the "IPO"), Mr.
Christopher determined executive officer compensation. Subsequent to the IPO and
prior to November 6, 1996, Messrs. Robert F. Grammer (a former director of the
Company), Craig and Coonfield comprised the Company's Compensation Committee and
determined executive officer compensation. Subsequent to November 6, 1996,
Messrs. Coonfield and White comprised the Company's Compensation Committee and
determined executive officer compensation. After the effectiveness of the
Merger, Messrs. Sauder and White will comprise the Company's Compensation
Committee and determine executive officer compensation. None of the foregoing
individuals serving on the Compensation Committee are or have been officers or
employees of the Company or its subsidiaries.
Mr. Craig, a director of the Company, is of counsel to Burke, Wright &
Keiffer, P.C., counsel to the Company. During fiscal years 1994, 1995 and 1996
and the four months ended December 31, 1996, the Company paid an aggregate of
approximately $650,000 to Burke, Wright & Keiffer, P.C. for legal services
rendered.
During fiscal years 1994 and 1995, Martinaire East, Inc. ("Martinaire"), a
corporation 50% owned by Mr. Christopher, leased a Lear jet, 50% owned by Mr.
Christopher, from the Company and provided the Company with on-demand charter
services utilizing the Lear jet. During fiscal years 1994 and 1995, the Company
paid Martinaire $1.0 million and $232,000, respectively, for use of the Lear
jet, which amounts the Company believes represented market rates. The Company's
charges to Martinaire for leasing the Lear jet and related operating expenses
(at costs the Company believes represented market rates) went largely unpaid
until October 1994. At fiscal year end 1994, the balance owed to Kitty Hawk for
the Lear jet lease and related operating expenses was $481,297. No interest was
accrued on this amount. On October 24, 1994, the owners of the Lear jet,
including Mr. Christopher, agreed to sell the Lear jet. In connection with this
sale, Martinaire repaid the Company all unpaid amounts owed to the Company at
that date for the Lear jet lease and related operating expenses.
In August 1996, Kitty Hawk acquired an undivided one-third interest in four
Falcon 20 jet aircraft with two co-owners (the "Co-Owners") who are unaffiliated
with the Company and who each hold a one-third interest in such aircraft. An
interim acquisition note in the amount of $1,700,000, covering the purchase
price and necessary maintenance, was executed by Mr. Christopher and one of the
Co-Owners. In November 1996, Kitty Hawk and the Co-Owners each acquired an
undivided one-third interest in two additional Falcon 20 jet aircraft using the
proceeds of a new five-year, $4.3 million term loan that also repaid the interim
loan on the first two aircraft.
The Company and the Co-Owners entered into a co-ownership and contribution
agreement (the "Co-Ownership Agreement") which requires the parties to
contribute equally to the payment of all amounts due under the term loan and
under which the parties leased the four Falcon 20 jet aircraft to Ameristar Jet
Charters, Inc. ("Ameristar"), an air carrier affiliated with one of the
Co-Owners, for operation in cargo charter service. The lease calls for monthly
lease payments which exceed the installments on the term loan and requires
Ameristar to maintain the aircraft and to carry appropriate hull insurance on
the aircraft and liability insurance of at least $50 million combined single
limit coverage, with the Company and the Co-Owners named as loss payees and
additional insureds.
The Company believes that the terms of each transaction discussed above
were as favorable to Kitty Hawk as would have been obtainable from unaffiliated
parties under similar circumstances.
Under the terms of the settlement allocating the benefits of the ANET
Litigation, Mr. Christopher received rights to certain contingent future
payments. See "Business -- Legal Proceedings."
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<PAGE> 85
COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to Kitty Hawk for fiscal years 1994,
1995 and 1996 and during the four months ended December 31, 1996, with respect
to those persons who were during the four months ended December 31, 1996 (i) the
Chief Executive Officer and (ii) the other two most highly compensated executive
officers of Kitty Hawk (collectively, with the Chief Executive Officer, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- ------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
---------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
M. Tom Christopher 1996(1) $ 80,000 $ -- $ -- -- $ 81,250(2)
Chairman of the Board of 1996 195,500 719,419 -- -- 369,720(3)
Directors and Chief Executive 1995 120,000 898,731 -- -- 352,163(4)
Officer 1994 120,000 512,000 -- -- 25,022(5)
Tilmon J. Reeves 1996(1) 41,667 15,000 -- -- --
President and Chief 1996 125,000 85,000 3,726,182(6) 390,707 2,375(7)
Operating Officer 1995 125,000 108,335 -- 245,708(8) 2,310(7)
1994 101,000 225,000 -- -- 2,982(7)
Richard R. Wadsworth 1996(1) 36,664 15,000 -- -- 583(7)
Senior Vice President 1996 110,000 70,000 1,464,572(6) 153,567 2,375(7)
Finance, Chief Financial 1995 110,000 70,000 -- 92,140(8) 2,262(7)
Officer and Secretary 1994 $110,000 $ 96,000 $ -- -- $ 1,675(7)
</TABLE>
- ---------------
(1) Represents the four months ended December 31, 1996.
(2) Consists of contingent payments received by Mr. Christopher under the ANET
Litigation settlement during the four months ended December 31, 1996.
(3) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET Litigation settlement during fiscal year
1996, (ii) life insurance premiums of $41,645 paid on Mr. Christopher's
behalf and (iii) matching contributions of $3,075 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(4) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET Litigation settlement during fiscal year
1995, (ii) life insurance premiums of $25,500 paid on Mr. Christopher's
behalf and (iii) matching contributions of $1,663 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(5) Consists of (i) matching contributions of $2,975 to the Company's 401(k)
Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047
paid on Mr. Christopher's behalf. Does not include any contingent payments
to Mr. Christopher under the ANET Litigation settlement made subsequent to
fiscal year 1994.
(6) Represents the difference between the exercise price and the fair market
value of the Common Stock underlying the stock options on June 26, 1996, the
date of exercise, of the stock options granted in fiscal year 1996. See
"Management -- Stock Option Exercises."
(7) Consists of matching contributions to the Company's 401(k) Savings Plan.
(8) The option covering these shares was rescinded on June 12, 1996.
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<PAGE> 86
STOCK OPTION GRANTS
The following table sets forth certain information concerning options
granted in fiscal year 1996 to the Company's Named Executive Officers. Messrs.
Reeves and Wadsworth fully exercised these options on June 26, 1996. The Company
did not grant any options to the Company's Named Executive Officers in the four
months ended December 31, 1996 or the nine months ended September 30, 1997. No
options for the purchase of Common Stock are currently outstanding. The Company
has no outstanding stock appreciation rights and granted no stock appreciation
rights during fiscal year 1996, the four months ended December 31, 1996 or the
nine months ended September 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS FAIR VALUE ON
UNDERLYING GRANTED TO EXERCISE OR DATE OF
OPTIONS EMPLOYEES IN BASE PRICE GRANT
NAME GRANTED FISCAL YEAR ($/SH) ($/SH) EXPIRATION DATE
---- ---------- ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Tilmon J. Reeves...... 390,707 71.8% $0.01 $7.45 December 31, 2005
Richard R.
Wadsworth........... 153,567 28.2% $0.01 $8.63 December 31, 2015
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
------------------------------------
NAME 5%($) 10%($) 0%($)
---- ---------- ---------- ----------
<S> <C> <C> <C>
Tilmon J. Reeves...... $4,737,426 $7,545,873 $2,910,665
Richard R.
Wadsworth........... $2,157,211 $3,435,907 $1,325,732
</TABLE>
STOCK OPTION EXERCISES
The following table sets forth certain information concerning options
exercised in fiscal year 1996 by certain of the Company's Named Executive
Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED
---- --------------- ----------
<S> <C> <C>
Tilmon J. Reeves....................................... 390,707(1) $3,726,182
Richard R. Wadsworth................................... 153,567(2) $1,464,572
</TABLE>
- ---------------
(1) The Company withheld 156,283 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.
(2) The Company withheld 61,427 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.
EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS
Omnibus Securities Plan. The Company's Amended and Restated Omnibus
Securities Plan (the "Omnibus Plan") provides for stock based and non-stock
based compensation to Omnibus Plan participants, including nonqualified stock
options, incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, tandem and independent stock
appreciation rights, other derivative securities, stock bonuses, restricted
stock, awards denominated in stock units, securities convertible into stock,
phantom stock, dividend equivalent rights and performance awards that are
contingent upon the Company's performance or the performance of the Omnibus Plan
participant. The number of shares of Common Stock reserved for issuance under
the Omnibus Plan is 300,000 shares. The Omnibus Plan is administered by the
Compensation Committee of the Board of Directors. Awards under the Omnibus Plan
may contain provisions that, if a change in control of the Company occurs, give
the Compensation Committee discretion to offer to purchase awards from Omnibus
Plan participants and make adjustments or modifications to outstanding awards to
protect and maintain the rights and interests of the Omnibus Plan participants
or take any other action the award agreements may authorize. A change in control
of the Company is deemed to occur upon any of the following events (i) a
consolidation or merger in which the Company does not survive, unless the
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<PAGE> 87
Company's stockholders retain the same proportionate common stock ownership in
the surviving company after the merger, (ii) a sale of all or substantially all
of the Company's assets, (iii) the approval by the Company's stockholders of a
plan to dissolve or liquidate the Company, (iv) a third party acquires 20% or
more of the Company's voting securities or (v) during any two-year period,
persons who constituted a majority of the Company's Board of Directors at the
beginning of such period cease to serve as directors for any reason other than
death, unless each new director was approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
two-year period.
Annual Incentive Compensation Plan. Under the Company's Amended and
Restated Annual Incentive Compensation Plan (the "Annual Incentive Compensation
Plan"), the Compensation Committee may award semiannual bonuses to employees of
the Company. The aggregate amount of bonuses available for award by the
Compensation Committee is limited to 10% of the Company's income before the
deduction of income taxes and the bonuses that may be paid under the Annual
Incentive Compensation Plan. The Company may elect under the Annual Incentive
Compensation Plan to pay up to the full amount of the bonuses in Common Stock.
Up to an additional 198,193 shares may be awarded as bonuses under the Annual
Incentive Compensation Plan.
Employee Stock Purchase Plan. Recently, the Company implemented an Employee
Stock Purchase Plan ("Stock Purchase Plan") which permits employees of the
Company to purchase up to an aggregate of 100,000 shares of Common Stock under
Section 423 of the Internal Revenue Code of 1986, as amended, at a price equal
to 85% of the market value of the Common Stock on certain specified dates. As of
the date hereof, no shares had been issued under the Stock Purchase Plan. Kitty
Hawk has adopted its employee compensation plans and arrangements to motivate
certain employees through ownership of Common Stock and options to purchase
Common Stock and to encourage all employees to own Common Stock.
Option Grants. On October 5, 1994, the Company granted Mr. Reeves and Mr.
Wadsworth nonqualified options to purchase an aggregate of 245,708 shares and
92,140 shares, respectively, of Common Stock. These options had a term of 10
years, an exercise price of $7.81 per share and vested in five equal annual
increments commencing on August 31, 1995.
During the fiscal year ended August 31, 1996, the Company granted Mr.
Reeves an option to purchase 390,707 shares of Common Stock and on June 12,
1996, rescinded all options earlier granted to Mr. Reeves. The option would have
terminated upon the earliest of (i) the date at which all optioned shares had
been delivered, (ii) December 31, 2005 or (iii) the date 12 months after Mr.
Reeves' death. The option was fully vested and had an exercise price of $0.01
per share.
During the fiscal year ended August 31, 1996, the Company granted Mr.
Wadsworth an option to purchase 153,567 shares of Common Stock and rescinded all
options earlier granted to Mr. Wadsworth. The option would have terminated upon
the earliest of (i) the date at which all optioned shares had been delivered,
(ii) December 31, 2015, or (iii) the date 12 months after Mr. Wadsworth's death.
The option was fully vested and had an exercise price of $0.01 per share.
On June 26, 1996, Messrs. Reeves and Wadsworth fully exercised their
options. In order to satisfy any income tax withholding obligations arising by
virtue of the exercise of their options, at the election of each of Messrs.
Reeves and Wadsworth pursuant to the terms of their respective options, the
Company withheld from the shares to be delivered to Mr. Reeves, 156,283 shares
and Mr. Wadsworth, 61,427 shares, the fair market value of which was anticipated
to equal to the Company's tax withholding obligation with respect thereto.
Pursuant to their respective option agreements, Messrs. Reeves and Wadsworth
have the right to have the Company register shares received upon exercise of
their options in at least the same ratio of ownership as the number of Mr.
Christopher's common shares included in a registration of the Company's shares.
Death and Disability Benefits. The Company also has entered into
split-dollar life insurance agreements with a trust for the benefit of Mr.
Christopher and his wife to provide the trust with death benefits of an
aggregate of $5 million under life insurance policies. Under the split-dollar
agreements, the Company pays the premiums under the insurance policies. Upon Mr.
Christopher's death or the termination of the agreements,
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<PAGE> 88
the Company is entitled to reimbursement of premiums it has paid to the extent
of the death benefits paid or the cash surrender value of the policies, as
applicable.
Pursuant to a salary continuation agreement, in the event that the Board of
Directors determines that Mr. Christopher has become disabled, the Company has
agreed to continue to pay Mr. Christopher the average monthly compensation he
received during the two years prior to the date of his disability until he dies
or is no longer disabled.
EMPLOYMENT AGREEMENTS
Mr. Christopher. Mr. Christopher has an employment agreement with Kitty
Hawk that provides for an initial annual base salary of at least $125,000 and
bonuses determined by the Compensation Committee pursuant to the Company's
Annual Incentive Compensation Plan and otherwise. Mr. Christopher's employment
agreement contains (i) a confidentiality provision that prohibits disclosure of
the Company's proprietary information and (ii) a covenant not to compete that
provides upon Mr. Christopher's termination of employment with the Company for
any reason, Mr. Christopher shall not engage, directly or indirectly, in the air
logistics, charter brokerage, on-demand or scheduled carriage business under an
FAR Part 121 (now Part 119) or Part 135 certificate for five years following
such termination. The employment agreement may be terminated by either party
with or without cause. If the employment agreement is terminated by the Company
without a material breach by Mr. Christopher, he is entitled to six months of
compensation at his then-current salary.
Mr. Kalitta. Concurrently with the consummation of the Merger, the Company
will enter into an employment agreement with Mr. Kalitta that provides for an
initial annual base salary of at least $600,000 and bonuses determined by the
Compensation Committee pursuant to the Company's Annual Incentive Compensation
Plan and otherwise. Mr. Kalitta's employment agreement contains (i) a
confidentiality provision that prohibits disclosure of the Company's proprietary
information and (ii) a covenant not to compete that provides upon Mr. Kalitta's
termination of employment with the Company for any reason, Mr. Kalitta shall not
engage, directly or indirectly, in the air logistics, charter brokerage,
on-demand, or scheduled carriage business under an FAR Part 121 (now Part 119)
or Part 135 certificate for five years following such termination. The
employment agreement may be terminated by either party with or without cause. If
the employment agreement is terminated by the Company without a material breach
by Mr. Kalitta, he is entitled to three years of compensation at his
then-current salary.
Messrs. Reeves and Wadsworth. Messrs. Reeves and Wadsworth have employment
agreements with Kitty Hawk that provide for an initial annual base salary of at
least $115,000 and $110,000, respectively and annual bonuses determined by the
Compensation Committee pursuant to the Company's Annual Incentive Compensation
Plan and otherwise. These employment agreements provide that Mr. Reeves and Mr.
Wadsworth are prohibited from engaging in the air logistics, charter brokerage,
on-demand or scheduled carriage business under an FAR Part 121 (now Part 119) or
Part 135 certificate for three and two years, respectively, following
termination of employment. These employment agreements also contain a
confidentiality provision that prohibits disclosure of the Company's proprietary
information. These employment agreements may be terminated by either party
thereto with or without cause. Mr. Reeves' employment agreement provides that if
he is terminated by the Company without material breach by Mr. Reeves, he shall
be entitled to 100% of his then-current salary in the year following termination
and 50% of such annual compensation in both the second and third year following
termination and all rights under the stock options and other benefits described
above. Mr. Wadsworth's employment agreement provides that if he is terminated by
the Company without material breach by Mr. Wadsworth, he shall be entitled to
100% of his then-current salary in the year following termination and 50% of
such annual compensation in the second and third year following termination and
all rights under the stock options and other benefits described above.
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CERTAIN TRANSACTIONS
PURCHASE OF AIRCRAFT FROM THE KALITTA COMPANIES
In September 1997, the Kalitta Companies sold to Kitty Hawk for $51.0
million 16 Boeing 727 aircraft, comprising 15 aircraft in freighter
configuration and one aircraft in passenger configuration. As part of the
transaction, the Kalitta Companies assigned to Kitty Hawk all of their customer
contracts relating to the aircraft sold. The agreement pursuant to which the
sale took place includes an option in favor of the Kalitta Companies to
repurchase 13 of the aircraft on or before March 31, 1998 at a price equal to
$37.0 million plus any costs incurred by Kitty Hawk to maintain the aircraft to
be repurchased, including compliance with Directives and noise reduction
standards. The agreement also includes an option in favor of Kitty Hawk to put
13 aircraft back to the Kalitta Companies on or before December 31, 1997 at the
same price as applies to the repurchase option. Should either party elect to
exercise its option, the Kalitta Companies would be obligated to operate the
repurchased aircraft to meet any contractual obligations of Kitty Hawk relating
thereto. In connection with the sale of these Boeing 727 aircraft, Kitty Hawk
entered into a three year ACMI contract with the Kalitta Companies to furnish
six Boeing 727s to the Kalitta Companies and one Boeing 727 to AIC.
PURCHASE OF SERVICES FROM AFFILIATES OF MR. KALITTA
Mr. Kalitta is the sole stockholder of AIT, OK and FOL, each of which
provided services to the other Kalitta Companies. AIT is a certified travel
agency that makes business travel arrangements for the employees of the Kalitta
Companies, particularly flight crews. OK repairs aircraft turbine engines for
small aircraft and leases and sells aircraft engine parts, but does not compete
with the aircraft maintenance operations of the other Kalitta Companies. OK does
business with KFS and over the three year period ended December 31, 1996, KFS
received parts and services from OK having fair market values of approximately
$151,000 in 1994, $150,000 in 1995 and $560,000 in 1996. No payments were made
to OK by KFS for these parts and services. During 1996, OK began leasing two
Hansa jets from KFS to provide cargo service for United Parcel Service. The fair
market value of the lease charges for that year was approximately $768,000. No
payments were made to KFS by OK for these lease amounts.
FOL is a charter manager for a variety of customers, including,
particularly, the Delco Electronics division of GM ("Delco") and provides
logistics services for Delco. FOL has used KFS to provide charter aircraft for
Delco. Over the two-year period ended December 31, 1996, FOL incurred KFS
charter fees with a fair market value of approximately $547,000 in 1995 and
$159,000 in 1996.
KFS has historically provided charter services and auxiliary power unit
maintenance for AIA. AIA has chartered KFS to ferry AIA flight and maintenance
crews and other AIA personnel, as well as airframe and engine parts. During the
three year ended December 31, 1996, the total charges of KFS to AIA were
approximately $605,000 in 1994, $1.3 million in 1995 and $1.5 million in 1996.
Mr. Kalitta is the sole shareholder of ConWes, Inc., which is a 50% joint
venture partner with National Aircraft Service, Inc. ("NAS"). NAS holds an STC
to replace a portion of the turbo-compressor in Douglas DC-8 aircraft for the
purpose of improving its heating, cooling and pressurization systems. NAS has
made these modifications to the Kalitta Companies' Douglas DC-8 aircraft for
which the joint venture was paid approximately $368,000 in 1996 and $96,000 in
1995.
TRANSACTIONS WITH A RELATIVE OF MR. KALITTA
One of the Kalitta Companies currently dry leases one Douglas DC-8-50
aircraft to Trans Continental Airlines, Inc. ("Trans Continental"), a
corporation owned solely by Scott Kalitta, Mr. Kalitta's son. The lease rate is
$1,000 per flight hour for the first 80 hours per month and $800 for each flight
hour per month thereafter, which the Company believes is representative of
market rates. The lease expires on December 31, 1998. In addition to providing
services to unrelated third parties, Trans Continental flies subcharter flights
for the Kalitta Companies and is part of the Kalitta Companies' "contractor
team" for U.S. Miliary charters. Beginning in December 1994, the Kalitta
Companies leased three Douglas DC-8 aircraft to Trans Continental at rates the
management of the Kalitta Companies believes represent fair market rates. In
December 1995,
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the Kalitta Companies sold Trans Continental a Douglas DC-8-62 for a purchase
price of $5.1 million. In March 1996, the Kalitta Companies sold Trans
Continental a Douglas DC-8-50 for a purchase price of $750,000 after Trans
Continental had completed a heavy maintenance check on this aircraft at its
cost. The management of the Kalitta Companies believes that it sold both of
these aircraft to Trans Continental at market rates.
The Kalitta Companies also have three service contracts with Trans
Continental, including an airframe maintenance agreement, an engine maintenance
agreement and a parts exchange agreement pursuant to which the Kalitta Companies
repair and replace parts for Trans Continental at the Kalitta Companies' cost
plus 10%. The Kalitta Companies believe that the labor rates provided for in
these agreements are more favorable than market rates. The Kalitta Companies and
Trans Continental also have a parts master lease agreement pursuant to which
Trans Continental leases aircraft parts from the Company at favorable rates.
Other than the engine maintenance agreement which expires on December 31, 1998,
either party may terminate any of these agreements at any time upon 30 days'
notice to the other. During the three years ended December 31, 1996, Trans
Continental paid the Kalitta Companies approximately $353,000 in 1994, $11.6
million in 1995 and $5.2 million in 1996 for aircraft and parts leases,
maintenance and parts.
LEASE OF FACILITIES FROM KALITTA AFFILIATES
The headquarters of the Kalitta Companies is owned by Kalitta, L.L.C., a
Michigan limited liability company that is 20% owned by Mr. Kalitta. The
remaining 80% is separately owned in equal shares by Mr. Kalitta's son, Scott
Kalitta, and Mr. Kalitta's nephew, Doug Kalitta. The Kalitta Companies have a 10
year "net" lease for the facility which expires on May 14, 2007 and which
obligates the Kalitta Companies to pay annual rent of approximately $712,800, as
well as all costs associated with the facility, including taxes, insurance,
capital repair and replacement and other operating expenses. Kalitta, L.L.C.,
however, assumed the cost of all leasehold improvements and provides all of the
furniture and fixtures for the building as part of the lease rate. The limited
liability company purchased the building in December 1996 for approximately $2.3
million. The Company believes that this rental rate may be greater than the fair
market rent for the building. Pursuant to the Merger Agreement, Kitty Hawk will
obtain an appraisal of the fair market rental for the building by October 31,
1997. Kalitta, L.L.C. must then either terminate or modify the lease to reflect
the appraised rent.
LOAN TO AND GUARANTY OF INDEBTEDNESS OF KALITTA COMPANIES
In 1997, Mr. Kalitta has made a number of advances to the Kalitta Companies
to cover cash shortfalls. As of June 30, 1997, the total amount of such advances
was $300,462. Interest does not accrue on the amount advanced. Under the Merger
Agreement, the Kalitta Companies are obligated to repay these advances prior to
consummation of the Merger. In addition, essentially all of the indebtedness of
the Kalitta Companies is personally guaranteed by Mr. Kalitta. As of June 30,
1997, the total principal amount of the indebtedness so guaranteed was
approximately $248 million.
PROMOTIONAL ACTIVITIES
The Kalitta Companies have historically sponsored and generally provide all
of the financial support for the racing activities of Mr. Kalitta, his son Scott
Kalitta, and his nephew, Doug Kalitta, including the costs to build, maintain
and transport the race cars. Over the three years ended December 31, 1996, the
total payments made by the Kalitta Companies to support these activities were
approximately $2.6 million in 1994, $3.6 million in 1995 and $3.1 million in
1996. In return, the Kalitta Companies have received promotional benefits
including placement of the names of the Kalitta Companies on the vehicles and
relating promotional items, as well as the opportunity to entertain customers at
racing events. Pursuant to the Merger Agreement, Mr. Kalitta will form a new
entity to purchase the racing related assets now owned by the Kalitta Companies
for $350,000 on or before the consummation of the Merger. The Company will have
no ownership interest in this entity. The Company has agreed, however, to
sponsor the racing activities of the new entity for a period of three years in
an amount of up to $2.0 million per year. Consequently, the Company will have
the same promotional opportunities as those previously used by the Kalitta
Companies.
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LEGAL FEES
Mr. Kelsey, a future director of the Company, is currently the owner of
Kelsey Law Offices, P.C. For 1994, 1995 and 1996, the Kalitta Companies paid
Kelsey Law Offices, P.C. an aggregate of approximately $3.1 million in legal
fees. Mr. Kelsey will be paid additional amounts for 1997, including in
connection with the Transactions. For a description of legal fees paid to other
firms associated with related parties, see "Management -- Compensation Committee
Interlocks and Insider Participation."
GATX LITIGATION
In connection with the consummation of the Merger, the Company will enter
into an agreement with Mr. Kalitta that will provide that any amounts recovered
by the Company through the GATX Litigation shall be applied first to reimburse
the Company for its legal costs incurred in connection with the GATX Litigation
and then to correct the mechanical problems associated with the grounded Boeing
747s. Any additional amounts will be allocated 10% to the Company and 90% to Mr.
Kalitta. In the event the amounts recovered by the Company, if any, are
insufficient to reimburse the Company for its legal costs incurred in connection
with the GATX Litigation, Mr. Kalitta will reimburse the Company for the
unreimbursed portion of its legal costs related to the GATX Litigation incurred
after October 23, 1997.
PURCHASE OF AIRCRAFT
Prior to closing, the Kalitta Companies anticipate selling a Hawker
Siddeley HS-125 aircraft to Mr. Kalitta at the aircraft's appraised value.
CONSULTING ARRANGEMENTS
Following the consummation of the Merger, the Company intends to employ Mr.
Coonfield as a management consultant in connection with the integration of Kitty
Hawk and the Kalitta Companies. The Company anticipates Mr. Coonfield will
receive consulting fees in excess of $60,000 for these services.
OTHER TRANSACTIONS
For a description of other transactions with related parties, see
"Management -- Compensation Committee Interlocks and Insider Participation."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of October 13, 1997
(except as noted) by (i) each person known by the Company to own beneficially
more than 5% of the Company's Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company and (iv) all of the directors and
executive officers of the Company as a group. Except as noted, all shares shown
in the table below are held with sole voting and investment power, subject to
community property laws.
<TABLE>
<CAPTION>
SHARES OWNED SHARES SHARES OWNED
BENEFICIALLY BEING BENEFICIALLY
BEFORE THE OFFERING SOLD AFTER THE TRANSACTIONS
------------------- --------- ----------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER NUMBER PERCENT
---------------- --------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
M. Tom Christopher(1)......................... 6,673,436 63.8% 1,000,000 5,673,436 32.3%
Conrad Kalitta(1)(2)(3)....................... 0 -- 0 4,099,150 23.4%
Tilmon J. Reeves(1)........................... 184,424 1.8% 75,000 109,424 (4)
Richard R. Wadsworth(1)(5).................... 72,140 (4) 25,000 47,140 (4)
DIRECTORS:
Ted J. Coonfield(1)........................... 600 (4) 0 600 (4)
James R. Craig(1)(5).......................... 0 -- 0 0 --
George W. Kelsey(1)(3)........................ 0 -- 0 0 --
Philip J. Sauder(1)(3)........................ 0 -- 0 0 --
Lewis S. White(1)............................. 0 -- 0 0 --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (7 PERSONS)........................... 6,930,600 66.3% 1,100,000 9,929,750 56.6%
RCM Capital Management, L.L.C.(6)............. 953,800 9.1% 0 953,800 5.4%
Four Embarcadero Center, Suite 2900
San Francisco, California 94111
Skyline Asset Management, L.P.(7)............. 536,100 5.1% 0 536,100 3.1%
311 S. Wacker Drive, Suite 4500
Chicago, IL 60606
</TABLE>
- ---------------
(1) The address for this stockholder is 1515 West 20th Street, Dallas/Fort Worth
International Airport, Texas 75261.
(2) Mr. Kalitta will receive 4,099,150 shares of Common Stock upon consummation
of the Merger, of which 650,000 will be held in escrow for 42 months to
satisfy Mr. Kalitta's indemnification obligations, if any, under the Merger
Agreement. Mr. Kalitta will retain the right to vote such shares while they
are being held in escrow.
(3) Pursuant to the Merger Agreement, Messrs. Kalitta, Kelsey and Sauder will be
appointed to the Board of Directors.
(4) Less than 1%.
(5) Concurrently with the consummation of the Merger, Messrs. Craig and
Wadsworth will resign from the Board of Directors.
(6) Based upon a Schedule 13F filed with the Commission by such beneficial owner
for the quarter ended June 30, 1997. RCM Capital Management, L.L.C. ("RCM
Capital"), an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of such shares. RCM
Limited, L.P. ("RCM Limited") is the managing agent of RCM Capital and has
beneficial ownership of such shares only to the extent it may be deemed to
beneficially own such shares. RCM General Corporation is the general partner
of RCM Limited and has beneficial ownership of such shares only to the
extent it may be deemed to beneficially own such shares. RCM Capital is a
wholly owned subsidiary of Dresdner Bank AG ("Dresdner"), an international
banking organization headquartered in Frankfurt, Germany. Dresdner has
beneficial ownership of such shares only to the extent it may be deemed to
beneficially own such shares.
(7) Based upon a Schedule 13F filed with the Commission by such beneficial owner
for the quarter ended June 30, 1997.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Kitty Hawk consists of (i) 25,000,000
shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock. At October
13, 1997, the Company had approximately 1,300 holders of record and beneficial
owners of Common Stock with 10,451,807 shares outstanding and no shares of
Preferred Stock outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of any
outstanding shares of any preferred stock. See "Price Range of Common Stock and
Dividend Policy." In the event of any dissolution, liquidation or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
assets remaining after payment of all liabilities and liquidation preferences,
if any.
Except as otherwise required by law or the Certificate of Incorporation,
the holders of Common Stock are entitled to one vote per share on all matters
voted on by stockholders, including the election of directors. The Certificate
of Incorporation limits the aggregate voting power of non-U.S. persons to
22 1/2% of the votes voting on or consenting to any matter. See
"Business -- Government Regulation."
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of Common Stock are subject to the rights, preferences and
privileges granted to the holders of any series of preferred stock which the
Company may issue in the future.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, direct the issuance of fully authorized shares
of preferred stock in classes or series and may, at the time of issuance,
determine the powers, rights, preferences and limitations of each class or
series. Satisfaction of any dividend preferences on outstanding shares of
preferred stock would reduce the amount of funds available for the payment of
dividends on Common Stock. Also, holders of preferred stock would be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding up of the Company before any payment is made to the holders of Common
Stock. Under certain circumstances, the issuance of such preferred stock may
render more difficult or tend to discourage a merger, tender offer, or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
General. The Certificate of Incorporation and Bylaws of Kitty Hawk include
certain provisions that could have anti-takeover effects. The provisions are
intended to enhance the likelihood of continuity and stability in the
composition of and in the policies formulated by, the Board of Directors. These
provisions also are intended to help ensure that the Board of Directors, if
confronted by a surprise proposal from a third party that has acquired a block
of Common Stock of the Company, will have sufficient time to review the
proposal, to develop appropriate alternatives to the proposal and to act in what
the Board of Directors believes to be the best interests of the Company and its
stockholders. These provisions of the Certificate of Incorporation may not be
amended or repealed by the stockholders of the Company except upon the vote of
the holders of at least two-thirds of the outstanding shares of each class of
the Company's capital stock then entitled to vote thereon.
The following is a summary of the provisions contained in the Company's
Certificate of Incorporation and Bylaws and is qualified in its entirety by
reference to such documents in the respective forms filed as exhibits to the
Registration Statement of which this Prospectus forms a part. In addition,
pursuant to the Merger Agreement, the Company's Bylaws will be amended to add
certain other provisions. See "The Merger -- Bylaw Amendments Concerning
Governance of the Company and Stockholders' Agreement."
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Amendment of Bylaw Provisions. The Certificate of Incorporation provides
that Bylaw provisions may be adopted, altered, amended, or repealed only by the
affirmative vote of (i) at least two-thirds of the members of the Board of
Directors who are elected by the holders of Common Stock or (ii) the holders of
at least two-thirds of the outstanding shares of each class of the Company's
capital stock then entitled to vote thereon.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of Directors in a short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors.
Number of Directors; Removal. The Certificate of Incorporation provides
that the Board of Directors will fix the number of members of the Board of
Directors to consist of at least one member (plus such number of directors as
may be elected from time to time pursuant to the terms of any series of
preferred stock that may be issued and outstanding from time to time).
Under the Delaware General Corporation Law (the "DGCL"), in the case of a
corporation having a classified board, stockholders may remove a director only
for cause (unless the certificate of incorporation provides otherwise). The
Company's Certificate of Incorporation provides that a director may only be
removed for cause. "Cause" is defined in the Certificate of Incorporation to
mean that a director (i) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal, (ii) has
missed 12 consecutive meetings of the Board of Directors or (iii) has been
adjudged by a court of competent jurisdiction to be liable for gross negligence
or misconduct in the performance of his duties to the corporation in a matter of
substantial importance to the corporation and such adjudication has become final
and non-appealable. These provisions will preclude a stockholder from
simultaneously removing incumbent directors without cause and gaining control of
the Board of Directors by filling the vacancies created by such removal with its
own nominees.
Special Meetings. The Bylaws and Certificate of Incorporation provide that
special meetings of stockholders may be called by a majority of the Board of
Directors, the Chairman of the Board of Directors, or by any holder or holders
of at least 25% of any class of the Company's outstanding capital stock then
entitled to vote at the meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Bylaws establish an advance notice procedure with regard to
business proposed to be submitted by a stockholder at any annual or special
meeting of stockholders of the Company, including the nomination of candidates
for election as directors. The procedure provides that a written notice of
proposed stockholder business at any annual meeting must be received by the
Secretary of the Company not more than 180 days nor less than 120 days before
the first anniversary of the prior year's annual meeting or, in the event of a
special meeting, not more than 10 days after the notice of the special meeting.
Notice to Kitty Hawk from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"),
including such person's written consent to being named in a proxy statement as a
nominee and to serving as a director if elected.
The chairman of a meeting of stockholders may determine that a person is
not nominated in accordance with the nominating procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought before
such meeting in accordance with the Bylaw procedures, such business will not be
conducted at the meeting. Nothing in the nomination procedure or the business
will preclude discussion by any stockholder of any nomination or business
properly made or brought before the annual or any other meeting in accordance
with the foregoing procedures.
Limitations on Directors' Liability. The Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law, no
director shall be liable to the Company or its stockholders for
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monetary damages for breach of fiduciary duty as a director. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of fiduciary duty as a director
(including breaches resulting from gross negligence), except for liability (i)
for any breach of his duty of loyalty to the Company or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the DGCL (unlawful
payments of dividends or unlawful stock repurchases or redemptions) or (iv) for
any transaction from which the director derived an improper personal benefit.
This provision also will not limit the liability of directors under federal
securities laws for violations not involving a breach of fiduciary duty. This
elimination of liability for monetary damages permitted by Delaware law does not
alter the standard of conduct with which directors must comply nor does it
affect the availability of equitable relief to the Company and its stockholders.
Restrictions on Foreign Directors, Officers and Voting. The Company's
Certificate of Incorporation limits the aggregate voting power of non-U.S.
persons to 22 1/2% of the votes voting on or consenting to any matter.
Furthermore, the Bylaws do not permit non-U.S. citizens to serve as directors or
officers of the Company.
DELAWARE STATUTE
The Certificate of Incorporation of Kitty Hawk provides for the Company to
be subject to Section 203 of the DGCL ("Section 203"). Under Section 203,
certain transactions and business combinations between a corporation and an
"interested stockholder" owning 15% or more of the corporation's outstanding
voting stock are restricted, for a period of three years from the date the
stockholder becomes an interested stockholder. Generally, Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to or receipt of disproportionate financial benefits by, the interested
stockholder, or any other transaction that would increase the interested
stockholder's proportionate ownership of any class or series of the Company's
capital stock unless (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, has been approved by the
Board of Directors before the person becomes an interested stockholder; (ii) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the Company in the same transaction that makes it an interested stockholder; or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Board of Directors and by the holders of
at least two-thirds of the Company's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of material terms of certain indebtedness of the
Company and is qualified in its entirety by reference to the related underlying
documents, copies of which are filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
PRE-TRANSACTION DEBT
During August 1996, Kitty Hawk entered into a Credit Agreement with WFB and
BOT. This Credit Agreement relates to a $15 million Revolving Credit Facility,
an approximate $12 million Term Loans A Facility, an approximate $11.2 million
Term Loans B Facility and a $10 million Term Loans C Facility (collectively, the
"Commitments"). As of September 30, 1997, approximately $7.7 million was
outstanding under the Revolving Credit Facility, approximately $10.1 million was
outstanding under Terms Loans A, approximately $9.6 million was outstanding
under Term Loans B and approximately $5.4 million was outstanding under Term
Loans C. These Commitments bear interest at WFB's prime rate, or at Kitty Hawk's
option, the Eurodollar rate plus 1.5% to 2.0%, based upon a debt-to-cash flow
ratio of Kitty Hawk.
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In connection with consummation of this Common Stock Offering and the Note
Offering, the Company intends to repay all outstanding borrowings under the
Commitments.
Kitty Hawk also has two loans with 1st Source Bank. As of September 30,
1997, the outstanding balance of the first loan was approximately $791,000. The
loan bears interest at 9.75%, is secured by a DC-9-15F and matures in May 2000.
As of September 30, 1997, the outstanding balance of the second loan was
approximately $1.2 million. The loan bears interest at 8.5%, is secured by a
DC-9-15F and matures in July, 2002. The 1st Source loans contain certain
aircraft maintenance covenants and provides that a change in Kitty Hawk'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 connection with the
consummation of this Common Stock Offering and the Note Offering, the Company
intends to discharge this debt.
In November 1996, in connection with Kitty Hawk's acquisition of a
one-third undivided interest in four Falcon 20 jet aircraft, Kitty Hawk 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.
Kitty Hawk's liability under such loan is limited to $2.0 million. This debt
will remain outstanding following consummation of this Common Stock Offering and
the Note Offering.
In September 1997, Kitty Hawk purchased 16 Boeing 727 aircraft from the
Kalitta Companies for an aggregate cash consideration of approximately $51
million. The purchase of this aircraft was financed by a $45.9 million term loan
with WFB. This loan bears interest at the applicable rate under the Credit
Agreement, plus 1.0% from January 1 through December 31, 1999 and 1.5% beginning
January 1, 2000 and matures on June 30, 2001. Interest only is payable through
March 31, 1998. The term loan begins to amortize on June 30, 1998 with equal
quarterly installments of principal and interest until maturity. This debt will
be refinanced in connection the Term Loan. See "-- New Credit Facility and Term
Loan."
As of June 30, 1997, total indebtedness of the Kalitta Companies for money
borrowed was approximately $248.3 million. Approximately $131.1 million of this
indebtedness accrues interest at fixed rates ranging from 6.4% to 18.0% per
annum, while the remainder accrues interest at variable rates ranging from one
percent to four percent over a specified per annum prime or other base rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- The Kalitta Companies."
Substantially all of this indebtedness has been reclassified as current. All of
this indebtedness will be retired with the net proceeds of this Common Stock
Offering and the Note Offering, subject to payment of approximately $3 million
in prepayment penalties. See "Use of Proceeds."
NEW CREDIT FACILITY AND TERM LOAN
The Term Loan will be incurred to refinance the indebtedness incurred in
September 1997 to finance the acquisition of 16 Boeing 727s from the Kalitta
Companies. The Term Loan will mature five years after issuance and will be
payable in equal quarterly principal installments of $2.25 million commencing in
1999 and ending in 2002, with a balance of approximately $12.15 million due at
maturity. Interest on the Term Loan will accrue initially at LIBOR plus 2.75% or
the Base Rate plus 1.25%, subject to reduction. See "Description of Certain
Indebtedness." The Base Rate is WFB's Prime Rate or the Federal Funds Rate plus
.5%. The Term Loan will be secured by accounts receivable, all inventory
(including rotables), intangibles and contract rights, cash and the 16 Boeing
727s and related engines recently acquired from the Kalitta Companies.
The Company will enter into the New Credit Facility with WFB, individually
and as agent for various lenders, which will provide the Company with up to $100
million in revolving loans to be secured by the same collateral as the Term
Loan. The facility will bear interest initially at LIBOR plus 2.5% or the Base
Rate plus 1%, subject to adjustment within the same parameters as the Term Loan.
Borrowings under the New Credit Facility will be subject to a Borrowing Base (as
defined) and will mature five years from execution of the New Credit Facility.
The New Credit Facility and the Term Loan contain certain financial and
other covenants customary to similar financings including, without limitation, a
prohibition on changes in the Company's business, a
95
<PAGE> 97
prohibition on sales of all or substantially all the Company's assets,
limitations on mergers, certain acquisitions, reorganizations and liens,
restrictions on debt incurrence, dividends and distributions, and various
financial ratios. In addition, the New Credit Facility and Term Loan subject the
Company to limits on capital expenditures in excess of $90 million for fiscal
year 1998. Finally, the New Credit Facility and Term Loan contain events of
default customary in similar financings.
SENIOR SECURED NOTES
Consummation of the Common Stock Offering is conditioned upon consummation
of the Note Offering. The Notes will mature seven years after issuance and will
be issued in an aggregate principal amount of approximately $340 million. The
Notes are expected to bear interest at a rate of approximately 10% per annum,
payable in cash semiannually. The Notes will be secured by certain of the
Company's aircraft and the Optioned Boeing 747s. The Notes will be guaranteed on
a senior secured basis by substantially all of the Company's subsidiaries, other
than AIC. The Notes will be redeemable at the Company's option, beginning in
2002, at a premium. Up to 35% of the Notes will also be redeemable at the
Company's option, until 2000, with proceeds from public equity offerings. The
Notes will be initially issued under Rule 144A, but will be required to be
exchanged for Notes of substantially identical terms registered under the
Securities Act.
The Indenture will contain the following restrictive covenants, among
others: limitation on indebtedness; limitation on restricted payments (including
dividends); limitation on dividend restrictions of subsidiaries; limitation on
capital stock of subsidiaries; limitation on transactions with affiliates;
limitation on liens; limitation on sale-leaseback transactions; limitation on
asset sales; and limitation on mergers and similar transactions. In addition,
the Notes will be redeemable, at the holder's option, upon a change of control
of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Common Stock Offering, 17,550,957 shares
(18,165,957 shares if the Underwriters' over-allotment option is exercised in
full) of Common Stock will be outstanding. The 4,100,000 shares (4,715,000
shares if the Underwriters' over-allotment option is exercised in full) of
Common Stock sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless acquired by
"affiliates" of the Company. Pursuant to Rule 144 under the Securities Act, upon
completion of this Common Stock Offering, 9,929,150 shares of Common Stock will
be deemed "restricted securities" within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares") and may be resold to the extent
permitted under Rule 144 and Rule 701 of the Securities Act or under any
exemption under the Securities Act.
Under the terms of a Stockholders' Agreement to be entered into
contemporaneously with the Merger, Messrs. Christopher and Kalitta will have
incidental registration rights for the ten-year period commencing with the
Closing, subject to customary cutback and exclusion provisions; provided that
the number of shares proposed to be sold by either Mr. Christopher or Mr.
Kalitta in any such registration shall not be less than 50,000 shares.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an "affiliate," who has beneficially
owned his or her shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company or (if applicable) the date
they were acquired from an "affiliate," is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the then outstanding shares during the four calendar weeks
preceding each such sale. Sales under Rule 144 also are subject to certain
manner of sale restrictions and notice requirements and to the availability of
current public information concerning the Company. A person (or persons whose
shares are aggregated) who is not deemed an "affiliate" of the Company and has
not been an affiliate of the Company for at least the prior three months and who
has owned shares for at least two years (including the holding period of any
prior owner except an affiliate), is entitled to sell such shares under Rule 144
without regard to the volume limitations and the other conditions described
above. As defined in Rule 144, an "affiliate" of an issuer is a
96
<PAGE> 98
person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under the common control
with, such issuer.
Any employee, officer, or director of Kitty Hawk who purchases his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701 under the Securities Act, which permits
non-affiliates, subject to the limitations and requirements of Rule 701, to sell
their Rule 701 shares without having to comply with the public information,
holding period, volume limitations, or notice provisions of Rule 144 and permits
affiliates, subject to the limitations and restrictions of Rule 701, to sell
their Rule 701 shares without having to comply with Rule 144's holding period
restrictions, in each case commencing 90 days from the date of this Prospectus.
The Company has filed registration statements under the Securities Act
covering 600,000 shares of Common Stock reserved for issuance under the Plans.
See "Management -- Employee Compensation Plans and Arrangements." As of the date
hereof, 1,807 shares had been issued under the Plans. Shares registered under
such registration statements are available for sale in the open market when
issued pursuant to the Plans, subject to Rule 144 volume limitations applicable
to affiliates and provisions of the Plans, including vesting.
Messrs. Christopher, Kalitta, Reeves and Wadsworth, who collectively will
hold 9,929,150 shares of Common Stock in the aggregate after this Common Stock
Offering, along with the Company and its other directors and executive officers
have agreed that, for a period of 90 days from the date of this Prospectus, they
will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, Common Stock, except for up to 10,000 shares issuable pursuant
to the Plans. Such consent of Morgan Stanley & Co. Incorporated may be provided
without notice to purchasers of the Common Stock or to officials of the Nasdaq
National Market System. See "Management -- Employee Compensation Plans and
Arrangements."
97
<PAGE> 99
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated, Scott & Stringfellow, Inc. and Fieldstone FPCG Services, L.P. are
acting as Representatives, have severally agreed to purchase, and the Company
and the Selling Stockholders have agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the name of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BT Alex. Brown Incorporated.................................
Scott & Stringfellow, Inc. .................................
Fieldstone FPCG Services, L.P. .............................
---------
Total............................................. 4,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
Each Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of the Company's Common Stock being sold
in this Common Stock Offering, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of shares of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
Underwriter has further agreed to send to any dealer who purchases from it any
of the shares of Common Stock a notice stating in substance that, by purchasing
such shares, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such shares in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer or sale of shares of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made, and
that such dealer will deliver to any other dealer to whom it sells any of such
shares a notice containing substantially the same statement as is contained in
this sentence.
The Underwriters initially propose to offer the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the public offering price and
other selling terms may from time to time be varied by the Representatives.
98
<PAGE> 100
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days after the date of this
Prospectus, to purchase up to an aggregate of 615,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered by the Underwriters hereby.
The Company and each director and executive officer has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of this Prospectus, (i) register for sale, issue, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (other than shares of Common Stock acquired in the open market
after the date of this Prospectus) or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, other than (x) the shares
of Common Stock to be sold hereunder, and (y) 10,000 shares issuable pursuant to
the Plans.
In order to facilitate this Common Stock Offering, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may over-allot in connection
with this Common Stock Offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the Underwriters may reclaim selling
concessions allowed to an Underwriter or a dealer for distributing the Common
Stock in this Common Stock Offering, if the Underwriters repurchase previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during the specified two month prior period,
or 200 shares, whichever is greater. A passive market maker must identify
passive market making bids as such on the Nasdaq electronic inter-dealer
reporting system. Passive market making may stabilize or maintain the market
price of the Common Stock above independent market levels. Underwriters and
dealers are not required to engage in passive market making and may end passive
market making activities at any time.
BT Alex. Brown Incorporated, one of the Underwriters, rendered a fairness
opinion to the Company in connection with the Merger and received customary fees
for rendering such opinion. Fieldstone FPCG Services, L.P., one of the
Underwriters, and its affiliates have provided investment banking services to
the Company from time to time, for which it has received customary fees,
including acting as financial advisor and placement agent in connection with the
Company's issuance of senior secured debt and as financial advisor to Kitty Hawk
and the Kalitta Companies in connection with the Merger.
99
<PAGE> 101
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company and the Selling Stockholders
by Haynes and Boone, LLP, Dallas, Texas. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Shearman &
Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Kitty Hawk, Inc., at August 31,
1995 and 1996 and at December 31, 1996 and for each of the three years in the
period ended August 31, 1996 and for the four month period ended December 31,
1996, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of American International Airways, Inc.
and related companies as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996, included in this Prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere (which report expresses
an unqualified opinion and includes an explanatory paragraph which indicates
that there are matters that raise substantial doubt about the ability of
American International Airways, Inc. and related companies to continue as a
going concern), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act. In accordance with the Exchange Act, the Company files reports, proxy and
information statements and other information with the Commission. The reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities that the Commission maintains at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies
of these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Such documents may also be obtained at the
Web site maintained by the Commission (http://www.sec.gov). In addition, copies
of documents relating indebtedness of Kitty Hawk and the Kalitta Companies
existing prior to the Refinancings may be obtained from the Company at 1515 West
20th Street, Dallas/Fort Worth International Airport, Texas 75261, (972)
456-2200. The Company's Common Stock is quoted on the Nasdaq National Market and
such reports, proxy and information statements and other information may be
inspected at the National Association of Securities Dealers, Inc., 1735 K.
Street N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-1 (the "Registration Statement") under the Securities Act, with respect to the
Common Stock. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in the Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description and
each such statement shall be deemed qualified in its entirety by such reference.
100
<PAGE> 102
INDEX TO FINANCIAL STATEMENTS
KITTY HAWK, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996
and December 31, 1996..................................... F-3
Consolidated Statements of Income for the years ended August
31, 1994, 1995 and 1996 and for the four months ended
December 31, 1995 (unaudited) and 1996.................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended August 31, 1994, 1995 and 1996 and for the
four months ended December 31, 1996....................... F-5
Consolidated Statements of Cash Flows for the years ended
August 31, 1994, 1995 and 1996 and for the four months
ended December 31, 1995 (unaudited) and 1996.............. F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet as of June 30, 1997
(unaudited)............................................... F-17
Condensed Consolidated Statements of Operations for the six
month periods ended June 30, 1996 and 1997 (unaudited).... F-18
Condensed Consolidated Statement of Stockholders' Equity for
the six months ended June 30, 1997 (unaudited)............ F-19
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1996 and 1997 (unaudited).... F-20
Notes to Condensed Consolidated Financial Statements........ F-21
THE KALITTA COMPANIES (AMERICAN INTERNATIONAL AIRWAYS, INC. AND
RELATED COMPANIES)
Independent Auditors' Report................................ F-23
Combined Balance Sheets at December 31, 1995 and 1996 and
June 30, 1997 (unaudited)................................. F-24
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the six month periods
ended June 30, 1996 and 1997 (unaudited).................. F-25
Combined Statements of Stockholder's Equity for the years
ended December 31, 1994, 1995 and 1996 and the six months
ended June 30, 1997 (unaudited)........................... F-26
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the six month periods
ended June 30, 1996 and 1997 (unaudited).................. F-27
Notes to Combined Financial Statements...................... F-29
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT AUDITORS
Stockholders
Kitty Hawk, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kitty Hawk,
Inc. and subsidiaries as of August 31, 1995 and 1996 and December 31, 1996 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended August 31, 1996 and for
the four months ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kitty Hawk,
Inc. and subsidiaries at August 31, 1995 and 1996 and December 31, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 and for the four months ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 7, 1997
F-2
<PAGE> 104
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents....................... $ 3,801,378 $ 5,763,904 $ 27,320,402
Trade accounts receivable....................... 12,967,734 14,195,990 37,828,018
Income tax receivable........................... -- 765,395 --
Deferred income taxes........................... 50,410 156,562 107,564
Inventory and aircraft supplies................. 98,386 1,713,812 2,789,982
Prepaid expenses and other assets............... 797,825 918,929 1,143,989
Deposits on aircraft............................ -- -- 5,438,628
----------- ------------ ------------
Total current assets.................... 17,715,733 23,514,592 74,628,583
Property and equipment
Aircraft........................................ 36,179,455 53,695,320 53,140,853
Aircraft work-in-progress....................... -- 13,476,355 6,732,878
Machinery and equipment......................... 1,425,272 1,776,319 2,680,692
Leasehold improvements.......................... -- 75,313 778,879
Furniture and fixtures.......................... 251,349 166,057 166,057
Transportation equipment........................ 176,057 236,708 289,499
----------- ------------ ------------
38,032,133 69,426,072 63,788,858
Less: accumulated depreciation and
amortization................................. (7,794,332) (13,112,786) (15,390,015)
----------- ------------ ------------
Net property and equipment.............. 30,237,801 56,313,286 48,398,843
----------- ------------ ------------
Total assets...................................... $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 9,327,109 $ 12,952,180 $ 8,853,292
Accrued expenses................................ 1,336,696 1,580,465 23,668,609
Income taxes payable -- -- 2,526,737
Accrued maintenance reserves.................... 2,026,255 2,323,466 2,373,157
Revolving Credit Facility for aircraft
acquisitions expected to be refinanced....... -- 10,000,000 --
Current maturities of long-term debt............ 3,278,553 3,620,240 3,687,888
----------- ------------ ------------
Total current liabilities............... 15,968,613 30,476,351 41,109,683
Long-term debt.................................... 13,702,652 23,291,302 21,080,452
Deferred income taxes............................. 1,316,365 2,421,480 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 -- 7,423,436 and 7,967,710 at
August 31, 1995 and 1996, respectively and
10,669,517 at December 31, 1996.............. 74,234 79,677 106,695
Additional paid-in capital...................... -- 4,635,524 33,968,700
Retained earnings............................... 16,891,670 20,999,846 26,293,298
Less common stock in treasury, 217,710 shares at
August 31, 1996 and December 31, 1996........ -- (2,076,302) (2,076,302)
----------- ------------ ------------
Total stockholders' equity.............. 16,965,904 23,638,745 58,292,391
----------- ------------ ------------
Total liabilities and stockholders' equity........ $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 105
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------ -------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier... $ 28,284,894 $ 41,117,564 $ 52,921,762 $17,994,371 $20,577,072
Air logistics......... 79,414,952 62,592,819 89,492,974 51,733,438 39,408,484
------------ ------------ ------------ ----------- -----------
Total
revenues.... 107,699,846 103,710,383 142,414,736 69,727,809 59,985,556
------------ ------------ ------------ ----------- -----------
Costs of revenues:
Air freight carrier... 19,549,833 28,104,280 38,760,430 11,684,882 13,784,331
Air logistics......... 73,401,606 57,428,344 80,139,570 45,996,786 33,795,567
------------ ------------ ------------ ----------- -----------
Total costs of
revenues.... 92,951,439 85,532,624 118,900,000 57,681,668 47,579,898
------------ ------------ ------------ ----------- -----------
Gross profit............ 14,748,407 18,177,759 23,514,736 12,046,141 12,405,658
General and
administrative
expenses.............. 6,012,975 7,832,167 9,079,891 2,861,518 2,724,763
Non-qualified employee
profit sharing
expense............... 731,862 1,000,957 1,169,880 889,046 962,263
Stock option grants to
executives......... -- -- 4,230,954 -- --
------------ ------------ ------------ ----------- -----------
Operating income........ 8,003,570 9,344,635 9,034,011 8,295,577 8,718,632
Other income (expense):
Interest expense...... (342,502) (1,184,921) (1,859,284) (481,670) (684,173)
Contract settlement
income, net........ 1,177,742 -- -- -- --
Loss on asset
disposal........... -- -- (589,049) -- --
Other, net............ (431,957) (600,667) 291,255 37,507 625,910
------------ ------------ ------------ ----------- -----------
Income before income
taxes................. 8,406,853 7,559,047 6,876,933 7,851,414 8,660,369
Income taxes............ 3,146,157 3,142,653 2,767,744 3,096,769 3,366,917
------------ ------------ ------------ ----------- -----------
Net income.............. $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
============ ============ ============ =========== ===========
Net income per share.... $ 0.66 $ 0.55 $ 0.52 $ 0.60 $ 0.55
============ ============ ============ =========== ===========
Weighted average common
and common equivalent
shares outstanding.... 7,967,710 7,967,710 7,927,856 7,967,710 9,609,920
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 106
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
----------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993.............. 10,604,908 $106,048 $ -- $ 7,243,766 $ (61,000) $ 7,288,814
Retirement of treasury stock in
connection with the Kitty Hawk, Inc.
merger.............................. (3,181,472) (31,814) -- (29,186) 61,000 --
Net income............................ -- -- -- 5,260,696 -- 5,260,696
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1994.............. 7,423,436 74,234 -- 12,475,276 -- 12,549,510
Net income............................ -- -- -- 4,416,394 -- 4,416,394
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1995.............. 7,423,436 74,234 -- 16,891,670 -- 16,965,904
Stock option grants to
executives.......................... -- -- 4,230,954 -- -- 4,230,954
Exercise of employee stock options
(See Note 1)........................ 544,274 5,443 -- (1,013) -- 4,430
Purchase of treasury stock, 217,710
shares, at cost..................... -- -- -- -- (2,076,302) (2,076,302)
Tax benefit of stock option grants to
executives.......................... -- -- 404,570 -- -- 404,570
Net income............................ -- -- -- 4,109,189 -- 4,109,189
----------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1996.............. 7,967,710 79,677 4,635,524 20,999,846 (2,076,302) 23,638,745
Shares sold in initial public
offering.............................. 2,700,000 27,000 29,311,510 -- -- 29,338,510
Shares issued to employees under the
Annual Incentive Compensation Plan.... 1,807 18 21,666 -- -- 21,684
Net income for the four months ended
December 31, 1996..................... -- -- -- 5,293,452 -- 5,293,452
----------- -------- ----------- ----------- ----------- -----------
Balance at December 31, 1996............ 10,669,517 $106,695 $33,968,700 $26,293,298 $(2,076,302) $58,292,391
=========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 107
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------ ---------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income......................... $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
Adjustments to reconcile net income
net cash provided by operating
activities:
Depreciation and amortization.... 1,935,348 4,095,156 6,873,033 1,681,489 3,201,903
Loss on disposal of property and
equipment...................... 62,251 -- 589,049 -- --
Aircraft received in contract
settlement..................... (750,000) -- -- -- --
Deferred income taxes............ (638,568) 732,795 998,963 -- 172,418
Stock option grants to
executives..................... -- -- 4,230,954 -- --
Changes in operating assets and
liabilities:
Trade accounts receivable...... (8,036,613) 2,673,139 (1,228,256) (27,954,848) (23,632,028)
Contract settlement
receivable.................. 3,500,000 -- -- -- --
Receivables from affiliates.... (53,035) 481,297 -- -- --
Income taxes receivable........ -- -- (765,395) -- 765,395
Inventory and aircraft
supplies.................... (19,778) 23,285 (1,615,426) (298,872) (1,076,170)
Prepaid expenses and other..... 283,342 (532,693) (121,104) (5,854,576) (5,663,688)
Accounts payable and accrued
expenses.................... 4,063,034 (2,379,510) 3,868,840 19,622,927 17,989,256
Accrued maintenance reserves... 379,535 1,429,886 297,211 281,184 49,691
Income taxes payable........... 1,614,521 (1,883,898) -- 2,782,766 2,526,737
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... 7,600,733 9,055,851 17,237,058 (4,985,285) (373,034)
Investing activities:
Proceeds from sale of assets....... -- -- -- -- 18,508,431
Capital expenditures............... (13,875,983) (17,929,106) (33,537,567) (174,697) (13,795,891)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities............... (13,875,983) (17,929,106) (33,537,567) (174,697) 4,712,540
Financing activities:
Proceeds from issuance of common
stock............................ -- -- 4,430 -- 29,338,510
Proceeds from issuance of long-term
debt............................. 10,916,656 9,911,240 23,117,000 5,725,000 1,500,000
Repayments of long-term debt....... (2,747,533) (2,074,970) (3,186,663) (1,011,103) (13,643,202)
Acquisition of treasury shares..... -- -- (2,076,302) -- --
Shares issued under Annual
Incentive Compensation Plan...... -- -- -- -- 21,684
Tax benefit of stock option grant
to executives.................... -- -- 404,570 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities......................... 8,169,123 7,836,270 18,263,035 4,713,897 17,216,992
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... 1,893,873 (1,036,985) 1,962,526 (446,085) 21,556,498
Cash and cash equivalents at
beginning of period................ 2,944,490 4,838,363 3,801,378 3,801,378 5,763,904
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period............................. $ 4,838,363 $ 3,801,378 $ 5,763,904 $ 3,355,293 $ 27,320,402
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 108
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight
services through two related businesses (i) an air freight carrier and (ii) an
air logistics service provider, all primarily in North America. The Company
provided air logistics services to one customer which accounted for
approximately 63%, 47%, 41% and 16% of its total revenues in fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.
Related accounts receivable from this customer at August 31, 1995 and 1996 and
December 31, 1996, were approximately $5,089,000, $4,915,000 and $2,156,000,
respectively. The contract for these services is effective through May 31, 1997;
however, such contract may be canceled by either party with 30 days notice.
Another customer accounted for approximately 10%, 10%, 15% and 44% of the
Company's total revenues in fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively. Related accounts receivable from
this customer at August 31, 1995 and 1996 and December 31, 1996 were
approximately $22,000, $0 and $27,086,000, respectively. The Company generally
sells on open accounts with 30-day terms and does not require collateral for
credit sales.
On December 4, 1996, the Company elected to change its fiscal year end to
December 31. Operating results for the four month period ended December 31, 1996
are not necessarily indicative of the results that may be expected for a
calendar year. Operating results for the four month period ended December 31,
1995 (unaudited) include all adjustments management believes are necessary for a
fair presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods over estimated useful lives ranging
from three to ten years. Convair and DC-9 airframes are fully depreciated over
the period remaining to the next major airframe overhaul since the Company does
not expect to perform major airframe overhauls on these aircraft. Boeing 727-200
airframes are fully depreciated over an estimated useful life of ten years.
Costs relating to major airframe overhauls are capitalized as incurred and
amortized over the estimated number of flight hours until the next overhaul (the
deferral method). No major airframe overhauls have been performed on the
Company's aircraft since their respective dates of acquisition.
With respect to aircraft engines, the useful life is the estimated number
of flight hours remaining until the next required engine overhaul.
Income Taxes
Income taxes have been provided using the liability method in accordance
with the Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.
Revenue Recognition
Revenues are recognized as services are provided.
F-7
<PAGE> 109
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and 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 years ended August 31, 1994,
1995 and 1996.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and held in banks, money market funds and other investments with
original maturities of three months or less.
Inventory
Inventory consists of aircraft parts and supplies and is stated at the
lower of average cost or market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation utilizing Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Under the provisions of SFAS No. 123, the Company
has elected to continue to apply the provisions of APB Opinion No. 25 to its
stock-based compensation arrangements and provide supplementary financial
statement disclosures as required under SFAS No. 123.
Reorganization
In October, 1994, Kitty Hawk, Inc. was organized as a wholly-owned
subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with
Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection
therewith, each outstanding share of Group common stock was exchanged for
106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held
in treasury was retired. The accompanying consolidated financial statements
present the effects of the merger on a retroactive basis.
Reclassifications
Certain amounts from prior years have been reclassified to conform to
current year presentation.
Stock Split
On June 28, 1996 the Company approved a 1.2285391-for-1 stock split
effected as a stock dividend. All references to common stock and per share data
have been restated to give effect to the split.
F-8
<PAGE> 110
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
(1) Note payable, bearing interest at prime
plus 1.75% payable in 48 monthly
installments of $25,021 plus interest,
with a maturity date of December 1996... $ 350,291 $ 50,042 $ --
(2) Note payable, bearing interest at 9.75%
payable in 18 monthly installments of
interest only and 42 monthly
installments of $28,212 including
interest beginning December 1996, with a
maturity date of May 2000; secured by a
Douglas DC-9 aircraft, with a carrying
value of approximately $940,000 at
December 31, 1996....................... 1,000,500 1,000,500 980,417
(3) Note payable, bearing interest at an
adjusted Eurodollar rate plus 1.50% to
2.00% based upon a fixed charge coverage
ratio of the Company (7.125% at December
31, 1996), payable in 28 quarterly
installments plus interest beginning
September 1996, with a maturity date of
June 2003; secured by two Boeing 727-200
aircraft, with a carrying value of
approximately $11,036,000 at December
31, 1996................................ -- 11,225,000 10,605,923
(4) Note payable, bearing interest at an
adjusted Eurodollar rate plus 1.50% to
2.00% based upon a fixed charge coverage
ratio of the Company (7.125% at December
31, 1996), payable in 23 quarterly
installments of $531,000 plus interest
beginning September 1996, with a
maturity date of June 2002; secured by
four Douglas DC-9 aircraft and four
Boeing 727-200 aircraft, with a net
carrying value of approximately
$17,918,000 at December 31, 1996........ -- 12,744,000 11,682,000
(5) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.25%
payable in 21 quarterly installments of
$153,354 plus interest, with a maturity
date of September 1999. (See (4)
above.)................................. 2,607,021 -- --
(6) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.25%
payable in 71 monthly installments of
$76,891 plus interest, with a maturity
date of October 2000. (See (4)
above.)................................. 4,767,245 -- --
(7) Note payable, bearing interest at an
adjusted Eurodollar rate plus 2.00%
payable in 72 monthly installments of
$60,517 plus interest, with a maturity
date of March 2001. (See (4) above.).... 4,054,641 -- --
</TABLE>
F-9
<PAGE> 111
<TABLE>
<S> <C> <C> <C>
(8) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.00% payable in 72 monthly
installments of $59,077 plus interest, with a
maturity date of July 2001. (See (4) above.)...... 4,201,507 -- --
(9) Revolving Credit Facility for general corporate
purposes.......................................... -- 1,892,000 1,500,000
------------- ------------- -------------
16,981,205 26,911,542 24,768,340
Less current portion.................................. 3,278,553 3,620,240 3,687,888
------------- ------------- -------------
$ 13,702,652 $ 23,291,302 $ 21,080,452
============= ============= =============
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 3,687,888
1998........................................................ 5,317,534
1999........................................................ 3,958,056
2000........................................................ 3,911,104
2001........................................................ 3,900,557
Thereafter.................................................. 3,993,201
-----------
$24,768,340
===========
</TABLE>
During August 1996, the Company entered into a new Credit Agreement (notes
(3), (4) and (9) above) with a bank and refinanced a portion of the existing
notes payable. Proceeds of note (4) in the amount of $12,744,000 were used to
pay down the outstanding balances of the existing notes payable (notes (5), (6),
(7) and (8)).
The Credit Agreement subjects the Company to financial covenants, including
fixed charge coverage, cash flow and leverage ratios. In addition, the Credit
Agreement prohibits redemption of Company securities, certain investments
outside the Company's line of business, transactions with affiliates and
additional indebtedness without prior consent of the Bank. The Credit Agreement
also limits the ability of the Company to change its line of business and limits
the payment of dividends.
At December 31, 1996 the Company has outstanding two interest rate swap
agreements with the commercial bank to whom note (3) is payable, having a total
notional principal amount of $11,225,000. These swap agreements effectively
change the interest rate exposure on note (3) to a fixed 7.75 percent. The
notional principal amounts of the interest rate swaps reduce in proportion to
required principal reductions on the related note. The Company is exposed to
credit loss in the event of nonperformance by the other party in the interest
rate swap agreements. However, the Company does not anticipate nonperformance by
the counterparty. Based on a quote provided by the bank, these swap agreements
could have been terminated at December 31, 1996 in exchange for a payment to the
Company of $106,059.
Under the Credit Agreement, the Company also has a $15 million Revolving
Credit Facility available, of which $10 million is restricted for interim
financing of up to $6.5 million per aircraft for aircraft acquisitions by the
Company; the remaining $5 million is for general corporate purposes, including
interim financing for acquired aircraft that exceeds the limits that apply to
the restricted portion. Any advance under the portion that is restricted to
interim financing for aircraft acquisition ($0 at December 31, 1996) must be
repaid in full within 150 days of first advance for the acquired aircraft. The
outstanding balance of the Revolving Credit Facility results from borrowings in
connection with working capital requirements. The Revolving Credit
F-10
<PAGE> 112
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Facility bears interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based
upon a fixed charge coverage ratio of the Company or at prime (8.25% at December
31, 1996). The Revolving Credit Facility expires on December 31, 1998 and $13.5
million was available to be borrowed by the Company at December 31, 1996.
Under the Credit Agreement, the Company also has a $10 million facility
available to finance the purchase of one DC-9-15F hushkit and up to seven major
maintenance checks for jet aircraft. The funds will be available to the Company
until April 29, 1998 and any borrowings under this facility mature March 31,
2003. At December 31, 1996, the entire $10 million was available to the Company.
At December 31, 1996, the Company had approximately $1,400,000 in standby
letters of credit outstanding.
All amounts outstanding under the Credit Agreement are cross-collateralized
and are secured by certain aircraft owned by the Company, all aircraft acquired
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.
Based upon the variable interest rates provided for in the substantial
majority of the Company's long-term debt, management believes the fair value of
its long-term debt approximates its carrying value at December 31, 1996.
In connection with the Company's recent acquisition of a one-third
undivided interest in four Falcon 20 jet aircraft, the co-owners of the aircraft
entered into a five year, $4.3 million term loan, bearing interest at a floating
prime rate, which is secured by all four Falcon 20 aircraft and requires monthly
payments of principal and interest. The co-owners leased the aircraft to an air
carrier affiliated with one of the co-owners. The lease calls for monthly lease
payments which exceed the installments on the term loan. The Company's liability
under this term loan is limited to $2.0 million.
The Company made cash interest payments of $280,754, $1,088,928, $1,765,523
and $664,164 during fiscal years ended 1994, 1995, 1996 and for the four months
ended December 31, 1996, respectively.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------ ------------
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current income tax:
Federal........................... $3,434,725 $1,829,723 $1,352,390 $ 2,768,672
State............................. 350,000 580,135 416,391 425,827
---------- ---------- ---------- ------------
Total current income
tax..................... 3,784,725 2,409,858 1,768,781 3,194,499
---------- ---------- ---------- ------------
Deferred income tax:
Federal........................... (608,460) 627,993 758,138 141,169
State............................. (30,108) 104,802 240,825 31,249
---------- ---------- ---------- ------------
Total deferred income
tax..................... (638,568) 732,795 998,963 172,418
---------- ---------- ---------- ------------
$3,146,157 $3,142,653 $2,767,744 $ 3,366,917
========== ========== ========== ============
</TABLE>
F-11
<PAGE> 113
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED AUGUST 31, ENDED
------------------------------------ DECEMBER 31,
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income tax computed at statutory
rate.............................. $2,858,330 $2,570,076 $2,338,157 $3,031,129
State income taxes, net of federal
benefit........................... 211,129 452,058 433,763 297,928
Other, net.......................... 76,698 120,519 (4,176) 37,860
---------- ---------- ---------- ----------
Total..................... $3,146,157 $3,142,653 $2,767,744 $3,366,917
========== ========== ========== ==========
</TABLE>
The components of the net deferred tax liabilities recognized on the
accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation................................ $(2,071,971) $(3,318,803) $ (3,461,603)
Prepaid expenses............................ (117,440) (17,229) (66,228)
----------- ----------- ------------
Total deferred tax liabilities...... (2,189,411) (3,336,032) (3,527,831)
----------- ----------- ------------
Deferred tax assets:
Nondeductible accruals...................... 167,850 173,790 173,790
Airframe reserves........................... 755,606 897,324 916,705
----------- ----------- ------------
Total deferred tax assets........... 923,456 1,071,114 1,090,495
----------- ----------- ------------
Net deferred tax liability.................... $(1,265,955) $(2,264,918) $ (2,437,336)
=========== =========== ============
</TABLE>
The Company made cash income tax payments of $2,170,203, $4,552,371,
$2,078,673 and $571,420 during fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively.
4. COMMITMENTS
The Company leases its primary office and maintenance space under a
non-cancelable operating lease which expires in fiscal year 1998 from a party
who, effective October 1994, became a member of the Company's Board of
Directors. Rent expense under this lease was $260,970, $252,595, $254,934 and
$84,305 for fiscal years 1994, 1995, 1996 and for the four months ended December
31, 1996, respectively. Under the lease agreement, the Company has the option to
purchase the office facilities and the landlord's interest in the associated
ground lease at any time prior to March 1, 1997 for consideration of $2,200,000
less $5,000 for each monthly rental payment made after March 1, 1993. Based upon
an agreement with the lessor of the facility, the Company expects to close the
purchase of the facility for approximately $1.76 million in February 1997.
The Company leases its secondary maintenance space under a cancelable
operating lease which expires in May 1999. The lease can be canceled by either
party with 60 days notice. Rent expense under this lease was $59,853, $163,500
and $54,500 in fiscal years 1995, 1996 and for the four months ended December
31, 1996, respectively.
In December 1996, the Company sold at cost two recently acquired and
modified Boeing 727-200 aircraft to a third party and entered into an operating
lease agreement for such aircraft commencing January 1, 1997, ending December
31, 1997, with monthly lease payments of approximately $252,000, with five
successive one year renewal options. The Company has an option to purchase the
aircraft at the end of each year and guarantees to the lessor certain minimum
sale values if the Company elects not to renew the lease or exercise
F-12
<PAGE> 114
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its purchase option. The funds from the sale were partially used to pay
indebtedness incurred to acquire, convert to cargo configuration, perform
maintenance updates and hushkit the aircraft.
In November 1996, the Company acquired a Boeing 727-200 aircraft in
passenger configuration under a seven year operating lease at a monthly rate of
$50,000. The aircraft is being modified to cargo configuration and is undergoing
maintenance updates at the Company's cost.
Minimum annual rentals at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $3,793,476
1998........................................................ 763,500
1999........................................................ 668,125
2000........................................................ 600,000
2001........................................................ 600,000
Thereafter.................................................. 1,200,000
----------
$7,625,101
==========
</TABLE>
During December 1996, the Company entered into firm purchase commitments to
acquire hushkits for seven of its Boeing 727-200 aircraft for a total purchase
price of up to $17,500,000.
5. CONTRACT SETTLEMENT
In September 1992, the Company was awarded a contract by the United States
Postal Service (the "USPS"). An unaffiliated air freight carrier (the
"associated bidder") was associated with the Company in the successful bid.
Prior to the commencement of the contract, competing bidders filed suit against
the USPS seeking to set aside the award.
In April 1993, to avoid the expense and uncertainty of continued
litigation, the Company accepted a settlement. Under the settlement, the
contract was terminated for convenience and re-awarded to the incumbent.
Additionally, the Company received $12.7 million and the right to receive up to
a total of $6.5 million over ten years in installments of $162,500 per quarter,
contingent on the re-awarded contract remaining in effect. Appropriate releases
were exchanged.
At August 31, 1993, the Company and the associated bidder had not agreed
upon the division of the settlement proceeds, which were held in escrow; but the
Company reasonably estimated its share of the proceeds, exclusive of the $6.5
million to be paid in installments over ten years, to be at least $3.5 million.
The Company therefore recorded the $3.5 million as a receivable and, net of
contract-related expense, settlement income of $724,683 for fiscal year 1993.
During fiscal year 1994, the Company and the associated bidder agreed to a
division of the settlement proceeds and resolution of all their related claims.
Under that agreement, the Company received from escrow approximately $3.5
million cash, obtained title to a Boeing 727-200 aircraft, independently valued
and recorded by the Company at $750,000 and was relieved of $1.2 million of
previously accrued transportation costs. Additionally, one-half of the
contingent future quarterly installment payments were allocated to the Company's
majority stockholder. As a result of this settlement, for fiscal year 1994, the
Company recorded additional contract settlement income of $1,177,742, which is
net of approximately $730,000 in additional settlement costs, principally legal
fees. This amount also included both income and an offsetting expense of
$677,239, representing the estimated fair value of the future quarterly
installment payments that will be paid directly to the Company's majority
stockholder.
F-13
<PAGE> 115
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LITIGATION
The Company filed suit against Express One International, Inc. ("Express
One") in July 1992 in Dallas County, Texas, claiming that Express One breached
an aircraft charter agreement and seeking actual damages of approximately
$60,000. Express One counterclaimed, asserting that the Company wrongfully
repudiated the lease agreement and seeking damages of $356,718 for services
performed, $1,140,000 for additional fees it would have received under the
contract, punitive damages and its attorney's fees and costs.
In February 1995, a jury verdict in the case granted the Company $25,000 in
damages plus its attorneys fees and denied Express One's claims. The court
entered judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorneys fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome to have a
material adverse effect upon the Company's financial condition or results of
operations.
The USPS selected the Company's air freight carrier in September 1992 as
the successful bidder on a contract for a multi-city network of air
transportation services supporting the USPS Express Mail system. Two
unsuccessful bidders sued the USPS to enjoin the award. The Company intervened.
This litigation (the "ANET Litigation") was settled in April 1993 by agreements
under which the USPS terminated the Company's contract for convenience and
awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc.
("Emery").
In March 1995, the Company was served with a complaint in a qui tam lawsuit
filed on behalf of the U.S. Government by a third party plaintiff seeking to
share a recovery under the Federal False Claims Act (the "Act"). The suit, filed
in May 1994, was filed under seal in accordance with the Act, to enable the U.S.
Government to review the claim before its disclosure to the defendants. The U.S.
Government declined to pursue the claim, but the third party plaintiff chose to
continue. The suit claimed that the Company and another defendant fraudulently
failed to disclose to the USPS, both in the Company's successful bid and in the
settlement of the ANET litigation, that some of the aircraft the Company
proposed to purchase and use to perform the contract were aging aircraft with
high use and claimed that the Company and Emery similarly fraudulently conspired
in connection with the settlement of the ANET litigation. The suit sought to
recover treble the $10 million settlement payment made by the USPS in settling
the ANET litigation, plus the third party plaintiff's costs and fees.
The Company moved to dismiss the suit with prejudice on grounds that it was
barred by the Act. The Company also sought to recover its attorneys' fees from
the plaintiff and to obtain sanctions against the plaintiff's attorneys. The
Company believes the suit was clearly frivolous because, among other things, the
Company in the ANET bid identified each aircraft by serial number, age, hours
and cycles and made available use and maintenance records for each aircraft as
required by the request for proposal and that the USPS reviewed and inspected
the aircraft, data and records and found them acceptable. In May 1996, the court
dismissed the suit and awarded the Company its attorneys' fees and costs. The
plaintiff has asked the court to reconsider its ruling. The Company does not
expect the outcome to have a material adverse effect upon the Company's
financial condition or results of operations.
Additionally, in the normal course of business, the Company is a party to
matters of litigation, none of which, in the opinion of management, will have a
material adverse effect on the Company's financial condition or the results of
operations.
F-14
<PAGE> 116
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK OPTIONS
In October 1994 the Company granted non-qualified options to two executives
to purchase a total of 337,848 shares of common stock at $7.81 per share.
During the fiscal year ended August 31, 1996, the Company canceled 245,708
of the options outstanding and granted to an executive a nonqualified option to
purchase 390,707 shares of common stock at $0.01 per share. The new option had a
term of nine years and was fully vested. In June 1996, the Company canceled the
remaining 92,140 options outstanding and granted to another executive a
non-qualified option to purchase 153,567 shares of common stock at $0.01 per
share. The new option had a term of nine years and was fully vested. On June 26,
1996, the executives fully exercised their options. No options remain
outstanding at December 31, 1996. Based on an independent appraisal commissioned
by the Company, the fair value of the options of $4,230,954 is reflected as a
charge to earnings in the accompanying statement of income for the year ended
August 31, 1996, under APB Opinion No. 25 and represents the fair value which
would have been charged under SFAS 123. Accordingly, no supplemental disclosures
under SFAS No. 123 are necessary.
8. RELATED PARTY TRANSACTIONS
The Company provided maintenance and other services as well as cash
advances to Martinaire East, Inc. ("Martinaire"), a company in which a minority
interest was owned by the Company's majority stockholder. Total sales to
Martinaire for fuel and services were approximately, $235,000 and $22,000 in
fiscal years 1994 and 1995, respectively. Martinaire also flies charter service
for the Company. During fiscal years 1994 and 1995, Martinaire provided the
Company services in the amount of approximately $982,000 and $232,000,
respectively. At December 31, 1996, Martinaire is no longer considered to be a
related party.
9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code which covers substantially all employees meeting minimum
service requirements. Under the plan, voluntary contributions are made by
employees and the Company provides matching contributions based upon the
employees' contribution. The Company incurred $80,812, $121,217, $159,967 and
$56,378 in matching contributions related to this plan during fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.
The Company has adopted:
- An Omnibus Securities Plan (the Plan) under which 300,000 shares of its
common stock are reserved for issuance to its employees. The Plan is
administered by the Company's Compensation Committee which may grant
stock based and nonstock based compensation to the Plan participants. No
awards have been granted under the Plan as of December 31, 1996.
- An Annual Incentive Compensation Plan (the Compensation Plan) under which
the Compensation Committee awards semiannual bonuses to employees of the
Company. The aggregate amount of bonuses available for award is limited
to 10% of the Company's income before income taxes and the bonuses to be
paid under the Compensation Plan. The Company may elect to pay the full
amount of the bonuses in common stock, which is limited to total stock
distributions of 200,000 shares of common stock. As of December 31, 1996,
198,193 shares were available for distribution.
- An Employee Stock Purchase Plan covering up to 100,000 shares of the
Company's common stock.
F-15
<PAGE> 117
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CALENDAR YEAR INCOME STATEMENT (UNAUDITED)
As described above, the Company has changed its year end to December 31.
The following table presents certain historical information recast on a calendar
basis for 1996.
INFORMATION FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Revenues:
Air freight carrier....................................... $25,274 $ 55,504
Air logistics............................................. 27,010 77,168
------- --------
Total revenues.................................... 52,284 132,672
------- --------
Costs of revenues:
Air freight carrier....................................... 20,340 40,860
Air logistics............................................. 24,268 67,938
------- --------
Total costs of revenues........................... 44,608 108,798
------- --------
Gross profit................................................ 7,676 23,874
General and administrative expenses......................... 4,572 8,943
Non-qualified employee profit sharing expense............... (32) 1,243
Stock option grants to executives........................... 4,231 4,231
------- --------
Operating income............................................ (1,095) 9,457
Other income (expense):
Interest expense.......................................... (1,023) (2,062)
Loss on asset disposal.................................... -- (589)
Other, net................................................ 138 880
------- --------
Income (loss) before income taxes........................... (1,980) 7,686
Income taxes (benefit)...................................... (831) 3,038
------- --------
Net income (loss)........................................... $(1,149) $ 4,648
======= ========
Net income (loss) per share................................. $ (0.14) $ 0.55
======= ========
Net income, adjusted for non-recurring items................ $ 1,414 $ 8,278
======= ========
Net income per share, adjusted for non-recurring items...... $ 0.18 $ 0.98
======= ========
Weighted average common and common equivalent shares
outstanding............................................... 7,968 8,477
======= ========
</TABLE>
F-16
<PAGE> 118
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
------------
<S> <C>
Current assets
Cash and cash equivalents................................. $ 8,952,142
Trade accounts receivable................................. 15,122,410
Deferred income taxes..................................... 107,564
Inventory and aircraft supplies........................... 4,434,467
Prepaid expenses and other assets......................... 1,422,498
Deposits on aircraft...................................... 3,835,909
------------
Total current assets.............................. 33,874,990
------------
Property and equipment
Aircraft.................................................. 72,352,742
Aircraft work-in-progress................................. 22,508,984
Machinery and equipment................................... 3,118,992
Leasehold improvements.................................... 3,061,731
Building.................................................. 1,798,119
Furniture and fixtures.................................... 166,057
Transportation equipment.................................. 325,764
------------
103,332,389
Less: accumulated depreciation and amortization........... (19,849,788)
------------
Net property and equipment........................ 83,482,601
------------
Total assets...................................... $117,357,591
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 5,986,169
Accrued expenses.......................................... 8,850,700
Income taxes payable...................................... 1,077,057
Accrued maintenance reserves.............................. 2,598,562
Current maturities of long-term debt...................... 4,774,363
------------
Total current liabilities......................... 23,286,851
Long-term debt.............................................. 29,277,295
Deferred income taxes....................................... 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
Additional paid-in capital............................. 33,949,825
Retained earnings...................................... 30,268,327
Less common stock in treasury, -- 217,710 shares at
June 30, 1997 and December 31, 1996................... (2,076,302)
------------
Total stockholders' equity........................ 62,248,545
------------
Total liabilities and stockholders' equity........ $117,357,592
============
</TABLE>
See accompanying notes.
F-17
<PAGE> 119
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues:
Air freight carrier....................................... $25,274,245 $33,237,034
Air logistics............................................. 27,010,379 27,231,490
----------- -----------
Total revenues.................................... 52,284,624 60,468,524
----------- -----------
Costs of revenues:
Air freight carrier....................................... 20,340,217 22,843,865
Air logistics............................................. 24,267,931 24,818,999
----------- -----------
Total costs of revenues........................... 44,608,148 47,662,864
----------- -----------
Gross profit................................................ 7,676,476 12,805,660
General and administrative expenses......................... 4,572,011 4,884,325
Non-qualified employee profit sharing expense............... (32,778) 671,757
Stock option grants to executives........................... 4,232,204 --
----------- -----------
Operating income (loss)..................................... (1,094,961) 7,249,578
Other income (expense):
Interest expense.......................................... (1,023,278) (1,049,382)
Other, net................................................ 137,680 424,853
----------- -----------
Income (loss) before income taxes........................... (1,980,559) 6,625,049
Income taxes (benefit)...................................... (831,242) 2,650,020
----------- -----------
Net income (loss)........................................... (1,149,317) 3,975,029
=========== ===========
Net income (loss) per share................................. $ (0.14) $ 0.38
=========== ===========
Weighted average common and common equivalent shares
outstanding............................................... 7,967,710 10,451,807
=========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 120
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> <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) $62,248,547
========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 121
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss)......................................... $ (1,149,317) $ 3,975,029
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 3,616,752 4,459,773
Deferred income taxes..................................... (43,658) --
Stock option grants to executives......................... 4,230,954 --
Changes in operating assets and liabilities:
Trade accounts receivable................................. 21,617,441 22,705,608
Inventory and aircraft supplies........................... 307,547 (1,644,485)
Prepaid expenses and other................................ 5,256,173 (278,509)
Deposits on aircraft...................................... -- 1,602,719
Accounts payable and accrued expenses..................... (17,008,776) (17,685,032)
Accrued maintenance reserves.............................. (466,694) 225,405
Income taxes payable...................................... (2,614,105) (1,449,680)
------------ ------------
Net cash provided by operating activities................... 13,746,317 11,910,828
Investing activities:
Capital expenditures........................................ (17,007,546) (39,543,531)
------------ ------------
Financing activities:
Proceeds from issuance of long-term debt.................... 5,525,018 11,112,999
Repayments of long-term debt................................ (1,618,350) (1,829,681)
Additional costs relating to initial public offering........ (18,875)
Proceeds from issuance of common stock...................... 4,430 --
------------ ------------
Net cash provided by (used in) financing activities......... 3,911,098 9,264,443
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 649,869 (18,368,260)
Cash and cash equivalents at beginning of period............ 3,355,293 27,320,402
------------ ------------
Cash and cash equivalents at end of period.................. $ 4,005,162 $ 8,952,142
============ ============
</TABLE>
See accompanying notes.
F-20
<PAGE> 122
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
appearing elsewhere herein are unaudited, but have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to 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 six month period 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 1996
have been included in the calculation of weighted average common and common
equivalent shares for the six month period 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 expect 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.
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
F-21
<PAGE> 123
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 September 22, 1997, the Company, the sole stockholder of the Kalitta
Companies, and the Kalitta Companies entered into a merger agreement, under
which each of the respective Kalitta Companies will be merged with separate
subsidiaries of Kitty Hawk, with each of the Kalitta Companies surviving the
merger as a direct, wholly owned subsidiary of Kitty Hawk. At the effective time
of the proposed Merger, the outstanding shares of capital stock of four Kalitta
Companies (AIA, AIT, FOL and O.K.) will be converted, into the right to receive
their prorata portion of 4,099,150 shares of Kitty Hawk common stock. The
outstanding shares of capital stock of KFS will be converted into the right to
receive $20,000,000.
Concurrent with the consummation of the merger agreement will be the
closing of a proposed common stock offering of 3,000,000 shares of common stock
by Kitty Hawk and the consummation of a proposed note offering under Rule 144A
of the Securities Act for $340,000,000 aggregate principal amount of senior
secured notes of Kitty Hawk. The proceeds of the notes and a portion of the
proceeds of the sale of shares will be used to pay the cash portion of the
acquisition of the Kalitta Companies and to refinance and restructure the
outstanding debt of the Kalitta Companies and Kitty Hawk.
As an interim step toward the merger, on September 17, 1997, the Company
purchased sixteen Boeing 727-200 aircraft constituting the Kalitta Companies'
727-200 fleet for approximately $51 million. As part of the transaction, the
Kalitta Companies assigned to Kitty Hawk all of its customer contracts relating
to the aircraft sold. The purchase agreement provides the Kalitta Companies the
option to repurchase, no later than March 31, 1998, all except three of the
727-200 aircraft from Kitty Hawk at Kitty Hawk's purchase price, less $14
million for the three aircraft not subject to the option, plus any costs
incurred by Kitty Hawk to maintain the repurchased aircraft. Similarly, Kitty
Hawk has the option to require the Kalitta Companies to repurchase, no later
than December 31, 1997, all except three of the 727-200 aircraft at Kitty Hawk's
purchase price less $14 million for the three aircraft not subject to the
option, plus any costs incurred by Kitty Hawk to maintain the repurchased
aircraft. Of the purchase price, $45.9 million was financed through an amendment
of the Company's existing Credit Agreement. The loan bears interest at a
Eurodollar rate plus 1.5% to 2.0% based upon a debt-to-cash flow ratio of the
Company plus an additional 1.0% beginning in 1999 and 1.5% beginning in 2000,
with maturity on June 30, 2001.
F-22
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan
We have audited the accompanying combined balance sheets of American
International Airways, Inc. and related companies as of December 31, 1996 and
1995, and the related combined statements of operations, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1996. The combined financial statements include the accounts of American
International Airways, Inc. and its 60% owned partnership, American
International Cargo; and related companies Kalitta Flying Services, Inc., O.K.
Turbines, Inc., American International Travel, Inc. and Flight One Logistics,
Inc. (collectively, the "Companies"). These Companies are under common ownership
and common management. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of American International Airways,
Inc. and related companies as of December 31, 1996 and 1995, and the results of
their combined operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Companies will continue as a going concern. As discussed in Note 11 to the
financial statements, the Companies (1) are experiencing difficulty in
generating sufficient cash flows to meet their obligations and sustain their
operations, (2) failed to make certain principal payments and are not in
compliance with certain covenants of their long-term debt agreements (3) have
negative working capital and (4) have incurred substantial losses subsequent to
December 31, 1996, which raises substantial doubt about their ability to
continue as a going concern. Management's plans concerning these matters are
described in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Ann Arbor, Michigan
October 16, 1997
F-23
<PAGE> 125
AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,091,960 $ 2,324,353 $ 2,700,753
Restricted cash........................................... 795,030 2,867,933
Accounts receivable, net (Notes 1 and 3).................. 88,273,823 67,081,125 54,699,709
Accounts receivable -- related parties.................... 4,390,261 2,960,778 2,641,938
Expendable parts and supplies............................. 12,330,854 20,742,140 23,212,703
Aircraft held for resale (Note 4)......................... 6,593,069 6,117,266 5,402,466
Deposits, prepaid expenses and other assets............... 4,914,056 8,018,273 7,696,102
Prepaid fuel.............................................. 4,080,373 5,828,047 5,944,772
Notes receivable, current................................. 186,085 186,085 186,085
------------ ------------ ------------
Total current assets.................................... 121,860,481 114,053,097 105,352,461
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 228,678 228,678 228,678
Building and leasehold improvements (Note 4).............. 9,347,825 12,752,356 13,974,397
Rotable parts (Note 3).................................... 14,560,287 16,779,386 17,397,571
Equipment (Note 3)........................................ 19,685,442 23,677,640 25,395,893
Aircraft (Note 3)......................................... 264,266,383 320,276,140 326,179,416
------------ ------------ ------------
Total............................................... 308,088,615 373,714,200 383,175,955
Less accumulated depreciation............................. 81,246,881 109,707,512 124,989,977
------------ ------------ ------------
Net................................................. 226,841,734 264,006,688 258,185,978
Aircraft in modification (Note 3)......................... 25,557,078 988,541 1,561,611
Construction in progress.................................. 3,152,560 923,150 868,912
------------ ------------ ------------
Total property and equipment, net................... 255,551,372 265,918,379 260,616,501
NOTES RECEIVABLE, LESS CURRENT PORTION...................... 184,968 131,805 131,805
RECEIVABLE FROM AFFILIATED COMPANY.......................... -- -- 747,284
------------ ------------ ------------
TOTAL ASSETS (Notes 3 and 4)................................ $377,596,821 $380,103,281 $366,848,051
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade (Note 1).......................................... $ 62,125,228 $ 46,070,230 $ 52,207,904
Related parties......................................... 4,421,143 77,450 56,619
Accrued liabilities....................................... 20,342,988 24,172,883 24,685,595
Deferred revenue.......................................... -- 795,030 2,867,933
Notes payable to bank, reclassified as current (Note 3)... -- 47,105,413 56,482,835
Long term debt, reclassified as current (Note 4).......... -- 155,910,954 144,959,737
Notes payable to bank (Note 3)............................ 12,226,496 1,024,035 2,691,056
Current maturities of long-term debt (Note 4)............. 42,444,612 34,310,440 43,822,404
------------ ------------ ------------
Total current liabilities........................... 141,560,467 309,466,435 327,774,083
NOTES PAYABLE, NONCURRENT (Note 3).......................... 34,983,000 -- --
LONG-TERM DEBT, LESS CURRENT PORTION (Note 4)............... 130,717,485 -- --
NOTE PAYABLE TO STOCKHOLDER (Note 8)........................ 100,000 -- 300,462
------------ ------------ ------------
Total liabilities................................... 307,360,952 309,466,435 328,074,545
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 9)
MINORITY INTEREST IN AMERICAN INTERNATIONAL CARGO........... 3,944,070 3,551,735 3,242,145
STOCKHOLDERS EQUITY (Note 5):
Common stock, par value $1 per share, authorized 275,000
shares in 1995, 1996 and 1997, issued and outstanding
53,000 shares in 1995, 1996 and 1997.................... 53,000 53,000 53,000
Additional paid-in capital.................................. 14,062,669 17,839,157 17,839,157
Retained earnings........................................... 52,176,130 49,192,954 17,639,204
------------ ------------ ------------
Total stockholders equity........................... 66,291,799 67,085,111 35,531,361
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY................... $377,596,821 $380,103,281 $366,848,051
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-24
<PAGE> 126
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 9):
Air transportation services..... $298,080,850 $359,404,248 $388,192,479 $177,431,725 $182,351,799
Maintenance and other........... 7,448,982 14,278,793 36,348,245 13,163,678 14,487,759
------------ ------------ ------------ ------------ ------------
Total revenues........... 305,529,832 373,683,041 424,540,724 190,595,403 196,839,558
Operating Costs and Expenses:
Flight.......................... 115,613,706 168,774,779 150,255,587 68,663,478 82,229,134
Maintenance..................... 64,722,079 103,388,710 115,081,955 50,336,936 69,120,548
Fuel............................ 57,361,888 54,538,321 82,717,539 40,616,342 35,497,840
Depreciation.................... 13,809,281 20,971,405 32,091,119 15,845,819 17,467,008
Selling, general and
administrative................ 13,272,361 21,676,079 21,889,355 10,088,173 11,284,404
Provision for doubtful
accounts...................... 2,231,485 1,862,283 1,010,663 1,436,966 684,004
------------ ------------ ------------ ------------ ------------
Total cost and
expenses............... 267,010,800 371,211,577 403,046,218 186,987,714 216,282,938
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations..... 38,519,032 2,471,464 21,494,506 3,607,689 (19,443,380)
Other Income (Expense):
Interest expense, net........... (8,007,389) (14,748,611) (21,632,389) (10,186,510) (12,098,100)
Gain on disposition of property
and equipment, net............ 3,389,881 11,707,673 130,934 395,019 948,504
Gain on contract settlement..... -- -- 1,123,200 1,123,200 --
Gain on insurance
reimbursement................. -- 8,147,878 -- -- 542,302
Net, miscellaneous.............. (550,000) (110) 13,116 13,214 --
------------ ------------ ------------ ------------ ------------
Total other (expense)
income................. (5,167,508) 5,106,830 (20,365,139) (8,655,077) (10,607,294)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Minority
Interest in American
International Cargo............. 33,351,524 7,578,294 1,129,367 (5,047,388) (30,050,674)
Minority Interest in American
International Cargo............. (2,758,372) (3,092,513) (1,146,019) (510,528) (892,524)
------------ ------------ ------------ ------------ ------------
Net Income (Loss)................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (5,557,916) $(30,943,198)
============ ============ ============ ============ ============
Unaudited Pro forma Data (Note 1):
Income (loss) before provision
for income taxes.............. $ 30,593,152 $ 4,485,781 $ (16,652) $ (5,557,916) $(30,943,198)
Provision for income taxes...... 11,625,398 1,704,597 -- -- --
------------ ------------ ------------ ------------ ------------
Pro forma net income (loss)....... $ 18,967,754 $ 2,781,184 $ (16,652) $ (5,557,916) $(30,943,198)
============ ============ ============ ============ ============
</TABLE>
See notes to combined financial statements.
F-25
<PAGE> 127
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS ENDED JUNE
30, 1997
<TABLE>
<CAPTION>
AMERICAN KALITTA AMERICAN FLIGHT
INTERNATIONAL FLYING O.K. GRAND INTERNATIONAL ONE
AIRWAYS SERVICES, TURBINES, HOLDINGS, TRAVEL, LOGISTICS
INC. INC. INC. INC. INC. INC. TOTAL
------------- --------- --------- --------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... $25,000 $25,000 $1,000 $ -- $ -- $ -- $51,000
Acquisition of Grand
Holdings, Inc. (Note 2).... -- -- -- 100 -- -- 100
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1994..... 25,000 25,000 1,000 100 -- -- 51,100
Issuance of common stock..... -- -- -- -- 1,000 1,000 2,000
Disposal of Grand Holdings,
Inc. (Note 2).............. -- -- -- (100) -- -- (100)
Contributions by stockholder
(Note 2)................... -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1995..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Contributions by
stockholder................ -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1996..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Distributions to stockholder
(unaudited)................ -- -- -- -- -- -- --
Net loss (unaudited)......... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, June 30, 1997
(Unaudited).................. $25,000 $25,000 $1,000 $ -- $1,000 $1,000 $53,000
======= ======= ====== ===== ====== ====== =======
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS
----------- ------------
<S> <C> <C>
Balance, December 31, 1993..... $ 7,054,995 $ 39,354,622
Acquisition of Grand
Holdings, Inc. (Note 2).... 8,875,000 --
Distributions to
stockholder................ -- (8,830,125)
Net income................... -- 30,593,152
----------- ------------
Balance, December 31, 1994..... 15,929,995 61,117,649
Issuance of common stock..... -- --
Disposal of Grand Holdings,
Inc. (Note 2).............. (8,875,000) 303,411
Contributions by stockholder
(Note 2)................... 7,007,674 --
Distributions to
stockholder................ -- (13,730,711)
Net income................... -- 4,485,781
----------- ------------
Balance, December 31, 1995..... 14,062,669 52,176,130
Contributions by
stockholder................ 3,776,488 --
Distributions to
stockholder................ -- (2,966,524)
Net loss..................... -- (16,652)
----------- ------------
Balance, December 31, 1996..... 17,839,157 49,192,954
Distributions to stockholder
(unaudited)................ -- (610,552)
Net loss (unaudited)......... -- (30,943,198)
----------- ------------
Balance, June 30, 1997
(Unaudited).................. $17,839,157 $ 17,639,204
=========== ============
</TABLE>
See notes to combined financial statements.
F-26
<PAGE> 128
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (5,557,916) $(30,943,198)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 13,809,281 20,971,405 32,091,119 15,845,819 17,467,008
Provision for doubtful accounts.............. 2,231,485 1,862,283 1,010,663 1,436,966 684,004
Gain (loss) on disposition of property and
equipment.................................. (3,389,881) (11,707,673) (130,934) (395,019) (948,504)
Minority interest in American International
Cargo...................................... 2,758,372 3,093,262 1,143,637 510,528 892,524
Changes in assets and liabilities which
provided (used) cash:
Accounts receivable........................ (20,725,807) (17,819,263) 21,611,518 35,453,786 12,591,252
Expendable parts and supplies.............. (4,454,286) (3,470,152) (7,034,678) (5,013,941) (2,782,230)
Deposits, prepaid expenses and other
assets................................... (1,845,978) (3,740,088) (3,972,997) (3,732,762) (88,458)
Aircraft held for resale................... (6,975,000) 21,754,521 (1,702,354) 40,867 (1,263,843)
Accounts payable........................... 17,099,346 26,128,641 (20,398,691) (19,081,144) 6,691,843
Accrued liabilities........................ 4,742,342 7,956,796 3,829,895 3,180,360 512,712
------------ ------------ ------------ ------------ ------------
Total adjustments........................ 3,249,874 45,029,732 26,447,178 28,245,460 33,756,308
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................. 33,843,026 49,515,513 26,430,526 22,687,544 2,813,110
Cash flows from investing activities:
Purchase of property and equipment............. (77,831,613) (153,719,347) (53,413,262) (29,697,122) (14,100,804)
Proceeds from disposition of property and
equipment.................................... 5,250,000 33,603,329 11,008,725 9,833,763 4,274,697
Collections on note receivable................. 139,620 119,324 53,163 53,163 --
Issuance of notes receivable to affiliated
company...................................... -- -- -- -- (747,284)
Disposal of Grand Holdings, Inc., net of
cash......................................... -- (948,818) -- -- --
Acquisition of Grand-Holdings, Inc. net of cash
acquired..................................... (97,077) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities.... (72,539,070) (120,945,512) (42,351,374) (19,810,196) (10,573,391)
Cash flows from financing activities:
Repayments of notes and long-term debt......... (21,997,617) (36,899,953) (52,117,964) (25,893,535) (21,635,491)
Borrowings under notes and long-term debt
agreements................................... 74,466,207 119,952,548 70,097,213 27,585,104 31,282,262
Net (repayments) borrowings under note payable
to stockholder............................... -- 14,000 (100,000) 340,462 300,462
Issuance of common stock....................... -- 2,000 -- -- --
Contribution of capital by stockholder......... -- 554,102 3,776,488 53,923 --
Distributions to American International Cargo
minority stockholder......................... (1,367,328) (2,106,000) (1,535,972) (1,100,000) (1,200,000)
Distributions to stockholder................... (8,830,125) (13,730,711) (2,966,524) (2,572,286) (610,552)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities............................. 42,271,137 67,785,986 17,153,241 (1,586,332) 8,136,681
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash...................... 3,575,093 (3,644,013) 1,232,393 1,291,016 376,400
Cash, beginning of period........................ 1,160,880 4,735,973 1,091,960 1,091,960 2,324,353
------------ ------------ ------------ ------------ ------------
Cash, end of period.............................. $ 4,735,973 $ 1,091,960 $ 2,324,353 $ 2,382,976 $ 2,700,753
============ ============ ============ ============ ============
Supplemental disclosure of cash flow
information -- Cash paid during the period for
interest....................................... $ 7,677,452 $ 16,334,750 $ 21,806,688 $ 10,124,254 $ 11,014,595
============ ============ ============ ============ ============
</TABLE>
F-27
<PAGE> 129
Noncash operating and investing activities:
In 1994, the Companies transferred assets with a net book value of $738,094
from property and equipment to aircraft held for resale.
In 1995, the sole stockholder sold 80% of Grand Holdings, Inc. The nonmonetary
combining effect on the Companies was $8,193,747.
In 1995, the Companies refinanced $680,000 of notes payable to a bank on a
long-term basis.
In 1995, the sole stockholder of the Companies contributed property and
equipment of $6,453,572.
In 1996, the Companies transferred assets with a net book value of $1,436,000
from aircraft held for resale to property and equipment.
In 1996, the Companies transferred assets with a net book value of $1,376,608
from property and equipment to inventory.
In 1996, the Companies received $795,030 in restricted cash from customers for
deposit.
In 1996, the Companies deferred a $878,894 loss on the sale-leaseback of an
aircraft held for resale.
In 1997 (unaudited), the Companies sold certain assets held for resale for
$1,150,000 in exchange for accounts receivable and reduction of outstanding
liabilities.
In 1997 (unaudited), the Companies received $2,073,000 in restricted cash from
customers for deposit.
In 1997 (unaudited), the Companies transferred assets with a net book value of
$137,000 from inventory to property and equipment.
See notes to combined financial statements.
F-28
<PAGE> 130
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description -- American International Airways, Inc. and its
related companies (the "Companies") provide worldwide scheduled air cargo and
charter services. The scheduled air cargo delivery business includes an
overnight freight service operating within a network of North American cities.
By integrating their scheduled and charter freight business and scheduled air
cargo from the United States to the Far East, the Companies are able to provide
air express delivery of virtually any type of air freight throughout the world.
The Companies also provide a wide variety of aviation services, including ground
handling support and airframe and engine maintenance and overhaul for their own
aircraft and for other aircraft operators, travel services for the Companies'
flight crews and maintenance personnel, and air charter management and services
for the Companies.
Significant Accounting Policies:
Principles of Combined Financial Statements -- The combined financial
statements include the accounts of American International Airways, Inc. and its
60% owned partnership, American International Cargo ("AIA"); and related
companies Kalitta Flying Services, Inc. ("KFS"), O.K. Turbines, Inc. ("O.K."),
American International Travel, Inc. ("AIT") and Flight One Logistics, Inc.
("FOL") (collectively referred to as the "Companies"). Combined financial
statements are presented because AIA and the related companies are owned by the
same individual and are operated by common management. All significant
intercompany accounts and transactions have been eliminated.
Interim Financial Statement -- The combined financial statements as of and
for the six months ended June 30, 1996 and 1997 reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Financial Instruments of the Companies consist principally of accounts
receivable, accounts payable, notes payable to stockholder, debt and letters of
credit. The recorded value of financial instruments included in the financial
statements approximates fair value.
Restricted Cash represents passenger customer deposits held in escrow with
a corresponding credit to deferred revenue until the charter services are
provided.
Accounts Receivable are net of an allowance of $2,062,000 and $2,389,000
for the years ended December 31, 1995 and 1996 and $2,529,000 for the six months
ended June 30, 1997 (unaudited), respectively.
Expendable Parts and Supplies are carried at the lower of cost (using the
first-in, first-out method or average cost convention) or market.
Aircraft Held for Resale -- The Companies may periodically purchase
aircraft for resale. These aircraft are carried at the lower of cost or net
realizable value. The long-term portion of debt associated with these aircraft
is classified as current (Note 4). The sale of such assets is expected within
twelve months.
F-29
<PAGE> 131
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Building and leasehold improvements......................... 5 - 40
Aircraft.................................................... 5 - 14
Equipment................................................... 3 - 10
Rotable parts............................................... 3 - 7
</TABLE>
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to these assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS 121 is required to be adopted for the
Companies' 1996 fiscal year. The Companies have completed the process of
evaluating the impact on the combined financial statements that will result from
adopting SFAS 121 and does not believe the effect to be material.
Rotable Parts are net of an allowance of $1,016,667 and $816,667 for the
years ended December 31, 1995 and 1996 and $941,667 for the six months ended
June 30, 1997 (unaudited), respectively.
Aircraft In Modification includes aircraft in the process of being
converted from passenger to freighter configuration.
Accounts Payable Trade includes bank overdrafts of $4,954,225 and
$4,812,147 at December 31, 1995 and 1996 and $6,898,895 at June 30, 1997
(unaudited), respectively.
Revenue Recognition -- Revenue from scheduled and chartered services
represent charges for movement of air cargo and passengers and is recognized
when movement is complete. Revenue for maintenance, overhaul and repair services
is recognized when services are rendered.
Export Sales -- The Companies consider sales of services to unaffiliated
customers in foreign countries as export sales.
Taxes on Income -- The Companies have elected to be taxed as S Corporations
under the Internal Revenue Code. As S Corporations, the income of the Companies
is taxable to the sole stockholder and, accordingly, these combined financial
statements do not include a provision for corporate income taxes.
Approximately $3,390,000 of the Companies' retained earnings at December
31, 1996 was earned prior to the S Corporation elections and would be taxed to
the sole stockholder in the event of distribution.
The unaudited pro forma provision for income taxes reported on the combined
statements of operations shows the approximate federal and state income taxes
(by applying statutory rates) that would have been incurred if the Companies had
been subject to tax as a C Corporation. No tax benefit has been provided for the
year ended December 31, 1996 and for the six months ended June 30, 1996 and 1997
due to the uncertainty of the Companies' ability to recover such benefits.
Interest Costs -- Interest on funds used to finance the acquisition and
modification of aircraft up to the date the asset is placed in service is
capitalized and included in the cost of the asset. Interest capitalized during
the years ended December 31, 1994, 1995 and 1996 and for the six months ended
June 30, 1996 was $668,000, $1,692,000, $562,000 and $321,000, respectively. No
interest cost was capitalized for the six months ended June 30, 1997
(unaudited).
F-30
<PAGE> 132
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Transactions -- All significant monetary transactions of the
Companies are denominated in U.S. currency.
Reclassifications -- Certain reclassifications were made to the 1994, 1995
and 1996 financial statements to conform with the classifications used in 1997.
2. ACQUISITION AND DISPOSAL OF RELATED COMPANY
On December 31, 1994, the sole stockholder of the Companies acquired all
outstanding shares of Grand Holdings, Inc. ("GHI") for $8,875,100 in cash and
notes. GHI operated a charter passenger service. The acquisition was accounted
for under the purchase method of accounting and, accordingly, the purchase price
was allocated to the fair value of assets acquired and liabilities assumed. The
primary assets acquired from the transaction were three aircraft.
On June 30, 1995, the sole stockholder of the Companies sold 80% of his
share in Grand Holdings, Inc. ("GHI"). Prior to June 30, 1995, the aircraft of
GHI were distributed to the sole stockholder and in turn contributed to AIA.
3. NOTES PAYABLE TO BANK
Notes payable to banks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Outstanding borrowings on a bridge loan with a bank
(Note 10), at the bank's prime rate plus 2%
(10.25% effective rate at December 31, 1996),
expires December 9, 1999. Under the terms of the
bridge loan, the Companies may borrow up to
$14,250,000 to cover the purchase and
modification of certain aircraft until permanent
financing is obtained. The principal collateral
for the bridge loan is the related aircraft. The
loan is also secured by all assets of KFS and the
assignment of a life insurance policy on the
stockholder and the guaranty of the
stockholder...................................... $ 9,456,496 $ -- $ --
Outstanding borrowings on a note payable with a bank
at 8.7%, expires February 4, 1998................ -- -- 36,056
Outstanding borrowings on a $3,000,000 revolving
credit agreement with a bank under which the
Companies may borrow up to 75% on eligible
accounts receivable. The agreement calls for
interest at the bank's prime rate plus .5% (8.75%
effective rate at December 31, 1996). Security
consists of accounts receivable and the guaranty
of the stockholder and the minority interest
holder of American International Cargo........... 2,770,000 1,024,035 2,655,000
----------- ----------- -----------
Total....................................... $12,226,496 $ 1,024,035 $ 2,691,056
=========== =========== ===========
</TABLE>
F-31
<PAGE> 133
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term, reclassified as current:
Outstanding borrowings on a $60,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable, a percentage of eligible rotable and
consumable parts and 50% of the fair value of
eligible aircraft. The agreement calls for
interest at the bank's prime rate plus 1.25%
(9.5% effective at December 31, 1996). The
agreement expires December 9, 1999 at which time
the entire amount outstanding is due. At December
31, 1996 and June 30, 1997 (unaudited), the
credit available was $4,521,537 and $208,000,
respectively. Security consists of accounts
receivable and aircraft spare parts as well as an
assignment of life insurance policy on the
stockholder. Also secured by all assets of KFS
and guaranteed by the stockholder................ $ -- $47,105,413 $56,482,835
=========== =========== ===========
Long-Term:
Outstanding borrowings on a $40,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable. The agreement calls for interest at
the bank's prime rate plus .5% (9.0% effective at
December 31, 1995). The agreement expires June 1,
1997 at which time the entire amount outstanding
is due. Security consists of accounts receivable
and aircraft spare parts as well as an assignment
of life insurance policy on the stockholder. The
note is also secured by all assets of KFS and
guaranteed by the stockholder.................... $34,983,000 $ -- $ --
=========== =========== ===========
</TABLE>
These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a combined fixed charge ratio of 1 to 1 and (2) certain cross
collateralization covenants. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.
At June 30, 1997 (unaudited), the Companies had failed to make certain
principal payments and were in violation of the following covenants: (1)
maintaining a minimum tangible net worth of not less than $60 million; (2)
maintaining a minimum debt to net worth ratio of not more than 5.0 to 1.0 and
(3) certain cross collateralization covenants. As a result of these and other
non-financial loan covenant violations, all debt has been classified as current.
F-32
<PAGE> 134
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- ------------
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Various notes payable with interest rates ranging
from 7.49% to 12.0%. Certain interest rates are
at prime plus 1% to 2.5% (9.25% to 10.75%
effective rates at December 31, 1996). The notes
are secured by property and equipment with a net
book value of $216,578,406. Certain notes are
also secured by substantially all of the
Companies' assets, and the personal guaranty of
the stockholder.................................. $173,162,097 $190,221,394 $188,782,141
Less:
Current maturities of long-term debt............. 37,608,059 31,568,769 41,430,734
Outstanding debt on aircraft held for resale..... 4,836,553 2,741,671 2,391,670
------------ ------------ ------------
Total.................................... 42,444,612 34,310,440 43,822,404
------------ ------------ ------------
Net long-term debt, reclassified as current........ -- 155,910,954 144,959,737
------------ ------------ ------------
Net long-term debt................................. $130,717,485 $ -- $ --
============ ============ ============
</TABLE>
Without regard to the lenders exercising their right to demand payment, the
aggregate amount of required payments on long-term debt and notes payable to
bank (Note 3) as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................... $ 35,334,475
1998................................................... 69,298,498
1999................................................... 75,547,575
2000................................................... 23,925,286
2001................................................... 19,417,825
Thereafter............................................. 14,827,183
------------
Total........................................ $238,350,842
============
</TABLE>
These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a minimum net worth of not less than $78 million; (2) maintaining a
debt service coverage ratio of not less than 1.2 to 1; (3) maintaining a maximum
debt to net worth ratio of not more than 4.0 to 1; (4) maintaining an EBITDA
ratio of not less than 1.1 to 1; and (5) certain cross collateralization
covenants. As a result of these and other non-financial loan covenant
violations, all debt has been classified as current.
At June 30, 1997 (unaudited), the Companies had failed to make certain
principal payments on indebtedness and were in violation of the following
covenants: (1) ratio of earnings to fixed charges; (2) ratio of cash flow to
fixed charges; (3) cash flow to coverage; (4) minimum net income; (5) current
ratio; (6) tangible net worth; (7) shareholder's equity; (8) debt service
coverage; (9) fixed charge coverage; (10) debt to net worth ratios; (11) certain
cross collateralization covenants as well as restrictions relating to
encumbering their assets. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.
F-33
<PAGE> 135
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Effective in July and August 1997, the Companies entered into agreements
with certain lenders for the deferment of principal payments for a period of one
to eight months. The aggregate monthly deferrals range from $693,000 to
$2,824,000. The Companies are to make interest payments only during this period.
At the end of the deferral periods, the Companies will resume principal payments
in accordance with the terms of the loan agreement.
5. COMMON STOCK
Common stock of the Companies is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ -----------
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
American International Airways, Inc., $1 par value;
25,000 shares authorized, 25,000 shares issued and
outstanding........................................ $25,000 $25,000 $25,000
Kalitta Flying Services, Inc., $1 par value; 100,000
shares authorized, 25,000 shares issued and
outstanding........................................ 25,000 25,000 25,000
O.K. Turbines, Inc., $1 par value; 50,000 shares
authorized, 1,000 shares issued and outstanding.... 1,000 1,000 1,000
American International Travel, Inc., $1 par value;
50,000 shares authorized, 1,000 shares issued and
outstanding........................................ 1,000 1,000 1,000
Flight One Logistics, Inc., $1 par value; 50,000
shares authorized, 1,000 shares issued and
outstanding........................................ 1,000 1,000 1,000
------- ------- -------
Total...................................... $53,000 $53,000 $53,000
======= ======= =======
</TABLE>
6. OPERATING LEASES
The Companies lease office building, hangars, cargo storage, and related
facilities under noncancelable operating leases which expire on various dates
through 2011. In addition, the Companies periodically lease aircraft and other
equipment under month-to-month lease agreements. Lease expense for all operating
leases was $15,659,000, $24,095,000, $10,815,000, $3,989,000 and $3,466,000, for
the years ended December 31, 1994, 1995 and 1996 and for the six months ended
June 30, 1996 and 1997 (unaudited), respectively.
Aggregate future minimum rental payments required under noncancelable
operating leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Years Ending December 31:
1997.................................................. $ 3,177,000
1998.................................................. 1,950,000
1999.................................................. 1,620,000
2000.................................................. 1,006,000
2001.................................................. 789,000
Thereafter............................................ 5,685,000
-----------
Total minimum rental payments................. $14,227,000
===========
</TABLE>
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<PAGE> 136
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE SAVINGS PLAN
The Companies have three separate 401(k) employee savings plans, covering
substantially all employees. The Companies' contributions to the plans are
discretionary and were $133,000, $158,000, $353,000, $4,430 and $74,918, for the
years ended December 31, 1994, 1995 and 1996 and for the six months ended June
30, 1996 and 1997 (unaudited), respectively.
8. RELATED PARTY TRANSACTIONS
The Companies lease certain aircraft to a company owned and operated by a
relative of the sole stockholder of the Companies. In addition to providing
services to unrelated third parties, the related company flies subcharter
flights for the Companies and also provides lift capacity for the Companies'
overnight scheduled cargo service. The Companies perform ground handling for the
related company in certain locations. The related company also reimburses the
Companies for certain applicable fuel, parking and landing and ground handling
paid on the related company's behalf.
The Companies also have certain transactions with an affiliated company
that is partially owned by the Companies' sole stockholder. The remaining
ownership of this affiliated company are relatives of the sole stockholder of
the Companies. The Companies lease an office facility from this affiliated
company for an annual rent of approximately $713,000. The lease expires May 14,
2007.
Transactions and balances with related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Transactions and balances
with sole stockholder:
Note payable, noninterest
bearing................ $ -- $ 100,000 $ -- $ -- $ 300,462
Contribution of cash...... -- 473,972 2,266,630 -- --
Contribution of aircraft
and equipment.......... -- 6,453,572 -- -- --
Transactions with a company
owned by a relative of the
sole stockholder:
Revenues.................. 352,800 11,582,257 5,176,150 2,674,911 1,468,768
Cost of revenues.......... 2,366,288 6,097,447 28,727 23,680 121,511
Sale of DC8............... -- 5,200,000 -- -- --
Transactions and balances
with an affiliated
company:
Receivable from affiliated
company................... -- -- -- -- 747,284
Rental expense............ -- -- -- -- 88,142
Transactions with GHI --
Purchase of three DC8
engines................... -- 1,950,000 -- -- --
Transactions with sole
stockholder and relatives
of the sole stockholder --
Promotional revenues...... 830,616 1,257,771 1,206,529 666,645 271,111
Promotional expenses...... 2,602,038 3,643,611 3,096,724 1,094,020 1,478,415
</TABLE>
F-35
<PAGE> 137
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Purchase Commitments -- In March 1997, the Companies committed to purchase
three Boeing 747-200 aircraft and associated engines, four additional spare
engines and certain other related spare parts for approximately $63,000,000. In
connection with these purchase commitments, the Companies intend to modify these
aircraft for approximately $24,000,000. The Companies took delivery of one of
the aircraft and a spare engine on September 26, 1997, for $21 million and
negotiated a revised agreement to purchase the remaining two aircraft and
related spare parts for $42 million which includes a $1 million non-refundable
deposit and a $1 million option purchase price which the seller can retain if
the Companies fail to complete the purchase by February 16, 1998.
In July 1997, the Companies purchased two L1011 aircraft for a total
purchase price of $7,000,000. In connection with this purchase, the Companies
have a commitment for the modification of these aircraft for $11,400,000.
In addition, the Companies have a nonrefundable deposit of $320,000 with
respect to a purchase commitment of $1,400,000. The realization of this deposit
is dependent upon the Companies' ability to fulfill this purchase commitment.
Letters of Credit -- The Companies' banks have issued to various airports
and suppliers letters of credit totaling $5,071,000, $3,088,000, and $3,160,032,
at December 31, 1995 and 1996 and June 30, 1997, respectively, against which
accounts receivable are pledged as collateral. The last of the letters of credit
expires in 1998.
Legal Proceedings, Claims and Other -- The Companies are subject to legal
proceedings and claims which have arisen in the ordinary course of business.
Management intends to vigorously defend against these legal proceedings and
believes, based upon the advice of legal counsel, that the outcome will not have
a materially adverse effect on the Companies' financial position, results of
operations, or cash flows.
In January 1996, the FAA issued a series of Directives on certain Boeing
747 aircraft which were modified for freight hauling by GATX-Airlog Company, a
subsidiary of General American Transportation Corp ("GATX"). The Directives,
which became effective on January 30, 1996, were issued because of concerns
relating to the integrity of the cargo door and surrounding floor area in the
event the aircraft were operated at their maximum cargo capacity of
approximately 220,000 pounds. In spite of the fact that the aircraft affected by
the Directives have flown over 83,000 hours without incident, the Directives
require certain modifications to be made to the aircraft. Absent such
modifications, the Directives limit the cargo capacity of these aircraft to
120,000 lbs., a limit which restricts the Companies' ability to profitably
operate the aircraft.
One of each of the Companies' Boeing 747-200 and Boeing 747-100 freighters
are affected by these Directives and have been out of service since January
1996. GATX has proposed a solution to the problem identified by one of the
Directives which has been approved by the FAA. An appropriate means to test the
proposed solution, however, has not yet been identified. Currently, the
Companies anticipate modifying the Boeing 747-100 to be in compliance with a
portion of the Directive for which the FAA has approved a solution by the latter
half of 1998, which will allow the Companies to operate it with a reduced cargo
capacity of 160,000 lbs. The Companies are awaiting engineering solutions to
address the remaining Directives. If the cost necessary to fully implement these
solutions and return both the Boeing 747-100 and -200 to maximum cargo capacity
is uneconomical, the Companies may either operate one or both of the aircraft at
limited load or use one or both for spare parts. The Companies are currently
involved in litigation against GATX to recover the cost to repair these aircraft
as well as revenues lost as a consequence of the aircraft downtime.
In September 1996 pursuant to the FAA's National Aviation Safety Inspection
Program, the Companies underwent a broad but routine inspection of all of the
Companies' aircraft and maintenance operations. This
F-36
<PAGE> 138
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
inspection resulted in a report from the FAA citing the Companies with a number
of regulatory infractions, none of which were sufficiently serious to cause the
FAA to curtail or otherwise restrict any of the Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Companies entered
into a Consent Order in January 1997 which required the Companies to revise
certain internal policies and procedures to address the regulatory violations
noted in the inspection report as well as enforcement actions that had been
pending prior to the inspection. Without admitting any fault, the Companies
agreed to pay a fine of $450,000, one-third of which is suspended and will be
forgiven if the Companies comply with all the terms of the Consent Order. At
this time, management believes the Companies are in compliance with the Consent
Order and expect the FAA to conduct another inspection of similar scope in the
fourth quarter of 1997 to verify such compliance. The Consent Order also
provides that it is a full and conclusive settlement of any civil penalties the
Companies could incur for regulatory violations occurring before January 1,
1997, but does not preclude the FAA from taking enforcement action to revoke the
Companies' air carrier operating certificate.
Only six of the Companies' twenty Douglas DC-8 aircraft comply with the FAA
Stage III noise control standards. The Companies may elect not to modify the
fourteen remaining Douglas DC-8 aircraft to meet the Stage III noise control
standards because the anticipated cost of approximately $3.5 million per
aircraft (not including aircraft downtime) may exceed the economic benefits of
such modifications. If the Companies cannot or do not modify these fourteen
Douglas DC-8 aircraft, the Companies will have to remove these aircraft from
service in the United States before January 1, 2000 and may have to replace them
with other aircraft. In addition, thirteen of the Companies' Boeing 727 aircraft
currently do not comply with the Stage III noise control standards. The
Companies currently anticipate modifying their Boeing 727 fleet (at an
anticipated cost of approximately $24 million) to be in compliance with the
Stage III noise control standards by the applicable deadlines. However, there
can be no assurance that the Companies will have sufficient funds or be able to
obtain financing to cover the costs of these modifications or to replace such
aircraft.
10. MAJOR CUSTOMERS
The Companies had sales to two major customers which are entities of the
United States Government, representing approximately 28%, 17%, 21%, 6% and 8% of
combined revenues for the years ended December 31, 1994, 1995, 1996 and for the
six months ended June 30, 1996 and 1997 (unaudited), respectively. Accounts
receivable from these customers were approximately $45,118,000, $12,024,000 and
$2,295,000 at December 31, 1995, 1996 and June 30, 1997 (unaudited),
respectively.
11. MANAGEMENT'S PLANS -- SALE OF AIRCRAFT AND PLANNED MERGER
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Companies (1) are experiencing
difficulty in generating sufficient cash flows to meet their obligations and
sustain their operations, (2) failed to make certain principal payments and are
not in compliance with certain covenants of their long-term debt agreements (3)
have negative working capital and (4) have incurred substantial losses
subsequent to December 31, 1996. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Companies be unable to continue as a going concern. The Companies'
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet their obligations on a timely basis, to comply with
the terms and covenants of their financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain successful
operations. Management is continuing its efforts to obtain additional funds so
that the Company can meet its obligations and sustain operations from sources
that are described below.
F-37
<PAGE> 139
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On September 22, 1997, the Companies, the sole stockholder of the
Companies, and Kitty Hawk, Inc. ("Kitty Hawk") entered into a merger agreement,
under which each of the respective Companies will be merged with separate
subsidiaries of Kitty Hawk, with each of the Companies surviving the merger as a
direct, wholly owned subsidiary of Kitty Hawk. On October 23, 1997, the merger
agreement was amended so that at the effective time of the merger, the
outstanding shares of capital stock of four Companies (AIA, AIT, FOL and O.K.)
will be converted, into the right to receive their prorata portion of 4,099,150
shares of Kitty Hawk common stock (unaudited). The outstanding shares of capital
stock of KFS will be converted into the right to receive $20,000,000.
Concurrent with the consummation of the merger agreement will be the
closing of a proposed common stock offering of 3,000,000 shares of Kitty Hawk
common stock and the consummation of a proposed note offering under Rule 144A of
the Securities Act for $340,000,000 aggregate principal amount of senior secured
notes of Kitty Hawk. The proceeds of the notes and a portion of the proceeds of
the sale of shares will be used to pay the cash portion of the acquisition of
the Companies and to refinance and restructure the outstanding debt of the
Companies and Kitty Hawk.
As an interim step toward the merger, on September 17, 1997, the Companies
sold to Kitty Hawk sixteen Boeing 727-200 aircraft constituting the Companies'
727-200 fleet for approximately $51 million. This interim transaction was deemed
necessary in order to generate cash to be used to pay for the acquisition of a
Boeing 747 aircraft from an unrelated third party (see Note 9), to acquire an
L-1011 aircraft and provide the Companies with working capital. As part of the
transaction, the Companies assigned to Kitty Hawk all of its customer contracts
relating to the aircraft sold. The purchase agreement provides the Companies the
option to repurchase, no later than March 31, 1998, all except three of the
727-200 aircraft from Kitty Hawk at Kitty Hawk's purchase price, less $14
million for the three aircraft not subject to the option, plus any costs
incurred by Kitty Hawk to maintain the repurchased aircraft. Similarly, Kitty
Hawk has the option to require the Companies to repurchase, no later than
December 31, 1997, all except three of the 727-200 aircraft at Kitty Hawk's
purchase price less $14 million for the three aircraft not subject to the
option, plus any costs incurred by Kitty Hawk to maintain the repurchased
aircraft.
F-38
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable solely by the Company in connection with the
issuance and distribution of the securities to be registered, other than
underwriting discounts and expenses, are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 26,000
NASD filing fee............................................. 9,100
Nasdaq application fee...................................... 17,500
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 425,000
Accounting fees and expenses................................ 800,000
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous expenses...................................... 50,000
----------
Total............................................. $1,417,600
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its stockholders for
monetary damages arising from the director's breach of fiduciary duty as a
director. However, this does not apply with respect to any action in which the
director would be liable under Section 174 of the General Corporation Law of the
State of Delaware ("Delaware Code") nor does it apply with respect to any
liability in which the director (i) breached his duty of loyalty to the Company
or its stockholders; (ii) did not act in good faith or, in failing to act, did
not act in good faith; (iii) acted in a manner involving intentional misconduct
or a knowing violation of law or, in failing to act, shall have acted in a
manner involving intentional misconduct or a knowing violation of law; or (iv)
derived an improper personal benefit.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify its directors and officers and former directors and officers to
the fullest extent permitted by the Delaware Code. Pursuant to the provisions of
Section 145 of the Delaware Code, the Company has the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee, or agent of the Company, against any and all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit, or proceeding. The
power to indemnify applies only if such person acted in good faith and in a
manner he reasonably believed to be in the best interest, or not opposed to the
best interest, of the Company and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself and with
the further limitation that in such actions no indemnification shall be made in
the event of any adjudication of negligence or misconduct unless the court, in
its discretion, believes that in light of all the circumstances indemnification
should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements, vote
of stockholders or disinterested directors, or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been
II-1
<PAGE> 141
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company granted certain options to Messrs. Reeves and Wadsworth in
December 1995 and June 1996, respectively. See "Management -- Employee
Compensation Plans and Arrangements." All such options were issued in connection
with employment or consulting services rendered pursuant to Rule 701 and/or
Section 4(2) of the Securities Act and were exercised on June 27, 1996. In
connection with the consummation of the Merger, the Company will issue 4,099,150
shares of Common Stock to Messrs. Kalitta, Kelsey, and two other individuals.
All of the shares issued in connection with the Merger will be issued pursuant
to Section 4(2) of the Securities Act and/or Regulation D promulgated pursuant
to the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
1.1** -- Form of Underwriting Agreement.
2.1* -- Agreement and Plan of Merger, dated September 22, 1997
(the "Merger Agreement"), by and among Kitty Hawk and
certain of its subsidiaries, M. Tom Christopher, AIA,
AIT, FOL, KFS, OK and Conrad A. Kalitta.
2.2** -- Amendment No. 1 to the Merger Agreement, dated October
23, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad A. Kalitta.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the
"Company"), filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
3.2** -- Amended and Restated Bylaws of the Company.
3.3 -- Amendment No. 1 to the Certificate of Incorporation of
the Company, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
4.1 -- Specimen Common Stock Certificate, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
4.2* -- Form of Stockholders' Agreement to be entered into among
the Company, M. Tom Christopher and Conrad A. Kalitta.
5.1** -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc. and
Conrad Kalitta, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
</TABLE>
II-2
<PAGE> 142
<TABLE>
<CAPTION>
<C> <S>
10.3 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.4 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.5 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.6 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.7 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.8 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.9 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.10 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.11 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.12 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement"), filed as
an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.13 -- Amendment No. 1 dated November 17, 1992 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.14 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
</TABLE>
II-3
<PAGE> 143
<TABLE>
<CAPTION>
<C> <S>
10.15 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.16 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.17 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.18 -- Amendment No. 6 dated December 6, 1996 to the FEASI
Agreement, filed as an Exhibit to the Company's Form 10-Q
for the quarter ended November 30, 1996, which exhibit is
incorporated herein by reference.
10.19 -- Amended and Restated Credit Agreement, dated as of August
14, 1996, by and among the Company, Wells Fargo Bank
(Texas), National Association and Bank One, Texas, N.A.,
filed as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.20* -- Agreement, dated July 20, 1995, between American
International Airways, Inc. and the Pilots, Co-Pilots and
Flight Engineers in the service of American International
Airways, Inc., as represented by The International
Brotherhood of Teamsters -- Airline Division.
10.21** -- Form of Employment Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
10.22** -- Form of Consulting Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
12.1* -- Statement of Computation of ratio of earnings to fixed
charges.
21.1 -- Subsidiaries of the Registrant, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
23.1* -- Consent of Ernst & Young LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Haynes and Boone, LLP (contained in legal
opinion).
24.1*** -- The power of attorney of officers and directors of the
Company.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
(b) Financial Statement Schedule and Auditors' Report on Schedule:
Schedules filed
The Kalitta Companies -- Schedule II Valuation and Qualifying Accounts
No other financial statement schedules are filed as part of this
Registration Statement since the required information is included in the
financial statements, including the notes thereto, or circumstances requiring
the inclusion of such schedules are not present.
II-4
<PAGE> 144
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on the 24th day of October, 1997.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
----------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on the 24th day of October, 1997.
<TABLE>
<CAPTION>
NAME CAPACITIES
---- ----------
<C> <S>
/s/ M. TOM CHRISTOPHER* Chairman of the Board of Directors and
- ----------------------------------------------------- Chief Executive Officer
M. Tom Christopher
/s/ TILMON J. REEVES* President, Chief Operating Officer and
- ----------------------------------------------------- Director
Tilmon J. Reeves
/s/ RICHARD R. WADSWORTH Senior Vice President -- Finance, Chief
- ----------------------------------------------------- Financial Officer, Secretary and
Richard R. Wadsworth Director and Principal Financial and
Accounting Officer
/s/ TED J. COONFIELD* Director
- -----------------------------------------------------
Ted J. Coonfield
/s/ JAMES R. CRAIG* Director
- -----------------------------------------------------
James R. Craig
/s/ LEWIS S. WHITE* Director
- -----------------------------------------------------
Lewis S. White
*/s/ RICHARD R. WADSWORTH
- -----------------------------------------------------
Richard R. Wadsworth
(As Attorney-in-Fact for each
person indicated)
</TABLE>
II-6
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan
We have audited the combined financial statements of American International
Airways, Inc. and related companies (collectively, the "Companies") as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, and have issued our report thereon dated October 16, 1997
(which report expresses an unqualified opinion and includes an explanatory
paragraph which indicates that there are matters that raise substantial doubt
about the Companies' ability to continue as a going concern); such financial
statements and report are included elsewhere in this Form S-1. Our audits also
included the financial statement schedule of the Companies, listed in Item 16.
This financial statement schedule is the responsibility of the Companies'
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic combined financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ann Arbor, Michigan
October 16, 1997 DELOITTE & TOUCHE LLP
S-1
<PAGE> 147
AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
CHARGED DEDUCTIONS-
CHARGED TO TO OTHER WRITE-OFFS
BALANCE COSTS AND ACCOUNTS- AND BALANCE
JANUARY 1 EXPENSES ACQUISITIONS DISPOSALS DECEMBER 31
--------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
DOUBTFUL ACCOUNTS RESERVES
For the Year Ended December 31,
1996............................ $2,062 $1,011 $ (684) $2,389
1995............................ 1,950 1,862 (1,750) 2,062
1994............................ 1,363 2,231 (1,644) 1,950
</TABLE>
S-2
<PAGE> 148
[This page contains a series of pictures of airplanes being loaded and unloaded
and of the control room of Kitty Hawk.]
<PAGE> 149
[KITTY HAWK, INC. LOGO]
KITTY HAWK, INC.
<PAGE> 150
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
1.1** -- Form of Underwriting Agreement.
2.1* -- Agreement and Plan of Merger, dated September 22, 1997
(the "Merger Agreement"), by and among Kitty Hawk and
certain of its subsidiaries, M. Tom Christopher, AIA,
AIT, FOL, KFS, OK and Conrad A. Kalitta.
2.2** -- Amendment No. 1 to the Merger Agreement, dated October
23, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad A. Kalitta.
3.1 -- Certificate of Incorporation of Kitty Hawk, Inc. (the
"Company"), filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
3.2** -- Amended and Restated Bylaws of the Company.
3.3 -- Amendment No. 1 to the Certificate of Incorporation of
the Company, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
4.1 -- Specimen Common Stock Certificate, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
4.2* -- Form of Stockholders' Agreement to be entered into among
the Company, M. Tom Christopher and Conrad A. Kalitta.
5.1** -- Opinion of Haynes and Boone, LLP, regarding legality of
the Common Stock being issued.
10.1 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc. and
Conrad Kalitta, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of December 1994, which exhibit is
incorporated herein by reference.
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.3 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.4 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 33-85698)
dated as of December 1994, which exhibit is incorporated
herein by reference.
10.5 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
10.6 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-8307) dated as of
October 1996, which exhibit is incorporated herein by
reference.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10.7 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996, filed
as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.8 -- Kitty Hawk, Inc. 401(k) Savings Plan, filed as an Exhibit
to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.9 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 33-85698) dated as of
December 1994, which exhibit is incorporated herein by
reference.
10.10 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.11 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.12 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement"), filed as
an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.13 -- Amendment No. 1 dated November 17, 1992 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.14 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.15 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.16 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.17 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-8307) dated as of October 1996, which exhibit is
incorporated herein by reference.
10.18 -- Amendment No. 6 dated December 6, 1996 to the FEASI
Agreement, filed as an Exhibit to the Company's Form 10-Q
for the quarter ended November 30, 1996, which exhibit is
incorporated herein by reference.
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10.19 -- Amended and Restated Credit Agreement, dated as of August
14, 1996, by and among the Company, Wells Fargo Bank
(Texas), National Association and Bank One, Texas, N.A.,
filed as an Exhibit to the Registrant's previously filed
Registration Statement on Form S-1 (Reg. No. 333-8307)
dated as of October 1996, which exhibit is incorporated
herein by reference.
10.20* -- Agreement, dated July 20, 1995, between American
International Airways, Inc. and the Pilots, Co-Pilots and
Flight Engineers in the service of American International
Airways, Inc., as represented by The International
Brotherhood of Teamsters -- Airline Division.
10.21** -- Form of Employment Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
10.22** -- Form of Consulting Agreement to be entered into by and
between Conrad A. Kalitta and AIA.
12.1* -- Statement of Computation of ratio of earnings to fixed
charges.
21.1 -- Subsidiaries of the Registrant, filed as an Exhibit to
the Registrant's previously filed Registration Statement
on Form S-1 (Reg. No. 333-8307) dated as of October 1996,
which exhibit is incorporated herein by reference.
23.1* -- Consent of Ernst & Young LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Haynes and Boone, LLP (contained in legal
opinion).
24.1*** -- The power of attorney of officers and directors of the
Company.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
(b) Financial Statement Schedule and Auditors' Report on Schedule:
Schedules filed
The Kalitta Companies -- Schedule II Valuation and Qualifying Accounts
No other financial statement schedules are filed as part of this
Registration Statement since the required information is included in the
financial statements, including the notes thereto, or circumstances requiring
the inclusion of such schedules are not present.
<PAGE> 1
EXHIBIT 2.1
------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
KITTY HAWK, INC.
KITTY HAWK - AIA, INC.
KITTY HAWK - AIT, INC.
KITTY HAWK - FOL, INC.
KITTY HAWK - KFS, INC.
KITTY HAWK - OK, INC.
M. TOM CHRISTOPHER
AND
AMERICAN INTERNATIONAL AIRWAYS, INC.
AMERICAN INTERNATIONAL TRAVEL, INC.
FLIGHT ONE LOGISTICS, INC.
KALITTA FLYING SERVICE, INC.
O.K. TURBINES, INC.
CONRAD KALITTA
Dated September 22, 1997
AN APPENDIX OF DEFINED TERMS BEGINS ON PAGE (VII)
------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
THE MERGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 The Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effective Time of the Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
THE CONSTITUENT AND SURVIVING CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Constituent Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Board of Directors and Officers of the Surviving Corporations . . . . . . . . . . . . . . . . 5
2.5 Effects of Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Consideration for Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Conversion of Subs' Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Shareholder to Have No Further Rights as to Kalitta Companies . . . . . . . . . . . . . . . . 9
3.5 Written Consent of Sole Shareholder of Subs . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Written Consent of Sole Shareholder of each Kalitta Company . . . . . . . . . . . . . . . . . 9
3.7 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Representations and Warranties of Kalitta and
the Kalitta Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1.1 Corporate Existence and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1.2 Capitalization of the Kalitta Companies . . . . . . . . . . . . . . . . . . . . . . 10
4.1.3 Validity and Authorization; Corporate Power and Authority . . . . . . . . . . . . . 11
4.1.4 Execution; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1.5 Governmental and Other Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1.7 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1.8 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1.10 Disputes and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1.13 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1.14 Real Property and Real Property Leases . . . . . . . . . . . . . . . . . . . . . . 20
4.1.15 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1.16 Intangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
4.1.17 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1.18 Office Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1.19 Indebtedness and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.20 Debts to and from Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.21 Banking Arrangements and Powers of Attorney . . . . . . . . . . . . . . . . . . . . 23
4.1.22 Articles of Incorporation, Partnership Agreement
and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1.23 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1.24 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1.25 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1.26 No Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.27 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.28 Aviation Act; Aircraft; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1.29 No Solicitation or Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.30 Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2 Representations and Warranties of Kalitta . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.3 Representations and Warranties of Kitty Hawk . . . . . . . . . . . . . . . . . . . . . . . 30
4.3.1 Corporate Existence and Authority . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3.2 Capitalization of Kitty Hawk and its Subsidiaries . . . . . . . . . . . . . . . . . 30
4.3.3 Validity and Authorization; Corporate Power and Authority . . . . . . . . . . . . . 31
4.3.4 Execution; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.3.5 Governmental and Other Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3.6 Stock Merger Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3.7 Acquisition of Kalitta Companies' Stock . . . . . . . . . . . . . . . . . . . . . . 32
4.3.8 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.3.9 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.10 Controlling Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.11 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.3.13 Disputes and Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3.16 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3.17 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3.18 Indebtedness and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3.20 Aviation Act; Aircraft; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3.21 No Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3.22 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . 38
4.3.23 No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.3.24 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.4 Representations and Warranties as to Subs . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.4.1 Corporate Existence and Authority . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.4.2 Capitalization of the Subs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4.3 Validity and Authorization; Corporate Power and Authority . . . . . . . . . . . . . 39
4.4.4 Execution; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4.5 Governmental and Other Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.5 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.1 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.1.1 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.1.2 Notices and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.1.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.1.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.1.5 Repairs; FAA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.6 Reports and Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.7 Assist in Obtaining Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.9 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.10 Preservation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.1.11 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.1.12 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2 Kalitta and the Kalitta Companies Covenants . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2.1 Information for Kitty Hawk's Statements, Reports,
Applications and SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.2.2 No Solicitation or Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.2.4 Payment of Indebtedness of Related Persons . . . . . . . . . . . . . . . . . . . . 45
5.2.5 Restriction on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.6 Exemptions from Sales Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.7 Office Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.8 Sale of Racing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.2.9 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2.10 Life Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.2.11 Assurances to Cooperate with SEC Filings . . . . . . . . . . . . . . . . . . . . . 47
5.2.12 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.3 Kitty Hawk Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.3.1 Kitty Hawk Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.3.2 Assurances to Cooperate with SEC Filings . . . . . . . . . . . . . . . . . . . . . 48
5.3.3 GM Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.3.4 SEC Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.4 Covenants of Christopher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.4.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.4.2 Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.4.3 Assurances to Cooperate with SEC Filings . . . . . . . . . . . . . . . . . . . . . 48
5.4.4 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.5 Certain Covenants Relating to the Governance of Kitty Hawk
after the Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.5.1 Electing the Initial Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.5.2 Nominating Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.5.3 Deadlock Resolution at the Joint Nominating Committee . . . . . . . . . . . . . . . 50
5.5.4 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.5.5 Termination of Governance Obligations . . . . . . . . . . . . . . . . . . . . . . . 52
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ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1 Conditions Precedent to Obligations of Christopher, Kitty Hawk
and the Subs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1.2 Performance by Kalitta and the Kalitta Companies . . . . . . . . . . . . . . . . . 53
6.1.3 Regulatory Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1.4 No Court Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.5 Certificates of the Kalitta Companies . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.6 Opinions of Kalitta's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.7 Satisfaction with Review of Kalitta Companies . . . . . . . . . . . . . . . . . . . 54
6.1.8 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.9 Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.10 Minimum Share Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.11 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.1.12 MEA 747 Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.1.13 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.1.14 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.1.15 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.2 Conditions Precedent to Obligations of the Kalitta Companies . . . . . . . . . . . . . . . 55
6.2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 55
6.2.2 Performance by Christopher and Kitty Hawk . . . . . . . . . . . . . . . . . . . . . 55
6.2.3 Regulatory Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2.4 No Court Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2.5 Certificate of Kitty Hawk and Subs . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2.6 Opinions of Kitty Hawk's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2.7 Satisfaction with Review of Kitty Hawk . . . . . . . . . . . . . . . . . . . . . . 56
6.2.8 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
6.2.9 Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2.10 Minimum Share Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2.11 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
6.2.12 Tax Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.2.13 Release of Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.2.14 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE VII
CLOSING AND DELIVERY OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.1 Deliveries by Kalitta and the Kalitta Companies . . . . . . . . . . . . . . . . . . . . . . 58
7.2 Delivery by Kitty Hawk and the Subs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.3 Related Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.1 Reasons for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.1.1 By Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.1.2 By Kitty Hawk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.1.3 By Kalitta and the Kalitta Companies . . . . . . . . . . . . . . . . . . . . . . . 60
8.1.4 Drop-Dead Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.2 Notice of Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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8.3 Kitty Hawk Termination Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.4 Kalitta Termination Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX
POST-CLOSING AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.1 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.2 Certain Transfer and Similar Taxes of the Kalitta Companies . . . . . . . . . . . . . . . . 62
9.3 Inspection of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.4 Continuation of Existence and Business of Kalitta Companies . . . . . . . . . . . . . . . . 63
9.5 Indemnification of Directors and Officers of the
Kalitta Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
9.6 Office Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.7 Release and Indemnification for Kalitta Guaranties . . . . . . . . . . . . . . . . . . . . 64
ARTICLE X
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.1 Survival, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.1.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.1.2 No Effect on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.1.3 Commencing Arbitrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.2 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.2.1 Indemnification of Kitty Hawk . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.2.2 Indemnification of Kalitta . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.4 Notice and Opportunity to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.4.1 Notice, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.4.2 Defense Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.4.3 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.4.4 Indemnification Based Upon Net Losses . . . . . . . . . . . . . . . . . . . . . . . 73
10.5 EXCLUSIVE REMEDY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.6 No Other Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.7 Delays or Omissions; Waiver; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.9 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.9.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.9.2 Emergency Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.5 Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.6 Number and Gender of Words . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.7 Execution of Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.8 Finders' and Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.9 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
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11.10 No Third Party Beneficiary, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.11 Reformation; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.12 Binding Effect and Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.13 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.14 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.15 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.16 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
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APPENDIX OF
DEFINED TERMS
"AAA" shall mean the American Arbitration Association.
"ADJOINING LOTS" shall have the meaning ascribed to it in Section
4.1.18.
"AFFILIATE" shall mean, with respect to a specified Person, a Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
"AGREEMENT" shall have the meaning ascribed to it in the preamble to
this Agreement.
"AIA" shall have the meaning ascribed to it in the preamble to this
Agreement.
"AIA CERTIFICATE" shall have the meaning ascribed to it in Section
3.1(a).
"AIA COMMON STOCK" shall have the meaning ascribed to it in Section
3.1(a).
"AIA MERGER" shall have the meaning ascribed to it in Section 1.2(a).
"AIA MERGER CONSIDERATION" shall have the meaning ascribed to it in
Section 3.1(a).
"AIA OPERATING AUTHORIZATIONS" shall have the meaning ascribed to it
in Section 4.1.28(a).
"AIA SHARE" shall have the meaning ascribed to it in Section 3.1(a).
"AIC" shall have the meaning ascribed to it in Section 4.1.1(b).
"AIC PARTNERSHIP AGREEMENT" shall have the meaning ascribed to it in
Section 4.1.1(b).
"AIT" shall have the meaning ascribed to it in the preamble to this
Agreement.
"AIT CERTIFICATE" shall have the meaning ascribed to it in Section
3.1(b).
"AIT COMMON STOCK" shall have the meaning ascribed to it in Section
3.1(b).
"AIT MERGER" shall have the meaning ascribed to it in Section 1.2(b).
"AIT MERGER CONSIDERATION" shall have the meaning ascribed to it in
Section 3.1(b).
"AIT SHARE" shall have the meaning ascribed to it in Section 3.1(b).
"ASSERTED LIABILITY" shall have the meaning ascribed to it in Section
10.4.1.
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"AVIATION ACT" shall mean Title 49 of the United States Code (formerly
the Federal Aviation Act of 1958, as amended).
"BOARD OF DIRECTORS" shall mean the board of directors of Kitty Hawk.
"BENEFICIALLY OWN" shall mean beneficial ownership within the meaning
of Rule 13d-3 promulgated under the Exchange Act.
"BREACH" shall mean, with respect to a party hereto, any
representation or warranty of such party under this Agreement (including in the
tax representation letters referred to in Section 5.1.11) being untrue when
made by such party or any breach of any of such party's covenants or agreements
under this Agreement (except that in the case of the indemnification
obligations of Kalitta after the Closing, Breach shall not include any Breach
by any Kalitta Company of any covenant or agreement to be performed after the
Closing).
"BUSINESS DAY" shall mean a day other than a Saturday or Sunday on
which trading occurs on the New York Stock Exchange.
"CAP" shall have the meaning ascribed to it in Section 10.3.2.
"CHIEF EXECUTIVE OFFICER" shall have the meaning ascribed to it in
Section 5.5.4.
"CHRISTOPHER" shall have the meaning ascribed to it in the preamble to
this Agreement.
"CHRISTOPHER DESIGNEES" shall mean Ted Coonfield, Jim Reeves and any
successors thereto selected by the Christopher Nominating Committee.
"CHRISTOPHER NOMINATING COMMITTEE" shall have the meaning ascribed to
it in Section 5.5.2.
"CHRISTOPHER STOCKHOLDER" shall mean Christopher and each Permitted
Transferee (as defined in the Stockholders' Agreement) who receives a Transfer
(as defined in the Stockholders' Agreement) of Kitty Hawk Common Stock from
Christopher or another Christopher Stockholder and each person who receives an
Exempt Transfer (as defined in the Stockholders' Agreement) of Kitty Hawk
Common Stock from Christopher or another Christopher Stockholder.
"CLOSING" shall mean the consummation of the Mergers and the closing
of the transactions contemplated by this Agreement.
"CLOSING DATE" shall have the meaning ascribed to it in Section 3.7.
"CLOSING DATE FINANCINGS" shall have the meaning ascribed to it in
Section 5.3.1.
"CODE" shall have the meaning ascribed to it in the Recitals.
"CONFIDENTIAL INFORMATION" shall have the meaning ascribed to it in
Section 11.14.
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"CONSTITUENT CORPORATIONS" shall have the meaning ascribed to it in
Section 2.1.
"CONTRACTS" shall have the meaning ascribed to it in Section 4.1.17.
"CORPORATE LIABILITY" shall have the meaning ascribed to it in Section
6.2.11.
"COSTS" shall have the meaning ascribed to it in Section 11.8.
"D&T" shall mean Deloitte & Touche, L.L.P.
"D&T CONSENT" shall have the meaning ascribed to it in Section 5.2.3.
"D&T FINANCIAL STATEMENTS" shall have the meaning ascribed to it in
Section 5.2.3.
"DEBT OFFERING DOCUMENTS" means the offering circular or memorandum
relating to the senior notes offered in the Closing Date Financings as amended
or supplemented.
"DEDUCTIBLE" shall have the meaning ascribed to it in Section 10.3.1.
"DEFENSE COSTS" shall have the meaning ascribed to it in Section
10.4.2.
"DISABILITY" shall mean with respect to an individual (a) a finding by
a court of competent jurisdiction that such individual is mentally incompetent
or (b) such individual's inability to function on his or her own or conduct his
or her own affairs due to mental or physical infirmity for six (6) consecutive
months. If any individual disputes that he or she is suffering from a
Disability, unless a court of competent jurisdiction has determined such
individual is mentally incompetent which determination shall be binding, such
dispute shall be submitted to a physician mutually satisfactory to such
individual and the Board of Directors (including for this purpose only the vote
of such individual). If such individual and the Board of Directors are unable
to mutually agree on a mutually satisfactory physician, then such individual
and the Board of Directors shall each select a reputable physician, who,
together, shall in turn select a third physician whose determination of such
individual's Disability shall be conclusive and binding on all parties hereto.
Evidence of such Disability, as so certified, shall be conclusive
notwithstanding that a disability policy, or clause in an insurance policy,
covering such individual shall contain a different definition of "disabled" or
"disability."
"DISCLOSING PARTY" shall have the meaning ascribed to it in Section
11.14.
"DISCLOSURE SCHEDULE" shall mean (a) in the case of the Kalitta
Companies and Kalitta, the Disclosure Schedule delivered by the Kalitta
Companies to Kitty Hawk at or prior to the date of this Agreement pursuant to
Section 4.1, and (b) in the case of Kitty Hawk and the Subs, the Disclosure
Schedule delivered by it to the Kalitta Companies and Kalitta pursuant to
Sections 4.3 and 4.4 hereof.
"DOT" shall mean the U.S. Department of Transportation.
"EFFECTIVE TIME" shall have the meaning ascribed to it in Section 1.3.
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"EMPLOYEE BENEFIT PLAN" shall have the meaning ascribed to it in
Section 4.1.24(a).
"ENVIRONMENTAL CLAIM" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, Liens, Proceedings or notices of non-compliance or violation (or to the
Knowledge of Kalitta Management, investigation) by any Person alleging
potential liability (including, without limitation, potential liability for
enforcement, investigatory costs, cleanup costs, governmental response costs,
removal costs, remedial costs, natural resources damages, property damages,
personal injuries, or penalties) arising out of, based on or resulting from (A)
the presence, or release or threatened release into the environment, of any
Hazardous Material at any location, whether owned, operated, leased or managed
by the Kalitta Companies or AIC (or in the case of Section 4.3.19, Kitty Hawk
or any of its Subsidiaries) with respect to their businesses; (B) circumstances
reasonably forming the basis of any violation, or alleged violation, of any
Environmental Law by the Kalitta Companies or AIC (or in the case of Section
4.3.19, Kitty Hawk or any of its Subsidiaries); or (C) any and all written
claims by any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
release of any Hazardous Materials.
"ENVIRONMENTAL COUNSEL" shall have the meaning ascribed to it in
Section 10.2.1(b)(ii).
"ENVIRONMENTAL LAWS" shall mean all laws or orders relating to the
regulation or protection of human health, safety or the environment (including,
without limitation, ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata), including, without limitation, laws and regulations
relating to releases or threatened releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, recycling or handling of Hazardous
Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ESCROW AGENT" shall mean Wells Fargo Bank N.A. or any other national
banking association designated by Kitty Hawk.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FAA" shall mean the U.S. Federal Aviation Administration.
"FAIR MARKET VALUE" means an amount (expressed in dollars) equal to
the arithmetic average of the last reported sales price of a share of Kitty
Hawk Common Stock as quoted on the National Association of Securities Dealers
Automated Quotation System (or any national securities exchange on which the
Kitty Hawk Common Stock is listed, or if not so listed, its fair market value
as determined in good faith by the Board of Directors) for the twenty (20)
consecutive trading days ending on the immediately preceding trading day, as
adjusted to reflect any stock split, stock dividend, merger, consolidation,
reorganization, recapitalization or similar event occurring during such
valuation period.
(x)
<PAGE> 12
"FAIRNESS OPINION" shall mean the fairness opinion dated on or about
September 22, 1997 from BT Alex. Brown & Sons Incorporated, to the effect that
the consideration for the Mergers is fair to Kitty Hawk, from a financial point
of view.
"FAMILY MEMBER" shall mean with respect to an individual that
individual's spouse, natural or adopted sibling, ancestor or descendant of that
individual or any spouse or descendant of any such ancestor, descendant or
sibling.
"FINANCIAL STATEMENTS" shall have the meaning ascribed to it in
Section 4.1.6.
"FOL" shall have the meaning ascribed to it in the preamble to this
Agreement.
"FOL CERTIFICATE" shall have the meaning ascribed to it in Section
3.1(c).
"FOL COMMON STOCK" shall have the meaning ascribed to it in Section
3.1(c).
"FOL MERGER" shall have the meaning ascribed to it in Section 1.2(c).
"FOL MERGER CONSIDERATION" shall have the meaning ascribed to it in
Section 3.1(c).
"FOL SHARE" shall have the meaning ascribed to it in Section 3.1(c).
"FRAUDULENT CONVEYANCE ACT" shall mean any statute substantially
similar to the Uniform Fraudulent Conveyance Act.
"FRAUDULENT TRANSFER ACT" shall mean any statute substantially similar
to the Uniform Fraudulent Transfer Act.
"FRINGE BENEFITS" shall have the meaning ascribed to it in Section
4.1.25(a).
"GAAP" shall mean those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods so as to properly reflect the financial
position, results of operations and operating cash flow on a consolidated basis
of the party, except that any accounting principle or practice required to be
changed by the Accounting Principles Board or Financial Accounting Standards
Board (or other appropriate board or committee) in order to continue as a
generally accepted accounting principle or practice may be so changed.
"GENERAL INCREASE" shall have the meaning ascribed to it in Section
4.1.8(g).
"GM" shall mean the General Motors Corporation.
"GM WAIVER" shall have the meaning ascribed to it in Section 5.3.2.
"GOVERNANCE AMENDMENTS" shall have the meaning ascribed to it in the
Recitals.
(xi)
<PAGE> 13
"GUARANTOR DOCUMENTS" shall have the meaning ascribed to it in Section
6.2.11.
"GUARANTY" shall have the meaning ascribed to it in Section 6.2.11.
"HAZARDOUS MATERIALS" shall mean any waste or other substance that is
listed, defined, designated or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
"INDEMNIFIED LIABILITIES" shall have the meaning ascribed to it in
Section 9.5(a).
"INDEMNIFIED PARTY" shall have the meaning ascribed to it in Section
10.4.1.
"INDEMNIFYING PARTY" shall have the meaning ascribed to it in Section
10.4.1.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed to it in
Section 4.1.16.
"JOINT DESIGNEE" shall mean Lewis White and any successors thereto
selected by the Joint Nominating Committee.
"JOINT NOMINATING COMMITTEE" shall have the meaning ascribed to it in
Section 5.5.2.
"KALITTA" shall have the meaning ascribed to it in the preamble to
this Agreement.
"KALITTA COMPANIES" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KALITTA COMPANIES INDEMNIFIED PARTIES" shall have the meaning
ascribed to it in Section 9.5(a).
"KALITTA COMPANIES PERMITTED TRANSACTIONS" shall mean (a) the
transactions contemplated by the 727 Purchase Agreement, (b) the purchase and
financing by AIA of the MEA 747s, (c) the repurchase by AIA of an L-1011 from
ACG Nevada Three LLC pursuant to that certain Purchase Option Agreement dated
April 12, 1996, between ACG Nevada Three LLC and AIA, (d) the sale by AIA of
one L-1011 aircraft, (e) the sale of aircraft N504MG and N705CA, (f) the
transactions contemplated by the Racing Entity Purchase Agreement, (g) to the
extent all conditions to the obligations of AIA are satisfied pursuant to that
letter agreement relating to the Ft. Wayne facility are satisfied, the
transactions contemplated thereby, (h) the borrowing of approximately
$7,750,000 and the granting of Liens on a DC-8-63F owned by AIA to secure such
borrowing, (i) up to $250,000 in miscellaneous financings of equipment, (j) the
sale by KFS to Kalitta or his Affiliate of the Hawker aircraft and the lease
back of such aircraft, in each case on terms no less favorable to KFS than
those
(xii)
<PAGE> 14
that could be obtained in an arm's length transaction, (k) any debt refinancing
or restructuring transactions that are consented to by Kitty Hawk (which
consent shall not be unreasonably withheld), (l) the financing of insurance
premium deductibles consistent with past practice, (m) the distribution net of
prior distributions for such purpose, of up to $1,500,000 solely for the
payment by Kalitta of personal income Taxes attributable to earnings of the
Kalitta Companies from January 1997, net of prior distributions until the
Closing Date, (n) the transfer from Kalitta to Doug Kalitta, George Kelsey and
Don Schilling of an aggregate of 885 shares of AIA (provided that no such
transfers shall be made until each such transferee has delivered to Kitty Hawk
a written waiver of any dissenter's rights related to the Mergers) and (o) any
transactions between Kalitta, AIC or any of the Kalitta Companies, on the one
hand, and Kitty Hawk or any Subsidiary, on the other hand.
"KALITTA COMPANIES SHARES" shall have the meaning ascribed to it in
Section 4.3.7.
"KALITTA CONSENTS" shall have the meaning ascribed to it in Section
4.1.5.
"KALITTA DESIGNEES" shall mean George Kelsey, Phil Sauder and any
successors thereto selected by the Kalitta Nominating Committee.
"KALITTA NOMINATING COMMITTEE" shall have the meaning ascribed to it
in Section 5.5.2.
"KALITTA ESTABLISHED LOSS" shall have the meaning ascribed to it in
Section 10.2.3.
"KALITTA GROUP" shall have the meaning ascribed to it in Section
5.2.1.
"KALITTA INDEMNIFIED PARTIES" shall have the meaning ascribed to it in
Section 10.2.2.
"KALITTA MANAGEMENT" shall mean David Ahles, William Gray, Kalitta,
Douglas Kalitta, Michael Maraone, Jane Phifer, Donald Schilling, Diana
Schilling, Beti Ward and Ken Welsch.
"KALITTA STOCKHOLDER" shall mean Kalitta and each Permitted Transferee
(as defined in the Stockholders' Agreement) who receives a Transfer (as defined
in the Stockholders' Agreement) of Kitty Hawk Common Stock from Kalitta or
another Kalitta Stockholder or a person who receives an Exempt Transfer (as
defined in the Stockholders' Agreement) of Kitty Hawk Common Stock from Kalitta
or another Kalitta Stockholder.
"KFS" shall have the meaning ascribed to it in the preamble to this
Agreement.
"KFS CASH MERGER CONSIDERATION" shall mean $20,000,000.
"KFS CERTIFICATE" shall have the meaning ascribed to it in Section
3.1(d).
"KFS COMMON STOCK" shall have the meaning ascribed to it in Section
3.1(d).
(xiii)
<PAGE> 15
"KFS ENVIRONMENTAL CONDITION" shall have the meaning ascribed to it in
Section 10.2.1(e).
"KFS ENVIRONMENTAL OBLIGATION" shall have the meaning ascribed to it
in Section 10.2.1(e)(ii).
"KFS ESCROW AGREEMENT" shall mean an Escrow Agreement, effective as of
the Closing Date, among Kitty Hawk, Kalitta and the Escrow Agent, the form of
which is attached as Exhibit 7.3(d).
"KFS ESCROW AMOUNT" shall mean $3,000,000.
"KFS MERGER" shall have the meaning ascribed to it in Section 1.2(d).
"KFS OPERATING AUTHORIZATIONS" shall have the meaning ascribed to it
in Section 4.1.28(c).
"KFS PROPERTIES" shall mean any real property, leaseholds or other
realty interests currently or formerly owned or operated by KFS and any
buildings, plants or structures currently or formerly owned or operated by KFS.
"KFS SHARE" shall have the meaning ascribed to it in Section 3.1(d).
"KITTY HAWK" shall have the meaning ascribed to it in the preamble to
this Agreement.
"KITTY HAWK - AIA" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KITTY HAWK - AIT" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KITTY HAWK COMMON STOCK" shall have the meaning ascribed to it in
Section 3.1(f).
"KITTY HAWK CONSENTS" shall have the meaning ascribed to it in Section
4.3.5.
"KITTY HAWK CONTRACTS" shall have the meaning ascribed to it in
Section 4.3.17.
"KITTY HAWK ESTABLISHED KFS LOSS" shall have the meaning ascribed to
it in Section 10.2.1(f).
"KITTY HAWK ESTABLISHED LOSS" shall mean a Kitty Hawk Established KFS
Loss or a Kitty Hawk Established Non-KFS Loss.
"KITTY HAWK ESTABLISHED NON-KFS LOSS" shall have the meaning ascribed
to it in Section 10.2.1(c).
(xiv)
<PAGE> 16
"KITTY HAWK - FOL" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KITTY HAWK INDEMNIFIED PARTY" shall have the meaning ascribed to it
in Section 10.2.1(a).
"KITTY HAWK - KFS" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KITTY HAWK - OK" shall have the meaning ascribed to it in the
preamble to this Agreement.
"KITTY HAWK OPERATING AUTHORIZATIONS" shall have the meaning ascribed
to it in Section 4.3.20(a).
"KITTY HAWK PERMITTED TRANSACTIONS" shall mean (a) the transactions
contemplated by the 727 Purchase Agreement, (b) the transactions contemplated
by this Agreement, including the Closing Date Financings, (c) the adoption of
the Governance Amendments, (d) the election of Christopher as Chairman of the
Board and Chief Executive Officer, (e) the issuance of contractual indemnity
agreements to each member of the Board of Directors (including, subject to
Closing, those prospective members of the Board of Directors set forth on
Exhibit 5.5.1) and (f) any transactions between Kalitta, AIC or any of the
Kalitta Companies, on the one hand, and Kitty Hawk or any Subsidiary, on the
other hand.
"KITTY HAWK PROPOSALS" shall have the meaning ascribed to it in the
Recitals.
"KNOWLEDGE OF KALITTA MANAGEMENT" shall mean the actual (rather than
imputed) knowledge of any individual member of the Kalitta Management and the
phrase "Known to Kalitta Management" and similar phrases shall have a
correlative meaning thereto.
"KNOWLEDGE OF KITTY HAWK" shall mean the actual (rather than imputed)
knowledge of Christopher, Jim Reeves or Rick Wadsworth and the phrase "Known to
Kitty Hawk" and similar phrases shall have a correlative meaning thereto.
"LANDLORD" shall mean Kalitta, L.L.C., a Michigan limited liability
company.
"LEASE-MODIFICATION PROPOSAL" shall have the meaning ascribed to it in
Section 5.2.7(b).
"LIEN" shall mean any mortgage, deed of trust, lien, pledge, adverse
claim, security interest or encumbrance of any nature whatsoever but shall
exclude ordinary utility and other similar easements of record that do not
materially interfere with the use of real property.
"LOSSES" shall have the meaning ascribed to it in Section 10.2.1(a).
(xv)
<PAGE> 17
"MATERIAL ADVERSE EFFECT" shall mean (i) with respect to any of the
Kalitta Companies or AIC, a material adverse effect on (x) the business,
results of operations or financial condition of the Kalitta Companies in each
case taken as a whole, (y) on their ability to consummate the transactions
contemplated in this Agreement and in the Related Agreements or (z) the
enforceability of this Agreement or the Related Agreements identified in
Section 7.3(b) - (f) against Kalitta, or with respect to either the KFS Escrow
Agreement or the Non-KFS Escrow Agreement, the Escrow Agent and (ii) with
respect to Kitty Hawk or any of the Subsidiaries, a material adverse effect on
(x) the business, results of operations or financial condition in each case on
a consolidated basis of Kitty Hawk and its Subsidiaries, (y) on their ability
to consummate the transactions contemplated in this Agreement and in the
Related Agreements or (z) the enforceability of this Agreement or the Related
Agreements identified in Sections 7.3(b), (d) - (f) against Kitty Hawk, or with
respect to the Stockholders' Agreement, against Christopher.
"MBCA" shall have the meaning ascribed to it in the Recitals.
"MEA 747S" shall mean the three Boeing-747 aircraft the subject of
that certain Aircraft Purchase Agreement dated as of March 20, 1997, between
AIA and Middle East Airlines Airliban, S.A.L.
"MERGER PROPOSALS" shall have the meaning ascribed to it in the
Recitals.
"MERGERS" shall have the meaning ascribed to it in the Recitals.
"NON-KFS ENVIRONMENTAL CONDITION" shall have the meaning ascribed to
it in Section 10.2.1(b).
"NON-KFS ENVIRONMENTAL OBLIGATION" shall have the meaning ascribed to
it in Section 10.2.1(b)(i).
"NON-KFS ESCROW AGREEMENT" shall mean an Escrow Agreement effective as
of the Closing Date, among Kitty Hawk, Kalitta and the Escrow Agent, the form
of which is attached as Exhibit 7.3(d).
"NON-KFS ESCROW AMOUNT" shall mean 1,150,000 shares of Kitty Hawk
Common Stock.
"NON-KFS PROPERTIES" shall mean any real property, leaseholds, or
other realty interests currently or formerly owned or operated by any of AIA,
AIT, FOL or OK and any buildings, plants or structures currently or formerly
owned or operated by any of AIA, AIT, FOL or OK.
"NOTES" shall have the meaning ascribed to it in Section 6.2.11.
"OFFICE LEASE" shall mean that certain Corporate Office Lease dated as
of February 25, 1997 between AIA and the Landlord under which AIA occupies the
Office Premises.
(xvi)
<PAGE> 18
"OFFICE MORTGAGE" shall have the meaning ascribed to it in Section
4.1.18.
"OFFICE PREMISES" shall mean the office building containing
approximately 18,399 square feet and associated parking lot and premises
located at 1349 S. Huron Street in Ypsilanti, Michigan.
"OK" shall have the meaning ascribed to it in the preamble to this
Agreement.
"OK CERTIFICATE" shall have the meaning ascribed to it in Section
3.1(e).
"OK COMMON STOCK" shall have the meaning ascribed to it in Section
3.1(e).
"OK MERGER" shall have the meaning ascribed to it in Section 1.2(e).
"OK MERGER CONSIDERATION" shall have the meaning ascribed to it in
Section 3.1(e).
"OK OPERATING AUTHORIZATIONS" shall have the meaning ascribed to it in
Section 4.1.28(e).
"OK SHARE" shall have the meaning ascribed to it in Section 3.1(e).
"PERMITTED LIEN" shall mean (a) any Lien for Taxes not yet due and
payable or contested in good faith by appropriate Proceedings, (b) any Lien
described as a "Permitted Lien" in a Disclosure Schedule, (c) any Lien as would
be shown by a current survey of the property (in the case of real property),
(d) any Lien of mechanics, materialmen, laborers, warehousemen, carriers and
other similar common law or statutory liens which are not yet due and payable
or are being contested in good faith, (e) zoning, entitlement, land use,
environmental and other regulation by governmental agencies, (f) any Liens that
may arise or be created after the date of this Agreement that are incidental to
the conduct of the business of the Kalitta Companies or AIC in the ordinary
course of the business of the Kalitta Companies or AIC, (g) any Lien granted to
any lenders prior to the date hereof for obligations set forth in the
Disclosure Schedule, (h) any Lien arising by virtue of this Agreement or any
Related Agreement or pursuant to a Kalitta Companies Permitted Transaction, (i)
any Lien granted in connection with the Closing Date Financings and (j) other
Liens and defects in title which do not, individually or in the aggregate,
materially interfere with the use of the properties or materially detract from
their value.
"PERMITTED TRANSACTIONS" shall mean, collectively, the Kalitta
Companies Permitted Transactions and the Kitty Hawk Permitted Transactions.
"PERSON" shall mean any individual, corporation, association,
partnership, proprietorship, joint venture or other entity.
"PROCEEDINGS" shall have the meaning ascribed to it in Section
4.1.10(a).
"RACING ENTITY" shall have the meaning ascribed to it in Section
5.2.8.
(xvii)
<PAGE> 19
"RACING ENTITY PURCHASE AGREEMENT" shall have the meaning ascribed to
it in Section 5.2.8.
"RELATED AGREEMENTS" shall have the meaning ascribed to it in Section
7.3.
"RELATED PERSONS" shall have the meaning ascribed to it in Section
4.1.20.
"RELEASE" shall mean a Mutual Release, effective as of the Closing
Date, between Kalitta, each of the Kalitta Companies, Christopher, Kitty Hawk,
the Subs and the Subsidiaries, the form of which is attached as Exhibit 7.3(f).
"REPRESENTATIVES" shall have the meaning ascribed to it in Section
11.14.
"REQUISITE CHRISTOPHER STOCKHOLDERS" shall mean Christopher
Stockholders Beneficially Owning at least a majority of the Kitty Hawk Common
Stock Beneficially Owned by all Christopher Stockholders.
"REQUISITE KALITTA STOCKHOLDERS" shall mean Kalitta Stockholders
Beneficially Owning at least a majority of the Kitty Hawk Common Stock
Beneficially Owned by all Kalitta Stockholders.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall have the meaning ascribed to it in Section
4.3.8.
"SEC FILINGS" shall have the meaning ascribed to it in Section 4.3.9.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"727 PURCHASE AGREEMENT" shall mean that certain Agreement for Sale
and Purchase of the AIA 727 Fleet, dated as of July 31, 1997, by and between
AIA, KFS, Kalitta and Kitty Hawk Aircargo, Inc., as amended.
"STOCKHOLDERS" shall mean Christopher and Kalitta.
"STOCKHOLDERS' AGREEMENT" shall mean the Stockholders' Agreement,
effective as of the Closing Date, between Christopher, Kalitta and Kitty Hawk,
the form of which is attached as Exhibit 7.3(b).
"STOCK MERGER CONSIDERATION" shall have the meaning ascribed to it in
Section 3.1(f).
"SUBS" shall have the meaning ascribed to it in the preamble to this
Agreement.
"SUBS CONSENTS" shall have the meaning ascribed to it in Section
4.4.5.
"SUBSEQUENT DISCLOSURE SCHEDULE" shall have the meaning ascribed to it
in Section 4.5.
(xviii)
<PAGE> 20
"SUBSEQUENT EVENT" shall have the meaning ascribed to it in Section
4.5.
"SUBSIDIARIES" shall mean Kitty Hawk Aircargo, Inc., Aircraft Leasing,
Inc., Kitty Hawk Charters, Inc. and Skyfreighters, Inc.
"SURVIVING CORPORATIONS" shall have the meaning ascribed to it in
Section 1.2.
"TAXES" shall mean all federal, state, local, foreign and other
governmental or quasi-governmental net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, unemployment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or
other taxes, fees and assessments or charges of any kind whatever in the nature
of taxes, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto.
"TAX RETURNS" shall have the meaning ascribed to it in Section
4.1.9(b).
"TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT" and similar phrases
shall not include the Closing Date Financings.
(xix)
<PAGE> 21
EXHIBITS
<TABLE>
<S> <C>
Exhibit 2.2(a) Form of Articles of Incorporation of the surviving AIA
Exhibit 2.2(b) Form of Articles of Incorporation of the surviving AIT
Exhibit 2.2(c) Form of Articles of Incorporation of the surviving FOL
Exhibit 2.2(d) Form of Articles of Incorporation of the surviving KFS
Exhibit 2.2(e) Form of Articles of Incorporation of the surviving OK
Exhibit 2.3(a) Form of Bylaws of the surviving AIA
Exhibit 2.3(b) Form of Bylaws of the surviving AIT
Exhibit 2.3(c) Form of Bylaws of the surviving FOL
Exhibit 2.3(d) Form of Bylaws of the surviving KFS
Exhibit 2.3(e) Form of Bylaws of the surviving OK
Exhibit 5.28 Form of Racing Entity Purchase Agreement
Exhibit 5.5.1 Members of the Board of Directors of Kitty Hawk at the Effective Time
Exhibit 6.1.6 Form of Opinions of Kalitta's Counsel
Exhibit 6.2.6 Form of Opinions of Kitty Hawk's Counsel
Exhibit 7.3(a) Form of Severance and Noncompetition Agreement
Exhibit 7.3(b) Form of Stockholders' Agreement
Exhibit 7.3(d) Form of KFS Escrow Agreement
Exhibit 7.3(e) Form of Non-KFS Escrow Agreement
Exhibit 7.3(f) Form of Release
</TABLE>
(xx)
<PAGE> 22
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
September 22, 1997, is entered into by and among Kitty Hawk, Inc., a Delaware
corporation ("KITTY HAWK"), Kitty Hawk - AIA, Inc., a Michigan corporation
("KITTY HAWK - AIA"), Kitty Hawk - AIT, Inc., a Michigan corporation ("KITTY
HAWK - AIT"), Kitty Hawk - FOL, Inc., a Michigan corporation ("KITTY HAWK -
FOL"), Kitty Hawk - KFS, Inc., a Michigan corporation ("KITTY HAWK - KFS"),
Kitty Hawk - OK, Inc., a Michigan corporation ("KITTY HAWK - OK"), M. Tom
Christopher ("CHRISTOPHER"), American International Airways, Inc., a Michigan
corporation ("AIA"), American International Travel, Inc., a Michigan
corporation ("AIT"), Flight One Logistics, Inc., a Michigan corporation
("FOL"), Kalitta Flying Service, Inc., a Michigan corporation ("KFS"), O.K.
Turbines, Inc., a Michigan corporation ("OK"), and Conrad Kalitta ("KALITTA").
As used herein, Kitty Hawk - AIA, Kitty Hawk - AIT, Kitty Hawk - FOL, Kitty
Hawk - KFS, and Kitty Hawk - OK shall be collectively referred to as the
"SUBS," and AIA, AIT, FOL, KFS and OK shall be collectively referred to as the
"KALITTA COMPANIES."
RECITALS
The parties hereto desire to effect the following separate mergers
(collectively, the "MERGERS"), all with the effect that the Kalitta Companies,
as the surviving corporations of the Mergers, will become wholly-owned
subsidiaries of Kitty Hawk:
(a) Kitty Hawk - AIA with and into AIA;
(b) Kitty Hawk - AIT with and into AIT;
(c) Kitty Hawk - FOL with and into FOL;
(d) Kitty Hawk - KFS with and into KFS; and
(e) Kitty Hawk - OK with and into OK.
In connection with, and as a condition to the consummation of, the
Mergers, it is contemplated that Kitty Hawk will engage in certain financing
transactions more fully described herein, the proceeds of which will be used to
pay the KFS Cash Merger Consideration and the balance of which will be used to
refinance certain indebtedness of Kitty Hawk and the Kalitta Companies and for
working capital of Kitty Hawk.
The Boards of Directors of each of the Kalitta Companies (a) have
determined it advisable and in the best interests of the Kalitta Companies' and
its sole shareholder to consummate the Mergers, upon the terms and subject to
the conditions set forth herein and in accordance with the applicable
provisions of the Michigan Business Corporation Act ("MBCA"), (b) have adopted
and approved this Agreement and the transactions contemplated hereby and (c)
have recommended approval of the Mergers and this Agreement to their sole
shareholder.
<PAGE> 23
The Board of Directors of Kitty Hawk has determined it advisable and
in the best interests of Kitty Hawk and of its stockholders to adopt and
approve, and have approved and adopted, (a) this Agreement, the Mergers and the
other transactions contemplated hereby including, without limitation, the
issuance of the Stock Merger Consideration (the "MERGER PROPOSALS") and (b)
amendments to the Bylaws of Kitty Hawk, to be effective upon Closing, with
respect to each of the governance matters described in Section 5.5 hereof (the
"GOVERNANCE AMENDMENTS," and, together with the Merger Proposals, the "KITTY
HAWK PROPOSALS").
The Boards of Directors of each of the Subs (a) have determined it
advisable and in the best interests of the Subs' sole shareholder to consummate
the Mergers, upon the terms and subject to the conditions set forth herein and
in accordance with the MBCA, (b) have adopted and approved this Agreement and
the transactions contemplated hereby, and (c) have recommended approval of the
Mergers and this Agreement to their respective shareholder.
Kitty Hawk, the Kalitta Companies, the Subs and the Subsidiaries
desire to operate their respective businesses both before and after the Closing
Date in accordance with the highest standards of business ethics.
The parties intend that for Federal income tax purposes each of the
AIA Merger, the AIT Merger, the FOL Merger and the OK Merger (all as
hereinafter defined) shall qualify as a reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE") but
that the KFS Merger will not so qualify.
The parties are entering into this Agreement to set forth the "plans
of merger" with respect to the Mergers in accordance with the MBCA, to make
certain representations, warranties and agreements as to the Mergers, and to
prescribe various conditions as to the Mergers.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 Definitions. Capitalized terms used herein but not
otherwise defined shall have the meanings ascribed thereto in the Definition
Appendix attached hereto beginning on page (vii).
1.2 The Mergers. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the MBCA, at the
Effective Time:
(a) Kitty Hawk - AIA shall be merged with and
into AIA (the "AIA MERGER") with AIA being the surviving corporation
of the AIA Merger;
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(b) Kitty Hawk - AIT shall be merged with and
into AIT (the "AIT MERGER") with AIT being the surviving corporation
of the AIT Merger;
(c) Kitty Hawk - FOL shall be merged with and
into FOL (the "FOL MERGER") with FOL being the surviving corporation
of the FOL Merger;
(d) Kitty Hawk - KFS shall be merged with and
into KFS (the "KFS MERGER") with KFS being the surviving corporation
of the KFS Merger; and
(e) Kitty Hawk - OK shall be merged with and into
OK (the "OK MERGER") with OK being the surviving corporation of the OK
Merger.
Upon consummation of each of the Mergers, the separate corporate existence of
each of the Subs shall thereupon cease, and each of the Kalitta Companies, as
the surviving corporations in the Mergers (the "SURVIVING CORPORATIONS"), shall
by virtue of its respective Merger continue its corporate existence in
accordance with the MBCA.
1.3 Effective Time of the Mergers. The Mergers shall
become effective at the date and time (the "EFFECTIVE TIME") when properly
executed certificates of merger, in such form as is required by and executed in
accordance with the MBCA, are duly filed with the Department of Consumer and
Industry Services of the State of Michigan or at such later time as the parties
hereto shall have provided in such certificates. The parties hereto shall
cause such filings to occur as soon as practicable on or after the Closing
Date.
ARTICLE II
THE CONSTITUENT AND SURVIVING CORPORATIONS
2.1 Constituent Corporations. The names and designations
and number of outstanding shares of each class of shares of capital stock of
each of the constituent corporations (the "CONSTITUENT CORPORATIONS") entitled
to vote are as follows:
<TABLE>
<CAPTION>
Constituent Shares Entitled
Merger Corporations Outstanding Shares to Vote
------ ------------ ------------------ ---------------
<S> <C> <C> <C>
AIA Merger AIA 25,000 shares of common stock common stock
Kitty Hawk - AIA 1,000 shares of common stock common stock
AIT Merger AIT 1,000 shares of common stock common stock
Kitty Hawk - AIT 1,000 shares of common stock common stock
FOL Merger FOL 1,000 shares of common stock common stock
Kitty Hawk - FOL 1,000 shares of common stock common stock
KFS Merger KFS 25,000 shares of common stock common stock
Kitty Hawk - KFS 1,000 shares of common stock common stock
OK Merger OK 1,000 shares of common stock common stock
Kitty Hawk - OK 1,000 shares of common stock common stock
</TABLE>
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The number of outstanding shares of each of the Constituent
Corporations are not subject to change before the Effective Time within the
meaning of Section 701(2)(b) of the MBCA.
2.2 Articles of Incorporation.
(a) At the Effective Time, the Articles of Incorporation
of AIA, as they are in effect immediately prior to the Effective Time,
shall be amended and restated to read as set forth in Exhibit 2.2(a)
hereto, and such Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving
Corporation resulting from the AIA Merger until thereafter amended as
provided by law.
(b) At the Effective Time, the Articles of Incorporation
of AIT, as they are in effect immediately prior to the Effective Time,
shall be amended and restated to read as set forth in Exhibit 2.2(b)
hereto, and such Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving
Corporation resulting from the AIT Merger until thereafter amended as
provided by law.
(c) At the Effective Time, the Articles of Incorporation
of FOL, as they are in effect immediately prior to the Effective Time,
shall be amended and restated to read as set forth in Exhibit 2.2(c)
hereto, and such Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving
Corporation resulting from the FOL Merger until thereafter amended as
provided by law.
(d) At the Effective Time, the Articles of Incorporation
of KFS, as they are in effect immediately prior to the Effective Time,
shall be amended and restated to read as set forth in Exhibit 2.2(d)
hereto, and such Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving
Corporation resulting from the KFS Merger until thereafter amended as
provided by law.
(e) At the Effective Time, the Articles of Incorporation
of OK, as they are in effect immediately prior to the Effective Time,
shall be amended and restated to read as set forth in Exhibit 2.2(e)
hereto, and such Articles of Incorporation, as so amended and
restated, shall be the Articles of Incorporation of the Surviving
Corporation resulting from the OK Merger until thereafter amended as
provided by law.
2.3 Bylaws.
(a) At the Effective Time, the Bylaws of AIA, as they are
in effect immediately prior to the Effective Time, shall be amended
and restated to read as set forth in Exhibit 2.3(a) hereto, and such
Bylaws, as so amended and restated, shall be the Bylaws of the
Surviving Corporation resulting from the AIA Merger until thereafter
amended as provided by law. Kitty Hawk, as the sole shareholder of
such Surviving Corporation, shall so amend and restate such Bylaws at
the Effective Time.
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(b) At the Effective Time, the Bylaws of AIT, as they are
in effect immediately prior to the Effective Time, shall be amended
and restated to read as set forth in Exhibit 2.3(b) hereto, and such
Bylaws, as so amended and restated, shall be the Bylaws of the
Surviving Corporation resulting from the AIT Merger until thereafter
amended as provided by law. Kitty Hawk, as the sole shareholder of
such Surviving Corporation, shall so amend and restate such Bylaws at
the Effective Time.
(c) At the Effective Time, the Bylaws of FOL, as they are
in effect immediately prior to the Effective Time, shall be amended
and restated to read as set forth in Exhibit 2.3(c) hereto, and such
Bylaws, as so amended and restated, shall be the Bylaws of the
Surviving Corporation resulting from the FOL Merger until thereafter
amended as provided by law. Kitty Hawk, as the sole shareholder of
such Surviving Corporation, shall so amend and restate such Bylaws at
the Effective Time.
(d) At the Effective Time, the Bylaws of KFS, as they are
in effect immediately prior to the Effective Time, shall be amended
and restated to read as set forth in Exhibit 2.3(d) hereto, and such
Bylaws, as so amended and restated, shall be the Bylaws of the
Surviving Corporation resulting from the KFS Merger until thereafter
amended as provided by law. Kitty Hawk, as the sole shareholder of
such Surviving Corporation, shall so amend and restate such Bylaws at
the Effective Time.
(e) At the Effective Time, the Bylaws of OK, as they are
in effect immediately prior to the Effective Time, shall be amended
and restated to read as set forth in Exhibit 2.3(e) hereto, and such
Bylaws, as so amended and restated, shall be the Bylaws of the
Surviving Corporation resulting from the OK Merger until thereafter
amended as provided by law. Kitty Hawk, as the sole shareholder of
such Surviving Corporation, shall so amend and restate such Bylaws at
the Effective Time.
2.4 Board of Directors and Officers of the Surviving Corporations.
At the Effective Time, the directors and officers of each Kalitta Company shall
remain the directors and officers of the respective Surviving Corporation until
their respective successors shall be duly elected or appointed and qualified,
or until their earlier death, resignation or removal.
2.5 Effects of Mergers. The Mergers shall have the effects set
forth in Section 724(l) and any other applicable provisions of the MBCA.
Without limiting the foregoing, the corporate existence of each of the Kalitta
Companies, with all their purposes, powers and objects, shall continue
unaffected and unimpaired by the Mergers and, as the Surviving Corporation of
the respective Merger, each such Kalitta Company shall be governed by the laws
of the State of Michigan and shall succeed to all rights, assets, liabilities,
properties, privileges, powers, franchises and obligations of the respective
Sub in accordance with the laws of the State of Michigan. As of the Effective
Time, each of the Surviving Corporations shall be a wholly-owned subsidiary of
Kitty Hawk.
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ARTICLE III
CONVERSION OF SECURITIES
3.1 Consideration for Mergers.
(a) At the Effective Time, by virtue of the AIA Merger of
Kitty Hawk - AIA with and into AIA and without any action on the part
of Kitty Hawk - AIA, AIA, Kitty Hawk or their respective shareholders
or stockholders (other than the filing of the certificate of merger
referred to in Section 1.3 hereof), (i) each share (an "AIA SHARE") of
AIA's common stock, par value $1.00 per share ("AIA COMMON STOCK"),
issued and outstanding immediately prior to the Effective Time (other
than shares of AIA Common Stock held in the treasury of AIA) shall be
canceled and extinguished and be converted automatically into the
right to receive 169.2532 shares of Kitty Hawk Common Stock (the "AIA
MERGER CONSIDERATION") payable, less any required withholding Taxes,
as provided in Section 3.2 upon surrender of the certificate formerly
representing such AIA Share (an "AIA CERTIFICATE"), and (ii) each AIA
Share then held in the treasury of AIA shall be canceled and retired
without conversion thereof and without payment of any consideration
and shall cease to exist.
(b) At the Effective Time, by virtue of the AIT Merger of
Kitty Hawk - AIT with and into AIT and without any action on the part
of Kitty Hawk - AIT, AIT, Kitty Hawk or their respective shareholders
or stockholders (other than the filing of the certificate of merger
referred to in Section 1.3 hereof), (i) each share (an "AIT SHARE") of
AIT's common stock, par value $1.00 per share ("AIT COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (other
than shares of AIT Common Stock held in the treasury of AIT) shall be
canceled and extinguished and be converted automatically into the
right to receive 5.672 shares of Kitty Hawk Common Stock (the "AIT
MERGER CONSIDERATION") payable, less any required withholding Taxes,
as provided in Section 3.2 upon surrender of the certificate formerly
representing such AIT Share (an "AIT CERTIFICATE") and (ii) each AIT
Share then held in the treasury of AIT shall be canceled and retired
without conversion thereof and without payment of any consideration
and shall cease to exist.
(c) At the Effective Time, by virtue of the FOL Merger of
Kitty Hawk - FOL with and into FOL and without any action on the part
of Kitty Hawk - FOL, FOL, Kitty Hawk or their respective shareholders
or stockholders (other than the filing of the certificate of merger
referred to in Section 1.3 hereof), (i) each share (a "FOL SHARE") of
FOL's common stock, par value $1.00 per share ("FOL COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (other
than shares of FOL Common Stock held in the treasury of FOL) shall be
canceled and extinguished and be converted automatically into the
right to receive 323.305 shares of Kitty Hawk Common Stock (the "FOL
MERGER CONSIDERATION") payable, less any required withholding Taxes,
as provided in Section 3.2 upon surrender of the certificate formerly
representing such FOL Share (a "FOL CERTIFICATE") and (ii) each FOL
Share then held in the treasury of FOL shall be canceled and retired
without conversion thereof and without payment of any consideration
and shall cease to exist.
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<PAGE> 28
(d) At the Effective Time, by virtue of the KFS Merger of
Kitty Hawk - KFS with and into KFS and without any action on the part
of Kitty Hawk - KFS, KFS, Kitty Hawk or their respective shareholders
or stockholders (other than the filing of the certificate of merger
referred to in Section 1.3 hereof), (i) each share (a "KFS SHARE") of
KFS' common stock, par value $1.00 per share ("KFS COMMON STOCK"),
issued and outstanding immediately prior to the Effective Time (other
than shares of KFS Common Stock held in the treasury of KFS) shall be
canceled and extinguished and be converted automatically into the
right to receive without interest $800 payable, less any required
withholding Taxes, as provided in Section 3.2 upon surrender of the
certificate formerly representing such KFS Share (a "KFS CERTIFICATE")
and (ii) each KFS Share then held in the treasury of KFS shall be
canceled and retired without conversion thereof and without payment of
any consideration and shall cease to exist.
(e) At the Effective Time, by virtue of the OK Merger of
Kitty Hawk - OK with and into OK and without any action on the part of
Kitty Hawk - OK, OK, Kitty Hawk or their respective shareholders or
stockholders (other than the filing of the certificate of merger
referred to in Section 1.3 hereof), (i) each share (an "OK SHARE") of
OK's common stock, par value $1.00 per share ("OK COMMON STOCK")
issued and outstanding immediately prior to the Effective Time (other
than shares of OK Common Stock held in the treasury of OK) shall be
canceled and extinguished and be converted automatically into the
right to receive 538.843 shares of Kitty Hawk Common Stock (the "OK
MERGER CONSIDERATION") payable, less any required withholding Taxes,
as provided in Section 3.2 upon surrender of the certificate formerly
representing such OK Share (an "OK CERTIFICATE") and (ii) each OK
Share then held in the treasury of OK shall be canceled and retired
without conversion thereof and without payment of any consideration
and shall cease to exist.
(f) As used herein, "STOCK MERGER CONSIDERATION" shall
mean 5,099,150 duly authorized, validly issued, fully paid and
nonassessable shares of Kitty Hawk common stock, par value $0.01 per
share ("KITTY HAWK COMMON STOCK") issuable as the total number of
shares in the AIA Merger, the AIT Merger, the FOL Merger and the OK
Merger. In the event that, subsequent to the date of this Agreement
but prior to the Effective Time, the outstanding shares of Kitty Hawk
Common Stock, AIA Common Stock, AIT Common Stock, FOL Common Stock,
KFS Common Stock or OK Common Stock shall have been increased,
decreased, changed into or exchanged for a different number or kind of
shares or securities through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or
other similar change in capitalization, or there shall have been
proposed any such change with a record date prior to the Effective
Time, then an appropriate and proportionate adjustment shall be made
in the Stock Merger Consideration, the Non-KFS Escrow Amount and, if
applicable, the KFS Cash Merger Consideration and the KFS Escrow
Amount.
3.2 Surrender of Certificates. At Closing, Kalitta shall
surrender all AIA Certificates, AIT Certificates, FOL Certificates, KFS
Certificates and OK Certificates, and Kitty Hawk shall pay and deliver the
Stock Merger Consideration payable as a result of the AIA Merger, the AIT
Merger, the FOL Merger and the OK Merger and the KFS Cash Merger Consideration
payable as a result of the KFS Merger in exchange for such certificates as
follows:
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<PAGE> 29
(a) a portion of the AIA Merger Consideration equal to
1,150,000 shares of Kitty Hawk Common Stock shall, pursuant to the
irrevocable direction of Kalitta, be deposited at Closing with the
Escrow Agent to be held and administered in accordance with the
Non-KFS Escrow Agreement;
(b) a portion of the KFS Cash Merger Consideration equal
to $3,000,000, shall, pursuant to the irrevocable direction of
Kalitta, be deposited at Closing with the Escrow Agent to be held and
administered in accordance with the KFS Escrow Agreement; and
(c) the balance of the AIA Merger Consideration, the AIT
Merger Consideration, the FOL Merger Consideration, the OK Merger
Consideration and the KFS Cash Merger Consideration shall be paid and
delivered to Kalitta at Closing.
3.3 Conversion of Subs' Securities.
(a) At the Effective Time, each share of common stock of
Kitty Hawk - AIA issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the AIA Merger and
without any action on the part of the holder thereof, into one fully
paid and nonassessable share of common stock of AIA as the Surviving
Corporation of the AIA Merger.
(b) At the Effective Time, each share of common stock of
Kitty Hawk - AIT issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the AIT Merger and
without any action on the part of the holder thereof, into one fully
paid and nonassessable share of common stock of AIT as the Surviving
Corporation of the AIT Merger.
(c) At the Effective Time, each share of common stock of
Kitty Hawk - FOL issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the FOL Merger and
without any action on the part of the holder thereof, into one fully
paid and nonassessable share of common stock of FOL as the Surviving
Corporation of the FOL Merger.
(d) At the Effective Time, each share of common stock of
Kitty Hawk - KFS issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the KFS Merger and
without any action on the part of the holder thereof, into one fully
paid and nonassessable share of common stock of KFS as the Surviving
Corporation of the KFS Merger.
(e) At the Effective Time, each share of common stock of
Kitty Hawk - OK issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the OK Merger and
without any action on the part of the holder thereof, into one fully
paid and nonassessable share of common stock of OK as the Surviving
Corporation of the OK Merger.
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<PAGE> 30
3.4 Shareholder to Have No Further Rights as to Kalitta Companies.
At and after the Effective Time, Kalitta shall cease to have any rights as a
shareholder of AIA, AIT, FOL, KFS and OK, other than indirectly as a
stockholder of Kitty Hawk.
3.5 Written Consent of Sole Shareholder of Subs. Concurrent with
the execution of this Agreement, Kitty Hawk, as the sole shareholder of the
Subs, shall duly adopt and approve this Agreement and the Related Agreements,
the Mergers and the transactions contemplated by this Agreement and the Related
Agreements by written consent. Kitty Hawk, as the sole shareholder of each
Sub, shall not amend, rescind or withdraw its adoption and approval of this
Agreement and the Related Agreements, the Mergers and the transactions
contemplated by this Agreement and the Related Agreements.
3.6 Written Consent of Sole Shareholder of each Kalitta Company.
Concurrent with the execution of this Agreement, Kalitta, as the sole
shareholder of the Kalitta Companies, shall duly adopt and approve this
Agreement, the Related Agreements to which the Kalitta Companies are parties or
signatories, the Mergers and the transactions contemplated by this Agreement
and such Related Agreements. Kalitta shall not as the sole shareholder of the
Kalitta Companies amend, rescind or withdraw his adoption and approval of the
Agreement and the Mergers and the transactions contemplated by this Agreement
and the Related Agreements.
3.7 Closing. Unless this Agreement is terminated and the
transactions contemplated herein abandoned pursuant to Article VIII and subject
to the satisfaction or, if permissible, waiver of the conditions set forth in
Article VI, the consummation of the Closing shall take place (a) at the offices
of Haynes and Boone, LLP, Dallas, Texas, at 11:00 A.M. local time on a date to
be specified by Kitty Hawk and Kalitta, but as soon as practicable (and in any
event within two Business Days) after the day on which the last of the
conditions set forth in Article VI is fulfilled (other than deliveries of
instruments to be made at Closing) or, if permissible, waived by the relevant
party or (b) at such other date, time and place as Kitty Hawk and Kalitta shall
agree upon in writing. The date on which the Closing occurs is referred to
herein as the "CLOSING DATE."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Kalitta and the Kalitta
Companies. To induce Kitty Hawk and the Subs to enter into this Agreement and
to consummate the transactions contemplated hereby, each of the Kalitta
Companies severally and solely as to representations and warranties concerning
itself and not with respect to any other Kalitta Company and Kalitta represents
and warrants to Kitty Hawk and the Subs as follows (each such representation
and warranty being qualified in its entirety by the disclosures set forth in
the Disclosure Schedule of the Kalitta Companies):
4.1.1 Corporate Existence and Authority.
(a) Each of the Kalitta Companies is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Michigan. Each of the Kalitta Companies has all requisite
corporate power and authority to own its properties and assets and to
carry on its business as it has been and is being
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<PAGE> 31
conducted. Each of the Kalitta Companies is qualified to do business
as a foreign corporation and is in good standing in each state, nation
or other jurisdiction listed on the Disclosure Schedule, being each
state, nation or other jurisdiction wherein the character of the
properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary, except
for any state, nation or other jurisdiction where the failure to be so
qualified would not reasonably be expected to have a Material Adverse
Effect on the Kalitta Companies.
(b) American International Cargo ("AIC") is a
co-partnership organized pursuant to and presently existing under the
laws of the State of Michigan under a revised and restated partnership
agreement (the "AIC PARTNERSHIP AGREEMENT") dated September 29, 1994.
AIC has the partnership power to carry on its business as it has been
and is now being conducted. The only co-partners of AIC are AIA and
Pacific Aviation Logistics, Inc., a California corporation,
wholly-owned by Beti Ward. AIA owns a 60% interest in AIC's net
income, in its capital accounts, and in the partnership shares or
interests of AIC for purposes of determining management decisions
under Section 5.1 of the AIC Partnership Agreement. AIC is qualified
to do business and is in good standing in each state, nation or other
jurisdiction listed on the Disclosure Schedule, being each state,
nation or other jurisdiction wherein the character of the properties
owned or held under lease by it or the nature of the business
transacted by it makes such qualification necessary, except for any
state, nation or other jurisdiction where the failure to be so
qualified would not reasonably be expected to have a Material Adverse
Effect on the Kalitta Companies. The AIC Partnership Agreement has
not been amended, and remains in full force and effect without uncured
default by either co-partner. The Kalitta Companies have previously
provided a true and correct copy of the AIC Partnership Agreement to
Kitty Hawk.
4.1.2 Capitalization of the Kalitta Companies.
(a) The authorized capital stock of AIA consists solely
of 25,000 shares of AIA Common Stock of which 25,000 shares are issued
and outstanding.
(b) The authorized capital stock of AIT consists of
50,000 shares of AIT Common Stock of which 1,000 shares are issued and
outstanding.
(c) The authorized capital stock of FOL consists of
50,000 shares of FOL Common Stock of which 1,000 shares are issued and
outstanding.
(d) The authorized capital stock of KFS consists of
100,000 shares of KFS Common Stock of which 25,000 shares are issued
and outstanding.
(e) The authorized capital stock of OK consists of 50,000
shares of OK Common Stock of which 1,000 shares are issued and
outstanding.
(f) No other shares of capital stock of the Kalitta
Companies are issued and outstanding. On the date hereof, all the
issued and outstanding shares of capital stock of the Kalitta
Companies are held solely by Kalitta free and clear of any Lien and
Kalitta is the record and beneficial owner of such shares. The co-
partnership interest of AIA in AIC is held solely by AIA free and
clear of any Lien except
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<PAGE> 32
Permitted Liens, if any. All of the issued and outstanding shares of
capital stock of the Kalitta Companies have been duly authorized and
validly issued in accordance and compliance with all applicable laws,
rules and regulations and are fully paid and nonassessable. There are
no securities, options, warrants, rights, calls, commitments, plans,
contracts or other agreements of any character granted or issued by
any of the Kalitta Companies which provide for the purchase, issuance
or transfer of any shares of the capital stock of any of the Kalitta
Companies, nor are there any outstanding securities granted or issued
by any of the Kalitta Companies that are convertible into or
exchangeable for any shares of the capital stock of any of the Kalitta
Companies, and none are authorized. There are no securities, options,
warrants, rights, calls, commitments, plans, contracts or other
agreements of any character granted or issued by AIC which provide for
the purchase, issuance or transfer of any of the co-partnership
interests in AIC, nor are there any outstanding obligations or
securities granted or issued by AIC that are convertible into or
exchangeable for any co-partnership interests of AIC, and none are
authorized. None of the Kalitta Companies are obligated or committed
to purchase, redeem or otherwise acquire any of their capital stock.
AIC is not obligated or committed to purchase, redeem or otherwise
acquire any of its co-partnership interests. All presently
exercisable voting rights in the Kalitta Companies are vested
exclusively in their respective outstanding shares of common stock,
each share of which is entitled to one vote on every matter to come
before such corporations' sole shareholder. There are no voting
trusts or other voting arrangements with respect to any of the Kalitta
Companies' capital stock or the co-partnership interests of AIC. None
of the Kalitta Companies have any subsidiaries.
4.1.3 Validity and Authorization; Corporate Power and
Authority. Each of the Kalitta Companies has full corporate power and
authority to execute, deliver and perform this Agreement, the Related
Agreements and the other instruments called for by this Agreement to which it
is or is to be a party. This Agreement has been duly authorized, executed and
delivered by each of the Kalitta Companies and constitutes the legal, valid and
binding obligation of each of the Kalitta Companies, enforceable against the
Kalitta Companies in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting enforcement of creditors' rights generally and by
general principles of equity (whether applied in a proceeding at law or in
equity).
When the Related Agreements and the other instruments called for by
this Agreement to which any of the Kalitta Companies is a party are executed
and delivered at the Closing, such Related Agreements and instruments will have
been duly authorized, executed and delivered by each such Kalitta Company,
enforceable against each such Kalitta Company in accordance with their terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting enforcement of
creditors' rights generally and by general principles of equity (whether
applied in a proceeding at law or in equity).
Kalitta has full requisite power and authority to execute, deliver and
perform this Agreement, the Related Agreements and the other instruments called
for by this Agreement to which he is a party and this Agreement has been duly
authorized, executed and delivered by Kalitta and constitutes the legal, valid
and binding obligation of Kalitta, enforceable against Kalitta in accordance
with its terms, except as such enforcement may be limited by
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<PAGE> 33
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting enforcement of creditors' rights generally and by general principles
of equity (whether applied in a proceeding at law or in equity).
When the Related Agreements and the other instruments called for by
this Agreement to which Kalitta is a party are executed and delivered at the
Closing, such Related Agreements and instruments will have been duly
authorized, executed and delivered by Kalitta pursuant to full requisite power
and authority to execute, deliver and perform such Related Agreements and the
other instruments called for by this Agreement and will constitute the legal,
valid and binding obligations of Kalitta, enforceable against Kalitta in
accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting enforcement of creditors' rights generally and by general principles
of equity (whether applied in a proceeding at law or in equity).
4.1.4 Execution; No Violations. The execution and delivery
of this Agreement and each of the Related Agreements by Kalitta and each of the
Kalitta Companies does not, and the consummation by Kalitta and each of the
Kalitta Companies of the transactions contemplated hereby and thereby will not:
(a) violate, conflict with, modify, result in the incurrence of any prepayment
penalties or cause any default under or acceleration of (or give any party any
right to declare any default or acceleration upon notice or passage of time or
both), in whole or in part, any articles of incorporation, bylaw, Lien,
indenture, lease, agreement, instrument, order, injunction, decree, or judgment
to which Kalitta or any of the Kalitta Companies are a party or by which any of
them or any of their properties are bound; (b) result in the creation of any
Lien on any property or asset (whether real, personal, mixed, tangible or
intangible) of Kalitta or any of the Kalitta Companies; (c) violate any law,
rule or regulation applicable to Kalitta or any of the Kalitta Companies; or
(d) permit any federal or state regulatory agency to impose any restrictions or
limitations of any nature on Kalitta or any of the Kalitta Companies or any of
their respective activities, except in each case as would not reasonably be
expected to have a Material Adverse Effect on the Kalitta Companies.
4.1.5 Governmental and Other Consents. Except for filings
under the HSR Act, approval by the DOT of the deemed "de facto" transfer of the
foreign air transportation authority issued to AIA and KFS and the filing of
the certificates of merger contemplated by Section 1.3, no consent, approval or
authorization of, or designation, declaration or filing with, any governmental
authority is required on the part of Kalitta or any Kalitta Company in
connection with the execution or delivery of this Agreement, the Related
Agreements or the consummation by them of the transactions contemplated hereby
and thereby, except as would not reasonably be expected to have a Material
Adverse Effect on the Kalitta Companies.
The Disclosure Schedule lists all consents, approvals or
authorizations of third Persons, required in connection with Kalitta's and each
of the Kalitta Companies' valid execution, delivery or performance of this
Agreement and the Related Agreements to which they are a party or the
consummation of any of the transactions contemplated hereby or thereby on the
part of any of them (collectively, the "KALITTA CONSENTS"), including but not
limited to the consents required under the Contracts, except, in each case, as
would not reasonably be expected to have a Material Adverse Effect on the
Kalitta Companies.
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4.1.6 Financial Statements. The Disclosure Schedule
contains true and correct copies of (i) the audited combined balance sheets for
the Kalitta Companies and AIC at December 31, 1996, 1995 and 1994 and the
related statements of profit and loss and cash flows for each of the one-year
periods then ended, (ii) the unaudited, combined balance sheets for AIC and the
Kalitta Companies and AIC at June 30, 1996 and 1997 and the related statements
of profit and loss and cash flows for each of the six-month periods then ended,
and (iii) when delivered pursuant to this Agreement, similar financial
statements for each additional month ending more than thirty (30) Business Days
before the Closing (collectively, the "FINANCIAL STATEMENTS").
The Financial Statements present fairly the financial position of the
Kalitta Companies as of the dates thereof and the results of the Kalitta
Companies' and AIC's operations and cash flows for the periods then ended, in
accordance with GAAP, except that in the case of the Financial Statements
described in clauses (ii) and (iii) above are also subject to recurring year
end adjustments, if any, that are normal in nature and amount. The Kalitta
Companies and AIC maintain a system of accounting, including without limitation
a system of internal controls, which permits them to prepare financial
statements that present fairly their respective financial positions and results
of operations.
4.1.7 Absence of Certain Liabilities. Other than
liabilities and obligations covered by another representation and warranty of
the Kalitta Companies in Section 4.1 (such as Taxes, Environmental Matters and
Compliance with Laws), it being the intention of the parties that any such
liabilities and obligations shall be governed, if at all, by such other
representations and warranties, (a) as of December 31, 1996, none of the
Kalitta Companies had any material liabilities or obligations of any nature
(whether absolute, accrued, contingent, due or to become due) except as and to
the extent reflected and fully reserved against in the Financial Statements
(including general reserves) and (b) since December 31, 1996, the Kalitta
Companies have not incurred any such liabilities or obligations of any nature
other than those reflected or reserved against in the Financial Statements
(including general reserves) or incurred in the ordinary course of business
since the date thereof.
4.1.8 Absence of Changes. Except as expressly provided in
this Agreement or as disclosed on the Disclosure Schedules in alphabetical
order corresponding to the following subsections, since December 31, 1996 there
has not been:
(a) Any change or aggregate of changes in the condition
(financial or otherwise), business, assets, or liabilities of any of
the Kalitta Companies or AIC that would reasonably be expected to
result in a Material Adverse Effect in the Kalitta Companies;
(b) Any change in the capitalization of the Kalitta
Companies or AIC, including, without limitation, the issuance by any
of the Kalitta Companies or AIC of any shares of stock of any class,
any subscriptions, options, warrants, convertible securities, rights,
calls, agreements, commitments or rights affecting or relating in any
manner whatsoever to any equitable interests in the Kalitta Companies
or AIC;
(c) Any purchase, redemption or other acquisition by the
Kalitta Companies or AIC, or any commitment, plan or agreement by any
of the Kalitta Companies or AIC to purchase, redeem or otherwise
acquire any shares of their capital stock or other equitable
interests;
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(d) Any merger or consolidation or agreement to merge or
consolidate by any of the Kalitta Companies or AIC with another
Person, or any purchase of or investment in or agreement to purchase
or invest by any of the Kalitta Companies or AIC in the business of
another Person;
(e) Any declaration, payment or setting aside by any of
the Kalitta Companies of any dividends or other distributions of any
assets of any kind whatsoever to their shareholders or other equitable
owners, except for ordinary salary payments for services actually
rendered and except for a distribution of up to $1,500,000 solely for
the payment by Kalitta of Taxes attributable to earnings of the
Kalitta Companies since January 1, 1997;
(f) Any amendment to the articles of incorporation or
bylaws of any of the Kalitta Companies or the co-partnership agreement
of AIC;
(g) Any increase in the compensation or rate of
compensation or commission payable or to become payable by any of the
Kalitta Companies or AIC to any of their directors, officers, salaried
employees earning more than $75,000 per annum, salesmen or agents, or
any General Increase in the compensation or rate of compensation
payable or to become payable to any of their hourly employees or
salaried employees earning $75,000 per annum or less ("GENERAL
INCREASE" for purposes hereof shall mean any increase applicable to a
class or group of employees and does not include increases granted to
individual employees for merit, length of service, change in position
or responsibility or other reasons applicable to specific employees
and not generally to a class or group thereof), or any aggregate
increase in compensation to any directors, officers or salaried
employees, of more than $20,000, or any hiring of any employee at a
salary in excess of $75,000 per annum, or any termination of any key
employee or any employee whose compensation was in excess of $75,000
per annum;
(h) Any material change in any existing, or adoption of
or entering into any new, benefit plan or arrangement (whether written
or oral) affecting any of the officers, directors, employees, salesmen
or agents of any of the Kalitta Companies or AIC, including, without
limitation, any bonus, profit-sharing, pension, deferred compensation,
severance or termination pay benefit, stock option, group life or
health insurance or other similar plans, agreements or arrangements;
(i) Any release, cancellation, modification or waiver of
any obligation, indebtedness, liability or Lien held by any of the
Kalitta Companies or AIC, unless such obligation, indebtedness,
liability or Lien has been paid in full at the time of release;
(j) Any waivers, compromises or settlements by any of the
Kalitta Companies of any right or claim of any of the Kalitta
Companies or AIC in excess of $500,000 in the aggregate; or any
institution or settlement of, or agreement to settle,
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any litigation, action or proceeding before any court or governmental
body relating to any of the Kalitta Companies or AIC or any of their
properties;
(k) Any mortgage, pledge or other subjection to any Lien
or option of any property, asset, right or business of any of the
Kalitta Companies or AIC, other than Permitted Liens and those
incurred in the ordinary course of business;
(l) Any assumptions or guarantees (except endorsements of
negotiable instruments in the ordinary course of business) by any of
the Kalitta Companies or AIC of the obligations of any Person, except
in the ordinary course of business and consistent with past practice,
but in no event in excess of $50,000 when all such assumptions,
guarantees and endorsements are aggregated;
(m) Any payment or satisfaction by any of the Kalitta
Companies or AIC of any material liability, obligation or
indebtedness, other than those reflected on the Financial Statements
and those incurred in the ordinary course of business and consistent
with past practice;
(n) Any loan or advance, any commitment to loan or
advance, or any renewal, refunding or extension of any existing loan,
made by any of the Kalitta Companies to any Person, except in the
ordinary course of business and consistent with past practice, but in
no event any loan or advance, any commitment to loan or advance, or
any renewal, refunding or extension of any existing loan, by any of
the Kalitta Companies or AIC to Kalitta or any of their officers or
directors or to any Affiliate of Kalitta or any such officer or
director;
(o) Any actions taken or transactions entered into by any
of the Kalitta Companies or AIC involving more than $100,000 in the
aggregate, other than the Kalitta Companies Permitted Transactions or
in the ordinary course of business and consistent with past practice,
or any capital expenditures or commitments therefor in excess of
$100,000 in the aggregate, other than in the ordinary course of
business;
(p) Any creations, renewals, material changes or
terminations, or any notice of any proposed renewal, material change
or termination of any contract, agreement, commitment, obligation,
lease or license involving more than $100,000 in the aggregate or
extending beyond six (6) months from the date of this Agreement, to
which any of the Kalitta Companies or AIC is a party or by which any
of the Kalitta Companies or AIC or their property is bound, other than
in the ordinary course of business;
(q) Any sale, assignment, lease, abandonment or other
disposition by any of the Kalitta Companies or AIC of any real
property, or any sale, assignment, transfer, license, lapse, or other
disposition by any of the Kalitta Companies or AIC of any material
trademark, trade name, copyright (or pending application for any
material trademark or copyright), or other intangible asset;
(r) Any sale, assignment or transfer of any contract,
agreement, lease, or asset by any of the Kalitta Companies or AIC,
except the Kalitta Companies Permitted Transactions or in the ordinary
course of business and consistent with past practice;
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(s) Any general labor dispute, or threat of a general
labor dispute, or any attempt or threat of any attempt by a union to
organize any employees of any of the Kalitta Companies or AIC who are
not now covered under an existing union or collective bargaining
agreement;
(t) Any lapse of any material insurance policy or
coverage of any of the Kalitta Companies or AIC, except for normal
renewals and/or replacements;
(u) Any failure by any of the Kalitta Companies or AIC to
replenish inventories and supplies in a normal and customary manner
consistent with prior practice; any purchase commitment by any of the
Kalitta Companies or AIC in excess of the normal, ordinary and usual
requirements of business or at any price in excess of the then current
market price or upon terms and conditions more onerous than those
usual and customary in the Kalitta Companies' or AIC's business;
(v) Any material damage, destruction or loss to the
business or properties of any of the Kalitta Companies or AIC, whether
or not covered by insurance, including, without limitation, any
damage, destruction or loss as a result of fire, explosion, accident,
earthquake, lightning, aircraft, vehicle, smoke, hail, flood, drought,
storm, strike, work stoppage, lockout, sabotage, embargo,
condemnation, riot, civil disturbance, vandalism or act of God or
public enemy the result of which is a Material Adverse Effect on the
Kalitta Companies;
(w) Any granting of powers of attorney by any of the
Kalitta Companies or AIC; any material change in their banking or safe
deposit arrangements; any material writing up or writing down of the
carrying value of any of their assets; any material change in their
depreciation or amortization policies or rates heretofore adopted; or
any material change in any basic policy or practice by any of the
Kalitta Companies or AIC with respect to liquidity management and cash
flow planning, lending, budgeting, pricing, profit and tax planning,
personnel practices and accounting practices; or
(x) Any other material action taken or transaction
entered into by any of the Kalitta Companies or AIC other than in the
ordinary course of business.
4.1.9 Taxes.
(a) Each of the Kalitta Companies (and any predecessor of
each) has elected to be treated as a Subchapter S corporation under
the Code. Each such Subchapter S corporation election is valid,
currently effective and has not been violated or terminated. To the
extent required, each of the Kalitta Companies has made an election
equivalent to a Subchapter S election under analogous laws of the
states where such companies are qualified or are otherwise doing
business and such elections are valid, currently effective and have
not been violated or terminated;
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(b) The Kalitta Companies and AIC have duly and timely
filed all required federal, state, local and other tax returns,
information returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital stock,
excise, value added, employees' income withholding, social security
and unemployment tax returns, notices and reports) (collectively, "TAX
RETURNS") related to the Kalitta Companies heretofore due, and all
such Tax Returns are correct, accurate and complete in all material
respects;
(c) All deposits required to be made by the Kalitta
Companies or AIC with respect to any Tax (including, without
limitation, estimated income, franchise and employee withholding
Taxes) have been duly and timely made;
(d) There has not been during the past five (5) years any
audits or examinations of any tax returns filed by any of the Kalitta
Companies or AIC, no audits or examinations of any tax returns of any
of the Kalitta Companies or AIC are in progress, and none of the
Kalitta Companies nor AIC have been notified by any tax authority that
any such audits or examinations are contemplated or pending;
(e) All Taxes with respect to each of the Kalitta
Companies and AIC that have become due and payable on or before June
30, 1997 have been timely paid in full or adequately reserved against
on the Financial Statements, and all Taxes which have become due and
payable subsequent to June 30, 1997 have been paid in full or
adequately reserved against on their books of account and the amounts
reflected on the Financial Statements and such books are sufficient
for the payment of all unpaid Taxes with respect to the periods then
ended and for all periods prior thereto. There are no Liens on any of
the assets of any of the Kalitta Companies or AIC that arose in
connection with any failure (or alleged failure) to pay any Tax,
except those that are not yet due and payable or are being contested
in good faith by appropriate proceedings;
(f) There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the
assessment or collection of any Tax against any of the Kalitta
Companies or AIC, nor are there any actions, suits, proceedings,
investigations or claims now pending against any of the Kalitta
Companies or AIC in respect of any Tax, or any matters under
discussion with any federal, state, local or foreign authority, or any
claims for refund by the Kalitta Companies or AIC for overpaid Taxes
relating to any Taxes, or any claims for additional Taxes asserted by
any such authority, and there is no basis for the assertion of any
additional Taxes against any of the Kalitta Companies or AIC;
(g) None of the Kalitta Companies, Kalitta or AIC has
ever filed a consent pursuant to Section 341(f) of the Code. None of
Kalitta, the Kalitta Companies or AIC has entered into a closing
agreement pursuant to Section 7121 of the Code. None of Kalitta, the
Kalitta Companies or AIC are parties to any tax sharing or similar
agreement;
(h) To the Knowledge of Kalitta Management, the
consummation of the transactions contemplated by this Agreement will
not result in the imposition of any
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additional Taxes on any of the Kalitta Companies or AIC, except for
Taxes relating to the consummation of the Kalitta Companies Permitted
Transactions;
(i) None of the Kalitta Companies or AIC has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Section 280G of the
Code;
(j) Each of the Kalitta Companies and AIC has withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party;
(k) None of the assets of any of the Kalitta Companies or
AIC constitutes tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code;
(l) None of the Kalitta Companies or AIC is a party to
any "safe harbor lease" that is subject to the provisions of Section
168(f)(8) of the Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460
of the Code;
(m) There are no accounting method changes or proposed or
threatened accounting method changes of any of the Kalitta Companies
or AIC that could give rise to an adjustment under Section 481 of the
Code for periods after the Closing Date;
(n) Each of the Kalitta Companies and AIC has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income tax returns all positions taken therein could give rise
to a substantial understatement of federal income tax within the
meaning of Section 6662(d) of the Code; and
(o) For purposes of this Agreement, all references to
sections of the Code shall include any predecessor provisions to such
sections and any similar provisions of state, local or foreign law.
4.1.10 Disputes and Litigation. (a) There is no suit,
arbitration, action, litigation, proceeding, investigation, claim, complaint or
accusation pending (the "PROCEEDINGS") of which any of the Kalitta Companies
have received written notice or, to the Knowledge of Kalitta Management,
threatened against or affecting any of the Kalitta Companies, AIC or Kalitta or
any of their properties, assets or business or to which any of the Kalitta
Companies, AIC or Kalitta is a party, in any court or before any arbitrator of
any kind or before or by any governmental agency (including, without
limitation, any federal, state, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality), and no facts
are Known by Kalitta Management which are reasonably likely to give rise to any
such Proceeding, the result of which would reasonably be expected to result in
a Material Adverse Effect on the Kalitta Companies; (b) to the Knowledge of
Kalitta Management, there is no pending or threatened change in any
environmental, zoning or building laws, regulations or ordinances the result of
which would reasonably be expected to result in a Material Adverse Effect on
the Kalitta Companies; and (c) there is no
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outstanding order, writ, injunction, decree, judgment or award by any court,
arbitrator or governmental body against or affecting any of the Kalitta
Companies or any of their properties, assets or business. None of the items
nor aggregate of items listed in the Disclosure Schedule would, if adversely
determined, reasonably be expected to have a Material Adverse Effect on the
Kalitta Companies. To the Knowledge of Kalitta Management, there is no
Proceeding, formal or informal, pending or threatened which would give rise to
any right of indemnification on the part of any director or officer of any of
the Kalitta Companies or any such person's heirs, executors or administrators
as against any of the Kalitta Companies or AIC.
4.1.11 Compliance with Laws. Except for any noncompliance
to be covered by any other representation and warranty of Kalitta or the
Kalitta Companies contained in Section 4.1 (for example, Taxes or Employees),
it being the intention of the parties that such noncompliance shall be
governed, if at all, by such other representations and warranties, the Kalitta
Companies and AIC presently are and have at all times been since September 1,
1994 and to the Knowledge of Kalitta Management have at all times during the
period preceding September 1, 1994, been in full compliance with any applicable
federal, state, local, foreign and other laws, rules and regulations other than
those where noncompliance would not reasonably be expected to have a Material
Adverse Effect on the Kalitta Companies, and neither the Kalitta Companies nor
AIC has received any written or, to the Knowledge of Kalitta Management, oral
notice of any claimed violation of any such law, rule or regulation which would
reasonably be expected to have a Material Adverse Effect on the Kalitta
Companies. The Kalitta Companies and AIC have filed all returns, reports and
other documents and furnished all information required or requested by any
federal, state, local or foreign governmental or quasi- governmental agency and
all such returns, reports, documents and information are true and complete in
all respects except where such failure to file or inaccuracies would not be
reasonably expected to result in a Material Adverse Effect on the Kalitta
Companies. All permits, licenses, orders, franchises and approvals of all
federal, state, local and foreign governmental or quasi-governmental or
regulatory bodies required of the Kalitta Companies and AIC for the conduct of
their businesses have been obtained, other than those where noncompliance would
not reasonably be expected to have a Material Adverse Effect on the Kalitta
Companies, no violations are or have been recorded in respect of any such
permits, licenses, orders, franchises and approvals, and there is no
Proceeding, formal or informal, pending or, to the Knowledge of Kalitta
Management, threatened, which may revoke, limit, or question the validity,
sufficiency or continuance of any such permit, license, order, franchise or
approval, except in each case where the same would not reasonably be expected
to have a Material Adverse Effect on the Kalitta Companies. Such permits,
licenses, orders, franchises and approvals are valid and sufficient for all
activities presently carried on by the Kalitta Companies and AIC, except in
each case where the same would not reasonably be expected to have a Material
Adverse Effect on the Kalitta Companies. Neither the Kalitta Companies, nor
any officer, director, employee, shareholder or agent of the Kalitta Companies
has made any offer, payment, promise to pay, or authorization of the payment of
any money, offer, gift, promise to give, or authorization of anything of value
to any Person named or identified in Section 30A of the Exchange Act for any
unlawful purpose described in Section 30A of the Exchange Act.
4.1.12 Insurance. The Disclosure Schedule sets forth a true
and complete list of all insurance policies (including the policy number, the
name of the insurer, the amounts of coverage, the premium rate, the cash value,
if any, the expiration date and the risks and
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losses insured against) maintained by any of the Kalitta Companies or AIC on
their properties, assets, products, businesses and personnel, and the Kalitta
Companies and AIC shall deliver copies of all such policies, agreements,
studies and analyses to Kitty Hawk not later than fourteen (14) days after the
date of this Agreement. All of the foregoing insurance policies are in full
force and effect and are fully paid as to all premiums heretofore due. None of
the Kalitta Companies or AIC has failed to give any notice or present any
material claim under such insurance policies in timely fashion, nor has the
Kalitta Companies or AIC received any written notification of the cancellation
of any of such policies or that any of them will not be renewed.
4.1.13 Title to Properties. The properties and assets of
each of the Kalitta Companies consist of (a) all of the properties and assets
reflected on the Financial Statements as owned by it and (b) all other material
properties and assets presently carried on the Kalitta Companies' books as
owned by it or used in their businesses at any time since December 31, 1996,
except, in each case, properties and assets licensed, leased or as to which a
Kalitta Company otherwise has the right to use and assets subsequently disposed
of, or are disposed of pursuant to the Kalitta Companies Permitted
Transactions. Neither Kalitta nor any Affiliate of Kalitta owns any
properties or assets used in or related to, the aviation, transportation or
travel services industries. Except as set forth in the Disclosure Schedule, the
Kalitta Companies and AIC have good and marketable title to all of their
respective properties and assets (whether real, personal, mixed, tangible or
intangible) owned by them free and clear of all Liens, except Permitted Liens,
if any.
4.1.14 Real Property and Real Property Leases. The
Disclosure Schedule contains a true and complete list of (a) all real property
owned by the Kalitta Companies or AIC, (b) all real estate leases to which any
of the Kalitta Companies or AIC is a party, and (c) all other material
interests, if any, in real property owned or claimed by the Kalitta Companies
or AIC. To the Knowledge of Kalitta Management, the Kalitta Companies and AIC
have all material easements and rights, including parking rights and easements
for power lines, water lines, roadways and other access, necessary to conduct
the businesses they now conduct and enjoy peaceful and undisturbed possession
of all properties occupied by them. To the Knowledge of Kalitta Management,
neither the whole nor any portion of any real property owned, occupied or
leased to or by the Kalitta Companies and AIC has been rezoned or condemned or
otherwise taken by any public authority and, to the Knowledge of Kalitta
Management, no such rezoning, condemnation or other taking is threatened or
contemplated. None of the real properties owned, occupied or leased to or by
the Kalitta Companies and AIC, or the occupancy or operation thereof,
constitutes a nuisance or violation of any law or any building, zoning or other
ordinance, code or regulation or any private or public covenant or restriction,
and no written notice from any governmental body or other Person has been
served upon the Kalitta Companies and AIC claiming any outstanding violation of
any such law, ordinance, code, regulation, covenant or restriction, or
requiring or calling attention to the need for any material amount of work,
repairs, construction, alterations or installations on or in connection with
any of such properties which has not been complied with. All leases of real
property to which any of the Kalitta Companies or AIC is a party are valid,
binding and in full force and effect, and, there exists no material default
thereunder by the Kalitta Companies or, to the Knowledge of Kalitta Management,
any other party thereto, nor any events which, with notice or lapse of time, or
both, would constitute a material default by the Kalitta Companies thereunder,
and all rents heretofore payable under such leases have been paid in full. The
Kalitta Companies shall deliver to Kitty Hawk
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not later than fourteen (14) days after the date of this Agreement, true,
correct and complete copies of all deeds to the real property listed on the
Disclosure Schedule and true, correct and complete copies of all real estate
leases listed on the Disclosure Schedule, including all amendments,
modifications, letter agreements and assignments relating thereto.
4.1.15 Equipment. The Disclosure Schedule contains a true
and complete list of engines and airframes of the Kalitta Companies or AIC
having a cost in excess of $25,000 and used by the Kalitta Companies in their
businesses except for engines and airplanes used for spare parts, and (b) all
equipment (including, but not limited to, trade fixtures and motor vehicles)
leased by the Kalitta Companies or AIC with annual lease payments of $20,000 or
more, including the name and address of each lessor and lessee, the expiration
date of each lease, the monthly rent and any additional rent payable under each
such lease. None of the Kalitta Companies are in material default under any
such lease and to the Knowledge of Kalitta Management, each such lease is
valid, binding and in full force and effect. The Kalitta Companies shall
deliver to Kitty Hawk not later than fourteen (14) days after the date of this
Agreement, true, correct and complete copies of all such leases, including all
amendments, modifications, letter agreements and assignments relating thereto.
4.1.16 Intangible Personal Property. The Disclosure
Schedule contains a true and complete list of all material trademarks, service
marks, trade names (including the name "Kalitta" and all derivations thereof
used by the Kalitta Companies), and copyrights and applications for the
foregoing ("INTELLECTUAL PROPERTY") owned by the Kalitta Companies and AIC, all
material licenses to which any of the Kalitta Companies is a licensor or
licensee, and all non- competition covenants of the Kalitta Companies or AIC.
Each of the Kalitta Companies and AIC is the sole and exclusive owner of the
Intellectual Properties indicated on the Disclosure Schedule to be owned by it
free and clear of all Liens, except Permitted Liens, if any, and has the right
to use said properties, having not granted or entered into any agreement,
covenant, license or sublicense with respect thereto.
No written claims or demands have been asserted against the Kalitta
Companies or AIC with respect to any of the Intellectual Property, and no
proceedings have been instituted, are pending or, to the Knowledge of Kalitta
Management, threatened against the Kalitta Companies which challenge the rights
of the Kalitta Companies or AIC with respect to any of such assets. To the
Knowledge of Kalitta Management, the businesses and operations of the Kalitta
Companies and AIC, and the use or publication by them of their material
trademarks, trade names, and advertising literature do not involve infringement
or claimed infringement of any United States trademark, trade name, or
copyright.
No director, officer or shareholder, or, to the Knowledge of Kalitta
Management, employee, consultant, distributor, representative, advisor,
salesman or agent of the Kalitta Companies or AIC owns, directly or indirectly,
in whole or in part, any trademarks, trade names, or copyrights, or
applications for the foregoing, or other material tangible personal property
which any of the Kalitta Companies is presently using or the use of which is
necessary for the business of any of the Kalitta Companies or AIC as now
conducted. None of the directors, officers or shareholders of the Kalitta
Companies or AIC has entered into any agreement regarding know-how, trade
secrets, or prohibition or restriction of competition, or solicitation of
customers or any other similar restrictive agreement or covenant, whether
written or oral, with any Persons other than the Kalitta Companies or AIC.
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4.1.17 Agreements. The Disclosure Schedule contains a true
and complete list of all (i) oral contracts and licenses the breach of which
would result in a Material Adverse Effect on the Kalitta Companies and (ii) all
written contracts and licenses, including the AIC Partnership Agreement
(collectively, the "CONTRACTS") in each case to which any of the Kalitta
Companies or AIC is a party or by which any of them or their properties may be
bound and which (a) involve obligations by any party thereto in excess of
$500,000, (b) extend beyond six months from the date of this Agreement and are
not terminable on thirty (30) days' notice or less without any liability or
continuing obligation on the part of the Kalitta Companies (including any
management, consulting or retainer agreement) or AIC and which involve
obligations by any party thereto in excess of $75,000; (c) require the consent
of any party thereto to the consummation of the transactions contemplated by
this Agreement or the Related Agreements; (d) contain covenants limiting the
freedom of the Kalitta Companies or AIC to compete in any line of business or
with any Person or in any geographical area; (e) contain any provision or
option relating to the acquisition by the Kalitta Companies or AIC of any
business or relating to the sale by the Kalitta Companies or AIC of any
business; (f) contain an agreement or commitment by the Kalitta Companies or
AIC for a material capital expenditure, other than the Kalitta Companies
Permitted Transactions; or (g) are contracts or agreements to which the United
States government is a party; provided, that notwithstanding the foregoing
provisions of this Section 4.1.17, the Disclosure Schedule need not list, and
the term "Contracts" shall not include: (i) agreements the obligations of the
parties thereto have been fulfilled, (ii) agreements that, to the Knowledge of
Kalitta Management, will not result in contingent liability to the Kalitta
Companies or (iii) (A) aircraft sales, purchase and lease agreements, (B)
aircraft engine sales, purchase and (C) real property and lending agreements
unless, to the Knowledge of Kalitta Management, such agreements will result in
contingent liability to the Kalitta Companies. All of the Contracts were
entered into by the Kalitta Companies or AIC (as applicable) in the ordinary
course of business, are valid and binding and in full force and effect as
against the Kalitta Companies that are parties thereto, and there exists no
material breach or default by any of the Kalitta Companies, or any event which,
with notice or lapse of time or both, would constitute a material breach or
default by any of the Kalitta Companies or AIC, or to the Knowledge of Kalitta
Management, by any other party thereto. The Kalitta Companies shall deliver to
Kitty Hawk not later than fourteen (14) days after the date of this Agreement,
true and complete copies, including all amendments, modifications, letter
agreements and assignments relating thereto, of all of the aforesaid written
agreements and true and correct summaries of all such oral agreements.
4.1.18 Office Lease. Kalitta has the authority to cause the
Landlord to perform the actions and transactions contemplated by Section 5.2.7.
The Landlord has good and marketable fee simple title to the Office Premises
and unimproved lots nos. 1 and 3 (the "ADJOINING LOTS") that adjoin the Office
Premises, with all related rights and appurtenances, subject to no Lien except
a mortgage lien (the "OFFICE MORTGAGE") securing a loan to a federally-insured
lending institution for a portion of the purchase price paid by the Landlord to
The Environmental Quality Company, Inc. for the Office Premises and the
Adjoining Lots. The term of the Office Lease commenced in May 1997 and ends in
May 2007. The aggregate amount of rent (payable on a "triple-net" basis) for
the first year under the Office Lease is $712,800 and for each subsequent year
will increase to reflect increases in the Consumer Price Index applicable to
Ypsilanti, Michigan. The Office Lease is unmodified and effective and without
uncured default by either party. The aggregate amount of rent and all other
payments by AIA under the Office Lease are properly reflected in AIA's books of
account.
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4.1.19 Indebtedness and Guaranties. The Disclosure Schedule
sets forth a true and complete list of all promissory notes, loan agreements,
security agreements and guarantees relating to indebtedness for borrowed money
or money loaned to others to which any of the Kalitta Companies or AIC is a
party or obligor. None of the Kalitta Companies nor AIC have guaranteed any
dividend, obligation or indebtedness of any Person (except for the endorsement
of negotiable instruments in the ordinary course of business). All of the
aforesaid items were entered into in the ordinary course of business, are valid
and binding and in full force and effect as against the Kalitta Companies or
AIC (as applicable) and there exists no material breach or default by the
Kalitta Companies, or any event which with notice or lapse of time or both,
would constitute a material breach or default by the Kalitta Companies or AIC
or, to the Knowledge of Kalitta Management, any other parties thereto.
4.1.20 Debts to and from Related Parties. Except as set
forth on the Disclosure Schedule, there presently is no indebtedness owing to
any of the Kalitta Companies or AIC by, or any contractual agreements between
the Kalitta Companies or AIC and any shareholder, director, partner, or officer
of the Kalitta Companies or AIC, any Family Member of their respective
families, or to the Knowledge of Kalitta Management, any Affiliate or Associate
(as such term is defined in Rule 405 of the Securities Act) of any of the
foregoing individuals (collectively, "RELATED PERSONS"), and none of the
foregoing individuals or any Affiliate or Associate of them owns any material
property or rights, tangible or intangible (other than an equitable interest),
used in the Kalitta Companies' or AIC's business. Except as set forth on the
Financial Statements, none of the Kalitta Companies nor AIC is indebted to any
shareholder, officer, director, partner or employee of the Kalitta Companies,
AIC or any co-partner of AIC, or to any member of their respective families or
the families of the shareholders of the co-partners of AIC, or, to the
Knowledge of Kalitta Management, to any Affiliate or Associate of any of the
foregoing individuals, in any amount whatsoever, other than, to the Knowledge
of Kalitta Management, for payment of salaries, normal Fringe Benefits and
compensation for services actually rendered to the Kalitta Companies or AIC in
the ordinary course of their businesses. Neither Kalitta nor any Related
Person has any material claim or right against the Kalitta Companies or AIC.
AIA has no claim or obligation under Section 2.3 of the AIC Partnership
Agreement which is attributable to any extension of credit by or for an AIC
partner for an additional capital contribution.
4.1.21 Banking Arrangements and Powers of Attorney. The
Disclosure Schedule sets forth a true and complete list of the name of each
bank in or with which any of the Kalitta Companies or AIC has an account,
credit line or safety deposit box, and a brief description of each such
account, credit line or safety deposit box, including the names of all persons
authorized to draw thereon or having access thereto; and the names of all
persons, if any, now holding powers of attorney from the Kalitta Companies or
AIC and a summary statement of the terms thereof.
4.1.22 Articles of Incorporation, Partnership Agreement and
Bylaws. Not later than fourteen (14) days after the date of this Agreement,
the Kalitta Companies shall deliver to Kitty Hawk true and complete copies of
their articles of incorporation and bylaws and a true and complete copy of the
AIC partnership agreement. All such articles of incorporation and bylaws were
duly adopted and are in full force and effect, and there are no amendments or
modifications thereto except as included in said articles of incorporation and
bylaws.
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4.1.23 Books and Records. The minute books of each of the
Kalitta Companies contain accurate records of all material actions taken by the
shareholders and directors of the Kalitta Companies. The books, records and
accounts of the Kalitta Companies, all of which have been made available to
Kitty Hawk, have been maintained in accordance with the requirements of Section
13(b)(2) of the Exchange Act (regardless of the fact that the Kalitta Companies
are not currently subject to that Section), including the maintenance of an
adequate system of internal controls. The stock certificate books and stock
transfer ledgers of each of the Kalitta Companies are correct and complete and
reflect accurately the number of shares of stock held by its shareholder.
AIC's partnership books and records contain complete and accurate records of
the ownership of all partnership interests in AIC and all material actions of
the co-partners of AIC.
4.1.24 ERISA.
(a) Except as set forth on the Disclosure Schedule,
neither the Kalitta Companies nor AIC maintains, administers, or
contributes to or has maintained, administered, or contributed to (or
had an obligation to maintain, administer or contribute to) any
"qualified" plans within the meaning of the Code in the last six
years. Except as set forth on the Disclosure Schedule, neither
Kalitta Companies nor AIC maintains, administers, or contributes to
(or had an obligation to maintain, administer or contribute to) any
"EMPLOYEE BENEFIT PLAN," as defined in Section 3(3) of ERISA), which
is subject to any provisions of ERISA and which covers any employee,
whether active or retired, of the Kalitta Companies or AIC. No
"qualified" plan that the Kalitta Companies or AIC maintains,
administers, or contributes to or has maintained, administered, or
contributed to is subject to the requirements of Title IV of ERISA.
(b) Neither the Kalitta Companies nor AIC has any
withdrawal liability, under the terms of the applicable plan, any
collective bargaining agreement or any other labor agreement or
otherwise, with respect to any "multi-employer" plan (within the
meaning of Section 3(37) or 4001(a)(3) of ERISA) to which it
contributes; nor has any event occurred or does any circumstance exist
that presents a risk of the occurrence of any withdrawal liability
with respect to any such multi-employer plan.
(c) Other than the Kalitta Companies and AIC, there are
no other corporations or trades or business controlled by,
controlling, or under common control with the Kalitta Companies and
AIC (within the meaning of Section 414 of the Code or Section
4001(a)(14) or 4001(b) of ERISA).
4.1.25 Employees.
(a) The Disclosure Schedule sets forth a true and
complete list of: (i) all collective bargaining agreements to which
any of the Kalitta Companies or AIC is a party; (ii) all material
employment, profit-sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consultant, retirement,
welfare and incentive plans, agreements or contracts, written or, to
the Knowledge of Kalitta Management, oral, to which any of the Kalitta
Companies or AIC is a party; (iii) all material written and, to the
Knowledge of Kalitta Management, oral agreements and
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plans to which any of the Kalitta Companies or AIC is a party and
which constitute "FRINGE BENEFITS" to their employees or salesmen,
including, without limitation, group life and health insurance,
vacation plans or programs, sick leave plans or programs, termination
or severance pay programs and employee discounts; and (iv) the name
and current annual compensation of each director and each officer of
the Kalitta Companies, and of each employee thereof whose current
annual salary and/or estimated current annual commission is $75,000 or
more, together with such person's job title and amounts and forms of
compensation and Fringe Benefits. The Kalitta Companies and AIC shall
deliver to Kitty Hawk not later than fourteen (14) days after the date
of this Agreement, true and complete copies of all written, and
correct summaries of all oral, contracts, agreements, plans and
programs set forth in the Disclosure Schedule.
(b) To the Knowledge of Kalitta Management, all of the
aforesaid contracts, agreements, plans and programs are in full
compliance with all applicable federal, state and local laws, and the
Kalitta Companies and AIC are in full compliance with all federal,
state and local laws respecting employment, wages and hours in each
case except to the extent as would not reasonably be expected to have
a Material Adverse Effect on the Kalitta Companies. To the Knowledge
of Kalitta Management, the Kalitta Companies and AIC are in full
compliance with all applicable federal and state laws and regulations
respecting occupational safety and health standards other than those
where noncompliance would not reasonably be expected to have a
Material Adverse Effect on the Kalitta Companies and the Kalitta
Companies and AIC have received no written complaints from any federal
or state agency or regulatory body alleging outstanding violations of
any such laws and regulations.
(c) The Kalitta Companies and AIC are in full compliance
in all material respects with the terms of all contracts, agreements,
plans and programs described above. To the Knowledge of Kalitta
Management, the employment of all persons and officers employed by the
Kalitta Companies and AIC is terminable at will, without any penalty
or severance obligation of any kind on the part of the employer, and
the consummation of the transactions contemplated by this Agreement
will not by themselves trigger any payments to any officers, directors
or employees of the Kalitta Companies or AIC. All material sums due
for employee compensation and benefits and all vacation time owing to
any employees have been duly and adequately accrued on the books of
the Kalitta Companies or AIC pursuant to past practice. To the
Knowledge of Kalitta Management, all employees of the Kalitta
Companies and AIC located in the United States are either United
States citizens or are authorized to be employed in the United States
in accordance with all applicable laws. To the Knowledge of Kalitta
Management, the Kalitta Companies have not been informed that any key
employee or material consultant, distributor, representative, advisor,
salesman, agent, customer or supplier of the Kalitta Companies or AIC
will terminate his or her employment or cease to do business with the
Kalitta Companies or AIC after the Mergers.
(d) None of the Kalitta Companies nor AIC has experienced
since December 31, 1996, any general labor troubles or strife, work
stoppages, slowdowns by their employees. To the Knowledge of Kalitta
Management, none of the Kalitta Companies nor AIC has experienced
since December 31, 1996 any union or collective bargaining
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organization efforts or negotiations, or requests for negotiations,
for any representation or any labor contract relating to any employees
of the Kalitta Companies or AIC not covered by a union or collective
bargaining agreement as of December 31, 1996.
(e) The Kalitta Companies with employees in the State of
Michigan and AIC subscribe to, or are otherwise insured under, the
worker's compensation or similar statute in the State of Michigan with
respect to such employees. The Disclosure Schedule describes all
claims filed by employees of the Kalitta Companies and AIC in respect
of employment-related injury or illness from January 1, 1995 through
June 30, 1997. None of the Kalitta Companies nor AIC has received any
report or notice from the Occupational Safety and Health
Administration.
4.1.26 No Conflicts of Interest. The Disclosure Schedule
sets forth a list of all agreements which the Kalitta Companies and AIC have
with their directors, officers, employees, consultants, distributors,
representatives, advisors, salesmen and agents that prohibit or restrain such
individuals from competing with the Kalitta Companies or AIC in their
respective businesses. None of the Kalitta Companies or Kalitta, nor any
Family Member of Kalitta, owns, directly or indirectly, a controlling interest
in, or is an employee of, any Person which is a customer, supplier, competitor
or potential competitor of the Kalitta Companies or AIC; neither does Kalitta,
any Family Members of Kalitta, nor to the Knowledge of Kalitta Management, any
of the aforesaid individuals control the management or policies of any Person
which is a customer, supplier, competitor or potential competitor of the
Kalitta Companies or AIC by means of a management contract or otherwise.
4.1.27 Environmental Matters.
(a) To the Knowledge of Kalitta Management, the Kalitta
Companies and AIC are in compliance with all applicable Environmental
Laws and none of the Kalitta Companies nor AIC have received any
written communication from any Person that alleges that any of the
Kalitta Companies or AIC are not in compliance with applicable
Environmental Laws.
(b) There is no Environmental Claim pending or, to the
Knowledge of Kalitta Management, overtly threatened (i) against the
Kalitta Companies or AIC, (ii) against any Person whose liability for
any Environmental Claim the Kalitta Companies or AIC have retained or
assumed either contractually or, to the Knowledge of Kalitta
Management, by operation of law, or (iii) against any real or personal
property or operations which are now or, to the Knowledge of Kalitta
Management, have been previously owned, leased, operated or managed,
in whole or in part, based on activities conducted by the Kalitta
Companies or AIC.
4.1.28 Aviation Act; Aircraft; Assets.
(a) AIA is an air carrier operating under one or more
Certificates of Public Convenience and Necessity issued by the DOT
under the Aviation Act, and holding an air carrier operating
certificate and operations specifications issued pursuant to Part 119
(formerly Part 121) of the Federal Aviation Regulations issued by the
FAA under the Aviation Act and all other DOT and FAA authorizations
and permits
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necessary or required to conduct its business as it is currently being
conducted (collectively such certificates are called the "AIA
OPERATING AUTHORIZATIONS"), which AIA Operating Authorizations are in
full force and effect, and AIA is operating in compliance with all
rules and regulations of the FAA, the DOT, the AIA Operating
Authorizations and of any foreign government or quasi-government
entity, except where the failure to maintain such AIA Operating
Authorizations or comply with such rules and regulations would not
reasonably be expected to have a Material Adverse Effect on the
Kalitta Companies. AIA does not operate under any orders pursuant to
the Essential Air Service Program for the DOT. AIA and its Affiliates
have complied in all respects with Consent Order and Settlement
Agreements (as modified orally by AIA and the FAA) to which AIA and
the FAA are parties, including without limitation that Consent Order
and Settlement Agreement signed by AIA on January 8, 1997.
(b) All aircraft operated or "dry" leased by AIA are in
sound operating condition and are being maintained in all material
respects, where applicable, according to FAA regulatory standards,
AIA's FAA-authorized maintenance program and all other applicable
laws, except where the failure to maintain such AIA Operating
Authorizations or comply with such rules, regulations and laws would
not have a Material Adverse Effect on the Kalitta Companies. A list
of all aircraft now owned, leased or in the possession and control of
AIA is set forth on the Disclosure Schedule.
(c) KFS is an air carrier operating under one or more
Certificates of Public Convenience and Necessity issued by the DOT
under the Aviation Act and holding an air carrier operating
certificate and operations specifications issued pursuant to Part 135
of the Federal Aviation Regulations issued by the FAA under the
Aviation Act and all other DOT and FAA authorizations and permits
necessary or required to conduct its business as it is currently being
conducted (collectively such certificates are called the "KFS
OPERATING AUTHORIZATIONS"), which KFS Operating Authorizations are in
full force and effect, and KFS is operating in compliance with all
rules and regulations of the FAA, the DOT, the KFS Operating
Authorizations and of any foreign government or quasi-government
entity, except where the failure to maintain such KFS Operating
Authorizations or comply with such rules and regulations would not
have a Material Adverse Effect on KFS or its business. KFS does not
operate under any orders pursuant to the Essential Air Service Program
for the DOT.
(d) All aircraft set forth on the Disclosure Schedule
operated or "dry" leased by KFS, are in sound operating condition and
are being maintained in all material respects, where applicable,
according to FAA regulatory standards, KFS' FAA-authorized maintenance
program and all other applicable laws, except where the failure to
maintain or comply with such rules, regulations and laws would not
have a Material Adverse Effect on the Kalitta Companies. A list of
all operating aircraft now owned, leased or in the possession and
control of KFS is set forth on the Disclosure Schedule.
(e) OK is an air carrier operating under Certificates of
Public Convenience and Necessity issued by the DOT under the Aviation
Act and holding an air carrier operating certificate and operations
specifications issued pursuant to Part 135 of the
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Federal Aviation Regulations issued by the FAA under the Aviation Act
and all other DOT and FAA authorizations and permits necessary or
required to conduct its business as it is currently being conducted
(collectively such certificates are called the "OK OPERATING
AUTHORIZATIONS"), which OK Operating Authorizations are in full force
and effect, and OK is operating in compliance with all rules and
regulations of the FAA, the DOT, the OK Operating Authorizations and
of any foreign government or quasi-government entity, except where the
failure to maintain such OK Operating Authorizations or comply with
such rules and regulations would not have a Material Adverse Effect on
OK or its business. OK does not operate under any orders pursuant to
the Essential Air Service Program for the DOT.
(f) All aircraft set forth on the Disclosure Schedule
operated or "dry" leased by OK, are in sound operating condition and
are being maintained in all material respects, where applicable,
according to FAA regulatory standards, OK's FAA-authorized maintenance
program and all other applicable laws, except where the failure to
maintain or comply with such rules, regulations and laws would not
have a Material Adverse Effect on the Kalitta Companies. A list of
all operating aircraft now owned, leased or in the possession and
control of OK is set forth on the Disclosure Schedule.
4.1.29 No Solicitation or Negotiation. None of Kalitta, the
Kalitta Companies nor AIC have made any agreement to sell the stock, business
or any material asset of any of the Kalitta Companies or AIC to another Person,
or to merge, consolidate or combine assets or business of any of the Kalitta
Companies or AIC with another Person, except for the Kalitta Companies
Permitted Transactions, and none of Kalitta, the Kalitta Companies nor AIC 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 or AIC to or with another (except for the
Kalitta Companies Permitted Transactions).
4.1.30 Information Supplied. None of the information
supplied by the Kalitta Companies to Kitty Hawk expressly for inclusion in the
Debt Offering Documents or the SEC Filings (as identified pursuant to Section
5.2.1) will, at the time of the consummation of the Closing Date Financings or
the date such SEC Filing is declared effective by the SEC, respectively,
contain any untrue statement of material fact or omit a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstance under which they were made, not misleading.
4.1.31 Letter from Tax Advisor. The Kalitta Companies have
received a letter from D&T dated September 18, 1997 to the effect that, as of
such date, the AIA Merger, the AIT Merger, the FOL Merger and the OK Merger
should qualify as reorganizations under Section 368 of the Code. A copy of
such letter has been delivered to Kitty Hawk.
4.1.32 Receivables. To the Knowledge of Kalitta Management,
all notes and accounts receivable in amounts in excess of $25,000 of the
Kalitta Companies and AIC reflected in the Financial Statements and all those
arising since December 31, 1996 have arisen in the ordinary course of business
and are, or shall be, fully collectible, net of applicable reserves, when due
after collection efforts in the aggregate face amounts thereof.
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4.2 Representations and Warranties of Kalitta. To induce Kitty
Hawk and the Subs to enter into this Agreement and to consummate the
transactions contemplated hereby, Kalitta represents and warrants to Kitty Hawk
and the Subs as follows:
(a) Kalitta is acquiring the Stock Merger Consideration
for investment for his own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof in
violation of the Securities Act. Kalitta does not have any present
intention of selling, granting any participation in, or otherwise
distributing the Stock Merger Consideration otherwise than pursuant to
an effective registration statement under the Securities Act or in a
transaction exempt from the registration requirements under the
Securities Act and applicable state securities laws. Except as set
forth in the Registration Rights Agreement, Kalitta does not have any
contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Stock Merger Consideration.
(b) Kalitta acknowledges that the issuance of the Stock
Merger Consideration will not be registered under the Securities Act
or any state securities laws on the basis of a claimed exemption by
Kitty Hawk that the issuance of the Stock Merger Consideration as
provided for herein is exempt from registration under the Securities
Act and such state laws. Kalitta acknowledges that the availability
of such exemptions is predicated in part on Kalitta's representations
set forth in this Section and that Kitty Hawk and the Subs are relying
on such representations.
(c) Kalitta has received all the information he considers
necessary or appropriate for deciding whether to accept the Stock
Merger Consideration. Kalitta has had an opportunity to ask questions
and to receive answers from Kitty Hawk regarding the terms and
conditions of the issuance of the Stock Merger Consideration and the
business properties, and financial condition of Kitty Hawk and to
obtain additional information (to the extent Kitty Hawk possessed such
information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished
to Kalitta or to which Kalitta had access.
(d) Kalitta acknowledges that he is able to bear the
economic risk of the investment in the Stock Merger Consideration, and
has such knowledge and experience in financial and business matters
that he is capable of evaluating the permits and risks of the
investment in the Stock Merger Consideration.
(e) Kalitta is an Accredited Investor as defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
(f) Kalitta acknowledges that the Stock Merger
Consideration may not be sold, transferred or otherwise disposed of
without registration under the Securities Act or an applicable
exemption therefrom and that in the absence of an effective
registration statement covering the Stock Merger Consideration or an
available exemption from registration under the Securities Act, the
Stock Merger Consideration must be held indefinitely. Kalitta further
acknowledges that the Stock Merger Consideration may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of that rule are met.
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(g) Kalitta acknowledges that each certificate
representing any shares Stock Merger Consideration will be endorsed
with a legend substantially similar to the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED UNLESS SO REGISTERED OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED.
4.3 Representations and Warranties of Kitty Hawk. To induce
Kalitta and the Kalitta Companies to enter into this Agreement and to
consummate the transactions contemplated hereby, Kitty Hawk represents and
warrants to Kalitta and the Kalitta Companies as of the date hereof as follows
(each such representation and warranty being qualified in its entirety by the
disclosures set forth (a) in the Disclosure Schedule of Kitty Hawk or (b) in
the SEC Documents filed with the SEC on or prior to the date of the Agreement:
4.3.1 Corporate Existence and Authority. Kitty Hawk is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. Kitty Hawk and each of its Subsidiaries has all requisite corporate
power and authority to own its properties and assets and to carry on its
business as it has been and is being conducted. Kitty Hawk and each of its
Subsidiaries is qualified to do business as a foreign corporation and is in
good standing in each state, nation or other jurisdiction listed in the
Disclosure Schedule, being each state, nation or other jurisdiction wherein the
character of the properties owned or held under lease by it or the nature of
the business transacted by it makes such qualification necessary, except for
any state, nation or other jurisdiction where the failure to be so qualified
would not reasonably be expected to have a Material Adverse Effect on Kitty
Hawk.
4.3.2 Capitalization of Kitty Hawk and its Subsidiaries.
(a) As of the date of this Agreement, the authorized
capital stock of Kitty Hawk consists of (i) 25,000,000 shares of Kitty
Hawk Common Stock, of which 10,451,807 shares are issued and
outstanding; and (ii) 1,000,000 shares of preferred stock, par value
$1.00 per share, of which no shares are issued and outstanding. As of
the date of this Agreement, no other shares of capital stock of Kitty
Hawk are issued and outstanding other than those issued under employee
benefit plans of Kitty Hawk. All of the issued and outstanding shares
have been duly and validly issued in accordance and compliance with
all applicable laws, rules and regulations and are fully paid and
nonassessable. There are no securities, options, warrants, rights,
calls, commitments, plans, contracts or other agreements of any
character granted or issued by Kitty Hawk which provide for the
purchase, issuance or transfer of any shares of the capital stock of
Kitty Hawk, nor are there any outstanding securities granted or
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issued by Kitty Hawk that are convertible into or exchangeable for any
shares of the capital stock of Kitty Hawk, and none are authorized,
except pursuant to this Agreement and employee benefit plans of Kitty
Hawk as disclosed in the SEC Documents. Kitty Hawk is not obligated
or committed to purchase, redeem or otherwise acquire any of its
capital stock. All presently exercisable voting rights in Kitty Hawk
are vested exclusively in its outstanding shares of common stock, each
share of which is entitled to one vote on every matter to come before
such corporation's stockholders. There are no voting trusts or other
voting arrangements with respect to Kitty Hawk's capital stock, except
as contemplated hereby.
(b) All the issued and outstanding shares of capital
stock of the Subsidiaries are held solely by Kitty Hawk, free and
clear of any Lien. All of the issued and outstanding shares have been
duly and validly issued in accordance and compliance with all
applicable laws, rules and regulations and are fully paid and
nonassessable. There are no securities, options, warrants, rights,
calls, commitments, plans, contracts or other agreements of any
character granted or issued by any of the Subsidiaries which provide
for the purchase, issuance or transfer of the capital stock of any of
the Subsidiaries, nor are there any outstanding securities granted or
issued by any of the Subsidiaries that are convertible into or
exchangeable for any shares of the capital stock of any of the
Subsidiaries, and none are authorized. None of the Subsidiaries is
obligated or committed to purchase, redeem or otherwise acquire any of
its capital stock. All presently exercisable voting rights in the
Subsidiaries are vested exclusively in their outstanding capital
stock. There are no voting trusts or other voting arrangements with
respect to the capital stock of any of the Subsidiaries.
4.3.3 Validity and Authorization; Corporate Power and
Authority. Kitty Hawk has full corporate power and authority to execute,
deliver and perform this Agreement, the Related Agreements and the other
instruments called for by this Agreement to which it is or is to be a party.
This Agreement has been duly authorized, executed and delivered by Kitty Hawk
and constitutes the legal, valid and binding obligation of Kitty Hawk,
enforceable against Kitty Hawk in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity). When the Related Agreements and the other instruments
called for by this Agreement to which Kitty Hawk is a party are executed and
delivered at the Closing, such Related Agreements and instruments will have
been duly authorized, executed and delivered by Kitty Hawk and will constitute
the legal, valid and binding obligations of Kitty Hawk, enforceable against
Kitty Hawk in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting enforcement of creditor's rights generally, and by general
principles of equity (whether applied in a proceeding at law or in equity).
4.3.4 Execution; No Violations. The execution and delivery
of this Agreement by Kitty Hawk does not, and the consummation by Kitty Hawk of
the transactions contemplated hereby will not: (a) violate, conflict with,
modify or cause any default under or acceleration of (or give any party any
right to declare any default or acceleration upon notice or passage of time or
both), in whole or in part, any certificate of incorporation, bylaw, Lien,
indenture, lease, agreement, instrument, order, injunction, decree or judgment
to which Kitty Hawk or any of its Subsidiaries is a party or by which any of
them or any of their properties
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is bound; (b) result in the creation of any Lien on any property or asset
(whether real, personal, mixed, tangible or intangible) of Kitty Hawk or any of
its Subsidiaries; (c) violate any law, rule or regulation applicable to Kitty
Hawk or any of its Subsidiaries; or (d) permit any federal or state regulatory
agency to impose any restrictions or limitations of any nature on Kitty Hawk or
any of its Subsidiaries or any of their activities, except in each case as
would not reasonably be expected to have a Material Adverse Effect on Kitty
Hawk.
4.3.5 Governmental and Other Consents. Except for filings
under the HSR Act, approval by the DOT of the deemed "de facto" transfer of the
foreign air transportation authority issued to AIA and KFS, and the filing of
certificates of merger as contemplated by Section 1.3 hereof, no consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority is required on the part of Kitty Hawk or any of its
Subsidiaries in connection with the execution or delivery of this Agreement,
the Related Agreements or the consummation by Kitty Hawk of the transactions
contemplated hereby and thereby, except as would not reasonably be expected to
have a Material Adverse Effect on Kitty Hawk.
The Disclosure Schedule lists all material consents, approvals or
authorizations of third Persons, required in connection with Kitty Hawk's valid
execution, delivery or performance of this Agreement and the Related Agreements
to which it is a party or the consummation of any of the transactions
contemplated hereby or thereby on the part of any of them (collectively, the
"KITTY HAWK CONSENTS"), including, but not limited to, the consents required
under the Kitty Hawk Contracts, except, in each case, as would not reasonably
be expected to have a Material Adverse Effect on Kitty Hawk.
4.3.6 Stock Merger Consideration. The Stock Merger
Consideration, when issued and delivered in accordance with the terms hereof
will be duly authorized and validly issued, fully paid and nonassessable and
free and clear of any preemptive rights or Liens through Kitty Hawk.
4.3.7 Acquisition of Kalitta Companies' Stock. Kitty Hawk
is acquiring the shares of common stock of AIA, AIT, FOL, KFS and OK
(collectively, the "KALITTA COMPANIES SHARES") to be issued to it upon
conversion of the shares of common stock of the Subs held by it pursuant to
Section 3.3 for investment for its own account, not as a nominee or agent, and
not with a view to the resale or present distribution of any part thereof in
violation of the Securities Act. Kitty Hawk has no present intention of
selling, granting any participation in or otherwise distributing any of the
Kalitta Companies Shares and Kitty Hawk has no contract, undertaking, agreement
or arrangement with any Person to sell, transfer, grant participations to such
person or to any third Person, with respect to any of the Kalitta Companies
Shares.
4.3.8 SEC Documents. Kitty Hawk has heretofore delivered
or made available to Kalitta and the Kalitta Companies true and complete copies
of all registration statements filed under the Securities Act and reports,
statements (including definitive proxy statements) and other filings filed
under Sections 13(a), 14(a), 14(c) and 15(d) of the Exchange Act with the SEC
(the "SEC DOCUMENTS") which are all the documents (other than preliminary
material and reports required pursuant to Section 13(d) or 13(g) of the
Exchange Act) that Kitty Hawk was required to file with the SEC. As of their
respective dates, each of the SEC Documents complied in all material respects
with all applicable requirements of the
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Securities Act and the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Documents, and none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Kitty Hawk included in the SEC
Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP during the periods
involved (except as may be indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by the SEC) and fairly present (subject,
in the case of the unaudited statements, to recurring audit adjustments normal
in nature and amount) the consolidated financial position of Kitty Hawk as at
the dates thereof and the consolidated results of its operations and cash flows
or changes in financial position for the periods then ended.
4.3.9 SEC Filings. At the time it becomes effective under
the Securities Act, any registration statement or registration statements filed
by Kitty Hawk with the SEC related to the Closing Date Financings (and any
final prospectus contained therein or filed pursuant to Rule 430A under the
Securities Act) (the "SEC FILINGS") will comply in all material respects as to
form with the provisions of the Securities Act and the rules and regulations
thereunder. The Debt Offering Documents will not, at the time of the
consummation of the Closing Date Financings, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The SEC Filings will
not, at the time they become effective under the Securities Act, contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, that notwithstanding anything in this Agreement to the contrary, no
representation or warranty is made in this Agreement by Kitty Hawk with respect
to information provided by, or portions of the SEC Filings based upon or
derived from information provided by, the Kalitta Companies or Kalitta
expressly for use in the SEC Filings.
4.3.10 Controlling Person. Christopher is a "controlling
person" of Kitty Hawk as such term is defined in Sections 15 and 20 for
purposes of the Securities Act and the Exchange Act respectively.
4.3.11 Absence of Certain Liabilities. Other than
liabilities and obligations covered by another representation and warranty of
Kitty Hawk in Section 4.3 (such as Taxes, Environmental Matters and Compliance
with Laws), it being the intention of the parties that any such liabilities and
obligations shall be governed, if at all, by such other representations and
warranties, (a) as of August 31, 1996, neither Kitty Hawk nor any of its
Subsidiaries had any material liabilities or obligations of any nature (whether
absolute, accrued, contingent, due or to become due) except as and to the
extent reflected and fully reserved against in the financial statements
(including general reserves) contained or incorporated by reference in Kitty
Hawk's Form 10-K for the fiscal year ended August 31, 1996 and (b) since August
31, 1996, neither Kitty Hawk nor any of its Subsidiaries have incurred any such
liabilities or obligations of any nature other than those reflected or reserved
against in Kitty Hawk's financial statements or incurred in the ordinary course
of business since the date thereof.
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4.3.12 Absence of Changes. Except as expressly provided in
this Agreement, since June 30, 1997 there has not been with respect to Kitty
Hawk or any of its Subsidiaries:
(a) Any change or aggregate of changes constituting a
Material Adverse Effect on Kitty Hawk;
(b) Any change in the capitalization of Kitty Hawk or any
of its Subsidiaries, including, without limitation, the issuance by
any of them of any shares of stock of any class, any subscriptions,
options, warrants, convertible securities, rights, calls, agreements,
commitments or rights affecting or relating in any manner whatsoever
to any equitable interests in Kitty Hawk or any of its Subsidiaries
other than pursuant to employee benefit plans of Kitty Hawk.
(c) Any purchase, redemption or other acquisition by
Kitty Hawk or any of its Subsidiaries, or any commitment, plan or
agreement by Kitty Hawk or any of its Subsidiaries to purchase, redeem
or otherwise acquire any shares of their capital stock or other
equitable interests;
(d) Any merger or agreement to merge by Kitty Hawk or any
of its Subsidiaries with another Person, or any purchase of or
investment in or agreement to purchase or invest by Kitty Hawk or any
of its Subsidiaries in the business of another Person;
(e) Any declaration, payment or setting aside by Kitty
Hawk or any of its Subsidiaries of any dividends or other
distributions of any assets of any kind whatsoever to their
stockholders or other equitable owners, except for ordinary salary
payments for services actually rendered and except for distributions
by a Subsidiary of Kitty Hawk to Kitty Hawk;
(f) Any amendment to the certificate of incorporation,
articles of incorporation or bylaws of Kitty Hawk or any of its
Subsidiaries;
(g) Any waivers, compromises or settlements by Kitty Hawk
or any of its Subsidiaries of any right or claim in excess of $500,000
in the aggregate; or any institution or settlement of, or agreement to
settle, any litigation, action or proceeding before any court or
governmental body relating to Kitty Hawk or any of its Subsidiaries or
any of their properties in excess of $500,000;
(h) Any assumptions or guarantees (except endorsements of
negotiable instruments in the ordinary course of business) by Kitty
Hawk or any of its Subsidiaries of the obligations of any Person,
except in the ordinary course of business;
(i) Any payment or satisfaction by Kitty Hawk or any of
the Subsidiaries of any material liability, obligation or indebtedness
except pursuant to the terms thereof or otherwise in the ordinary
course of business;
(j) Any loan or advance, any commitment to loan or
advance, or any renewal, refunding or extension of any existing loan,
made by Kitty Hawk or any of
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its Subsidiaries to any Person, except in the ordinary course of
business, but in no event any loan or advance, any commitment to loan
or advance, or any renewal, refunding or extension of any existing
loan, by Kitty Hawk or any of its Subsidiaries to any of their
officers or directors or to any Affiliate of Kitty Hawk or any such
officer or director;
(k) Any actions taken or transactions entered into by
Kitty Hawk or any of its Subsidiaries involving more than $500,000 in
the aggregate, other than the Kitty Hawk Permitted Transactions or in
the ordinary course of business, or any capital expenditures or
commitments therefor in excess of $500,000 in the aggregate other than
in the ordinary course of business;
(l) Any sale, assignment, lease, abandonment or other
disposition by Kitty Hawk or any of its Subsidiaries of any real
property, or any sale, assignment, transfer, license, lapse, or other
disposition by Kitty Hawk or any of its Subsidiaries of any material
trademark, trade name, copyright (or pending application for any
material trademark or copyright) or other intangible asset;
(m) Any material damage, destruction or loss to the
business or properties of Kitty Hawk or any of its Subsidiaries, not
adequately covered by insurance, including, without limitation, any
damage, destruction or loss as a result of fire, explosion, accident,
earthquake, lightning, aircraft, vehicle, smoke, hail, flood, drought,
storm, strike, work stoppage, lockout, sabotage, embargo,
condemnation, riot, civil disturbance, vandalism or act of God or
public enemy the result of which has been a Material Adverse Effect on
Kitty Hawk and its Subsidiaries;
(n) Any other material transaction entered into by Kitty
Hawk or any of its Subsidiaries other than in the ordinary course of
business; or
(o) Any sale, assignment or transfer of any material
asset by Kitty Hawk, except the sale for leaseback of three Boeing 727
aircraft or in the ordinary course of business and consistent with
past practice.
4.3.13 Disputes and Litigation.
(a) There is no Proceeding pending of which Kitty Hawk or
one of the Subsidiaries have received written notice or, to the
Knowledge of Kitty Hawk, threatened against Kitty Hawk or any of its
Subsidiaries or any of their properties, assets or business or to
which Kitty Hawk or any of its Subsidiaries is a party, in any court
or before any arbitrator of any kind or before or by any governmental
agency (including, without limitation, any federal, state, local,
foreign or other governmental department, commission, board, bureau,
agency or instrumentality).
(b) There is no outstanding order, writ, injunction,
decree, judgment or award by any court, arbitrator or governmental
body against or affecting Kitty Hawk or any of its Subsidiaries or any
of their properties, assets or business.
4.3.14 Compliance with Laws. Except for any noncompliance
to be covered by any other representation and warranty of Kitty Hawk contained
in Section 4.3 (for example,
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Taxes), it being the intention of the parties that such noncompliance shall be
governed, if at all, by such other representations and warranties, to the
Knowledge of Kitty Hawk, Kitty Hawk and its Subsidiaries presently are and have
at all times been in full compliance with all applicable federal, state, local,
foreign and other laws, rules and regulations other than those where
noncompliance would not reasonably be expected to have a Material Adverse
Effect on Kitty Hawk, and neither Kitty Hawk nor any of its Subsidiaries have
received written notice, or to the Knowledge of Kitty Hawk, oral notice of any
such claimed violation of any such law, rule or regulation which would
reasonably be expected to have a Material Adverse Effect on Kitty Hawk. Kitty
Hawk and each of its Subsidiaries have filed all material returns, reports and
other documents and furnished all information required or requested by any
federal, state, local or foreign governmental or quasi-governmental agency and
all such returns, reports, documents and information are true and complete in
all material respects, except where such failure to file or inaccuracies would
not be reasonably expected to result in a Material Adverse Effect on Kitty
Hawk. All permits, licenses, orders, franchises and approvals of all federal,
state, local and foreign governmental or quasi-governmental or regulatory
bodies required of Kitty Hawk and each of its Subsidiaries for the conduct of
their businesses have been obtained, except for any the failure to have
obtained would not reasonably be expected to have a Material Adverse Effect on
Kitty Hawk. No written notice of any outstanding violations have been received
by Kitty Hawk or any of its Subsidiaries in respect of any such permits,
licenses, orders, franchises and approvals. Such permits, licenses, orders,
franchises and approvals are valid and sufficient for all activities presently
carried on by Kitty Hawk and any of its Subsidiaries, except where they would
not be reasonably expected to have a Material Adverse Effect on Kitty Hawk.
Neither Kitty Hawk, nor any officer, director, employee, shareholder or agent
of Kitty Hawk has made any offer, payment, promise to pay, or authorization of
the payment of any money, offer, gift, promise to give, or authorization of
anything of value to any Person named or identified in Section 30A of the
Exchange Act for any unlawful purpose described in Section 30A of the Exchange
Act.
4.3.15 Insurance. Kitty Hawk has insurance coverage as
required by any contract to which it is party, by any rule or regulation
applicable to Kitty Hawk and as is customary for businesses of similar nature
to that of Kitty Hawk, and Kitty Hawk shall deliver copies of all such
policies, agreements, studies and analyses to the Kalitta Companies upon
request of the Kalitta Companies. All of the insurance policies are in full
force and effect and are fully paid as to all premiums heretofore due. None of
Kitty Hawk or any of its Subsidiaries has failed to give any notice or present
any material claim under such insurance policies in timely fashion, nor has
Kitty Hawk or any of its Subsidiaries received any written notification of the
cancellation of any of such policies or that any of them will not be renewed.
4.3.16 Title to Properties. The properties and assets of
Kitty Hawk and each of its Subsidiaries consist of all of the material
properties and assets presently carried on Kitty Hawk's books as owned by them.
4.3.17 Agreements. All of the contracts listed or required
to be listed in Item 10 of Kitty Hawk's SEC Documents, other than those
contracts which have been terminated or which have expired (collectively, the
"KITTY HAWK CONTRACTS"), are valid and binding and in full force and effect
against Kitty Hawk or any of its Subsidiaries that are parties thereto, and
there exists no material breach or default by Kitty Hawk or any of its
Subsidiaries, or any event which, with notice or lapse of time or both, would
constitute a material breach or default by Kitty Hawk or any of its
Subsidiaries thereunder.
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4.3.18 Indebtedness and Guaranties. The Disclosure Schedule
sets forth a true and complete list of all promissory notes, security
agreements and guarantees relating to indebtedness for borrowed money or money
loaned to others to which Kitty Hawk or any of its Subsidiaries is a party or
obligor. None of Kitty Hawk nor any of its Subsidiaries have guaranteed any
dividend, obligation or indebtedness of any third Person. All of the items of
indebtedness set forth in the Disclosure Schedule or on the financial
statements contained in the Quarterly Report of Kitty Hawk on Form 10-Q for the
quarter ended June 30, 1997 are valid and binding and in full force and effect
as against Kitty Hawk and any of its Subsidiaries (as applicable) and there
exists no material breach or default by Kitty Hawk or any of its Subsidiaries,
or any event which with notice or lapse of time or both, would constitute a
breach or default by Kitty Hawk and each of its Subsidiaries.
4.3.19 Environmental Matters.
(a) To the Knowledge of Kitty Hawk, Kitty Hawk and each
of its Subsidiaries are in compliance with all applicable
Environmental Laws and none of Kitty Hawk nor any of its Subsidiaries
have received any written communication from any Person that alleges
that Kitty Hawk or any of its Subsidiaries are not in compliance with
applicable Environmental Laws, in each case except as would not
reasonably be expected to have a Material Adverse Effect on Kitty
Hawk.
(b) There is no Environmental Claim pending or, to the
Knowledge of Kitty Hawk, overtly threatened (i) against Kitty Hawk or
any of its Subsidiaries, (ii) against any Person whose liability for
any Environmental Claim Kitty Hawk or any of its Subsidiaries have
retained or assumed either contractually or, to the Knowledge of Kitty
Hawk, by operation of law, or (iii) against any real or personal
property or operations which are now or, to the Knowledge of Kitty
Hawk, have been previously owned, leased, operated or managed, in
whole or in part, based on activities conducted by Kitty Hawk or any
of its Subsidiaries.
4.3.20 Aviation Act; Aircraft; Assets.
(a) Kitty Hawk's wholly owned subsidiary Kitty Hawk
Aircargo, Inc. is an air carrier operating under one or more
Certificate of Public Convenience and Necessity issued by the DOT
under the Aviation Act and holding an air carrier operating
certificate and operations specifications issued pursuant to Part 119
(formerly 121) of the Federal Aviation Regulations issued by the FAA
under the Aviation Act (collectively such certificates are called the
"KITTY HAWK OPERATING AUTHORIZATIONS"), which Kitty Hawk Operating
Authorizations are in full force and effect, and Kitty Hawk is
operating in compliance with all rules and regulations of the FAA, the
DOT, the Kitty Hawk Operating Authorizations and of any foreign
government or quasi-government entity, except where the failure to
maintain such Kitty Hawk Operating Authorizations or comply with such
rules and regulations would not reasonably be expected to have a
Material Adverse Effect on Kitty Hawk and its Subsidiaries on a
combined basis. Kitty Hawk does not operate under any orders pursuant
to the Essential Air Service Program for the DOT.
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(b) All aircraft owned or "dry" leased by Kitty Hawk are
in sound operating condition and are being maintained in all material
respects, where applicable, according to FAA regulatory standards,
Kitty Hawk's FAA-authorized maintenance program and all other
applicable laws, except where the failure to maintain such Kitty Hawk
Operating Authorizations or comply with such rules and regulations
would not have a Material Adverse Effect on Kitty Hawk. A list of all
aircraft now owned, leased or in the possession and control of Kitty
Hawk is set forth on the Disclosure Schedule.
4.3.21 No Insolvency. Neither Kitty Hawk nor any of its
Subsidiaries is "insolvent" (as defined in the United States Bankruptcy Code,
11 U.S.C. Section 101 et seq.); Kitty Hawk and each of its Subsidiaries is
able to pay its debts as they come due and has capital sufficient to carry on
its business.
4.3.22 Articles of Incorporation and Bylaws. Not later than
fourteen (14) days after the date to this Agreement, Kitty Hawk shall deliver
to Kalitta and the Kalitta Companies true and complete copies of its
certificate of incorporation and bylaws. Such certificate of incorporation
and bylaws were duly adopted and are in full force and effect, and there are no
amendments or modifications thereto except as included in said certificate of
incorporation and bylaws.
4.3.23 No Appraisal Rights. The stockholders of Kitty Hawk
will not be entitled to exercise appraisal rights in connection with, or as a
result of, any of the transactions contemplated in this Agreement.
4.3.24 Taxes. Kitty Hawk has duly and timely filed all Tax
Returns related to Kitty Hawk heretofore due, and all such Tax Returns are
correct, accurate and complete in all material respects. Kitty Hawk has paid
all Taxes that have become due pursuant to those Tax Returns.
4.4 Representations and Warranties as to Subs. To induce Kalitta
and the Kalitta Companies to enter into this Agreement and to consummate the
transactions contemplated hereby, Kitty Hawk and the Subs, jointly and
severally, represent and warrant to Kalitta and the Kalitta Companies as of the
date hereof as follows (each such representation and warranty being qualified
in its entirety by the disclosures set forth (a) in the Disclosures Schedule of
Kitty Hawk or (b) in the SEC Documents filed with the SEC on or prior to the
date of this Agreement):
4.4.1 Corporate Existence and Authority. Each Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. Each of the Subs has all requisite corporate
power and authority to own its properties and assets and to carry on its
business as it has been and is being conducted. Each of the Subs is qualified
to do business as a foreign corporation and is in good standing in each state,
nation or other jurisdiction listed in the Disclosure Schedule, being each
state, nation or other jurisdiction wherein the character of the properties
owned or held under lease by it or the nature of the business transacted by it
makes such qualification necessary, except for any state, nation or other
jurisdiction where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect on Kitty Hawk.
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4.4.2 Capitalization of the Subs. The authorized capital
stock of each Sub consists solely of 60,000 shares of common stock, of which
1,000 shares are issued and outstanding. No other shares of capital stock of
the Subs are issued and outstanding. On the date hereof all the issued and
outstanding shares of capital stock of the Subs are held solely by Kitty Hawk,
free and clear of any Lien. All of the issued and outstanding shares have been
duly and validly issued in accordance and compliance with all applicable laws,
rules and regulations and are fully paid and nonassessable. There are no
securities, options, warrants, rights, calls, commitments, plans, contracts or
other agreements of any character granted or issued by any of the Subs which
provide for the purchase, issuance or transfer of any shares of the capital
stock of any of the Subs, nor are there any outstanding securities granted or
issued by any of the Subs that are convertible into or exchangeable for any
shares of the capital stock of any of the Subs, and none are authorized.
4.4.3 Validity and Authorization; Corporate Power and
Authority. The Subs have full corporate power and authority to execute,
deliver and perform this Agreement, the Related Agreements and the other
instruments called for by this Agreement to which they are or are to be a
party. This Agreement has been duly authorized, executed and delivered by each
of the Subs and constitutes the legal, valid and binding obligation of each of
the Subs, enforceable against the Subs in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting enforcement of creditors' rights
generally and by general principles of equity (whether applied in a proceeding
at law or in equity). When the Related Agreements and the other instruments
called for by this Agreement to which any of the Subs are a party are executed
and delivered at the Closing, such Related Agreements and instruments will have
been duly authorized, executed and delivered by the Sub, and will constitute
the legal, valid and binding obligations of the Subs, enforceable against the
respective Sub in accordance with their terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting enforcement of creditor's rights generally, and by
general principles of equity (whether applied in a proceeding at law or in
equity).
4.4.4 Execution; No Violations. The execution and delivery
of this Agreement by each of the Subs does not, and the consummation by each of
the Subs of the transactions contemplated hereby will not: (a) violate,
conflict with, modify or cause any default under or acceleration of (or give
any party any right to declare any default or acceleration upon notice or
passage of time or both), in whole or in part, any article of incorporation,
bylaw, Lien, indenture, lease, agreement, instrument, order, injunction, decree
or judgment, to which any of the Subs are a party or by which any of them or
any of their properties is bound; (b) result in the creation of any Lien on any
property or asset (whether real, personal, mixed, tangible or intangible), of
any of the Subs; (c) violate any law, rule or regulation applicable to any of
the Subs; or (d) permit any federal or state regulatory agency to impose any
restrictions or limitations of any nature on any of the Subs or any of their
respective activities, except in each case as would not reasonably be expected
to have a Material Adverse Effect on Kitty Hawk.
4.4.5 Governmental and Other Consents. Except for filings
under the HSR Act, approval by the DOT of the deemed "de facto" transfer of the
foreign air transportation authority issued to AIA and KFS and the filing of
certificates of merger as contemplated by
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Section 1.3 hereof, no consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is required on the part
of Subs in connection with the execution or delivery of this Agreement, the
Related Agreements or the consummation by the Subs of the transactions
contemplated hereby and thereby, except as would not reasonably be expected to
have a Material Adverse Effect on Kitty Hawk.
The Disclosure Schedule lists all material consents, approvals or
authorizations of third Persons, required in connection with each Subs' valid
execution, delivery or performance of this Agreement and the Related Agreements
or the consummation of any of the transactions contemplated hereby or thereby
on the part of any of them (collectively, the "SUBS CONSENTS"), except in each
case, as would not reasonably be expected to have a Material Adverse Effect on
Kitty Hawk.
4.5 Disclosure Schedules. If, subsequent to the date of this
Agreement and prior to the date of Closing, an event occurs that renders untrue
any representation or warranty of a party made herein (a "SUBSEQUENT EVENT"),
such party shall promptly deliver to the other parties an amended or
supplemental disclosure schedule (a "SUBSEQUENT DISCLOSURE SCHEDULE") which
will contain a description of the Subsequent Event. The existence of a
Subsequent Event which is disclosed on a Subsequent Disclosure Schedule shall
not constitute a Breach by such party of any of its representations or
warranties hereunder or be taken into account in determining whether the
condition precedents set forth in Section 6.1.1 or 6.2.1 has been satisfied or
form a basis for any indemnification or other claim by the other parties
hereunder; provided, however, that all matters therein disclosed, together with
all other events, circumstances and occurrences (including Subsequent Events,
if any), may be taken into account by the other parties in determining whether
the condition set forth in Section 6.1.7 or 6.2.7 has been satisfied; and
provided, further, that this Section is not intended to permit a party to alter
or amend its representations and warranties as made herein as of the date of
this Agreement, including any Disclosure Schedule, and any Subsequent
Disclosure Schedule provided by any party pursuant to this Section shall not
cure the inaccuracy thereof as of the date of this Agreement for any purpose
under this Agreement.
Disclosure of any fact or item in any Disclosure Schedule or
Subsequent Disclosure Schedule referred by a particular Section shall, should
the existence of the fact or item or its contents be relevant to any other
Section, be deemed to be disclosed with respect to such other Section(s)
whether or not an explicit cross reference appears and whether or not the
Section(s) make reference to any Schedule. The disclosure of any particular
fact or item in any Disclosure Schedule or Subsequent Disclosure Schedule shall
not be deemed any admission as to whether the fact or item is "material" or
would constitute a "Material Adverse Effect".
ARTICLE V
COVENANTS
5.1 Mutual Covenants. To induce the other parties to enter into
this Agreement and to consummate the transactions contemplated hereby, and
without limiting any covenant, agreement, representation or warranty made
elsewhere in this Agreement, each of the Kalitta Companies agree, as to itself
and, in the case of AIA, as to AIC, and each of Kitty Hawk and the Subs agrees
as to itself and, in the case of Kitty Hawk, as to its Subsidiaries and the
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Subs, that between the date of this Agreement and the earlier of the Effective
Time or the termination of this Agreement pursuant to Article VIII, except as
may be consented to by the other parties or as otherwise contemplated by this
Agreement (including the Permitted Transactions), as follows:
5.1.1 Access and Information. Each party will, and AIA
will cause AIC, and Kitty Hawk will cause the Subsidiaries, to (a) provide the
other parties and their Representatives, during normal business hours, or
otherwise if another party reasonably requests, and upon reasonable advance
notice, access to all of the properties, assets, agreements, commitments,
books, records, accounts, Tax Returns, correspondence and documents of such
party and permit them to make copies thereof; (b) furnish the other parties and
their Representatives with all information concerning the business, properties
and affairs of such party, and, in the case of AIA, AIC or, in the case of
Kitty Hawk, the Subsidiaries, as the other parties reasonably request; (c) use
commercially reasonable efforts to cause its accountants to make available to
the other parties and their representatives all financial information relating
to such party, and, in the case of AIA, AIC or, in the case of Kitty Hawk, the
Subsidiaries, including all working papers pertaining to audits and reviews
made heretofore by such auditors; (d) furnish the other parties true and
complete copies of all financial and operating statements of such party, and,
in the case of AIA, AIC, or, in the case of Kitty Hawk, the Subsidiaries; (e)
permit access to customers and suppliers for consultation or verification of
any information; and (f) cause its employees, and use commercially reasonable
efforts to cause its accountants, to cooperate fully with any audit, review,
investigation or examination made by the other party and its representatives,
including, without limitation, with respect to:
(i) The books and records of such party, and, in
the case of AIA, AIC, or, in the case of Kitty Hawk, the
Subsidiaries;
(ii) The reports of state and federal regulatory
examinations;
(iii) Leases, contracts and commitments between
such party, and, in the case of AIA, AIC, or, in the case of
Kitty Hawk, the Subsidiaries, on the one hand, and any other
Person, on the other hand;
(iv) Physical examination of any real properties
owned by, or leased to or by such party, and, in the case of
AIA, AIC, or, in the case of Kitty Hawk, the Subsidiaries; and
(v) Physical examination of any furniture,
fixtures, equipment (including aircraft and engines) or other
personal property owned by or leased to or by such party, and,
in the case of AIA, AIC, or, in the case of Kitty Hawk, the
Subsidiaries.
5.1.2 Notices and Approvals. Each party agrees: (a) to
give all notices to third parties which may be necessary in connection with
this Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby; (b) to use such party's commercially
reasonable efforts to obtain all federal, state and foreign governmental and
quasi-governmental approvals, consents, permits, authorizations and orders
necessary in connection with this Agreement, the Related Agreements and the
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consummation of the transactions contemplated hereby and thereby; and (c) to
use such party's commercially reasonable efforts to obtain all consents and
authorizations of any governmental or quasi-governmental authorities or other
Persons necessary in connection with this Agreement, the Related Agreements and
the consummation of the transactions contemplated hereby and thereby. At least
five (5) Business Days prior to the submission of any application with respect
to any of the foregoing approvals, consents, permits, authorizations and
orders, such party shall deliver a copy thereof to the other party. In the
event the other party shall reasonably request any change or modification in
the form or content of any such application, such submitting party shall make
such change or modification and submit the application as modified or changed.
5.1.3 Conduct of Business. Unless otherwise expressly
contemplated hereby (including the Permitted Transactions) or approved in
writing by the other party, each party agrees that the businesses and
operations of such party, and, in the case of AIA, AIC, or, in the case of
Kitty Hawk, the Subsidiaries, shall be conducted only in, and such party shall
not take any material action except in, the ordinary course of business and
consistent with past practice (which both parties acknowledge includes the
purchase, sale or lease of aircraft engines and parts consistent with past
practice). Without limitation, each party, and, in the case of AIA, AIC, or,
in the case of Kitty Hawk, the Subsidiaries, shall not take, nor enter into any
agreements to take, any of the following actions except in each such case in
connection with this Agreement (including the Permitted Transactions) or, in
the case of actions described in clauses (a) - (c) of this Section 5.1.3, in
the ordinary course of business: (a) dispose of, or acquire, any material
assets, other than the Permitted Transactions, (b) incur any indebtedness for
borrowed money, (c) pay any discretionary bonuses (other than bonuses already
accrued on the date hereof) to, or alter the compensation or benefit of, any
director, officer or employee, (d) enter into any transaction or agreement with
any Affiliate, Associate (as defined in Rule 405 under the Securities Act) or,
with respect to Kalitta, a Family Member of such party, (e) institute any
reduction in force, (f) close any office, base or station, (g) take any action
not in the ordinary course of business that will knowingly cause any of such
party's representations or warranties to be untrue or incorrect in any material
respect, (h) omit any commercially reasonable action that such party would take
in the ordinary course of business, which omission will knowingly cause any of
such party's representations or warranties to be untrue or incorrect in any
material respect, (i) declare or pay any dividends on, or make any distribution
or payment with respect to, or redeem or repurchase, any shares of capital
stock of any of such party or take any other actions which would have a similar
effect or (j) issue any shares of capital stock of such party or subsidiaries
(other than pursuant to Kitty Hawk's existing employee benefit plans) or any
securities, options, warrants, rights, calls, commitments, plans, contracts or
other agreements of any character whatsoever which provide for the purchase,
issuance or transfer of any shares of capital stock, or any securities that are
convertible into or exchangeable for any shares of capital stock or increase or
decrease, change into or exchange any such shares for a different number or
kind of shares or securities through a reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
similar change in capitalization. Notwithstanding the foregoing, AIC shall be
permitted to make distributions of gross profit to its co-partners in
accordance with the AIC Partnership Agreement in amounts consistent with past
practice.
5.1.4 Proceedings. Each party shall promptly notify the
other party of any material Proceedings that are threatened in writing or
commenced against such party, and,
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in the case of AIA, AIC, or, in the case of Kitty Hawk, any of the
Subsidiaries, or their employees, consultants, officers or directors which may
relate to, or affect, the business, assets or liabilities of such party, and,
in the case of AIA, AIC, or, in the case of Kitty Hawk, any the Subsidiaries.
Such party shall not and, in the case of AIA, shall not permit AIC, or, in the
case of Kitty Hawk, the Subsidiaries, to knowingly fail to comply in any
material respect with any laws, regulations, ordinances, orders, injunctions
and decrees applicable to them, their properties, and the conduct of their
respective businesses.
5.1.5 Repairs; FAA Compliance. Each party shall maintain,
preserve and protect the operating aircraft and engines used in the conduct of
the business of such party, or, in the case of AIA, AIC or, in the case of
Kitty Hawk, any of the Subsidiaries, and keep the same in compliance in all
material respects with applicable FAA airworthiness directives, rules,
regulations and orders and such party's FAA-approved maintenance program except
as determined in the good faith exercise of such party's business judgment.
Each party shall comply with any Consent Order and Settlement Agreement to
which it and the FAA are parties.
5.1.6 Reports and Returns. Each party shall and, in the
case of AIA, shall cause AIC or, in the case of Kitty Hawk, shall cause the
Subsidiaries to, duly and timely file all reports and returns required to be
filed with federal, state, local and other authorities prior to Closing,
including without limitation any Tax Returns, which reports and returns shall
be prepared in accordance with all regulatory requirements in all material
respects. Each party shall promptly pay all Taxes and other quasi-governmental
charges levied or assessed upon such party, and, in the case of AIA, AIC, or,
in the case of Kitty Hawk, any of the Subsidiaries, or their respective
properties prior to the date on which penalties attach thereto and all lawful
claims which, if unpaid when due and payable, might become a Lien upon property
of such party, and, in the case of AIA, AIC, or, in the case of Kitty Hawk, the
Subsidiaries, except Permitted Liens. Each party shall duly and timely make
all deposits required of such party, and, in the case of AIA, AIC, or, in the
case of Kitty Hawk, the Subsidiaries, with respect to any Taxes (including,
without limitation, employee withholding Taxes).
5.1.7 Assist in Obtaining Licenses, Etc. Each party shall
reasonably assist the other party in obtaining all permits, licenses and
authorizations necessary for the continued operation of the Kalitta Companies
at and after the Effective Time.
5.1.8 Consents. The Kalitta Companies shall use their
commercially reasonable efforts to obtain the Kalitta Consents, and Kitty Hawk
shall use its commercially reasonable efforts to obtain the Kitty Hawk
Consents.
5.1.9 Insurance. The Kalitta Companies and Kitty Hawk
shall continue in force all existing insurance now carried by such party.
5.1.10 Preservation of Business. Each party shall use its
commercially reasonable efforts to preserve and keep intact its business and
the business of, in the case of AIA, AIC, or, in the case of Kitty Hawk, the
Subsidiaries, to retain its officers, and to preserve the goodwill of its key
employees, and material customers, suppliers and other Persons having business
relations with such party.
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5.1.11 Tax Treatment. Each of Kalitta and Kitty Hawk will
use his or its commercially reasonable efforts to cause the AIA Merger, the AIT
Merger, the FOL Merger and the OK Merger to qualify as reorganizations under
the provisions of Section 368 of the Code and to deliver, in connection with
the opinions referred to in Section 6.2.12, letters of representation
reasonable under the circumstances as to his or its intentions and knowledge.
5.1.12 Other Covenants. Each party shall use its
commercially reasonable efforts to satisfy the conditions to the obligations of
the parties hereunder within such party's reasonable control, and to consummate
and make effective as promptly as practicable the transactions provided for
herein including but not limited to the following:
(a) Defending the Agreement. Defending Proceedings
challenging this Agreement or any Related Agreement or the
consummation of the transactions provided for in this Agreement or any
Related Agreement;
(b) Lifting Injunctions. Using commercially reasonable
efforts to lift or rescind any injunction, restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions provided for in this Agreement or any Related Agreement;
and
(c) Other Actions. Taking such other reasonable actions
that are necessary, appropriate or advisable.
5.2 Kalitta and the Kalitta Companies Covenants. To induce the
other parties to enter into this Agreement and to consummate the transactions
contemplated hereby, and without limiting any covenant, agreement,
representation or warranty made elsewhere in this Agreement, Kalitta and each
of the Kalitta Companies (as to itself) agree that between the date of this
Agreement and the earlier of the Effective Time or termination of this
Agreement pursuant to Article VIII, except as may be consented to by the other
parties or as otherwise contemplated by this Agreement, as follows:
5.2.1 Information for Kitty Hawk's Statements, Reports,
Applications and SEC Filings. Kalitta and the Kalitta Companies will, and the
Kalitta Companies shall use commercially reasonable efforts to cause AIC and
the employees, accountants and attorneys of any of AIC or the Kalitta Companies
(collectively, the "KALITTA GROUP") to cooperate fully with Kitty Hawk and its
employees, accountants and attorneys in the preparation of (i) any statements,
reports and applications, (ii) the SEC Filings and (iii) the Debt Offering
Documents, in each case, made by Kitty Hawk and, in the case of (i) and (ii),
filed with any federal, state or foreign governmental regulatory agency or
quasi- governmental authority in connection with this Agreement, the Related
Agreements, the Closing Date Financings and the transactions contemplated
hereby and thereby and furnish Kitty Hawk with all information concerning the
Kalitta Companies and AIC necessary or reasonably deemed desirable by Kitty
Hawk for inclusion in such statements, reports, applications, SEC Filings, and
Debt Offering Documents, including, without limitation, all requisite financial
statements and schedules. At the time any such statement, report, application
or SEC Filing is filed or, with respect to the Debt Offering Documents or the
SEC Filings, the consummation of the Closing Date Financings, or the SEC
Filings are declared effective by the SEC, respectively, the Kalitta Companies
and AIC shall provide Kitty Hawk with a certificate executed by Kalitta (a)
confirming the accuracy in all material respects of the information concerning
the
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Kalitta Companies or AIC that is contained in such statement, report, or
application, (b) acknowledging that such information is supplied by the Kalitta
Companies or AIC to Kitty Hawk expressly for inclusion in such statement,
report, application and (c) in the case of the SEC Filings or the Debt Offering
Document, identifying the information expressly provided for inclusion in the
SEC Filings or the Debt Offering Document, as described in Sections 4.1.30 or
4.3.9. In furtherance thereof, the Kalitta Group shall actively participate at
the expense of the Kalitta Companies in the drafting of all sections of the
Debt Offering Documents and the SEC Filings, and all amendments thereto,
relating to the business, financial condition, management and all related
disclosures concerning Kalitta, the Kalitta Companies and AIC, as shall be
required pursuant to all rules and regulations, including, without limitation,
Regulation C and Regulation S-X, as promulgated under the Securities Act, or as
may be requested by the SEC in any comment letters received by Kitty Hawk (one
copy of which shall be promptly furnished by Kitty Hawk to the Kalitta
Companies).
5.2.2 No Solicitation or Negotiation.
(a) Except for the Kalitta Companies Permitted
Transactions, none of Kalitta, the Kalitta Companies nor AIC will
solicit, discuss, negotiate or agree to (i) the sale of any stock or
other equity interest in any of the Kalitta Companies or AIC, except
to Kitty Hawk, (ii) a merger, consolidation or combination of any
material asset or business, or any share exchange, of any of the
Kalitta Companies or AIC, except to Kitty Hawk, or (iii) a sale or
disposition of any of the business or operating aircraft assets of any
of the Kalitta Companies or AIC.
(b) The Kalitta Companies will give prompt notice to
Kitty Hawk if any of them receives any communication from any Person
not a party to this Agreement that proposes any discussion,
negotiation or agreement prohibited under Section 5.2.2(a).
(c) Except for Kitty Hawk Permitted Transactions, until
December 31, 1997, Kitty Hawk will not agree (i) to any merger,
consolidation or combination of any material asset or business or any
share exchange, of Kitty Hawk or (ii) to any acquisition of any
material equity interest in any business entity or any operating
segment of any business entity.
5.2.3 Financial Statements. The Kalitta Companies will
exert their commercially reasonable efforts to obtain from D&T and deliver to
Kitty Hawk such audited and unaudited balance sheets, statements of income,
statements of shareholder's equity and statements of cash flows as Kitty Hawk
may be required to file with the SEC in connection with the SEC Filings (the
"D&T FINANCIAL STATEMENTS") and D&T's consent (the "D&T CONSENT") to Kitty
Hawk's use of the D&T opinions accompanying such audited statements in the SEC
Filings. In addition, the Kalitta Companies shall deliver to Kitty Hawk not
later than the 45th day after the end of each month, financial statements of
the kind described in Section 4.1.6 (Financial Statements) for the month ended
July 31, 1997 and each subsequent month before the Closing.
5.2.4 Payment of Indebtedness of Related Persons. Kalitta
will repay in full prior to Closing all indebtedness, if any, that Kalitta owes
to the Kalitta Companies or AIC, and the Kalitta Companies and AIC will repay
in full prior to Closing all indebtedness, if any, that the Kalitta Companies
or AIC owe to Kalitta.
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5.2.5 Restriction on Transfers. Kalitta shall not, nor
shall Kalitta enter into any agreement to, sell, transfer, pledge, hypothecate,
or dispose of any of the Kalitta Companies Shares other than pursuant to the
Kalitta Companies Permitted Transactions described in clause (n) of the
definition thereof.
5.2.6 Exemptions from Sales Tax. The Kalitta Companies
shall file with appropriate state, local and foreign taxing authorities such
documents, forms and/or requests for exemption that are reasonably requested by
Kitty Hawk as necessary or appropriate to cause the transactions contemplated
hereby to be exempt from sales Tax.
5.2.7 Office Lease.
(a) Until the Effective Time, Kalitta shall cause the
Landlord to (i) not amend the Office Lease or sell or lease the Office
Premises or the Adjoining Lots, (ii) comply timely with all its
obligations under and not modify, or consent to a modification of, the
Office Mortgage and (iii) not grant, modify or restrict or consent to
any grant, modification or restriction of, any rights of the Landlord
in the Office Premises or Adjoining Lots.
(b) Prior to October 31, 1997, Kitty Hawk will obtain an
appraisal of the fair market rental value of the Office Premises from
a certified real estate appraiser selected by Kitty Hawk with the
consent of Kalitta (which consent shall not be unreasonably withheld)
and will by notice to Kalitta and AIA propose a modification to the
Office Lease (a "LEASE-MODIFICATION PROPOSAL") to reflect the fair
market value rental rate as set forth in such appraisal.
(c) If Kitty Hawk makes a timely Lease-Modification
Proposal, Kalitta shall use commercially reasonable efforts to cause
the Landlord to either (i) accept the Lease-Modification Proposal by
written notice to Kitty Hawk and AIA no later than the Effective Time,
in which case the Office Lease will ipso facto be modified in
accordance with the Lease-Modification Proposal or (ii) terminate the
Office Lease to be effective thirty (30) days after the Effective Time
without termination penalty or damages, or further rent, indemnity or
other tenancy obligations thereunder by AIA or any Person; provided,
the Office Lease will automatically terminate thirty (30) days after
the Effective Time without termination penalty or damages, or further
rent, indemnity or other tenancy obligations thereunder by AIA or any
Person if the Landlord fails to take either of the actions set forth
in clause (i) or clause (ii).
5.2.8 Sale of Racing Assets. On or before the Effective
Time, Kalitta and the Kalitta Companies shall cause all of the personal
property assets of the Kalitta Companies used exclusively in their promotional
drag racing activities, including, without limitation, racing vehicles,
transport vehicles, testing equipment, supplies, tools, insurance policies and
materials to be purchased by an existing or newly formed entity that is not
Affiliated (other than through Kalitta) with the Kalitta Companies (the "RACING
ENTITY"), for a price of $350,000 pursuant to an asset purchase agreement
between the Kalitta Companies and the Racing Entity, the form of which is
attached as Exhibit 5.2.8 (the "RACING ENTITY PURCHASE AGREEMENT"). The
Kalitta Companies shall terminate all of the employees of the Kalitta Companies
employed exclusively in the operation of such drag racing activities as of the
date
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of such asset sale without cost (other than accrued salaries and wages payable
consistent with past practice) to the Kalitta Companies. The Kalitta Companies
shall terminate without cost to them any existing, and shall not enter into
any, contracts with the Racing Entity other than the Racing Entity Purchase
Agreement.
5.2.9 Commercially Reasonable Efforts. The Kalitta
Companies shall use their commercially reasonable efforts to obtain (a) the D&T
Consent, (b) the purchase contracts related to two (2) the MEA 747s and the MEA
747 described in Section 6.1.13, and (c) the tax opinions described in Section
6.2.12.
5.2.10 Life Insurance Policy. AIA shall change, at no cost
to AIA, the beneficiary of three existing life insurance policies on the life
of Kalitta and ownership to a designee of Kalitta and Kalitta shall reimburse
AIA the amount of the unearned premium relating to such life insurance policy.
5.2.11 Assurances to Cooperate with SEC Filings. Each of
the Kalitta Companies and, except for the covenants in Section 5.2.11(a),
Kalitta shall (a) execute and deliver to the representatives of the several
underwriters, such indemnification agreements as may be reasonably required by
the representative of the several underwriters (as are traditional in
securities offerings) in connection with disclosures contained in SEC Filings,
as amended, relating to them; (b) use their commercially reasonable efforts to
cause the Kalitta Companies' auditors to deliver such "cold comfort" and
related letters as the representatives of the several underwriters may require
in the underwriting agreement concerning financial and other numerical
disclosures contained in the SEC Filings and all exhibits and schedules
thereto; and (c) furnish all documents and other agreements which counsel for
Kitty Hawk may reasonably require or request to be filed as exhibits to the SEC
Filings, as amended from time to time, or supplemental information provided to
the SEC.
5.2.12 Other Covenants. Kalitta shall use his commercially
reasonable efforts to satisfy the conditions to the obligations of the parties
hereunder within his reasonable control, and to consummate and make effective
as promptly as practicable the transactions provided for herein. Kalitta shall
use his commercially reasonable efforts to obtain the Kalitta Consents.
5.3 Kitty Hawk Covenants. To induce the other parties to enter
into this Agreement and to consummate the transactions contemplated hereby, and
without limiting any covenant, agreement, representation or warranty made
elsewhere in this Agreement, Kitty Hawk agrees that between the date of this
Agreement and the earlier of the Effective Time or termination of this
Agreement pursuant to Article VIII, except as may be consented to by the other
parties or as otherwise contemplated by this Agreement, as follows:
5.3.1 Kitty Hawk Financing. Kitty Hawk intends to engage
certain nationally recognized investment banking firms to act as co-managing
underwriters in connection with a contemplated securities offering of debt
securities and Kitty Hawk Common Stock (including Kitty Hawk Common Stock for
the account of Christopher) (the "CLOSING DATE FINANCINGS"). The proceeds of
such Closing Date Financings, if consummated, shall be used to pay Kalitta the
KFS Cash Merger Consideration (which KFS Cash Merger Consideration shall be
payable solely from the sale of Kitty Hawk Common Stock) and to repay
outstanding indebtedness of Kitty Hawk and the Kalitta Companies on the Closing
Date, other than any
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indebtedness under certain existing credit facilities with Wells Fargo Bank
(Texas) N.A. and Bank One Texas N.A. to be described in the SEC Filings. Kitty
Hawk shall use its commercially reasonable efforts to consummate the Closing
Date Financings as promptly as practicable.
5.3.2 Assurances to Cooperate with SEC Filings. Kitty Hawk
shall (a) execute and deliver to the representatives of the several
underwriters, such indemnification agreements as may be reasonably required by
the representative of the several underwriters (as are traditional in
securities offerings) in connection with disclosures contained in SEC Filings,
as amended, relating to it and (b) use its commercially reasonable efforts to
cause Kitty Hawk's auditors to deliver such "cold comfort" and related letters
as the representatives of the several underwriters may require underwriting
agreement concerning financial and other numerical disclosures contained in the
SEC Filings and all exhibits and schedules thereto.
5.3.3 GM Waiver. Kitty Hawk shall use its commercially
reasonable efforts to obtain the waiver (the "GM WAIVER") of GM to Paragraph 4
of the Agreement between GM and Kitty Hawk Aircargo, Inc. dated June 4, 1990
and as amended by letter between GM and Kitty Hawk Aircargo, Inc. dated October
26, 1994.
5.3.4 SEC Confirmation. Kitty Hawk shall use its
commercially reasonable efforts to obtain as soon as practicable the
confirmation from the SEC as may be necessary to satisfy the condition set
forth in Section 6.1.16.
5.4 Covenants of Christopher. To induce the other parties to
enter into this Agreement and to consummate the transactions contemplated
hereby, and without limiting any covenant, agreement, representation or
warranty made elsewhere in this Agreement, Christopher agrees that between the
date of this Agreement and the earlier of the Effective Time or the termination
of this Agreement pursuant to Article VII, except as may be consented to by the
other parties or as otherwise contemplated by this Agreement, as follows:
5.4.1 Restrictions on Transfer. Christopher shall not, nor
shall Christopher enter into any agreement to, sell, transfer, pledge,
hypothecate, or dispose of any Kitty Hawk Common Stock except as contemplated
in connection with the Closing Date Financings.
5.4.2 Repayment of Indebtedness. Christopher will repay in
full prior to Closing all indebtedness, if any, that Christopher owes to Kitty
Hawk or any Subsidiary, and Kitty Hawk and any Subsidiary will repay in full
prior to Closing all indebtedness, if any, that Kitty Hawk owes to Christopher.
5.4.3 Assurances to Cooperate with SEC Filings.
Christopher shall execute and deliver to the representatives of the several
underwriters, such indemnification agreement as may be reasonably required by
the representative of the several underwriters (as are traditional in
securities offerings) in connection with disclosures contained in SEC Filings
relating to Christopher.
5.4.4 Other Covenants. Christopher shall use his
commercially reasonable efforts to satisfy the conditions to the obligations of
the parties hereunder within his reasonable control, and to consummate and make
effective as promptly as practicable the transactions provided for herein.
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5.5 Certain Covenants Relating to the Governance of Kitty Hawk after
the Effective Time. To induce the other parties to enter into this Agreement
and to consummate the transactions contemplated hereby, and without limiting
any covenant, agreement, representation or warranty made elsewhere in this
Agreement, Christopher, Kalitta and Kitty Hawk agree as follows:
5.5.1 Electing the Initial Board. At or prior to the Effective
Time, Christopher and Kitty Hawk shall use commercially reasonable efforts to
cause (a) Kitty Hawk's Bylaws to be amended on or prior to the Effective Time
to provide that the number of directors comprising the full Board of Directors
of Kitty Hawk at the Effective Time will be seven (7) and shall be comprised of
Christopher and two (2) Christopher Designees, Kalitta and two (2) Kalitta
Designees and a Joint Designee, and (b) if such persons (other than existing
members of the Board of Directors and Kalitta, who shall be deemed to so
consent by his execution of this Agreement) have consented in writing to serve
as members of the Board of Directors and to being named as a director in the
SEC Filings and any other filings to be made with the SEC, the persons named in
Exhibit 5.5.1 to be elected to the Board of Directors at the Effective Time to
serve in the classes as indicated in Exhibit 5.5.1 and (c) the Bylaws of Kitty
Hawk to be amended on or prior to the Effective Time to provide that the Bylaw
provisions concerning the number and classification of directors may be amended
or repealed prior to the end of the 36-month period commencing with the
Effective Time only by the affirmative vote of 70% of the members of the entire
Board of Directors or the holders of 75% of the outstanding Kitty Hawk Common
Stock. If prior to the Effective Time, any of the persons named in Exhibit
5.5.1 declines or is unable to serve as a director of Kitty Hawk, his
substitute shall be chosen before the Effective Time using the procedure set
forth in Sections 5.5.2 and Section 5.5.3, with Christopher and Kalitta acting
as the Joint Nominating Committee, if applicable.
5.5.2 Nominating Committees. At or prior to the Effective Time,
Kitty Hawk shall amend its Bylaws to provide that (a) a joint nominating
committee, a Christopher nominating committee and a Kalitta nominating
committee of the Board of Directors of Kitty Hawk shall be created for a
36-month period commencing with the Effective Time, (b) such Joint Nominating
Committee (the "JOINT NOMINATING COMMITTEE") shall consist of Christopher and
Kalitta for so long as each is a director of Kitty Hawk, (c) the Christopher
nominating committee (the "CHRISTOPHER NOMINATING COMMITTEE") shall consist of
Christopher for so long as he is a director of Kitty Hawk, (d) the Kalitta
nominating committee (the "KALITTA NOMINATING COMMITTEE") shall consist of
Kalitta for so long as he is a director of Kitty Hawk and (e) each such
Nominating Committee shall have the powers and duties described in, and be
subject to the applicable provisions concerning notice, quorum, membership and
resolution of deadlock and related provisions of, Sections 5.5.2 and 5.5.3. The
Bylaws shall be further amended at or prior to the Effective Time to provide
that such Joint Nominating Committee shall have the exclusive power on behalf
of the Board of Directors to nominate persons for election as directors of
Kitty Hawk as a Joint Designee and to fill any vacancy of the Joint Designee on
the Board of Directors. The Christopher Nominating Committee shall have the
exclusive power on behalf of the Board of Directors of Kitty Hawk to nominate
Christopher and persons for election as directors of Kitty Hawk as Christopher
Designees and to fill vacancies on the Board of Directors vacated by
Christopher
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Designees, and the Kalitta Nominating Committee shall have the exclusive power
on behalf of the Board of Directors to nominate Kalitta and persons for
election as directors of Kitty Hawk as Kalitta Designees and to fill vacancies
on the Board of Directors vacated by the Kalitta Designees. The Bylaws shall be
amended prior to the Effective Time to provide that the Bylaw provisions
described in this Section 5.5 may be amended or repealed only by the
affirmative vote of 70% of the members of the entire Board of Directors or the
holders of 75% of the outstanding Kitty Hawk Common Stock.
During the 36-month period commencing with the Effective Time, but
subject to Section 5.5.5, and except as otherwise agreed in writing by the
Requisite Christopher Stockholders and the Requisite Kalitta Stockholders, each
of the Stockholders shall, and shall cause each of such Stockholder's
Affiliates to, (i) vote (or act by written consent with respect to ) any shares
of Kitty Hawk Common Stock and other Kitty Hawk voting securities each
Beneficially Owns (x) for the nominee of the Joint Nominating Committee for
election as a director of Kitty Hawk as a Joint Designee (or the nominee as a
Joint Designee of the entire Board of Directors in accordance with the Bylaws
if the Joint Nominating Committee cannot agree within ten (10) days as
contemplated in Section 5.5.3 below) and against removal except for cause, (v)
for Christopher and the nominees of the Christopher Nominating Committee for
election as a director of Kitty Hawk as a Christopher Designee and against
removal except for cause and (z) for Kalitta and the nominees of the Kalitta
Nominating Committee for election as a director of Kitty Hawk as a Kalitta
Designee and against removal except for cause and (ii) not vote (or act by
written consent with respect to) any shares of Kitty Hawk Common Stock or other
Kitty Hawk voting securities each Beneficially Owns in favor of any person to
serve as a director of Kitty Hawk unless such person has been so nominated.
The Joint Nominating Committee, the Christopher Nominating
Committee and the Kalitta Nominating Committee shall nominate the persons named
on Exhibit 5.5.1 for re-election when their terms expire unless such person is
unable or unwilling to serve or if such person has been removed for cause. For
the purposes of this Section 5.5.2, "cause" shall have the meaning set forth in
the Certificate of Incorporation of Kitty Hawk.
In the case of the Joint Nominating Committee, the presence,
either telephonically or in person, of both members of the Joint Nominating
Committee shall constitute a quorum for the transaction of business and
meetings may be called on two (2) days' written notice given in accordance with
the Bylaws of Kitty Hawk by either member.
5.5.3 Deadlock Resolution at the Joint Nominating Committee. The
Bylaws of Kitty Hawk shall be amended at or prior to the Effective Time to
provide that if the Joint Nominating Committee does not agree on the selection
of (a) a nominee to serve as a member of the Board of Directors as a Joint
Designee to be elected at a meeting of the stockholders of Kitty Hawk or (b) an
individual to fill a vacancy on the Board of Directors as a Joint Designee,
then either member of the Joint Nominating Committee may by written notice to
the other member require such nominee or vacancy to be selected or filled,
respectively, at a meeting of the Board of Directors called by such member in
accordance with the Bylaws of Kitty Hawk at any time after the tenth day
following the receipt of notice of the first meeting of the Joint Nominating
Committee called for the express purpose of selecting such nominee or filling
such vacancy. Any individual selected by the Board of Directors to serve as a
member of the Board of Directors as a Joint Designee, if the Joint Nominating
Committee
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is unable to agree upon a nominee or a person to fill a vacancy, must (a) not
be a Family Member of either Christopher or Kalitta, (b) not be a former or
current employee of any Kalitta Company or AIA, Kitty Hawk, the Subs or the
Subsidiaries, (c) have within the preceding sixty (60) months been a director,
chief financial officer, or chief executive officer of a company listed on the
New York Stock Exchange or the American Stock Exchange or quoted on the NASDAQ
Stock Market's National Market System and (d) be a citizen of the United
States. If the person so chosen by the Board of Directors declines or is unable
to serve, then either member of the Joint Nominating Committee may call a
meeting of the Nominating Committee to choose another person to serve as a
director of Kitty Hawk (in which case all of the provisions of this Section
5.5.3 shall again apply).
5.5.4 Officers. (a) The Bylaws of Kitty Hawk shall be amended at
or prior to the Effective Time to provide (i) that, until the first anniversary
of the Effective Time, the Chairman of the Board and Chief Executive Officer
(the "CHIEF EXECUTIVE OFFICER") shall be elected exclusively by the
stockholders and shall serve as the chief executive officer of Kitty Hawk and,
subject to the supervision of the Board of Directors, shall have the general
management and control of Kitty Hawk and its subsidiaries (including the right
to vote (except as provided in clause (b) below solely for the one year period
commencing with the Effective Time) the voting securities of the subsidiaries
of Kitty Hawk held by Kitty Hawk on its behalf) and (ii) for the additional
office of Vice Chairman who, until the first anniversary of the Effective Time,
shall be elected exclusively by the stockholders and shall serve as an officer
of Kitty Hawk and shall have the right to vote the voting securities of AIA
until the first anniversary of the Effective Time solely for the purpose of
electing the President of AIA and against his removal except for cause. Until
the first anniversary of the Effective Time, Christopher and Kalitta hereby
agree to vote, and to cause each of his respective Affiliates to vote, all
shares of Kitty Hawk Common Stock and other Kitty Hawk voting securities
Beneficially Owned by him and his respective Affiliates in favor of Christopher
as Chairman of the Board and Chief Executive Officer of Kitty Hawk and Kalitta
as Vice Chairman of Kitty Hawk and against their removal except for cause.
Kitty Hawk hereby agrees to vote, and to cause each of its Affiliates to vote,
all shares of common stock of AIA and any other AIA voting securities
Beneficially Owned by Kitty Hawk and its Affiliates until the first anniversary
of the Effective Time for Kalitta as President of AIA and against his removal
except for cause. The Bylaws of Kitty Hawk shall be amended at or prior to the
Effective Time to provide that the provisions of such Bylaws described in this
Section 5.5.4 may be amended or repealed only by the affirmative vote of 70% of
the members of the entire Board of Directors or holders of 75% of the
outstanding Kitty Hawk Common Stock.
(b) The Amended and Restated Articles of Incorporation and Bylaws of
AIA to be in effect at the Effective Time will provide (i) that, until the
first anniversary of the Effective Time, the person serving as the President of
AIA shall serve as the chief executive officer of AIA and shall have the
general management and control of AIA subject only to supervision of the Chief
Executive Officer of Kitty Hawk. Until the first anniversary of the Effective
Time, Kitty Hawk hereby agrees to vote and to cause each of its Affiliates to
vote (or act by written consent), all shares of common stock of AIA and any
other AIA voting securities Beneficially Owned by Kitty Hawk and its
Affiliates, and Christopher, agrees to vote such shares and voting securities
as Chief Executive Officer of Kitty Hawk for Kalitta as President of AIA and
against any removal of Kalitta as President of AIA except for cause (as defined
in the Articles of Incorporation of AIA) and to refrain from changing any
provisions of the Articles of Incorporation or Bylaws of AIA described in this
Section 5.5.4. The Bylaws of
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Kitty Hawk shall be amended at or prior to the Effective Time to provide that
the President of AIA is to report only to the Chief Executive Officer and that
such provision may be amended or repealed only by the affirmative vote of 70%
of the members of the entire Board of Directors or holders of 75% of the
outstanding Kitty Hawk Common Stock.
5.5.5 Termination of Governance Obligations. The rights and
obligations of the parties set forth in this Section 5.5 shall terminate upon
the earlier of (a) the 36-month anniversary of the Effective Time, (b) the
death, Disability or voluntary resignation as a director of Kitty Hawk of,
either Christopher or Kalitta or (c) the sale of all shares Beneficially Owned
by both Christopher and Kalitta; provided, that in the event of the voluntary
resignation of Kalitta as a director, Kalitta shall remain subject to all of
his obligations to vote shares of Kitty Hawk Common Stock and other voting
securities of Kitty Hawk as provided in this Article V; and, provided further,
that in the event of the voluntary resignation of Christopher as a director,
Christopher and Kitty Hawk shall remain subject to all of its obligations to
vote shares of AIA Common Stock and other voting securities of AIA as provided
in this Article V and Christopher shall remain subject to all of his
obligations to vote shares of Kitty Hawk Common Stock and other voting
securities of Kitty Hawk as provided in this Article V.
5.5.6 General. During the 36-month period commencing with the
Effective Time, but subject to Section 5.5.5, and in each case except as may be
agreed in writing by the Requisite Kalitta Stockholders and the Requisite
Christopher Stockholders, each of Christopher and Kalitta agree to, and to
cause each of their Affiliates to, vote (or act by written consent with respect
to) all shares of Kitty Hawk Common Stock and all other Kitty Hawk voting
securities Beneficially Owned by such Stockholder and such Affiliates, and
otherwise take such action as may be appropriate:
(a) to implement the agreements set forth in this Section 5.5
with respect to the nomination, election and filling of vacancies of
directors of Kitty Hawk, and the election of the Chairman of the Board
and Chief Executive Officer and Vice Chairman of Kitty Hawk and the
President of AIA;
(b) to not amend or repeal any of the provisions of the
Bylaws of Kitty Hawk described in this Section 5.5;
(c) to not change the Certificate of Incorporation of Kitty
Hawk in any respect that would have the effect of conflicting with any
of the provisions of the Bylaws of Kitty Hawk described in this
Section 5.5 or that would amend or repeal the current provisions of
the Certificate of Incorporation of Kitty Hawk as to permit the
removal of directors without cause as defined therein;
(d) for the nomination and election as directors of Kitty
Hawk of the Christopher Designees, the Kalitta Designees and the Joint
Designees and against their removal except for cause as defined in the
Certificate of Incorporation of Kitty Hawk;
(e) during the period ending on the first anniversary of the
Effective Time only, for the election of Christopher as Chairman of
the Board and Chief Executive Officer of Kitty Hawk and for the
election of Kalitta as the Vice Chairman of Kitty
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Hawk and the President of AIA and against their removal from such
offices except for cause (as defined in the Certificate of
Incorporation of Kitty Hawk or the Articles of Incorporation of AIA,
as applicable); and
(f) during the period ending on the first anniversary of the
Effective Time, against any change in the Articles of Incorporation or
Bylaws of AIA that would have the effect of changing the governance
provisions described in this Section 5.5.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 Conditions Precedent to Obligations of Christopher, Kitty Hawk
and the Subs. The obligations of Christopher, Kitty Hawk and the Subs under
this Agreement shall be subject to the fulfillment of each and all of the
following conditions at or before the Closing (unless an earlier time is
specified in this Agreement, in which case on or before such earlier time),
each of which is individually hereby deemed material, and any one or more of
which may be waived in writing by Kitty Hawk:
6.1.1 Representations and Warranties. Each of the representations
and warranties made by Kalitta and the Kalitta Companies contained in this
Agreement shall be true and correct as of the date when made and (except for
changes contemplated by this Agreement and except to the extent any such
representation and warranty that speaks of an earlier date, in which case such
representation or warranty shall have been true and correct as of such date)
shall be true and correct on and as of the Closing to the same extent and with
the same effect as if made on and as of the Closing; provided, that this
condition shall be deemed to be satisfied notwithstanding that any
representation or warranty may not be true and correct so long as the same
shall not reasonably be expected to have a Material Adverse Effect on the
Kalitta Companies.
6.1.2 Performance by Kalitta and the Kalitta Companies. Kalitta
and each of the Kalitta Companies shall have fully performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by him or it on or before the Closing (unless an
earlier time is specified in this Agreement, in which case on or before such
earlier time), including, without limitation, the execution and delivery by
them of all documents and instruments required under the terms of Article VII
of this Agreement; provided, that this condition shall be deemed to be
satisfied notwithstanding that any such obligation (other than the delivery of
the documents under Article VII) shall not have been so performed or complied
with so long as the same shall not reasonably be expected to have a Material
Adverse Effect on the Kalitta Companies.
6.1.3 Regulatory Approvals and Consents. There shall have been
duly and validly obtained all consents, approvals, authorizations, permits and
orders of all federal, state, foreign and other governmental regulatory
agencies required in connection with this Agreement and the consummation of the
transactions contemplated hereby (including under the HSR Act, the Kalitta
Consents, the Kitty Hawk Consents, the Subs Consents and the approval by the
DOT of the "de facto" transfer of the foreign air transportation authority
issued to AIA and KFS), and all such consents, approvals, authorizations,
permits and orders shall be in full force and effect as of the Closing, except
in each case for any the failure to
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have been obtained would not reasonably be expected to have a Material Adverse
Effect on Kitty Hawk.
6.1.4 No Court Orders. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by any court or governmental regulatory agency of competent
jurisdiction directing that the transactions contemplated herein or any of them
not be consummated as herein provided, or awarding damages or any other remedy
to any Person with respect to any of the transactions contemplated hereby.
6.1.5 Certificates of the Kalitta Companies. Each of the Kalitta
Companies shall have provided to Kitty Hawk a certificate, dated the Closing
Date, executed by such Kalitta Company confirming that the conditions in
Section 6.1.1 and Section 6.1.2 as to such Kalitta Company have been satisfied.
Kalitta shall have provided to Kitty Hawk a certificate, dated the Closing
Date, executed by Kalitta confirming that the conditions in Section 6.1.1 and
Section 6.1.2 as to Kalitta have been satisfied.
6.1.6 Opinions of Kalitta's Counsel. The Kalitta Companies shall
have delivered to Kitty Hawk at the Closing the opinions of the Kalitta
Companies' counsel, Miller, Canfield, Paddock and Stone, P.L.C. and Kelsey Law
Offices, P.C., which opinions shall be dated the Closing Date and addressed to
Kitty Hawk substantially in the forms attached hereto as Exhibit 6.1.6(a) and
Exhibit 6.1.6(b), respectively.
6.1.7 Satisfaction with Review of Kalitta Companies. After the
date of this Agreement, there shall have been no change or changes in the
Kalitta Companies' business, labor relations, financial condition, properties,
assets, liabilities or results of operations (or the occurrence of any events
which might reasonably be expected to result in any such change or changes),
which in the judgment of Kitty Hawk, made in good faith, has had or would
reasonably be expected to have a Material Adverse Effect on the Kalitta
Companies other than as disclosed in the Disclosure Schedule delivered on the
date of this Agreement.
6.1.8 Good Standing. Each of the Kalitta Companies shall have
furnished to Kitty Hawk at the Closing certificates of the appropriate
governmental officials, dated within thirty (30) days of the Closing Date,
confirming that such Kalitta Company is in good standing and is duly qualified
to transact business in the State of Michigan and in each jurisdiction listed
on the Disclosure Schedule.
6.1.9 Related Agreements. The parties to the Related Agreements
(other than Kitty Hawk, the Subs and the Subsidiaries and employees, in their
respective individual capacities, of the Kalitta Companies or AIC) shall have
executed and delivered the Related Agreements to which each is a party.
6.1.10 Minimum Share Price. The last reported sale price of a
share of Kitty Hawk Common Stock on the Nasdaq National Market on the last
trading day immediately preceding the Closing Date and its Fair Market Value
shall be at least $12.00.
6.1.11 Financing. Kitty Hawk shall have received (a) net proceeds
of at least $40,000,000 from the sale of Kitty Hawk Common Stock and (b) net
proceeds from the sale of Kitty Hawk senior notes in a principal amount greater
than or equal to $340,000,000.
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6.1.12 MEA 747 Purchase Agreement. AIA shall have (a) with respect
to two (2) of the MEA 747s, obtained a legally binding contract by October 20,
1997 to purchase such MEA 747s after November 30, 1997 but before January 15,
1998 and (b) with respect to the third MEA 747, consummated the purchase of
such MEA 747 by October 20, 1997.
6.1.13 Fairness Opinion. The Fairness Opinion shall not have been
withdrawn or materially and adversely modified.
6.1.14 SEC Filings. No stop order suspending the effectiveness of
any SEC Filing shall have been issued by the SEC and no Proceedings for that
purpose shall have been initiated or, to the Knowledge of Kitty Hawk,
threatened by the SEC.
6.1.15 Dissenter's Rights. No shareholder of AIA shall seek
dissenter's rights in connection with the AIA Merger.
6.1.16 SEC Confirmation. Kitty Hawk shall have obtained
confirmation from the SEC, in form and substance reasonably satisfactory to
Kitty Hawk, (i) that the Guaranty of the Notes by each of the Kalitta Companies
and the exclusion of AIC as a guarantor of such Notes, as described in Section
6.2.12, does not create any requirement that separate audited financial
statements of any of the Kalitta Companies or AIC be included in the offering
documents relating to the Closing Date Financings or subsequently included in
Kitty Hawk filings with the SEC and (ii) that summarized capsulized footnote
disclosure of the financial information of each such Kalitta Company is
acceptable in the offering documents relating to the Closing Date Financings
and in filings with the SEC following the Merger.
6.2 Conditions Precedent to Obligations of the Kalitta Companies. The
obligations of Kalitta and each of the Kalitta Companies under this Agreement
shall be subject to the fulfillment of each and all of the following conditions
at or before the Closing (unless an earlier time is specified in this
Agreement, in which case on or before such specified time), each of which is
individually hereby deemed material, and any one or more of which may be waived
in writing by the Kalitta Companies:
6.2.1 Representations and Warranties. Each of the representations
and warranties made by Kitty Hawk and the Subs contained in this Agreement
shall be true and correct as of the date when made and (except for changes
contemplated by this Agreement and except to the extent that any such
representation and warranty that speaks of an earlier date, in which case such
representation or warranty shall have been true and correct as of such date)
shall be true and correct on and as of the Closing to the same extent and with
the same effect as if made on and as of the Closing; provided, that this
condition shall be deemed to be satisfied notwithstanding that any
representation or warranty may not be true and correct so long as the same
shall not reasonably be expected to have a Material Adverse Effect on Kitty
Hawk.
6.2.2 Performance by Christopher and Kitty Hawk. Christopher and
Kitty Hawk shall have fully performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by them on or before the Closing (unless an earlier time is
specified in this Agreement, in which case on or before such earlier time),
including without limitation, the execution and delivery by them of all
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documents and instruments required under the terms of Article VII of this
Agreement; provided, that this condition shall be deemed to be satisfied
notwithstanding that any such obligation (other than the delivery of the
documents under Article VII) shall not have been so performed or complied with
so long as the same shall not reasonably be expected to have a Material Adverse
Effect on Kitty Hawk.
6.2.3 Regulatory Approvals and Consents. There shall have been
duly and validly obtained all consents, approvals, authorizations, permits and
orders of all federal, state, foreign and other governmental regulatory
agencies required in connection with this Agreement and the consummation of the
transactions contemplated hereby (including under the HSR Act, the Kalitta
Consents, the Kitty Hawk Consents, the Subs Consents and the approval by the
DOT of the "de facto" transfer of the foreign air transportation authority
issued to AIA and KFS), and all such consents, approvals, authorizations,
permits and orders shall be in full force and effect as of the Closing, except
in each case for any the failure to have been obtained would not reasonably be
expected to have a Material Adverse Effect on the Kalitta Companies or Kitty
Hawk.
6.2.4 No Court Orders. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by any court or governmental regulatory agency of competent
jurisdiction directing that the transactions contemplated herein or any of them
not be consummated as herein provided, or awarding damages or any other remedy
to any Person with respect to any of the transactions contemplated hereby.
6.2.5 Certificate of Kitty Hawk and Subs. Kitty Hawk, the
Subsidiaries and each of the Subs shall have furnished to the Kalitta Companies
a certificate, dated the Closing Date, executed by Kitty Hawk, the Subsidiaries
and each of the Subs confirming that the conditions in Section 6.2.1 and
Section 6.2.2 have been satisfied.
6.2.6 Opinions of Kitty Hawk's Counsel. Kitty Hawk shall have
delivered to Kalitta at the Closing the opinions of Kitty Hawk's counsel,
Haynes and Boone, LLP, Burke, Wright & Keiffer, P.C. and Dickinson, Wright,
Moon, Van Dusen & Freeman which opinions shall be dated the Closing Date and
addressed to Kalitta, substantially in the forms attached hereto as Exhibit
6.2.6(a), Exhibit 6.2.6(b) and Exhibit 6.2.6(c), respectively.
6.2.7 Satisfaction with Review of Kitty Hawk. After the date of
this Agreement, there shall have been no change or changes in Kitty Hawk's
business, labor relations, financial condition, properties, assets, liabilities
or results of operations (or the occurrence of any events which might
reasonably be expected to result in any such change or changes), which in the
judgment of Kalitta, made in good faith, has had or would reasonably be
expected to have a Material Adverse Effect on Kitty Hawk other than as
disclosed in the Disclosure Schedule delivered on the date of this Agreement or
the SEC Documents filed with the SEC on or prior to the date of this Agreement.
6.2.8 Good Standing. Kitty Hawk shall have furnished to the
Kalitta Companies at the Closing certificates of the appropriate governmental
officials, dated within fifteen (15) days of the Closing Date, confirming that
Kitty Hawk is in good standing and duly qualified to transact business in the
State of Delaware, that each of the Subs is in good standing in the State of
Michigan, that each of the Subsidiaries is in good
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standing in the State of Texas, and, as applicable, in each jurisdiction listed
on in the Disclosure Schedule.
6.2.9 Related Agreements. The parties to the Related Agreements
(other than Kalitta, the Kalitta Companies, AIC and, in their respective
individual capacities, the employees of any of the foregoing) shall have
executed and delivered the Related Agreements to which each is a party.
6.2.10 Minimum Share Price. The last reported sale price of a
share of Kitty Hawk Common Stock on the Nasdaq National Market on the last
trading day immediately preceding the Closing Date and its Fair Market Value
shall be at least $12.00.
6.2.11 Financing. AIC shall not be obligated to guaranty, pledge
any of its assets or otherwise secure all or any portion of the obligations of
Kitty Hawk with respect to the notes to be sold by Kitty Hawk pursuant to the
Closing Date Financings (the "NOTES"). Each (i) guaranty ("GUARANTY") given by
any of the Kalitta Companies, (ii) document pursuant to which any of the
Kalitta Companies shall grant a security interest, or otherwise pledge or
mortgage any of its assets, to secure all or any portion of the indebtedness
evidenced by the Notes or its Guaranty, (iii) any other document pursuant to
which any Kalitta Company shall secure in any form all or any portion of the
obligations of Kitty Hawk with respect to the Notes or any indenture pursuant
to which the Notes are or may be issued and its Guaranty and (iv) any other
document executed and delivered by any such Kalitta Company in connection with
the foregoing documents (the documents described in the foregoing clauses (i)
through (iv) shall be collectively referred to herein as the "GUARANTOR
DOCUMENTS") shall provide that the maximum liability of each of the Kalitta
Companies under all of the Guarantor Documents applicable to such Kalitta
Company, shall not be greater than one dollar ($1.00) less than the lesser of
(a) the amount which would cause the Guarantor Documents applicable to such
Kalitta Company or the obligations evidenced thereby to be rendered voidable as
to such Kalitta Company under Section 548 or under Section 544(b) of the United
States Bankruptcy Code, as amended, (b) the amount which would permit a
creditor of such Kalitta Company (including, without limitation, any holder of
such Notes or any trustee acting on behalf of the holders of the Notes) to
avoid the Guarantor Documents applicable to such Kalitta Company or the
obligations evidenced thereby in whole or in part, under an applicable
Fraudulent Transfer Act or similar law, (c) the amount which would permit a
creditor of the such Kalitta Company (including, without limitation, any holder
of such Notes or any trustee acting on behalf of the holders of the Notes) to
have the Guarantor Documents applicable to such Kalitta Company set aside or
the obligations thereunder annulled, in each case whether in whole or in part,
under any applicable Fraudulent Conveyance Act or similar law. In addition, if
the execution and delivery of and/or incurrence of obligation evidenced by, the
Guarantor Documents applicable to such Kalitta Company constitutes a
"distribution" under the MBCA, as amended, the maximum liability of, and value
of the transferences from, such Kalitta Company under the Guarantor Documents
applicable to such Kalitta Company (collectively, the "CORPORATE LIABILITY")
shall be limited to one dollar ($1.00) less than the maximum amount of the
Corporate Liability which such Kalitta Company is permitted to incur under the
Guarantor Documents applicable to such Kalitta Company in compliance with
Section 345 of the MBCA.
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6.2.12 Tax Opinions. Kalitta shall have received opinions of D&T
dated the Closing Date to the effect that each of the AIA Merger, the AIT
Merger, the FOL Merger and the OK Merger should qualify as reorganizations
under Section 368 of the Code, and such opinions shall be in form and substance
reasonably acceptable to Kalitta.
6.2.13 Release of Guaranties. All guaranties by Kalitta of the
indebtedness to be repaid at Closing of any of the Kalitta Companies shall have
been released as a result of the refinancing of all of such indebtedness of the
Kalitta Companies and such releases are not separately bargained for
consideration.
6.2.14 Financing. Kitty Hawk shall have received (a) net proceeds
of at least $40,000,000 from the sale of Kitty Hawk Common Stock and (b) net
proceeds from the sale of Kitty Hawk senior notes in a principal amount greater
than or equal to $340,000,000.
ARTICLE VII
CLOSING AND DELIVERY OF DOCUMENTS
At the Closing, the following shall occur as a single integrated
transaction:
7.1 Deliveries by Kalitta and the Kalitta Companies. At Closing,
Kalitta and each of the Kalitta Companies shall use commercially reasonable
efforts to deliver or cause to be delivered to Kitty Hawk the following items:
(a) The AIA Certificates, the AIT Certificates, the FOL
Certificates, the KFS Certificates and the OK Certificates;
(b) The opinion of the Kalitta Companies' counsel described in
Section 6.1.6;
(c) Copies of the Kalitta Consents;
(d) The certificates identified in Section 6.1.5 hereof;
(e) The good standing certificates identified in Section 6.1.8
hereof;
(f) Copies, certified or otherwise identified to Kitty Hawk's
satisfaction, of all corporate documents that Kitty Hawk shall
reasonably request, including resolutions of the boards of directors
of each of the Kalitta Companies and resolutions of the sole
shareholder of each of the Kalitta Companies, dated on or before the
date hereof to authorize this Agreement, the Related Agreements and
the transactions and other acts contemplated either by this Agreement
or the Related Agreements; and
(g) the MEA 747 purchase agreements not previously consummated as
described in Section 6.1.14.
7.2 Delivery by Kitty Hawk and the Subs. At Closing, Kitty Hawk
shall deliver or cause to be delivered to Kalitta the following items:
(a) The Stock Merger Consideration and the KFS Cash Merger
Consideration in accordance with Section 3.2;
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(b) The opinions of Kitty Hawk's counsel described in Section
6.2.6;
(c) Copies of the Kitty Hawk Consents and the Subs Consents;
(d) The certificate identified in Section 6.2.5 hereof;
(e) The good standing certificates identified in Section 6.2.8
hereof;
(f) Copies, certified or otherwise identified to Kalitta's
satisfaction, of all corporate documents that Kalitta shall reasonably
request, including resolutions of the board of directors (or written
consents in lieu thereof) of Kitty Hawk and each Sub and a written
consent of the sole shareholder of the Subs, dated on or before the
date hereof to authorize this Agreement, the Merger Proposals, the
Governance Amendments, the Related Agreements and the transactions and
other acts contemplated either by this Agreement or the Related
Agreements; and
(g) the release of guaranties described in Section 6.2.14.
7.3 Related Agreements. At Closing, the parties, as appropriate, shall
execute and deliver at Closing the following documents (the "RELATED
AGREEMENTS"):
(a) Separate severance and noncompetition agreements, effective as
of the Closing Date, shall have been offered by AIA to each of David
Ahles, William Gray, Michael Hartley, M. Hutchison, Kalitta, Douglas
Kalitta, Michael Maraone, Steve Murray, Jane Phifer, R. Pickett, Vince
Puccia and Donald Schilling, in substantially the form attached as
Exhibit 7.3(a).
(b) A Stockholders' Agreement, effective as of the Closing Date,
between Christopher, Kalitta and Kitty Hawk, the form of which is
attached as Exhibit 7.3(b).
(c) Intentionally omitted.
(d) An Escrow Agreement relating to the AIA Merger, the AIT
Merger, the FOL Merger and the OK Merger, effective as of the Closing
Date, between Kitty Hawk, Kalitta and the Escrow Agent, the form of
which is attached as Exhibit 7.3(d) with such changes as are
reasonably requested by the Escrow Agent affecting its duties and
liabilities and permissible investments (as long as such investments
are comparable with respect to risk) thereunder.
(e) An Escrow Agreement relating to the KFS Merger, effective as
of the Closing Date, between Kitty Hawk, Kalitta and the Escrow Agent,
the form of which is attached as Exhibit 7.3(e) with such changes as
are reasonably requested by the Escrow Agent affecting its duties and
liabilities and permissible investments (as long as such investments
are comparable with respect to risk) thereunder.
(f) A Mutual Release, effective as of the Closing Date, between
Kitty Hawk and Kalitta, the form of which is attached as Exhibit
7.3(f).
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ARTICLE VIII
TERMINATION
8.1 Reasons for Termination. This Agreement may be terminated and the
Mergers abandoned before the Closing as follows:
8.1.1 By Mutual Consent. By the mutual consent of the parties.
8.1.2 By Kitty Hawk. By Kitty Hawk after compliance with the
procedure set forth in this Article, if (i) any of Kalitta's or the Kalitta
Companies representations or warranties contained herein is untrue or incorrect
and the basis for such untruth or incorrectness has caused, or is reasonably
likely to cause, any of the Kalitta Companies to suffer a Material Adverse
Effect, (ii) Kalitta or any of the Kalitta Companies fails to perform any of
his or its covenants or agreements contained herein and such Breach has caused,
or is reasonably likely to cause, Kitty Hawk or the Kalitta Companies to suffer
a Material Adverse Effect, (iii) Kitty Hawk in its sole and absolute discretion
elects prior to October 3, 1997 to not proceed with the transactions
contemplated by this Agreement following its review of the Disclosure Schedule
proffered on the date hereby by the Kalitta Companies or (iv) any of the
conditions to the consummation by Christopher, Kitty Hawk and the Subs of the
transactions provided for herein shall have become impossible to satisfy;
provided, that a wilful material Breach of this Agreement shall be deemed to
cause such conditions to be incapable of being satisfied for purposes of this
Section 8.1.2.
8.1.3 By Kalitta and the Kalitta Companies. By Kalitta, after
compliance with the procedure set forth in this Article, if (i) any of Kitty
Hawk's or the Subs' representations or warranties contained herein is untrue or
incorrect and the basis for such untruth or incorrectness has caused, or is
reasonably likely to cause, Kitty Hawk to suffer a Material Adverse Effect,
(ii) Christopher, Kitty Hawk or any of the Subs fails to perform any of his or
its covenants or agreements contained herein and such Breach has caused, or is
reasonably likely to cause, Kitty Hawk or the Kalitta Companies to suffer a
Material Adverse Effect or (iii) any of the conditions to the consummation by
Kalitta or the Kalitta Companies of the transactions provided for herein shall
become impossible to satisfy; provided, that a wilful material Breach of this
Agreement shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 8.1.3.
8.1.4 Drop-Dead Date. By Kalitta or Kitty Hawk if the Closing
shall not have occurred by March 31, 1998, provided, such date shall be
extended by the number of days, if any, to cure any matter that is the subject
of a notice under Section 8.3 (Kitty Hawk Termination Procedure) or Section 8.4
(Kalitta Termination Procedure).
8.2 Notice of Problems. Each party will promptly give written notice
to the other parties when any of them becomes aware of the occurrence or
failure to occur, or the impending or threatened occurrence or failure to
occur, of any fact or event that would cause or constitute, or would be likely
to cause or constitute (a) any of its representations or warranties contained
herein being untrue or incorrect and the basis for such untruth or
incorrectness has caused or is reasonably likely to cause, it to suffer a
Material Adverse Effect, (b) its failure to perform any of its covenants or
agreements contained herein and such Breach has caused or is reasonably likely
to cause it to suffer a Material Adverse Effect or
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(c) any of the conditions to Closing set forth in Article VI it must satisfy
being or becoming impossible to satisfy. No such notice shall affect the
representations, warranties, covenants, agreements or conditions of the parties
hereunder or their liability therefor, or prevent any party from relying on the
representations and warranties contained herein.
8.3 Kitty Hawk Termination Procedure. If Kitty Hawk discovers, by
reason of a notice given pursuant to this Agreement or otherwise, that (a) any
of Kalitta's or the Kalitta Companies' representations or warranties is untrue
or incorrect when made and the basis for such untruth or incorrectness has
caused, or is reasonably likely to cause, the Kalitta Companies to suffer a
Material Adverse Effect, (b) Kalitta or any of the Kalitta Companies has failed
to perform any of his or its covenants or agreements contained herein in any
material respect, and such Breach has caused, or is reasonably likely to cause,
the Kalitta Companies to suffer a Material Adverse Effect, (c) any of the
conditions to Christopher's, Kitty Hawk's and the Subs' obligations to
consummate the transactions provided for herein has become impossible to
satisfy or (d) Kitty Hawk is not satisfied in its sole and absolute discretion
with its review of the Disclosure Schedule of Kalitta and the Kalitta
Companies, then Kitty Hawk may deliver a notice to Kalitta of such event,
specifying the factual basis therefor in reasonable detail (which notice, in
the case of clause (d) must be delivered on or prior to October 3, 1997).
Kalitta and the Kalitta Companies shall have the right to cure any matter
referred to in clause (a) or (b) of this Section within fifteen (15) Business
Days following the date of delivery of such notice. Upon such notice and, in
the case of clause (a) or (b), upon Kalitta's or the Kalitta Companies' failure
to cure, Kitty Hawk may terminate this Agreement by giving a notice of
termination to Kalitta.
8.4 Kalitta Termination Procedure. If Kalitta discovers, by reason of
a notice given pursuant to this Agreement or otherwise, that (a) any of Kitty
Hawk's representations or warranties is untrue or incorrect when made and the
basis for such untruth or incorrectness has caused, or is reasonably likely to
cause, Kitty Hawk to suffer a Material Adverse Effect, (b) Christopher, Kitty
Hawk or any of the Subs has failed to perform any of his or its covenants or
agreements contained herein in any material respect or (c) any of the
conditions to Kalitta's and the Kalitta Companies' obligations to consummate
the transactions provided for herein has become impossible to satisfy, then
Kalitta may deliver a notice to Kitty Hawk of such event, specifying the
factual basis therefor in reasonable detail. Christopher, Kitty Hawk and the
Subs shall have the right to cure any matter referred to in clause (a) or (b)
of this Section within fifteen (15) Business Days following the date of
delivery of such notice. Upon such notice and, in the case of clause (a) or
(b), upon Kitty Hawk's failure to cure, Kalitta may terminate this Agreement by
giving a notice of termination to Kitty Hawk.
8.5 Effect of Termination. Upon termination of this Agreement pursuant
to this Article, no party shall have any liability or continuing obligation to
another party arising out of this Agreement, or out of actions taken in
connection with this Agreement, except that this Section 8.5 and Article XI
shall survive termination of this Agreement. Notwithstanding the foregoing,
termination of this Agreement shall not relieve any party from its liability
for the Breach, prior to termination, of (a) its covenants or agreements or (b)
the representations or warranties.
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ARTICLE IX
POST-CLOSING AGREEMENTS
After the Closing, Kalitta and Kitty Hawk covenant and agree as
follows:
9.1 Cooperation.
(a) Kalitta shall at the reasonable request and sole cost of
Kitty Hawk use commercially reasonable efforts to aid Kitty Hawk in
establishing itself as the new owner and operator of the Kalitta
Companies and, in connection therewith, shall use commercially
reasonable efforts to maintain the Kalitta Companies' goodwill and
reputation with material suppliers, customers, distributors, creditors
and others having business relations with the Kalitta Companies and in
the business community generally.
(b) Kitty Hawk, the Kalitta Companies and Kalitta shall
cooperate fully, as and to the extent reasonably requested by the
other, in connection with the filing of Tax Returns by either such
party after the Closing Date and any audit or other Proceeding with
respect to Taxes for periods ending prior to the first anniversary of
the Closing Date. Such cooperation shall include the retention and
(upon the other's request) the provision of records and information
which are reasonably relevant to any such audit or other Proceeding.
The Kalitta Companies agree (1) to retain all books and records with
respect to Tax matters pertinent to the Kalitta Companies or Kalitta
relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent
notified by Kitty Hawk, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements
entered into with any Taxing authority, and (2) to give Kalitta
reasonable written notice prior to destroying or discarding any such
books and records and, if Kalitta so requests, the Kalitta Companies
shall allow Kalitta to take possession of such books and records if
the Kalitta Companies determine to destroy or discard such books and
records.
(c) Kitty Hawk and Kalitta each further agree, upon request by
the other, to use their commercially reasonable efforts to obtain any
certificate or other document from any governmental authority or any
other Person as may be necessary to mitigate, reduce or eliminate any
Tax that could be imposed (including, but not limited to, with respect
to the transactions contemplated by this Agreement).
9.2 Certain Transfer and Similar Taxes of the Kalitta Companies. All
transfer, documentary, sales, use, stamp, and registration Taxes incurred in
connection with this Agreement (excluding any shareholder and/or
corporate-level gains Tax triggered by the Mergers), shall be paid by Kitty
Hawk when due, and Kitty Hawk will, at its own expense, file all such necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration Taxes, and, if required by
applicable law, the Kalitta Companies and Kalitta will join in the execution of
any such Tax Returns and other documentation.
9.3 Inspection of Records. The Kalitta Companies shall each retain and
make their respective books and records (including work papers in the
possession of their respective
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accountants) available for inspection and copying by Kalitta and his
Representatives, for reasonable business purposes at all reasonable times
during normal business hours, for a ten-year period after the Closing Date,
with respect to all transactions of the Kalitta Companies occurring prior to
and those relating to the Closing, and the historical financial condition,
assets, liabilities, operations, Taxes and cash flows of the Kalitta Companies
for such periods.
9.4 Continuation of Existence and Business of Kalitta Companies.
After the Effective Time, Kitty Hawk shall (i) continue the separate corporate
existence of each of the Kalitta Companies (as subsidiaries of Kitty Hawk), and
shall continue the use of the current names of each of the Kalitta Companies in
the conduct of their businesses and (ii) preserve and continue without material
change the nature of the businesses of each of the Kalitta Companies,
including, without limitation, the business and operations of the American
International Freight Division of AIA, the Central and South American
operations of AIA and the Oscoda maintenance operation of AIA, subject, in the
case of (i) and (ii), to the evaluation and modification by the Board of
Directors from time to time.
9.5 Indemnification of Directors and Officers of the Kalitta
Companies.
(a) From and after the Effective Time, Kitty Hawk shall
indemnify, defend vigorously and in good faith and hold harmless each
person who is now, or has been at any time prior to the date hereof or
who becomes prior to the Effective Time, an officer, director,
employee or agent of any of the Kalitta Companies (the "KALITTA
COMPANIES INDEMNIFIED PARTIES") against all Losses, including amounts
that are paid in settlement (which settlement shall require the
approval of Kitty Hawk, which approval shall not be unreasonably
withheld) of or in connection with any Proceeding based in whole or in
part on or arising in whole or in part out of the fact that such
person is or was a director, officer, employee or agent of any of the
Kalitta Companies or is or was serving at the request of any of the
Kalitta Companies as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprises,
if such Proceeding pertains to any matter or fact arising, existing or
occurring at or prior to the Effective Time, regardless of whether
such Proceeding is asserted or claimed prior to, or at or after, the
Effective Time (the "INDEMNIFIED LIABILITIES") to the full extent
permitted under Delaware law (and Kitty Hawk shall promptly pay
expenses in advance of the final disposition of any such Proceeding to
each Kalitta Companies Indemnified Party to the full extent permitted
by Delaware law upon receipt of any undertaking required by applicable
Delaware law).
(b) Kitty Hawk and the Kalitta Companies each agree to (i) cause
the Surviving Corporations to honor the indemnification and expense
payment or reimbursement obligations of the Kalitta Companies in their
respective bylaws in accordance with the terms in effect on the date
hereof and under applicable Michigan law as the same shall apply to
current and former directors, officers, employees and agents and (ii)
maintain the elimination and limitation of liability provisions
contained in the Articles of Incorporation of the Surviving
Corporations.
(c) If Kitty Hawk, any of the Kalitta Companies or any of their
respective successors or assigns (i) shall consolidate with or merge
into any other Person prior to the seventh anniversary of the
Effective Time and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) shall
transfer all
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or substantially all of its properties and assets to any other Person
prior to the seventh anniversary of the Effective Time, then and in
each such case, proper provision shall be made so that such other
Person and the successors and assigns of Kitty Hawk and the Kalitta
Companies shall assume the obligations set forth in this Section.
(d) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, each Kalitta Companies
Indemnified Party, his heirs, executors, administrators, personal
representatives and his Representatives. Kitty Hawk shall make or
cause to be made all determinations required under Delaware or
Michigan law (as applicable) concerning its indemnification and
expense reimbursement obligations under this Section 9.5 as promptly
as practical.
9.6 Office Lease. Kalitta shall use commercially reasonable efforts
to cause the Landlord not to develop or sell the Adjoining Lots during the term
of the Office Lease.
9.7 Release and Indemnification for Kalitta Guaranties. To the extent
that Kalitta shall have personally guaranteed any indebtedness of any one or
more of the Kalitta Companies and any of such guaranties are not released at
Closing as a consequence of the satisfaction of such indebtedness with the net
proceeds of the Closing Date Financings, Kitty Hawk shall promptly make all
commercially reasonable efforts to cause any such remaining guaranties to be
released and to fully acquit and relieve Kalitta from any liability, cost or
other obligation whatsoever with respect to the related indebtedness. In
addition, to the extent that Kitty Hawk shall fail to cause such release of any
such guaranty, Kitty Hawk shall defend, indemnify and hold Kalitta harmless
from and against, and promptly reimburse Kalitta for, any Losses that Kalitta
actually incurs or to which Kalitta becomes subject, which Losses arise either
directly or indirectly, out of the enforcement of, or payment or performance by
Kalitta under, any such guaranty.
ARTICLE X
INDEMNIFICATION
10.1 Survival, Etc.
10.1.1 Survival. Subject to the provisions of Section 10.1.3
below, the representations, warranties and covenants (other than the covenants
set forth in Sections 5.1, 5.2, 5.3 and 5.4) of Kitty Hawk, Kalitta and the
Kalitta Companies made in this Agreement shall survive the Closing.
10.1.2 No Effect on Liability. None of (a) the consummation
of the transactions contemplated by this Agreement or the Related Agreements,
(b) except as provided in Section 10.1.3, the delay or omission of any party to
exercise any of its rights under this Agreement or any Related Agreement or (c)
any investigation or disclosure that any party makes, any notice that any party
gives, or any knowledge that any party obtains as a result thereof, or
otherwise shall (i) affect the liability of the parties to one another for any
Breach of this Agreement or any Related Agreement or (ii) prevent any party
from relying on the representations or warranties contained in this Agreement
or any Related Agreement.
10.1.3 Commencing Arbitrations.
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(a) No party shall have any liability for any Breach of this
Agreement or for any claims for indemnification hereunder unless a
demand for arbitration is made (or Kitty Hawk and Kalitta agree in
writing that Kalitta shall have liability for a Kitty Hawk Established
Loss or Kitty Hawk shall have liability for a Kalitta Established
Loss) as provided in Section 10.9 related to such Breach prior to the
thirty (30) month anniversary of the Effective Time and any such
liability shall be deemed waived, and no Person shall have any remedy
for any such Breaches; it being the intention of the parties that all
claims relating to a Breach of the Agreement shall thereafter be
forever barred. Any demand for arbitration seeking indemnification
hereunder made during such thirty (30) month period shall remain valid
and the representations, warranties, covenants and agreements relating
thereto shall remain in effect for purposes of such indemnification
notwithstanding that the amount or validity of such claim may not be
established or resolved within such thirty (30) month period.
(b) Notwithstanding the provisions of 10.1.3(a), Kalitta shall
have liability under Section 10.2.1(b) and Section 10.2.1(e) for
Losses that relate to, or result from, a demand for arbitration made
(or Kitty Hawk and Kalitta agree in writing that Kalitta shall have
liability for a Kitty Hawk Established Loss) as provided in Section
10.9 prior to the forty-two (42) month anniversary of the Effective
Time, and unless brought (or so agreed to) before such forty-two (42)
month anniversary, such liability shall be deemed waived and shall
thereafter be forever barred. Any demand for arbitration seeking
indemnification hereunder pursuant to Section 10.2.1(b) and Section
10.2.1(e) made during such forty-two (42) month period shall remain
valid and the covenants and agreements relating thereto shall remain
in effect for purposes of such indemnification notwithstanding that
the amount or validity of such claim may not be established or
resolved within such forty-two (42) month period.
10.2 Indemnities.
10.2.1 Indemnification of Kitty Hawk.
(a) Indemnification for Breaches or Alleged Breaches by AIA,
AIT, FOL or OK. Subject to the other provisions of this Article,
Kalitta shall defend, indemnify and hold Kitty Hawk, its Subs, its
Subsidiaries, the Surviving Corporations, and their respective
officers, directors, employees, agents and controlling persons (each a
"KITTY HAWK INDEMNIFIED PARTY") harmless from and against, and
promptly reimburse such Kitty Hawk Indemnified Party for, any loss,
damage, deficiency, liability, judgment, claim or expense, including
reasonable investigative costs, costs of defense, settlement costs
(subject to approval as provided below), costs of cleanup, containment
or other remediation and including reasonable attorneys' and
accountants' fees, whether or not involving a third-party claim
(collectively, "LOSSES"), that any Kitty Hawk Indemnified Party
actually incurs or to which such Kitty Hawk Indemnified Party becomes
subject, which Losses arise, either directly or indirectly, out of (i)
any Breach by Kalitta or any of the Kalitta Companies (other than KFS)
of this Agreement or (ii) any claim asserted by any third party that,
assuming the truth thereof, would constitute a Breach by Kalitta or
any of the Kalitta Companies (other than KFS) of this Agreement.
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(b) Indemnification for Non-KFS Environmental Obligations. In
addition to the provisions of Section 10.2.1(a), and subject to the
provisions of this Article, Kalitta shall defend, indemnify and hold
the Kitty Hawk Indemnified Parties harmless from and against, and
promptly reimburse such Kitty Hawk Indemnified Parties for, any Losses
that any Kitty Hawk Indemnified Party actually incurs or to which such
Kitty Hawk Indemnified Party becomes subject, which Losses arise
either directly or indirectly, out of (i) any Hazardous Materials or
other contaminants that were present on any of the Non-KFS Properties
at any time prior to the Closing Date, (ii) the emanation from any of
the Non-KFS Properties of any Hazardous Material or other contaminant
that was present or stored on, or transported from, any of the Non-KFS
Properties on or before the Closing Date, or (iii) any release by any
of the Kalitta Companies (other than KFS) on any of the Non-KFS
Properties of any Hazardous Material or other contaminant on or before
the Closing Date (the conditions and events described in the foregoing
clauses (i) through (iii) shall each, without distinction, be
hereinafter referred to as a "NON-KFS ENVIRONMENTAL CONDITION");
provided, however, that Kalitta shall have no obligation of indemnity
or other liability under this Section 10.2.1(b) to any one or more of
the Kitty Hawk Indemnified Parties for a discrete item of Loss unless
the following conditions shall have been satisfied with respect to
such discrete item of Loss:
(i) such discrete item of Loss results from (A) the
imposition by the United States Environmental Protection Agency,
the Michigan Department of Environmental Quality or any other
governmental entity of competent jurisdiction on any of such
Kitty Hawk Indemnified Parties of an obligation to (x) remediate
or otherwise mitigate any Non-KFS Environmental Condition, or
(y) pay clean-up costs or civil penalties in connection with
such Non-KFS Environmental Condition (resulting, in the case of
the foregoing clause (y), either from a Proceeding or a
settlement made by such Kitty Hawk Indemnified Parties on the
advice of Environmental Counsel (as hereinafter defined) and
subject to the requirements relating to approval of settlements
set forth in Section 10.4), (B) an affirmative obligation of any
of the Kitty Hawk Indemnified Parties under applicable
Environmental Laws (which shall, for purposes of this Section,
be deemed to include laws relating to health and safety in the
work place) to remediate or otherwise mitigate any Non-KFS
Environmental Condition which is discovered other than by reason
of a voluntary investigation, test or survey conducted by any of
such Kitty Hawk Indemnified Parties solely for environmental
purposes and which is not required by applicable Environmental
Laws, as determined by an opinion of Environmental Counsel which
the Kitty Hawk Indemnified Parties shall have obtained and
provided to Kalitta and which may be qualified by reasonable and
appropriate assumptions, qualifications and exceptions, or (C) a
Proceeding initiated against any of the Kitty Hawk Indemnified
Parties by a third party pursuant to a claimed private right of
action under Environmental Laws which results in an obligation
of any of the Kitty Hawk Indemnified Parties to either (x)
remediate or otherwise mitigate a Non-KFS Environmental
Condition, or (y) pay damages to such third party as a
consequence of a judgement or settlement of such Proceeding by
such Kitty Hawk Indemnified Parties upon advice of Environmental
Counsel and subject to the requirements relating to
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approval of settlements set forth in Section 10.4) (each of the
matters referred to in the foregoing sub-clauses (A) through (C)
shall be referred to herein, without distinction, as a "NON-KFS
ENVIRONMENTAL OBLIGATION");
(ii) before incurring such discrete item of Loss in
connection with any Non-KFS Environmental Obligation, the
affected Kitty Hawk Indemnified Parties first seek, obtain and
provide to Kalitta the opinion of either Dykema Gossett or
Warner, Norcross and Judd (or other recognized environmental
counsel reasonably acceptable to the affected Kitty Hawk
Indemnified Parties and Kalitta) ("ENVIRONMENTAL COUNSEL") to
the effect that the Non-KFS Environmental Condition resulting in
such Non-KFS Environmental Obligation violates applicable
Environmental Laws, which opinion may be subject to reasonable
and appropriate assumptions, qualifications and exceptions);
provided, however, that the affected Kitty Hawk Indemnified
Parties may incur such discrete item of Loss in connection with
(x) the order of any court of competent jurisdiction without the
obligation to deliver such opinion, or (y) any "due care"
obligations under M.C.L.A. Section 324.20107 with respect to a
Non-KFS Environmental Condition prior to delivering such opinion
to Kalitta so long as in the case of this clause (y), Kalitta
receives a copy thereof as soon thereafter as is practicable;
(iii) the affected Kitty Hawk Indemnified Parties provide
Kalitta written notice (or if time does not reasonably permit,
oral notice) of, and the invitation to attend, or, if possible
and available to Kalitta, to participate in, any Proceeding
relating to such Non-KFS Environmental Obligation of which the
Kitty Hawk Indemnified Parties have knowledge and are themselves
entitled to attend and/or participate, unless the failure to
give such notice is attributable to an action or omission of any
employee of, or attorney for, any of the Surviving Corporations
during any time when Kalitta is the president of AIT.
In addition, Kalitta shall have no obligation of indemnity or other
liability under this Section 10.2.1(b) to any one or more of the Kitty Hawk
Indemnified Parties with respect to any discrete item of Loss resulting from
either or both of (x) the failure of the Kitty Hawk Indemnified Parties to
prudently exercise "due care" obligations under M.C.L.A. Section 324.20107a, or
(y) the cost or expense relating to any remediation or mitigation of any
Non-KFS Environmental Condition in excess of the level of remediation or
mitigation required by the violated Environmental Laws, as determined by a
written statement which the Kitty Hawk Indemnified Parties shall obtain from
Environmental Counsel (which statement may be supported by the report on the
Non-KFS Environmental Condition by either of NTH Consultants or SME, or such
other recognized independent engineering or environmental testing firm
reasonably acceptable to the affected Kitty Hawk Indemnified Parties and
Kalitta) as to the nature and scope of any such remediation or mitigation
required to comply with the violated Environmental Laws; provided, however,
that nothing contained in this clause (y) shall prevent Kitty Hawk from
additionally remediating or mitigating such Non-KFS Environmental Condition at
its own expense and without obligation to Kalitta. The Kitty Hawk Indemnified
Parties shall promptly provide Kalitta with copies of such statement and any
supporting report they obtain pursuant to the foregoing clause (y).
Notwithstanding the foregoing and the provisions of Section 10.4 hereof, Kitty
Hawk will be
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entitled to control any remediation or mitigation of any such Non-KFS
Environmental Condition, any relating Proceeding, and, except as provided in
the following sentence, any other Proceeding with respect to which indemnity
may be sought under this Section 10.2.1(b). The procedure described in Section
10.4 hereof will apply to any claim solely for monetary damages relating to a
matter covered by this Section 10.2.1(b).
(c) Non-KFS Escrow Agreement. If the Closing shall occur and
subject to the further provisions of this Article (including, but not
limited to, Sections 10.1.3 and 10.3), any Kitty Hawk Indemnified
Party shall be promptly reimbursed for any Kitty Hawk
Established Non-KFS Loss solely from the Non-KFS Escrow Amount under
the Non-KFS Escrow Agreement (as provided in the Non-KFS Escrow
Agreement) for the amount of all Losses after the amount of any such
Loss and Kalitta's and the Kalitta Companies' (other than KFS)
liability therefor is established by (i) agreement in writing between
Kitty Hawk and Kalitta or (ii) arbitration pursuant to Section 10.9
(any Loss so determined is referred to herein as a "KITTY HAWK
ESTABLISHED NON-KFS LOSS"); provided, that a demand for arbitration
relating to a Kitty Hawk Established Non-KFS Loss arising after the
thirty (30) month anniversary of the Effective Time but prior to the
forty-two (42) month anniversary of the Effective Time under Section
10.2.1(b), subject to Section 10.3.2 shall be payable by Kalitta
personally and not from the Non-KFS Escrow Amount to the extent that
such Kitty Hawk Established Non-KFS Loss is not recoverable from the
Non-KFS Escrow Amount. Kalitta may, at his sole option, pay any Kitty
Hawk Established Non-KFS Loss in cash or by the delivery of shares of
Kitty Hawk Common Stock directly to the Kitty Hawk Indemnified Party
in lieu of from the Non-KFS Escrow Amount. If such Kitty Hawk
Established Loss is satisfied in shares of Kitty Hawk Common Stock,
the value of such Kitty Hawk Common Stock shall be determined by its
Fair Market Value at the date any claim becomes a Kitty Hawk
Established Non-KFS Loss.
(d) Indemnification for Breaches or Alleged Breaches by KFS.
Subject to the other provisions of this Article, Kalitta shall defend,
indemnify and hold each Kitty Hawk Indemnified Party harmless from and
against, and promptly reimburse such Kitty Hawk Indemnified Party for,
any Losses that any Kitty Hawk Indemnified Party actually incurs or to
which such Kitty Hawk Indemnified Party becomes subject, which Losses
arise, either directly or indirectly, out of (i) any Breach by Kalitta
or KFS of this Agreement or (ii) any claim asserted by any third party
that, assuming the truth thereof, would constitute a Breach by Kalitta
or KFS of this Agreement.
(e) Indemnification for KFS Environmental Obligations. In
addition to the provisions of Section 10.2.1(d), and subject to the
provisions of this Article, Kalitta shall defend, indemnify and hold
the Kitty Hawk Indemnified Parties harmless from and against, and
promptly reimburse such Kitty Hawk Indemnified Parties for, any Losses
that any Kitty Hawk Indemnified Party actually incurs or to which such
Kitty Hawk Indemnified Party becomes subject, which Losses arise
either directly or indirectly, out of (i) any Hazardous Materials or
other contaminants that were present on any of the KFS Properties at
any time prior to the Closing Date, (ii) the emanation from any of the
KFS Properties of any Hazardous Material or other contaminant that was
present or stored on, or transported from, any of the KFS Properties
on or before the Closing Date, or (iii) any release by KFS on any of
the KFS Properties of any Hazardous Material or other contaminant on
or before the Closing Date (the
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conditions and events described in the foregoing clauses (i) through
(iii) shall each, without distinction, be hereinafter referred to as
a "KFS ENVIRONMENTAL CONDITION"); provided, however, that Kalitta
shall have no obligation of indemnity or other liability under this
Section 10.2.1(e) to any one or more of the Kitty Hawk Indemnified
Parties for a discrete item of Loss unless the following conditions
shall have been satisfied with respect to such discrete item of Loss:
(i) such discrete item of Loss results from (A) the
imposition by the United States Environmental Protection Agency,
the Michigan Department of Environmental Quality or any other
governmental entity of competent jurisdiction on any of such
Kitty Hawk Indemnified Parties of an obligation to (x) remediate
or otherwise mitigate any KFS Environmental Condition, or (y)
pay clean-up costs or civil penalties in connection with such
KFS Environmental Condition (resulting, in the case of the
foregoing clause (y), either from a Proceeding or a settlement
made by such Kitty Hawk Indemnified Parties on the advice of
Environmental Counsel (as hereinafter defined) and subject to
the requirements relating to approval of settlements set forth
in Section 10.4), (B) an affirmative obligation of any of the
Kitty Hawk Indemnified Parties under applicable Environmental
Laws (which shall, for purposes of this Section, be deemed to
include laws relating to health and safety in the work place) to
remediate or otherwise mitigate any KFS Environmental Condition
which is discovered other than by reason of a voluntary
investigation, test or survey conducted by any of such Kitty
Hawk Indemnified Parties solely for environmental purposes and
which is not required by applicable Environmental Laws, as
determined by an opinion of Environmental Counsel which the
Kitty Hawk Indemnified Parties shall have obtained and provided
to Kalitta and which may be qualified by reasonable and
appropriate assumptions, qualifications and exceptions, or (C) a
Proceeding initiated against any of the Kitty Hawk Indemnified
Parties by a third party pursuant to a claimed private right of
action under Environmental Laws which results in an obligation
of any of the Kitty Hawk Indemnified Parties to either (x)
remediate or otherwise mitigate a KFS Environmental Condition,
or (y) pay damages to such third party as a consequence of a
judgement or settlement of such Proceeding by such Kitty Hawk
Indemnified Parties upon advice of Environmental Counsel and
subject to the requirements relating to approval of settlements
set forth in Section 10.4) (each of the matters referred to in
the foregoing sub-clauses (A) through (C) shall be referred to
herein, without distinction, as a "KFS ENVIRONMENTAL
OBLIGATION");
(ii) before incurring such discrete item of Loss in
connection with any KFS Environmental Obligation, the affected
Kitty Hawk Indemnified Parties first seek, obtain and provide to
Kalitta the opinion of either Dykema Gossett or Warner, Norcross
and Judd (or other recognized environmental counsel reasonably
acceptable to the affected Kitty Hawk Indemnified Parties and
Kalitta) ("ENVIRONMENTAL COUNSEL") to the effect that the KFS
Environmental Condition resulting in such KFS Environmental
Obligation violates applicable Environmental Laws, which opinion
may be subject to reasonable and appropriate assumptions,
qualifications and exceptions); provided, however, that the
affected Kitty Hawk Indemnified Parties may incur
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such discrete item of Loss in connection with (x) the order of
any court of competent jurisdiction without the obligation to
deliver such opinion, or (y) any "due care" obligations under
M.C.L.A. Section 324.20107 with respect to a KFS Environmental
Condition prior to delivering such opinion to Kalitta so long as
in the case of this clause (y), Kalitta receives a copy thereof
as soon thereafter as is practicable;
(iii) the affected Kitty Hawk Indemnified Parties provide
Kalitta written notice (or if time does not reasonably permit,
oral notice) of, and the invitation to attend, or, if possible
and available to Kalitta, to participate in, any Proceeding
relating to such KFS Environmental Obligation of which the Kitty
Hawk Indemnified Parties have knowledge and are themselves
entitled to attend and/or participate, unless the failure to
give such notice is attributable to an action or omission of any
employee of, or attorney for, any of the Surviving Corporations
during any time when Kalitta is the president of AIT.
In addition, Kalitta shall have no obligation of indemnity or other
liability under this Section 10.2.1(e) to any one or more of the Kitty Hawk
Indemnified Parties with respect to any discrete item of Loss resulting from
either or both of (x) the failure of the Kitty Hawk Indemnified Parties to
prudently exercise "due care" obligations under M.C.L.A. Section 324.20107a, or
(y) the cost or expense relating to any remediation or mitigation of any KFS
Environmental Condition in excess of the level of remediation or mitigation
required by the violated Environmental Laws, as determined by a written
statement which the Kitty Hawk Indemnified Parties shall obtain from
Environmental Counsel (which statement may be supported by the report on the
KFS Environmental Condition by either of NTH Consultants or SME, or such other
recognized independent engineering or environmental testing firm reasonably
acceptable to the affected Kitty Hawk Indemnified Parties and Kalitta) as to
the nature and scope of any such remediation or mitigation required to comply
with the violated Environmental Laws; provided, however, that nothing contained
in this clause (y) shall prevent Kitty Hawk from additionally remediating or
mitigating such KFS Environmental Condition at its own expense and without
obligation to Kalitta. The Kitty Hawk Indemnified Parties shall promptly
provide Kalitta with copies of such statement and any supporting report they
obtain pursuant to the foregoing clause (y). Notwithstanding the foregoing and
the provisions of Section 10.4 hereof, Kitty Hawk will be entitled to control
any remediation or mitigation of any such KFS Environmental Condition, any
relating Proceeding, and, except as provided in the following sentence, any
other Proceeding with respect to which indemnity may be sought under this
Section 10.2.1(e). The procedure described in Section 10.4 hereof will apply to
any claim solely for monetary damages relating to a matter covered by this
Section 10.2.1(e).
(f) KFS Escrow Agreement. If the Closing shall occur and subject
to the further provisions of this Article (including, but not limited
to, Section 10.3), any Kitty Hawk Indemnified Party shall be promptly
reimbursed for any Kitty Hawk Established KFS Loss solely from the KFS
Escrow Amount under the KFS Escrow Agreement (as provided in the KFS
Escrow Agreement) for the amount of all Losses after the amount of any
such Loss and Kalitta's and KFS' liability therefor is established by
(i) agreement in writing between Kitty Hawk and Kalitta or (ii)
arbitration pursuant to Section 10.9 (any Loss so determined is
referred to herein
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as a "KITTY HAWK ESTABLISHED KFS LOSS"); provided, that a demand for
arbitration relating to a Kitty Hawk Established KFS Loss arising
after the thirty (30) month anniversary of the Effective Time but
prior to the forty-second (42) month anniversary of the Effective
Time under Section 10.2.1(e) or, subject to Section 10.3.2, which
exceeds any then remaining KFS Escrow Amount shall be payable by
Kalitta personally and not from the KFS Escrow Account. Kalitta may,
at his sole option, pay any Kitty Hawk Established Loss directly to
the Kitty Hawk Indemnified Party in lieu of from the KFS Escrow
Amount.
(g) Exclusive Benefit. The parties hereto acknowledge and agree
that Kalitta's and the Kalitta Companies' indemnification obligations
under this Section 10.2.1 are for the exclusive benefit of Kitty Hawk
and the Kitty Hawk Indemnified Parties and enforceable only by Kitty
Hawk and the other Kitty Hawk Indemnified Parties and no other Person
shall have any claim in respect thereto under any theory whatsoever
whether by assignment, subrogation or otherwise.
10.2.2 Indemnification of Kalitta. Subject to the other
provisions of this Article, Kitty Hawk shall defend, indemnify and hold
Kalitta, the Kalitta Companies and their respective officers, directors,
employees, agents and controlling persons (each a "KALITTA INDEMNIFIED PARTY")
harmless from and against, and promptly reimburse each Kalitta Indemnified
Party for, any Losses that any Kalitta Indemnified Party actually incurs or to
which such Kalitta Indemnified Party becomes subject, which Losses, whether or
not involving a third-party claim, arise, either directly or indirectly, out of
any (a) Breach by Christopher, Kitty Hawk or the Subs of this Agreement or
Breach by any of the Kalitta Companies of any agreements or covenants for the
benefit of Kalitta to be performed after Closing, (b) any claim asserted by any
third party that, assuming the truth thereof, would constitute a Breach by
Christopher, Kitty Hawk or the Subs of this Agreement.
Subject to the further provisions of this Article (including,
but not limited to, Section 10.3), Kitty Hawk shall promptly pay to any Kalitta
Indemnified Party the amount of all Losses after the amount of any such Loss
and Kitty Hawk's liability therefor is established by (a) agreement in writing
between Kalitta and Kitty Hawk, or (b) arbitration pursuant to Section 10.9
(any Loss so determined is referred to herein as an "KALITTA ESTABLISHED
LOSS"). If Kalitta receives an opinion from D&T (or any successor thereto) to
the effect that a cash payment of a Kalitta Established Loss must be paid in
Kitty Hawk Common Stock in order to avoid jeopardizing the status of the AIA
Merger, the AIT Merger, the FOL Merger or the OK Merger as tax free
reorganizations under Section 368 of the Code, the payment of the Kalitta
Established Loss shall be in shares of Kitty Hawk Common Stock having a Fair
Market Value equal to the Kalitta Established Loss in lieu of cash; provided
Kitty Hawk shall be given a reasonable time to register such Kitty Hawk Common
Stock under the Securities Act if Kitty Hawk so determines such registration is
necessary or appropriate. The parties hereto acknowledge and agree that Kitty
Hawk's indemnification obligations under this Section 10.2.2 are for the
exclusive benefit of Kalitta and the Kalitta Indemnified Parties and
enforceable only by Kalitta and the Kalitta Indemnified Parties.
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10.3 Limitations.
10.3.1 Deductibles. Neither Kalitta nor Kitty Hawk shall be
liable for, and neither Kalitta pursuant to Section 10.2.1 nor Kitty Hawk
pursuant to Section 10.2.2 shall be obligated to pay, any amount until the
party to be indemnified has incurred aggregate Kitty Hawk Established Losses or
Kalitta Established Losses, as applicable, in excess of $1,000,000 (the
"DEDUCTIBLE"). At such time as the aggregate Kitty Hawk Established Losses or
Kalitta Established Losses, as applicable, incurred by the party to be
indemnified shall exceed the Deductible, the claimant shall be entitled to the
full amount of such Losses in excess of the Deductible; subject, however, to
the further provisions of this Article.
10.3.2 Cap. Neither Kalitta nor Kitty Hawk shall be liable for,
and neither Kalitta pursuant to Section 10.2.1 nor Kitty Hawk pursuant to
Section 10.2.2 shall be obligated to pay, an amount in excess of the applicable
Cap (as defined below). For purposes hereof, the applicable "CAP" (a) if the
Closing shall occur, in the case of Kalitta for all Kitty Hawk Established
Non-KFS Losses shall be the Fair Market Value from time to time of 1,150,000
shares of Kitty Hawk Common Stock, (b) if the Closing shall occur, in the case
of Kalitta for all Kitty Hawk Established KFS Losses shall be $6,000,000, (c)
if the Closing shall not occur, in the case of Kalitta $10,000,000 in the
aggregate for all Kitty Hawk Established Losses and (d) whether or not the
Closing shall occur, in the case of Kitty Hawk shall mean an amount equal to
$10,000,000 for all Kalitta Established Losses.
10.3.3 Duty to Mitigate. Each Kitty Hawk Indemnified Party and
Kalitta Indemnified Party shall be required to use commercially reasonable
efforts to mitigate any Loss as a condition to recovery hereunder.
10.3.4 Exceptions. Notwithstanding the foregoing, Sections
10.1.3, 10.3.1 and 10.3.2 shall not apply to any Breach of Section 4.1.2,
Section 4.3.6, Section 5.1.3(i), Section 5.1.3(j), Section 9.5 as to Kalitta
Companies Indemnified Parties and the heirs, executors, administrators,
personal representatives and Representatives (other than Kalitta) or Section
11.1 nor to Kitty Hawk's failure to deliver the Stock Merger Consideration and
the KFS Cash Merger Consideration in accordance with Section 3.2 hereof.
Notwithstanding the foregoing, Sections 10.1.3 and 10.3.1 shall not apply to
any Breach of Section 9.7
10.4 Notice and Opportunity to Defend.
10.4.1 Notice, Etc. Whenever a claim shall arise for which any
party (the "INDEMNIFIED PARTY") shall be entitled to indemnification hereunder,
including receipt of notice of any third-party claim or commencement of any
third-party Proceeding (an "ASSERTED LIABILITY") and any other party (an
"INDEMNIFYING PARTY") is obligated to provide indemnification pursuant to
Section 10.2.1 or Section 10.2.2, the Indemnified Party shall promptly give all
Indemnifying Parties notice thereof. The Indemnified Party's failure so to
notify an Indemnifying Party shall not cause the Indemnified Party to lose its
right to indemnification under this Article, except to the extent that such
failure materially prejudices the Indemnifying Party's ability to defend
against an Asserted Liability that such Indemnified Party has the right to
defend against hereunder (and except as otherwise set forth in this Article).
Such notice shall describe the Asserted Liability in reasonable detail, and if
practicable shall indicate the amount (which may be estimated) of the Losses
that have been or may be asserted by the Indemnified Party. Notwithstanding
anything in this
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Article X to the contrary, each of the Indemnifying Parties may defend against
an Asserted Liability on behalf of the Indemnified Party utilizing counsel
reasonably acceptable to the Indemnified Party, unless (a) the Indemnified
Party reasonably objects to such assumption on the grounds that counsel for
such Indemnifying Parties cannot represent both the Indemnified Party and the
Indemnifying Parties because such representation would be reasonably likely to
result in a conflict of interest or because there may be defenses available to
the Indemnified Party that are not available to such Indemnifying Parties, (b)
the Indemnifying Party is not capable (by reason of Disability, death,
insufficient financial capacity, bankruptcy, receivership, liquidation,
managerial deadlock, managerial neglect or similar events) of maintaining a
reasonable defense of such action or proceeding, or (c) the action or
proceeding seeks injunctive or other equitable relief against the Indemnified
Party.
10.4.2 Defense Costs. If any Indemnifying Party defends an
Asserted Liability, it shall do so vigorously and in good faith at its own
expense and shall not be responsible for the costs of defense, investigative
costs, attorney's fees or other expenses incurred to defend the Asserted
Liability (collectively, "DEFENSE COSTS") of the Indemnified Party (which may
continue to defend, at its own expense). If the Indemnified Party assumes the
defense of an Asserted Liability by reason of clauses (a), (b) or (c) of
Section 10.4.1, or because the Indemnifying Party has not elected to assume the
defense, then it shall do so vigorously and in good faith and such Indemnifying
Party shall indemnify the Indemnified Party for its Defense Costs; provided,
the Indemnifying Parties shall not be liable for the costs of more than one
counsel for all Indemnified Parties in any one jurisdiction. An Indemnifying
Party and Indemnified Party may settle any Asserted Liability only with the
consent of the other, which consent shall not be unreasonably withheld.
10.4.3 Third-Party Claims. The parties shall cooperate with
each other with respect to the defense of any claims or litigation made or
commenced by third-parties subsequent to the Closing Date with respect to which
indemnification is not available (for any reason) under this Article; provided,
that the party requesting cooperation shall reimburse the other party for the
other party's reasonable out-of-pocket costs and expenses of furnishing such
cooperation.
10.4.4 Indemnification Based Upon Net Losses. The duty and
obligation of the Indemnifying Party to provide indemnification hereunder shall
be limited to the net amount of any Losses actually sustained or paid. In
determining the net amount of Losses, the actual amount of Losses shall be the
amount in excess of any insurance coverage and shall be reduced by the
aggregate value of any assets, properties and rights, including, without
limitation, proceeds of insurance, claims, cross-claims, counterclaims and the
like which are received or reasonably expected to be received by the
Indemnified Party and the Tax benefits realized or reasonably expected to be
realized by such party as a direct result of the Loss. The Kalitta Companies of
Kitty Hawk shall use their commercially reasonable efforts to cause their
insurers to waive subrogation against Kalitta. In such connection, an
Indemnified Party shall use its commercially reasonable efforts to pursue, and
shall fully cooperate with the Indemnifying Party in pursuing by all
appropriate action, all amounts which commercially reasonably may be available
from third persons. In addition, in determining the net amount of such Losses
for which indemnification is required, the amount of indemnification shall be
increased to include any Tax liability incurred or reasonably expected to be
incurred by a party as a direct result of such indemnification. If any Tax
benefit expected to be realized is in fact not realized, or any Tax liability
expected to be
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incurred is not in fact incurred, then an adjustment shall be made promptly to
compensate the other party.
10.5 EXCLUSIVE REMEDY.
10.5.1 THE INDEMNIFICATION PROVISIONS AS PROVIDED IN THIS
AGREEMENT SHALL BE THE SOLE AND EXCLUSIVE REMEDY AND RECOURSE FOR ANY BREACH OF
THIS AGREEMENT BY KALITTA OR ANY KALITTA COMPANY OR ANY OTHER CLAIM BY
CHRISTOPHER, KITTY HAWK OR THE SUBS UNDER OR WITH RESPECT TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CHRISTOPHER, KITTY HAWK OR THE
SUBS SHALL HAVE NO OTHER ENTITLEMENT, REMEDY OR RECOURSE, WHETHER IN CONTRACT,
TORT OR OTHERWISE, AGAINST KALITTA, ANY KALITTA COMPANY, OR THEIR RESPECTIVE
AFFILIATES UNDER OR WITH RESPECT TO THIS AGREEMENT, ALL OF SUCH ENTITLEMENTS,
REMEDIES AND RECOURSE BEING HEREBY EXPRESSLY WAIVED BY CHRISTOPHER, KITTY HAWK
AND THE SUBS TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. IN ADDITION,
THE AMOUNT OF THE CAPS APPLICABLE TO KALITTA OR ANY KALITTA COMPANY SET FORTH
IN SECTION 10.3.2 SHALL BE THE MAXIMUM AMOUNT OF THE INDEMNIFICATION
OBLIGATIONS OF KALITTA HEREUNDER, SUBJECT TO THE EXCLUSIONS OF SECTION 10.3.4,
AND NEITHER KALITTA, ANY KALITTA COMPANY, NOR THEIR RESPECTIVE AFFILIATES SHALL
HAVE FURTHER PERSONAL LIABILITY THEREFOR. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NEITHER CHRISTOPHER, KITTY HAWK NOR THE SUBS SHALL BE ENTITLED TO A
RESCISSION OF THIS AGREEMENT OR TO ANY FURTHER INDEMNIFICATION RIGHTS OR CLAIMS
OF ANY NATURE WHATSOEVER HEREUNDER, ALL OF WHICH KITTY HAWK, SUBS AND
CHRISTOPHER HEREBY WAIVE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW.
10.5.2 THE INDEMNIFICATION PROVIDED IN THIS AGREEMENT SHALL BE
THE SOLE AND EXCLUSIVE REMEDY AND RECOURSE FOR ANY BREACH OF THIS AGREEMENT BY
CHRISTOPHER, KITTY HAWK OR THE SUBS OR ANY OTHER CLAIM BY KALITTA OR ANY
KALITTA COMPANY UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND KALITTA AND EACH KALITTA COMPANY SHALL
HAVE NO OTHER ENTITLEMENT, REMEDY OR RECOURSE, WHETHER IN CONTRACT, TORT OR
OTHERWISE, AGAINST CHRISTOPHER, KITTY HAWK, THE SUBS, OR THEIR RESPECTIVE
AFFILIATES UNDER OR WITH RESPECT TO THIS AGREEMENT, ALL OF SUCH ENTITLEMENTS,
REMEDIES AND RECOURSE BEING EXPRESSLY WAIVED BY KALITTA AND EACH KALITTA
COMPANY TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. IN ADDITION, THE
AMOUNT OF THE CAP APPLICABLE TO KITTY HAWK SET FORTH IN SECTION 10.3.2 SHALL BE
THE MAXIMUM AMOUNT OF THE INDEMNIFICATION OBLIGATIONS OF KITTY HAWK HEREUNDER
SUBJECT TO THE EXCLUSIONS OF SECTION 10.3.4. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NEITHER KALITTA NOR ANY KALITTA COMPANY SHALL BE ENTITLED TO A
RESCISSION OF THIS AGREEMENT OR TO ANY FURTHER INDEMNIFICATION
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RIGHTS OR CLAIMS OF ANY NATURE WHATSOEVER HEREUNDER, ALL OF WHICH KALITTA AND
EACH KALITTA COMPANY HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW.
10.5.3 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, (1) THE RIGHTS AND OBLIGATIONS OF CERTAIN OF THE PARTIES HERETO UNDER
THE 727 PURCHASE AGREEMENT, INCLUDING RIGHTS AND OBLIGATIONS WITH RESPECT TO
INDEMNIFICATION AND SECTION 4.18 THEREOF, SHALL REMAIN UNAFFECTED BY THE
EXECUTION OF THIS AGREEMENT OR THE RELATED AGREEMENTS AND (2) NOTHING HEREIN
SHALL BE CONSTRUED OR INTERPRETED AS LIMITING OR IMPAIRING THE RIGHTS OR
REMEDIES THAT THE PARTIES HERETO MAY HAVE (A) AT EQUITY FOR INJUNCTIVE RELIEF
OR SPECIFIC PERFORMANCE, (B) RIGHTS UNDER APPLICABLE LAW FOR CONTRIBUTION,
INDEMNITY AND SIMILAR RIGHTS IN RESPECT OF CLAIMS BY THIRD PARTIES UNDER OR
RELATING TO THE CLOSING DATE FINANCINGS, (C) UNDER ANY RELATED AGREEMENTS (D)
THE SETTLEMENT AGREEMENT EXECUTED IN AUGUST 1994 RELATED TO THE U.S. POSTAL
SERVICE'S ANET 93-01 SOLICITATION, AND (E) ANY AIRCRAFT CHARTER OR MAINTENANCE
AGREEMENTS BETWEEN THE PARTIES.
10.6 No Other Representation.
(a) Notwithstanding anything to the contrary contained in this
Agreement, Kitty Hawk and the Subs acknowledge and agree that except
for the representations and warranties made by Kalitta and the
Kalitta Companies in Section 4.1 hereof and Kalitta in Section 4.2,
that neither Kalitta nor the Kalitta Companies have made any other
representations or warranties of any kind (including any
representation or warranty with respect to any projections, forecasts
or forward looking statements relating to the Kalitta Companies, or
any other information that may have been provided to Kitty Hawk and
the Subs in connection with the transactions contemplated hereby and
neither Kitty Hawk nor the Subs have relied upon any projections,
forecasts or other information). Kitty Hawk further acknowledges and
agrees that Kalitta has not made any representations or warranties of
any kind to Kitty Hawk or the Subs under this Agreement or otherwise
in connection with the transactions set forth herein except as set
forth above or in any of the Related Agreements to which he is a
party.
(b) The limitations on Kitty Hawk's and the Subs' claims,
rights, and remedies set forth in this Agreement are a material
consideration for Kalitta and the Kalitta Companies' willingness to
enter into this Agreement and the Related Agreements and to consummate
the transactions contemplated hereby and thereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Kalitta and the Kalitta Companies acknowledge and agree
that except for the representations and warranties made by Kitty Hawk
in Section 4.3 and the Subs in Section 4.4 hereof and the
representations and warranties made in the tax representation letter
referred to in Section 5.1.11, that neither Kitty Hawk nor any
Affiliate thereof has made any other representations or warranties of
any kind
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(including any representation or warranty with respect to any
projections, forecasts or forward looking statements relating to the
Kitty Hawk or its Affiliates, or any other information that may have
been provided to Kalitta and the Kalitta Companies in connection with
the transactions contemplated hereby and neither Kalitta nor the
Kalitta Companies have relied upon any projections, forecasts or other
information).
(d) The limitations on Kalitta's and the Kalitta Companies'
claims, rights, and remedies set forth in this Agreement are a
material consideration for Kitty Hawk's and the Subs' willingness to
enter into this Agreement and to consummate the transactions
contemplated hereby and the Related Agreements to which it is a party.
(e) Whether or not the Closing shall occur, no incorporator,
director, officer, employee of the Kalitta Companies or Kitty Hawk or
its Affiliates (in each case solely in their capacities as such) shall
have any liability to any Person under the terms of this Agreement or
as a result of the transactions contemplated hereby, and no recourse
of any kind shall be had by the parties hereto against any such
incorporator, director, officer, employee of the Kalitta Companies or
Kitty Hawk or its Affiliates (in each case solely in their capacities
as such) whether by virtue of any constitutional provision or statute
or rule of law, or by enforcement of any assessment or penalty or in
any other manner, all such liability being expressly waived and
released by the parties hereto to the fullest extent permitted by law
as part of the consideration in entering into this Agreement;
provided, that the parties expressly agree that nothing in this
Section 10.6(e) shall affect any liability of any person for any
contribution, indemnity and similar rights in respect of claims by
third parties under or relating to the Closing Date Financings.
10.7 Delays or Omissions; Waiver; Amendment. Except as provided in
Section 10.1.3 and Section 10.4.1, no delay or omission to exercise any right,
power or remedy inuring to any party upon any Breach or default of any party
under this Agreement or any Related Agreement shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of any
such Breach or default, or an acquiescence therein, or of or in any similar
Breach or default thereafter occurring; nor shall any waiver of any single
Breach or default be deemed a waiver of any other Breach or default theretofore
or thereafter occurring. Neither the exercise of nor the failure to exercise
any remedy under this Agreement or any Related Agreement will constitute an
election of remedies or limit in any manner enforcement of any remedies. Any
term, provision, covenant, representation, warranty or condition of this
Agreement may be waived, but only by a written instrument signed by the party
entitled to the benefits thereof. No modification or amendment of this
Agreement shall be valid and binding unless it be in writing and signed by all
the parties hereto.
10.8 Governing Law. This Agreement and the Related Agreements shall be
governed by, construed, interpreted and applied in accordance with the laws of
the State of Texas, without giving effect to any conflict of laws rules that
would refer the matter to the laws of another jurisdiction except to the extent
expressly provided herein and or in any Related Agreement and except to the
extent Michigan law is mandatorily applicable to the Mergers and the rights of
the shareholders of the Subs and the Kalitta Companies thereunder and, to the
extent Delaware law is mandatorily applicable to the provisions of Section 5.5
and 9.5, and except as provided in Section 9.5.
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Subject to Section 10.9, each party hereto hereby irrevocably submits
to the jurisdiction of the United States District Court for the Northern
District of Texas and, if such court does not have jurisdiction, of the courts
of the State of Texas in Dallas County, for the purposes of any action arising
out of this Agreement or any of the Related Agreements, or the subject matter
hereof or thereof, brought by any other party.
Subject to Section 10.9, to the extent permitted by applicable law,
each party hereby waives and agrees not to assert, by way of motion, as a
defense or otherwise in any such action, any claim (i) that it is not subject
to the jurisdiction of the above-named courts, (ii) that the action is brought
in an inconvenient forum, (iii) that it is immune from any legal process with
respect to itself or its property, (iv) that the venue of the suit, action or
proceeding is improper or (v) that this Agreement or any of the Related
Agreements or the subject matter hereof or thereof may not be enforced in or by
such courts.
10.9 Dispute Resolution.
10.9.1 Arbitration. All disputes and controversies of every kind
and nature between the parties hereto arising out of or in connection with this
Agreement (including without limitation this Article X) or any of the Related
Agreements shall be submitted to arbitration pursuant to the following
procedures:
(i) Except as modified hereby, the arbitration shall be
governed by the Commercial Arbitration Rules of the AAA
including the Supplementary Procedures for Large Complex
Disputes. After a dispute or controversy arises, any party may,
in a written notice delivered to the other party, demand such
arbitration. Such notice shall designate the name of the
arbitrator (who shall be an impartial person) appointed by such
party demanding arbitration, together with a statement of the
matter in controversy in reasonable detail.
(ii) Within thirty (30) days after receipt of such
demand, the other party shall, in a written notice delivered to
the other party, name such party's arbitrator (who shall be an
impartial person). If such party fails to name an arbitrator,
then the second arbitrator shall be named by the AAA. The two
arbitrators so selected shall name a third arbitrator (who shall
be an impartial person) within thirty (30) days, or in lieu of
such agreement on a third arbitrator by the two arbitrators so
appointed, the third arbitrator shall be appointed by the AAA.
If any arbitrator appointed hereunder shall die, resign, refuse,
or become unable to act before an arbitration decision is
rendered, then the vacancy shall be filled by the methods set
forth in this Section for the original appointment of such
arbitrator.
(iii) Except as provided in Section 10.9.2, each party
shall bear its own arbitration costs and expenses. The
arbitration hearing shall be held in Dallas, Texas at a location
designated by a majority of the arbitrators. The substantive
laws of the State of Texas (excluding conflict of laws
provisions) and the Federal Arbitration Act shall apply.
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(iv) An award rendered by a majority of the arbitrators
appointed pursuant hereto shall be final and binding on all
parties to the Proceeding, shall resolve the question of costs
of the arbitrators, legal fees and expenses and all related
matters, and judgment on such award may be entered and enforced
by either party in any court of competent jurisdiction.
(v) The arbitrators may by an interim or final award
grant injunctive relief.
(vi) Except as provided in Section 10.9.2, the parties
stipulate that the provisions of this Section shall be a
complete defense to any Proceeding instituted in any federal,
state or local court or before any administrative tribunal with
respect to any controversy or dispute arising out of this
Agreement. The arbitration provisions hereof shall, with respect
to such controversy or dispute, survive the termination or
expiration of this Agreement.
The parties hereto and the arbitrators may not disclose the
existence or results of any arbitration hereunder without the prior written
consent of the other party; nor will any party hereto disclose to any third
party any confidential information disclosed by any other party hereto in the
course of an arbitration hereunder without the prior written consent of such
other party. Notwithstanding the foregoing, a party may disclose the existence
or results of an arbitration hereunder, as well as information otherwise
required to be disclosed by deposition, subpoena or other court or governmental
action, in connection with their respective obligations under the Exchange Act
and the rules and regulations promulgated thereunder, in connection with
registration of offerings of securities under the Securities Act and the rules
and regulations promulgated thereunder, or otherwise required to be disclosed
under applicable law.
10.9.2 Emergency Relief. Notwithstanding anything in this
Section 10.9 to the contrary and subject to the provisions of Section 10.8, any
party may seek from a court any provisional remedy or injunctive relief that
may be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of
the controversy. The prevailing party in any Proceeding based upon this
Agreement shall be entitled to reasonable attorney's fees and arbitral and
court costs, in addition to any other recoveries allowed by law.
ARTICLE XI
MISCELLANEOUS
11.1 Expenses. Except as otherwise specifically provided for
herein, whether or not the transactions contemplated hereby are consummated,
each of the parties hereto shall bear all fees and expenses relating to or
arising from his or its compliance with the various provisions of this
Agreement and such party's covenants to be performed hereunder, and except as
otherwise specifically provided for herein, each of the parties hereto agrees
to pay all of its own expenses (including, without limitation, attorneys and
accountants' fees and printing expenses) incurred in connection with this
Agreement, the transactions contemplated hereby, the negotiations leading to
the same and the preparations made for carrying the same into effect, and, to
the extent practical, all such fees and expenses of the parties hereto
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shall be paid prior to Closing. For purposes of clarification, it is agreed by
the parties that all fees and expenses that may be incurred by Kalitta shall be
paid and/or reimbursed by the Kalitta Companies.
11.2 Notices. Any notice, request, instruction or other document
required by the terms of this Agreement, or deemed by any of the parties hereto
to be desirable, to be given to any other party hereto shall be in writing and
shall be given by prepaid telex or telecopy or delivered or mailed by certified
mail, postage prepaid, with return receipt requested, to the following
addresses:
If to Kalitta: Conrad Kalitta
2701 N. I-94 Service Drive
Ypsilanti, Michigan 48197
Telecopy: (313) 484-3686
With a copy to: George W. Kelsey, Esq.
Kelsey Law Offices, P.C.
2395 S. Huron Parkway
Suite 200
Ann Arbor, Michigan 48104
Telecopy: (313) 973-1223
If to AIA, AIT, FOL, 842 Willow Run Airport
KFS or OK: Ypsilanti, Michigan 48198
Attn: President
Telecopy: (313) 484-3630
With a copy to: George W. Kelsey, Esq.
Kelsey Law Offices, P.C.
2395 S. Huron Parkway
Suite 200
Ann Arbor, Michigan 48104
Telecopy: (313) 973-1223
With a copy after Closing to: M. Tom Christopher
Chairman of the Board and
Chief Executive Officer
1515 West 10th Street
DFW Airport, Texas 75261
Telecopy: (972) 456-2221
Greg R. Samuel, Esq.
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Telecopy: (214) 651-5940
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If to Kitty Hawk M. Tom Christopher
or the Subs: Chairman of the Board and
Chief Executive Officer
1515 West 10th Street
DFW Airport, Texas 75261
Telecopy: (972) 456-2221
With a copy to: Greg R. Samuel, Esq.
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
Telecopy: (214) 651-5940
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by delivery in
accordance with the provisions of this Section, said notice shall be
conclusively deemed given at the time of such delivery. If notice is given by
mail in accordance with the provisions of this Section, such notice shall be
conclusively deemed given upon the second Business Day following deposit
thereof in the United States mail. If notice is given by telex or telecopy in
accordance with the provisions of this Section, such notice shall be
conclusively deemed given upon receipt.
11.3 Entire Agreement. This Agreement (together with the schedules and
exhibits hereto), the Related Agreements, the other documents delivered
pursuant hereto and referenced herein and the 727 Purchase Agreement set forth
the entire agreement and understanding of the parties hereto with respect to
the transactions contemplated hereby, and supersede all other prior agreements,
arrangements and understandings related to the subject matter hereof. This
Agreement supersedes in its entirety (a) that certain Letter of Intent dated
July 15, 1997 among certain of the parties hereto, as amended, and (b) that
certain Confidentiality Agreement between AIA and Kitty Hawk effective June 26,
1997, as amended. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written or oral,
express or implied, whether by statute or otherwise, has been made by any party
hereto with respect to the subject matter hereof which is not embodied in this
Agreement and the tax representation letters referred to in Section 5.1.11
delivered pursuant hereto or in connection with the transactions contemplated
hereby, and no party hereto shall be bound by or liable for any alleged
understanding, promise, inducement, statement, representation, warranty,
covenant or condition not so set forth with respect to the subject matter
hereof. This Agreement in no way affects or amends any obligation of any party
under or in connection with (i) the Settlement Agreement executed in August
1994 related to the U.S. Postal Service's ANET 93-01 solicitation, (ii) any
aircraft charter or maintenance agreements between the parties or (iii) the 727
Purchase Agreement.
11.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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11.5 Incorporated by Reference. The Disclosure Schedules, Subsequent
Disclosure Schedules and tax representation letter referred to in Section
5.1.11 are incorporated as a part of this Agreement by reference.
11.6 Number and Gender of Words. When the context so requires in this
Agreement, words of any gender shall include either or both of the other
genders and the singular number shall include the plural.
11.7 Execution of Additional Documents. Each party hereto shall make,
execute, acknowledge and deliver such other instruments and documents, and take
all such other actions as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
11.8 Finders' and Related Fees. Each of the parties hereto is
responsible for, and shall indemnify the other parties against, any claim by
any third party to a fee, commission, bonus or other remuneration arising by
reason of any services alleged to have been rendered to or at the instance of
said party to this Agreement with respect to this Agreement or to any of the
transactions contemplated hereby. For purposes of clarification, it is agreed
by the parties that all fees and expenses relating to the Mergers that may be
incurred by Kalitta prior to the Closing Date shall be paid and/or reimbursed
by the Kalitta Companies.
11.9 Interpretation. References to "Sections" herein are references to
sections of this Agreement. The words "herein," "hereof," "hereto" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
11.10 No Third Party Beneficiary, Etc. Except as otherwise expressly
provided for herein, there shall be no third party beneficiary of this
Agreement and this Agreement shall not inure to the benefit of, be enforceable
by, or create any right or cause of action in any Person other than the parties
hereto and their heirs, executors, administrators, legal representatives,
successors and permitted assigns. Neither the availability of, nor any limit
on, any remedy hereunder shall limit the remedies of any party hereto against
third parties except as provided in Article X.
11.11 Reformation; Severability. In case any provision hereof shall be
invalid, illegal or unenforceable, such provision shall be reformed to best
effectuate the intent of the parties and permit enforcement thereof, and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby. If such provision is not capable of
reformation, it shall be severed from this Agreement and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
11.12 Binding Effect and Assignment. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
executors, administrators, legal representatives and permitted assigns. This
Agreement, and the rights and obligations created hereunder, may not be
transferred or assigned by any party without the prior consent of the other
parties.
11.13 Public Announcements. Any public announcement or similar
publicity with respect to this Agreement will be issued, if at all, at such
time and in such manner as Kitty
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<PAGE> 103
Hawk determines; provided, that the Kalitta Companies will be given a copy in
advance of such proposed press release. Unless consented to by Kitty Hawk in
advance or required by legal requirements, prior to the Closing, Kalitta and
the Kalitta Companies shall keep this Agreement strictly confidential and may
not make any disclosure of this Agreement to any Person.
11.14 Confidentiality. Between the date of this Agreement and for the
five (5) year period following (i) termination of this Agreement pursuant to
Article VIII or (ii) Closing, Kitty Hawk, Kalitta and the Kalitta Companies
will maintain in confidence, and will cause their respective directors,
officers, employees, agents, and advisors (the "REPRESENTATIVES") to maintain
in confidence, any written, oral, electronic, or other information of every
kind (including all analyses, compilations, forecasts, studies or other
documents prepared by a receiving party that contain or in any way reflect
Confidential Information) that has been or may be furnished by either party or
its Representatives obtained in confidence (the "CONFIDENTIAL INFORMATION")
from another party to this Agreement (the "DISCLOSING PARTY"), and will not
use, and will cause their respective Representatives not to use, any such
information except for the purpose of this Agreement or in connection with any
Proceedings between any of the parties, unless (a) such information is already
known to such party and such party is not bound by a duty of confidentiality or
such information becomes publicly available through no fault of such party, (b)
the use of such information is necessary in making any release, report, filing
(including filings with the SEC or, if required by applicable law, release
required by the NASDAQ Stock Market) or obtaining any consent or approval
required for the consummation of the transactions contemplated by the
Agreement, or (c) the furnishing or use of such information is required by
Proceedings. Each party shall only reveal Confidential Information of the
Disclosing Party to the receiving party's Representatives (a) who reasonably
need to have the Confidential Information for purposes of evaluating the
potential Mergers and (b) who are aware of the confidential nature of the
Confidential Information and of this Section 11.4. Each party shall cause its
Representatives to observe the restrictions of this Section 11.14 and shall be
responsible for any Breach of this Section 11.14 by its Representatives. If
this Agreement is terminated for any reason, each party must promptly return to
the Disclosing Party all Confidential Information obtained from the Disclosing
Party that is by nature returnable, and each receiving party will thereafter
continue to comply with its obligations under this Section 11.14.
11.15 Time of the Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
11.16 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
11.17 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the date first written hereinabove.
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: CEO
------------------------------
KITTY HAWK - AIA, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: President
------------------------------
KITTY HAWK - AIT, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: President
------------------------------
KITTY HAWK - FOL, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: President
------------------------------
KITTY HAWK - KFS, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: President
------------------------------
KITTY HAWK - OK, INC.
By: /s/ M. TOM CHRISTOPHER
---------------------------------
Name: M. Tom Christopher
-------------------------------
Title: President
------------------------------
/s/ M. TOM CHRISTOPHER
------------------------------------
M. Tom Christopher
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<PAGE> 105
AMERICAN INTERNATIONAL AIRWAYS, INC.
By: /s/ CONRAD KALITTA
---------------------------------
Name: Conrad Kalitta
-------------------------------
Title:
------------------------------
AMERICAN INTERNATIONAL TRAVEL, INC.
By: /s/ MIKE MARAONE
---------------------------------
Name: Mike Maraone
-------------------------------
Title:
------------------------------
FLIGHT ONE LOGISTICS, INC.
By: /s/ MIKE MARAONE
---------------------------------
Name: Mike Maraone
-------------------------------
Title:
------------------------------
KALITTA FLYING SERVICES, INC.
By: /s/ DONALD SCHILLING
---------------------------------
Name: Donald Schilling
-------------------------------
Title:
------------------------------
O.K. TURBINES, INC.
By: /s/ MIKE MARAONE
---------------------------------
Name: Mike Maraone
-------------------------------
Title:
------------------------------
/s/ CONRAD KALITTA
------------------------------------
Conrad Kalitta
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<PAGE> 1
EXHIBIT 4.2
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of __________, 199__ among Kitty
Hawk, Inc., a Delaware corporation (the "Company"), M. Tom Christopher
("Christopher") and Conrad Kalitta ("Kalitta").
WHEREAS, this Agreement is being executed and delivered by and among
the parties hereto pursuant to, and in satisfaction of certain conditions
precedent set forth in, that certain Agreement and Plan of Merger dated as of
September___, 1997 (the "Merger Agreement") by and among the Company, certain
subsidiaries of the Company, Christopher, Kalitta, American International
Airways, Inc. ("AIA"), American International Travel, Inc., Flight One
Logistics, Inc., Kalitta Flying Services, Inc., and O.K. Turbines, Inc. (the
"Kalitta Companies");
WHEREAS, at the time the transactions contemplated by the Merger
Agreement are consummated, each of Christopher and Kalitta will be the record
and Beneficial Owner of the number of issued and outstanding shares of Common
Stock of the Company set forth opposite such person's name on Schedule 1
hereto;
WHEREAS, Christopher and Kalitta desire to provide herein for certain
matters relating to the control and operation of the Company;
WHEREAS, the Company desires to grant to Christopher and Kalitta
certain incidental registration rights with respect to the shares of Common
Stock of the Company now owned or hereafter acquired by either of them;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article I - Definitions
1. General. When used in this Agreement, the terms set forth in
this Article I shall have the meanings ascribed to them herein.
1.1 Definitions.
"Affiliate" means, with respect to a specified person, another
person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified.
<PAGE> 2
"Agreement" or "this Agreement" means this Stockholders'
Agreement and the Schedule hereto, each as it may be amended from time to time
as permitted herein.
"Beneficial Owner" means a "beneficial owner", as defined in
Regulation Section 240.13d-3 under the Exchange Act.
"Christopher Stockholder" shall mean Christopher and each
Permitted Transferee who receives a Transfer of Common Stock from Christopher
or another Christopher Stockholder and each person who receives an Exempt
Transfer of Common Stock from Christopher or another Christopher Stockholder.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.01 per
share, of the Company with respect to which a Stockholder is or at any time
during the Term becomes a Beneficial Owner, whether as a result of purchase or
dividend or upon an increase, reduction, substitution, reorganization or
reclassification of the shares of Common Stock of the Company, or otherwise,
including upon the exercise of options or other rights convertible into or
exchangeable for, with or without the payment of consideration, shares of
Common Stock. Common Stock shall also include all classes of preferred stock
of the Company now or hereafter issued and securities issued to any of the
Stockholders upon any merger, consolidation, sale of assets or other business
disposition involving the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Transfer" means any Transfer of Common Stock to any
marital trust, non-marital trust, family trust or beneficiary pursuant to the
terms of the applicable trust agreement on the death of the grantor or
otherwise by will or the laws of descent and distribution, it being agreed that
prior to the making of an Exempt Transfer, the Stockholder proposing the Exempt
Transfer shall notify the Company in writing and the proposed transferee shall
deliver to the Company a written instrument pursuant to which the proposed
transferee becomes a party to this Agreement and agrees to be bound by the
terms and conditions hereof to the same extent as if an original signatory
hereto.
"Family Member" means the spouse or the natural or adopted
sibling, ancestor or descendent of a Stockholder or any spouse or descendant of
any such ancestor, descendant or sibling.
"Kalitta Stockholder" shall mean Kalitta and each Permitted
Transferee who receives a Transfer of Common Stock from Kalitta or another
Kalitta Stockholder or a person who receives an
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<PAGE> 3
Exempt Transfer of Common Stock from Kalitta or another Kalitta Stockholder.
"Permitted Transferee" means any Family Member of such
Stockholder or a trustee of a trust for the sole benefit of such Stockholder
and/or any Family Member of such Stockholder or any partnership, corporation or
other entity which is controlled by such Stockholder and/or any Family Member,
it being agreed that prior to the making of a Transfer of Common Stock to a
Permitted Transferee, the Stockholder proposing the Transfer shall notify the
Company in writing and the proposed transferee shall deliver to the Company a
written instrument pursuant to which the proposed transferee becomes a party to
this Agreement and agrees to be bound by the terms and conditions hereof to the
same extent as if an original signatory hereto.
"person" means any individual, corporation, association,
partnership, proprietorship, joint venture, trust or other entity.
"Pro Rata" means, with respect to the shares of Common Stock
held by a Stockholder to be excluded from an underwritten public offering as
provided in Article VI of this Agreement, the number which bears the same
proportion as the total number of shares of Common Stock proposed to be offered
by such Stockholder bears to the number of share of Common Stock proposed to be
offered by all of the Stockholders in such underwritten public offering.
"Registration Expenses" means all expenses incident to the
Company's performance of, or compliance with, its obligations pursuant to
Article VI of this Agreement and the completion of transactions relating
thereto including, without limitation, all registration and filing fees, all
fees and expenses in complying with securities or blue sky laws, all printing
expenses, the fees and disbursements of the Company's independent public
accountants, including the expenses of any special audits, reviews,
compilations or other reports or information required by or incident to such
performance and compliance, and any fees or expenses of counsel for the Company
but excluding (i) any fees or expenses of special counsel to represent the
holders on whose behalf any Common Stock is being registered (the "Selling
Stockholders"), (ii) any allocation of personnel or other general overhead
expenses of the Company or of any Selling Stockholder or other expenses for the
preparation of financial statements or other data, other than financial
statements or other data normally prepared by the Company in the ordinary
course of its business, which in all cases shall be borne by the party causing
such expenses to be incurred and (iii) any underwriting discounts and
commissions relating to the Common Stock being sold by the Selling Stockholder.
"Registrable Securities" means shares of Common Stock now or
hereafter Beneficially Owned by a Stockholder; provided that Registrable
Securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the same of such
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<PAGE> 4
shares of Common Stock shall have become effective under the Securities Act and
such shares of Common Stock have been disposed of by a Stockholder in
accordance with such registration statement, (ii) such shares of Common Stock
shall have been sold pursuant to Rule 144 or Rule 145 (or any successor
provisions) under the Securities Act or (iii) such shares of Common Stock shall
have been otherwise transferred, new certificates therefor not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of such shares of Common Stock shall not require the
registration or qualification of such shares of Common Stock under the
Securities Act or any similar state law then in effect.
"Requisite Christopher Stockholders" means Christopher
Stockholders beneficially owning at least a majority of the Common Stock owned
by all Christopher Stockholders.
"Requisite Kalitta Stockholders" means Kalitta Stockholders
beneficially owning at least a majority of the Common Stock owned by all
Kalitta Stockholders.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholder" means a Stockholder who has any shares
of Registrable Securities registered by the Company pursuant to Article VI
hereof.
"Stockholder" means, (i) each Kalitta Stockholder and each
Christopher Stockholder, and (ii) "Stockholders" means collectively, all of the
foregoing Stockholders.
"Subsidiary" means any corporation fifty percent (50%) of the
voting stock of which is owned, directly or indirectly, through one or more
subsidiaries, by the Company.
"Term" shall have the meaning set forth in Article II.
"Transfer" means any sale, assignment, transfer, gift or other
disposition of any of the shares of Common Stock by any Stockholder.
1.2 Rules of Construction. Unless the context otherwise
requires, (i) a term shall have the meaning assigned to it in Section 1.1, (ii)
"or" shall not be exclusive, (iii) words in the singular shall include the
plural, and vice versa and (iv) words in the masculine gender shall include the
feminine and neuter, and vice versa.
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<PAGE> 5
Article II - Term
2. Term. Unless sooner terminated as provided in Section 8.10,
the term of this Agreement (the "Term") shall commence on the date hereof and
continue until the third anniversary of the date of this Agreement; provided,
however, that the provisions of Articles VI, VII and VIII shall terminate ten
(10) years from the date hereof.
Article III - Certain Governance Matters
3. Nomination and Election of Directors; Election of Chairman of
the Board and CEO and Other Matters.
3.1 General. During the Term, but subject to
Section 3.1.5 below, and in each case except as may be agreed in writing by the
Requisite Kalitta Stockholders and the Requisite Christopher Stockholders, each
of the Stockholders agrees to, and to cause each of their Affiliates to, vote
(or act by written consent with respect to) all shares of Common Stock and all
other Company voting securities Beneficially Owned by such Stockholder and such
Affiliates, and otherwise to take such actions as may be appropriate:
(a) to implement the agreements set forth below in this Article III
with respect to the nomination, election and filling of vacancies of directors
of the Company, and the election of the CEO and President of the Company and
the President of AIA;
(b) to not amend or repeal any of the provisions of the Bylaws of the
Company described in this Article III;
(c) to not change the Certificate of Incorporation of the Company in
any respect that would have the effect of conflicting with any of the
provisions of the Bylaws of the Company described in this Article III or that
would amend or repeal the provisions of the Certificate of Incorporation of the
Company as to the removal of directors without cause as defined therein;
(d) for the nomination and election as directors of the Company of the
Christopher Designees, the Kalitta Designees and the Joint Designees and
against their removal except for cause as defined in the Certificate of
Incorporation of the Company;
(e) during the period ending on the first anniversary of the date of
this Agreement, for the election of Christopher as Chairman of the Board and
Chief Executive Officer of the Company and for the election of Kalitta as the
Vice Chairman of the Company and as the President of AIA and against their
removal from such offices except for cause (as defined in the Certificate of
Incorporation of the Company or the Articles of Incorporation of the AIA, as
applicable); and
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<PAGE> 6
(f) during the period ending on the first anniversary of the date of
this Agreement, against any change in the Articles of Incorporation or Bylaws
of AIA that would have the effect of changing the governance provisions
described in this Article III below.
3.1.1 Election of the Initial Board. At or prior to the
date hereof, (a) the Company's Bylaws have been amended to provide that the
number of directors comprising the full Board of Directors of the Company as of
the date hereof is seven (7) and shall be comprised of Christopher and two (2)
Christopher Designees, Kalitta and two (2) Kalitta Designees and a Joint
Designee; (b) the persons named in Schedule 2 have been duly elected to the
Board of Directors of the Company to serve in the classes as indicated in
Schedule 2 and Schedule 2 identifies the Christopher Designees, the Kalitta
Designees and the Joint Designee; and (c) the Bylaws of the Company have been
amended to provide that the Bylaw provisions concerning the number and
classification of directors and the other provisions described above in this
Section 3.1.1 may be amended or repealed prior to the end of the Term only by
the affirmative vote of 70% of the members of the entire Board of Directors or
the holders of 75% of the outstanding Common Stock.
3.1.2 Nominating Committee.
(a) At or prior to the date of this Agreement, the Bylaws of the
Company have been amended to provide that:
(i) a Joint Nominating Committee, a Christopher Nominating
Committee and a Kalitta Nominating Committee of the Board of Directors
of the Company shall be created for the period beginning on the date
of this Agreement and expiring at the end of the Term;
(ii) the Joint Nominating Committee shall consist of
Christopher and Kalitta for so long as each is a director of the
Company;
(iii) the Christopher Nominating Committee shall consist of
Christopher for so long as he is a director of the Company;
(iv) the Kalitta Nominating Committee shall consist of Kalitta
for so long as he is a director of the Company;
(v) each such Nominating Committee shall have the powers and
duties described in, and be subject to the applicable provisions
concerning notice, quorum, membership and resolution of deadlock and
related provisions of, Sections 3.1.2 and 3.1.3; and
(vi) such Bylaw provisions and the Bylaw provisions described
below in this Section 3.1.2 may be amended or
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<PAGE> 7
repealed only by the affirmative vote of 70% of the members of the
entire Board of Directors or the holders of 75% of the outstanding
Common Stock.
(b) The Bylaws of the Company have been further amended at or
prior to the date of this Agreement to provide that (i) the Joint Nominating
Committee shall have the exclusive power on behalf of the Board of Directors to
nominate a person for election as a director of the Company as a Joint Designee
and to fill any vacancy of the Joint Designee on the Board of Directors of the
Company; (ii) the Christopher Nominating Committee shall have the exclusive
power on behalf of the Board of Directors of the Company to nominate
Christopher and persons for election as directors of the Company as Christopher
Designees and to fill vacancies on the Board of Directors vacated by
Christopher Designees; and (iii) the Kalitta Nominating Committee shall have
the exclusive power on behalf of the Board of Directors to nominate Kalitta and
persons for election as directors of the Company as Kalitta Designees and to
fill vacancies on the Board of Directors vacated by the Kalitta Designees.
(c) During the Term, but subject to Section 3.1.5, and except as
otherwise agreed in writing by the Requisite Christopher Stockholders and the
Requisite Kalitta Stockholders, each of the Stockholders shall, and shall cause
each of such Stockholder's Affiliates to, (i) vote (or act by written consent
with respect to) any shares of Common Stock and other Company voting securities
each Beneficially Owns (x) for the nominee of the Joint Nominating Committee
for election as a director of the Company as a Joint Designee (or the nominee
as a Joint Designee of the entire Board of Directors in accordance with the
Bylaws if the Joint Nominating Committee cannot agree within ten (10) days as
contemplated in Section 3.1.3 below) and against removal except for cause, (y)
for Christopher and the nominees of the Christopher Nominating Committee for
election as a director of the Company as a Christopher Designee and against
removal except for cause and (z) for Kalitta and the nominees of the Kalitta
Nominating Committee for election as a director of the Company as a Kalitta
Designee and against removal except for cause and (ii) not vote (or act by
written consent with respect to) any shares of Common Stock or other the
Company voting securities each Beneficially Owns in favor of any person to
serve as a director of the Company unless such person has been so nominated.
(d) The Joint Nominating Committee, the Christopher Nominating
Committee and the Kalitta Nominating Committee (as applicable) shall nominate
the persons named on Schedule 2 for re-election when their terms expire unless
such person is unable or unwilling to serve or if such person has been removed
for cause. For purposes of this Section 3.1.2, "cause" shall have the meaning
set forth in the Certificate of Incorporation of the Company.
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(e) In the case of the Joint Nominating Committee, the presence,
either telephonically or in person, of both members of the Joint Nominating
Committee shall constitute a quorum for the transaction of business and
meetings may be called on two days' written notice given in accordance with the
Bylaws of the Company by either member.
3.1.3 Deadlock Resolution at the Joint Nominating
Committee. The Bylaws of the Company have been amended at or prior to the date
of this Agreement to provide that if the Joint Nominating Committee does not
agree on the selection of (a) a nominee to serve as a member of the Board of
Directors as a Joint Designee to be elected at a meeting of the stockholders of
the Company or (b) an individual to fill a vacancy on the Board of Directors as
a Joint Designee then either member of the Joint Nominating Committee may by
written notice to the other member require such nominee or vacancy to be
selected or filled, respectively, at a meeting of the Board of Directors called
by such member in accordance with the Bylaws of the Company at any time after
the tenth day following the receipt of notice of the first meeting of the Joint
Nominating Committee called for the express purpose of selecting such nominee
or filing such vacancy. Any individual selected by the Board of Directors to
serve as a member of the Board of Directors as a Joint Designee if the Joint
Nominating Committee is unable to agree upon a nominee or a person to fill a
vacancy, must (i) not be a Family Member of either Christopher or Kalitta, (ii)
not be a former or current employee of any Kalitta Company or AIA, the Company,
the Subs or the Subsidiaries, (iii) have within the preceding sixty (60) months
been a director, chief financial officer, or chief executive officer of a
company listed on the New York Stock Exchange or the American Stock Exchange or
quoted on the NASDAQ Stock Market's National Market System and (iv) be a
citizen of the United States. If the person so chosen by the Board of
Directors declines or is unable to serve, then either member of Joint
Nominating Committee may call a meeting of the Nominating Committee to choose
another person to serve as a director of the Company (in which case all of the
provisions of this Section 3.1.3 shall again apply).
3.1.4 Officers.
(a) The Bylaws of the Company have been amended at or prior to the
date of this Agreement to provide (i) that, until the first anniversary of the
date of this Agreement, the Chairman of the Board and Chief Executive Officer
shall be elected exclusively by the holders of Common Stock and shall serve as
the chief executive officer of the Company and, subject to the supervision of
the Board of Directors, shall have the general management and control of the
Company and its subsidiaries (including the right to vote (except as provided
in clause (ii) below solely for the one year period commencing on the date of
this Agreement) the voting securities of the subsidiaries of the Company held
by the Company on its behalf) and (ii) for the additional office of Vice
Chairman who until the
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first anniversary of the date of this Agreement, shall be elected exclusively
by the holders of Common Stock and shall serve as an officer of the Company and
shall have the right to vote the voting securities of AIA until the first
anniversary of the date of this Agreement solely for the purpose of electing
the President of AIA and against his removal except for cause. Until the first
anniversary of the date of this Agreement, each Stockholder hereby agrees to
vote (or to act by written consent with respect to), and to cause each of such
Stockholder's Affiliates to vote (or so act by written consent), all shares of
Common Stock and other Company voting securities Beneficially Owned by each of
them in favor of Christopher as Chairman of the Board and Chief Executive
Officer of the Company and Kalitta as Vice Chairman and against their removal
except for cause.
(b) The Amended and Restated Articles of Incorporation and Bylaws of
AIA in effect as of the date of this Agreement provide (i) that, until the
first anniversary of the date of this Agreement, the person serving as the
President of AIA shall serve as the chief executive officer of AIA and shall
have the general management and control of AIA subject only to supervision of
the Chief Executive Officer of the Company. The Company hereby agrees to vote
and to cause each of its Affiliates to vote (or act by written consent), all
shares of common stock of AIA and any other AIA voting securities Beneficially
Owned by the Company and its Affiliates, and Christopher, agrees to vote such
shares and voting securities as Chief Executive Officer of the Company for
Kalitta as President of AIA and against any removal of Kalitta as President of
AIA except for cause as defined in the Articles of Incorporation of AIA until
the first anniversary of the date of this Agreement and to refrain from
changing any provisions of the Articles of Incorporation or Bylaws of AIA
described in this Section 3.1.4(b). The Bylaws of the Company further provide
that the President of AIA is to report only to the Chief Executive Officer.
(c) The Bylaws of the Company have been amended to provide that
the provisions of such Bylaws described in this Section 3.1.4 may be amended
only by the affirmative vote of 70% of the members of the entire board of
Directors of holders of 75% of the outstanding Common Stock.
3.1.5 Termination of Governance Obligations. The rights and
obligations of the parties set forth in this Article III shall terminate upon
the earlier of (a) the expiration of the Term, (b) the death, Disability, or
voluntary resignation as a director of Kitty Hawk of, either Christopher or
Kalitta or (c) the sale of all shares Beneficially Owned by all Stockholders;
provided, that in the event of the voluntary resignation of Kalitta as a
director of Kitty Hawk, the Kalitta Stockholders shall remain subject to all
obligations to vote Common Stock and other Company voting securities as
provided in this Article III; and, provided further, that in the event of the
voluntary resignation of Christopher as a director of Kitty Hawk, Christopher
and Kitty Hawk shall remain
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subject to all of their and its obligations to vote AIA common stock and other
voting securities of AIA as provided in this Article III and the Christopher
Stockholders shall remain subject to all of his obligations to vote Common
Stock and other Company voting securities as provided in this Article III.
Article IV - Restrictions on Transfer of Common Stock
4. Restrictions on Transfers. Each of the Stockholders hereby
agrees that from the date hereof until the conclusion of the Term no Transfers
of any shares of Common Stock shall be made by such Stockholder to Permitted
Transferees or pursuant to an Exempt Transfer unless the Stockholder proposing
the Transfer shall notify the Company in writing and the proposed transferee
shall deliver to the Company a written instrument pursuant to which the
proposed transferee becomes a party to this Agreement and agrees to be bound by
the terms and conditions hereof to the same extent as if an original signatory
hereto.
Article V - Legend
5. Restrictive Legend.
5.1 Restrictive Legend. Each certificate evidencing
shares of Common Stock held by a Stockholder shall conspicuously contain a
restrictive legend substantially as follows:
"The sale, assignment, transfer, pledge, encumbrance, or other
disposition of the shares evidenced by this certificate, or any
interest in such shares, is restricted by the terms of a Stockholders'
Agreement dated as of __________, 199__, a copy of which is on file at
the principal office of the corporation. No such sale, assignment,
transfer, pledge, encumbrance or other disposition shall be effective
unless and until the terms and conditions of the aforesaid
Stockholders' Agreement shall have been complied with in full."
5.2 Removal of Restrictive Legend. The Company shall, or
shall cause its transfer agent to, remove such legend so that shares can be
transferred free of the legend upon the earlier to occur of (a) the third
anniversary date of this Agreement, (b) the termination of this Agreement or
(c) receipt of a written certification of a Stockholder that the shares in
question are being Transferred to person other than a Permitted Transferee or
to a person other than pursuant to an Exempt Transfer.
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Article VI - Registration of Common Stock
6. Registration of Common Stock.
6.1 Incidental Registration. If, at any time during the
Term, the Company proposes to register any of its securities under the
Securities Act, whether or not for sale for its own account, on a form and in
a manner which would permit registration of Registrable Securities for sale to
the public under the Securities Act (other than pursuant to a registration
statement filed pursuant to Rule 415 under the Securities Act), it will each
such time give prompt notice to all Stockholders who then hold Registrable
Securities of its intention to do so, describing such securities and specifying
the form and manner and the other relevant facts involved in such proposed
registration, and upon the request of any Stockholder delivered to the Company
within thirty (30) days after the giving of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Stockholder, which shall not be less than the greater of (x) fifty thousand
(50,000) shares of Registrable Securities (as such minimum number may be
adjusted pursuant to Section 6.1(iii) below) or (y) the number of shares of
Registrable Securities then owned by such Stockholder, and the intended method
of disposition thereof), the Company will use its commercially reasonable
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the
Stockholder, to the extent requisite to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Registrable Securities
so to be registered, provided that:
(i) if, at any time after giving such notice of
its intention to register any of its securities and prior to the
effective date of the registration statement filed in connection with
such registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
notice of such determination to each Selling Stockholder and thereupon
shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith);
and
(ii) if the registration so proposed by the
Company involves an underwritten offering of the securities so being
registered, whether or not for sale for the account of the Company, to
be distributed (on a firm commitment basis) by or through one or more
underwriters of recognized standing under underwriting terms
appropriate for such a transaction, and the managing underwriter of
such underwritten offering shall advise the Company by letter that, in
its opinion, the distribution of all or a specified portion of the
Registrable Securities which the Selling Stockholders have requested
the Company to register in accordance with this Section 6.1
concurrently with the securities being distributed by such
underwriters could adversely affect the distribution of such
securities by such underwriters (such letter to state the reasons
therefor), then the Company will promptly furnish each Selling
Stockholder with a copy of such letter and the Company
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<PAGE> 12
may deny, by notice to each Selling Stockholder accompanying such
letter, the registration of all or a specified portion of such
Registrable Securities (in case of a denial as to a portion of such
Registrable Securities, such portion to be allocated Pro Rata among
the Selling Stockholders); and
(iii) the minimum number of shares specified in
Section 6.1(x) above shall be appropriately adjusted in the event
that, subsequent to [INSERT DATE OF THE MERGER AGREEMENT] the
outstanding shares of Common Stock of the Company shall have been
increased, decreased, changed into or exchanged for a different number
or kind of shares or securities through a reorganization,
recapitalization, stock split, reverse stock split or other similar
change in the Company's capitalization;
(iv) if a Stockholder decides not to include all
of its Registrable Securities in any registration statement filed by
the Company pursuant to this Article VI, such Stockholder shall
nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement(s) as may be filed
by the Company with respect to offerings of securities, all upon the
terms and conditions set forth herein.
The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities requested pursuant to this
Section 6.1.
6.2 Registration Procedures. If and whenever the Company
is required to use its commercially reasonable efforts to effect the
registration of any Registrable Securities under the Securities Act as provided
in Section 6.1, the Company will as expeditiously as possible:
(i) prepare and promptly file with the Commission
a registration statement with respect to such Registrable Securities
and use its commercially reasonable efforts to cause such registration
statement to become effective as promptly as practicable;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of
all Registrable Securities and other securities covered by such
registration statement until the earlier of such time as all of such
Registrable Securities and other securities have been disposed of in
accordance with the intended methods of disposition thereof set forth
in such registration statement or the expiration of thirty (30) days
after such registration statement becomes effective;
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<PAGE> 13
(iii) furnish to each Selling Stockholder, without
charge, such number of conformed copies of such registration statement
and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, such documents incorporated by
reference in such registration statement or prospectus, and such other
documents, as such Selling Stockholder may reasonably request;
(iv) use its commercially reasonable efforts to
register or qualify all Registrable Securities and other securities
covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each Selling Stockholder (or in an
underwritten offering, the managing underwriter) shall reasonably
request, and do any and all other acts and things which may be
necessary or advisable to enable such Selling Stockholder to
consummate the disposition in such jurisdictions of his or its
Registrable Securities covered by such registration statement, except
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified, or to subject itself to taxation in
any such jurisdiction, or to consent to general service of process in
any such jurisdiction;
(v) furnish to each Selling Stockholder a signed
counterpart, addressed to such Selling Stockholder, of (A) an opinion
of counsel for the Company, dated the effective date of such
registration statement (or, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement speaking both as of the effective date of the
registration statement and the date of the closing under the
underwriting agreement) and (B) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have certified the Company's
financial statements included in such registration statements,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein), and, in
the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities and, in the case of the accountants' letter,
such other financial matters, as such Selling Stockholder may
reasonably request;
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<PAGE> 14
(vi) immediately notify each Selling Stockholder,
at any time when a prospectus relating to such Selling Stockholders'
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and at the request of any such Selling Stockholder prepare
and furnish to such Selling Stockholder a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities or other securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(vii) otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of the
Commission, and make available to its securities holders, as soon as
reasonably practicable, an earnings statement covering the period of
at least twelve (12) months, but not more than eighteen (18) months,
beginning with the first month of the first fiscal quarter after the
effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(viii) use its commercially reasonable efforts to
have such securities listed on the New York Stock Exchange or included
for quotation on the Nasdaq National Market or listed on each
securities exchange on which the securities of the Company are then
listed or quoted, if such securities are not already so listed or
quoted and if such quotation or listing is then permitted under the
rules of such self-regulatory association or exchange, and, if
necessary, provide a transfer agent and registrar for such securities
not later than the effective date of such registration statement.
The Company may require each Selling Stockholder to furnish to
the Company such information regarding such Selling Stockholder and the
distribution of such securities as the Company may from time to time reasonably
request and as shall be required by law or by the Commission in connection
therewith.
6.3 Stockholder Undertakings. Each Stockholder covenants
with the Company as follows:
(a) No Stabilization. No Stockholder shall effect any
stabilization transactions or engage in any stabilization activity proscribed
by Regulation M under the Exchange Act in connection
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<PAGE> 15
with any securities of the Company during the period of any distribution of the
Registrable Securities by Selling Stockholders pursuant to any Registration
Statement.
(b) Brokers. Each Selling Stockholder (i) shall
furnish each broker through whom such Selling Stockholder offers the
Registrable Securities such number of copies of any Prospectus and any
supplements thereto or amendments thereof which such broker may require
(provided that the Company has provided such Selling Stockholder with such
Prospectus, supplements and amendments), (ii) shall inform such broker as to
the number of Registrable Securities offered through such broker, that such
Registrable Securities are part of a distribution and that such broker is
subject to the provisions of Regulation M under the Exchange Act until such
time as such broker has completed the sale of all such Registrable Securities,
and (iii) shall notify such broker when distribution of the sale of all such
Registrable Securities, and (iii) shall notify such broker when distribution of
the Registrable Securities by such Selling Stockholder pursuant to any
registration statement has been completed or any registration statement is no
longer effective or is withdrawn.
(c) Amendments and Supplements. Each Selling
Stockholder shall promptly furnish to each person (including each broker) to
whom such Selling Stockholder has delivered copies of the prospectus an
equivalent number of copies of any amendment thereof or supplement thereto
(provided that the Company has provided such Selling Stockholder with such
amendment or supplement).
(d) Transaction Information. Each Selling Stockholder
shall report promptly to the Company upon any disposition of Registrable
Securities by such Selling Stockholder and upon completion of the distribution
of such Selling Stockholder's Registrable Securities pursuant to any
registration statement.
(e) Exchange Act Compliance. Each Selling Stockholder
shall, at any time such Selling Stockholder is engaged in a distribution of the
Registrable Securities under any registration statement, comply to the extent
required with Rules 10b-5 and Regulation M (as currently in effect or as
amended or any successor or similar provisions) promulgated under the Exchange
Act and shall distribute the Registrable Securities solely in the manner
described in any registration statement, and shall not do any of the following
during the period from the effective date of any Registration Statement until
the completion of any offering of the Registrable Securities by such Selling
Stockholder pursuant to such registration statement:
(i) Bid for or purchase, for any account in which
such Selling Stockholder or any affiliate of such Selling Stockholder has a
beneficial interest, any securities of the
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<PAGE> 16
Company other than in transactions permitted by Regulation M under the Exchange
Act;
(ii) Attempt to induce any person to purchase any
securities of the Company other than in transactions permitted by Regulation M
under the Exchange Act; and
(iii) pay or offer or agree to pay to anyone,
directly or indirectly, any compensation for soliciting another to purchase any
securities of the Company on a national securities exchange or automated
quotation system or pay or offer of agree to pay to anyone any compensation for
purchasing securities of the Company on a national securities exchange or
automated quotation system other than those securities offered by such Selling
Stockholder.
(f) Publicity; Selling Efforts. Each Selling
Stockholder shall not, during the period of any offering by such Selling
Stockholder of any Registrable Securities under any registration statement, use
or disseminate any information concerning the Company other than the prospectus
(or any amendment thereof or supplement thereto furnished by the Company) and
may not undertake any form of publicity with respect to the Company or engage
in any similar activities that may be deemed to be an unlawful selling effort
within the meaning of Section 10 of the Exchange Act.
(g) Brokerage Commissions. Except as disclosed
in the prospectus, a Selling Stockholder will not pay unusual or special
brokerage commissions (other than ordinary brokerage arrangements) on any sales
effected through a broker, and no selling arrangement will have been entered
into between a Selling Stockholder and any securities dealer or broker.
(h) Intentionally Omitted.
(i) Conditions to Inclusion. As a condition to
each Selling Stockholder's right to include Registrable Securities in a
registration pursuant to this Article VI, such Selling Stockholder shall if
requested by the Company in connection with such registration, (i) agree to
sell such Registrable Securities to be included in such registration on the
basis applicable to other selling security holders as provided in any
underwriting arrangements entered into by the Company in connection therewith,
(ii) complete and execute all questionnaires, powers of attorney, underwriting
agreements and other documents that are reasonably requested and are customary
under such arrangements (and as are required of all other selling security
holders) and (iii) promptly provide any information reasonably requested by the
Company concerning such Selling Stockholder's specified plan of distribution
and other information.
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<PAGE> 17
6.4 Underwriters. If the Company at any time proposes to
register any of its securities under the Securities Act whether or not for sale
or for its own account, and such securities are to be distributed by or through
one or more underwriters, the Company will use commercially reasonable efforts,
if requested by a Selling Stockholder who requests incidental registration of
Registrable Securities in connection therewith pursuant to Section 6.1, to
arrange for such underwriters to include such Registrable Securities among
those securities to be distributed by or through such underwriters; provided
that, without limitation, neither the Company nor any other holder of the
securities proposed to be distributed by or through such underwriters shall be
required or obligated to reduce the amount or sale price of such securities
proposed to be so distributed. The Selling Stockholders on whose behalf
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters, shall also be made to and for the benefit of
such holders of Registrable Securities. If the Company at any time proposes to
register any of its securities under the Securities Act for sale of its own
account and such securities are to be distributed by or through one or more
underwriters, the managing underwriter shall be selected by the Company. If
any registration pursuant to Section 6.1 shall be in connection with any
underwritten public offering, each holder of Registrable Securities agrees, if
so required by the managing underwriters, not to effect any public sale or
distribution of Registrable Securities (other than as part of such underwritten
public offering) within the period of time between seven (7) days prior to the
effective date of such registration statement and 180 days after the effective
date of such registration statement.
6.5 Preparation; Reasonable Investigation. In connection
with the preparation and filing of such registration statement registering
Registrable Securities under the Securities Act, the Company will give the
Selling Stockholders on whose behalf such Registrable Securities are to be so
registered and their underwriters, if any, and their respective counsel and
accountants, reasonable opportunity to review and comment upon such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each of them reasonable access to its books and records and reasonable
opportunity to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the reasonable opinion of such holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act. Notwithstanding anything herein to
the contrary, the Company shall have the sole right to determine the content of
any registration statement, prospectus, supplement thereto or amendment
thereof, provided such determination is in accordance with the applicable
requirements of the Securities Act.
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6.6 Company's Indemnification. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless in the case of any
registration statement filed pursuant to Section 6.1, each Selling Stockholder
of any Registrable Securities covered by such registration statement, each
officer and director of each underwriter and each Selling Stockholder, each
other person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls any Selling Stockholder
or any such underwriter within the meaning of the Securities Act against any
losses, claims, damages, liabilities and expenses, joint or several, to which
any such Selling Stockholder or any such director or officer or participating
or controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings or investigations in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus (unless any
such statement is corrected in a subsequent prospectus and Selling Stockholder
(and the underwriters, if any) is given the opportunity to circulate the
corrected prospectus to all persons receiving the preliminary prospectus),
final prospectus or summary prospectus included therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any
violation by the Company of any securities laws, and the Company will reimburse
each such Selling Stockholder and each such director, officer, participating
person and controlling person for any legal or any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
shall not be liable to any Selling Stockholder, director, officer,
participating person or controlling person in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company in an instrument executed by
or under the direction of such seller, director, officer, participating person
or controlling person for use in the preparation thereof, which information was
expressly provided for use in the registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any such Selling Stockholder or any such
director, officer, participating person or controlling person and shall survive
the
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transfer of such securities by such seller. The Company shall agree to provide
for a customary contribution provision relating to such indemnity if requested
by any Selling Stockholder or the underwriters.
6.7 Selling Stockholders Indemnification. The Company
may require, as a condition to including any Registrable Securities in any
registration statement filed pursuant to Section 6.1, that the Company shall
have received an agreement reasonably satisfactory to it from each of the
prospective Selling Stockholders of such Registrable Securities and their
underwriters, to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 6.6) the Company, each director of the
Company, each officer of the Company who shall sign such registration statement
and each other person, if any, who controls the Company within the meaning of
the Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, but only
if such statement or omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly
executed or provided by such Selling Stockholder (or in the case of
indemnification by the underwriters, by such underwriters) which specifically
states or otherwise identifies it as being expressly for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling person and shall
survive the transfer of such Registrable Securities by such Selling
Stockholders.
6.8 Indemnification; Contribution Mechanism. Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in either Section 6.6 or
6.7, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Section 6.6 or 6.7, as is
applicable, except to the extent that the indemnifying party's liabilities and
obligations are increased as a result of such failure to give notice. In case
any such action is brought against an indemnified party, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party to its election so
as to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense
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thereof unless (i) the indemnifying party shall have failed to retain counsel
for the indemnified party as aforesaid, (ii) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(iii) representation of such indemnified party by the counsel retained by the
indemnified party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other person represented by
such counsel in such proceeding or (iv) the indemnified party shall have
reasonably concluded that there may be legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to direct the
defense of such action on behalf of the indemnified party). No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. The indemnifying party shall not be liable for
any settlement of any proceeding effected without the written consent of such
indemnifying party, but if settled with such consent or if there shall be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify
each indemnified party from and against any loss or liability by reason of such
settlement or judgment.
6.9 Other Indemnification. Indemnification similar to
that specified in Section 6.6 and Section 6.7 (with appropriate modifications)
shall be given by the Company and each Selling Stockholder of Registrable
Securities with respect to any required registration or other qualification of
such Registrable Securities under any state securities law or regulation.
Article VII - Representations
7. Representations and Warranties.
7.1 Stockholders' Representations and Warranties. Each
Stockholder hereby represents and warrants to the Company and to the other
Stockholder as follows:
(i) Such Stockholder has the requisite capacity,
power and authority to enter into and perform such Stockholder's
obligations under this Agreement.
(ii) The execution, delivery and performance of
this Agreement has been duly authorized by all requisite action by
such Stockholder. This Agreement has been duly executed and delivered
by such Stockholder and constitutes the legal, valid and binding
obligation of such Stockholder enforceable in accordance with its
terms, except as such enforcement may be limited be general principles
of equity, whether applied in a court of law or a court of equity, and
bankruptcy, insolvency and similar laws affecting creditors' rights
and remedies generally.
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(iii) Neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated
hereby, nor compliance with the terms and provisions hereof, will
conflict with, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, any applicable law, or
of any order, writ, injunction or decree of any court, administrator
or arbitrator, or of any agreement or instrument under which such
Stockholder is obligated or by which any of such Stockholder's
property is bound.
(iv) There are no agreements to which such
Stockholder is a party that relate to the voting of Common Stock, the
nomination or election of directors or the control of the Company,
except for this Agreement.
(v) Each Stockholder is the record and Beneficial
Owner of the number of share of Common Stock of the Company set forth
opposite such Stockholder's name on Schedule 1 hereto, and owns such
shares of Common Stock free and clear of all liens, security
interests, pledges, charges or encumbrances of any nature whatsoever.
7.2 Company's Representations and Warranties. The
Company hereby represents and warrants to each Stockholder as follows:
(i) The Company has the requisite corporate power
to enter into and perform the Company's obligations under this
Agreement.
(ii) The execution, delivery and performance of
this Agreement has been duly authorized by all requisite corporate
action by the Company. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable in accordance with its terms,
except as such enforcement may be limited by general principles of
equity, whether applied in a court of law or a court of equity, and
bankruptcy, insolvency and similar laws affecting creditors' rights
and remedies generally.
(iii) Neither the execution nor delivery of this
Agreement nor the consummation of the transactions contemplated
hereby, nor compliance with the terms and provisions hereof, will
conflict with, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, any applicable law, or
of any order, writ, injunction or decree of any court, administrator
or arbitrator, or of any agreement or instrument under which the
Company is obligated or by which any of the Company's property is
bound.
-21-
<PAGE> 22
(iv) There are no agreements to which the Company
is a party that relate to the voting of Common Stock, the nomination
or election of directors or the control of the Company, except for
this Agreement.
Article VIII - General Provisions
8. General Provisions.
8.1 Notices. All notices, requests and other
communications ("Notices") to any party hereunder shall be in writing and shall
be deemed to have been duly given and received (i) upon receipt, if delivered
personally with receipt acknowledged, (ii) three (3) business days after
mailing by certified or registered mail or equivalent, return receipt
requested, postage prepaid or one (1) day after mailing by overnight courier
for next day delivery, in each case addressed to the Company at 1515 West 10th
Street, Suite 3100, Dallas Texas 75261, Attention: Chairman, to any Stockholder
at his or its address set forth on Schedule 1 hereto, as is applicable, or to
such other address as such party may hereafter specify by Notice to the other
parties or (iii) one (1) business day after telecopying to the Company at (972)
456-2221 and to any Stockholder at the number set forth on Schedule 1 hereto,
as is applicable, or to such changed number as such party shall hereafter
specify by Notice to the other parties; provided, however, that any Notice of
change of address or telecopier number shall be effective only upon receipt and
a copy of any Notice sent by telecopier shall also be sent by registered or
certified mail or equivalent, return receipt requested, postage prepaid.
8.2 Equitable Relief. The parties hereto agree that
legal remedies may be inadequate to enforce the provisions of this Agreement,
and that each party shall have the right, in addition to any other rights it
may have at law, to equitable relief, including specific performance and
injunctive relief, to enforce the provisions of this Agreement.
8.3 No Third Party Beneficiaries; Additional Parties.
This Agreement does not create, and shall not be construed as creating, any
rights enforceable by any person not a party to this Agreement except that any
Permitted Transferee or person receiving a Transfer pursuant to an Exempt
Transfer shall be deemed to be a Stockholder and shall be bound by all
obligations and, except to the extent limited in such agreement, entitled to
all rights and privileges of a Stockholder as if such person had been an
original signatory to this Agreement.
8.4 Amendments. Any provision of this Agreement may be
amended only if such amendment is in writing and is signed by the Company and
by the Requisite Christopher Stockholders and the Requisite Kalitta
Stockholders.
-22-
<PAGE> 23
8.5 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective personal or legal representatives, executors, heirs,
successors and permitted assigns.
8.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas without regard
to any applicable conflicts of law provisions thereof.
8.7 Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. An executed counterpart received by telecopy shall have the same
effect as an originally-executed counterpart.
8.8 Captions. The captions in this Agreement are
included for convenience of reference only, do not constitute a part hereof and
shall be disregarded in the interpretation or construction hereof.
8.9 Entire Agreement. This Agreement, together with the
Schedules hereto, constitutes the entire agreement among the parties hereto
with respect to the subject matter hereof and supersedes all previous
agreements, whether written or oral, relating to the same subject matter,
including without limitation any existing stockholder agreements and agreements
in respect of registration rights. All such previous agreements, if any, among
the parties hereto (or any of them) are hereby terminated and shall have no
further force or effect.
8.10 Termination. This Agreement may be terminated at any
time by an instrument in writing signed by the Company, the Requisite
Christopher Stockholders and the Requisite Kalitta Stockholders. This
Agreement shall automatically terminate on the earlier of the date when none of
the Stockholders is the Beneficial Owner of any shares of Common Stock or the
expiration of the Term.
8.11 Minimum Equity Ownership Requirement. Notwithstanding
anything to the contrary otherwise contained elsewhere in this Agreement, in
the event that the Kalitta Stockholders or the Christopher Stockholders shall
cease to be the Beneficial Owners of an aggregate of at least one percent (1%)
of the outstanding shares of Common Stock, then the Kalitta Stockholders or the
Christopher Stockholders, as applicable, shall no longer be deemed
"Stockholders" for purposes of Article VI of this Agreement and shall have no
further rights or obligations as "Stockholders" under Article VI hereof.
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Kitty Hawk, Inc.
By:
-------------------------------------
Its:
------------------------------
----------------------------------------
M. Tom Christopher
----------------------------------------
Conrad Kalitta
-24-
<PAGE> 25
Schedule 1
Stockholders
<TABLE>
<CAPTION>
Name and Address Shares of Common Stock
---------------- ----------------------
<S> <C>
Conrad Kalitta
[ADDRESS AND FAX NO.] ------------
M. Tom Christopher
[ADDRESS AND FAX NO.] ------------
</TABLE>
-25-
<PAGE> 1
EXHIBIT 10.20
AGREEMENT BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
And The
PILOTS, CO-PILOTS AND
FLIGHT ENGINEERS
In The Service Of
AMERICAN INTERNATIONAL AIRWAYS, INC.
As Represented By
THE TEAMSTERS - AIRLINE DIVISION
<PAGE> 2
July 20, 1995
TENTATIVE CONTRACT AGREEMENT
In reference to NMB Case: A-1602
On July 20, 1995, American International Airways, Inc., and the International
Brotherhood of Teamsters agree that the attached "Tentative Contract" between
the parties is final and binding upon the parties, pending ratification of the
membership.
Dated: July 20, 1995
For American International Airways, Inc.
Airways, Inc.
- -----------------------------------------------
For: The International Brotherhood of Teamsters
Brotherhood of Teamsters
- -----------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Article Title No.
- ------- ----- ----
<S> <C>
I RECOGNITION, PURPOSE, SCOPE AND MERGERS
II DEFINITIONS
III UNION SECURITY
IV SENIORITY
V GRIEVANCE PROCEDURE
VI SYSTEM BOARD OF ADJUSTMENT
VII BOARD OF ARBITRATION
VIII FURLOUGH AND RECALL
IX LEAVES OF ABSENCE
X SICK LEAVE
XI VACATION
XII VACANCY BIDDING
XIII TRAINING AND UPGRADING
XIV SCHEDULING
XV HOURS OF SERVICE
XVI UNIFORMS
XVII PHYSICAL EXAMINATIONS
XVIII HEALTH AND WELFARE
XIX COMPENSATION
XX EXPENSES, LODGING & TRANSPORTATION
XXI GENERAL CONDITIONS
XXII MISSING, INTERNMENT, PRISONER OR
HOSTAGE OF WAR BENEFITS, HIJACKING
XXIII STRIKE, LOCKOUT RIGHTS
XXIV EXTENDED ROTATION
XXV MANAGEMENT RIGHTS
XXVI NEW BASES
XXVII DURATION
LETTER OF AGREEMENT
</TABLE>
Dated: July 28, 1994 - Flight Engineer Upgrade
<PAGE> 4
AGREEMENT BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND THE
PILOTS, CO-PILOTS AND FLIGHT ENGINEERS
IN THE SERVICE OF
AMERICAN INTERNATIONAL AIRWAYS, INC.
AS REPRESENTED BY
THE TEAMSTERS AIRLINE DIVISION
This Agreement is made and entered into in accordance with the provisions of
the Railway Labor Act, as amended, by and between American International
Airways, Inc., hereinafter known as the "Company", and the Pilots, Co-Pilots
and Flight Engineers (herein after known as the "Crewmembers") in the service
of the Company as represented by the International Brotherhood of Teamsters
Airline Division, hereinafter known as the "Union".
ARTICLE I - RECOGNITION, PURPOSE, SCOPE AND MERGERS
(A) NATIONAL MEDIATION BOARD CERTIFICATION
Pursuant to the certification by the National Mediation Board in Case Nos.
R-6152 (Pilots) and R-6145 (Flight Engineers) dated December 17, 1992, the
Company hereby recognizes the International Brotherhood of Teamsters Airline
Division, as the duly designated and authorized representative of the Pilots,
Co-Pilots and Flight Engineers in the employ of American International Airways,
Inc. D/B/A Connie Kalitta Services, Inc for the purposes of the Railway Labor
Act, as amended.
(B) PURPOSE OF AGREEMENT
In the mutual interests of the Crewmembers and of the Company, the purpose of
this Agreement is to provide for orderly collective bargaining relations
between the Company and the Union and a method for the prompt and equitable
disposition of grievances, and a method for the establishment of fair wages,
hours and working conditions for the crewmembers covered hereunder. In making
this Agreement, it is recognized to be the duty of the Union, the Crewmembers
and the Company to cooperate fully for the advancement of the purpose of this
Agreement.
(C) SOLE AGREEMENT
This Agreement shall supersede all existing or previously executed Agreements
by and between the Company and the Union or any other labor organization or
individual with respect to the rates of pay, rules, or working conditions
specifically covered by the provisions of the Agreement in accordance with the
provisions of the
1
<PAGE> 5
Railway Labor Act, as amended. Any and all subsequent modification of this
agreement shall be reduced to writing, signed by their authorized
representatives, and become a part of this Agreement.
(D) Whenever the words "Pilot(s)", "Flight Engineer(s)", or
"Crewmember(s)" are used in this Agreement, they designate and refer to only
such employees as are covered by this Agreement. It is further recognized that
wherever Crewmembers are referred to in this Agreement in either the masculine
or feminine gender, it shall be understood to mean both male and female
Crewmembers. It is further understood that there shall be no discrimination by
either party against any Crewmember who is now, or may become, subject to the
terms of this Agreement because of age, race, sex, color, religion or national
origin.
(E) SCOPE, CONSOLIDATION OR ACQUISITION
1. It is agreed that all present and future flying performed in
and for the service of the Company under FAR Part 121, and all ferry flights
under FAR Part 91 for the purpose of positioning and/or depositioning from or
to a revenue trip, in aircraft listed on the Company's Operations
Specifications List presently issued by the FAA, or any future list, shall be
performed by Crewmembers on the Company Master Seniority List in accordance
with the terms and conditions of this Agreement or any other applicable
agreement between the Company and the Union.
2. In the event that no Crewmember on the Company Master
Seniority List is available, or qualified for the purpose of operating a
flight, the Company shall have the right to obtain temporary crewmembers to
operate said flight. This applies only to FAR part 91 ferry flights. No
Crewmember on the Company Master Seniority List shall be reduced in crew class
or suffer any loss of guarantee as defined in Article XIX, or employee benefits
as defined in Article XVIII, as a result of the flight.
3. In the event the Company's operational requirements
necessitate the wet lease of additional equipment in order to provide service
to its customers or potential clients and/or the expansion of its markets, the
following procedures shall apply:
a. The Company shall notify the Union within three (3)
working days prior to the commencement of any lease operation, to
include the reason(s) for the lease, the equipment to be utilized, the
hours of flying, the duration, and the effect of the operation upon
the Company's Crewmembers. This applies only to wet lease agreements
of more than fifteen (15) days.
b. No Crewmember within the bargaining unit on the date
of any wet lease shall be reduced in crew class or suffer any loss of
guarantee as defined in Article XIX, or employee benefits as defined
in Article XVIII, as a result of the wet lease agreement.
2
<PAGE> 6
4. In the event the Company purchases or acquires another Company
that employs Crewmembers or has a lease agreement for Crewmembers, no
Crewmember within the bargaining unit on the date of acquisition or purchase
shall be reduced in crew class or suffer any loss of guarantee as defined in
Article XIX, or employee benefits as defined in Article XVIII, as a result of
such acquisition or purchase.
5. The Company agrees not to establish a third party leasing
device to evade this Agreement.
ARTICLE II - DEFINITIONS
As used in this Agreement, except as otherwise provided:
(A) "Pilot" means Captain or First Officer as herein defined.
(B) "Captain" means the Pilot who is designated to be in command of the
aircraft and its crewmembers while on duty and who is properly qualified under
F.A.R. Part 121 to serve as a Captain and holds a Crew Class bid as a Captain.
(C) "First Officer" means a Pilot, who is designated as second in command,
and who is properly qualified under F.A.R. Part 121 to serve as a First Officer
and holds a Crew Class bid as a First Officer.
(D) "Flight Engineer" means a Crewmember whose duty is to perform the
function of a Flight Engineer as designated and who is properly qualified to
serve as a Flight Engineer under F.A.R. Part 121, and holds a Crew Class bid as
a Flight Engineer.
(E) "A & P Flight Engineer" means a Crewmember whose duty is to perform
the function of a Flight Engineer as specified by the Company and who holds an
Airframe and Powerplant Certificate and has been designated by the Company to
perform required maintenance on Company Aircraft and holds a Crew Class bid as
a Flight Engineer.
(F) "Category" means the respective crew skill (Pilot or Flight Engineer)
held by a Crewmember.
(G) "Crewmember" means the Pilots and Flight Engineers covered by this
Agreement employed by the Company.
(H) "Crew Class" means the respective job designation of a Crewmember
within his respective category, as follows:
3
<PAGE> 7
<TABLE>
<CAPTION>
CATEGORY CREW CLASS
<S> <C>
(Craft) (Bid)
Pilot Captain
First Officer
Flight Engineer Flight Engineer
A & P Flight Engineer
</TABLE>
(I) "Flight Pay" means the hourly rate of pay based on the time the
Crewmember performs the duties of a Crewmember, and shall be measured Block to
Block.
(J) "Block to Block" means the period of time from the moment the
restraining devices are removed from the aircraft for the purposes of flight,
until restraining devices are reinstalled at either the point of departure, an
intermediate stop, or the final destination.
(K) "Standing bid on File", is a bid submitted in conjunction with a
Master bid that reflects a Crewmember's preference(s).
(L) "Master Bid" is a list of current and projected aircraft type and Crew
Class positions provided by the Company.
(M) "Type" means the various aircraft operated by the Company.
(N) "Base" means the geographical point designated by the Company from
which a Crewmember operates.
(O) "Domestic" means the forty-eight (48) contiguous states and the
District of Columbia as defined in the F.A.R.'s.
(P) "International" means any point or area outside the forty-eight (48)
contiguous states and the District of Columbia as defined in the F.A.R.'s.
(Q) "Reduction" means a reduction in flying hours caused by whatever
reason and is considered a temporary situation.
(R) "Revenue Flying" for crew pay purposes means all flying performed on
aircraft operated by the Company.
4
<PAGE> 8
(S) "Duty Time" means that time interval between the time a Crewmember is
required to report for duty and the time he is released from duty as specified
in Article XV, Section B.
(T) "Day" means a calendar day, measured form 0001z to 2400z as specified.
(U) "Active Service" means all accumulated time, commencing with date of
hire as a Crewmember, for which the Crewmember is paid by the Company,
including any time that he receives any portion of sick leave pay.
(V) "Foreign Base" means any base outside the United States and the
District of Columbia.
(W) Bid Period - a period of duty days and intervening days off, beginning
at 0001Z on the first day of the month and ending at 2400Z on the last day of
the month. There are 12 bid periods in a calendar year.
(X) "Month" means the period of time commencing with and including the
first day of the month up to and including the last of the month with the
exception of the first quarter of the year which shall be as follows:
January shall commence on January 1 at 0001Z, and end on January 30 at
2400Z; February shall commence on January 31 at 0001Z and end March 1
at 2400Z; March shall commence on March 2 at 0001Z and end March 31 at
2400Z.
(AA) Deadhead - the time spent by a Crewmember in traveling from
one point to another at the direction of the Company, either for duty or
returning from duty.
(BB) Wet Lease - The leasing of aircraft with a flight crew.
(CC) A Line of Flying - a Crewmember's scheduled activities and
intervening days off for a bid period, including scheduled flights, layovers,
deadhead time and other related activities.
(DD) Master Crew Schedule - the schedule of all Crewmember's work
and trip information for a bid period, including, but not limited to, all
regular and reserve lines of flying, training, layovers, etc., which is posted
by the Company after assignments have been awarded to the Crewmembers in
accordance with their seniority.
(EE) Minimum Bid Period Guarantee (MBPG) - the minimum credit hours
a Crewmember will receive in a bid period.
5
<PAGE> 9
(FF) Open Time - flights which have become available because of
training, vacations, sick leave, etc., after completion of the bid awards.
(GG) Reserve Line - a Crewmember's scheduled days of reserve duty
and intervening days off for a bid period.
(HH) Training - all types of training to include, but not limited
to Initial, Transaction, Recurrent, Proficiency, Upgrade, Differences, etc.
(II) Dry Lease - The leasing of an aircraft without a flight crew.
(JJ) Reserve Crewmember - A Crewmember that holds or is assigned to
a Reserve Line of flying that contains open time trips that do not fit into the
Master Crew Schedule for a bid period.
(KK) Reserve Period - A fixed period of time within a 24 hour day,
that a Crewmember may be assigned to a trip.
(LL) "F.A.R." shall mean Federal Aviation Regulations.
(MM) "Duty Day" means a scheduled day that a Crewmember is required
to report for work.
(NN) Bid Selection Board - A Board of review that determines the
fitness and qualifications of Crewmembers recommended for advancement in
Category or Crew Class to fill vacancy positions created by the Company.
(OO) "Aloft" shall mean the same as "block to block" as defined in
this Agreement.
(PP) "Flight Deck Duty" is defined as the time a required
Crewmember is at his station in the cockpit during block to block operations.
(QQ) New Base
a. A new base is geographical location to which
Crewmembers are assigned, but to which no Crewmembers were assigned
the prior month. A base shall be considered new for a period of six
(6) months after any Crewmembers covered by this Agreement were first
assigned to it.
b. In the event the Company assigns a new or existing
aircraft type to an established base to which such equipment was not
assigned in the prior month, such base will be deemed to be a new base
for Crewmembers awarded
6
<PAGE> 10
permanent positions in such equipment at such base for a period of six
(6) months from the introduction of such aircraft type to that base.
ARTICLE III - UNION SECURITY
(A) UNION MEMBERSHIP
As a condition of employment, all employees of the Company that are covered by
this Agreement shall, not later than the first month after the effective date
of this Agreement or initial employment, and monthly thereafter, either tender
to the Union directly or authorize the employer to check off periodic and
uniformly required Union initiation fees and dues, or in the alternative,
service fees in an amount not more than the amount of initiation fees and dues.
It shall be a condition of employment that all Crewmembers of the Company
covered by this Agreement and hired on or after its effective date shall, on or
before the ninetieth (90) day following the beginning of such employment,
become and remain members in good standing in the Union, or in the alternative,
tender to the Union monthly dues required of the Union members, such sums to be
recognized as "Service Fee".
(B) INITIATION FEES AND DUES DEDUCTION
The Company shall deduct from the wages of any employee covered by this
Agreement said employee's dues plus $13.00, as a member of the Union, or
service fee plus $13.00, upon receiving the employee's voluntary and individual
written authorization for the Company to make such deductions, signed by the
employee. Such authorization form to be provided by the Union. It is
expressly agreed that no employee shall be deprived of employment under this
Article for any reason other than his failure to tender or authorize the check
off of periodic dues and/or initiation fees which are uniformly required as a
condition of acquiring and retaining membership in the Union or service fees
which shall be not more than the dues and initiation fees uniformly required
for Union members. The Company shall deduct said employee's dues in the month
in which the employee is recalled from furlough or returns from a leave of
absence. In the event the employee is recalled from furlough or returns from a
leave of absence after the dues have been deducted for the month, the Company
will be permitted make a double deduction in the following month.
The Company shall pay to the proper officers of the Union the wages withheld
for such initiation fees, service fees and/or Union dues. The amount so
withheld shall be deducted from the first paycheck in each month, reported and
paid to the Union within seven (7) days of the issuance of the paychecks. The
following information will be reported and transmitted with the monthly
checkoff: Employee's Social Security number, full name, due's rate, service
fees, rate of pay and status of employment.
7
<PAGE> 11
(C) INDEMNIFICATION CLAUSE
The Union agrees that it shall indemnify the Company and hold the Company
harmless from any and all claims which may be made by the employee or employees
against the Company by virtue of the wrongful application or misapplication of
any of the terms of this Article.
(D) DUES COLLECTION AFTER TERMINATION
In the event of termination of employment, there shall be no obligation upon
the Company to collect dues until all other deductions have been made.
(E) FAILURE TO PAY DUES OR SERVICE FEE
The Union agrees that written notice shall be given to the Company at least
thirty (30) days before the Company is required to remove such employee from
his employment by reason of his failure to maintain his membership in good
standing in the Union or pay service fee in accordance with Section (A) of this
Article.
(F) EMPLOYEE LIST
The Company will notify the Union each month of all new hires, terminations,
recalls and/or furloughs. The notification will include the employee's name,
address, social security number, classification and date of hire, termination,
recall or furlough.
(G) INDIVIDUAL DUES PAYMENT
It shall be the responsibility of any employee who is not on a dues deduction
program to keep his membership current by direct payment of monthly dues to the
Union.
(H) DUES DEDUCTION ERROR
Should a deduction be missed, or in the event an insufficient amount is
deducted, it is the employee's responsibility to make the proper adjustment
with the Union.
ARTICLE IV - SENIORITY
SECTION A. Seniority, except as modified below, shall be used to
determine promotion, retention in case of reduction, assignment or reassignment
due to expansion or reduction, and recall from furlough. Seniority shall also
apply in the following Articles: Furlough and Recall, Vacations, Leave of
Absence, Health and Welfare, Compensation, Vacancy Bidding, Training, and
Scheduling.
8
<PAGE> 12
1. VACANCIES
A. Vacancy - The Company shall determine the number(s) of vacancies per
Article XII - Vacancy Bidding.
B. Crewmember(s) bidding vacancies shall meet qualification for those
positions as outlines in Article XIII - Training and Upgrading.
C. Qualified bidders must be recommended by the Bid Selection Board prior
to selection for training Crewmembers that fail to qualify or be selected by
the Bid Selection Board shall be notified in writing of the reason(s) for non-
acceptance and recommendations for improvement.
D. The initial vacancy(s) shall be filled from Crewmembers(s) that bid
and are awarded the position(s) by Company System-Wide Category Seniority,
except as provided for in Articles XII and XIII.
E. Providing a vacancy(s) is created by (D) above, the vacancy(s) shall
be filled by the most senior Crewmember(s) from the same aircraft type that bid
the position(s).
F. Any additional vacancies created by (E) above may be filled at the
Company's discretion within thirty (30) days.
2. REDUCTIONS
When the Company determines that a furlough is necessary the following
procedure shall apply.
A. The Company shall determine the number of Crewmembers that must be
furloughed.
B. If the Company elects to discontinue or reduce the use of a certain
type of aircraft, Crewmembers from the discontinued or reduced aircraft type
shall be retained and trained in accordance with Article VIII -
Furlough/Recall.
3. Two separate Seniority Lists shall be established upon the date of
ratification of this Agreement. The Pilots' Category Seniority List shall be
based on the Crewmember's date of hire with the Company, as defined in C-1 of
this Article, adjusted, if necessary, for leaves of absence or furlough. The
Flight Engineers' Category Seniority List shall be based on Crewmembers date of
hire with the Company, as defined in C-1 of this Article, adjusted, if
necessary, for leaves of absence or furlough. The Pilots' Category Seniority
List and the Flight Engineers' Category Seniority List shall be established no
later than 30 days from date of ratification of this Agreement by the parties.
All Crewmembers on the payroll of the
9
<PAGE> 13
Company on the date of ratification shall be listed, by date of hire, on either
the Pilots' Category Seniority List or the Flight Engineers' Category Seniority
List.
4. The Pilots' Category Seniority List shall include all Captains, and
First Officers, as defined in Article II, Definitions. The Flight Engineers'
Category Seniority List shall include all Flight Engineers and A & P Flight
Engineers as defined in Article II, Definitions. All Crewmembers hired by the
Company after the date of ratification of this Agreement shall be placed on
either the Pilot Category Seniority List or the Flight Engineers Category
Seniority List based upon the date of hire.
5. The Company shall post the Pilot Category Seniority List and the
Flight Engineer Category Seniority list at the Company base(s) of operations,
and stations where the Company maintains an office. The Company shall mail a
copy of the Seniority List, to each Crewmember's home address. The person
issuing the List shall date and sign the List as of the date of issue and shall
provide a copy to the Union.
6. In addition to the Pilot Category Seniority list and the Flight
Engineer Category Seniority List, the Company shall construct and post a
seniority list by aircraft type. All Crewmembers shall be listed by original
date of hire, as defined in C-1 of this Article.
SECTION B. The Pilot Category Seniority List and the Flight Engineer
Category Seniority List at the time of execution of this Agreement is accepted
as final and binding on all parties, not withstanding B-1, B-2, of this
section.
1. All Crewmembers shall be listed on the Pilot Category Seniority List
or the Flight Engineer Category Seniority List, and each Crewmember shall be
permitted a period of ninety (90) days after posting of such List in which to
protest in writing to the Company any omission or incorrect posting affecting
his seniority. Any dispute that cannot be resolved, shall be presented to an
Arbitration process determined by the Executive Council.
2. In the event such Crewmember does not file a protest with the Company
within ninety (90) days, after the posting of such list, he shall not
thereafter be entitled to file such protest.
SECTION C. Seniority position shall be determined by applying the
following rules.
1. Seniority shall begin to accrue from the date a Crewmember is first
employed by the Company as a Crewmember in the FAR Part 121 Operations, and
shall continue to accrue during such period of employment except as otherwise
provided in this Agreement. A Crewmember shall be considered as first employed
on the date
10
<PAGE> 14
he is hired as a Crewmember in the FAR 121 operations. When two (2) or more
Crewmembers are employed on the same date in the same Category, they shall be
placed on such Category Seniority List according to their age; i.e., the oldest
Crewmember shall receive the most senior position on the list.
2. Any Crewmember once having established a seniority date hereunder
shall not lose that date except as provided below: (a) Resignation or
Retirement; (b) Termination; (c) Furlough of more than four (4) continuous
years.
3. When a junior Crewmember is promoted over a senior Crewmember by
reason of the failure of the latter to qualify in his turn, the more senior
Crewmember shall continue to retain his position on the Crewmember Category
Seniority List.
4. Seniority for longevity pay and other benefits not specifically
addressed herein shall be based upon the Crewmember's date of hire with the
Company in any capacity, adjusted, if necessary, for leaves of absence and
furloughs.
5. Crewmembers furloughed out of Seniority prior to the signing of this
Agreement will not have their original date of hire adjusted.
SECTION D. All of the Seniority Lists shall contain the following
information:
(a) The date of the list;
(b) The category identification of the list, i.e., pilot or flight
engineer;
(c) Seniority numbers;
(d) Crewmember's name:
(e) Date of hire;
(f) Birth date;
(g) Current aircraft assignment;
(h) Status (crew class);
(i) Check or management status; and
(j) Leave Status (Aircraft Type Seniority List only).
(k) Assigned Crew Base
1. Crewmembers shall be on probation until they have accumulated 14
months of service from date of hire in FAR 121 operation as a Crewmember, or
completed their annual proficiency check, whichever comes first. During this
period, such Crewmember will be placed on the Seniority List, but does not
accrue Seniority and may be discharged or disciplined without recourse to the
Grievance Procedure. At the completion of such probationary period, the
Seniority shall date back to the original date of hire as a Crewmember in the
FAR 121 operation. All time spent by a newly hired Crewmember in training or
probationary periods, shall be cumulative. A probationary Crewmember that is
furloughed or takes leave of absence during his
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<PAGE> 15
probationary period shall, upon recall, complete his probationary period;
however, previous active service will be cumulative for all pay and benefits.
SECTION E. In recognition of the fact that as of the date of ratification
of this Agreement, certain Crewmembers are holding Type and Crew Class
assignments not warranted by their date-of-hire seniority, the Company and the
Union agree that Crewmembers holding such assignments shall not be displaced.
As vacancies are filled by more senior Crewmember, these senior Crewmembers
shall be placed in Type and Crew Class according to their respective Category
Seniority list upon achieving required experience.
1. Upon establishment of the Pilot's Category and Flight Engineer's
Category Seniority Lists as outlined in this Article, the Company shall post a
"Master Bid". The Master bid shall clearly indicate all positions by Type and
Crew Class for each Type of aircraft being operated by the Company. The Master
Bid shall be mailed to each Crewmember's home address and posted at the all
Company base(s) of the operations, and at stations where the Company maintains
an office. The Company shall mail a copy of the Master Bid to the Union. The
Master Bid shall close thirty (30) days after date of posting. The Master Bid
shall remain in effect until a new Master Bid is issued by the Company. A
Crewmember may amend his "Standing Bid on File" any time prior to the closing
date for posted vacancies.
2. On the Master Bid, all Crewmembers shall submit bids. The Crewmember
may list multiple choices on his bid such as B-747 Captain, B-747 First
Officer, B-747 Flight Engineer, DC-8 Captain, DC-8 First Officer, DC-8 Flight
Engineer, etc. All Crewmembers will be assumed to have bid their present
position, if no bid is submitted.
3. All bids shall be made on forms provided and directed to the Office of
the Director of Operations. Each bid submitted shall become a "Standing Bid on
File" and shall be used for all subsequent bids or vacancies.
4. All Crewmembers holding a position in Type and Crew Class as of the
date of ratification of this Agreement may not be displaced by a more senior
Crewmember, except as provided for in this Agreement.
5. The Company shall issue a new "Master Bid" when it is known that a
type of aircraft, not currently listed on the Company's FAA certificate is to
placed into service.
SECTION F. Within the first ten (10) days of January and the first ten
(10) days of July, of each year, the Company shall issue and post at the
Company's base(s) of operation and stations where the Company maintains an
office, a Pilot Category Seniority List and Flight Engineer Category Seniority
List, compiled in accordance
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<PAGE> 16
with this Article. Such lists shall contain all information as defined in
Section D. of this Article.
The person issuing the Lists shall date and sign the Lists as of the date of
issue, and shall provide a copy to the Union. The provisions of Section (B)
(1)-(2) of this Article shall apply.
SECTION G. The following provisions will apply to Pilots and First
Officers over FAA Mandatory age.
1. Pilots and First Officers, whether in Active Service, on leave, or on
furlough status, who attain the age of sixty (60) years (or the then current
mandatory age) and are therefore not permitted by Federal Air Regulations to
fly as a Captain or First Officer may elect to exercise their seniority to fill
a vacancy as a Flight Engineer. The Crewmember must meet minimum experience
requirements as set forth in this Agreement. When the Crewmember has completed
training and is qualified in the new position, his name shall be placed at the
bottom of the Flight Engineers Seniority List for bidding purposes only. He
shall continue to retain his Company-Wide Seniority number, for longevity and
other benefits. The Crewmember shall complete a new Probationary Period as
covered in Section D-1 of this Article.
2. The Pilot must possess the appropriate medical certificate, A & P
License and evidence of satisfactory completion of required FAA written
examination to hold a Flight Engineer's position. The Crewmember must make
himself available at a time convenient to the Company for training for the
Flight Engineer position.
3. The Pilot electing to exercise this option, must notify the Director
of Operations, in writing, at least sixty (60) days prior to reaching age (60).
Failure to provide such notification to the Company shall constitute a waiver
of his rights under this Section.
SECTION H. The following provisions will apply to Pilots that fail to
maintain a First Class Medical certificate as required by the FAA.
1. Any Pilot that is able to maintain a Second Class medical certificate
may elect to remain as a First Officer.
ARTICLE V - GRIEVANCE PROCEDURE
SECTION 1. Any Crewmember or group of Crewmembers covered by this
Agreement who have a grievance shall have such grievance(s) considered and
processed in accordance with the following procedure. It is the intent of the
parties to resolve grievances or potential grievances informally, whenever
possible, and there shall be
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<PAGE> 17
an earnest effort on the part of the parties to settle grievances promptly in
accordance with the procedure outlined herein.
A grievance is hereby jointly defined to-be any controversy, complaint,
misunderstanding, or dispute arising as to interpretation, application or
observance of this Agreement.
All unsettled grievances, as defined above, shall be subject to the following
procedure:
(A) Any Captain or First Officer having a grievance shall present it to
the Chief Pilot or his designee. Any Flight Engineer having a grievance shall
present it to the Chief Flight Engineer or his designee. The Crewmember must
present the grievance within ten (10) days of his knowledge of its occurrence.
If satisfactory settlement is not reached within ten (10) days thereafter, then
the grievant(s) may proceed to Step "B" below.
(B) The Crewmember shall reduce the grievance to writing and present it to
the Director of Operations or his designee. All grievances must be filed in
writing within fifteen (15) days of failure to resolve the grievance in Step
"A" above. If satisfactory settlement is not reached within fifteen (15) days
thereafter, then the grievant(s) may proceed to Step "E" below.
(C) A Union Representative may accompany or represent any Crewmember in
Steps "A" and "B" above.
(D) The time limits set forth in Paragraphs "A" and "B" above, may be
extended in writing, by mutual agreement of the Company and the grievant(s).
(E) If the grievant(s) is not satisfied with the decision of the Director
of Operations or his designee or the Company fails to respond within the time
limits set forth, within "B" above, the grievant(s) may appeal such decision to
the Crewmember's Systems Board of Adjustment. Such appeal shall be made by the
grievant(s) in writing within fifteen (15) calendar days from the date of
receipt by the grievant(s) of the decision of the Director of Operations or his
designee.
(F) Failure on the part of the grievant(s) to appeal within the limits
specified herein, shall constitute a waiver of the failing party's position
unless an extension of time has been mutually agreed to in writing between the
Company and the grievant(s) or the Union.
SECTION 2. Nothing in this section shall be construed as extending the
rights of Section 1. to a probationary Crewmember as it relates to discipline
and/or discharge.
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<PAGE> 18
(A) The employer shall not be required to recognize any Crewmember as a
Union Representative unless, and until, the Union has duly certified, in
writing, that the Crewmember is a designated Union Representative.
(B) The Employer shall provide the Union, on the effective date of this
agreement, and immediately thereafter upon the effectuating of any changes
herein, the name of any individual to whom grievances are to be directed
pursuant to the steps outlined in Section 1., Paragraphs "A" and "B".
(C) In the case of discipline or discharge, such Crewmember shall be
notified in writing of the precise charge or charges against him, with a copy
to the Union Representative.
ARTICLE VI - SYSTEM BOARD OF ADJUSTMENT
SECTION 1. In compliance with Section 204, Title II of the Railway Labor
Act, as amended, there is hereby established a System Board of Adjustment for
the purpose of adjusting and deciding disputes which may arise under the terms
of the Grievance Procedure and which are properly submitted to it. The Board
shall be known as American International Airways Crewmembers Systems Board of
Adjustment, hereafter referred to as the "Board".
SECTION 2. COMPOSITION OF THE BOARD
(A) The Board shall consist of four (4) members, two (2) of whom shall be
selected and appointed by the Company and two (2) of whom shall be selected by
the Union, and such appointees shall be known as "Board Members." In addition,
the Company and the Union shall each designate/select an alternate, and in the
event of unavailability of a Board Member, such alternate shall serve in place
of the absent Board Member.
(B) The two (2) Board Members appointed by the Company and the two (2)
Board Members selected by the Union, and their alternates, shall serve for one
(1) year from the date of their selection and thereafter until their successors
have been duly selected. Vacancies shall be filled within thirty (30) days in
the same manner as is provided herein for the selection of the original Board
Members and the original alternates.
(C) The terms of office of Chairman and Vice Chairman shall be one (1)
year. Thereafter, from year to year, the Board shall designate one (1) member
to act as Chairman and one (1) member to act as Vice Chairman for one (1) year
or until his or her successor has been duly selected. Such terms of office
shall commence on January 1 of each year.
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<PAGE> 19
(D) The office of Chairman shall be filled and held alternately by a Board
Member selected by the Union and by a Board Member appointed by the Company.
When a Board Member selected by the Union is Chairman, a Board Member appointed
by the Company shall be Vice Chairman and vice versa. The Chairman, or in his
absence, the Vice Chairman, shall preside at meetings of the Board and at
hearings and shall have a vote in connection with all actions taken by the
Board.
(E) The Board shall meet at any location of its choosing commencing the
months of January, April, July and October of each year, at a time to be fixed
by the Board, provided that at such time there are cases filed with the Board
for consideration. The meetings shall continue in session until all matters
before it have been considered unless otherwise mutually agreed upon in
writing. The Chairman may schedule additional board meetings if requested by
other Board members as specified in Section 4-B below. Each party shall assume
the cost of their own expenses.
(F) Employees required to serve a Board Members shall be released from
flight duty and shall suffer no loss of guarantee pay.
(G) All members of the Board shall be employees of the Company.
SECTION 3. JURISDICTION OF THE BOARD
(A) The Board shall have jurisdiction over all disputes growing out of the
Grievance Procedure. The jurisdiction of the Board shall not extend to
negotiations of a new or revised Agreement.
(B) The Board shall consider any dispute properly submitted to it when
such dispute has not been previously settled in accordance with the provisions
of Grievance Procedure.
SECTION 4. PROCEEDING BEFORE THE BOARD
(A) All disputes properly referred to the board for consideration shall be
addressed, in writing, to the Chairman. Five (5) copies of each petition,
including all papers and exhibits in connection therewith, shall be forwarded
to the Chairman, who shall transmit one (1) copy thereof to each member of the
Board within seven (7) calendar days. Each case submitted in writing shall
include the following:
1. question or questions at issue;
2. statement of facts;
3. position of grievant(s);
4. position of the Company.
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<PAGE> 20
(B) Upon receipt of notice of the submission of a dispute, the Chairman
shall set a date for hearing, which shall be the time of the next regular
meeting of the Board as provided in Section 2-E. above, or if at least two (2)
Board Members, one (1) from the Company and one (1) from the Union, consider
the matter of sufficient urgency and importance, then at such earlier date and
at such place as the Chairman shall agree upon, but not more than thirty (30)
days after such request for a meeting is made. The Chairman shall give the
necessary notices in writing of such meeting to the Board Members and to the
parties to the dispute.
(C) Crew members covered by the grievance procedure may be represented at
the Board hearing by such person or persons as they may choose and designate,
and the Company may be represented by such person or persons as it may choose
to designate. Evidence may be presented either orally or in writing, or both.
(D) The Board Member(s) may summon witnesses who are deemed necessary by
the Board.
(E) The Board shall be competent to hear the disputes properly submitted
to it and decide such disputes by a majority vote of all members of the Board.
Decisions of the Board shall be final and binding upon the parties hereto.
SECTION 5. DEADLOCK PROCEDURES
(A) When a dispute is properly submitted to the Board for hearing before
the two (2) Company and two (2) Union Board Members, or their alternates, and
the Board is unable, by majority vote, to decide the dispute, the Board shall
declare itself deadlocked and the dispute may be submitted to the Board of
Arbitration by the Union within twenty (20) calendar days from the close of the
Board Hearing by written notice to the company with copies to the Chairman.
(B) If the Union fails to serve such notice within twenty (20) calendar
days, the Board of Arbitration shall have no jurisdiction. In such case, the
controversy shall be considered withdrawn and no action thereon shall be taken
thereafter by any party.
(C) It is understood and agreed that each and every Board Member shall be
free to discharge his duty in an independent and uncoerced manner without fear
that his individual relations with the Company, with the Crewmembers, or with
the Union will be affected in any manner by any action taken by him in good
faith in his capacity as a Board Member.
(D) If new evidence becomes available to the Company or the Union prior to
the scheduled date of Arbitration, the evidence shall be provided to the System
Board for consideration. If the Board determines that the evidence justifies a
"New Hearing"
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the Board shall notify the parties concerned. If the Board "deadlocks" on the
evidence submitted, the evidence shall be given to the arbitrator for his
consideration.
ARTICLE VII - BOARD OF ARBITRATION
SECTION 1. There is hereby established a Board of Arbitration,
hereinafter referred to as the "Arbitration Board," for the purpose of
adjusting disputes or grievances of any Crewmember which may arise under the
terms of this Grievance Procedure and which are properly submitted to it after
all steps for settling disputes or grievances, as set forth in Grievance
Procedures and System Board of Adjustment have been exhausted.
SECTION 2. The Arbitration Board shall consist of two (2) members of the
System Board of Adjustment elected by the Union and two (2) members selected by
the Company and a fifth member selected as set forth below.
SECTION 3. In the event any dispute or grievance is properly appealed to
the Arbitration Board, the Union may request the National Mediation Board to
provide a list of seven (7) names. The parties shall select one (1) name by
alternately striking names from the list of seven (7) names. The order of
striking shall be determined by lot for the first case in which a neutral
member is chosen under the provision hereof and in subsequent cases, the
parties shall alternate taking the first strike.
SECTION 4. The Arbitration Board shall hear and determine the dispute or
controversy as promptly as possible. The decision of the majority of the
Arbitration Board shall be final, binding, and conclusive to the parties
thereto. Such decision shall be within the scope and terms of this Agreement
but shall not change any of its terms and conditions. All Arbitration Board
hearings will be held at a place determined by the Board.
SECTION 5.
(A) Each of the parties hereto shall assume the compensation, traveling
expense, and other expenses of its Arbitration Board Members and witnesses
called or summoned by it. The party whose position is not sustained by the
Arbitrator shall pay all of the expenses of the fifth Arbitration Board Member,
unless the Arbitrator should determine otherwise.
(B) Should the Company or the Union independently request a "court
reporter" be present at the hearing, the cost of the "court reporter" shall be
borne by the requesting party, unless both parties request a "court report,"
then the cost shall be equally split between the parties.
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SECTION 6.
(A) The Arbitrator shall have no power to add to, or subtract from, or
modify any of the terms of this Agreement, nor shall he substitute his
discretion for that of the employer or the Union.
(B) The Arbitrator shall have no right to accept evidence that was not
submitted in System Board of Adjustment.
(C) The decision of the Arbitrator shall be final and binding on both
parties and the award of the Arbitrator shall be enforceable as the agreement
of the parties, at law or in equity, in any Federal Court having jurisdiction
thereon.
(D) The Arbitrator shall have the sole and exclusive power and
jurisdiction to determine whether or not a particular grievance dispute or
complaint is arbitrable under the terms of this Agreement.
ARTICLE VIII - FURLOUGH AND RECALL
(A) Prior to a "reduction in force" by reverse category seniority order, a
"voluntary furlough" may be granted to any Crewmember that requests such with
the understanding that all recall rights are subject to the provisions in this
Article.
(B) 1. When a reduction in force for Crewmembers covered by this
Agreement becomes necessary, only those Crewmembers(s) who have less than two
(2) years of active service with the Company on the date of furlough may be
furloughed in reverse order of seniority by equipment type. When a Crewmember
is to be furloughed, he shall be given fourteen (14) days advance notice, or
pay in lieu thereof.
2. In the event it becomes necessary to displace Crewmembers with
more than two (2) years of active service on the effective date of the
furlough, these Crewmembers shall have seniority rights as provided for in this
Agreement, including the right to displace a more junior Crewmember on any type
of equipment, within their "Category", as defined in Article II, of this
Agreement.
3. Crewmembers that are displaced in Section (B)2. of this
Article and exercise their seniority rights to displace a more junior
Crewmember shall be selected if required by Article XII, Section R and trained
by the Company as provided for in Article XIII, of this Agreement.
4. A Crewmember recalled from furlough as provided in (B)1. above
shall be paid "Training Pay", while requalifying.
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(C) Such advance notice shall not be required where the furlough is cause
by a strike, Act of God, involuntary grounding of Company aircraft, or other
circumstances over which the Company has no control; however in such cases the
Company shall give as much notice as possible. All notices of reduction in
force shall be in writing and posted at the Company base and other stations
where the Company maintains an office. Notification shall be registered or
certified mail, return receipt, mailed to the Crewmembers last address on file
with the Company or hand-delivered to and receipted by the Crewmember(s).
(D) Crewmembers who are furloughed shall continue to accrue seniority
during the period of furlough for re-bid purposes, but shall not accrue
longevity for pay purposes. Reemployment shall be subject to the recalled
Crewmember's holding of the appropriate current FAA medical certificate
required by his position. The Crewmember shall be required to serve the
unexpired portion of his probationary period if any.
(E) A Crewmember shall file his address with the Company and thereafter
advise of any change of address immediately. It is the Crewmembers
responsibility to ensure the Company has his current address and telephone
number on file.
(F) All furloughs shall expire at the end of four (4) years from the
effective date of such furlough and any accrued seniority shall be forfeited.
(G) A Crewmember may pass up recall if there are sufficient Crewmembers to
fill all positions. A Crewmember must honor a recall if there are no
Crewmembers junior to him on furlough. If the junior Crewmember refuses recall
he shall be terminated.
(H) All recalls of furloughed Crewmembers shall be accomplished through
the following procedure:
1. Crewmembers on furlough shall be recalled in the order of
category seniority. The recall shall be accomplished in such manner that
Crewmembers who have been reduced and those being recalled from furlough are
able to exercise seniority to the type, Category and Crew Class to which their
respective seniority would entitle them.
2. A Crewmember's notice of recall from furlough shall be in
writing, by certified or registered mail, return receipt, to the Crewmember's
last address on file with the Company. This written notice shall fulfill the
Company's obligation to notify a Crewmember of a recall. A copy of all recall
notice shall be supplied to the Union. The Crewmember shall reply, in writing,
to the Company within fourteen (14) days of the recall notice by certified or
registered mail, return receipt. If he accepts recall, he shall present
himself to the Company prepared to return to duty within fourteen
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(14) days of the recall notice. If the Crewmember's address on file with the
Company is outside the 48 contiguous states he shall be allowed thirty-one (31)
days in which to return. After accepting recall, should a Crewmember fail to
report within the time specified he shall be considered to have waived all of
his rights under this Agreement. However if, after accepting recall, the
Crewmember is unable to report due to circumstances beyond his control he may
remain on furlough status until the next recall is issued.
3. A Crewmember shall be considered terminated if he fails to
return to duty or advise the Company of his acceptance of the recall, within
the terms stated in paragraph 2. above.
4. A recall shall be for a minimum of two (2) bid periods.
5. Newly hired Crewmembers may not fly on the line until
Crewmembers senior to them have been recalled.
6. Crewmembers may accept early recall and waive the provisions
of H-2 above. Early recall may be through the use of telephone or other means
available to contact the Crewmember(s).
ARTICLE IX - LEAVES OF ABSENCE
(A) PERSONAL LEAVES
When the requirements of the Company will permit, at the sole discretion of the
Company, and upon written request submitted by the Crewmember to the Company as
far in advance as possible, a Crewmember may be granted a leave of absence
without pay. When such leaves are granted, the Crewmember shall retain and
continue to accrue seniority during the first sixty (60) days of leave in any
twelve (12) consecutive months. The Crewmember shall not accrue sick leave
credit, vacation or longevity for pay purposes, starting with the first day of
the month following the month in which his leave commenced. Accrual shall
commence on the first day of the month in which he returns from leave. Such
leave or leaves may be extended for additional periods when approved in writing
by the Company. The Crewmember shall be responsible to pay for his Group
Health Care Benefits during any personal Leave period. A Crewmember returning
from an authorized leave or extension thereof, as provided herein, shall be
permitted to resume his position in accordance with his seniority.
(B) MILITARY LEAVE OF ABSENCE
Any Crewmember who enters military service shall be granted military leave in
accordance with applicable federal laws and regulations. Such military leave
shall
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be without pay from the Company. Return to Company duty shall be subject to a
reasonable requalifying period not to exceed thirty (30) days.
(C) UNION LEAVE OF ABSENCE
One Crewmember appointed as a Union official, representative, or delegate shall
be granted a leave of absence without pay, and shall be guaranteed reemployment
at the end of such period with the same seniority rights as if he had been
continuously employed. The Crewmember shall be responsible to pay for his
Group Health Care Benefits during any Union Leave period.
(D) MEDICAL LEAVE OF ABSENCE
When a Crewmember's sick leave bank has been exhausted and his still unable to
return to Active Status, he will automatically be placed on Medical Leave of
Absence without pay, and shall not accrue vacation time. A Crewmember may
supplement his sick leave bank with earned vacation time. A Medical Leave of
Absence shall not exceed three (3) years.
(E) FUNERAL LEAVE OF ABSENCE
In the case of death in the immediate family, a Crewmember is entitled to three
(3) days leave with pay for the purpose of attending the funeral. Immediate
family shall be limited to the Crewmember's spouse, children, stepchildren,
father, father-in-law, stepfather, mother, mother-in-law, stepmother, sister
stepsister, brother, and stepbrother. Additional time for bereavement may be
requested from the Crewmember's accumulated vacation days, if any. The
Crewmember may be required to provide verification of attendance at the
funeral. A Crewmember who has a death of an immediate family member during a
vacation period must notify his supervisor immediately upon receiving notice of
the death and shall have up to three (3) days of remaining vacation rescheduled
at a later date, provided the Crewmember attends the funeral service. Funeral
Leave of Absence shall not apply when the Crewmember was scheduled for days
off.
(E) Family Medical and Leave Act (FMLA)
Crewmembers are permitted leaves of absence to the extent required by, and in
accordance with the terms of, the Family Medical and Leave Act (FMLA). All
requests for FMLA leaves, and the terms of such leave, are governed by the
FMLA. A Crewmember may request leave in excess of that required by the FMLA,
or under circumstances not covered by the FMLA. Such leave shall be governed
by the Personal Leave provisions of this Article. During personal leave
required by FMLA, the Crewmember continues to accrue seniority and longevity
for pay purposes. A
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Crewmember returning from a leave required by the FMLA shall be permitted to
resume his position in accordance with his seniority.
(F) CONDITIONS
1. A Crewmember on personal-leave shall not, without prior
written permission of the Company, engage in any employment.
2. A Crewmember returning from leave shall receive training pay
during the requalification period, if required, not to exceed thirty (30) days.
ARTICLE X - SICK LEAVE
(A) 1. Upon date of ratification of this Agreement, each Crewmember
shall begin accruing sick days at the rate of seven twelfth (.58333) of a day
per month or seven (7) days annually. Upon date of ratification of this
Agreement, all Crewmembers shall be credited with seven (7) days of sick leave.
Crewmembers with less than one (1) year of service on date of ratification,
shall not accrue additional sick leave until they complete one (1) year of
service.
2. All Crewmembers hired after the date of ratification, shall be
credited with seven (7) days of sick leave, but shall not accrue additional
sick leave credit until they have completed one (1) full year of service.
3. The maximum accrual for sick leave is twenty-eight (28) days.
Except as otherwise provided for in this Article, there will not be a payoff of
sick leave when a Crewmember reaches this maximum.
4. Normal sick leave shall be used only for absence resulting
from non-occupational illness or injury. No Crewmember can perform any
services of any kind for any other employer during any time he is on sick leave
from the Company.
5. No Crewmember shall be charged sick leave on days that he was
scheduled to be off.
6. A Crewmember on sick leave shall retain and continue to accrue
seniority irrespective of whether or not he is able to maintain the certificate
required for his status until he is able to return to duty.
7. A Crewmember returning from sick leave shall exercise his
seniority to resume his assignment.
8. A day of sick leave shall be worth 2 hours of flight pay for
credit purposes.
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(B) 1. Crewmember's eligible for Worker's Compensation benefits are
not eligible for Company sick leave benefits.
2. Crewmembers eligible for short term or long term disability
payments from Company sponsored insurance programs will not be concurrently
eligible for sick leave benefits.
3. Crewmembers eligible for state or federal disability benefits
will have their sick leave benefits reduced by the amount of the payment
provided by the state or federal benefit.
(C) A Crewmember shall be considered on sick leave from the time he is
unavailable for flight duty because of illness or injury until he reports that
he is available for flight duty or goes on days off.
(D) 1. The Company reserves the right to require a doctor's excuse to
substantiate each occurrence of illness or injury. In the event that the
Crewmember is required to see a doctor designated by the Company, the Company
shall pay the cost of the exam.
2. The Company reserves the right to require a doctor's release
that authorizes return to duty status for each occurrence of illness or injury.
In the event that the Crewmember is required to see a doctor designated by the
Company, the Company shall pay the cost of the exam.
(E) A Crewmember who takes sick leave shall not have such time deducted
from his scheduled vacation time. A Crewmember on sick leave at the time his
scheduled vacation time commences shall be removed from sick leave status
during the vacation and returned to sick leave status at the end of the
vacation period if the illness persists.
(F) A Crewmember who is on paid sick leave shall continue to accrue
vacation time during the first month of his sick leave.
(G) A Crewmember furloughed due to a reduction in force shall have all
sick leave accrued prior to the furlough credited to him in the event of a
recall.
(H) Within one hundred and twenty (120) days of the ratification of this
Agreement, each Crewmember's pay statement shall show his accrued sick leave.
(I) Each Crewmember's pay statement shall show his accrued normal sick
leave credits.
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(J) No Crewmember shall be entitled to sick leave when sickness or injury
is due to Crewmember's willful disregard of accepted safety practices, willful
intention to injure himself or another, sickness or injury while in the employ
of anyone else or the use of alcohol or illegal drugs.
(K) If the Crewmember elects to continue working until reaching retirement
age imposed by the FAR's, the Company shall pay the Crewmember fifty percent
(50%) of any accumulated sick leave at the time of retirement. This shall be
paid at the base rate for the current category that the Crewmember holder.
This will not include longevity pay.
(L) Maximum charged sick leave in a bid period cannot exceed the duty days
in a bid period.
(M) Each Crewmember while on sick leave shall receive payment from his
sick leave bank in any bid period that he loses pay hours. Such payment will
be limited to his applicable (MBPG). His sick leave bank will be debited in
the amount of his applicable (MBPG) less his pay hours.
ARTICLE XI - VACATION
(A) 1. A Crewmember employed by the Company shall earn a vacation
based on his active service with the Company in accordance with the following
schedule:
<TABLE>
<CAPTION>
Vacation Days Vacation Days
Years of Service Earned Per Month Earned per Year
---------------- ---------------- ---------------
<S> <C> <C>
1 - 4 1.16 14
5 + 1.75 21
</TABLE>
2. Vacation shall be available for use after one year of service.
Crewmembers shall not be eligible to receive Vacation Pay until they have
completed one (1) full year of service.
3. A Crewmember shall be paid at the regular pay periods while on
vacation. Vacation pay shall be computed at the Crewmember's rate of pay in
effect at the time such vacation is taken. In no event shall a Crewmember
receive, for a bid period in which all or part of his vacation may occur, less
than any guarantee he may be entitled to as specified in Article XIX,
Compensation.
(B) 1. For Crewmembers with less than one (1) year of service as of
December 31, the Company shall credit the Crewmember with (1.16) days for each
month of Active Service. A Crewmember with less than one year of service, may
bid a vacation period in the following calendar year based on the vacation days
accrued through December 31, of the current year.
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Example: Crewmember hired in April bids a vacation in October for the
following year. The Crewmember has earned nine (9) months of vacation
at (1.16) days per month, as of December 31, for a total vacation of
ten (10) days.
2. A Crewmember shall not be required to perform any duties while
on a scheduled vacation.
3. A Crewmember shall not be charged vacation days on scheduled
days off. Any vacation days that conflict shall be banked for future use by
the Crewmember. The Crewmember may elect to receive payment for the vacation
in lieu of banking the time for future use.
(C) 1. On or before October 1st of each year, the Company shall post
the vacation periods available for the next calendar year. Preference for the
periods in which Crewmembers shall take their vacation shall be granted in
order of seniority, in Type and Crew Class at the Crewmember's base. The
Company shall post the vacation awards or assignments, in Type, Crew Class and
Base, as indicated from the Crewmember's preferences no later than the 10th of
November of each year.
2. VACATION SPLITS AND OPTIONS
(a) Subject to the provisions of this Article, A Crewmember's
vacation earned may be:
(1) Taken in the calendar year bid;
(2) Purchased by the Company, at the Crewmember's option;
and
(3) Banked by the Crewmember for future use.
Each Crewmember must indicate on the bid form his option(s) as provided for in
this section regarding the use of vacation time for the following year.
(b) Vacations may be split into periods of not less than (7) seven
days, i.e., 14 days vacation = 2 periods; 21 days vacation = 3 periods; etc.
The Crewmember that elects to split his vacation periods shall have seniority
preference to one (1) vacation block only. The remaining vacation block(s)
shall be awarded after all other Crewmembers have exercised their choice under
paragraph (1) above. A Crewmember may elect to submit a bid for a vacation
period of more than (7) days but less than (14) days.
The Crewmember shall be awarded the vacation period as provided for in
paragraph C-1 of this Article. Any remaining vacation time in excess of actual
days used may
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be purchased back by the Company at the Crewmember's option or banked for
future use.
Example: Crewmember has earned (14) days of vacation and bids one
vacation period of (10) days for the following year. The Crewmember
is awarded the vacation bid as provided for in paragraph C-1 of this
Article. The Crewmember elects to bank the remaining four (4) days of
vacation time to the following year.
(C) At the Company's option, and providing the Crewmember has earned
vacation days banked, the Company may grant short term vacation periods. A
Crewmember requesting a short term vacation period must provide at least five
(5) days notice to the Company prior to the start of the vacation date.
(D) A Crewmember may elect to have the vacation time purchased back by the
Company. A Crewmember must indicate his option(s) as provided for in Section
2-a of this Article at the time bids are submitted. The Crewmember shall
receive payment for the vacation in the month of his date of hire or any other
time mutually agreed to between the Crewmember and the Company. Vacation shall
be paid based on three and one-third (3 1/3) hours pay, per day, at the
Crewmembers current hourly rate.
3. Vacation Bids and Notification
(a) The Company shall send written notification to each Crewmember
indicating his: equipment seniority by crew class, type, base and the vacation
days to be bid. The notification shall be sent to the Crewmember's home
address, placed in his Company mail box, and a master notification posted at
all Company base(s), and any line station where Crewmembers will or may transit
during October.
(b) Bidding for vacations must be made on the form(s) provided by
the Company and bidding shall close on October 31, and shall be awarded as
assigned by November 10th. If November 10th falls on a weekend, the awards
will be posted on the first working day thereafter.
(c) The Crewmember must include enough choices for his seniority
position. A Crewmember failing to notify the Company during the vacation
selection schedule of his bid preferences shall have his vacation time banked
for the following year.
4. (a) After vacation dates have been awarded or assigned, they shall
not be changed except where the demands of the service require, or by mutual
agreement between the Crewmember involved and the Company. The Company shall
not change any vacation date after the sixtieth (60) day prior to the beginning
of the
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vacation except by mutual agreement between the Crewmember involved and the
Company.
(b) A Crewmember may elect to relinquish his awarded or assigned
vacation by giving the Company written notice at least (60) days prior to the
beginning of the vacation. The Crewmember may elect to receive payment for the
vacation or bank the remaining vacation days for the following year, providing
the total bank days do not exceed the provisions of E-1 of this Article. The
vacation period that is vacated by the Crewmember may be given to any
Crewmember on a first come, first serve basis.
5. Irrespective of paragraph (4) above, a Crewmember who changes Type or
Crew Class after vacation periods have been assigned shall be granted his
choice of remaining available vacation periods in his new Type and Crew Class.
The Company shall make every effort to permit the Crewmember to retain his
originally assigned vacation period. In the event the needs of service
preclude retention of this period, the Crewmember shall be notified within
twenty-one (21) days that his vacation must be changed and shall be provided a
list of vacation periods available.
(D) 1. Vacation will begin at 0001Z and end at 2400Z at the
Crewmember's Base.
2. The Crewmember's vacation period will slide to commence the
next day if such Crewmember, due to a reroute/reschedule, had less than a
twelve (12) hour rest period following his release at Base. The Company will
return the Crewmember to the Crewmember's Base or other mutually agreed to
location to start the Crewmember's vacation.
(E) 1. Banked Vacation Time - Earned Credit
(a) Vacation time is cumulative for a period not to exceed two (2)
years of active service. A Crewmember may bank up to two years of vacation
time based on his rate of earned vacation days as provided for in paragraph A-1
of this Article.
Example: A Crewmember has completed six (6) years of service with the
Company and banks his vacation time for two (2) years. His maximum
vacation bank shall not exceed forty-two (42) days.
(b) A Crewmember that maintains a vacation bank with maximum
credit as provided for in paragraph A-1 of this Article, shall not bid or be
awarded vacation periods in the following year in excess of the vacation total
days earned, based on years of service.
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Example: Crewmember in E-(1)a, above has a bank of forty-two (42) days
vacation time. The Crewmember must take twenty-one (21) days vacation
or be paid in lieu thereof in the following year. The Crewmember may
not bid or be awarded a vacation in excess of the earned vacation rate
for the number of years service in any one year.
(F) 1. In the event of termination of employment or retirement a
Crewmember shall be paid for all vacation earned and accrued but not previously
taken or paid for provided the Crewmember has completed his probationary
period, and in case of voluntary termination, he gives the Company at least
fourteen (14) days advance written notice of termination.
2. In the event of termination by death, all earned and accrued
vacation pay due shall be paid to such deceased Crewmember's designated
beneficiary(s), as indicated by such Crewmember's group insurance policy, or by
other Company records if that Crewmember was not a member of the group
insurance plan, or the Crewmember's estate in the event of insufficient
evidence of a designated beneficiary.
3. At the Crewmember's option, he may choose to use part of his
earned vacation on a pro rata basis, to supplement his accident and sickness or
long term disability benefits. The sum of his disability benefits plus
vacation pay may not exceed his normal base pay for the period of absence.
4. A Union representative may be present during the awarding of
the vacations.
5. "Active Service" means all accumulated time, commencing with
date of hire as a Crewmember, for which the Crewmember is paid by the Company,
including any time that he receives any portion of sick leave pay.
ARTICLE XII - VACANCY BIDDING
(A) A vacancy shall mean additional or open positions in any Category,
Crew Class and Type as required by the Company.
(B) Any vacancies in Category, Crew Class and Type shall be filled in
accordance with the following procedure:
1. The Company shall determine the number of vacancies available
and shall post bulletins announcing such vacancies, stating the effective date.
A Copy of such bulletin shall be posted at all Company Base(s) and a copy
mailed to all Crewmembers, including furloughed Crewmembers.
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2. The bulletin shall stipulate a closing date and time,
indicating a deadline for Crewmembers bids for such positions. This date and
time shall not be less than fourteen (14) days after the date such bulletin is
posted and mailed as provided in paragraph (1). All such bulletins shall be
numbered consecutively during a calendar year.
3. All bids for vacancies shall be made on forms provided by and
directed to the office of the Director of Operations. Every bid submitted
shall become a "standing bid on file" and shall be used for all subsequent bids
until a new bid sheet is received. A new bid form may be submitted at any time
after the final results are posted of a previously closed bid, thereby updating
the "standing bid on file". A supply of these bid forms shall be available at
all Company Base(s) and all stations where the Company maintains an office.
For purposes of the time limit set forth in paragraph (2) in this section, the
bid must be mailed certified, faxed, or hand delivered.
4. A bulletin announcing the results of all bidding for, or
assignment to, vacancies shall be posted at all Company Base(s) and line
stations where the Company maintains an office, within (10) days after the
specified closing date and shall refer to the bulletin number which announced
such vacancy(s). Such bulletin shall state the effective date, Crew Class and
Type, and the name and seniority number of the successful bidder or Crewmember
assigned.
(C) A Crewmember is not eligible to bid on any type of aircraft other than
type he is flying unless he has completed twenty-four (24) months of Active
Service flying from completion of his initial line check in his Crew Class on
his Type at the time of the bidding. This provision shall not apply in the
case of any Crewmember who has received notice of reduction in his Crew Class,
in which case he may fully exercise his seniority rights. The Company, when
posting a bulletin on any vacancy, may waive this provision provided the waiver
is stated in the bulletin.
ARTICLE XIII - TRAINING AND UPGRADING
(A) A Crewmember shall receive at least seven (7) days advance notice of
all ground and simulator training unless the Crewmember agrees to less notice.
(B) A Crewmember, except a new hire during initial training, who is
assigned to ground school training program involving five (5) or more days of
training shall be given one (1) period of twenty-four (24) consecutive hours
free of all duty with the Company during any seven (7) consecutive days
assigned to such training.
(C) Simulator and flight training will not be scheduled for more than six
(6) periods in seven (7) days. After completion of four (4) simulator periods,
in four (4) consecutive days, the Crewmember may elect to take twenty-four (24)
consecutive
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hours free of all duty. The Crewmember may elect to receive twenty-four (24)
consecutive hours free of all duty with the Company prior to resuming any
flying duties or additional training duties.
(D) Simulator Training or check periods, other than type ratings, shall be
scheduled not to exceed four (4) hours per day. Crewmembers receiving type
ratings may not exceed five (5) hours of simulator time per day. A Crewmember
may elect to waive the provisions of this Section.
(E) Training for any additional qualifications required by the Company or
the FAA by the Crewmembers covered by this Agreement shall be made available at
the Company's expense.
(F) A Crewmember shall not fly any revenue flights while in transition or
upgrade training, provided however, that such Crewmember may fly revenue
flights for the purpose of line qualifications.
(G) Each Crewmember shall review his performance and grading sheet at the
conclusion of each training or check period. A Copy of his training record
shall be furnished him at the conclusion of each training course or check
period. A Crewmember shall sign for the receipt of the training record.
(H) All training as defined in this Agreement shall be administered in
accordance with the Company's FAA approved training manual(s) to all
Crewmembers covered by this Agreement. The Company shall provide training in
accordance with requirements for that position on that equipment type.
(I) QUALIFICATIONS
1. Crewmembers must meet all FAA qualifications and certification
requirements applicable to his Crew Class and Type.
2. Article IV, Seniority, Article XII, Vacancy Bidding and the
provisions of Section (R) shall govern the filling of all Crew Class and Type
vacancies on all equipment operated by the Company.
3. Minimum experience requirements for hiring and bidding are set
forth below:
(a) HIRING REQUIREMENTS: FIRST OFFICERS:
Commercial Pilot Certificate, Instrument and Multi-engine Rating. A
minimum of 1,500 hours pilot experience and FAA First Class Medical.
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In addition to an interview the Pilot shall meet the following
requirements:
(1) Receive a simulator evaluation of his flying
abilities.
(2) Take an equivalent ATP written examination
with a passing score of 80%.
(b) HIRING REQUIREMENTS: FLIGHT ENGINEER:
Flight Engineer Certificate, Turbojet Powered Rating; First or Second
Class FAA Medical and A&P Certificate.
(c) CAPTAIN UPGRADING REQUIREMENTS:
(1) FAA Airline transport Pilot (written)
(2) 5,000 hours flight experience, or twenty-four
(24) months active flying as a First Officer on any AIA equipment or;
(3) 1,000 flight hours or twelve (12) months
active flying as a First Officer with AIA on the equipment he is
bidding.
4. The provisions of this paragraph may be exercised by the
Company during the term of this Agreement. Providing the Company exercises
this option, the Flight Engineer upgrading to First Officer must meet the
requirements of (3)(a) above and the provisions of Section R of this Article.
5. The Company may reduce the upgrading requirements equally
applicable to all Crewmembers in any bulletin of vacancy.
(J) When a successful bidder fails to qualify as specified in this
Article, he shall forthwith be returned to his former Category, Crew Class and
Type not withstanding the provisions of Article IV, Seniority and Article XII,
Vacancy Bidding, and shall be given training in accordance with the Company's
FAA approved training manual(s). If the Crewmember fails requalification the
Company has the option to terminate his employment. The Crewmember may be
frozen in his former position from bidding as outlined in Section (P) of this
Article.
(K) INITIAL TRAINING. The training of Probationary Crewmembers will be
handled at the Company's discretion.
(L) RECURRENT TRAINING. When required, recurrent ground school will be
successfully completed prior to administering simulator training and/or
proficiency check. Crewmembers shall receive their proficiency checks no
earlier than one (1)
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month prior to or no less than one (1) month after their anniversary month.
The Company may elect to move or reschedule anniversary months to equalize the
number of Crewmembers needing checks over a twelve (12) month period. The
Company shall give at least thirty (30) days advance notice to any Crewmember
whose anniversary month is being rescheduled.
(M) The Company shall advise a member of the Professional Standards
Committee whenever a Crewmember fails any portion of his recurrent ground
school, simulator or flight training or proficiency checks. The Training
Department, after consultation with the Professional Standards Committee Member
shall determine the additional training for the individual for the recheck.
Any subsequent simulator or flight training periods may be considered the
recheck at the discretion of the Check Airman.
If the Crewmember fails the recheck, the Company shall consult with him and a
member of the Professional Standards Committee before determining the
disposition of his case. The Crewmember may be suspended without pay until a
final disposition of his case is made.
(N) UPGRADE TRAINING. All Vacancies for upgrading will bid in accordance
with the provisions of Article IV, Seniority, and Article XII, Vacancy Bidding.
All First Officers upgrading to Captain and First Officers and Captains moving
to Flight Engineer position at mandatory retirement age must meet the minimum
requirements set forth in this Agreement. All Crewmembers upgrading must meet
the requirements of Section R of this Article.
(O) If the Company and the Union agree that a Professional Standards
Committee Member is necessary for a training or recheck review of a Crewmember,
the Committee Member shall suffer no loss of guarantee pay or benefits.
(P) A Crewmember assigned pursuant to Section (J) of this Article, after
failing to complete training, shall be ineligible to bid on any vacancy
requiring training until such Crewmember has completed an additional 500 hours
or twelve (12) months of active flying, whichever occurs first, on the Type to
which he is assigned unless released by the Company from this restriction.
(Q) The Company shall provide the necessary manuals, school, and training
to meet the requirements of this Article, at no cost to the Crewmember.
(R) BID SELECTION BOARD. Bidding, selection, and awarding of bids for
advancement in Category or Crew Class of any Crewmember shall be conducted in
the following manner. Bids shall be posted as set forth in Article XII,
Vacancy Bidding. Crewmembers meeting the qualifications set forth in this
Article, or as
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established by the Company, if lesser, may bid. All bids shall be reviewed by
the Bid Selection Board.
1. A Bid approved by the Bid Selection Board or a bid the Board
deadlocks on shall be forwarded to the Director of Operations for review. The
Director of Operations shall award or deny the bid.
2. If the bid is denied, the bidder or the Union may grieve the
denial and the grievance shall be expedited to a hearing by the System Board of
Adjustment. A bid denied by the Bid Selection Board shall be returned to the
bidder with a written explanation of the reasons for which the bid was denied
and recommendations as to the actions needed by the bidder to improve his
opportunity for selection by a future Board.
3. The bidder shall be advised of the data relied upon for the
decision. If appealed to the System Board, the Bid Selection Board shall
submit the documentation considered in arriving at the denial with an
explanation of the Bid Selection Board's rationale in arriving at their
decision.
4. The Director of Operations may not award a bid for upgrade to
a bidder who does not receive at least 50% percent of the Bid Selection Board's
vote. The Bid Selection Board may not convene unless all member's are present
or available. Alternate members may be appointed by either or both parties
should they so choose.
5. Lateral movements between Crew Class positions shall be
awarded by System-wide Seniority and are not subject to review by the Bid
Selection Board.
6. If the Company elects to by-pass a Crewmember who has been
selected for up-grade training by the Bid Selection Board, the Crewmember has
the right to the provisions of the Grievance Procedures.
If the System Board of Adjustment elects to award the Crewmember a training
position for up-grade, and the Crewmember fails any portion of the training,
the Crewmember is subject to termination or equipment freeze to his last
position. The Crewmember shall receive the same training as any other
Crewmember up-grading to the same position.
ARTICLE XIV - SCHEDULING
SECTION A. GENERAL.
1. The Union shall appoint a Scheduling Committee composed of
Crewmembers assigned to the different types of equipment being operated by the
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Company. The Company shall consider all recommendations by the Scheduling
Committee concerning any scheduling policies, construction of Lines of Flying
or Reserve Lines, or problems, including the development and updating of a
Company Crew Scheduling Manual.
2. As scheduling policies are developed, they shall be published
in a Company Scheduling Manual. One copy will be kept in Scheduling and one
will be provided to the Scheduling Committee of the Union.
3. Crewmembers will bid Lines of Flying or Reserve Lines each bid
period.
4. A Crew List shall be maintained with Crewmembers listed in
Seniority order by Type, Crew Class and Base. The Crewmember must be Crew
Class and Type qualified to fill the position for which he is bidding.
Crewmembers in training may bid a line providing the planned completion date of
training is prior to the start of the bid line. Crewmembers completing
training after the start of the bid period, shall be assigned a Reserve Line
with pro rata days on duty and days off. The Company will consider any
requests from the Crewmember regarding duty days and days off.
5. Awards will be based on seniority (Crew Class, Type and Base)
and eligibility as set forth in the F.A.R.'s and the applicable provisions of
this Agreement.
6. Bids will be submitted as follows:
a. The Company will mail a complete bid package to each
Crewmember's home and post the bid package at the Crewmember's base
and all line stations where crews may transit.
b. Completed bid forms may be submitted to the
Scheduling Department in person, by U.S. Mail, or Fax. Crewmembers
may request confirmation of bid received by the Company prior to
closure date.
7. Crewmembers that fail to submit a bid prior to the close of
the Bid Period or do not bid in accordance with this Article, will be assigned
after all other bids are awarded.
8. If a Crewmember is removed from his Line of Flying due to
nonscheduled changes such as sickness, cancellations due to weather, or
mechanical delays, flight time limitations, or personal emergencies, the
Company will make every effort to return the Crewmember(s) to his original bid
line as soon as possible. A Crewmember will not be required to make-up lost
time on his scheduled days off.
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9. If the Company removes a Crewmember(s) from a Line of Flying
for training purposes, the Crewmember(s) shall suffer no loss of pay or incur
any additional expenses. If the Company removes a Crewmember(s) from a Line of
Flying or Reserve Line, the Crewmember(s) shall not incur any additional
expenses. The Crewmember will not be required to make-up time during his
scheduled days off as planned on the Bid line. The Company will make every
effort to return the Crewmember(s) to this original scheduled bid line as soon
as possible. The Company shall have the right to designate some lines as
training lines for each type of equipment.
10. The Director of Training or Crew Scheduling will advise each
Crewmember of his projected recurrent ground school and simulator training
schedule with the posting of the bid package for that Bid Period.
11. The Company may release a Crewmember from his bid at the
Crewmember's request.
12. Trip trading is permitted in accordance with guidelines set
forth in the Company's Crew Scheduling Manual.
13. If a Crewmember(s) becomes aware of a potential scheduling
conflict or irregularity that cannot be resolved with Crew Scheduling directly,
the Crewmember(s) shall notify the Manager of Operations by the most
expeditious means available. The Crewmember(s) shall submit a "Trip Report"
directly to the Manager of Operations.
SECTION B. LINES OF FLYING/RESERVE LINES.
1. Lines of Flying and Reserve lines shall be posted at
Crewmember's Base and all line stations where Crewmembers may or will transit.
The next month bid package will be mailed as soon as feasible but no later than
the 10th day of the current Bid Period. All known flying will be included in
the bid package.
2. The Bid Period Package will be published once every bid period
for each aircraft type. A Bid Period Package will contain, but is not limited
to, the Flying and Reserve Lines, bid seniority list, list of Crewmembers
vacation dates, list of Crewmembers due for Recurrent Training, and available
Training periods. The yearly schedule consists of twelve (12) monthly bid
periods.
3. Lines of Flying and Reserve Lines shall be one (1) calendar
month in length. At the option of the Company, two (2) or three (3) periods of
flying may be established. Each bid period shall be bid and awarded
separately.
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4. The Company shall post for the calendar year a schedule for
all bid periods, including the opening date, closure date, and award date of
each bid period. Each bid period shall close no later than the 20th day of the
current bid period. The Company shall award and post each bid no more than
five (5) days after closure. The Company shall not re-award the bid lines
after the original posting is completed.
5. Each Line of Flying or Reserve Line shall contain not more
than eighteen (18) twenty-four (24) hour duty days in each calendar month. A
day means a "calendar day", measured from 0001z to 2400z. The Company may
construct Lines of Flying or Reserve Lines with less than eighteen (18) duty
days.
a) A Crewmember may be released by the Company at any
point on the bid line providing there are no additional flying or
reserve requirements.
b) Crewmembers commuting to or from his assigned base
for a bid line shall not be considered as working on a day off. At
the Crewmember's option, he may elect to commute to the first point of
departure or reserve assignment of the Bid Line in lieu of reporting
to his assigned base. The Crewmember that elects to exercise this
option must be in position at the departure location or reserve
assignment no later than 2000Z on his first duty day. Any positioning
or depositioning of a Crewmember to or from an assignment outside the
48 contiguous states shall be the responsibility of the Company. A
Crewmember that elects to work on a duty free day, shall be positioned
and depositioned between his residence and the duty station at no cost
to the Crewmember.
c) All positioning to the flying or reserve assignment
or depositioning shall occur within the eighteen (18) duty days as
specified in Paragraph [5] above.
d) A Crewmember may satisfy his duty day(s) on a Line of
Flying or Reserve Line at his residence at the Company's discretion.
6. A Crewmember need not be available until his scheduled show
time for his bid line, but shall call Crew Scheduling twenty-four (24) hours
prior to his duty day for instructions. Crewmembers that are assigned to
Reserve status may be positioned to a location, which may include his
residence, by the Company for operational requirements. Any Crewmember that is
assigned to reserve at a location other than his base shall receive per diem
and hotel as provided for in this Agreement.
7. When military leave or drill duty conflicts with the Line of
Flying that a Crewmember can hold, he will be assigned duty days that will not
conflict with military leave or drill duty requirements.
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8. For pay purposes only, a Crewmember assigned a special project
by the Company may bid and be awarded a Line of Flying or Reserve Line if his
seniority permits. As a result of these duties, the Crewmember shall not lose
any pay nor shall the Crewmember be required to work on his days off. The
Crewmember shall be paid his (MBPG) or the scheduled hours on his bid line,
whichever is higher.
9. A Crewmember positioning for a bid line shall ensure he is
adequately rested to perform his required duties.
SECTION C. BID LINE CONSTRUCTION.
The Company and the Union agree that no Crewmember is required to "reside" or
have his "residence" at the Company's Corporate Offices in Ypsilanti, MI., or
his assigned base. In establishing bid lines for each bid period, the Company
will construct all bid lines in accordance with the provisions of this Article
and the Company's scheduling manual. The starting and stopping point for all
lines shall be the Crewmember's-assigned base. The Company shall determine the
trip pairings as necessary to provide flexibility and efficiency.
1. In constructing Lines of Flying or Reserve lines, the days off
in a block shall not be less than five (5) consecutive twenty-four (24) hour
periods. The provisions of this paragraph may be modified by agreement between
the Company and the Union. The Company shall construct Lines of Flying or
Reserve lines with variations in blocks of days off.
2. If the first point of departure or the last point of arrival
on a Line of Flying or Reserve Line is other than the Crewmember's assigned
base, the bid lines shall clearly indicate a positioning or depositioning
movement.
3. Each Crewmember that bids and is awarded a Line of Flying or
Reserve Line shall be positioned to the first point of departure from the
Crewmember's assigned base at no cost to the Crewmember. The Company is
responsible for all other transportation as necessary, including the
depositioning of the Crewmember to the Crewmember's assigned base at the
conclusion of the bid line. The provisions of Section B, para's (5-b) and (6),
of this Article shall apply in the movement of Crewmembers between their place
of residence and the first point of departure and return. If the Company
elects to position the Crewmember via freighter jumpseat and the Crewmember
fails to make his duty assignment, the Crewmember shall not be held
responsible.
4. If the bidding or assignment of Lines of Flying results in a
potential conflict with the F.A.R.'s, the affected Crewmember's schedule shall
be adjusted. Duty days may be moved to provide the Crewmember with no more
than eighteen (18) duty days in a bid period.
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SECTION D. DEFINITIONS
1. "Commute", as defined in this Agreement, relates to a
Crewmember that does not reside at the Crewmember's assigned base. Anytime
"Commute" is used in this Agreement, it shall be the responsibility of the
Crewmember to provide his own transportation.
2. "Positioning or depositioning" as used in this Agreement
relates to the movement of a Crewmember at the direction of the Company. All
positioning or depositioning is the responsibility of the Company.
ARTICLE XV - HOURS OF SERVICE
(A) GENERAL:
1. Where this Article may be interpreted as less restrictive than
the current FAR's, the appropriate FAR shall apply. Changes to the current
FAR's that affect this Article shall cause the Company and the Union to re-open
under Section (6) of Railway Labor Act, as amended, to re-negotiate only those
conflicts created by the changes.
2. If the Company elects to use the flight time and duty
limitations of FAR 121.523, the aircraft used must have adequate rest
facilities, as defined by the FAR's to allow each Crewmember to sleep.
3. All flights operated by Crewmembers covered by this Agreement
shall constitute duty time as a flight Crewmember.
4. The Company shall provide adequate rest facilities in hotels
or motels or their equivalent for each Crewmember. The Company shall book
lodging to provide each Crewmember with a separate room.
5. The Company shall provide Crewmembers with rest facilities any
time the scheduled or block-to-block time on the ground is six (6) hours or
more or the departure time is undetermined.
6. Domestic and International flight and duty time limitations,
except as otherwise specified in this Agreement, will be in accordance with the
FAR's.
(B) DUTY TIME AND REST:
1. Duty time shall commence when a Crewmember is required to
report for duty (one hour prior to scheduled departure domestic-two hours
international) or actually reports to the airport, whichever is later. Duty
time shall end thirty (30)
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<PAGE> 43
minutes after the flight arrives at the blocks at the point where the flight
terminates, or when the Crewmember is released by the Company, whichever is
later. If a Crewmember is called to the field for the purposes of serving as a
Flight Crewmember, and is not used, his duty time shall end when the Crewmember
is released by the Company for a rest period.
2. "Deadhead" as defined in Article II of this Agreement shall be
considered as duty time under the following conditions: Deadhead time shall be
computed at one half (1/2) time toward the maximum allowable duty time
limitations of this Article, section (2a), (2b), and (2c) only.
(a) Whenever a Crewmember is required to report for duty and the
first assignment prior to a flight or series of flights is deadhead, the time
spent in traveling shall be considered duty time. The Crewmember shall be
considered on duty as specified in Section (B-1) of this Article and all time
spent in traveling shall be credited as deadhead duty time as specified in
Section (B-2).
(b) If a Crewmember is required to deadhead between flight duty
assignments, and is not provided a rest period as defined in this Article, the
time spent in traveling shall be considered duty time.
(c) If a Crewmember's last assignment is to deposition from a
flight or series of flights to his residence or base, the time spent in
deadheading shall not be considered duty time, providing the Crewmember waives
his rest period.
(d) Crewmembers shall not receive deadhead time when traveling
between their place of residence and a training assignment or return.
3. A Crewmember required to deadhead more than ten (10) hours
prior to the start of his assigned trip shall be given a minimum of twelve (12)
hours of rest on the ground prior to commencing his duty period.
4. During duty time a Crewmember is under the control and
direction of the Company.
5. A Crewmember's duty time shall be broken any time the
Crewmember is released for a rest period. Rest time is measured from release
from duty, as specified in Section (B) (1) of this Article, until report for
duty. A rest period is defined to be freedom from all restraint including
freedom from work and from responsibility for work should the occasion arise.
6. During a rest period the Crewmember shall not be disturbed
except to receive calls from the Company no more than two (2) hours prior to
show time, to assign a schedule or a call from the Crewmember requesting such
assignment. Any
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<PAGE> 44
preceding calls from the Company during a rest period, shall constitute a
broken rest period, requiring the Crewmember to re-start a new rest period.
This shall not apply to a personal emergency.
(C) DOMESTIC FLYING:
1. For Domestic flying the rest period will be as specified in
F.A.R. 121 with a minimum of nine (9) and one half (1/2) hours block to block
with a minimum of eight (8) hours free of duty. The Company shall provide rest
facilities for the Crewmember(s) as specified in this Agreement.
2. The Company may combine a domestic flight or series of flights
with an international flight or series of flights, providing the Crewmember(s)
do not exceed the maximum flight time limitations of F.A.R. 121 and the duty
time limitations of this Article.
(D) INTERNATIONAL FLYING:
1. The Company shall not schedule a crew consisting of two pilots
and one additional airman, as required, for more than eighteen (18) hours of
duty time. If the Crewmember(s) duty period is less than eighteen (18) hours,
the rest period shall be a minimum of ten (10) hours free of all duty. If the
Crewmember(s) duty period exceeds eighteen (18) hours, the rest period shall be
twelve (12) hours free of all duty. All rest periods shall be at a place of
lodging as defined in this Agreement.
2. If the crew determines fatigue will be a factor in continuing
the flight, they shall coordinate a rest period with the Company. The minimum
rest period shall be twelve (12) hours free of all duty or greater if required
by the FAR's. All rest periods shall be at a place of lodging as defined in
this Agreement.
3. At the option of the affected Crewmembers and the Director of
Operations, a portion of the "report for duty" time specified in B.1. of this
Article, may be reduced as provided in the G.O.M. A late departure caused by
this reduced "show" time shall not be the responsibility of the Crew.
(E) TIME AT HOME FREE OF DUTY:
1. No Crewmember shall be required to keep the Company advised of
his whereabouts during any scheduled days off, except as provided for in
Article XIV, Section (B) (6). When a Crewmember completes a flight or a series
of flights, or training, he shall be advised by Crew Scheduling of his next
projected flight and the date of such flight.
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<PAGE> 45
2. A Crewmember may be scheduled through his Base by a Line of
Flying. The Company may schedule a Crewmember through his Base, providing the
scheduled transit time is less than four (4) hours block-to-block. The Company
shall provide hotel and ground transportation anytime the transit ground time
exceed six (6) hours. The Crewmember will remain on duty, until a legal rest
period is provided.
3. Crewmembers awarded or assigned a Line of Flying or Reserve
Line shall receive not less than twelve (12) twenty-four (24) hour periods free
of duty in a thirty (30) day month or thirteen (13) twenty-four (24) hour
periods free of duty in a thirty-one (31) day month. All scheduled or
projected duty free periods that are shown on the bid lines shall be considered
the Crewmember's days off for the bid period. Each Line of Flying or Reserve
Line shall clearly indicate all duty free days and shall meet the requirements
of Article XIV, Scheduling and this Article.
4. If the Company contacts a Crewmember on his days off for a
trip or duty assignment and the Crewmember agrees to such trip or assignment,
he shall be paid in accordance with Article XIX, Section (H), Paragraph (2),
Compensation, of this Agreement.
5. Any Crewmember who elects to work on any of his days off,
shall be provided all transportation between his residence and duty assignment
and return. The Crewmember shall receive per diem and hotel accommodations at
all locations.
(F) RESERVE REST AND DUTY PERIODS:
1. Any Crewmember who has reported to the airport or location
assigned by the Company shall start duty time as defined in this Article.
2. All Reserve duty days and duty free days, where possible,
shall be clearly indicated on each Reserve Line. Any changes or adjustments to
the reserve duty periods must be given to the Crewmember prior to the start of
the reserve assignment.
(G) SCHEDULED DUTY TIME LIMITATIONS
1. When scheduling Crewmembers for "Revenue Flying" as defined in
Article II, Section R, of this Agreement, the Company shall use the following
guidelines: Crewmembers shall be considered on duty, as specified in B-1, of
this Article and shall not be scheduled to exceed the following duty time
limitations.
(a) Single Crew, as defined, operating domestic flight(s)
only - 16 hours.
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(b) Single Crew, as defined, operating international
flight(s) only - 18 hours.
(c) Double Crew, as defined, operating international
flight(s) only - 30 hours.
2. Crewmembers released from flight duty after a flight or series
of flights may elect to continue with deadhead or remain at his last stop for a
crew rest period. If electing crew rest the Company shall provide the
Crewmember(s) with rest facilities and transportation to his home or next duty
assignment.
ARTICLE XVI - UNIFORMS
(A) UNIFORM RESPONSIBILITIES
Crewmembers shall wear the standard uniform as prescribed by the Company at all
times while on duty. The cost of the original uniform, not to exceed $410.00
dollars, and any prescribed change shall be borne by the Company after the
signing of this Agreement. The standard uniform issue will include one (1)
blouse; two (2) pairs of pants; five (5) shirts; two (2) neckties; one (1) hat
(optional); insignias for blouse and hat; and one (1) winter coat. The uniform
maintenance allowance for each Crewmember shall be $142.70 for each three (3)
years of active service. In addition to the uniform maintenance allowance, the
Company shall reimburse to the Crewmember any replacement items of the uniform
that are damaged during the time a Crewmember is performing his duties. If a
Crewmember leaves the service of the Company prior to completing his
probationary period, the original uniform shall be returned in serviceable
condition to the Company. The uniform item(s) may be re-issued to a
Crewmember.
(B) COMPANY INSIGNIAS
The Company will provide to each Crewmember, free of charge, the original issue
of any Company insignia, epaulets or emblem that is required to be worn as part
of the prescribed uniform. Such insignia, epaulets or emblem shall remain the
property of the Company, and each Crewmember shall be responsible for same if
lost.
(C) CONSULTATION
The Company will consider the recommendations of the Crewmembers regarding any
changes in uniform.
(D) UNION INSIGNIA
A Union lapel pin may be worn on the uniform.
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ARTICLE XVII - PHYSICAL EXAMINATIONS
(A) The physical standards required of a Crewmember shall be the standards
established by the Federal Aviation Administration, outlined in Part 67.
(B) Any information obtained by or as a result of a Company physical
examination shall be kept confidential between the doctor(s), the Crewmember,
and the administrative personnel of the Company concerned with the Crewmember's
physical condition.
(C) It is the responsibility of the Crewmember to provide the Company's
Flight Operations Department with a copy of his new current medical certificate
by the 25th day of the month in which the old medical certificate is due to
expire.
(D) The Company shall advise all Crewmembers, by written notice mailed to
the Crewmember's home address, of the due date of their FAA physical
examination. This provision does not relieve the Crewmember of the
responsibility in Paragraph (C) above, or prevent the Company from taking the
Crewmember out of service without pay if he fails to remain currently
qualified.
(E) During the month the Crewmember is due his physical examination, the
Company shall ensure he is not prevented from taking the examination. It is
the Crewmember's responsibility to schedule his physical examination on his
days off.
(F) If a Crewmember is eligible for, and has elected to carry the
Company's health insurance, the cost of one physical examination annually will
be paid subject to the following conditions. The examination will be paid for
in full up to $100.00 without regard to the annual deductible. If the cost of
the examination exceeds $100.00, the additional amount will be covered at 80%
provided that the annual deductible has already been paid.
(G) The Company and the Crewmembers shall adhere to the Current FAA Drug
and Alcohol Testing Programs. The Company shall provide at no cost to the
Crewmembers all FAA required material and information regarding the programs.
The Company will make every effort to schedule the FAA Drug Testing on a
Crewmembers duty day. During the term of this Agreement, the Company shall
notify all Crewmembers in writing as to any changes, modifications, or
additions to the current programs.
ARTICLE XVIII - HEALTH AND WELFARE
(A) The Company shall provide -- on a fully paid basis -- life insurance
and A.D.&D., for all Crewmembers covered by this Agreement equal to one (1)
year of the
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Crewmember's base guarantee plus longevity. Eligibility for this benefit shall
begin following six (6) months of continuous full-time employment.
(B) During the term of this Agreement, the Company may offer additional
and optional life insurance that each Crewmember would be eligible to purchase.
(C) Upon ratification of this Agreement, the Company shall continue to
provide the health and dental insurance that is currently in effect including
"Short Term Disability". Eligibility for health, dental benefits and "Short
Term Disability" shall begin following six months of continuous full-time
employment. In determining length of employment for this benefit, all periods
of absence (paid or unpaid) will be deducted, except for holidays, vacations,
military leave, sick leave, and as defined by the provisions of the Family and
Medical Leave Act. The Company may, during the term of this Agreement, change
insurance carriers but in no case shall the benefits currently in effect be
reduced in any way. At the Company's option, the Company and the Crewmember
may share any premium increase, provided however, that Crewmembers shall not be
required to pay a larger proportion of any premium increase than any other
Company employee.
1. Whenever a Crewmember leaves the service of the Company, he
may be entitled to a continuation of health care and dental benefits under
COBRA. If a Crewmember is eligible for COBRA coverage, all information
regarding coverage, premiums, deadlines and forms will be forwarded to him at
the address that the Company has on file.
2. Whenever a Crewmember takes a leave of absence or is unable to
perform his duties, as specified in Article II of this Agreement, and wants to
keep his insurance active he will be required to pay the employee portion of
the health and dental insurance premiums during the first thirty (30) days of
leave. If the leaves extends beyond thirty (30) days, the Company will no
longer continue to cover any portion of the insurance premiums (except as
provided by Military Leaves and FMLA). However, the Crewmember may be entitled
to a continuation of health care benefits under COBRA. If a Crewmember is
eligible for COBRA coverage, all information regarding coverage, premiums,
deadlines and forms will be forwarded to him at the address that the Company
has on file.
(D) The graduated co-payment policy that is currently in effect for
medical and hospitalization shall remain in effect. All Crewmembers with more
than five (5) years of active service shall not be required to make co-payments
for medical and dental insurance.
(E) Within one hundred twenty (120) days after the ratification of this
Agreement, the Company shall offer Long Term Disability insurance to each
Crewmember. The
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cost of this insurance will be paid for by the Crewmember if he elects this
coverage. The premiums will be paid bi- weekly through payroll deductions.
(F) All Crewmembers will be covered by health, dental and life insurance
while operating a Company flight in a "Hostile" area -- as defined by the U.S.
Department of State -- under the following conditions.
1. If a Crewmember has elected to take the Company health and
dental insurance, then he shall be covered by this insurance while operating a
Company flight within a hostile area.
2. If a Crewmember is eligible for the Company life insurance
program, then he will be covered by this insurance while operating a Company
flight within a hostile area.
3. Any Crewmember that has less than six (6) months of active
service with the Company shall be covered by health and life insurance while
operating a Company flight within a hostile area.
4. All flight(s) operated in a "Hostile" area, as defined by the
U.S. Department of State, shall be on a voluntary basis only. Only those
flights operated by the Department of Defense within the terms and conditions
of the CRAF program shall be mandatory.
(G) Tax Deferred Savings Plan 401(k)
1. The Company agrees to extend the "Teamsters National 401(k)
Tax Deferred Savings Plan" -- as the sole 401(k) plan offered -- to all
Crewmembers that are covered by this Agreement. This plan will be referred to
hereinafter as the "Teamster's 401(k) plan."
2. The Company will make payroll deductions on a bi-weekly basis
from any Crewmember who chooses to participate in this plan.
(a) The Company will deposit this money into the account
that is designated by the Teamster's 401(k) Plan in
compliance with, and subject to, the Internal Revenue
Service, ERISA regulations and the Department of
Labor.
(b) For each deposit made, the Company will forward a
list of all participants and the amount of their
current deferrals to the plan administrator of the
Teamster's 401(k) Plan.
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(c) Within one hundred and twenty (120) days after the
ratification of this Agreement, the Company will
begin to withhold payroll deductions from all
Crewmembers who have submitted a form authorizing the
401(k).
3. All moneys that are invested by Crewmembers in the Company's
401(k) Plan will be transferred into the Teamster's 401(k) Plan in compliance
with, and subject to, the Internal Revenue Service, ERISA regulations and the
Department of Labor.
(a) The transfer of this money will begin within one
hundred and twenty (120) days after the ratification
of this Agreement and will be completed no later than
one hundred and eighty (180) days from the date of
ratification.
(b) The Company will not pay any fees that are associated
with the withdrawal or transfer of the funds from the
Company's 401(k) Plan to the Teamster's 401(k) Plan.
4. Other than as set forth above, the Company will not
participate in the administration of this 401(k) Plan.
ARTICLE XIX - COMPENSATION
(A) 1. (a) Crewmembers in their first year of Active Service
with the Company, shall not receive Longevity Pay until they have completed
their first year of Active Service as defined in Article II of this Agreement.
Each Crewmember, after completing their first year of Active Service with the
Company, shall be compensated with Longevity Pay in accordance with the
following schedule.
<TABLE>
<S> <C>
1st year of Active Service completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% increase
2nd year of Active Service completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% increase
3rd year of Active Service completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% increase
4th year of Active Service completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% increase
Each additional year thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% increase
</TABLE>
(b) The percentage increases shown in 1.(a) above, are cumulative,
but not compounded, and relate to the base hourly rate for the Crew Class and
Category to which the Crewmember is assigned. Longevity pay as provided in
this Section shall adjust the pay per hour, described in Paragraph 2. below.
2. Each Crewmember shall be compensated for his hourly flight
time based on his Crew Class position as defined in Article II, Section (H), as
set forth below: Pay will be computed to the nearest one-tenth (1/10th) of an
hour.
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<PAGE> 51
<TABLE>
<CAPTION>
CREW CLASS BASE RATE + LONGEVITY PAY= RATE AT DOS
---------- --------- ----------------------------
<S> <C> <C> <C>
Captain $70.00 As described in Will vary by
paragraph 1(a) above. Crewmember and years
First Officer $47.50 of Active Service
Flight Engineer $47.50
Flight Engineer + A&P $52.50
</TABLE>
3. The International Pay Rate shall be paid at the rate of ten
dollars ($10.00) per hour in addition to any other compensation as defined in
this Agreement, for all international hours flown as defined in Article II.
4. Crewmember(s) that accept a check or instructor position, as
specified in Article XXI, Section E, shall receive additional compensation as
follows:
<TABLE>
<S> <C> <C>
(a) Check Airmen . . . . . . . . . . . . $15.00/hour additional
Check Engineer . . . . . . . . . . . $15.00/hour additional
Ground School Instructor . . . . . . $10.00/hour additional per class room hour
Simulator Instructor . . . . . . . . Hours will be credited toward the monthly
guarantee and paid appropriately
</TABLE>
(b) The rates set forth in (A) above for Check Airmen and
Check Engineer are valid whether the Crewmember is providing this service for
strictly domestic flights, strictly international flights, or a combination of
both. There shall be no additional "International Pay" for Crewmembers who are
filling Check Airman or Check Engineer positions.
5. a) All pay under this Agreement shall be paid in United
States dollars. Crewmembers shall be paid on a bi-weekly basis. After the
close of the bid period, the first paycheck shall contain one half (1/2) the
flight pay guarantee for the bid period, including appropriate adjustments; the
second paycheck shall contain one half (1/2) the flight pay guarantee, plus all
additional compensation earned in the prior bid period. All additional
adjustments including overtime pay, pay for performing duties on a duty free
day, etc., shall be made on the second paycheck following the bid period in
which it was earned.
b) Whenever a Crewmember is called to the field for the
purpose of serving a Flight Crewmember and is not used, he shall be credited
the equivalent of
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one (1) hour of flight pay for each four (4) hours of duty or fraction thereof,
with a minimum of one (1) hour's flight pay credit. Whenever a Crewmember is
called to the field for the purpose of serving as a Flight Crewmember and is
used, he shall be credited with the actual flight time. In the event that the
flight time is less than one (1) hour, then the Crewmember will be credited
with one hour flight pay.
c) In the event an aircraft is forced to return to its
originating station due to malfunction of the aircraft or other causes and the
flight is canceled, the Crewmember shall be credited with hourly flight pay,
based on actual flight time.
d) Whenever a Crewmember performs or supervises
maintenance work in addition to his normal duties on the aircraft, as defined
in Article II of this Agreement, he shall be paid fifteen dollars ($15.00) per
hour or fraction thereof. This compensation shall be in addition to any other
compensation listed in this Agreement.
e) A newly hired Crewmember who receives training prior
to his qualification as a Crewmember shall be paid a minimum of five hundred
($500.00) dollars per week while in training. The Company shall pay the hotel
expense when a newly hired Crewmember is assigned to training at a location
other than the Company's base of operation. This sum shall include all
compensation while in training. Upon qualification as a Crewmember,
compensation shall begin in accordance with Section (A) of this Article.
f) Unless otherwise required by applicable law, a
furloughed Crewmember shall receive his pro- rated guarantee and all other pay
due him, on the first regularly scheduled paycheck that includes the pay period
in which he was furloughed.
g) Anytime a Crewmember deadheads on International
flight(s) (where authorized), instead of the Company paying commercial
transportation, the Crewmember shall be compensated $200.00. Each time the
entire flight crew is changed, the deadheading Crewmember shall receive an
additional $200.00. If the deadheading Crewmember lays over at any enroute
station, the Crewmember shall be compensated an additional $200.00 for the
follow-on deadhead movement.
Example: Trip route VHHH/RJTT/PANC/KLAX Operating Crew Change
scheduled for PANC. Deadheading Crew boarded at VHHH and scheduled
layover KLAX Deadheading Crew to receive $200.00 for VHHH/PANC and
$200.00 for PANC/KLAX. Total compensation to deadheading Crewmember
$400.00.
h) Crewmembers shall be compensated for their hourly pay
as show in Section (A) of this Article in accordance with the following rules:
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1. Flight pay hours - as defined in Article II, are
actual block-to-block time, computed to one tenth (1/10th) of an hour.
Crewmembers are credited with one (1) pay hour or portion thereof, for
every one (1) flight hour or portion thereof.
2. Anytime a Crewmember elects to perform any duties on
a scheduled duty free day, he shall be paid four (4) hours of pay at
his rate, as set forth in Section (A) of this Article, or the actual
hours flown, whichever is greater. This shall be in addition to any
other compensation as provided in this Agreement.
i) The Minimum Bid Period Guarantee (MBPG) shall be
sixty (60) flight pay hours in a one (1) month bid period compensated at the
Crewmember's appropriate hourly rate as shown in Section (A), Paragraphs 1 and
2 of this Article.
j) The Minimum Bid Period Guarantee (MBPG) for
Crewmembers assigned or awarded a bid rotation in excess of the normal rotation
of eighteen (18) duty days and twelve (12) or thirteen (13) duty free days,
shall be one hundred and eight (108) flight pay hours for a thirty (30) day
month or one hundred twelve (112) flight pay hours for a thirty-one (31) day
month. All rates of pay in this paragraph shall be compensated at the
International Pay rate, as outlined in Section (A) 3. of this Article. Anytime
a Crewmember is required to deadhead prior to the start of the bid period or
deadhead at the end of the bid period, he shall be compensated for all days of
travel as if worked on a duty free day.
k) TAXI PAY:
1. Whenever a Crewmember(s) is called to the field for the
purpose of positioning or de-positioning an aircraft, not for the purpose of
flight, it shall be described as "Taxi Pay". The Crewmember(s) shall be
compensated at his appropriate hourly pay for all taxi time with a minimum of
one hour flight pay credit. The crew shall enter block times in the aircraft
log book and note "Taxi only" in the remarks section.
2. Any time a Crewmember(s) is required to position or
de-position an aircraft within the same duty period, for any reason, the
Crewmember(s) shall be compensated for all time spent at his appropriate hourly
flight pay credit. Taxi time shall be accounted for as provided for in "1."
above.
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ARTICLE XX - EXPENSES, LODGING & TRANSPORTATION
(A) Per Diem and Lodging
1. While away from the Crewmember's assigned base or his
residence, the Crewmember shall be paid per diem at the following hourly rate:
<TABLE>
<CAPTION>
Domestic International As per Article XXIV
<S> <C> <C>
D.O.S.
$1.00 $2.00 $3.00
</TABLE>
2. International Per Diem shall be paid according to Paragraph
(1) above while the Crewmember is on assignment outside the contiguous 48
states. On a continuation flight the International Per Diem rate shall be paid
for all hours from block out at the last domestic airport, on an international
trip, to block in at the first domestic airport. Otherwise, the International
Per Diem Rate shall start as specified in Paragraph 5 of this Article.
3. When a Crewmember is assigned to lines of time that exceed the
normal bid rotation outside of the contiguous 48 states -- as defined by the
conditions in Article XXIV, the Per Diem shall be paid, according to Paragraph
1. above, for all hours from the time the Crewmember departs the last domestic
airport on an international trip, to block in at the first domestic airport on
an international trip.
4. In addition to the expenses provided in Section A, the Company
shall furnish suitable single occupancy hotel accommodations or crew apartments
in a location convenient to the airport and chosen by the Company. These
accommodations shall be provided for Crewmembers when the Company determines it
necessary or where the layover is greater than six (6) hours, measured block in
to block out. The Company will pay for room, tax, and Company related
telephone calls or faxes. All other incidental charges will be paid by the
Crewmember when checking out. Direct billing will be arranged by the Company
for all designated hotels and also for unscheduled accommodations, whenever
possible.
(a) When hotel accommodations are required in accordance
with Paragraph 2. above, expeditious transportation to and from the
hotel to the airport shall be furnished by the Company.
(b) When transportation on a layover is not provided by
the Company within one (1) hour after the aircraft blocks in,
Crewmembers may use any other available means of ground transportation
to their place of lodging and shall be reimbursed for claimed,
receipted expenses.
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<PAGE> 55
5. Per Diem shall be paid at the hourly rate as set forth in this
Article, commencing when the Crewmember is required to report for duty at his
base or depart his residence, until the Crewmember is returned to his base or
his residence.
6. Crewmembers on layover of forty-eight (48) hours or more shall
be allowed reimbursement for rental car transportation, and will be limited to
one (1) car per crew, when approved by the Director of Operations or his
designee.
7. All Per Diem will be paid no later than the end of the
following bid period in which it was earned.
8. In the event a Crewmember is authorized and uses his
automobile on Company business, he shall be reimbursed at the rate of
twenty-nine ($.29) cents per mile. The Crewmember must indicate the
origination point and termination point of travel and submit the proper
reimbursable expense report.
ARTICLE XXI - GENERAL CONDITIONS
(A) The Company shall provide identification cards to each Crewmember
indicating his category position. The Company shall not require any Crewmember
to update or maintain manuals, documents or charts during flight. The Company
shall provide charts, and manuals with associated revisions for each aircraft.
(B) A Crewmember shall not be required to pay for the use of any Company
equipment used in training and will not be required to pay for any Company
aircraft damaged while under the direction of the Company.
(C) The Company shall pay for all visas and necessary photographs and
inoculations required of Crewmembers and if practicable the Company will obtain
such visas.
(D) 1. If a Crewmember is scheduled for eight hours of duty time or
more and is not scheduled for an enroute stop of at least (3) hours where
ground transportation to a restaurant is provided, the Company shall provide
crew meals.
2. Crew meals shall be provided by the Company for all
Crewmembers on all flight segments of six (6:00) hours or more. When possible,
all crew meals shall be delivered directly to the aircraft prior to departure,
and no Crewmember is responsible to provide his own crew meal while on flight
duty with the Company, if the Company is required to provide such meal. No
flight will be delayed due to the failure of the Company to provide crew meals.
(E) No Crewmember shall be required to accept a position in a supervisory
or check airman capacity.
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(F) No Crewmember when deadheading at the direction of the Company by air
transportation shall be required to operate such aircraft.
(G) PERSONNEL AND TRAINING FILES. The Company shall maintain a personnel
file, and a training file for each Crewmember. The personnel file shall
contain all personnel related documents involving the Crewmember and the
training file shall contain all the Crewmember's training records. Upon
request, a Crewmember may review his Personnel file in the presence of the
appropriate Company official at a time and place mutually agreed upon between
the Crewmember and the Company. Such written request shall be limited to one
every six (6) months.
1. Upon written request, a Crewmember shall be entitled to copies
of any document(s) in his personnel file. The Crewmember shall be given a copy
of any infractions at the time such entry is made in his personnel file, and
the Company shall send an additional copy of such entry to the Union.
2. All orders to a Crewmembers involving promotions, demotions,
furloughs and leaves of absences shall be stated in writing, and shall be
placed in the Crewmember's personnel file.
(H) If any article, section, or provision of this Agreement should be held
invalid by operation of law or by any court of competent jurisdiction, or if
compliance with or enforcement of any article, section, or provision should be
restrained by such court pending a final determination as to its validity, the
remainder of this Agreement, or the application of such article, section, or
provision to persons or circumstances other than those as to which it has been
held invalid or as to which compliance with or enforcement of has been
restrained, shall not be affected thereby. In the event that any article,
section, or provision is held invalid, either party may request negotiations
for the purpose of arriving at a mutually satisfactory replacement of such
article, section or provision. In the event such negotiations fail to produce
an agreement as to such replacement, either party, notwithstanding the
provisions of Article XXVII, Duration, may invoke the services of the National
Mediation Board in accordance with the provision of Section 6, Title I, of the
Railway Labor Act, as amended, to resolve such dispute.
(I) UNION REPRESENTATION. The Company shall provide the Union with a
suitable location for a bulletin board at the all Company crew base(s) for the
posting of official notices of Union meetings, elections, and other notices
pertaining to internal Union matters.
1. The Company agrees to admit to its Company crew base(s) and
all operational line stations, the official designated representatives of the
Union to transact such business as is necessary for the administration of this
contract. The
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Union will provide the Company with prior notice of any such request to be
admitted to any operational line station. All such requests must be approved
by the Company.
2. The Union shall select Crewmember representatives and shall
notify the Company from time to time of their appointment or removal. The
number of employee representatives shall be limited to those necessary to
provide convenient representation for Crewmembers. The Company shall notify
the Union of the appropriate Company representatives.
3. Any Crewmember required to be present at a Company hearing or
investigation involving the Crewmember will be entitled to Union representation
at such hearing or investigation, providing the Crewmember makes such request.
4. The Company shall allow a reasonable period of time during new
hire indoctrination for Union orientation. The time period shall be after a
normal training day.
5. The Union Executive Council shall appoint a Professional
Standards Committee, composed of Crewmembers which shall confer with the
Company on matters pertaining to the professional proficiency or conduct of
Crewmembers. Members of this Committee shall be permitted to observe any
training period or proficiency check at the request of the Company or the
Crewmember obtaining such training/proficiency check. The Company shall
release such member(s) to participate in such hearings, training periods, or
check rides consistent with reasonable scheduling requirements, at no loss of
pay.
(J) Crewmembers will not be required to participate in publicity or
promotional activities.
(K) The Company shall negotiate reciprocal jumpseat agreements with other
airlines and provide a list every year to all Crewmembers.
(L) Aircraft cabin entry area and flight decks shall be clean and properly
maintained; it is the Crewmember's duty to assure that they will be left in an
orderly condition. Hot cups, microwaves or ovens in aircraft equipped with
such, as of July 18, 1995, shall remain in the aircraft and be maintained in an
operable condition. The Company shall provide all appropriate cleaning
supplies, including approved wipes for oxygen mask equipment.
(M) Consistent with the Company's pass policy and interline agreements
with other carriers, if any, all Crewmembers covered under this Agreement and
their immediate families shall be entitled to the same pass or reduced fare
privileges afforded or available to other A.I.A. Inc. employees and their
families. The Company will provide
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a current list of all agreements and interline privileges to the Crewmembers,
once each year.
(N) The Company shall include the Crewmembers as an insured under the
Company's Airline Liability Policy, while the Crewmember is acting on behalf of
the Company.
(O) Upon written request to the Company Payroll Department, the Company
shall mail a Crewmember's paycheck to a specified address. Such request must
be received by the Company at least 30 days before the paycheck is due.
Providing, electronic direct deposit of paychecks and per diem expense checks
becomes available, the Company shall provide the service. Any additional cost
required by the bank or transfer agency will be paid by the Crewmember. The
Company shall provide withholding for state taxes if requested by a Crewmember.
(P) A Crewmember who is required to serve on jury duty shall receive no
pay from the Company, unless required by applicable state law. Any Crewmember
who receives notice of jury duty will inform his supervisor and will cooperate
with the Company in obtaining a postponement from jury duty if required.
(Q) The pilot-in-command on all engine out ferry flights may be a
management or check Crewmember. In the event a management or check Crewmember
is not available, the Company may designate a line Captain to operate such
flight if he is qualified and he so agrees.
(R) The Union recognizes the right of the Company to "Lease" an
aircraft(s) to another Company at such times as the Company is unable to obtain
sufficient business for profitable operations of said aircraft. In such event,
the Company shall endeavor to arrange with the lessee to provide for the
employment of a full or partial complement of Crewmembers covered by this
Agreement and constitute a "Wet Lease" operations. If the Company's endeavors
are unsuccessful, it will upon request of the Union state in writing the
reasons as to why such employment is not acceptable to the lessee. In the
event a furlough is necessary due to the "Lease" of equipment, the Company
shall provide the following information: Duration of Lease Agreement, duration
of furlough, number of Crewmembers effected by type and crew class, number of
aircraft effected by the "Lease", approximate date of recall of Crewmembers.
(S) Any Crewmember who becomes sick or injured while away from their base
on Company business shall be provided with any necessary transportation arising
from his illness or injury. Such transportation shall be provided at Company
expense if not otherwise covered by applicable insurance. The Crewmember will
be returned to the Crewmember's assigned base or his residence by the Company
at the earliest possible time.
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(T) If a Crewmember suffers a compensable work-related illness or injury
away from his base, on Company business, and his injury requires
hospitalization away from his base, the Company shall pay those hospitalization
expenses to the extent to which such hospital expenses are not otherwise
covered by applicable insurance.
ARTICLE XXII - MISSING, INTERNMENT, PRISONER OR HOSTAGE
OF WAR BENEFITS, HIJACKING
(A) Any Crewmember who in the course of his employment becomes
involuntarily missing, who is interned or held hostage shall be entitled to
compensation of his applicable MBPG until released from interment or hostage,
or, if missing, until proof of death is established in fact (or until there is
reasonable presumption of death) and only to a maximum of twenty-four (24)
months will such compensation be paid to the beneficiary or beneficiaries
designated in writing by the Crewmember as set forth in paragraph (E) below.
(B) Any payments due to any Crewmember under this section which are not
covered by a written direction as above shall be held by the Company for such
Crewmember and in the event of his death shall be paid to the legal
representative of his estate.
(C) Crewmembers shall retain their seniority and continue to accrue
longevity for pay purposes, vacations, sick leave, and retirement benefits
during periods in which they are missing.
(D) A Crewmember who requires the use of sick leave due to having been a
Crewmember on an aircraft that is hijacked shall be allowed to use such with no
charge to his sick leave account.
(E) The Minimum Monthly Guarantee allowable under Article XIX, shall be
disbursed by the Company in accordance with written directions from the
Crewmember. The Company shall require all Crewmembers employed in the
Company's operation to execute and deliver to the Company such written
direction. The direction referred to shall be in substantially the following
form:
TO: American International Airways, Inc.
You are hereby directed to pay all monthly compensation allowable to me, and
any other benefits stipulated in this Agreement, while missing, or resulting
from death or any other condition which causes direct payment to me impossible,
under sections of this Agreement as follows:
$__________ per month to ________________________________________________ as
long as living, and thereafter to __________________________________________ as
long as
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living. The balance, if any, and any amounts accrued after the death of all
persons named in above designation shall be held for me, or in the event of my
death before receipt thereof, shall be paid to the legal representative of my
estate.
The foregoing direction may be modified from time to time by letter signed by
the undersigned and any such modification shall become effective upon receipt
of such letters by you.
Payments made by the Company pursuant to this direction shall fully relieve the
Company from the obligation of making payments with respect thereto.
ARTICLES XXIII - STRIKE, LOCKOUT RIGHTS
(A) During the term of this Agreement, the Union shall not authorize,
cause, sanction or engage in any strike, picketing, slowdown, or stoppage of
work.
(B) During the term of this Agreement, the Company shall not cause,
permit, or engage in any lockout of its employees.
ARTICLE XXIV - EXTENDED ROTATION
(A) The provisions of this Article shall only apply when the Company
determines that the provisions of Article XIV - Schedule, do not meet the
flying requirements for crew rotations outside the contiguous U.S. This
Article shall only apply for Crewmembers that are assigned or awarded lines of
time that exceed the normal bid rotation outside the contiguous U.S.
(B) ELIGIBILITY
1. The Crewmember must be current and qualified for the line
being bid or assigned.
a. The Crewmember is considered current and qualified if
no currency requirements will lapse during his assignment.
2. No Crewmember may be assigned a bid under this Agreement if
his awarded vacation bid falls within such bid period, unless the Crewmember
elects to relinquish his vacation. Any changes or adjustments in vacation time
must be negotiated between the Company and the Crewmember.
3. No Crewmember shall be assigned for more than one month in any
three (3) consecutive months, unless the entire eligible seniority list has
been assigned in the preceding month.
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(C) BID/ASSIGNMENT PROCEDURE
1. The Company shall determine the number of positions required.
2. Crewmembers bidding, and meeting eligibility requirements
shall be awarded lines in seniority order. Crewmembers may bid and be awarded
more than one period.
3. If insufficient bids are received, Crewmembers meeting
eligibility requirements shall be assigned lines in reverse order of seniority.
The Company shall assign the most junior Crewmembers in accordance with the
eligibility requirements as set forth above. The Company shall not by-pass any
eligible Crewmember. The Company shall keep and maintain a record of all
Crewmembers who have been awarded or assigned to ensure compliance with this
Article.
4. When the crew compliments are to be reduced, return to the
CONUS shall be offered in seniority order beginning with the most senior
Crewmember(s) assigned through all assigned, then the senior bid Crewmember(s)
through all bids, then forced recall in reverse seniority order.
5. All rotations for Crewmembers awarded/assigned per this
Article, shall be scheduled to commence with the start of each month and
terminate at the end of the month. Travel time is not included for duty
purposes but will be counted and paid as having worked on days off, unless the
travel days were duty days. No Crewmember shall be required to remain at the
duty station more than one (1) month plus travel time, unless he bids the
following month, or waives the provisions of this Article.
6. A Crewmember who bids or is assigned a line under this Article
shall, at his option, have minimum of six (6) days free of duty before
departure from his residence and a minimum of six (6) days free of duty after
return to his residence. The bid period prior to and after assignment under
this Article shall be adjusted by agreement between the Crewmember and the
Company to eighteen (18) duty days. Providing no agreement is reached, the
Company shall make the necessary adjustments. The Crewmember must advise the
Company of his intent to exercise this option and make such adjustments as
required prior to the beginning of an affected bid period.
7. Crewmembers assigned under this Article, may be on duty for
the entire month, but shall not receive less than one (1) twenty-four (24) hour
period free of all duty in any seven (7) consecutive days. For pay purposes
only, no days shall be considered duty free days.
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8. Crewmembers returning from assignment shall not be entitled to
additional days off.
9. If travel to the duty assignment exceeds eight (8) hours, the
Crewmember shall have a rest period of at least twelve (12) hours prior to any
assignment.
(D) COMPENSATION:
1. A Crewmember awarded/assigned per this Article shall receive
an hourly per diem rate as set forth in Article XX, Section A-1, from the time
he leaves his assigned crew base or his residence for such assignment until he
returns to his assigned crew base or his residence. Crewmembers will not
receive additional per diem payments applicable to flights away from his
assigned location.
2. All Crewmembers awarded/assigned per this Article, shall be
paid in accordance with Article XIX, Paragraph J. Crewmembers shall be
entitled to additional pay as defined in this Agreement.
(E) CONDITIONS:
1. When establishing crew rotation as per this Article, the
Company shall consider crewing it in the following manner:
a. Crewing out of the permanent Base;
b. Rotating Crewmembers out of the permanent Base on a
monthly basis in accordance with this Article.
2. Should the above two methods not appear feasible, the Company
and the Union shall meet to establish the best method of crewing the flight
requirements.
ARTICLE XXV - MANAGEMENT RIGHTS
The Company retains the sole and exclusive right to operate, control and manage
its business and exercise all traditional management rights, powers, or
authorities it had prior to signing this Union Agreement, except those modified
specifically by an express provision(s) of this Agreement. Included by way of
description and not by way of limitation are rights to: direct the working
force and determine its size and composition; maintain order and efficiency;
hire, transfer, and promote employees and discipline, suspend, and discharge
them for cause; assign work to employees; extend, maintain, curtail or
terminate its operations in whole or part; determine the nature and extent of
services to be rendered; determine the business concerns with whom it will deal
and the customers it wishes to serve; establish and enforce quality
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standards for its services; determine and change methods, processes, techniques
of operation, for lack of work; determine the number and starting of duty
periods and determine when and if vacancies shall be filled; establish and
modify reasonable rules and regulations and require observance thereof. A
right of management shall not be impaired or waived by any contrary course of
conduct.
ARTICLE XXVI - NEW BASES
A. If during the term of this Agreement the Company elects to open
additional "New Base(s)", as defined in Article II of this Agreement, within
the 48 contiguous States and the District of Columbia, the following procedures
shall apply.
1. The Company shall determine the number of initial vacancies
required to staff the New Base(s), based on Type and Crew Class. The Company
shall post at the Company Base(s) and line stations where the Company maintains
an office, the initial vacancy bid for a period of not less than thirty (30)
days.
2. The Company shall mail to each Crewmember's home address a
copy of the initial New Base(s) vacancy bid, including the Type and Crew Class
and New Base location(s). The Company shall send a copy of the initial New
Base vacancy bid to all furloughed Crewmember(s) at the same time. The bid
package shall include a copy of the projected bid lines and type of flying for
the New Base(s). The bid shall close thirty (30) days after posting.
B. SIXTY PERCENT (60%) RULE: The Company shall not open any new base(s),
as covered in this Article, unless, on the initial new base bid, there are
successful qualified bidders for at least 60% of all positions posted for the
bid.
Example (1): Company initial vacancy bid is for ten (10) B-727 Crews.
The total Crewmembers needed to fill the initial vacancy is 30. The
Company receives 20 bids from B-727 eligible Crewmembers. The 60%
requirement is 18. The New base is opened, and the provisions of this
Article apply.
Example (2): Company initial vacancy bid is for nine (9) B-747 Crews.
The Crewmembers needed to fill the initial vacancy is 27. The Company
receives 13 bids from B-747 eligible Crewmembers. The 60% requirement
is 16. The New Base vacancy bid is canceled.
C. Providing the bids received for the initial vacancies are greater than
60% of the number of Crewmembers in the crew class and type that bid, the
Company may open the New Base(s) under the following conditions.
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1. Once the initial vacancy bid has closed, the Company shall
award to all Crewmember(s) that have bid, the position(s) in accordance with
the following procedure.
2. Initial positions as defined in Paragraph (A)(1) above, shall
be awarded in seniority order, by Crew Class and Type to any Crewmember(s) or
furloughed Crewmember(s) that bid.
3. If there are insufficient bidders, the Company shall award by
reverse seniority order, by Crew Class and Type in order to fill the vacancy
positions.
4. Crewmembers that are subject to displacement from their
current Category, Crew Class and Type due to a reduction at their present base
shall be allowed to bump any position of the same Category at any base their
seniority may hold. The provisions of Article VIII, paragraphs (B)(2) and
(B)(3) shall apply.
5. Crewmember(s) that are displaced as a result of a furlough,
after a New Base has been established may exercise their rights within the
terms and conditions of Article VIII and displace any junior Crewmember at any
base in the same Category.
D. Once initial base vacancies have been bid and awarded or assigned, as
provided for in (C) above, any additional base vacancies shall be posted and
bid in accordance with Article IV of this Agreement.
1. The Company shall determine the additional vacancies required
and shall post at all locations where they maintain bases and locations where
they maintain offices, for a period of not less than thirty (30) days, the
vacancy bid.
2. The Company shall mail to each Crewmember's home address a
copy of the vacancy bid, including the Category/Crew Class, Type and Base
location. The Company shall send a copy of the vacancy bid to all furloughed
Crewmembers at the same time. The bid package shall include a copy of the
projected bid lines and type of flying for the base.
3. New hire Crewmembers may be assigned any base once all vacancy
positions have been bid and awarded.
E. In the event a base(s) is reduced in crew staff level or closed, the
Company shall notify all affected Crewmembers at least thirty (30) days prior
to the actual closure date, or applicable Federal Law.
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F. Moving Expenses
1. A Crewmember shall be entitled to move at Company expense to a
permanent position under any one (1) or combination of the following
circumstances, provided they move within one hundred (100) miles of the new
base.
(a) When Crewmember(s) are awarded a vacancy at a new
base as a result of a successful bid.
(b) When Crewmember(s) are involuntarily assigned to fill
a new base vacancy as a result of insufficient bidders.
(c) When the Crewmember's move results from a closing of
his base.
(d) A furloughed Crewmember recalled to a different base
than from which he was furloughed.
2. Crewmembers shall be given thirty (30) days notice of the
effective date of a new base assignment.
3. If a Crewmember eligible for moving expenses covered by this
Article, elects not to move to the new base, the Company shall pay hotel and
per diem for the first two bid periods at the new base.
G. If the Crewmember elects to commute, he is responsible for being at
the location designated for show time for a designated trip.
H. New hire Crewmembers shall not be eligible for moving expenses when
reporting to their initial base assignment or award.
I. Expenses covered under this Article shall include the following:
(a) Actual moving expenses up to a maximum of fifteen
thousand pounds (15,000#) for household effects (including yard and
workshop tools, motorcycles and lawn equipment). Moving expenses of
household effects provided for in this paragraph shall be
substantiated by receipts for shipping, insurance, or other normal
costs incurred for shipping.
(b) When a Crewmember transfers his car(s) from his
former residence to his new residence, the rate of reimbursement will
be twenty-nine ($.29) cents per mile for the most direct AAA mileage
between such points for the first two (2) automobiles. The Company
shall reimburse the Crewmember for the reasonable and actual expenses
of meals and lodging for the Crewmember and his family for the time to
travel to the new base. A day of
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travel shall be 400 miles by the most direct AAA mileage. All lodging
will be the quality of that used on scheduled layovers.
(c) The Crewmember shall have up to one (1) year to move
and claim the allowances provided for in this Article.
(d) A Crewmember owning and living in a mobile home who
moves such mobile home to his new base shall be allowed actual moving
expenses not to exceed the limitations of (e) below.
(e) The maximum dollar amount shall not exceed the amount
for moving expenses as described in paragraphs (a) or (b) above.
J. Initial Crew Base alignment.
The Company shall determine the number of Crewmembers assigned to each Crew
Class at each base. Upon date of ratification of this agreement, the Company
shall post and provide to the Union a list of the numbers of Crewmembers, by
Crew Class. The crew bases at time of ratification of this agreement shall be:
YIP/B-747, YIP/B-727, YIP/DC-8 and YIP/L-1011.
L. Lines of Flying
The Company shall construct Lines of Flying in accordance with Article XIV of
this Agreement. A Crewmember assigned to the base shall be returned to his
original bid line as soon as possible.
ARTICLE XXVII - DURATION
This Agreement shall become effective on August 29, 1995, unless otherwise
specifically noted, and shall continue in full force and effect until August
29, 1997, and shall renew itself until each successive August 29 thereafter
until written notice of an intended change is served in accordance with Section
Six (6), Title I, of the Railway Labor Act, as amended, by either party hereto
at least thirty (30) days (but not more than sixty (60) days prior to August
29, 1997 or August 29 of any subsequent year.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the 5th
day of September, 1995.
For the International For the American International
Brotherhood of Teamsters Airways, Inc.
- ------------------------------ -----------------------------------
Ray W. Benning, Jr. William Gray
Assistant to the Director V.P. and General Manager
- ------------------------------ -----------------------------------
Noel "Bush" Bohinov Tom Jones
Business Representative Director of Operations
- ------------------------------
Dale Busby
Executive Council Chairman
- ------------------------------
Dave Lyon
Captain Representative
- ------------------------------
Bassel Fares
Member at Large
- ------------------------------
John Maslankowski
Flight Engineer Representative
- ------------------------------
Ralph Fritsch
DC-8 Engineer
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LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION
MODIFIED
The International Brotherhood of Teamsters - Airline Division and American
International Airways, Inc. enter into a Letter of Agreement to establish an
upgrade provision for Flight Engineers, employed as of July 28, 1994.
The parties agree to the following terms and conditions:
MINIMUM UPGRADE REQUIREMENTS
1. At least 1,000 hours pilot time, to include 100 hours of
multi-engine time. Recent experience must include 50 hours
during the six (6) months preceding qualification;
AND
2. Employed as a Flight Engineer for a period of one (1) year
with American International Airways prior to July 28, 1994.
AND
3. Commercial Pilots License with instrument and multi-engine
ratings and a current FAA First Class Medical certificate.
Flight Engineers that desire to be considered for upgrade to First Officer must
notify the Chief Pilot within sixty (60) days of this Agreement. The Flight
Engineer that desires to become a First Officer has two (2) years to meet the
Minimum Upgrade Requirements as set forth in this Agreement.
The Company and the Union may extend the time limitations as set forth in this
agreement.
WHEN A VACANCY EXISTS ON THE APPROPRIATE EQUIPMENT, THE COMPANY SHALL;
1. Conduct a simulator evaluation of the Flight Engineer's flying
ability.
2. Administer an equivalent ATP written examination with a
passing score of 80% required.
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3. The Crewmember shall have the option to re-take items (1) or
(2) one time only. The Flight Engineer who fails this
provision shall be returned to his former position as a Flight
Engineer.
4. Upon successful completion of (1) and (2) above, the Company
shall schedule the Crewmember for appropriate training to
First Officer position.
A Flight Engineer who fails to complete the training shall retain his position
on the Flight Engineers Seniority List, and may, at the discretion of the
Company, be given the opportunity to upgrade at a later date.
The First Officer shall be on an evaluation period until he has completed 14
months of flying, or completed his annual proficiency check, whichever comes
first. The First Officer that fails to complete the evaluation period, shall
be returned to his former position as a Flight Engineer.
The qualified First Officer must serve thirty-six (36) months on the same
aircraft type prior to bidding different aircraft type.
Upon successful completion of training the Crewmember shall have his name
removed from the Flight Engineers Seniority List, and placed on the Pilots
Seniority List according to his System-wide Seniority.
Date: July 28, 1994
American International International Brotherhood of
Airways, Inc. Teamsters - Airline Division
American International International Brotherhood of
Airways, Inc. Teamsters - Airline Division
- ---------------------------- ----------------------------
- ---------------------------- ----------------------------
----------------------------
----------------------------
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LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
American International Airways, Inc., and the International Brotherhood of
Teamsters - Airline Division - Local 747, agree to amend the current contract
language contained in this Agreement between the parties, as ratified by the
membership on August 29, 1995. The current contract language contained in
Article XIV - Section B, Paragraph 4 is hereby amended as follows:
4. The Company shall post for the calendar year a schedule for
all bid periods, including the opening date, closure date, and award date of
each bid period. The Company shall post at the Crewmember's Base and all line
stations where Crewmembers may or will transit the next month bid package no
later than the 10th day of the current Bid period. The next month bid package
shall be mailed (postmarked and delivered to the Post Office) to each
Crewmember's home address no later than the 10th day of the current bid period.
a). Each bid period shall close on the 20th day of the current bid
month. The Company shall award and post the results of each bid package on the
25th day of the current month for bid lines awarded or assigned in the
following month. The bid results shall be posted at the Crewmember's Base and
all line stations where Crewmembers may or will transit on the 25th day of each
month. The Company shall not re-award the bid lines after the original posting
is completed.
b). Each Crewmember will be required to contact Crew Scheduling
between the 25th day of month and the last day of the month to confirm his/her
bid line award and training assignment for the following month.
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Date: 21 Nov 1995
For: American International For: International Brotherhood of
Airways, Inc. Teamsters - Local 747
- ------------------------------- -----------------------------------
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LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
American International Airways, Inc. and the International Brotherhood of
Teamsters - Airline Division - Local 747, agree to amend the current contract
language contained in the Agreement between the parties, as ratified by the
membership on August 29, 1995. The current contract language contained in
Article XIV - Section A, Paragraph 9, the last sentence is amended as follows:
When the bid package(s) are posted for the following month, the
Company shall have the right to designate some lines of flying for training
purposes. The training lines shall be designated by type of equipment, crew
class position(s) and clearly indicated on each bid package(s).
The assignment or award of Check Airmen to training lines shall be at
the discretion of the Company.
Date: Nov 21, 1995
For: American International For: International Brotherhood of
Airways, Inc. Teamsters - Local 747
- ------------------------------- ------------------------------------
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LOA 96-07
February 2, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division - Local 747 and
American International Airways, Inc., enter into a Letter of Agreement to
modify the current Contract Language as contained in Article XVI, Paragraph
(A)(1) and (A)(2), Page 53 (added) with the following new contract language;
(1) Crewmembers requesting reimbursement for their
initial uniform purchase must submit a Special Pay
Request Form to the Company with "Original" receipts.
(2) Crewmembers uniform maintenance allowance will be
paid automatically on the first pay period of their
anniversary month, every three (3) years following
their date of hire.
(3) Crewmembers requesting reimbursement for uniform
items damaged in the performance of duty must submit
a Special Pay Request Form to the Company with
"Original" receipts. In addition, the damaged
uniform item must be turned into the Company before
payment will be made for reimbursement.
Dated: Feb 27, 1996
For: American International For: International Brotherhood of
Airways, Inc. Teamsters Airline Division -
Local 747
- ------------------------------- -------------------------------------
70
<PAGE> 74
LOA 96-08
February 2, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division, Local
747 and American International Airways, Inc., enter into a Letter of Agreement
to modify the current Contract Language as contained in Article XIX, Paragraph
(A)1.g), Page 60 with the following new contract language;
g) Anytime a Crewmember deadheads [rides the jumpseat]
on an International Flight(s) [at the direction of
the Company], in lieu of being
positioned/depositioned using a scheduled commercial
passenger carrier, the Crewmember shall be
compensated $200.00. Each time the entire flight
crew is changed, the deadheading Crewmember shall
receive an additional $200.00. If the deadheading
Crewmember is required to lay over at an enroute
station, the deadheading Crewmember shall be
compensated an additional $200.00 for the follow-on
deadhead movement.
Dated: Feb. 27, 1996
For: American International Airways, Inc. For: International Brotherhood of
Teamsters Airline Division -
Local 747
- ----------------------------------------- ----------------------------------
71
<PAGE> 75
LOA 96-06
February 2, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division, Local
747 and American International Airways, Inc., enter into a Letter of Agreement
to modify the current Contract Language as contained in Article V - Section I.,
Paragraphs (B) and (E), Page 16, with the following new contract language:
(B) Providing a satisfactory settlement is not reached
within ten (10) days as provided in paragraph (A), the
Crewmember shall reduce the grievance to writing and present
it to the Union within thirty (30) days. All grievances must
be filed with the Union within thirty (30) days of failure to
resolve the grievance in Paragraph (A) above. The Crewmember
must supply all necessary supporting documentation with
his/her grievance. The Union shall review each grievance and
forward to the Company no later than the tenth (10th) day of
the month all grievances received within the past thirty (30)
days.
(E) All grievances shall be sent to the Director of
Operations or his designee by the Union. If the grievant(s)
is not satisfied with the decision of the Director of
Operations (or his designee), or the Company fails to respond
within thirty (30) days, the Union of the grievant(s) may
appeal such decision to the Crewmember's System Board of
Adjustment. Such appeal shall be made by the Union or the
grievant(s) in writing within fifteen (15) days from the date
of receipt by the Union or the grievant(s) of the decision of
the Director of Operations or his designee.
72
<PAGE> 76
Dated: Feb. 27, 1996
For: American International Airways, Inc. For: International Brotherhood of
Teamsters Airline Division -
Local 747
- ---------------------------------------- ----------------------------------
73
<PAGE> 77
LOA 96-05
February 2, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division, Local
747 and American International Airways, Inc., enter into a Letter of Agreement
to modify the current Contract Language as contained in Article XI - Section E,
Paragraph 1.(c), Page 34 (added) with the following new contract language;
(c) On December 31st of each year, all vacation days
accrued in excess of the maximum (28 or 42 days)
allowable bank, will automatically be paid out on the
January 22nd paycheck.
Dated: Feb. 27, 1996
For: American International Airways, Inc. For: International Brotherhood of
Teamsters Airline Division -
Local 747
- ---------------------------------------- ----------------------------------
74
<PAGE> 78
LOA 96-04. Rev 1
March 22, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division, Local
747 and American International Airways, Inc., enter into a Letter of Agreement
to modify the current Contract Language as contained in Article XX - Section A,
Paragraph 7, Page 63 with the following new contract language;
7. Crewmembers shall provide to the Company, no later than the
seventh (7th) calendar day of the month, their Per Diem and
Overtime Request Form for all pay earned in the previous
month. Crewmembers may fax or mail to the Company their Per
Diem and Overtime Request Form.
a. The company shall provide a Fax number to the
Crewmembers not later than 30 days after signing of
this LOA to be used to receive the Per Diem and
Overtime Request Forms.
b. Crewmembers who Fax their Per Diem and Overtime
Request Forms need not and should not mail an
original copy to the Company.
c. All Per Diem Request Forms, received the 7th of the
month, shall be paid by check, post marked and placed
in the mail to the Crewmembers not later than the
last business day of the month, following the month
in which its was earned.
d. Crewmembers requesting additional reimbursable
expenses must file a Special Pay Request Form and all
"Original Receipts". (Reference LOA 96-12)
Note: This LOA becomes effective with the Per Diem Request for April 1-30.
75
<PAGE> 79
Dated: 22/3/96
For: American International Airways, Inc. For: International Brotherhood of
Teamsters Airline Division -
Local 747
- ---------------------------------------- ----------------------------------
76
<PAGE> 80
LOA 96-12
March 22, 1996
LETTER OF AGREEMENT
BETWEEN
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
AIRLINE DIVISION - LOCAL 747
The International Brotherhood of Teamsters - Airline Division, Local
747 and American International Airways, Inc., enter into a Letter of Agreement
to modify the current Contract Language as contained in Article XX - Section A,
Paragraph 9., Page 63 [added] with the following new contract language;
9. Crewmembers shall file for additional reimbursable expenses
using the "Reimbursable Expense Request Form". Crewmembers
shall provide to the Company, no later than the tenth (10th)
calendar day of the month, their Reimbursable Expense Request
Form with all "Original Receipts". Faxed forms and copies of
receipts "will not be" accepted. The following are examples
of what must be submitted with their Reimbursable Expense
Request Form.
a) Original receipts for all commercial airline tickets
purchase, indicating origin, destination and class
flown.
b) Original receipts for all charges and cash purchase
claimed, including a detailed written explanation of
the charges.
c) All Reimbursable Expense Request Forms, received by
the 10th of the month, shall be paid by check, post
marked and placed in the mail to the Crewmembers not
later than the last business day of the month,
following the month in which the funds were expended.
Note: This LOA becomes effective with the Reimbursable Expense Request for
April 1-30.
77
<PAGE> 81
Dated: 3/22/96
For: American International Airways, Inc. For: International Brotherhood of
Teamsters Airline Division -
Local 747
- ---------------------------------------- ----------------------------------
78
<PAGE> 1
EXHIBIT 12.1
KITTY HAWK, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
12 MONTHS FOUR MONTHS
ENDED ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, DECEMBER 31,
---------------------------------------------- ------------ ----------------
1992 1993 1994 1995 1996 1996 1995 1996
------ ------ ------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income(loss) before income
taxes...................... $1,388 $6,718 $8,407 $7,559 $6,877 $7,686 $7,851 $8,660
Add: Fixed charges........... 202 206 430 1,289 1,998 2,200 528 730
------ ------ ------ ------ ------ ------ ------ ------
Total.................. $1,590 $6,924 $8,837 $8,848 $8,875 $9,886 $8,379 $9,390
====== ====== ====== ====== ====== ====== ====== ======
Fixed charges
Interest expense............. $ 157 $ 134 $ 343 $1,185 $1,859 $2,061 $ 482 $ 684
Add: Interest factor of
operating lease expense.... 45 72 87 104 139 139 46 46
------ ------ ------ ------ ------ ------ ------ ------
Total.................. $ 202 $ 206 $ 430 $1,289 $1,998 $2,200 $ 528 $ 730
====== ====== ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed
charges...................... 7.9x 33.6x 20.6x 6.9x 4.4x 4.5x 15.9x 12.9x
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
---------------------
1996 1997
------- ------
<S> <C> <C>
Earnings
Income(loss) before income
taxes...................... $(1,980) $6,625
Add: Fixed charges........... 1,092 1,643
------- ------
Total.................. $ (888) $8,268
======= ======
Fixed charges
Interest expense............. $ 1,023 $1,049
Add: Interest factor of
operating lease expense.... 69 594
------- ------
Total.................. $ 1,092 $1,643
======= ======
Ratio of earnings to fixed
charges...................... --(1) 5.0x
======= ======
</TABLE>
THE KALITTA COMPANIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Income (loss) before minority interest......... $ 5,585 $18,001 $33,351 $ 7,578 $ 1,129 $(5,047) $(30,050)
Add: Fixed charges............................. 5,688 12,485 14,009 24,788 26,179 12,053 13,526
Less: Capitalized interest..................... -- -- (668) (1,692) (562) (321) --
------- ------- ------- ------- ------- ------- --------
Total.................................... $11,273 $30,486 $46,692 $30,674 $26,743 $ 6,685 $(16,524)
======= ======= ======= ======= ======= ======= ========
Fixed charges
Interest expense............................... 4,396 6,781 8,121 15,064 22,012 10,402 12,371
Add: Interest factor of operating lease
expense...................................... 1,292 5,704 5,220 8,032 3,605 1,330 1,155
Add: Capitalized interest...................... -- -- 668 1,692 562 321 --
------- ------- ------- ------- ------- ------- --------
Total.................................... $ 5,688 $12,485 $14,009 $24,788 $26,179 $12,053 $ 13,526
======= ======= ======= ======= ======= ======= ========
Ratio of earnings to fixed charges............... 2.0x 2.4x 3.3x 1.2x 1.0x --(2) --(2)
======= ======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) Earnings of Kitty Hawk were not sufficient to cover fixed charges by $1,980
for the six month period ended June 30, 1996.
(2) Earnings of The Kalitta Companies were not sufficient to cover fixed charges
by approximately $5,368 and $30,050 for the six months ended June 30, 1996
and 1997, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 1997 in the Registration Statement (Form
S-1 No. 333-36125) and related Prospectus of Kitty Hawk, Inc. dated October 20,
1997.
/s/ ERNST & YOUNG LLP
Dallas, Texas
October 22, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-36125 of Kitty Hawk, Inc. on Form S-1 of our report relating to the combined
financial statements of American International Airways, Inc. and related
companies (collectively the "Companies") dated October 16, 1997 (which report
expresses an unqualified opinion and includes an explanatory paragraph which
indicates that there are matters that raise substantial doubt about the
Companies' ability to continue as a going concern) appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated October
16, 1997 relating to the financial statement schedule of the Companies appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Ann Arbor, Michigan
October 24, 1997
