<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1998
REGISTRATION NO. 333-43645
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4731 75-2564006
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code) Identification Number)
organization)
</TABLE>
<TABLE>
<C> <C>
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, DALLAS/FORT WORTH INTERNATIONAL AIRPORT,
TEXAS 75261 TEXAS 75261
(972) 456-2200 (972) 456-2200
(Address, including zip code, and telephone (Name, address, including zip code, and
number, telephone number, including area code,
including area code, of registrant's principal of agent for service)
executive offices)
</TABLE>
---------------------
Copies of communications to:
JANICE V. SHARRY
HAYNES AND BOONE, LLP
901 MAIN STREET, SUITE 3100
DALLAS, TEXAS 75202
(214) 651-5000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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. [ ]
------------------
================================================================================
<PAGE> 2
PROSPECTUS
, 1998
OFFER TO EXCHANGE
9.95% SENIOR SECURED NOTES DUE 2004
FOR ALL OUTSTANDING
9.95% SENIOR SECURED NOTES DUE 2004
OF
[KITTY HAWK, INC. LOGO]
KITTY HAWK, INC.
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MARCH
, 1998, UNLESS EXTENDED.
The Company is offering upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal") (which together constitute the "Exchange Offer") to exchange
$1,000 principal amount of its new 9.95% Senior Secured Notes due 2004 (the "New
Notes") for each $1,000 principal amount of its outstanding 9.95% Senior Secured
Notes due 2004 (the "Old Notes") in the aggregate principal amount of $340
million. The form and terms of the New Notes are identical to the form and terms
of the Old Notes, except that the Old Notes were offered and sold in reliance
upon certain exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"), while the offering and sale of the New Notes in
exchange for the Old Notes has been registered under the Securities Act, with
the result that the New Notes will not bear any legends restricting their
transfer. The New Notes will evidence the same debt as the Old Notes and will be
issued pursuant to, and entitled to the benefits of, the indenture among the
Company, each wholly owned subsidiary of the Company and the Trustee (as defined
herein) thereunder, dated November 15, 1997, as supplemented (as supplemented,
the "Indenture"), governing the Old Notes. The Exchange Offer is being made in
order to satisfy certain contractual obligations of the Company. See "The
Exchange Offer" and "Description of Notes." The New Notes and the Old Notes are
sometimes collectively referred to herein as the "Notes."
The Notes are redeemable, at the Company's option, in whole or in part, at
any time on or after November 15, 2001, at the redemption prices set forth
herein. In addition, at any time prior to November 15, 2000, the Company may
redeem in aggregate up to 35% of the original principal amount of the Notes with
the
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 18.
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.
---------------------
<PAGE> 3
proceeds of one or more Public Equity Offerings at the redemption price set
forth herein; provided that at least $150 million in principal amount of the
Notes remain outstanding.
The Notes will be senior secured obligations of the Company, and will rank
pari passu in right of payment with all other senior indebtedness of the
Company, except to the extent of any collateral securing the Notes or such other
senior indebtedness, and senior to all subordinated indebtedness of the Company.
The Notes will be initially guaranteed on a senior secured basis by all of the
Company's wholly owned subsidiaries.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the Old Notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes.
This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. See "The Exchange Offer"
and "Plan of Distribution."
The Company will accept for exchange any and all validly tendered Old Notes
on or before 5:00 p.m., New York City time, on March , 1998, unless extended
(the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time
before 5:00 p.m., New York City time, on the Expiration Date, but after that
time are irrevocable. Bank One, N.A. will act as Exchange Agent in connection
with the Exchange Offer. The Exchange Offer is not conditioned on any minimum
principal amount of Old Notes being tendered for exchange, but is otherwise
subject to certain customary conditions.
The New Notes will bear interest from the date of issuance of the Old Notes
at a rate per annum of 9.95%. Interest on the New Notes will be payable in cash,
semiannually on each May 15 and November 15, commencing May 15, 1998. No
interest will be paid on Old Notes which are exchanged for New Notes, and
holders of Old Notes which are exchanged for New Notes will be deemed to have
waived the right to receive interest accrued thereon to the date of exchange.
The Old Notes were sold by the Company on November 19, 1997, to Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated and Fieldstone FPCG
Services, L.P. (the "Placement Agents") in a transaction not registered under
the Securities Act in reliance on the exemption provided in Section 4(2) of the
Securities Act. The Placement Agents subsequently placed the Old Notes with
qualified institutional buyers in reliance on Rule 144A under the Securities
Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
The New Notes are being offered hereunder in order to satisfy the obligations of
the Company under a Registration Rights Agreement entered into among the
Company, various subsidiary guarantors of the Notes and the Placement Agents
(the "Registration Rights Agreement"). See "The Exchange Offer."
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission" or the "SEC") set forth in no-action letters issued
to third parties unrelated to the Company, the Company believes that the New
Notes issued pursuant to this Exchange Offer may be offered for resale, resold
and otherwise transferred by a holder thereof who is not an "affiliate" of the
Company or any Guarantor within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the holder is acquiring the New Notes in
the ordinary course of its business and is not participating in and has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the New Notes. Persons wishing to
exchange Old Notes in the Exchange Offer must represent to the Company that
these conditions have been met.
The Company expects the New Notes will be designated for trading in the
Private Offerings, Resales and Trading through Automated Linkages (PORTAL)
market upon issuance. The Company does not intend to list the New Notes on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Placement Agents have advised the Company that they intend to make a market in
the New Notes; however, they are not obligated to do so and any market-making
may be discontinued at any time without notice. Accordingly, no assurance can
2
<PAGE> 4
be given that an active public or other market will develop for the New Notes or
as to the liquidity of or the trading market for the New Notes.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that any Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Old Notes will continue to be subject to the existing restrictions on transfer
thereof.
The Company expects that the New Notes issued pursuant to this Exchange
Offer will be issued in the form of one or more permanent global notes (the
"Global New Notes"), which will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in its name or in the name of
its nominee. Beneficial interests in the Global New Notes representing the New
Notes will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. After the initial issuance of the Global
New Notes, New Notes in certificated form will be issued in exchange for the
Global New Notes on the terms set forth in the Indenture. See "Description of
Notes -- Book Entry; Delivery and Form."
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.
3
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary..................................................... 5
Risk Factors................................................ 18
The Exchange Offer.......................................... 30
The Company................................................. 38
Use of Proceeds............................................. 38
Capitalization.............................................. 39
Unaudited Pro Forma Combined Financial Statements........... 40
Selected Financial and Operating Data....................... 47
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 51
Business.................................................... 72
Management.................................................. 88
Principal Stockholders...................................... 90
Description of Notes........................................ 90
Description of Other Indebtedness........................... 125
Certain U.S. Federal Income Tax Considerations.............. 125
Plan of Distribution........................................ 126
Legal Matters............................................... 127
Experts..................................................... 127
Available Information....................................... 127
Incorporation of Certain Documents by Reference............. 128
Index to Financial Statements............................... F-1
</TABLE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
NEW NOTES OFFERED HEREBY.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
---------------------
4
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) and pro forma
combined financial information appearing elsewhere in this Prospectus. This
Exchange Offer is a result of contractual obligations of the Company to the
Placement Agents arising from the offering of the Old Notes (the "Old Note
Offering"), which was consummated on November 19, 1997 concurrently with (i) the
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 consummation of a common stock offering (the
"Common Stock Offering") by the Company and certain stockholders of the Company
and (iii) entering into the New Credit Facility (as defined) and the Term Loan
(as defined). The Old Note Offering, the Merger and the Common Stock 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) the "Refinancings" refer to the refinancing
(concurrently with the consummation of the Merger) of all but approximately $10
million of the then outstanding indebtedness of Kitty Hawk and the Kalitta
Companies with a portion of the net proceeds of the Old Note Offering, the
Common Stock Offering and the Term Loan.
This Prospectus includes "forward-looking statements" within the meaning of
various provisions of the Securities Act and the Securities Exchange Act of 1934
(the "Exchange Act"). All statements, other than statements of historical facts,
included in this Prospectus that address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including
statements regarding future capital expenditures (including the amount and
nature thereof), business strategy and measures to implement strategy,
competitive strengths, goals, expansion and growth of the Company's business and
operations, plans, references to future success, references to intentions as to
future matters and other similar matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the risk factors
discussed in this Prospectus; general economic, market or business conditions;
the opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other companies; changes in laws or regulations;
and other factors, many of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Prospectus are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company, its business or its operations.
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 November 19, 1997, Kitty Hawk merged certain wholly owned subsidiaries
with and into each of the Kalitta Companies. Concurrently with the Merger, the
Company completed the Common Stock Offering, the Old Note Offering and the
Refinancings. 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
nine months ended September 30, 1997 were approximately $552 million and $422
million, respectively.
5
<PAGE> 7
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 117 aircraft, including (i) four Boeing
747s, six Lockheed L-1011s, 19 Douglas DC-8s, 30 Boeing 727s and five Douglas
DC-9-15Fs for its air freight carrier business, (ii) two Boeing 747s and two
Lockheed L-1011s for its air passenger charter business and (iii) 49 small jet
and prop aircraft (which include primarily Lear jets, Beechcraft 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
6
<PAGE> 8
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
three used Boeing 747s, one of which is currently being converted to
freighter configuration. The Company expects to convert the remaining two
recently acquired Boeing 747s to freighter configuration during 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 for the first nine
months of 1997 and sustained a negative gross profit of $7.5 million for the
first six months of 1997. In addition, based on preliminary
7
<PAGE> 9
unaudited financial information, during the period October 1, 1997 through
November 18, 1997 (the day immediately preceding the consummation of the
Merger), the Kalitta Companies posted net losses of $9.1 million. The Kalitta
Companies' management believes that the recent negative financial performance
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. The Company's management intends to focus on meeting
profit objectives in day-to-day operations and believes the Kalitta Companies'
recent financial performance can be substantially improved, although there can
be no assurance in this regard. See "Risk Factors -- Recent Financial
Performance of the Kalitta Companies."
THE MERGER AND RELATED TRANSACTIONS
PURCHASE OF BOEING 727S FROM THE KALITTA COMPANIES
In September 1997, prior to the Merger, the Kalitta Companies sold to Kitty
Hawk for $51 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. 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 American International Cargo ("AIC"), a general partnership in
which one of the Kalitta Companies owns a 60% interest.
THE MERGER
On September 22, 1997, Kitty Hawk and certain of its subsidiaries, 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, on November 19, 1997, separate
subsidiaries of Kitty Hawk were merged with and into each of the Kalitta
Companies, with each of the respective Kalitta Companies surviving the Merger as
a direct, wholly owned subsidiary of Kitty Hawk. In connection with the Merger,
the outstanding shares of capital stock of four of the Kalitta Companies were
converted, in the aggregate, into the right to receive 4,099,150 shares of the
Company's Common Stock and the outstanding shares of the remaining Kalitta
Company were converted into the right to receive $20 million cash.
THE COMMON STOCK OFFERING
Concurrently with the Merger, the Company consummated a 3,000,000 share
Common Stock Offering at $19 per share. Of the 3,000,000 shares offered in the
Common Stock Offering, 2,200,000 shares were sold by the Company and 800,000
shares were sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company did not receive any of the net proceeds from the
sale of shares of Common Stock by the Selling Stockholders.
NEW CREDIT FACILITY AND TERM LOAN
Concurrently with the consummation of the Transactions, the Company entered
into a new senior secured revolving credit facility providing for borrowings of
up to $100 million, subject to a current borrowing base limitation of
approximately $28.7 million (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 are secured by accounts receivable, all spare parts (including
rotables), inventory, intangibles and contract rights, cash, 16 Boeing 727
aircraft and related
8
<PAGE> 10
engines acquired by Kitty Hawk from the Kalitta Companies prior to the Merger in
September 1997, the stock of each of the Company's subsidiaries and the
Company's 60% interest in AIC. In addition, the New Credit Facility and Term
Loan are guaranteed by each of the Company's subsidiaries (other than AIC). As
of January 31, 1998, there was no outstanding balance under the New Credit
Facility and a balance of approximately $45.9 under the Term Loan.
THE OLD NOTE OFFERING
The Old Notes.............. The Old Notes were sold by the Company on November
19, 1997 to the Placement Agents pursuant to a
Placement Agreement. The Placement Agents resold
the Old Notes to qualified institutional buyers
pursuant to Rule 144A under the Securities Act.
Registration Rights
Agreement.................. In connection with the Old Note Offering, the
Company entered into a Registration Rights
Agreement with the Placement Agents, among others,
which grants the holders of the Old Notes certain
registration rights. The Exchange Offer is intended
to satisfy such rights, which terminate upon
consummation of the Exchange Offer. If applicable
law or applicable interpretations of the staff of
the Commission do not permit the Company to effect
the Exchange Offer, or in certain other
circumstances, the Company has agreed to file a
shelf registration statement covering resales of
Registrable Securities (as defined in the
Registration Rights Agreement).
THE EXCHANGE OFFER
The Exchange Offer applies to the entire $340 million aggregate principal
amount of the Old Notes. The form and terms of the New Notes are identical to
the form and terms of the Old Notes, except that the Old Notes were offered and
sold in reliance upon certain exemptions from registration under the Securities
Act, while the offering and sale of the New Notes in exchange for the Old Notes
has been registered under the Securities Act, with the result that the New Notes
will not bear any legends restricting their transfer. See "Description of
Notes."
The Exchange Offer......... The Company is hereby offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that are properly
tendered and accepted. As of the date hereof, Old
Notes representing an aggregate principal amount of
$340 million are outstanding. Based on an
interpretation by the Commission's staff set forth
in no-action letters issued to third parties
unrelated to the Company, the Company believes that
the New Notes issued pursuant to this Exchange
Offer may be offered for resale, resold and
otherwise transferred by a holder thereof who is
not an "affiliate" of the Company or any Guarantor
within the meaning of Rule 405 under the Securities
Act, without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that the holder is acquiring the New
Notes in the ordinary course of its business and is
not participating in and has no arrangement or
understanding with any person to participate in the
distribution (within the meaning of the Securities
Act) of the New Notes. Persons wishing to exchange
Old Notes in the Exchange Offer must represent to
the Company that these conditions have been met.
The Company has not sought, and does not intend to
seek, its own no-action letter, and there can be no
assurance that the Commission's staff would make a
similar determination with respect to this Exchange
Offer. Each broker-dealer that receives New Notes
for its
9
<PAGE> 11
own account in exchange for Old Notes, where the
Old Notes were acquired by that broker-dealer as a
result of its market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Notes. See "The Exchange
Offer -- Purpose and Effect" and "Plan of
Distribution."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on March , 1998, unless the
Exchange Offer is extended by the Company in its
sole discretion, in which case, the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
Withdrawal Rights.......... The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Interest on the New Notes
and Old Notes.............. Interest on each New Note will accrue from the date
of issuance of the Old Note for which the New Note
is exchanged. No interest will be paid on Old Notes
which are exchanged for New Notes, and holders of
Old Notes which are exchanged for New Notes will be
deemed to have waived the right to receive interest
accrued thereon to the date of exchange.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or a copy thereof, together
with the Old Notes and any other required
documentation, to the Exchange Agent at the address
set forth herein. Persons holding Old Notes through
DTC and wishing to accept the Exchange Offer must
do so pursuant to DTC's Automated Tender Offer
Program, by which each tendering Participant (as
defined) will agree to be bound by the Letter of
Transmittal. By executing or agreeing to be bound
by the Letter of Transmittal, each holder will
represent to the Company that, among other things,
(i) any New Notes to be received by such holder in
connection with the Exchange Offer will be acquired
by such holder in the ordinary course of its
business and (ii) such holder is not an
"affiliate," as defined in Rule 405 of the
Securities Act, of the Company or any Guarantor, or
if it is an affiliate, it will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable. If
the holder is not a broker-dealer, such holder will
be required to represent that it is not engaged in,
and does not intend to engage in, the distribution
of the New Notes and has no arrangement with any
person to participate in the distribution of the
New Notes. If the holder is a broker-dealer that
will receive New Notes for its own account in
exchange for Old Notes that were acquired as a
result of
10
<PAGE> 12
market-making activities or other trading
activities, such holder will be required to
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
Pursuant to the Registration Rights Agreement, the
Company is required to file a registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the
Old Notes if applicable law or SEC staff
interpretations otherwise prevent registration of
the New Notes pursuant to the Exchange Offer. See
"The Exchange Offer -- Purpose and Effect."
Acceptance of Old Notes and
Delivery of New Notes.... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The New Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Exchange Agent............. Bank One, N.A. is serving as Exchange Agent in
connection with the Exchange Offer and is also
serving as Trustee under the Indenture.
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "Certain U.S. Federal Income Tax
Considerations."
Effect of Not Tendering.... Old Notes that are eligible for exchange in the
Exchange Offer, but are not tendered or are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. The Company will have no further
obligation to provide for the registration under
the Securities Act of such Old Notes.
Global Note................ The New Notes will be issued in fully registered
form and are expected to initially be represented
by one or more Global New Notes, registered in the
name of DTC or its nominee and deposited with DTC.
Holders of beneficial interests in the Global New
Notes will not be considered the owners or holders
of any New Notes under the Global New Notes or the
Indenture for any purpose. Holders of beneficial
interests in the Global New Notes may be unable to
transfer or pledge their interest in the Global New
Notes if physical delivery is required. Payments by
DTC Participants (as defined) and DTC Indirect
Participants (as defined) to the beneficial owners
of New Notes will be governed by standing
instructions and customary practice and will be the
responsibility of the DTC Participants or DTC
Indirect Participants and not the Company or the
Trustee. See "Exchange Offer -- Book Entry
Transfer."
TERMS OF THE NEW NOTES
Securities Offered......... $340 million principal amount of 9.95% Senior
Secured Notes Due 2004, issued by the Company.
Maturity................... November 15, 2004.
11
<PAGE> 13
Interest................... The New Notes will bear interest from the date of
issuance of the Old Notes at a rate of 9.95% per
annum. Interest on the New Notes will be payable in
cash, semiannually in arrears on each May 15 and
November 15, commencing May 15, 1998. See
"Description of Notes" for a description of the
circumstances under which the interest rate on the
Notes may be increased.
Collateral................. All amounts payable pursuant to the Notes will be
secured by, among other things, a security interest
in certain aircraft (the "Aircraft") owned by the
Company, including nine Boeing 747s, eight Lockheed
L-1011s and thirteen Boeing 727s (collectively, the
"Collateral"). Independent appraisers have
attributed an initial aggregate value to the
Aircraft of approximately $441 million in October
1997. See "Description of Notes -- Collateral."
Escrow Account............. The Company has purchased and pledged to the
Trustee under the Indenture, as security for the
benefit of the holders of both New and Old Notes,
approximately $16.4 million of Pledged Securities
(as defined herein) consisting of U.S. government
securities, which the Company expects to use to pay
a portion of the estimated $25.4 million cost to
modify two recently acquired Boeing 747s to
freighter configuration in 1998. These two Boeing
747s are included in the Collateral. See
"Business -- Aircraft Fleet -- Acquisition of
Boeing 747s" and "Description of Notes -- Escrow
Account."
Optional Redemption........ On or after November 15, 2001, the New Notes are
redeemable at the option of the Company, in whole
or in part, at any time or from time to time at the
redemption prices set forth herein. In addition,
prior to November 15, 2000, up to 35% of the
aggregate principal amount of the New Notes may be
redeemed with the net cash proceeds of one or more
Public Equity Offerings (as defined) at the
redemption price set forth herein; provided that at
least $150 million in principal amount of the New
Notes remain outstanding. See "Description of
Notes -- Optional Redemption."
Ranking.................... The New Notes will be senior secured obligations of
the Company, ranking senior in right of payment to
all subordinated indebtedness of the Company and,
except with respect to collateral, pari passu in
right of payment with other unsubordinated
indebtedness of the Company. Lenders under the New
Credit Facility and Term Loan have prior claims
with respect to the Company's accounts receivable,
all spare parts (including rotables), inventory,
intangibles and contract rights, cash, 16 Boeing
727s and related engines acquired from the Kalitta
Companies prior to the Merger, the stock of each of
the Company's subsidiaries and the Company's 60%
interest in AIC. In addition, the New Credit
Facility and Term Loan are guaranteed by each of
the Company's subsidiaries (other than AIC). The
New Credit Facility and Term Loan will effectively
rank senior in right of payment to the claims of
holders of the New Notes with respect to such
assets. At September 30, 1997, on a pro forma
basis, after giving effect to the Transactions and
the Refinancings, on a consolidated basis the
Company would have had outstanding approximately
$396 million of indebtedness, including
approximately $55.9 million of other secured
indebtedness (consisting of the Term Loan and
approximately $10 million of other indebtedness)
and no subordinated indebtedness. The Company would
also have had
12
<PAGE> 14
approximately $28.7 million in unused senior
secured borrowing capacity under its New Credit
Facility. See "Description of Notes."
Guarantees................. All payments with respect to the New Notes are
guaranteed (the "Note Guarantees") on a senior
basis by each of the wholly owned subsidiaries of
the Company (the "Guarantors"). The Guarantors
include all of the Company's subsidiaries except
AIC. The Note Guarantees will rank senior in right
of payment to any subordinated indebtedness and,
except with respect to collateral, pari passu with
all existing and future unsubordinated indebtedness
of the Guarantors.
Change of Control.......... Upon a Change of Control (as defined herein), the
Company is required to make an offer to purchase
the New Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus
accrued interest, if any. See "Description of
Notes -- Repurchase of Notes Upon a Change of
Control."
Certain Covenants.......... The Indenture contains certain covenants that,
subject to certain exceptions, restrict the ability
of the Company and the Guarantors to make certain
restricted payments, incur Indebtedness (as defined
herein), create certain liens, sell assets, engage
in transactions with Affiliates (as defined
herein), and, with respect to the Company, merge or
consolidate with other entities. See "Description
of Notes -- Covenants."
Book-Entry; Delivery
and Form................. New Notes will initially be represented by one or
more Global New Notes registered in the name of a
nominee of DTC. Beneficial interests in the Global
New Notes will be shown on, and transfers thereof
will be effected only through, records maintained
in book-entry form by DTC with respect to its
participants. See "Description of Notes -- Book-
Entry; Delivery and Form."
RISK FACTORS
For a discussion of certain factors that should be considered by
perspective investors in connection with an investment in the New Notes, see
"Risk Factors."
13
<PAGE> 15
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 September 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
exchange of the New Notes for the Old Notes would have no effect on the pro
forma information.
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 $39.6 million of the net proceeds from the sale of the Old Notes
were used to purchase two Boeing 747s and an additional approximately $16.4
million of such proceeds will be used to pay a portion of the estimated $25.4
million cost to modify these Boeing 747s to freighter configuration (see "Use of
Proceeds" and "Business -- Aircraft Fleet -- Acquisition of 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 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 (1,436) 66,833
Stock option grants to executives.................. 4,231(3) -- -- 4,231
Operating income (loss)............................ 9,457 21,495 (1,436) 29,516
Interest expense................................... (2,062) (21,632) (16,632) (40,326)(4)
Minority interest.................................. -- (1,146) -- (1,146)
Income (loss) before income taxes.................. 7,686 (17) (18,068) (10,399)
Net income (loss).................................. $ 4,648(3) $ (17)(5) $(15,030) $(10,399)
Net income (loss) per share........................ $ 0.55(3) -- -- $ (0.70)
Weighted average common and common equivalent
shares outstanding............................... 8,477 -- 6,299 14,776
OTHER FINANCIAL DATA:
Capital expenditures............................... $ 47,159 $ 53,413 $ -- $100,572
Adjusted EBITDA(6)................................. $ 22,372 $ 53,586 $ 3,771(7) $ 79,729
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 owned (at end of period).................. 25 95 (2)(9) 118
Flight hours(10)................................... 21,587 91,690 -- 113,277
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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................................. $ 55,789 $302,345 $(4,942) $353,192
Air logistics....................................... 45,878 -- -- 45,878
Maintenance and other............................... -- 23,2999(2) -- 23,299
-------- -------- ------- --------
Total revenues........................................ 101,667 325,644 (4,942) 422,369
Gross profit.......................................... 21,554 10,441 11,799 43,774
Operating income (loss)............................... 12,843 (9,040) 11,799 15,582
Interest expense...................................... (1,809) (19,740) (8,696) (30,245)(4)
Minority interest..................................... -- (1,859) -- (1,859)
Income (loss) before income taxes..................... 11,613 (30,742) 3,083 (16,046)
Net income (loss)..................................... $ 6,968 $(30,742)(5) $ 7,728 $(16,046)
Net income (loss) per share........................... $ 0.67 -- -- $ (0.96)
Weighted average common and common equivalent shares
outstanding......................................... 10,452 -- 6,299 16,751
OTHER FINANCIAL DATA:
Capital expenditures.................................. $ 99,575 $ 54,509 $ -- $154,084
Adjusted EBITDA(6).................................... $ 21,039 $ 16,159 $15,629(7) $ 52,827
Ratio of adjusted EBITDA to total interest expense.... 11.6x --(11) 1.7x
Ratio of earnings to fixed charges.................... 5.3x --(8) --
OPERATING DATA:
Aircraft owned (at end of period)..................... 42 84 (2)(9) 124
Flight hours(10)...................................... 21,912 70,721 92,633
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------
HISTORICAL
------------------------ PRO FORMA
KALITTA -------------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................ $ 103 $(233,073)(12) $335,802 $102,831
Total assets............................................ 176,801 400,476 118,263 695,540
Total debt.............................................. 81,047 255,093 60,060 396,200
Stockholders' equity.................................... $ 65,241 $ 35,650 $ 63,820 $164,711
</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 is based upon a rate of 9.95% on the Notes and
assumes a rate of 8.8% on the Term Loan. 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 $86 for the nine months ended September 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 nine months ended
September 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 eliminating the gross profit on the Hawker Sale (as
defined), conforming the Kalitta Companies' aircraft maintenance policy to
that of Kitty Hawk and decreasing 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 $28,883 for the nine months ended September 30, 1997. On a
pro forma basis, the Company's earnings would not have been sufficient to
cover fixed charges by $9,815 for 1996 and $14,187 for the nine months
ended September 30, 1997.
(9) Includes the effect of the Hawker Sale and the sale of one Boeing 727-100
which the Company is currently negotiating to sell.
(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 nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, resulting in
a failure to cover interest expense.
(12) Includes long-term debt and notes payable reclassified as current $160,058
at September 30, 1997.
15
<PAGE> 17
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 nine
months ended September 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 nine
months ended September 30, 1996 and 1997. Operating results for the nine months
ended September 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 nine
months ended September 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>
NINE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, SEPTEMBER 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............................. $ 6,760 $12,939 $28,285 $41,117 $52,922 $39,615 $55,789
Air logistics................................... 45,893 52,840 79,415 62,593 89,493 43,144 45,878
------- ------- ------- ------- ------- ------- -------
Total revenues.................................... 52,653 65,779 107,700 103,710 142,415 82,759 101,667
Gross profit...................................... 4,188 10,578 14,749 18,178 23,515 13,932 21,554
Stock option grants to executives(1).............. -- -- -- -- 4,231 4,231 --
Operating income.................................. 1,258 5,934 8,004 9,345 9,034 2,377 12,843
Interest expense.................................. (157) (134) (343) (1,185) (1,859) (1,530) (1,809)
Net income........................................ $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109 $ 251 $ 6,968
Net income per share.............................. $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52 $ 0.03 $ 0.67
Weighted average common and common equivalent
shares outstanding.............................. 8,671 7,968 7,968 7,968 7,928 7,891 10,452
OTHER FINANCIAL DATA:
Capital expenditures.............................. $ 3,019 $ 1,318 $13,876 $17,929 $33,538 $31,367 $99,575
Adjusted EBITDA(2)................................ $ 2,149 $ 7,104 $ 9,507 $12,839 $19,840 $10,582 $21,039
Ratio of adjusted EBITDA to interest expense...... 13.7x 53.0x 27.7x 10.8x 10.7x 6.9x 11.6x
Ratio of earnings to fixed charges(3)............. 7.9x 33.6x 20.6x 6.9x 4.4x 1.3x 5.3x
OPERATING DATA:
Aircraft owned (at end of period)................. 11 10 15 22 25 25 42
Flight hours(4)................................... 3,567 7,030 11,795 15,183 20,237 15,628 21,912
Number of on-demand charters flown................ 292 752 1,182 1,238 1,918 1,182 911
Number of ACMI contract charters
flown........................................... 655 1,314 1,734 2,601 3,514 2,818 3,883
Number of on-demand charters managed(5)........... 8,708 9,748 16,713 14,198 19,578 11,607 10,640
</TABLE>
- ---------------
(1) Results for fiscal year ended August 31, 1996 and nine months ended
September 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 nine months ended September 30, 1996, would have been
approximately $6,648 and $2,790, respectively, and net income per share
would have been $0.84 and $0.35, respectively. See "Management -- Stock
Option Grants."
(2) Adjusted EBITDA represents net income 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 prior to income tax expense 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).
(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.
16
<PAGE> 18
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 nine
months ended September 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
nine months ended September 30, 1996 and 1997. The selected statement of
operations data for the nine months ended September 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
nine months ended September 30, 1996 and 1997 are not necessarily indicative of
results that may be expected for a calendar year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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............................ $95,144 $194,525 $298,081 $359,404 $388,193 $275,212 $302,345
Maintenance and other(1)....................... 2,606 5,584 7,449 14,279 36,348 25,801 23,299
------- -------- -------- -------- -------- -------- --------
Total revenues................................... 97,750 200,109 305,530 373,683 424,541 301,013 325,644
Gross profit..................................... 12,870 34,323 54,023 26,010 44,395 30,054 10,441
Operating income (loss).......................... 7,081 23,222 38,519 2,471 21,495 12,314 (9,040)
Interest expense, net............................ (4,396) (6,745) (8,007) (14,749) (21,632) (15,755) (19,740)
Minority interest................................ (424) (1,458) (2,758) (3,092) (1,146) (908) (1,859)
Net income (loss)(2)............................. $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (2,786) $(30,742)
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income (loss)(3)......... $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (2,786) $(30,742)
OTHER FINANCIAL DATA:
Capital expenditures............................. $55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 43,598 $ 54,509
Adjusted EBITDA(4)............................... $16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 36,723 $ 16,159
Ratio of adjusted EBITDA to total interest
expense(5)..................................... 3.7x 5.3x 6.4x 1.6x 2.4x 2.3x --
Ratio of earnings to fixed charges(6)............ 2.0x 2.4x 3.3x 1.2x 1.0x -- --
OPERATING DATA:
Aircraft owned(at end of period)................. 52 57 82 91 95 94 84
Flight hours(7).................................. 39,404 55,220 76,346 84,058 91,690 66,858 70,721
</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 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 nine months ended September 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 nine
months ended September 30, 1997, respectively, $1,123 from a gain from
settlement of a contract dispute in 1996 and the nine months ended September
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 nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, 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 $2,412 and $28,883 for the nine months
ended September 30, 1996 and September 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.
17
<PAGE> 19
RISK FACTORS
An investment in the New Notes offered hereby 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 the New Notes 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 its ability to make payments on the Notes. In this
Prospectus, unless otherwise indicated, the term "Notes" includes both the Old
Notes and the New Notes.
COMPANY RELATED RISKS
ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes were sold pursuant to an exemption from the registration
requirements of the Securities Act and their transfer is subject to certain
restrictions under the Securities Act. In general, Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the Exchange Offer will continue to be
subject to such transfer restrictions on the Old Notes. The Company currently
does not anticipate that it will register the Old Notes under the Securities
Act. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected. See "The Exchange Offer -- Consequences of Failure
to Exchange."
RISKS ASSOCIATED WITH EXCHANGE OFFER PROCEDURES
The New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documentation. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange. Old Notes that
are not tendered or are tendered but not accepted will, following consummation
of the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes, where the Old Notes were acquired by the broker-dealer as a result of
market-making or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company incurred substantial indebtedness through the issuance of the
Old Notes and contemporaneously with the issuance thereof entered into the New
Credit Facility, which allows for revolving borrowings of up to $100 million,
subject to a current borrowing base limitation of approximately $28.7 million.
See "Description of Other Indebtedness." In addition, Kitty Hawk entered 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 Other Indebtedness." As of September 30, 1997,
after giving effect to the Transactions and Refinancings, on a pro forma basis,
the Company's total indebtedness would have been approximately $396 million
(substantially all of which would have been secured) and its stockholders'
equity would have been approximately $165 million. On a pro forma basis,
assuming the Transactions and Refinancings had occurred at the beginning of each
of the following fiscal
18
<PAGE> 20
periods, earnings would not have been sufficient to cover fixed charges by
approximately $9.8 million and $14.2 million for 1996 and for the nine months
ended September 30, 1997, respectively. At January 31, 1998, there was no
outstanding balance under the New Credit Facility and a balance of approximately
$45.9 million under the Term Loan. The Indenture pursuant to which the Old Notes
were issued, and the New Notes will be issued, permits 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 mature prior to the maturity date of the Notes.
The degree to which the Company is leveraged could have important
consequences to holders of the New Notes, 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 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 New 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 (i) the proceeds
derived from the Old Note Offering and the Common Stock Offering and (ii)
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 its ability to make payments on the Notes.
RECENT FINANCIAL PERFORMANCE OF THE KALITTA COMPANIES
The Kalitta Companies' operations constitute a majority of the combined
operations of the Company. For 1996 and the first nine months of 1997, the
financial operating results of the Kalitta Companies have shown a significant
negative trend. In 1996, the Kalitta Companies reported a small net loss. For
the first nine months of 1997, the Kalitta Companies sustained an operating loss
of $9 million and a net loss of $30.7 million and for the first six months of
1997, the Kalitta Companies sustained a negative gross profit of $7.5 million.
In addition, based on preliminary unaudited financial information, during the
period October 1, 1997 through November 18, 1997 (the day immediately preceeding
the consummation of the Merger), the Kalitta Companies posted net losses of $9.1
million. The Kalitta Companies' management believes that the recent negative
financial performance can be attributed to a number of factors, including (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 -- The Kalitta Companies." While the Company believes it is
19
<PAGE> 21
taking steps necessary to improve the Kalitta Companies' 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 its ability to make payments on the Notes.
RISKS OF BUSINESS INTEGRATION
There can be no assurance that the Company will be able to successfully
integrate the operations of Kitty Hawk and the Kalitta Companies or achieve the
aims of the Merger. The benefits of the Merger 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 ongoing 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 its ability to
make payments on the Notes. 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
As of the date hereof, M. Tom Christopher, the Company's Chairman and Chief
Executive Officer, beneficially owns 5,948,436 shares, or approximately 35.5% of
the outstanding Common Stock, and Conrad A. Kalitta, the Company's Vice
Chairman, beneficially owns 4,099,150 shares, or approximately 24.5% of the
outstanding Common Stock, of which 650,000 shares are held in escrow to secure
Mr. Kalitta's indemnification obligations under the Merger Agreement. As a
consequence, the success of the Company depends, 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 its
ability to make payments on the Notes. Messrs. Christopher and Kalitta have
entered into a voting agreement that, among other things, provides that for 36
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.
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 its ability to make payments on the
Notes. 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
20
<PAGE> 22
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 its ability to
make payments on the Notes. See "Business -- Scheduled Freight Services" and
"Business -- Ground Facilities."
The Company also leases its Oscoda, Michigan maintenance facilities under
various subleases from the OscodaWurtsmith Airport Authority (the "Wurtsmith
Authority"). These subleases vary in duration from month-to-month to long-term
(the last of which expires in December 2015) 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 or that the prime lease
will not terminate prior to its stated expiration. Failure to extend one or more
of the subleases or early termination of the prime lease 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 its ability
to make payments on the Notes. See "Business -- Maintenance" and
"Business -- Ground Facilities."
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 Company's ability to make
payments on the Notes.
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 of the Company, Tilmon J. Reeves, the President
of the Company and Richard R. Wadsworth, the Senior Vice President -- Finance,
Chief Financial Officer and Secretary of the Company. The loss of the services
of any of Messrs. Christopher, Kalitta, Reeves or
21
<PAGE> 23
Wadsworth, particularly Mr. Christopher, could have a material adverse effect on
the Company and its ability to make payments on the Notes. Each of Messrs.
Christopher, Kalitta, Reeves and Wadsworth have entered into employment
agreements with the Company. See "Management -- Employment Agreements."
EMPLOYEE RELATIONS
The Company believes that it has good relations with its employees. One of
the Company's subsidiaries is 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 the Company's other
subsidiaries are not unionized. There can be no assurance that the Company's
non-union cockpit crews will remain non-unionized. Unionization of the Company's
non-union cockpit crews, work stoppages, increased wages or other labor related
matters could have a material adverse effect on the Company and its ability to
make payments on the Notes. 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 restrict the Company's ability to make
certain acquisitions. See "Business -- Growth Strategies" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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 Company's ability to make payments on the Notes. 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 its ability to make
payments on the Notes.
RESTRICTIVE COVENANTS
The Indenture restricts, among other things, the Company's and its
Restricted Subsidiaries' (as defined herein) ability to pay dividends or make
certain other Restricted Payments (as defined herein), to incur additional
Indebtedness, to encumber or sell assets, to enter into transactions with
stockholders and Affiliates,
22
<PAGE> 24
to guarantee Indebtedness, to merge or consolidate with any other entity and to
transfer or lease all or substantially all of their assets. See "Description of
Notes -- Covenants."
The Company's New Credit Facility and Term Loan also contain restrictive
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 Other
Indebtedness."
As of the date hereof, the Company is 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 "Description of Other
Indebtedness" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
LACK OF SECTION 1110 PROTECTION
Although the Indenture and other documents give the Trustee a first
priority perfected security interest in the Aircraft, the protections of Section
1110 under Title 11 of the United States Bankruptcy Code will not be available.
Section 1110 grants special rights to parties who acquire security interests in
various aircraft-related transactions if such security interests are purchase
money security interests and the security interests are granted by a U.S.
certificated air carrier. Under Section 1110, the right of a party to repossess
an aircraft in compliance with the terms of the security agreement relating to
the aircraft will not be affected in a Chapter 11 bankruptcy reorganization case
by the automatic provisions of the Bankruptcy Code or any power of the
bankruptcy court to enjoin such repossession unless, within 60 days after
commencement of a Chapter 11 bankruptcy reorganization case, the debtor agrees,
with the court's approval, to perform its obligations under the security
agreement that are or thereafter become due and cures all outstanding defaults
(other than defaults relating to financial condition or bankruptcy). Because the
protections of Section 1110 will not be available, payments under the Notes
might be interrupted without the ability to repossess the Aircraft and the
ability of the Trustee to exercise its remedies under the Notes may be adversely
affected.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest to the date of repurchase. If a Change of Control were to occur, the
Company may not have the financial resources to repay the Notes, its credit
facilities and any other indebtedness that would become payable upon the
occurrence of such Change of Control. The "Repurchase of Notes upon a Change of
Control" covenant requiring the Company to repurchase the New Notes will, unless
consents are obtained, require the Company to repay all indebtedness then
outstanding which by its terms would prohibit such Note repurchase. See
"Description of Notes -- Repurchase of Notes upon a Change of Control."
FRAUDULENT TRANSFER LAWS
Under federal or state fraudulent transfer laws, if a court of competent
jurisdiction were to find, in a lawsuit by an unpaid creditor or a
representative of creditors, a trustee in bankruptcy or a debtor-in-possession,
that the Company or any Guarantor issued the Notes or a Note Guarantee, as the
case may be, with the intent to hinder, delay or defraud present or future
creditors, or received less than a reasonably equivalent value or fair
consideration for any such indebtedness, and at the time of such incurrence (i)
was insolvent, (ii) was rendered insolvent by reason of such incurrence, (iii)
was engaged or about to engage in a business or
23
<PAGE> 25
transaction for which its remaining assets constituted unreasonably small
capital to carry on its business or (iv) intended to incur, or believed or
reasonably should have believed that it would incur, debts beyond its ability to
pay as such debts matured, such court could avoid the Company's or such
Guarantor's obligations to the holders of the Notes, subordinate the Company's
or such Guarantor's obligations to the holders of the Notes to all other
obligations of the Company or such Guarantor or take other action detrimental to
the holders of the Notes. In that event, there can be no assurance that any
repayment of principal and accrued interest on the Notes could ever be recovered
by the holders of the Notes. The Guarantees are each limited to amounts that any
such Guarantor can guarantee without violating such laws. See "Description of
Notes -- Guarantees."
LACK OF PUBLIC MARKET
The Old Notes are, and the Company expects the New Notes will be upon
issuance, designated for trading in the Private Offerings, Resales and Trading
through Automatic Linkages (PORTAL) market. There is no established trading
market for the New Notes and the Company does not currently intend to list the
New Notes on any securities exchange or to seek approval for quotation through
any automated quotation system. Accordingly, there can be no assurance regarding
the future development of any market for the Notes, the liquidity of any market
that may develop for the Notes or the ability of holders of the Notes to sell
their Notes or the price at which such holders may be able to sell their Notes.
If such a market were to develop, no assurance can be given as to the trading
prices of the Notes, which may be higher or lower than the initial offering
price of the Old Notes depending on many factors, including, among other things,
prevailing interest rates, the Company's operating results and prospects and the
market for similar securities. The liquidity of, and trading market for, the
Notes may be adversely affected by general declines in the market for similar
securities. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
CERTAIN RISKS RELATING TO COLLATERAL
Claims of Secured Lenders. The New Notes (like the Old Notes) will be
secured by the Collateral. Claims of other secured creditors of the Company will
have priority to the extent of the other collateral securing such creditors'
obligations. Amounts owed under the New Credit Facility and the Term Loan are
secured by a first priority perfected security interest in accounts receivable,
all spare parts (including rotables), inventory, intangibles and contract
rights, cash, the 16 Boeing 727s and related engines acquired from the Kalitta
Companies and the stock of each of the Company's subsidiaries and the Company's
60% interest in AIC. In addition, the New Credit Facility and Term Loan are
guaranteed by each of the Company's subsidiaries (other than AIC). Accordingly,
the lenders under the New Credit Facility and the Term Loan have priority over
the holders of the Notes with respect to, and to the extent of, these pledged
assets.
Aging Collateral. Additionally, the Aircraft securing the Notes were
manufactured between 1968 and 1981. Because the Indenture does not require the
Company to maintain any minimum loan to collateral value ratio and it is likely
that the value of the Collateral will decline in value, no assurance can be
given that the Collateral will be available to satisfy fully the obligations
represented by the Notes when due.
Appraisals of Aircraft; Realizable Values. Appraisals in respect of the
Aircraft have been prepared by Pro-Tech Advisors Inc. and GRA Aviation
Specialists, Inc. According to the appraisals of these firms, the Aircraft had
an initial aggregate value of approximately $441 million in October 1997. See
" -- Aging Collateral." Although the appraisals were prepared with a physical
inspection of the Aircraft, an appraisal is only an estimate of value and should
not be relied upon as a measure of realizable value. The appraised value assumes
willing and informed buyers under no duress. However, if it becomes necessary to
foreclose upon and sell the Collateral, it is likely that such sale would occur
under duress. In addition, there is a very limited number of potential buyers of
used aircraft. Accordingly, the proceeds realized upon a sale of any Aircraft
may be less than the appraised value thereof. The value of the Aircraft in the
event of the exercise of remedies under the Indenture will depend on market and
economic conditions, the availability of buyers, the condition of the Aircraft
and other similar factors. Accordingly, there can be no assurance that the
proceeds realized upon any such exercise pursuant to the Indenture would be
sufficient to satisfy in full payments due on the
24
<PAGE> 26
Notes. If such proceeds are not sufficient to pay or repay all amounts due under
the Notes, holders of the Notes would bear their allocable percentage of such
insufficiency and any resultant loss.
Escrowed Proceeds. Of the $329.1 million of net proceeds derived from the
sale of the Old Notes, approximately $16.4 million will be used to pay a portion
of the estimated $25.4 million cost to modify two recently acquired Boeing 747s
to freighter configuration. The Company expects to fund the remaining
approximately $9 million of these conversion costs with internally generated
funds or borrowings under its New Credit Facility. See "Use of Proceeds" and
"Business -- Aircraft Fleet -- Acquisition of Boeing 747s." These two Boeing
747s are included in the Collateral. Pending application of such net proceeds,
the funds designated for this purpose have been invested in U.S. government
securities, which were deposited in an Escrow Account (as defined herein) with
the Trustee. These securities have been pledged to secure the Old Notes and will
continue to secure the Notes until the monies are utilized. See "Description of
Notes -- Collateral."
Repossession. Although the Company has no current intention to do so, the
Company is permitted, upon compliance with the Indenture, to register the
Aircraft in certain foreign jurisdictions and to lease the Aircraft to certain
Permitted Air Carriers (as defined herein). While the Trustee's rights and
remedies in the event of a default under the Indenture include the right to
repossess the Aircraft, it may be difficult, expensive and time-consuming for
the Trustee to obtain possession of the Aircraft, particularly when an Aircraft
located outside the United States has been registered in a foreign jurisdiction
or is leased to a foreign operator. Any such exercise of the right to repossess
the Aircraft may be subject to the limitations and requirements of applicable
law, including the need to obtain consents or approvals for deregistration and
re-export of the Aircraft, which may be subject to delays and to political risk.
When a defaulting lessee or other permitted transferee is the subject of a
bankruptcy, insolvency or similar event, additional limitations may apply.
Despite the limitations contained in the Indenture, certain jurisdictions
in which the Aircraft may be operated or registered may not accord recognition
to, or recognize the priority of, the security interests granted under the
Indenture or may have no specific laws providing for the creation, recognition
or registration of mortgages over aircraft such as those created under the
Indenture and or may accord higher priority to certain other liens or other
third party rights over the Aircraft. Some or all of these factors could limit
the benefits to the holders of the security interest in the Aircraft.
Maintenance. The Company is responsible for the maintenance, service,
repair and overhaul of the Aircraft, but only to the extent described in the
Indenture. The failure of the Company (or any lessee) to adequately maintain,
service, repair or overhaul the Aircraft may adversely affect the value of such
Aircraft and, thus, upon a liquidation of the Aircraft, may affect the proceeds
available to repay the holders of the Notes. Notwithstanding compliance by the
Company (or any lessee) with its obligations under the Indenture to adequately
maintain, service, repair or overhaul the Aircraft, the value of the Aircraft
may deteriorate. Such a deterioration in the value of the Aircraft would not, in
and of itself, constitute a breach by the Company of its obligations under the
Indenture. See "Description of Notes -- Possession, Maintenance and Lease of
Aircraft."
Insurance. The Company is responsible for the maintenance of public
liability, property damage and all-risk aircraft hull insurance on the Aircraft
to the extent described in the Indenture. The failure of the Company to
adequately insure the Aircraft, or the retention of self-insurance amounts, will
affect the proceeds which could be obtained upon an Event of Loss (as defined
herein) and, thus, may affect the proceeds available to repay the holders of the
Notes. See "Description of Notes -- Covenants -- Insurance."
25
<PAGE> 27
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 its ability to make payments on the Notes. 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 its ability to make payments
on the Notes.
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 its ability to make payments on the Notes.
In 1984, a predecessor of one of the Kalitta Companies had its small
aircraft operating certificate suspended for a period of 90 days for failure to
maintain certain records and other violations of FAA regulations and, in
connection therewith, pled guilty to a misdemeanor charge. The Kalitta Companies
subsequently corrected the conditions which had resulted in the operating
certificate being suspended.
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 (the "Consent Order") which
required the Kalitta Companies to revise certain internal policies and
procedures to address 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 was suspended
26
<PAGE> 28
and subsequently forgiven. The Consent Order also provided that it was a full
and conclusive settlement of any civil penalties the Kalitta Companies could
incur for regulatory violations occurring before January 1, 1997.
Modification of Aircraft. The Company owns 34 aircraft and leases three
aircraft (not including aircraft held for sale and aircraft currently being
brought into compliance with Stage III noise control standards) that do not meet
FAA Stage III 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 37 aircraft are brought into compliance, the Company estimates that
the cost would be approximately $89.8 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 recently purchased three Boeing 747s, one
of which is currently being converted to freighter configuration. The Company
expects to convert the remaining two recently acquired Boeing 747s to freighter
configuration and to place all three Boeing 747s into revenue service during
1998. However, there can be no assurance as to the cost of the modifications or
when these Boeing 747s can be placed into revenue service. See "Use of Proceeds"
and "Business -- Aircraft Fleet -- Acquisition of Boeing 747s."
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 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 Company's ability to make
payments on the Notes. With respect to the Company's ACMI contract charter
business, the Company could be adversely affected by the decision of certain of
its certificated
27
<PAGE> 29
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 its ability to make payments on the Notes. 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 its ability to make payments on the
Notes 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.
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.
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. The capital intensive
nature of the Company's business could adversely impact the Company's ability to
make payments on the Notes. 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
its ability to make payments on the Notes.
28
<PAGE> 30
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 its ability to make payments on the
Notes. 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 its ability to make payments on the
Notes.
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 its ability
to make payments on the Notes.
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 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 its ability to make payments on the Notes. In addition, any
significant increase in the Company's current insurance expense could have a
material adverse effect on the Company and its ability to make payments on the
Notes. 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 Company's ability to make payments on the Notes. 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
29
<PAGE> 31
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 its ability to make payments
on the Notes.
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 its
ability to make payments on the Notes.
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's ability to make payments
on the Notes. 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.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on November 19, 1997, in a private
placement pursuant to an exemption from registration under the Securities Act.
In connection with that private placement, the Company and the Guarantors
entered into the Registration Rights Agreement which requires the Company and
the Guarantors file the registration statement of which this Prospectus is a
part (the "Registration Statement") under the Securities Act with respect to the
New Notes as expeditiously as possible after the date of issuance of the Old
Notes. The Registration Rights Agreement further requires that, upon the
effectiveness of the Registration Statement, the Company offer to the holders of
the Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes, which will be issued without a restrictive legend and, with
certain exceptions, may be reoffered and resold by the holder without further
registration under the Securities Act.
The Company and the Guarantors have agreed to use their reasonable best
efforts to cause the Registration Statement to be prepared, filed and declared
effective as expeditiously as possible after the issuance of the Old Notes and
to consummate the Exchange Offer within 120 days after the effective date of the
Registration Statement. Once the Exchange Offer is commenced, the Company and
the Guarantors must keep the Exchange Offer open for at least 20 business days.
A copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) if the holder is
not a broker-dealer, that it is not engaged in, and does not intend to engage
in, the distribution of the New Notes and it has no arrangement with any person
to participate in the distribution of the New Notes and (iii) it is not an
affiliate of the Company or the Guarantors, or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer should acknowledge that
it acquired the Old Notes for its own account as the result of market making
activities or other trading activities. Any holder who is unable to make the
appropriate representations to the Company will not be permitted to tender the
Old Notes in the Exchange Offer and will be required to comply with the
registration and prospectus delivery requirements of the Securities Act (or an
appropriate exemption therefrom) in connection with any sale or transfer of the
Old Notes.
30
<PAGE> 32
Pursuant to the terms of the Indenture, the Collateral securing the Old
Notes will also secure the obligations represented by the New Notes.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions discussed herein, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving the New Notes, whether or not that
person is the holder (other than any such holder or such other person that is an
"affiliate" of the Company or the Guarantors within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Notes are acquired in the ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution (within the meaning of the Securities Act)
of the New Notes, and (iii) neither the holder nor such other person has an
arrangement or understanding with any person to participate in the distribution
of the New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes are, and the Company expects the New Notes to be upon
issuance, designated for trading in the PORTAL market. To the extent Old Notes
are tendered and accepted in the Exchange Offer, the principal amount of
outstanding Old Notes will decrease with a resulting decrease in the liquidity
in the market therefor. Following the consummation of the Exchange Offer,
holders of Old Notes who were eligible to participate in the Exchange Offer but
who did not tender their Old Notes will not be entitled to certain rights under
the Registration Rights Agreement, and such Old Notes will continue to be
subject to certain restrictions on transfer. In general, Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
does not intend to register the Old Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. As soon as practicable after the Expiration Date, the
Company will issue a principal amount of New Notes in exchange for each like
principal amount of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange
Offer. However, Old Notes may be tendered only in integral multiples of $1,000
in principal amount.
The form and terms of the New Notes are identical to the form and terms of
the Old Notes except that the Old Notes were offered and sold in reliance upon
certain exemptions from registration under the Securities Act, while the
offering and sale of the New Notes in exchange for the Old Notes have been
registered under the Securities Act, with the result that the New Notes will not
bear any legends restricting their transfer. Also, holders of the New Notes will
not be entitled to certain rights under the Registration Rights Agreement. The
New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture.
As of the date of this Prospectus, $340 million aggregate principal amount
of the Old Notes was outstanding and registered in the name of Cede & Co., as
nominee for DTC. The Company has fixed the close of business on March , 1998,
as the record date for the Exchange Offer for purposes of determining the
persons to whom this Prospectus, together with the Letter of Transmittal, will
initially be sent. Holders of Old Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, including Rule 14e-1 thereunder.
31
<PAGE> 33
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, the certificates for such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant
to the Exchange Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees
and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March , 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. In order to extend the Exchange
Offer, the Company will notify the Exchange Agent of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. The Company reserves the right,
in its sole discretion, (i) to delay accepting any Old Notes, to extend the
Exchange Offer or, if any of the conditions set forth under "The Exchange
Offer -- Conditions" shall not have been satisfied, to terminate the Exchange
Offer, by giving oral or written notice of such delay, extension or termination
to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from the date of issuance of the Old Notes
that are tendered for exchange for the New Notes (or from the most recent
interest payment date to which interest on such Old Notes has been paid).
Accordingly, holders of Old Notes accepted for exchange will not receive
interest that is accrued but unpaid on the Old Notes at the time of tender, but
such interest will be payable on the first interest payment date after the
consummation of the Exchange Offer. Holders of Old Notes accepted for exchange
in the Exchange Offer will be deemed to have waived the right to receive
interest accrued but unpaid thereon as of the date of exchange. Interest on the
New Notes will be payable semi-annually on May 15 and November 15 of each year,
commencing May 15, 1998.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender Old Notes in the Exchange
Offer. Except as set forth under "The Exchange Offer -- Book Entry Transfer," to
tender in the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent for receipt prior to 5:00 p.m. on
the Expiration Date. In addition, either (i) certificates for such Old Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, Letter of Transmittal and other required documents
must be received
32
<PAGE> 34
by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" prior to 5:00 p.m. on the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE 5:00 P.M. ON THE
EXPIRATION DATE AND PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on its own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and delivering the owner's Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
the beneficial owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box titled "Special Registration Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes with
the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other
33
<PAGE> 35
person shall incur any liability for failure to give such notification. Tenders
of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that the Company determines are not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holders, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the holder, (ii) if it is not a
broker-dealer, neither the holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes nor has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, and (iii) neither the holder nor any such other person is an affiliate of
the Company. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities may
participate in the Exchange Offer but may be deemed an "underwriter" under the
Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. See "Plan of Distribution."
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
34
<PAGE> 36
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants only) electronic ATOP transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer -- Procedures for Tendering" at any time on
or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if (i) the Exchange Offer shall violate applicable law or any
35
<PAGE> 37
applicable interpretation of the staff of the Commission, (ii) any action or
proceeding is instituted or threatened in any court or by any governmental
agency that might materially impair the ability of the Company to proceed with
the Exchange Offer or any material adverse development has occurred in any
existing action or proceeding with respect to the Company, or (iii) any
governmental approval has not been obtained, which approval the Company shall
deem necessary for the consummation of the Exchange Offer. If the Company
determines in its sole discretion that any of the conditions are not satisfied,
the Company may (i) refuse to accept any Old Notes and return all tendered Old
Notes to the tendering holders (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility), (ii) extend the Exchange Offer and retain all Old Notes
tendered prior to the expiration of the Exchange Offer, subject, however, to the
rights of holders to withdraw such Old Notes (see "-- Withdrawal Rights") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Old Notes which have not been withdrawn. If such
waiver constitutes a material change to the Exchange Offer, the Company will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the waiver and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five-to-ten-business-day
period.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. Bank One, N.A. has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Registered or Certified Mail:
BANC ONE INVESTMENT MANAGEMENT GROUP
ATTN: CORPORATE TRUST OPERATIONS
235 W. SCHROCK ROAD
WESTERVILLE, OHIO 43271-0184
By Overnight Mail or Hand Delivery:
235 W. SCHROCK ROAD
WESTERVILLE, OHIO 43081-0184
By Facsimile:
BANC ONE INVESTMENT MANAGEMENT GROUP
ATTN: CORPORATE TRUST OPERATIONS
(614) 248-9987
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The expenses of soliciting acceptances to the Exchange Offer will be borne
by the Company. The principal solicitation is being made by mail; however,
additional solicitations may be made in person or by telephone by officers and
employees of the Company. The Company has not retained any dealer-manager or
similar agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the Exchange
Offer. The Company, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. Other cash expenses to be
incurred in connection with the Exchange Offer and to be paid by the Company
include registration, accounting and legal fees and printing costs, among
others.
36
<PAGE> 38
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
37
<PAGE> 39
THE COMPANY
In 1980, Mr. M. Tom Christopher, founded Christopher Charters, Inc. which
arranged on-demand air charters using third-party air freight carriers. In 1985,
Mr. Christopher formed Kitty Hawk, Inc. to acquire Kitty Hawk Airways, Inc., an
FAA certified Part 135 (small aircraft) operator, and to acquire Christopher
Charters, Inc. (whose name was later changed to Kitty Hawk Charters, Inc.).
Kitty Hawk Airways, Inc. was an independent on-demand air freight carrier used
frequently by Christopher Charters, Inc. The Company obtained FAA Part 121
certification (transport category aircraft) in 1987 through the acquisition of a
small independent air freight carrier. Kitty Hawk was reincorporated in Delaware
in October 1994. Pursuant to the Merger Agreement, on November 19, 1997,
separate subsidiaries of Kitty Hawk were merged with and into each of the
Kalitta Companies, with each of the respective Kalitta Companies surviving the
Merger as direct, wholly owned subsidiaries of Kitty Hawk. Prior to the Merger,
Kitty Hawk conducted its operations through Kitty Hawk Charters, Inc., Aircraft
Leasing, Inc. and Kitty Hawk Aircargo, Inc. Currently, the Company conducts
operations through the Kalitta Companies, Kitty Hawk Charters Inc., Aircraft
Leasing, Inc. and Kitty Hawk Aircargo, Inc.
The Company's principal executive offices are located at 1515 West 20th
Street, P.O. Box 612787, Dallas/Fort Worth International Airport, Texas 75261
and its telephone number is (972) 456-2200.
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
The net proceeds from the Old Note Offering, the Common Stock Offering and
the Term Loan, after deducting underwriting discounts, placement fees and
offering expenses, were approximately $413 million. The sources and uses of net
proceeds to the Company from the Old Note Offering, the Common Stock Offering
and the Term Loan are summarized as follows (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Note Offering, net of underwriting discounts and expenses... $329.1
Common Stock Offering, net of underwriting discounts and
expenses.................................................. 38.0
Term Loan................................................... 45.9
------
Total............................................. $413.0
======
USES:
Refinancings(1)............................................. $328.8
Acquisition of two Boeing 747s.............................. 39.6
Cash paid pursuant to the Merger Agreement.................. 20.0
Escrow for conversion to freighter configuration of two
Boeing 747s(2)............................................ 16.4
Working capital............................................. 6.0
Estimated expenses(3)....................................... 2.2
------
Total............................................. $413.0
======
</TABLE>
- ---------------
(1) The indebtedness that was refinanced had interest rates ranging from 5.3% to
18% and maturity dates ranging from less than one year to September 2006.
This amount includes approximately $3 million of prepayment penalties
related to the Refinancings.
(2) The Company estimates the cost of converting these two Boeing 747s to
freighter configuration will be approximately $25.4 million. The Company
expects to fund the remaining approximately $9 million of conversion costs
with internally generated funds or borrowings under its New Credit Facility.
See "Business -- Aircraft Fleet -- Acquisition of Boeing 747s."
(3) Represents estimated expenses incurred in connection with the Merger, the
New Credit Facility and Term Loan.
38
<PAGE> 40
CAPITALIZATION
The following table sets forth the capitalization of Kitty Hawk at
September 30, 1997 and the Company on a pro forma basis to give effect to the
consummation of (i) the Old Note Offering and exchange of the Old Notes for New
Notes, (ii) the Common Stock Offering, (iii) the Merger, including the issuance
of 4,099,150 shares of Common Stock in connection therewith, (iv) the
Refinancings and (v) the application of the net proceeds received by the Company
from the Old Note Offering, the Common Stock Offering and the Term Loan as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
KITTY THE
HAWK COMPANY
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt(1)..................... $ 8,373 $ 3,800
======== ========
Long-term debt:
New Credit Facility(2).................................... $ -- $ --
Term Loan................................................. -- 45,900
New Notes................................................. -- 340,000
Other long-term debt(1)................................... 72,674(3) 6,200
-------- --------
72,674 392,100
-------- --------
Stockholders' equity:
Preferred stock, $1 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;
16,968,667 shares issued and outstanding pro
forma(4)............................................... 107 170
Paid-in capital............................................. 33,950 133,357
Retained earnings........................................... 33,260 33,260
Common stock in treasury -- 217,710 shares.................. (2,076) (2,076)
-------- --------
Total stockholders' equity........................... 65,241 164,711
-------- --------
Total capitalization.............................. $137,915 $556,811
======== ========
</TABLE>
- ---------------
(1) Approximately $10 million of current maturities of long-term debt and other
long-term debt (comprised of approximately $2 million of Kitty Hawk's
indebtedness and approximately $8 million of the Kalitta Companies'
indebtedness) were not refinanced in connection with the Refinancings.
(2) The New Credit Facility provides for borrowings of up to $100 million,
subject to a current borrowing base limitation of approximately $28.7
million. As of January 31, 1998, there was no outstanding balance under the
New Credit Facility. See "Description of Other Indebtedness."
(3) Consists of indebtedness owed to WFB, Bank One Texas, N.A. ("BOT") and 1st
Source Bank.
(4) Does not include (i) 300,000 shares of Common Stock available for the future
grant at September 30, 1997 under the Company's Amended and Restated Omnibus
Securities Plan, (ii) 198,193 shares of Common Stock available for issuance
at September 30, 1997 under the Company's Amended and Restated Annual
Incentive Compensation Plan and (iii) 100,000 shares of Common Stock
available for issuance at September 30, 1997 under the Company's Amended and
Restated Employee Stock Purchase Plan. In January 1998, the Company issued
9,084 shares to employees pursuant to the Company's Amended and Restated
Employee Stock Purchase Plan. See "Management -- Employee Compensation Plans
and Arrangements."
39
<PAGE> 41
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for 1996 and the nine months ended September 30, 1997, in
each case giving effect to the Transactions, the Refinancings, the $750,000
distribution to Mr. Kalitta for a portion of his 1997 income tax liability (the
"Kalitta Tax Distribution") (see "Certain Transactions -- Tax Distribution to
Mr. Kalitta") and the sale of a Hawker Siddeley HS-125 aircraft by the Kalitta
Companies to Mr. Kalitta (the "Hawker Sale") (see "Certain
Transactions -- Purchase of Aircraft by Mr. Kalitta"). The Company's Unaudited
Pro Forma Combined Statement of Operations Information gives effect to the
Transactions, the Refinancings, the Kalitta Tax Distribution and the Hawker Sale
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, the Kalitta Tax Distribution and the Hawker Sale
as if they had been consummated on September 30, 1997. The exchange of the New
Notes for the Old Notes would have no effect on the pro forma information.
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, the Kalitta Tax Distribution and the Hawker Sale 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 three recently
acquired Boeing 747s, including two Boeing 747s acquired with approximately
$39.6 million of the net proceeds derived from the Old Note Offering (see
"Business -- Aircraft Fleet -- Acquisition of Boeing 747s") or (ii) operating
efficiencies or cost savings (other than approximately $1.5 million of insurance
savings) expected to result from the Merger. In addition, the 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 September 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 1996 included elsewhere in
this Prospectus. The historical statement of operations data for Kitty Hawk and
the Kalitta Companies for the nine months ended September 30, 1997 has been
derived from their respective unaudited statements of operations for the nine
months ended September 30, 1997 included elsewhere in this Prospectus.
The pro forma adjustments relating to the purchase of the Kalitta Companies
represent preliminary determinations of these adjustments prior to the
consummation of the Transactions and were based upon available information and
certain assumptions the Company considered 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 at a
later time. 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. The unaudited Pro Forma Combined Financial Information should be
read in conjunction with "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Kitty Hawk's
Consolidated Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus and the Kalitta Companies' Combined Financial
Statements, including the Notes thereto, included elsewhere in this Prospectus.
40
<PAGE> 42
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
KITTY KALITTA ------------------------
HAWK COMPANIES ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents.................. $ 2,403 $ 3,282 $ 5,965 3a $ 11,650
Restricted cash............................ -- 14,037 56,000 3b 70,037
Trade accounts receivable.................. 21,645 64,909 -- 86,554
Accounts receivable -- related parties..... -- 1,255 -- 1,255
Inventory and aircraft supplies............ 5,588 24,624 -- 30,212
Prepaid expenses and other current
assets.................................. 6,808 19,773 (101)3c 26,480
-------- -------- --------- --------
Total current assets............... 36,444 127,880 61,864 226,188
Property and equipment, net.................. 140,357 271,819 46,276 3d 458,452
Other assets................................. -- 777 10,123 3e 10,900
-------- -------- --------- --------
Total assets....................... $176,801 $400,476 $ 118,263 $695,540
======== ======== ========= ========
Current Liabilities
Accounts payable and accrued expenses...... $ 27,968 $ 75,906 $ 15,683 3f $119,557
Deferred gain on sale of aircraft.......... -- 30,255 (30,255)3g --
Notes payable to bank, classified as
current................................. -- 55,434 (55,434)3h --
Long-term debt, classified as current...... -- 196,364 (196,364)3h --
Note payable and bank line of credit....... -- 2,995 (2,995)3h --
Current maturities of long-term debt....... 8,373 -- (4,573) 3,800
-------- -------- --------- --------
Total current liabilities.......... 36,341 360,954 (273,938) 123,357
Note payable................................. -- 300 -- 300
Existing long-term debt...................... 72,674 -- (66,474)3h 6,200
Notes........................................ -- -- 340,000 3h 340,000
Term Loan.................................... -- -- 45,900 3h 45,900
Deferred income taxes........................ 2,545 -- 8,955 3i 11,500
Minority interest............................ -- 3,572 -- 3,572
Stockholders' equity, net.................... 65,241 35,650 63,820 4 164,711
-------- -------- --------- --------
Total liabilities and stockholders'
equity........................... $176,801 $400,476 $ 118,263 $695,540
======== ======== ========= ========
</TABLE>
See accompanying notes.
41
<PAGE> 43
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
COSTS OF REVENUES:
Air freight carrier.......................... 40,860 357,830 (3,996)2b 394,694
Air logistics................................ 67,938 -- -- 67,938
Maintenance and other........................ -- 22,316 -- 22,316
-------- -------- -------- --------
Total costs of revenues............ 108,798 380,146 (3,996) 484,948
-------- -------- -------- --------
Gross profit (loss).......................... 23,874 44,395 (1,436) 66,833
General and administrative expenses.......... 8,943 22,900 -- 31,843
Non-qualified employee profit sharing........ 1,243 -- -- 1,243
Stock option grants to executives............ 4,231 -- -- 4,231
-------- -------- -------- --------
Total operating expenses........... 14,417 22,900 -- 37,317
-------- -------- -------- --------
Operating income (loss)...................... 9,457 21,495 (1,436) 29,516
OTHER INCOME (EXPENSE):
Interest expense, net........................ (2,062) (21,632) (16,632)2c (40,326)
Other, net................................... 291 1,266 -- 1,557
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest.......................... 7,686 1,129 (18,068) (9,253)
Minority interest............................ -- (1,146) -- (1,146)
-------- -------- -------- --------
Income (loss) before income taxes............ 7,686 (17) (18,068) (10,399)
Income taxes (benefit)....................... 3,038 -- (3,038)2d --
-------- -------- -------- --------
Net income (loss).................. $ 4,648 $ (17) $(15,030) $(10,399)
======== ======== ======== ========
Net income (loss) per share.................. $ 0.55 $ (0.70)
======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding......................... 8,477 6,299 14,776
======== ======== ========
</TABLE>
See accompanying notes.
42
<PAGE> 44
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
KALITTA -------------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Air freight carrier......................... $ 55,789 $302,345 $ (4,942)2a $353,192
Air logistics............................... 45,878 -- -- 45,878
Maintenance and other....................... -- 23,299 -- 23,299
-------- -------- -------- --------
Total revenues.................... 101,667 325,644 (4,942) 422,369
COSTS OF REVENUES:
Air freight carrier......................... 38,076 297,968 (16,721)2b 319,323
Air logistics............................... 42,037 -- -- 42,037
Maintenance and other....................... -- 17,235 -- 17,235
-------- -------- -------- --------
Total costs of revenues........... 80,113 315,203 (16,721) 378,595
-------- -------- -------- --------
Gross profit................................ 21,554 10,441 11,779 43,774
General and administrative expenses......... 7,550 19,481 -- 27,031
Non-qualified employee profit sharing....... 1,161 -- -- 1,161
-------- -------- -------- --------
Total operating expenses.......... 8,711 19,481 -- 28,192
-------- -------- -------- --------
Operating income (loss)..................... 12,843 (9,040) 11,779 15,582
OTHER INCOME (EXPENSE):
Interest expense, net....................... (1,809) (19,740) (8,696)2c (30,245)
Other, net.................................. 579 (103) -- 476
-------- -------- -------- --------
Income (loss) before income taxes and
minority interest......................... 11,613 (28,883) 3,083 (14,187)
Minority interest........................... -- (1,859) -- (1,859)
-------- -------- -------- --------
Income (loss) before income taxes........... 11,613 (30,742) 3,083 (16,046)
Income taxes (benefit)...................... 4,645 -- (4,645)2d --
-------- -------- -------- --------
Net income (loss)................. $ 6,968 $(30,742) $ 7,728 $(16,046)
======== ======== ======== ========
Net income (loss) per share................. $ 0.67 $ (0.96)
======== ========
Weighted average common and common
equivalent shares outstanding............. 10,452 6,299 16,751
======== ======== ========
</TABLE>
See accompanying notes.
43
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1. Allocation of Purchase Price -- Based upon the Kalitta Companies' September
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 per share................................. 61,487
Related expenses.......................................... 2,178
Plus fair value of liabilities assumed:
Accounts payable and accrued expenses (including
$14,933 maintenance accrual to conform to Kitty Hawk
accounting method and record the Kalitta Tax
Distribution)......................................... 91,589
Notes payable, reclassified as current................. 58,429
Long-term debt, reclassified as current, including
approximately $3,000 in early payment penalties....... 199,364
Note payable........................................... 300
Deferred income taxes.................................. 8,955
Minority interest...................................... 3,572
--------
Total purchase price to allocate.................. $445,874
========
PURCHASE PRICE ALLOCATION:
Current assets............................................ $127,779
Property and equipment, principally aircraft.............. 318,095
--------
$445,874
========
</TABLE>
The foregoing purchase price determination and allocation are based on the
September 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.
44
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION -- (CONTINUED)
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 nine months ended September 30, 1997 includes the following
adjustments:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C> <C>
a. Revenues:
- Elimination of intercompany revenue.................. $ (4,914) $ (4,639)
- Elimination of revenue on aircraft to be purchased by
Mr. Kalitta.......................................... (518) (303)
-------- --------
(5,432) (4,942)
-------- --------
b. Costs of revenues:
- Elimination of intercompany revenue.................. (4,914) (4,639)
- Elimination of the cost of revenues associated with
the aircraft to be purchased by Mr. Kalitta.......... (466) (273)
- Conforming the Kalitta Companies' aircraft
maintenance accounting policy to that of Kitty Hawk.. (2,323) (14,534)
- Decreasing insurance costs for the combined fleet.... (1,500) (1,125)
- 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............................. 5,207 3,850
-------- --------
(3,996) (16,721)
-------- --------
c. Interest expense:
- Repaying existing Kalitta Companies' credit
facilities........................................... 20,912 19,200
- Repaying existing Kitty Hawk credit facilities....... 1,882 1,674
- The Notes............................................ (33,830) (25,373)
- Term Loan............................................ (4,039) (3,029)
- Amortizing deferred financing costs.................. (1,557) (1,168)
-------- --------
(16,632) (8,696)
-------- --------
d. Adjustments to reduce income tax expense by the amount
incurred by Kitty Hawk................................. (3,038) (4,645)
-------- --------
$(15,030) $ 7,728
======== ========
</TABLE>
The tax effects of the remaining pro forma net operating loss carryforward at
December 31, 1996 and at September 30, 1997 have not been reflected as an income
tax benefit in the pro forma statements of operations due the uncertainty of
future realization.
Interest expense on the Notes is based upon an interest rate of 9.95%. Interest
expense on the Term Loan is calculated assuming an interest rate of 8.8%.
Interest on the Term Loan accrues initially at LIBOR plus 3% or the Base Rate
plus 1.5%, subject to reduction. See "Description of Other 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 $86 for 1996 and the nine months ended
September 30, 1997, respectively.
45
<PAGE> 47
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION -- (CONTINUED)
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 SEPTEMBER 30, 1997
-----------------------------
<S> <C> <C> <C>
a. Cash:
- Issuing 2,200,000 shares of common stock at a price
of $19 per share....................................... $ 41,800
- Cash payment to Mr. Kalitta.......................... (20,000)
- Proceeds of the Notes................................ 340,000
- Repaying existing credit facilities including early
payment penalties of approximately $3,000.............. (328,840)
- Restricted cash...................................... (56,000)
- Expenses of the Transactions and the Refinancings.... (16,895)
- Proceeds from the Term Loan.......................... 45,900
---------
$ 5,965
b. Restricted Cash resulting from the proceeds from the
Note Offering used to fund the acquisition of two
Boeing 747s and certain modifications thereto.......... 56,000
c. Other current assets................................... (101)
d. Property and equipment................................. 46,276
e. Other assets, principally deferred debt costs.......... 10,123
f. Adjusting accrued maintenance to conform the Kalitta
Companies' accounting policy to that of Kitty Hawk and
recording the Kalitta Tax Distribution................. 15,683
g. Deferred gain on sale of aircraft...................... (30,255)
h. Adjusting debt outstanding for the following:
- The Notes............................................ 340,000
- Repayment of existing credit facilities.............. (325,840)
- Term Loan............................................ 45,900
---------
60,060
i. Recording deferred income taxes related to the book and
tax basis differences of the assets acquired and
liabilities assumed in the Merger...................... $ 8,955
</TABLE>
Approximately $10 million of existing debt was not refinanced in connection with
the Refinancings. This amount has been reflected on the pro forma balance sheet
as Current maturities of long-term debt and Existing long-term debt.
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 2,200,000 shares of Kitty Hawk's common stock
in connection with the Common Stock Offering at an offering price of $19 per
share.
46
<PAGE> 48
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 nine months ended September
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 nine months ended September 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 nine months ended September 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 NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ----------------- ---------------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT 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 $39,615 $ 55,789
Air logistics revenues........ 45,893 52,840 79,415 62,593 89,493 51,734 39,408 43,144 45,878
------- ------- -------- -------- -------- ------- ------- ------- --------
Total revenues................ 52,653 65,779 107,700 103,710 142,415 69,728 59,985 82,759 101,667
Total costs of revenues....... 48,465 55,201 92,951 85,532 118,900 57,682 47,580 68,827 80,113
------- ------- -------- -------- -------- ------- ------- ------- --------
Gross profit.................. 4,188 10,578 14,749 18,178 23,515 12,046 12,405 13,932 21,554
General and administrative
expenses.................... 2,930 4,394 6,013 7,832 9,080 2,862 2,725 6,877 7,550
Non-qualified profit sharing
expense..................... -- 250 732 1,001 1,170 889 962 447 1,161
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 2,377 12,843
Interest expense.............. (157) (134) (343) (1,185) (1,859) (482) (684) (1,530) (1,809)
Contract settlement income,
net(2)...................... -- 725 1,178 -- -- -- -- -- --
Loss on asset disposal........ -- -- -- -- (589) -- -- (589) --
Other income (expense)........ 287 193 (432) (601) 291 38 626 262 579
------- ------- -------- -------- -------- ------- ------- ------- --------
Income before income taxes.... 1,388 6,718 8,407 7,559 6,877 7,851 8,660 520 11,613
Income taxes.................. 375 2,613 3,146 3,143 2,768 3,097 3,367 269 4,645
------- ------- -------- -------- -------- ------- ------- ------- --------
Net income.................... $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) $ 4,754 $ 5,293 $ 251(1) $ 6,968
======= ======= ======== ======== ======== ======= ======= ======= ========
Net income per share.......... $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) $ 0.60 $ 0.55 $ 0.03(1) $ 0.67
======= ======= ======== ======== ======== ======= ======= ======= ========
Weighted average common and
common equivalent shares
outstanding................. 8,671 7,968 7,968 7,968 7,928 7,968 9,610 7,891 10,452
OTHER FINANCIAL DATA:
Capital expenditures.......... $ 3,019 $ 1,318 $ 13,876 $ 17,929 $ 33,538 $ 175 $13,796 $31,367 $ 99,575
Adjusted EBITDA(3)............ $ 2,149 $ 7,104 $ 9,507 $ 12,839 $ 19,840 $10,014 $12,546 $10,582 $ 21,039
Ratio of adjusted EBITDA to
total interest expense...... 13.7x 53.0x 27.7x 10.8x 10.7x 20.8x 18.3x 6.9x 11.6x
Ratio of earnings to fixed
charges(4).................. 7.9x 33.6x 20.6x 6.9x 4.4x 15.9x 12.9x 1.3x 5.3x
OPERATING DATA:
Air freight carrier
Aircraft owned (at end of
period)..................... 11 10 15 22 25 22 25 25 42
Flight hours(5)............... 3,567 7,030 11,795 15,183 20,237 6,320 7,670 15,628 21,912
Number of on-demand charters
flown....................... 292 752 1,182 1,238 1,918 827 243 1,182 911
Number of ACMI contract
charters flown.............. 655 1,314 1,734 2,601 3,514 1,070 1,586 2,818 3,883
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 11,607 10,640
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31, SEPTEMBER 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 $(7,231)(7) $ 103
Total assets...................... 9,874 18,598 37,911 47,954 79,828 80,109 123,027 79,628 176,801
Total debt........................ 2,367 976 9,145 16,981 36,912 21,695 24,768 36,049 81,047
Stockholders' equity.............. $3,184 $ 7,289 $12,550 $16,966 $23,639 $21,721 $ 58,292 $24,536 $ 65,241
</TABLE>
- ---------------
(1) Results for the fiscal year ended August 31, 1996 and the nine months ended
September 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 nine months ended September 30, 1996 would have been
approximately $6,648 and $2,790, respectively, and net income per share
would have been $0.84 and $0.35, 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 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 prior to income tax expense 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).
(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.
48
<PAGE> 50
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 nine months ended September 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
nine months ended September 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>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 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 $275,212 $302,345
Maintenance and other(1)......................... 2,606 5,584 7,449 14,279 36,348 25,801 23,299
------- -------- -------- -------- -------- -------- --------
Total revenues..................................... 97,750 200,109 305,530 373,683 424,541 301,013 325,644
OPERATING COSTS AND EXPENSES(2):
Flight........................................... 37,259 62,877 115,614 168,775 150,256 107,006 126,208
Maintenance...................................... 22,114 51,933 64,722 103,389 115,082 81,561 107,432
Fuel............................................. 16,508 38,554 57,362 54,538 82,717 58,434 55,095
Depreciation..................................... 8,999 12,422 13,809 20,972 32,091 23,959 26,468
Selling, general and administrative.............. 4,232 9,554 13,273 21,676 21,889 15,353 17,848
Provision for doubtful accounts.................. 1,557 1,547 2,231 1,862 1,011 2,386 1,633
------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses............... 90,669 176,887 267,011 371,212 403,046 288,699 334,684
------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.................... 7,081 23,222 38,519 2,471 21,495 12,314 (9,040)
OTHER INCOME (EXPENSE):
Interest expense................................. (4,396) (6,781) (8,121) (15,064) (22,012) (16,043) (20,089)
Interest income.................................. -- 36 113 315 379 288 349
Gain on disposition of aircraft held for resale
and property and equipment, net................ 3,018 1,945 3,390 11,708 131 426 624
Gain on contract termination..................... -- -- -- -- 1,123 1,123 --
Gain on insurance settlement(3).................. -- -- -- 8,148 -- -- 542
Miscellaneous.................................... (118) (421) (550) -- 13 13 (1,269)(12)
------- -------- -------- -------- -------- -------- --------
Total other income (expense)....................... (1,496) (5,221) (5,168) 5,107 (20,365) (14,193) (19,843)
------- -------- -------- -------- -------- -------- --------
Income (loss) before minority interest............. 5,585 18,001 33,351 7,578 1,129 (1,879) (28,883)
Minority interest(4)............................... (424) (1,458) (2,758) (3,092) (1,146) (908) (1,859)
------- -------- -------- -------- -------- -------- --------
Net income (loss)(5)............................... $ 5,161 $ 16,543 $ 30,593 $ 4,486 $ (17) $ (2,787) $(30,742)
======= ======== ======== ======== ======== ======== ========
UNAUDITED PRO FORMA DATA:
Unaudited pro forma net income (loss)(6)........... $ 3,200 $ 10,257 $ 18,968 $ 2,781 $ (17) $ (2,787) $(30,742)
OTHER FINANCIAL DATA:
Capital expenditures............................... $55,863 $ 20,468 $ 77,832 $153,719 $ 53,413 $ 43,598 $ 54,509
Adjusted EBITDA(7)................................. $16,080 $ 35,645 $ 52,328 $ 23,443 $ 53,586 $ 36,273 $ 16,159
Ratio of adjusted EBITDA to total interest
expense(8)....................................... 3.7x 5.3x 6.4x 1.6x 2.4x 2.3x --
Ratio of earnings to fixed charges(9).............. 2.0x 2.4x 3.3x 1.2x 1.0x -- --
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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) $(194,251) $(233,073)
Total assets..................................... 123,773 163,925 272,461 377,597 380,103 364,650 400,476
Total debt....................................... 80,010 84,936 137,405 220,471 238,350 228,601 255,093
Stockholder's equity............................. $ 31,043 $ 46,461 $ 77,099 $ 66,292 $ 67,085 $ 67,265 $ 35,650
OPERATING DATA:
Aircraft under operating leases.................. 7 8 4 4 2 2 2
Aircraft owned................................... 52 57 82 91 95 94 84
-------- -------- -------- -------- --------- --------- ---------
Total aircraft................................... 59 65 86 95 97 96 86
======== ======== ======== ======== ========= ========= =========
Flight hours(11)................................. 39,404 55,220 76,346 84,058 91,690 66,858 70,721
</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 nine months ended September 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 nine
months ended September 30, 1997, respectively, $1,123 from a gain from
settlement of a contract dispute in 1996 and the nine months ended
September 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 nine months ended September 30, 1997, the Kalitta Companies'
adjusted EBITDA was $16,159 and interest expense was $19,740, 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 $2,412 and $28,883 for
the nine months ended September 30, 1996 and September 30, 1997,
respectively.
(10) Includes long-term debt and notes payable reclassified to current of
$203,016, $177,402 and $160,058 at December 31, 1996, September 30, 1996
and September 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 their customers on a block hour basis.
(12) Represents Merger-related costs for the nine months ended September 30,
1997.
50
<PAGE> 52
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, resulting in a transition period from
September 1, 1996 to December 31, 1996 (the "Transition Period"). The following
discussion is of Kitty Hawk's financial condition and results of operations (i)
for the nine months ended September 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 42 aircraft at September 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 nine months ended September 30, 1996 and 1997, have
equaled 8%, 11.7%, 9.5%, 10%, 8.6% and 9.1%, 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 aircraft 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.
51
<PAGE> 53
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 of the Kalitta
Companies' fleet (approximately $5.2 million of non-cash annual expense), the
amortization of deferred financing costs associated with the Old Note Offering,
the New Credit Facility and the Term Loan (approximately $1.6 million of
non-cash annual expense) and cash interest expense with respect to the Notes
(approximately $33.8 million of annual expense) and the Term Loan (approximately
$4 million of annual expense).
Reduced Dependence on Significant Customers. Historically, Kitty Hawk
derived a substantial amount of revenue from a limited number of customers. As a
result of the Merger, the Company is 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, NINE MONTHS ENDED SEPTEMBER 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% $39,615 100.0% $55,789 100.0%
Costs of revenues.... 11,685 64.9 13,784 67.0 29,688 74.9 38,076 68.3
------- ----- ------- ----- ------- ----- ------- -----
Gross profit......... $ 6,309 35.1% $ 6,793 33.0% $ 9,927 25.1% $17,713 31.7%
======= ===== ======= ===== ======= ===== ======= =====
AIR LOGISTICS:
Revenues............. $51,734 100.0% $39,408 100.0% $43,144 100.0% $45,878 100.0%
Costs of revenues.... 45,997 88.9 33,796 85.8 39,139 90.7 42,038 91.6
------- ----- ------- ----- ------- ----- ------- -----
Gross profit......... $ 5,737 11.1% $ 5,612 14.2% $ 4,005 9.3% $ 3,840 8.4%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
52
<PAGE> 54
The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
FOUR MONTHS NINE MONTHS
FISCAL YEAR ENDED ENDED ENDED
AUGUST 31, DECEMBER 31, SEPTEMBER 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% 47.9% 54.9%
Air logistics......................... 73.7 60.4 62.8 74.2 65.7 52.1 45.1
----- ----- ----- ----- ----- ----- -----
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 83.2 78.8
----- ----- ----- ----- ----- ----- -----
Gross profit............................ 13.7 17.5 16.5 17.3 20.7 16.8 21.2
General and administrative expenses..... 5.6 7.6 6.4 4.1 4.5 8.3 7.4
Non-qualified profit sharing expense.... 0.7 0.9 0.8 1.3 1.6 0.5 1.2
Stock option grants to executives....... -- -- 3.0 -- -- 5.1 --
----- ----- ----- ----- ----- ----- -----
Operating income........................ 7.4 9.0 6.3 11.9 14.6 2.9 12.6
Interest expense........................ (0.3) (1.1) (1.3) (0.7) (1.2) (1.9) (1.8)
Contract settlement income, net......... 1.1 -- -- -- -- -- --
Loss on asset disposal.................. -- -- (0.4) -- -- (0.7) --
Other income (expense).................. (0.4) (0.6) 0.2 0.1 1.0 0.3 0.6
----- ----- ----- ----- ----- ----- -----
Income before income taxes.............. 7.8 7.3 4.8 11.3 14.4 0.6 11.4
Income taxes............................ 2.9 3.0 1.9 4.4 5.6 0.3 4.6
----- ----- ----- ----- ----- ----- -----
Net income.............................. 4.9% 4.3% 2.9% 6.9% 8.8% 0.3 6.8
===== ===== ===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues -- Air Freight Carrier. Air freight carrier revenues increased to
$55.8 million, or 40.8%, from $39.6 million for the nine months ended September
30, 1997 as compared to the nine months ended September 30, 1996, principally
due to an increase in fleet size. Air freight carrier on-demand and ACMI
contract charter revenues were $12 million and $42.4 million, or 21.5% and
76.1%, respectively, of total air freight carrier revenues for the nine months
ended September 30, 1997, as compared to $14.1 million and $24.2 million or
35.5% and 61.1%, respectively, for the nine months ended September 30, 1996.
Revenues from on-demand charters flown by Company aircraft for the nine months
ended September 30, 1997 decreased 14.5% from the comparable prior year period
due to aircraft being shifted from on-demand to ACMI contract charter service,
which is consistent with Kitty Hawk's strategy of using more of its fleet in
ACMI business which produces relatively stable revenues. Prices for the
Company's on-demand and ACMI contract charters remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues increased $2.7 million,
or 6.3%, to $45.9 million in the nine months ended September 30, 1997, from
$43.1 million in the nine months ended September 30, 1996. This increase was
primarily due to increased demand in the first and third quarters for on-demand
charters generally and specifically for charters that require larger aircraft,
which generate greater revenues. Prices for the Company's air logistics services
remained relatively constant. The number of on-demand charters managed decreased
by 967 charters, or 8.3%, to 10,640 for the nine months ended September 30, 1997
from 11,607 for the nine months ended September 30, 1996. This was principally
due to a strike at GM during the fourth quarter of 1996 and in the first nine
months of 1997.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.4 million, or 28.3%, to $38.1 million in the nine months
ended September 30, 1997, from $29.7 million in the nine months ended September
30, 1996, reflecting increased costs associated with increased fleet size and
additional ACMI contract charters. The gross profit margin from the air freight
carrier increased to 31.7% in the nine months ended September 30, 1997, from
25.1% in the nine months ended September 30, 1996. This increase was
53
<PAGE> 55
primarily the result of lower maintenance costs resulting from operational
efficiencies associated with increased fleet size and lower depreciation costs
resulting from the sale of eight JT8D-9A engines.
As reported to the FAA, overall aircraft utilization increased to 21,912
flight hours for the nine months ended September 30, 1997, from 15,628 in the
nine months ended September 30, 1996, a 40.2% increase. This increase was
primarily due to increased fleet size and hours flown for ACMI contract
charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $2.9 million, or 7.4%, to $42 million in the nine months ended
September 30, 1997, from $39.1 million in the nine months ended September 30,
1996, reflecting an increased volume of business. The gross profit margin from
air logistics decreased to 8.4% in the nine months ended September 30, 1997,
from 9.3% in the comparable prior year period, a decrease of 9.7%. This decrease
was primarily due to increased rates paid to third party air freight carriers
which could not be passed on to the Company's customers due to contractually
established rates.
General and Administrative Expenses. General and administrative expenses
increased $673,000, or 9.8%, to $7.6 million in the nine months ended September
30, 1997, from $6.9 million in the nine months ended September 30, 1996. This
increase was primarily due to an increase in support functions and
administrative costs associated with the growth in the aircraft fleet and the
increased volume of business of the air freight carrier in the nine months ended
September 30, 1997. As a percentage of total revenues, general and
administrative expenses decreased to 7.4% in the nine months ended September 30,
1997, from 8.3% in the nine months ended September 30, 1996.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $714,000, or 159.8%, to $1.2 million in the nine months ended
September 30, 1997, from $447,000 in the nine months ended September 30, 1996,
reflecting the increase of net income before taxes in the nine months ended
September 30, 1997.
Stock Option Grants to Executives. There was no stock option grant expense
during the nine months ended September 30, 1997. During the nine month period
ended September 30, 1996, the Company granted two executive officers options to
purchase 544,274 shares of Common Stock that resulted in a charge to earnings of
approximately $4,231,000.
Operating Income. As a result of the above, operating income increased
$10.5 million, or 440.3%, to $12.8 million in the nine months ended September
30, 1997, from $2.4 million in the nine months ended September 30, 1996.
Operating income margin increased to 12.6% in the nine months ended September
30, 1997, from 2.9% in the nine months ended September 30, 1996.
Interest Expense. Interest expense increased to $1.8 million for the nine
months ended September 30, 1997, as compared to $1.5 million for the nine months
ended September 30, 1996 due to an increase in long term debt associated with
financing major aircraft maintenance costs and the acquisition of 16 Boeing 727
aircraft from the Kalitta Companies in September 1997.
Loss on Asset Disposal. Loss on asset disposal during the nine months ended
September 30, 1996 was $589,000, which resulted from write-downs associated with
equipment dispositions.
Other Income (Expense). Other income increased to $579,000 in the nine
months ended September 30, 1997, from $263,000 in the comparable prior year
period. The increase was primarily due to increased interest income in the nine
months ended September 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 nine months ended September 30, 1997, from 51.7% 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 $7 million in
the nine months ended September 30, 1997, compared to $251,000 in the nine
months ended September 30, 1996. Net income as a percentage of total revenues
increased to 6.8% in the nine months ended September 30, 1997, from 0.3% in the
comparable prior year period.
54
<PAGE> 56
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 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 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. 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%, 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% 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 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.
55
<PAGE> 57
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% 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.
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% 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%, 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
56
<PAGE> 58
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 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
million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating
income margin decreased to 6.3% from 9%, 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.
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% 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.
57
<PAGE> 59
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 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
million in fiscal year 1994. As a percentage of total revenues, general and
administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in
fiscal year 1994. This increase was primarily due to an increase in support
functions and number of personnel associated with the growth in the aircraft
fleet and the revenue volume for the air freight carrier in fiscal year 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased to $1 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 million in fiscal year 1994. Operating
income margin increased to 9% 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% 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% 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
58
<PAGE> 60
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 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 air
freight 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
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 are being 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.
59
<PAGE> 61
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.
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>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
1996 1997
---------------- ----------------
<S> <C> <C> <C> <C>
AIR FREIGHT CARRIER SERVICES:
Revenues............................................ $275,212 100.0% $302,345 100.0%
Costs of revenues................................... 256,232 93.1 297,968 98.6
-------- ----- -------- -----
Gross profit........................................ $ 18,980 6.9% $ 4,377 1.4%
======== ===== ======== =====
MAINTENANCE AND OTHER:
Revenues............................................ $ 25,801 100.0% $ 23,299 100.0%
Costs of revenues................................... 14,727 57.1 17,235 74.0
-------- ----- -------- -----
Gross profit........................................ $ 11,074 42.9% $ 6,064 26.0%
======== ===== ======== =====
</TABLE>
60
<PAGE> 62
The following table presents, for the periods indicated, consolidated
statement of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
REVENUES:
Air freight carrier services..................... 97.6% 96.2% 91.4% 91.4% 92.8%
Maintenance and other............................ 2.4 3.8 8.6 8.6 7.2
----- ----- ----- ----- -----
Total revenues..................................... 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Flight........................................... 37.8 45.2 35.4 35.5 38.8
Maintenance...................................... 21.2 27.7 27.1 27.1 33.0
Fuel............................................. 18.8 14.6 19.5 19.4 16.9
Depreciation..................................... 4.5 5.6 7.6 8.0 8.1
Selling, general and administrative.............. 4.3 5.8 5.2 5.1 5.5
Provision for doubtful accounts.................. 0.7 0.5 0.2 0.8 0.5
----- ----- ----- ----- -----
Total operating expenses........................... 87.3 99.4 95.0 95.9 102.8
----- ----- ----- ----- -----
Operating income (loss)............................ 12.7 0.6 5.0 4.1 (2.8)
----- ----- ----- ----- -----
OTHER INCOME (EXPENSE):
Interest expense, net............................ (2.6) (3.9) (5.1) (5.2) (6.1)
Other income net................................. 0.9 5.3 0.3 0.5 --
----- ----- ----- ----- -----
Total other income (expense)....................... (1.7) 1.4 (4.8) (4.7) (6.1)
----- ----- ----- ----- -----
Income (loss) before minority interest............. 11.0 2.0 0.2 (0.6) (8.9)
Minority interest.................................. (0.9) (0.8) (0.2) (0.3) (0.6)
----- ----- ----- ----- -----
Net income (loss)(1)............................... 10.1% 1.2% 0.0% 0.9)% (9.5)%
===== ===== ===== ===== =====
</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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Revenues. Revenues increased $24.6 million, or 8.2%, to $325.6 million in
the first nine months of 1997 as compared to $301 million in the first nine
months of 1996. This increase reflected the average number of aircraft available
to the Kalitta Companies in the first nine months of 1997, including two
Lockheed L-1011-200s (which were modified from passenger to freighter
configuration), one Boeing 727-200 freighter and one Douglas DC-8-50 freighter.
Air freight carrier service revenue increased $27.1 million, or 9.8%, to
$302.3 million in the first nine months of 1997 from $275.2 million in the first
nine months of 1996. This increase resulted from four factors. First, the
addition of a Lockheed L-1011-200 freighter in late 1996 on 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
were awarded operating authority for these countries. Third, the Kalitta
Companies recognized the full period effect of passenger revenues in 1997, which
commenced in the fourth quarter of 1996. Fourth, the Kalitta Companies
experienced an increase in the number of customers serviced in on-demand cargo
services.
Offsetting these increases, however, was (i) a decline in revenue generated
from flights operated for the U.S. Military, (ii) a reduction in the number of
aircraft operated by the Kalitta Companies for Burlington and (iii) a reduction
in the number of aircraft leased to DHL Airways, Inc. The decline in revenues
from the U.S. Military occurred because of increased competition for this
business, as well as an increase in contract
61
<PAGE> 63
awards to airlines able to provide both freight and passenger service, the
latter of which the Kalitta Companies were not qualified to provide to the U.S.
Military. The Kalitta Companies expect to become eligible to operate passenger
charters for the U.S. Military in December 1997.
Third party maintenance and other revenue decreased $2.5 million, or 9.7%,
to $23.3 million in the first nine months of 1997 from $25.8 million in the
first nine months of 1996. The Kalitta Companies increased third-party engine
maintenance work during the second half of 1996 as a result of new contracts
with Lufthansa and International Turbine which terminated in the first half of
1997.
Operating Expenses. Operating expenses increased by $46 million, or 15.9%,
to $334.7 million in the first nine months of 1997 from $288.7 million in the
same period in 1996. As a percent of revenues, operating expenses increased to
102.8% for the first nine months of 1997 from 95.9% in the same period in 1996.
Flight expenses increased $19.2 million, or 17.9%, to $126.2 million for the
first nine months of 1997 from $107 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 47% in the first nine 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 $25.8 million, or 31.6%, to $107.4 million
in the first nine months of 1997 from $81.6 million in the first nine months of
1996. Maintenance expenses increased as a percentage of revenues to 33% from
27.1%. The increase was primarily attributable to (i) engine repairs beginning
in August 1996 relating to a Directive affecting the RB211 engines that power
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
Lockheed 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 $3.3 million, or 5.7%, to $55.1 million for the nine
months ended September 30, 1997 as compared to $58.4 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 $2.5 million, or 10.4%, to $26.5 million for
the nine months ended September 30, 1997 from $24 million for the comparable
period in 1996, primarily as a result of the average number of aircraft in the
Kalitta Companies' fleet during the latter part of 1996 and in 1997.
Selling, general and administrative expenses increased $2.4 million, or
15.6%, to $17.8 million in the nine months ended September 30, 1997 from $15.4
million in the same period in 1996, primarily due to increased payroll related
costs. 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 nine months of 1997.
As a result of the above factors, the Kalitta Companies experienced an
operating loss of $9 million during the nine months ended September 30, 1997
compared to operating income of $12.3 million during the nine months ended
September 30, 1996.
Other Income (Expense). Net interest expense increased $3.9 million, or
24.7%, to $19.7 million in the nine months ended September 30, 1997 from $15.8
million in the nine months ended September 30, 1996. The increase was due to
increased borrowings relating to the acquisition of new aircraft and ground
support
62
<PAGE> 64
equipment, as well as increased borrowings under the Kalitta Companies'
revolving credit line. The average interest rate on the Kalitta Companies'
borrowings increased to 9.3% from 9.1% in the prior year period.
Gain on disposition of property and equipment, net, increased $0.2 million
to $0.6 million for the nine months ended September 30, 1997 as compared to $0.4
million for the first nine months of 1996. The increase resulted from the sale
of one Boeing 727-100 passenger aircraft in January 1997.
Gain on contract termination decreased $1.2 million for the nine months
ended September 30, 1997 as compared to the nine months ended September 30, 1996
due to the cancellation of an operating agreement between the Kalitta Companies
and a third party. Under the settlement agreement, rent was waived for the
Kalitta Companies through the end of the original lease term resulting in a gain
to the Kalitta Companies.
Gain on insurance reimbursement increased $0.5 million in the nine months
ended September 30, 1997 as compared to the nine months ended September 30, 1996
due to a Boeing 747-200 freighter aircraft sustaining damage from a hard
landing. The Kalitta Companies used its own maintenance capabilities to complete
the repairs to the aircraft and incurred costs less than originally anticipated.
Consequently, the excess of the insurance proceeds received resulted in a gain
in the nine months ended September 30, 1997.
Merger-related costs were $1.3 million for the nine months ended September
30, 1997. These expenses represent legal and accounting fees incurred in
connection with the Transactions and the sale of 16 Boeing 727s to Kitty Hawk.
There were no such costs in the prior year.
Minority Interest. Minority interest represents the earnings attributable
to the 40% of AIC owned by a third party. Minority interest increased $1 million
to $1.9 million for the first nine months of 1997, as compared to $0.9 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 achievement of better yields in the 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%, 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 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% 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.
63
<PAGE> 65
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%, as compared to 44% 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.
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%, to $32.1 million in
1996, as compared to $21 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%,
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 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
interisland 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
64
<PAGE> 66
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 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%, 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% 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 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 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
65
<PAGE> 67
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 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 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 for debt
service. 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 $18.4 million and $19.6 million
in the nine months ended September 30, 1997 and 1996, respectively. As of
September 30, 1997, Kitty Hawk had working capital of $0.1 million compared to
$33.5 million at December 31, 1996.
Cash provided/(used) by investing activities was $(33.5 million), $4.7
million and $(99.6 million) for the fiscal year ended August 31, 1996, the
Transition Period and the nine months ended September 30, 1997, respectively.
Cash provided by financing activities was $18.3 million, $17.2 million and $56.3
million for the fiscal year ended August 31, 1996, the Transition Period and the
nine months ended September 30, 1997, respectively.
As of September 30, 1997, Kitty Hawk had approximately $80.8 million of
indebtedness with WFB, BOT 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. On September 30,
1997, the balance on this loan was $3.4 million.
Capital expenditures were $99.6 million and $31.4 million for the nine
months ended September 30, 1997 and 1996, respectively. Capital expenditures for
the nine months ended September 30, 1997 were primarily for the overhaul of
several JT8D-7 jet engines and the purchase of (i) 18 Boeing 727-200 aircraft,
(ii) cargo and noise abatement modifications for one Boeing 727-200 aircraft,
(iii) noise abatement equipment with respect
66
<PAGE> 68
to two DC-9-15F aircraft, (iv) ten reconditioned JT8D jet engines, (v) leasehold
improvements to Boeing 727-200 aircraft, (vi) the 40,000 square foot
headquarters facility and related ground sublease at Dallas/Fort Worth
International Airport, (vii) major maintenance checks and (viii) ground service
equipment for use in the USPS Christmas 1997 Contract. Capital expenditures for
the nine months ended September 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
November 10, 1997, Kitty Hawk has used all of the net proceeds of the initial
public offering to fund these costs. Kitty Hawk has purchased (i) one Boeing
727-200 freighter aircraft for $4.4 million, (ii) one Boeing 727-200 aircraft
for $2.3 million which was modified to cargo configuration for an additional
cost of approximately $3.3 million (including approximately $2.2 million for
noise abatement equipment), (iii) one Boeing 727-200 aircraft for $3.5 million
which was modified to cargo configuration for an additional cost of
approximately $5.2 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 and which
was modified to be in compliance with the Stage III noise control standards for
an additional $2.5 million and (v) $5 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 1998, Kitty Hawk anticipates an aggregate capital expenditure
ranging from $27 million to $32 million for noise abatement modifications to
aircraft currently owned. In the event Kitty Hawk acquires more aircraft than
currently proposed, Kitty Hawk's anticipated aggregate capital expenditures for
noise abatement modifications in 1998 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 Kitty Hawk's aircraft to
be subject to extensive aircraft examinations and require certain of Kitty
Hawk'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 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."
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 used in operating activities was $13.1 million for the first nine
months of 1997 as compared to cash provided by operating activities of $27.7
million in the same period in 1996. As of September 30, 1997, the Kalitta
Companies had cash and cash equivalents of $3.3 million, as compared to $3.3
million as of September 30, 1996. The Kalitta Companies had a working capital
deficit of $233.1 million at September 30, 1997, compared to a deficit of $194.3
million at September 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 nine months of 1997 as compared to the first
nine months of 1996. Also contributing to the decrease was an
67
<PAGE> 69
increase in restricted cash at September 30, 1997 compared to September 30,
1996. Net cash 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 $0.2 million for the nine months
ended September 30, 1997 as compared to net cash used in investing activities of
$33.4 million for the nine months ended September 30, 1996. Total capital
expenditures increased 25% to $54.5 million for the nine months ended September
30, 1997 from $43.6 million for the same period in 1996. Expenditures in the
nine months ended September 30, 1997 represented the purchase of additional
aircraft and capitalization of costs to modify the aircraft to freighter
configuration. In addition, the sale of 16 Boeing 727 aircraft to Kitty Hawk
resulted in proceeds of $51 million of which $21 million was used to purchase a
Boeing 747-200 aircraft, $9 million was used to purchase a Lockheed L-1011
freighter and $11 million was placed in escrow to pay for converting this Boeing
747-200 aircraft from passenger to freighter configuration. The Kalitta
Companies estimate these conversion costs will be approximately $8 million. 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 $14.2 million for the nine
months ended September 30, 1997 as compared to $8 million for the nine months
ended September 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 fund operating activities during those years.
The Kalitta Companies' liquidity is affected by the seasonal nature of
their businesses. Primarily because of the increase in air freight during the
Christmas holiday season, a significant portion of the Kalitta Companies'
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 air cargo charters is reduced relative to other times of
the year.
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 have included 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.
At September 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 $196.4 million. All but approximately $8 million of the Kalitta
Companies' indebtedness was retired with the net proceeds derived from the Old
Note Offering and the Common Stock Offering. 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 public
offerings. From time to time, the Company has entered into sale/leaseback
transactions to acquire aircraft and may continue to do so in the future.
68
<PAGE> 70
As a result of the Transactions and the Refinancings, all but approximately
$10 million of the existing indebtedness of Kitty Hawk and the Kalitta Companies
was refinanced with the net proceeds derived from the Old Note Offering, the
Common Stock Offering and the Term Loan. See "Use of Proceeds."
The Term Loan was incurred to refinance indebtedness incurred in September
1997 to finance the acquisition of 16 Boeing 727s from the Kalitta Companies.
The Term Loan matures in November 2002 and is 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 accrues at LIBOR plus 3% or the Base Rate plus 1.5%, subject to
reduction. The Base Rate is WFB's Prime Rate or the Federal Funds Rate plus .5%.
The Term Loan is secured by accounts receivable, all spare parts (including
rotables), inventory, intangibles and contract rights, cash, the 16 Boeing 727s
and related engines acquired from the Kalitta Companies prior to the Merger, the
stock of each of the Company's subsidiaries and the Company's 60% interest in
AIC. In addition, the New Credit Facility and Term Loan are guaranteed by each
of the Company's subsidiaries (other than AIC). As of January 31, 1998, there
was a balance of approximately $45.9 million on the Term Loan. See "Description
of Other Indebtedness."
In addition, to fund ongoing capital requirements, including possible
acquisitions, the Company has a New Credit Facility with WFB, individually and
as agent for various lenders. The New Credit Facility provides the Company with
up to $100 million in revolving loans (subject to a current borrowing base
limitation of approximately $28.7 million) and is secured by the same collateral
as the Term Loan. The facility currently bears interest at LIBOR plus 2.75% or a
Base Rate plus 1.25%, 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 are subject to borrowing base
limitations based on eligible inventory and accounts receivable and will mature
five years from execution of the New Credit Facility. As of January 31, 1998,
there was no outstanding balance under the New Credit Facility. See "Description
of Other Indebtedness."
The Company currently estimates that capital expenditures in 1998 will
aggregate approximately $110 million (including the recent acquisitions of two
Boeing 747s and modifications to be made thereto and noise abatement
modifications to existing aircraft) and that it 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, 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 September 1997, the Company acquired one Boeing 747 and expects to make
approximately $8 million of capital expenditures to modify this Boeing 747 to
freighter configuration in 1998. In February 1998, the Company purchased two
Boeing 747s for approximately $39.6 million and expects to modify these aircraft
to freighter configuration for approximately $25.4 million. There can be no
assurance that the costs to modify these aircraft will not exceed this amount.
Additionally, the Company is in the process of converting one Boeing 727
aircraft from passenger to freighter configuration at a cost of approximately $5
million.
During 1998, the Company anticipates capital expenditures ranging from $27
million to $32 million for noise abatement modifications to aircraft currently
owned. The Company's total capital expenditures for noise abatement
modifications for its existing fleet of owned and leased aircraft is expected to
be approximately $89.8 million, not including two Boeing 727s currently being
modified. 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. See
"Business -- Government -- Noise Abatement Regulations."
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
69
<PAGE> 71
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 30 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
29 of these Boeing 727s until certain modifications are made. The cost to make
such modifications and the amount of revenue that could be lost cannot currently
be estimated. However, the Company believes this Directive will not have a
material adverse effect on the Company. See "Business -- Aircraft
Fleet -- Boeing 727 Cargo Door and Floor Modification Regulations."
The Company believes that available funds (including the New Credit
Facility), bank borrowings and cash flows expected to be generated by
operations, along with the net proceeds of the Old Note Offering and the Common
Stock Offering, will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next twelve months.
Thereafter, if cash generated by operations is insufficient to satisfy the
Company's liquidity requirements, the Company may sell additional equity or debt
securities or obtain additional credit facilities. However, there can be no
assurance that the Company will be able to sell any additional equity or debt
securities or obtain any additional credit facilities.
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 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.
70
<PAGE> 72
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
----------------------------------------------------------------- ENDED
NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31, NOVEMBER 30, DECEMBER 31,
1995 1996 1996 1996 1996 1996
------------ ------------ ------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Total revenues............ $36,045 $48,577 $22,504 $35,289 $25,414 $34,572
Gross profit.............. 5,936 8,190 3,265 6,124 5,118 7,288
Operating income.......... 3,564 2,447 897 2,126 2,851 5,868
Net income................ 1,956 1,273 182 698 1,632 3,661
Net income per share...... $ 0.25 $ 0.16 $ 0.02 $ 0.09 $ 0.18 $ 0.37
<CAPTION>
QUARTER ENDED
------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997
--------- -------- -------------
<S> <C> <C> <C>
Total revenues............ $28,102 $32,366 $41,199
Gross profit.............. 5,355 7,451 8,748
Operating income.......... 2,571 4,679 5,593
Net income................ 1,414 2,561 2,993
Net income per share...... $ 0.14 $ 0.25 $ 0.29
</TABLE>
THE KALITTA COMPANIES
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues..................... $ 84,303 $106,292 $110,417 $123,529 $ 92,898 $103,943 $128,803
Gross profit (loss)................ (1,440) 16,573 14,921 14,341 (12,058) 4,583 17,916
Operating income (loss)............ (6,626) 10,233 8,707 9,180 (17,940) (1,503) 10,403
Net income (loss).................. $(12,019) $ 6,461 $ 2,771 $ 2,770 $(22,786) $ (8,157) $ 201
</TABLE>
71
<PAGE> 73
BUSINESS
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 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
72
<PAGE> 74
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
three used Boeing 747s, one of which is currently being converted to
freighter configuration. The Company expects to convert the remaining two
recently acquired Boeing 747s to freighter configuration during 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.
73
<PAGE> 75
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, 30 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 nine months of 1997, an average of 1,147 shipments, totaling approximately
458 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.
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.
74
<PAGE> 76
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
AIC, 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. 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., Pacific East Asia Cargo
Airlines, Inc. and Iberia.
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 six countries, including Aviateca (Guatemala), Iberia (Spain), Lacsa
(Costa Rica), Nica (Nicaragua), Taca International Airlines (El Salvador) and
Varig (Brazil). Because these airlines are the national airlines of their
respective
75
<PAGE> 77
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 six trips per week to Cali
and Medellin, Columbia for AeroFloral for the shipment of fresh flowers.
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. 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. In January 1998, the Company became 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 from 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 8.6%
of the on-demand charters managed by Kitty Hawk during fiscal years 1994, 1995
and 1996 and the nine months ended September 30, 1997, respectively, were flown
on Kitty Hawk's aircraft. With the addition of the Kalitta Companies aircraft,
the Company expects to 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 31 passenger configured aircraft, including
two Boeing 747s, two Lockheed L-1011s, 19 Lear jets and 8 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.
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
76
<PAGE> 78
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 nine months ended September 30, 1997, Kitty Hawk arranged an
average of approximately 39 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.
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
77
<PAGE> 79
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 two aircraft held for sale and the Company's undivided
one-third interest in four Falcon 20C jet aircraft. Of these aircraft, the
Company operates 117 aircraft in revenue service. The following is a summary of
certain information on these aircraft:
Large Aircraft
<TABLE>
<CAPTION>
NUMBER
NUMBER NUMBER OPERATED
OWNED BY LEASED BY IN
MANUFACTURER THE THE REVENUE MAXIMUM NUMBER STAGE III
AND MODEL SERIES(1) COMPANY COMPANY SERVICE CONFIGURATION PAYLOAD(2) COMPLIANT(3)
------------ --------- -------- --------- -------- ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing 747............ 200 6 -- 2(4)(5) Freight 213,000-245,000 lbs. 6
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 4 -- --(7) Passenger 160 passengers 1
Boeing 727............ 100 1 1 2 Freight 40,000-54,500 lbs. 0
Douglas DC-9.......... 15F 5 -- 5 Freight 22,000-24,000 lbs. 3
-- -- -- --
Total......... 73 5 68 39
== == == ==
</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.
(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. The Company is currently modifying two Boeing 727s to be in
compliance with Stage III noise control standards. See "Risk
Factors -- Government Regulation" and "-- Government Regulation."
(4) Three of these Boeing 747s were recently acquired by the Company, one of
which is currently being modified to freighter configuration. The Company
expects to convert the remaining two recently acquired Boeing 747s to
freighter configuration during 1998.
78
<PAGE> 80
(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 two were
recently returned to the Company by a lessee. One of these aircraft is
currently being converted from passenger configuration to freighter
configuration.
The aircraft described above do not include one passenger configured Boeing
727-100 which the Company is currently negotiating to sell. This sale is
expected to be consummated during the first quarter of 1998.
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 5 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 12 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 51
==
</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 is 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 Company expects to
sell to Mr. Kalitta in the first quarter of 1998. 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
79
<PAGE> 81
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.
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 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 at its Oscoda, Michigan facility for an estimated
additional $8 million. In February 1998, the Company acquired for approximately
$39.6 million (i) two additional used Boeing 747s and associated engines, (ii)
two additional spare engines and (iii) certain other related spare parts and
support equipment. The Company is currently negotiating with a third party to
have these two recently acquired Boeing 747s converted from passenger to
freighter configuration in 1998 at a cost of up to $25.4 million. However, there
can be no assurance that the Company will enter into a contract with this third
party to perform such freighter conversions or that the cost of such freighter
conversions will not be higher or lower than $25.4 million. For the purposes
hereof, the Company has assumed the cost of such freighter conversions will be
$25.4 million. None of these Boeing 747s are affected by the Directive related
to Boeing 747s modified by GATX. See "Use of Proceeds."
Adding these Boeing 747s and the other 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 30 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. Twenty-nine 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
80
<PAGE> 82
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 its ability to make payments on the
Notes.
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
81
<PAGE> 83
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.
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
1535 West 20th Street
Dallas/Fort Worth International Airport, TX Offices and warehouse Leased
1349 South Huron, Ypsilanti, MI Offices(2) Leased
Willow Run Airport, Ypsilanti, MI Office, hangar, maintenance, fuel farm
& storage Leased
N. I-94 Service Drive, Ypsilanti, MI Office, storage & maintenance Owned
Oscoda, MI Office, hangar, maintenance, housing,
fuel farm & storage Leased
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 Company leases this 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 $28 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
82
<PAGE> 84
operations. Under a proposed 20 year lease from the Fort Wayne Authority, the
Company would occupy a sorting facility with 249,000 square feet of space
(including office space), a 15,000 square foot operations building, a 30,000
square foot maintenance building 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 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. These subleases
vary in duration from month-to-month to long-term (the last of which expires in
December 2015) and are subject to earlier termination upon termination of the
prime lease between the U.S. Government and the Wurtsmith Authority. 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 of varying duration from
month-to-month to long-term, the last of which expires in 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 January 31, 1998, the Company employed approximately 3,800
full-time personnel, of which approximately 250 were involved in sales and
administrative functions and approximately 3,500 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 negotiations 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,
substantial increases 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
83
<PAGE> 85
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 its ability to make payments on the Notes.
The Company is subject to the regulations of the Environmental Protection
Agency and state and local governments regarding air quality and other matters.
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 its ability to make payments on the
Notes, 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.
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
84
<PAGE> 86
addition, the DOT and the FAA may impose civil or criminal penalties for
violations of applicable rules and regulations.
The DOT views the Merger as a de facto transfer of the Kalitta Companies'
foreign operating authority, which requires prior DOT approval. Consequently,
Kitty Hawk and the Kalitta Companies filed an application with the DOT seeking
temporary and permanent approval to transfer the Kalitta Companies' foreign
operating authority to Kitty Hawk. On November 6, 1997, the DOT granted Kitty
Hawk and the Kalitta Companies a temporary exemption from the requirement to
receive DOT approval prior to the de facto transfer. While the Company believes
it will receive permanent approval of the de facto transfer from the DOT, there
can be no assurance in this regard. In the event the Company does not receive
permanent DOT approval, the Company would be required, at its option, either to
relinquish the Kalitta Companies' foreign operating authority or divest itself
of the Kalitta Companies.
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.
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 Company and its ability to make payments on the
Notes.
In 1984, a predecessor of one of the Kalitta Companies had its small
aircraft operating certificate suspended for a period of 90 days for failure to
maintain certain records and other violations of FAA regulations and, in
connection therewith, pled guilty to a misdemeanor charge. The Kalitta Companies
subsequently corrected the conditions which had resulted in the operating
certificate being suspended.
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 was suspended and subsequently forgiven. The Consent Order also provided
that it was a full and conclusive settlement of any civil penalties the Kalitta
Companies could incur for regulatory violations occurring before January 1,
1997.
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, the Company is in compliance
with the Noise Regulations. The Company owns 73 aircraft and leases 5 aircraft
which are affected by the Noise Regulations, including eleven 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 one aircraft held for sale) and five Douglas DC-9-15Fs
(collectively, the "Jet Fleet"). Of the aircraft in the Jet Fleet, 41 are
currently in compliance with Stage III noise control standards or are currently
being modified to be in compliance with such 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
85
<PAGE> 87
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 and its
ability to make payments on the Notes. 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, 21 of the Company's Boeing 727 aircraft currently do not
comply with the Stage III noise control standards, not including two Boeing 727s
currently being modified to be in compliance with such standards and one Boeing
727 held for sale. The Company currently anticipates modifying its Boeing 727
fleet (at an anticipated cost of approximately $37.8 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 nonU.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 its ability to make payments on the Notes. 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
86
<PAGE> 88
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 its
ability to make payments on the Notes. 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.) 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 Merger, the Company entered into an agreement with
Mr. Kalitta which provides that any amounts recovered by the Company through the
GATX Litigation are first to be applied 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 November 19,
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
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 its ability to
make payments on the Notes.
87
<PAGE> 89
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the executive officers and directors of the
Company, their ages and positions:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
M. Tom Christopher(1)................... 51 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.................... 51 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.
The members of the Company's Board of Directors are 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 serves 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 Mr. Kalitta serves as Vice Chairman of the Company and 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 and has over 30 years of aviation experience. Concurrently with the
Merger, Mr. Reeves resigned as the Chief Operating Officer of the Company, but
continues to serve as the President of Kitty Hawk. Previously, 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 and serves in the class of directors
whose terms expire at the 1999 annual meeting of stockholders.
88
<PAGE> 90
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 also served as a director from October 1994 to
November 1997.
Ted J. Coonfield became a director of the Company in October 1994 and
serves in the class of directors whose terms expire at the 1998 annual meeting
of stockholders. Since 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.
George W. Kelsey became a director of the Company in November 1997 and
serves 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 became a director of the Company in November 1997 and
serves 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 serves
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.
89
<PAGE> 91
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of January 31, 1998
(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
BENEFICIALLY
---------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- ---------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
M. Tom Christopher(1)(2).................................... 5,948,436 35.5%
Conrad A. Kalitta(1)(2)(3).................................. 4,099,150 24.5%
Tilmon J. Reeves(1)......................................... 128,174 (4)
EXECUTIVE OFFICER:
Richard R. Wadsworth(1)..................................... 53,390 (4)
DIRECTORS:
Ted J. Coonfield(1)......................................... 600 (4)
George W. Kelsey(1)......................................... 0 --
Philip J. Sauder(1)......................................... 0 --
Lewis S. White(1)........................................... 0 --
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(8 PERSONS)............................................... 10,229,750 61.0%
</TABLE>
- ---------------
(1) The address for this stockholder is 1515 West 20th Street, Dallas/Fort
Worth International Airport, Texas 75261.
(2) Messrs. Christopher and Kalitta have entered into a voting agreement
that, among other things, provides that for 36 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.
(3) Mr. Kalitta received 4,099,150 shares of Common Stock upon consummation
of the Merger, of which 650,000 are held in escrow for 42 months to
satisfy Mr. Kalitta's indemnification obligations, if any, under the
Merger Agreement. Mr. Kalitta retains the right to vote such shares
while they are being held in escrow.
(4) Less than 1%.
DESCRIPTION OF NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated November 15, 1997, between the Company, as issuer, each Subsidiary of the
Company (other than AIC), as a Guarantor (each a "Guarantor"), and Bank One,
N.A., as Trustee and Collateral Trustee (the "Trustee"). The Indenture has been
supplemented, and the Indenture and the supplement thereto are filed as exhibits
to the Registration Statement. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
thereof pursuant to the Trust Indenture Act of 1939, as amended. Whenever
particular defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. As noted
above, in this Prospectus, unless otherwise indicated, the term "Notes" includes
both the Old Notes and New Notes. For definitions of certain capitalized terms
used in the following summary, see "-- Certain Definitions."
90
<PAGE> 92
GENERAL
The Old Notes are, and the New Notes will be, senior secured obligations of
the Company, limited to $340 million aggregate principal amount, and will mature
on November 15, 2004. The Old Notes bore interest at 9.95% from November 19,
1997, the date of issuance of the Old Notes. Interest on the New Notes will
accrue from the date of issuance of the Old Note for which a New Note is
exchanged. Interest on the New Notes will be payable in cash, semiannually in
arrears (to Holders of record at the close of business on the May 1 or November
1 immediately preceding the Interest Payment Date) on each May 15 and November
15, commencing May 15, 1998.
If by April 19, 1998, the Company has not issued the New Notes pursuant to
an effective registration statement or caused a shelf registration statement
with respect to resales of the Old Notes to be declared effective, the interest
rate on the Old Notes will increase by .5% per annum until the consummation of a
registered exchange offer or the effectiveness of a shelf registration
statement.
The New Notes will be, and the Old Notes were, issued only in fully
registered form, without coupons, in denominations of $1,000 of principal amount
and any integral multiple thereof. See "-- Book-Entry; Delivery and Form." No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
The Old Notes have been, and the Company expects the New Notes will be upon
issuance, designated eligible for trading on the PORTAL market. The Company does
not currently intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system.
GUARANTEES
The Company's obligations under the New Notes will be, and under the Old
Notes were, fully and unconditionally guaranteed on a senior basis, jointly and
severally, by the Guarantors; provided that the maximum liability of each
Guarantor must be $1.00 less than the lesser of (a) the amount which would
render the Guaranty voidable under either Section 548 or 544(b) of the
Bankruptcy Code, (b) the amount permitting avoidance of the Guaranty as a
fraudulent transfer under any applicable Fraudulent Transfer Act (as defined) or
similar law and (c) the amount permitting the Guaranty to be set aside as a
fraudulent conveyance under any applicable Fraudulent Conveyance Act (as
defined) or similar law. In addition, if the execution and delivery and/or
incurrence evidenced by the Guaranty constitutes a "distribution" under the
Michigan Business Corporation Act (the "MCBA"), the maximum liability under the
Guaranty with respect to such Guarantor shall be limited to $1.00 less than the
maximum liability which such Guarantor is permitted to incur under Section 345
of the MCBA.
Each Guaranty provides by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or other
transfer to any Person that is not an Affiliate of the Company, of all of the
Company's and each Restricted Subsidiary's (as defined herein) Capital Stock (as
defined herein) issued by, all or substantially all of the assets of, such
Guarantor (which sale, exchange or transfer is not prohibited by the Indenture).
AIC is a general partnership in which the Company owns a 60% interest. Any
amounts received by the Company with respect to its interest in AIC will, as an
asset of the Company, be available to the holders of the New Notes.
COLLATERAL
The collateral (the "Collateral") securing the Old Notes consists of, and
that securing the New Notes will consist of, (i) nine Boeing 747s, eight
Lockheed L-1011s and thirteen Boeing 727s, along with the Engines (as defined
herein); (ii) all insurance and requisition proceeds and other similar payments
with respect to each of the Aircraft; (iii) all monies and securities deposited
or required to be deposited with the Trustee; (iv) any purchase agreements and
any related documentation to the extent assignable for each of the Aircraft; (v)
all logs, records and data relating to the Aircraft; (vi) all proceeds of the
foregoing and (vii) the
91
<PAGE> 93
Pledged Securities on deposit in the Escrow Account, the Escrow Account and
certain related assets as described in the Escrow Agreement (as defined herein).
The Lien on the Collateral pursuant to the Indenture will remain in full force
and effect for so long as any Note remains outstanding except as otherwise set
forth herein.
The table below sets forth certain additional information for the Aircraft.
All Aircraft are owned by Wholly Owned Subsidiaries.
<TABLE>
<CAPTION>
APPRAISED
ENGINE AIRCRAFT YEAR MARKET
AIRCRAFT TYPE CONFIGURATION TYPE TAIL# MANUFACTURED VALUE
------------- ------------- ------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
747-132......................... freighter TJ9D-7A N625PL 1971 $ 16,880,496
747-146......................... freighter JT9D-7A N702CK 1971 18,080,668
747-146......................... passenger JT9D-7A N703CK 1970 6,871,001
747-146......................... passenger JT9D-7A N704CK 1972 7,091,705
747-269BF....................... freighter JT9D-7J N707CK 1978 37,957,596
747-269BF....................... freighter JT9D-7J N708CK 1979 37,277,714
747-2B4B........................ passenger JT9D-7J N710CK 1975 35,962,600
747-2B4B(1)..................... passenger JT9D-7J N203AE 1975 36,400,000
747-2B4B(1)..................... passenger JT9D-7J N204AE 1975 36,400,000
L-1011-200F(2).................. freighter RB211-524 N102CK 1980 17,650,000
L-1011-200F(2).................. freighter RB211-524 N103CK 1981 17,400,000
L-1011-200F(2).................. freighter RB211-524 N104CK 1980 17,250,000
L-1011-200F(2).................. freighter RB211-524 N105CK 1980 17,100,000
L-1011-200F(2).................. freighter RB211-524 N106CK 1981 17,200,000
L-1011-200F(2).................. freighter RB211-524 N107CK 1980 17,100,000
L-1011-200(2)................... passenger RB211-524 N108CK 1981 9,800,000
L-1011-200(2)................... passenger RB211-524 N109CK 1981 10,000,000
727-251......................... freighter JT8D-7B N252US 1969 5,983,543
727-251......................... freighter JT8D-15A N278US 1975 9,064,223
727-251......................... freighter JT8-15/15A N279US 1975 9,016,681
727-2J0......................... freighter JT8D-15 N281KH 1975 9,794,597
727-2J0......................... passenger JT8D-15 N284KH 1975 7,984,565
727-223......................... freighter JT8D-9A N6809 1968 5,702,537
727-223......................... freighter JT8D-9A N6827 1969 4,803,585
727-223......................... freighter JT8D-7B N6833 1969 7,452,700
727-223......................... freighter JT8D-7B N69739 1975 5,640,712
727-224......................... freighter JT8D-9A/7B N69740 1975 3,923,651
727-224......................... passenger JT8D-15 N79746 1981 5,200,000
727-223......................... freighter JT8D-15 N854AA 1976 5,033,417
727-223......................... freighter JT8D-9A/7B N855AA 1976 4,816,227
------------
Total $440,838,218
============
</TABLE>
- ---------------
(1) These Boeing 747s will be converted to freighter configuration for
approximately $25.4 million, of which approximately $16.4 million will be
from the net proceeds derived from the sale of the Old Notes. The Company
expects to fund the additional approximately $9 million of conversion costs
with internally generated funds or borrowings under its New Credit Facility.
See "Use of Proceeds" and "Business -- Aircraft Fleet -- Acquisition of
Boeing 747s."
(2) Appraised Market Value represents the mid-point of the range of values
provided.
The Company has obtained the above appraisals from Pro-Tech Advisors, Inc.
("Pro-Tech"), with respect to the Boeing 747s and Boeing 727s, and GRA Aviation
Specialists, Inc. ("GRA"), with respect to
92
<PAGE> 94
the Lockheed L-1011s. Copies of these appraisals may be obtained from the
Company, as set forth under "Available Information."
The appraised market value represents an estimate of each Aircraft's market
value as of the date of the appraisal. This appraised market value represents
the most likely trading price that, in the opinion of the appraiser, may be
generated for an aircraft under the market conditions that are perceived to
exist at the time in question. Appraised market value assumes that the aircraft
is valued for its highest, best use, that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable, and under no unusual
pressure for a prompt sale, and that the transaction would be negotiated in an
open and unrestricted market on an arm's length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers.
In making such appraisals, the appraisers assumed (i) the Aircraft have
"half-time" remaining to the next major overhauls or scheduled shop visit on the
Aircraft's airframe or major components, (ii) the Aircraft are in compliance
with all FAA airworthiness directives, (iii) the interior is in a standard
configuration, (iv) the Aircraft is in current flight operations and (v) the
Aircraft is sold for cash without seller financing. Pro-Tech performed a
physical inspection of the Aircraft and GRA relied on Pro-Tech with respect to
such inspection and with respect to a review of records with respect to each
such Aircraft. The appraised market value of each Aircraft was determined by
adjusting the foregoing for actual maintenance checks recently performed.
An estimate of appraised market value should not be relied upon as a
measure of realizable value. The appraised value assumes willing and informed
buyers under no duress. However, if it becomes necessary to foreclose upon and
sell the Collateral, it is likely that such sale would occur under duress. In
addition, there is a limited number of potential buyers of used aircraft.
Accordingly, the proceeds realized upon a sale of any Aircraft would likely be
less than the appraised value thereof. The value of the Aircraft in the event of
the exercise of remedies under the Indenture will depend on (i) market and
economic conditions, (ii) the availability of buyers, (iii) the condition of the
Aircraft and (iv) other similar factors. Accordingly, there can be no assurance
that the proceeds realized upon any such exercise pursuant to the Indenture
would be sufficient to satisfy in full payments due on the Notes. If such
proceeds are not sufficient to pay or repay all amounts due under the Notes,
holders of the Notes would bear their allocable percentage of such insufficiency
and any resultant loss.
The Aircraft were manufactured between 1968 and 1981. Twenty-three of the
Aircraft are in compliance with the Stage III noise control standards. The
remaining Aircraft must be Stage III compliant by January 1, 2000. See "Risk
Factors -- Government Regulation" and "Business -- Government Regulation."
ESCROW ACCOUNT; OFFER TO PURCHASE
Pursuant to the Indenture, the Company has purchased and pledged to the
Trustee as security for the benefit of the holders of the Old Notes
approximately $16.4 million of Pledged Securities, which the Company intends to
use to pay a portion of the estimated $25.4 million cost to modify two recently
acquired Boeing 747s to freighter configuration. See "Business -- Aircraft
Fleet -- Acquisition of Boeing 747s." Prior to the issuance of the New Notes,
the Pledged Securities will be pledged to the Trustee as security for the
benefit of the holders of the New Notes.
The Pledged Securities were purchased and subsequently pledged pursuant to
the Escrow Agreement and will be held by the Trustee in the Escrow Account.
Pursuant to the Escrow Agreement, the Company may, from time to time, direct the
Trustee to release a portion of the Pledged Securities from the Escrow Account
to pay for such conversion costs as they are incurred. The Pledged Securities
also secure the repayment of the Old Notes and will secure repayment of the New
Notes.
Under the Escrow Agreement, after the Company converts these Boeing 747s to
freighter configuration, all remaining Pledged Securities, if any, will be
promptly released from the Escrow Account and delivered to the Company.
On the date that is 18 months after the Closing Date, the chief financial
officer of the Company shall in good faith determine the value of the assets
remaining in the Escrow Account, if any. If such value (as so
93
<PAGE> 95
determined) exceeds $5 million, the Company will make an Offer to Purchase (as
defined herein) New or Old Notes having a principal amount equal to such value
(as so determined). On the Business Day immediately prior to the Payment Date
(as defined herein) with respect to such Offer to Purchase, the Trustee will
release all assets then held in the Escrow Account to the Company, which assets,
to the extent necessary, will be used to consummate such Offer to Purchase or,
if not needed for such purpose, may be used by the Company for general corporate
purposes. If such value (as so determined) is less than $5 million, the Trustee
will promptly release all assets then held in the Escrow Account to the Company,
and the Company will be entitled to liquidate such assets and use such assets
for general corporate purposes.
AIRCRAFT REGISTRATION
The Company will be required, except under certain circumstances, to keep
the Aircraft registered under the provisions of the Federal Aviation Act of
1958, as amended (the "Aviation Act"), and to record the Indenture at the FAA
registry and, if applicable, the aircraft registry of other aeronautics
authorities. Such recordation of the Indenture and certain other documents
(including supplements to the Indenture) will give the Trustee a perfected first
priority security interest in each of the Aircraft whenever any such Aircraft is
located in the United States or any of its territories and possessions and, with
certain exceptions, in those jurisdictions that have ratified or adhere to the
Convention on the International Recognition of Rights in Aircraft (the
"Convention"). The operation of the Aircraft by the Company (and by any lessee
of the Company) will be geographically limited to Permitted Countries (as
defined herein). Although the Company has no current intention to do so, the
Company, or any subsequent lessee of the Aircraft, will also have the right,
subject to certain conditions, to register, at its own expense, any of the
Aircraft in the Permitted Countries. Prior to any such change in the
jurisdiction of registry, the Trustee shall have received an opinion of counsel
to the effect that (i) the laws of the new country of registration will
recognize the Company's right of ownership and repossession and will give effect
to the security interest in the Aircraft created by the Indenture and (ii) the
right to repossession by the Trustee upon the exercise of remedies is valid
under the laws of the country of registration. See "-- Maintenance, Lease and
Possession."
MAINTENANCE, LEASE AND POSSESSION
The Company shall or shall cause each Aircraft to be, at its expense or at
the expense of the Restricted Subsidiary that owns such Aircraft (the "Owner"),
maintained, serviced, and repaired so as to keep each Aircraft in as good
operating condition as on the Closing Date, ordinary wear and tear excepted, and
shall cause the airworthiness certification thereof to be maintained in good
standing at all times (other than during temporary periods of repair,
maintenance, modification, storage or grounding) under the Aviation Act,
including compliance with all then applicable and effective Noise Regulations
and FAA Directives; provided that in the event the Company or any Owner leases
any of its Aircraft in accordance with the terms of the Indenture to a Permitted
Air Carrier organized and operating under the laws of a Permitted Country (as
defined herein), such lease shall provide that the lessee shall (i) throughout
the terms of such lease, inspect, service, repair, overhaul, and test the
Aircraft in compliance with such lessee's maintenance program as approved by the
applicable governmental authority and maintain the airworthiness certification
of such Aircraft in such Permitted Country in good standing throughout the term
of the lease; and (ii) return the Aircraft at the end of the term of the lease
in an operating condition sufficient to qualify for a United States standard FAA
certificate of airworthiness, including compliance with all then applicable and
effective Noise Regulation and FAA Service Bulletins and Directives.
Notwithstanding the foregoing, if an FAA Service Bulletin, Directive or the
Noise Regulation require the Owner to maintain a specified portion of its fleet
in a given condition, the Owner must maintain such portion of the Aircraft in
such condition. The Company shall be obligated, at its expense, to replace, or
cause to be replaced, all parts (other than severable parts added at the option
of the Company or any Restricted Subsidiary and obsolete or unsuitable parts
that the Company is permitted to remove to the extent described below) that may
from time to time be incorporated or installed in or attached to any aircraft
and that may become worn out, lost, stolen, destroyed, seized, confiscated,
damaged beyond repair or rendered permanently unfit for use. The Company or any
Owner will have the right to make (or cause to be made) such alterations and
modifications in and additions to (including removal of parts from) each
Aircraft as the Company or any Owner deems desirable; provided that no such
alteration,
94
<PAGE> 96
modification, addition, or removal shall materially diminish the value, utility,
or condition of such Aircraft in the service in which it is operated by the
Company or any Restricted Subsidiary or impair the airworthiness thereof.
The Company or any Owner may sell, lease or transfer any Aircraft or Engine
to any Restricted Subsidiary (other than any Excluded Restricted Subsidiary (as
defined herein)) or to the Company, and may lease any Aircraft or Engine to a
Permitted Air Carrier; provided that the Trustee shall have received an opinion
(or opinions) of counsel to the effect that, among other things, the Lien (as
defined herein) pursuant to the Indenture continues to be perfected and in full
force and effect, the Indenture continues to be enforceable against the parties
thereto, and the Trustee maintains its right to repossession thereunder, in each
case pursuant to applicable law. In addition, subject to certain limitations,
the Company or any Restricted Subsidiary (and any permitted lessee) may (i)
transfer possession of any Aircraft pursuant to "wet lease" or similar
arrangements, in each case whereby the Company or any Restricted Subsidiary (or
such permitted lessee) maintains operational control of the Aircraft, (ii)
transfer possession of any Aircraft or Engine, other than by lease, to the
United States Government and transfers of possession in connection with
maintenance or modifications, (iii) transfer possession of any Engine and any
parts from time to time installed on any Aircraft or Engine, other than by
lease, through transfers in connection with interchange and pooling arrangements
with certified "air carriers" within the meaning of the Aviation Act, and
transfers of possession to FAA licensed repair stations, or (iv) install one or
more of the Engines on airframes owned, mortgaged, leased, or subject to
conditional purchase by, the Company or any Restricted Subsidiary (or any such
permitted lessee); provided that such Engines shall not become subject to any
Lien other than the Lien securing the Notes under the Indenture notwithstanding
the installation thereof on such airframe. If any Aircraft is leased or the
possession is otherwise transferred, such Aircraft will remain subject to the
Lien under the Indenture. Other than pursuant to a "wet lease" or similar
arrangement, no lease of any Aircraft shall be for a term in excess of five
years beyond the maturity of the Notes. If the lease is for a period in excess
of three months, the Owner shall grant to the Trustee, for the equal and ratable
benefit of the Holders of the Notes, a security interest in such lease and if
the lease is for a period in excess of two years, shall deliver a legal opinion
to the Trustee stating (subject to customary qualifications) that such security
interest has been created and perfected under the law of the United States or a
state of the United States; provided that at all times, other than when an Event
of Default (as defined herein) has occurred and is continuing, the Company or
any Affiliate (x) shall be entitled to receive and retain all payments made
pursuant to the lease; and (y) shall be entitled to exercise (to the exclusion
of the Trustee) all rights and remedies of the "lessor" under the lease and
grant such consents, waivers and enter into such amendments to the lease as are
consistent with the provisions of the Indenture as the Company may determine
appropriate in its sole discretion. Nothing permitted herein shall be deemed an
"Asset Sale."
LIMITATION ON COLLATERAL SALES; EVENT OF LOSS
Neither the Company nor any Owner may transfer, convey, sell, lease or
otherwise dispose (other than by lease, in compliance with the Maintenance,
Lease and Possession covenant) of (a "Sale") any Aircraft or Engine unless (i)
the Owner thereof receives (x) consideration, consisting solely of cash, at the
time of such Sale at least equal to the fair market value of the Aircraft or
Engine disposed of (determined by the chief financial officer of the Company in
good faith) or (y) an Aircraft or Engine having a value at least equal to, and
in as good operating condition and repair and as airworthy as, the Aircraft or
Engine subject to the Sale, assuming such Aircraft or Engine, as the case may
be, was in the condition and repair required by the Indenture immediately prior
to such Sale (determined by the chief financial officer of the Company in good
faith). If any Owner consummates a Sale for cash, or if an Event of Loss (as
defined herein) occurs, with respect to any Aircraft or Engine, the Trustee will
receive and hold, and if received by the Owner, the Owner will pay over to the
Trustee, the proceeds of such Sale or Event of Loss. The Owner may, within 365
days after such Sale or Event of Loss, subject to the Lien created pursuant to
the Indenture, substitute an Aircraft or Engine, having a value at least equal
to, and in as good operating condition and repair and as airworthy as, the
Aircraft or Engine subject to the Sale or Event of Loss, assuming such Aircraft
or Engine was in the condition and repair required by the Indenture immediately
prior to the occurrence of such Sale or Event of Loss (determined by the chief
financial officer of the Company in good faith), and the Trustee shall, upon
receipt
95
<PAGE> 97
of evidence of such substitution, pay to the Owner the proceeds of such Sale or
Event of Loss and any related additional amounts held by it. In the event the
Company elects not to replace such Aircraft (or in the event such Aircraft or
Engine is not replaced within 365 days after such Sale or Event of Loss), the
Trustee will refund to the Owner, and the Company will be required to apply, an
amount equal to the proceeds received from such Sale or Event of Loss to make an
Offer to Purchase Notes in accordance with "Events of Loss" below; provided that
with respect to the proceeds of any Sale or Event of Loss with respect to an
Aircraft, in no event shall any Owner be required to so apply, and the Owner
shall be permitted to retain, amounts, if any, in excess of the initial
appraised value of such Aircraft. Notwithstanding the foregoing, if the Owner
consummates a Sale, or an Event of Loss occurs, with respect to an Engine alone,
the Owner must replace such Engine with another engine suitable for installation
and use on the Aircraft, and having a value at least equal to and in as good
operating condition as, the Engine subject to the Sale or Event of Loss,
assuming such Engine was of the value and in the condition and repair required
by the Indenture immediately prior to the occurrence of such Sale or Event of
Loss (as determined by the chief financial officer of the Company in good
faith). Any cash received in connection with a Sale or an Event of Loss shall be
held by the Trustee and invested as directed by the Company in Cash Equivalents
or Temporary Cash Investments (as defined herein) until applied in accordance
with this covenant. Upon payment to the Trustee of the proceeds from the Sale or
an Event of Loss (as defined herein) with respect to an Aircraft as required by
this "Limitation on Collateral Sales; Event of Loss" covenant, the Lien created
pursuant to the Indenture with respect to such Aircraft (but not the proceeds
with respect thereto) shall terminate.
SUBSTITUTION OF COLLATERAL
In the event any Owner requests the release of any Aircraft or Engine from
the Lien pursuant to the Indenture, the Trustee shall be required to immediately
release such Aircraft or Engine from such Lien upon fulfillment of the following
conditions: (i) the Owner delivers a written request to the Trustee, requesting
such release and specifically describing the Aircraft or Engine so to be
released and the replacement Aircraft or replacement Engine therefor; (ii) the
replacement Aircraft or replacement Engine has a value at least equal to, and in
as good operating condition and repair and as airworthy as the Aircraft or
Engine subject to the substitution (determined by the chief financial officer of
the Company in good faith); (iii) the Owner delivers to the Trustee a
supplemental indenture subjecting the replacement Aircraft or replacement Engine
to the Lien pursuant to the Indenture; (iv) the Owner delivers an opinion of
counsel that the Trustee has a valid, perfected, first priority security
interest in the replacement Aircraft or replacement Engine; and (v) the
replacement Aircraft or replacement Engine otherwise complies with the terms and
provisions of the Indenture. Notwithstanding the foregoing, with respect to any
substitution of Collateral, or any series of related substitutions of
Collateral, where the initial appraised value of such Collateral exceeds $25
million, the Company shall be required to obtain one or more appraisals from an
aircraft appraisal firm of national standing. Such appraisal(s) must indicate
that the value (or fair value or similar measure) of the replacement Collateral
is at least equal to the value (or fair value or similar measure) of the
Collateral which is being replaced.
RELEASE OF COLLATERAL
If at any time, or from time to time, the aggregate principal amount of all
Notes outstanding is less than $340 million and no Event of Default has occurred
and is continuing, the Company shall be entitled to release a portion of the
Collateral, so long as the aggregate value of the Collateral so released does
not exceed the aggregate principal amount of all Notes which are no longer
outstanding (in the good faith opinion of the chief financial officer of the
Company). The Company will be entitled to substitute additional Collateral in
connection with any such release (in accordance with "Substitution of
Collateral" above) if the aggregate value of Collateral released exceeds the
aggregate principal amount of Notes which are no longer outstanding. Upon
delivery of a certificate regarding such good faith opinion or the appraisal
referred to in the immediately succeeding sentence, the Trustee shall
immediately execute and deliver all releases and certificates necessary or
desirable to release the such Collateral from the Lien created pursuant to the
Indenture. Notwithstanding the foregoing, in the event of any release of
Collateral, or any series of related releases of Collateral, where the initial
appraised value of such Collateral exceeds $10 million, the Company shall be
required to obtain one or
96
<PAGE> 98
more appraisals from an aircraft appraisal firm of national standing. Such
appraisal(s) must indicate that the aggregate value (or fair value or similar
measure) of the Collateral released.
OPTIONAL REDEMPTION
The Old Notes are and the New Notes will be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, on or after
November 15, 2001 and prior to maturity, upon not less than 30 nor more than 60
days' prior notice mailed by first class mail to each Holder's last address as
it appears in the Security Register, at the following Redemption Prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on an Interest Payment Date), if redeemed during
the 12-month period commencing November 15, of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001..................................................... 104.975%
2002..................................................... 102.488
2003..................................................... 100.000
</TABLE>
In addition, at any time prior to November 15, 2000, the Company may redeem
up to 35% of the principal amount of any Notes with the proceeds of one or more
Public Equity Offerings (as defined herein), at any time or from time to time,
at a Redemption Price (expressed as a percentage of principal amount) of
109.95%, plus accrued and unpaid interest to the Redemption Date (subject to the
rights of Holders of record on the relevant Regular Record Date that is prior to
the Redemption Date to receive interest due on an Interest Payment Date);
provided that at least $150 million aggregate principal amount of all Notes
remain outstanding after each such redemption.
A portion of the Collateral will be subject to release upon any such
optional redemption. See "-- Release of Collateral."
Furthermore, if more than 90% of the outstanding principal amount of all
Notes are tendered pursuant to one or more Offers to Purchase pursuant to the
"Limitation on Assets Sales" or "Repurchase of Notes Upon a Change of Control"
covenants (described herein), the balance of any Notes will be redeemable, at
the Company's option, in whole but not in part, at any time thereafter, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each Holder's last address as it appears in the Security Register, at a
Redemption Price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Redemption Date (subject to the right of Holders
of record on a record date that is on or prior to the Redemption Date to receive
interest due on the next Interest Payment Date).
In the case of any partial redemption, selection of any Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which any Notes may be
listed or, if Notes are not listed on a national securities exchange, by lot or
by such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate; provided that no Note of $1,000 in principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A replacement in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of an original Note.
RANKING
The Old Notes were and the New Notes will be senior secured obligations of
the Company ranking pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Company (except to the extent of any
Collateral) and senior in right of payment to all existing and future
subordinated indebtedness of the Company. The Old Notes were, and the New Notes
will be, secured by certain Collateral as described in "-- Collateral" above.
After giving pro forma effect to the Transactions and the Refinancing,
97
<PAGE> 99
on a consolidated basis, as of September 30, 1997, the Company and its
Subsidiaries would have had approximately $396 million of indebtedness
outstanding, including approximately $55.9 million of secured indebtedness
(consisting of the Term Loan and approximately $10 million of other
indebtedness) and no subordinated indebtedness. The Company would also have had
unused senior secured borrowing capacity of approximately $28.7 million under
its New Credit Facility. As of January 31, 1998, there was no outstanding
balance under the New Credit Facility. See "Capitalization" and "Description of
Other Indebtedness." Lenders under the New Credit Facility and the Term Loan
will have prior claims with respect to certain assets of the Company. See
"Description of Other Indebtedness." "Risk Factors -- Substantial Leverage and
Debt Service." In addition, the Kalitta Companies have been in default with
respect to their prior Indebtedness (which was repaid with the proceeds derived
from the sale of the Old Notes and the Common Stock Offering). "Risk
Factors -- Recent Financial Performance of the Kalitta Companies."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition (as defined herein) by a Restricted Subsidiary and not
Incurred in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP (defined herein); provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person that is not a Restricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted Subsidiaries
by such Person during such period; (ii) solely for the purposes of calculating
the amount of Restricted Payments that may be made pursuant to clause (C) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or all or substantially all of the
property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted
(unless such permission could, as determined by the chief financial officer of
the Company in good faith, be readily and reasonably obtained) by the operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Restricted
Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to
Asset Sales (as defined herein); (v) except for purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (C) of the
first paragraph of the "Limitation on Restricted Payments" covenant described
below, any amount paid or accrued as dividends on Preferred Stock of the Company
or any Restricted Subsidiary owned by Persons other than the Company and any of
its Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
98
<PAGE> 100
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided that, with
respect to the Company, ownership of Capital Stock (as defined herein)
representing more than 10% of the voting power of the Company's Capital Stock
shall be deemed control.
"Aircraft" means each of the Airframes (as defined herein) together with
the Engines relating thereto and hush kits, if any, installed thereon, upon
which the Trustee has been granted a security interest and mortgage lien by the
Owner thereof pursuant to the Indenture and any Airframes which may from time to
time be substituted for such Airframes pursuant to the terms of the Indenture.
"Airframes" means each of the nine Boeing 747 Aircraft, eight Lockheed
L-1011 Aircraft and thirteen Boeing 727 Aircraft (except Engines or engines from
time to time installed on such Aircraft) initially pledged to secure the
Company's obligations under the Indenture and the Notes and any Aircraft (except
Engines or engines from time to time installed on such Aircraft) which may from
time to time be substituted for such Aircraft (except Engines or engines from
time to time installed on such Aircraft) pursuant to the Indenture.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition, outside the
ordinary course of business, by the Company or any of its Restricted
Subsidiaries (other than to the Company or another Restricted Subsidiary) of (i)
all or substantially all of the Capital Stock of any Restricted Subsidiary of
the Company or (ii) all or substantially all of the assets that constitute a
division or line of business of the Company or any of its Restricted
Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale/leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted Subsidiary
(other than director's qualifying shares), (ii) all or substantially all of the
property and assets of an operating unit or business of the Company or any of
its Restricted Subsidiaries or (iii) any other property and assets of the
Company or any of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in each case, that is
not governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of assets of the Company; provided that "Asset Sale"
shall not include (a) sales or other dispositions of inventory, receivables and
other current assets, (b) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received would satisfy clause
(B) of the "Limitation on Asset Sales" covenant, (c) leases of aircraft,
including the Aircraft and any engines, including the Engines, pursuant to the
provisions of the "Maintenance, Lease and Possession of Aircraft Transfer"
covenant or similar arrangements, including pooling or interchange arrangements
as described therein, (d) sales, transfers or other dispositions of assets that
have a fair market value of less than $20 million from the Closing Date through
the final stated maturity of the Notes, (e) Sales
99
<PAGE> 101
or Events of Loss and (f) sales of collateral which is pledged to secure the New
Credit Facility or Term Loan, so long as the proceeds are applied to reduce the
aggregate Indebtedness thereunder.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Aviation Act" means the Federal Aviation Act of 1958, as amended, and
applicable regulations thereunder.
"Borrowing Base" shall have the meaning given such term in the New Credit
Facility, as in effect from time to time.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Cash Equivalents" means (i) United States dollars or foreign currency that
is readily exchangeable into United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than 12 months
from the date of acquisition, (iii) certificates of deposit and Eurodollar time
deposits with maturities of 12 months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 12 months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
the underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, and (v) commercial paper having the highest rating
obtainable from Moody's Investor Service, Inc. or Standard & Poor's Corporation
and in each case maturing not more than 90 days after the date of acquisition.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock (as defined herein)
of the Company on a fully diluted basis and such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, than is held by the Existing Stockholders (as defined
herein) on such date or (ii) individuals who on the Closing Date constitute the
Board of Directors (together with any new directors whose election by the Board
of Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Change of Control Triggering Event" means both the occurrence of a Change
of Control and a Rating Decline (as defined herein).
"Closing Date" means the date on which the Old Notes are originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense (as defined herein), (ii) income taxes (other than income taxes (either
100
<PAGE> 102
positive or negative) attributable to extraordinary and nonrecurring gains or
losses or sales of assets), (iii) depreciation expense, (iv) amortization
expense and (v) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), all as determined on
a consolidated basis for the Company and its Restricted Subsidiaries otherwise
in conformity with GAAP; provided that, if any Restricted Subsidiary is not a
Wholly Owned (as defined herein) Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced hereunder) by an amount
equal to (A) the amount of the Adjusted Consolidated Net Income attributable to
such Restricted Subsidiary multiplied by (B) the percentage ownership interest
in the income of such Restricted Subsidiary not owned on the last day of such
period by the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements (as defined
herein); and Indebtedness that is Guaranteed or secured by the Company or any of
its Restricted Subsidiaries) and all but the principal component in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by the Company and its Restricted Subsidiaries during such period;
excluding, however, (i) any amount of such interest of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof) and (ii) any premiums, fees
and expenses (and any amortization thereof) payable in connection with the
offering of the Notes and the establishment of the New Credit, Facility and the
Term Loan and the other transactions contemplated by and relating to the
Transactions and Refinancings, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries (as defined herein)) in
conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company (which shall be as of a date not more
than 90 days prior to the date of such computation, and which shall exclude
Unrestricted Subsidiaries), less any amounts attributable to Disqualified Stock
(as defined herein) or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company or
any of its Restricted Subsidiaries, each item to be determined in conformity
with GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of any Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
(as defined herein) of any Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes other than Capital
Stock issued to employees; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of any Notes shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital
101
<PAGE> 103
Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of any Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Eligible Aircraft" means one or more aircraft that would be useful in the
Company's business and having a value (or fair value or similar measure)
determined by an aircraft appraisal firm of national standing equal to or in
excess of the price paid therefor by the Company.
"Engines" means for each of the Boeing 747 Airframes, each of the 36 Pratt
& Whitney JT9D-7A Engines and each of the 20 JT9D-7J Engines relating thereto,
as specified in the Indenture and any engines which may from time to time be
substituted for such engines pursuant to the Indenture and with respect to the
Boeing 727 Airframes means each of the 9 Pratt & Whitney JT8D-7B Engines, each
of the 3 JT8D-15A Engines, each of the 3 JT8D-15/15A Engines, each of the 12
JT8D15 Engines, each of the 6 JT8D-9A Engines and each of the 6 JT8D-9A/7B
Engines relating thereto, as specified in the Indenture and any engines which
may from time to time be substituted for such engines pursuant to the Indenture
and with respect to the Lockheed L-1011 Airframes, each of the 24 Rolls Royce
RB211-524 Engines relating thereto, as specified in the Indenture and any
engines which may from time to time be substituted for such Engines pursuant to
the Indenture.
"Escrow Account" means an account established with the Trustee pursuant to
the terms of the Escrow Agreement for the deposit of the Pledged Securities to
be purchased by the Company with the net proceeds from the sale of the Old
Notes.
"Escrow Agreement" means the Escrow and Security Agreement, dated as of the
Closing Date, made by the Company and the Guarantors in favor of the Trustee,
governing the disbursement of funds from the
Escrow Account, as such agreement may be amended, restated, supplemented or
otherwise modified from time to time.
"Excluded Restricted Subsidiary" means any Restricted Subsidiary
principally engaged in a business similar to that of the Company or any of its
Restricted Subsidiaries or any business reasonably related thereto and domiciled
outside the United States of America if the issuance of a Guarantee by such
Subsidiary would, as determined in good faith in a resolution of the Board of
Directors, create a material tax disadvantage or would be illegal under
applicable law.
"Existing Stockholders" means Mr. M. Tom Christopher, his spouse and
children and any trust the sole beneficiaries of which consist of the foregoing
persons.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"Fraudulent Conveyance Act" means any statute based on or substantially
similar to the Uniform Fraudulent Conveyance Act.
"Fraudulent Transfer Act" means any statute based on or substantially
similar to the Uniform Fraudulent Transfer Act.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. The numbers used to calculate all ratios and perform all
computations contained or referred to in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without
102
<PAGE> 104
giving effect to (A) the amortization of any expenses incurred in connection
with the offering of the Notes and (B) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 and 17.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
terms and are entered into in the ordinary course of business), to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in clause (i) or (ii) above or
(v), (vi) or (vii) below) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if drawn
upon, to the extent such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables (as defined herein) and
accrued expenses, (v) all Capitalized Lease Obligations, (vi) all Indebtedness
of other Persons secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided that (A) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
then remaining unamortized portion of the original issue discount of such
Indebtedness as determined in conformity with GAAP, (B) money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall be deemed not to be
"Indebtedness" and (C) Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Coverage Ratio" means, on any Transaction Date (as defined
herein), the ratio of (i) the aggregate amount of Consolidated EBITDA for the
then most recent four fiscal quarters prior to such Transaction Date for which
reports have been filed with the Commission pursuant to the "Commission Reports
and Reports to Holders" covenant (the "Four Quarter Period") to (ii) the
aggregate Consolidated Interest Expense during such Four Quarter Period. In
making the foregoing calculation, (A) pro forma effect shall be given to any
Indebtedness Incurred or repaid during the period (the "Reference Period")
commencing on the first day of the Four Quarter Period and ending on the
Transaction Date (other than
103
<PAGE> 105
Indebtedness Incurred or repaid under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any predecessor revolving
credit or similar arrangement) in effect on the last day of such Four Quarter
Period unless any portion of such Indebtedness is projected, in the reasonable
judgment of the senior management of the Company, to remain outstanding for a
period in excess of 12 months from the date of the Incurrence thereof), in each
case as if such Indebtedness had been Incurred or repaid on the first day of
such Reference Period; (B) Consolidated Interest Expense attributable to
interest on any Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months or, if shorter, at least equal to the
remaining term of such Indebtedness) had been the applicable rate for the entire
period; (C) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition) that occur during such Reference Period as if they had
occurred and such proceeds had been received on the first day of such Reference
Period; and (D) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into the Company or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that, to the
extent that clause (C) or (D) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed for which financial information is available.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement, including, without limitation, any fuel hedging or
fuel protection agreement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall be deemed not to exceed the aggregate amount of
Investments previously made in such Person valued at the time such Investments
were made less the net reduction of such Investments. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
104
<PAGE> 106
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest), but excluding any operating lease.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or Cash Equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or Cash
Equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or Cash
Equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or Cash
Equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"New Credit Facility" means the $100 million senior secured revolving
credit facility with Wells Fargo Bank (Texas), National Association,
individually and as agent for other lenders, as amended, refinanced or
substituted from time to time; provided that Affiliates of the Company cannot
constitute majority lenders thereunder.
"Noise Regulations" means FAA noise standard regulations primarily
promulgated under the Airport Noise and Capacity Act of 1990.
"Note Guarantee" means the Guarantee by the Guarantors of the Company's
obligations under all the Notes and the Indenture and any other Guarantee of
such obligations by any Person.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and
105
<PAGE> 107
(vii) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall be
in a principal amount of $1,000 or integral multiples thereof. On the Payment
Date, the Company shall (i) accept for payment on a pro rata basis Notes or
portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of $1,000
or integral multiples thereof. The Company will publicly announce the results of
an Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Permitted Air Carrier" means (i) a United States "air carrier" within the
meaning of the Aviation Act or (ii) an air carrier which, among other things,
(A) is duly organized and operating pursuant to a license or authorization
issued under the laws of any Permitted Country and (B) will perform or cause to
be performed maintenance or engine preventative maintenance, and inspections for
such Aircraft, Airframe or any Engine in accordance with standards which are
approved by the aeronautical authority in the country or registration of the
Aircraft.
"Permitted Country" means, with respect to any Aircraft, any country for
which (i) an insurer of national or international standing has provided
significant insurance coverage for such Aircraft or (ii) the United States
government has assumed liability, including, without limitation, a significant
portion of the cost of replacing such Aircraft, for operation of such Aircraft
within such country.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary (other than an Excluded Restricted Subsidiary) or a Person
which will, upon the making of such Investment, become a Restricted Subsidiary
(other than an Excluded Restricted Subsidiary) or be merged or consolidated with
or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary (other than an Excluded Restricted
Subsidiary); provided that such person's primary business is related, ancillary
or complementary to the businesses of the Company or its Restricted Subsidiaries
on the date of such Investment; (ii) Cash Equivalents and Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments; (v) loans or advances to employees of the Company or
any Restricted Subsidiary not to exceed $1 million at any time outstanding; (vi)
Investments of up to $25 million in Permitted Joint Ventures (as defined
herein); and (vii) Investments in Excluded Restricted Subsidiaries the aggregate
amount of which does not at any time outstanding exceed 10% of Adjusted
Consolidated Net Tangible Assets.
"Permitted Joint Ventures" means any Unrestricted Subsidiary or any other
Person in which the Company or a Restricted Subsidiary owns an ownership
interest, directly or indirectly (other than a Restricted Subsidiary) and whose
business is related or ancillary to the business of the Company or any of its
Restricted Subsidiaries at the time of determination.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as
106
<PAGE> 108
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on Indebtedness"
covenant described below, to finance the cost (including the cost of improvement
or construction) of the item of property or assets subject thereto and such Lien
is created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property, (b) the principal amount of the Indebtedness secured
by such Lien does not exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any property or assets other than such item of property or
assets and any improvements on such item; (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of business of
the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of Capital Stock or Indebtedness
of, any Person existing at the time such Person becomes, or becomes a part of,
any Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets acquired; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary that does not
give rise to an Event of Default; (xiv) Liens securing reimbursement obligations
with respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (xv)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(xvi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward contracts,
options, future contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Closing Date; (xviii) Liens to secure Indebtedness incurred pursuant to
clause (vii) of the second paragraph of the "Limitation on Indebtedness"
covenant; provided the assets securing such Indebtedness were or are acquired
with the proceeds of such Indebtedness; (xix) Liens on or sales of receivables;
and (xx) Liens created pursuant to the terms of any aircraft lease or any lease
or pooling or interchange arrangement relating to an Engine incurred in
compliance with the "Maintenance, Lease and Possession" covenant; provided that
no such Liens exist with respect to the Collateral except as otherwise permitted
pursuant to the terms hereof.
"Pledged Securities" means the U.S. government securities purchased by the
Company and held in the Escrow Account in accordance with the Escrow Agreement.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized United States securities rating agency or
107
<PAGE> 109
agencies, as the case may be, selected by the Company, which shall be
substituted for S&P or Moody's or both, as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: A,
Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the
equivalent of any such category of S&P or Moody's used by another Rating Agency.
In determining whether the rating of the Notes has decreased by one or more
gradations, gradations with Rating Categories (+ and -- for S&P; 1, 2 and 3 for
Moody's; or equivalent gradations for another Rating Agency) shall be taken into
account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as
well as from BB-- to B+, will constitute a decrease of one gradation).
"Rating Date" means the date which is 90 days prior to the earlier of (x)
Change of Control and (y) public notice of the occurrence of a Change of Control
or of the intention by the Company or any Person to effect a Change of Control.
"Rating Decline" means the decrease (as compared with the Rating Date) by
one or more gradations (including gradations within the Rating Categories as
well as between Rating Categories) of the rating of any Notes by either Rating
Agency on, or within six months after, the date of public notice of the
occurrence of a Change of Control or of the intention of the Company or of any
Person to effect a Change of Control (which period shall be extended for so long
as the rating of the Notes is under publicly announced consideration for
possible downgrade by any of the Rating Agencies); provided, however, that in
the event the Notes are not rated by two Rating Agencies at the time a Change of
Control occurs, a Rating Decline shall be deemed to have occurred.
"Refinancings" means the refinancing of substantially all of the currently
outstanding indebtedness of the Company and the Kalitta Companies with a portion
of the net proceeds derived from the Old Note Offering, the Common Stock
Offering and the Term Loan.
"Released Indebtedness" means, with respect to any Asset Sale, Indebtedness
(i) which is owed by the Company or any Restricted Subsidiary (the "Obligors")
prior to such Asset Sale, (ii) which is assumed by the purchaser or any
affiliate thereof in connection with such Asset Sale and (iii) with respect to
which the Obligors receive written, unconditional releases from each creditor,
no later than the closing date of such Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Service and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits
108
<PAGE> 110
maturing within 180 days of the date of acquisition thereof issued by a bank or
trust company which is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States of
America, and which bank or trust company has capital, surplus and undivided
profits aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America with a rating
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P, and (v) securities
with maturities of six months or less from the date of acquisition issued or
fully and unconditionally guaranteed by any state, commonwealth or territory of
the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or Moody's.
"Term Loan" means the $45.9 million term loan with Wells Fargo Bank
(Texas), National Association, individually and as agent for other lenders,
entered into as of the Closing Date, together with any other loan or credit
agreements entered into from time to time with one or more banks or other
lenders, for the purpose of refinancing or refunding such Term Loan in an amount
not to exceed $45.9 million (plus premiums, accrued interest, fees and
expenses).
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transactions" means the sale of the Old Notes, the Merger and the Common
Stock Offering.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation, (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
109
<PAGE> 111
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law and up to 5% of the Capital Stock of such Subsidiary) by such
Person or one or more Wholly Owned Subsidiaries of such Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes, the Guarantees
and Indebtedness existing on the Closing Date); provided that the Company and
any Restricted Subsidiary may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Interest Coverage Ratio would be at least 2.25:1 in the case of
an Incurrence during the period ending on the second anniversary of the Closing
Date and 2.75:1 in the case of any subsequent Incurrence.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of the Company or any Guarantor outstanding at any time in an
aggregate principal amount not to exceed the greater of (A) $100 million, less
any amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below and (B) the Borrowing Base;
(ii) Indebtedness owed (A) to the Company evidenced by an unsubordinated
promissory note or (B) to any Restricted Subsidiary; provided that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to the
Company or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are used
to refinance or refund, then outstanding Indebtedness (other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi) or (viii) of this paragraph) and any
refinancing thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, fees and expenses); provided that
Indebtedness the proceeds of which are used to refinance or refund any Notes or
Indebtedness that is pari passu with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made pari passu with, or subordinate in right of payment to, the
remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no event
may Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A)
in respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (a) are designed solely to protect the Company or
its Restricted Subsidiaries against fluctuations in foreign currency exchange
rates, fuel rates, or interest rates and (b) do not increase the Indebtedness of
the obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates, fuel rates, or interest rates or by reason of
fees, indemnities and compensation payable thereunder, and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case
110
<PAGE> 112
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal amount
not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; (v) Indebtedness of
the Company, to the extent the net proceeds thereof are promptly (A) used to
purchase Notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the Notes as described below under
"Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such Indebtedness
is permitted by and made in accordance with the "Issuance of Guarantees by New
Restricted Subsidiaries" covenant described below; (vii) Indebtedness of the
Company or any Guarantor Incurred to finance the cost (including the costs of
installation) of acquiring aircraft, engines, spare engines, hush kits, spare
parts or equipment attached thereto or any other aircraft-related asset used or
useful in the business of the Company or any of its Restricted Subsidiaries on
the date of such Incurrence (including acquisitions by way of a Capitalized
Lease and any acquisitions of the Capital Stock of a Person that becomes a
Restricted Subsidiary, to the extent of the fair market value of the aircraft,
engines, equipment related thereto and such aircraft-related assets of such
Person at the time of such Incurrence); provided that such Indebtedness is
created solely for the purpose of financing the costs (including transaction
costs and the costs of improvement or construction) of property or assets and is
Incurred prior to, at the time of or within 12 months after, the later of the
acquisition, the completion of construction or the commencement of full
operation of such property or assets, and (b) the principal amount of such
Indebtedness does not exceed 100% of such costs; (viii) the Term Loan; and (ix)
Indebtedness not to exceed $50 million in aggregate principal amount at any one
time outstanding.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens, letters of
credit or other obligations supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary), (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to any Notes or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) above being collectively
"Restricted Payments") if, at the time
111
<PAGE> 113
of, and after giving effect to, the proposed Restricted Payment: (A) a Default
or Event of Default shall have occurred and be continuing, (B) the Company could
not Incur at least $1 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount
of such loss) (determined by excluding income resulting from transfers of assets
by the Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed with the Commission or
provided to the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant plus (2) the aggregate Net Cash Proceeds received by the
Company after the Closing Date from the issuance and sale permitted by the
Indenture of its Capital Stock (other than Disqualified Stock) to a Person who
is not a Subsidiary of the Company, including an issuance or sale permitted by
the Indenture of Indebtedness of the Company for cash subsequent to the Closing
Date upon the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a Person who is not
a Subsidiary of the Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Disqualified Stock
or any options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) plus (3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary or
from the Net Cash Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in the calculation
of Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary plus (4) $5 million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to Notes in exchange for, or
out of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments acquired in exchange for or out of the
proceeds of a substantially concurrent issuance of Capital Stock (other than
Disqualified Stock) of the Company; (vii) the repurchase, redemption,
retirement, defeasance or other acquisition for value of subordinated
Indebtedness of the Company in the event of a change of control (to the extent
required pursuant to the terms of such Indebtedness when Incurred), if prior
thereto or contemporaneously therewith the Company has made or makes an Offer to
Purchase Notes and has repurchased and accepted and paid for all Notes validly
tendered and not withdrawn with respect thereto; or (viii) the repurchase,
redemption or other acquisition of Capital Stock of the Company issued to
employees of the Company or any Restricted
112
<PAGE> 114
Subsidiary, for consideration not to exceed $1 million in any twelve month
period and $3 million in aggregate; provided that, except in the case of clauses
(i) and (iii), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set forth
therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
Notes, or Indebtedness that is pari passu with Notes, then the Net Cash Proceeds
of such issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Any Restricted Payments made other than in cash shall be valued at fair
market value. The amount of any Investment "outstanding" at any time shall be
deemed to be equal to the amount of such Investment on the date made, less the
return of capital to the Company and its Restricted Subsidiaries with respect to
such Investment (up to the amount of such Investment on the date made).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary other
than a Guarantor to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in any agreement, and any
extensions, refinancing, renewals or replacements of any such agreement;
provided that the encumbrances and restrictions in any such extensions,
refinancing, renewals or replacements are no less favorable in any material
respect to the Holders, when looked at in the aggregate, than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of Notes than is customary in
comparable financings (as determined by the
113
<PAGE> 115
Company) and (C) the Company determines that any such encumbrance or restriction
will not materially affect the Company's ability to make principal or interest
payments on Notes. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries, including, without
limitation, the Collateral in accordance with the terms hereof.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Restricted
Subsidiary; (ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law; (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance or sale or (iv) issuances or sales of Common Stock of a Restricted
Subsidiary if the Net Cash Proceeds thereof are applied in accordance with
clause (A) or (B) of the "Limitation on Asset Sales" covenant.
Issuances of Guarantees by New Restricted Subsidiaries
The Company will provide to the Trustee, on the date that any Person (other
than an Excluded Restricted Subsidiary) becomes a Restricted Subsidiary, a
supplemental indenture to the Indenture, executed by such new Restricted
Subsidiary, providing for a full and unconditional guarantee on a senior basis
by such new Restricted Subsidiary of the Company's obligations under any Notes
and the Indentures to the same extent as that set forth in the Indenture;
provided that, in the case of any new Restricted Subsidiary that becomes a
Restricted Subsidiary through the acquisition of a majority of its voting
Capital Stock by the Company or any other Restricted Subsidiary, such guarantee
may be subordinated to the extent required by the obligations of such new
Restricted Subsidiary existing on the date of such acquisition that were not
incurred in contemplation of such acquisition.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any Affiliate of the Company or any
Restricted Subsidiary, except upon fair and reasonable terms no less favorable
to the Company or such Restricted Subsidiary than could be obtained, at the time
of such transaction or, if such transaction is pursuant to a written agreement,
at the time of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Restricted Subsidiaries or solely
between Restricted Subsidiaries; (iii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iv) any payments or other transactions pursuant to any tax-sharing agreement
between the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) any Restricted Payments not prohibited by the
"Limitation on Restricted Payments" covenant; (vi) the execution of, and
transactions pursuant to, employment agreements entered into in the ordinary
course of the Company's
114
<PAGE> 116
or its Restricted Subsidiaries' business that are consistent with the Company's
or such Restricted Subsidiaries' past practice; (vii) transactions pursuant to
agreements existing on the Closing Date, as in effect on the Closing Date; or
(viii) grants of stock options, restricted stock and other non-cash equity
incentive compensation. Notwithstanding the foregoing, any transaction or series
of related transactions covered by the first paragraph of this "Limitation on
Transactions with Shareholders and Affiliates" covenant and not covered by
clauses (ii) through (v) of this paragraph, (a) the aggregate amount of which
exceeds $3 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above and (b) the aggregate amount
of which exceeds $10 million in value, must be determined to be fair in the
manner provided for in clause (i)(B) above.
Limitation on Liens
Other than the rights of the Trustee under the Indenture, the Company will
not, and will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Lien on any of its assets or properties of any character,
including, without limitation, the Collateral, without making effective
provision for all of the Notes and all other amounts due under the Indenture to
be directly secured equally and ratably with (or, if the obligation or liability
to be secured by such Lien is subordinated in right of payment to any Notes,
prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens granted on the Closing
Date on assets whenever acquired, and substitutions and replacements for such
Liens; (ii) Liens granted after the Closing Date on any assets or Capital Stock
of the Company or its Restricted Subsidiaries created in favor of the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to the Company or a Restricted Subsidiary to secure
Indebtedness owing to the Company or such other Restricted Subsidiary; (iv)
Liens securing Indebtedness which is Incurred to refinance secured Indebtedness
which is permitted to be Incurred under clause (iii) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness being
refinanced; (v) Liens on any property or assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary permitted under the
"Limitation on Indebtedness" covenant; (vi) Permitted Liens; (vii) Liens on
assets having a fair market value not in excess (on the date any such Lien is
incurred) of 20% of Adjusted Consolidated Net Tangible Assets; or (viii) Liens
on Capital Stock of Subsidiaries in favor of the lenders incurred under clause
(i) of the second paragraph of the "Limitation on Indebtedness" covenant.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Restricted Subsidiary or solely between Restricted Subsidiaries; or (iv) the
Company or such Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount not less
than the net proceeds received from such sale in accordance with clause (A) or
(B) of the first paragraph of the "Limitation on Asset Sales" covenant described
below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary (including the amount of
115
<PAGE> 117
any Released Indebtedness) is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
(excluding the amount of any Released Indebtedness) consists of cash or Cash
Equivalents or Temporary Cash Investments. In the event and to the extent that
the Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the Commission pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Note Guarantee or Indebtedness of any other Restricted Subsidiary,
in each case owing to a Person other than the Company or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in property or assets
(other than current assets) of a nature or type or that are used in a business
(or in a company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Subsidiaries existing on
the date of such investment and (ii) apply (no later than the end of the
12-month period referred to in clause (i)) such excess Net Cash Proceeds (to the
extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least 10% of Adjusted
Consolidated Net Tangible Assets, the Company must commence, not later than the
fifteenth Business Day of such month, and consummate an Offer to Purchase from
the Holders on a pro rata basis an aggregate principal amount of Notes equal to
the Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount of the Notes, plus, in each case, accrued interest (if any) to
the Payment Date. If the aggregate principal amount of Notes tendered pursuant
to an Offer to Purchase pursuant to this covenant is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. Upon completion of such Offer to Purchase, the amount of
Excess Proceeds shall be reset at zero.
In the event that more than 90% of the outstanding principal amount of any
Notes are tendered to such Offer to Purchase, the balance of Notes will be
redeemable, at the Company's option, in whole or in part, at any time or from
time to time thereafter, at a Redemption Price equal to the price specified in
such Offer to Purchase plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of holders' age of record on the Relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date).
Insurance
The Company will, at its expense, maintain or cause to be maintained
all-risk aircraft hull insurance covering the Aircraft, and, to the extent
available at reasonable cost, all-risk property damage insurance covering the
Engines and parts, including while temporarily removed from an Aircraft pending
replacement, at all times in an amount not less than the sum of (i) the
aggregate outstanding principal amount of any Notes and (ii) the scheduled
amount of interest payable on Notes on the next interest payment date. During
any period when an Aircraft is on the ground and not in operation, the Company
may carry or cause to be carried, in lieu of the insurance required by the
previous sentence, insurance otherwise conforming with the provisions of said
sentence except that the scope of the risks covered and the type of insurance
shall be the same as are from time to time applicable to aircraft owned or
leased by the Company of the same type as such Aircraft similarly on the ground
and not in operation, provided that in all cases full amounts shall not be less
than that
116
<PAGE> 118
described in the immediately preceding sentence. All policies covering loss of
or damage to an Aircraft shall be made payable to the Trustee for any loss in
excess of $5 million. With respect to the Collateral, the Company may maintain
customary deductibles. With respect to all other aircraft owned by the Company
or any Restricted Subsidiary, the Company shall insure such aircraft in a manner
consistent with past practice. In addition, the Company will, at its expense,
maintain or cause to be maintained comprehensive airline liability (including,
without limitation, passenger, contractual, bodily injury and property damage
liability) insurance (exclusive of manufacturer's product liability insurance)
and cargo liability insurance with respect to each Aircraft (i) in amounts that
are not less than the comprehensive airline liability insurance as is from time
to time normally applicable to aircraft owned and operated by the Company of the
same type as such Aircraft and (ii) of the types and covering the same risks as
are from time to time applicable to aircraft owned or operated by the Company of
the same type as such Aircraft and which is maintained in effect with insurers
of recognized responsibility. During any period when an Aircraft is on the
ground and not in operation, the Company may carry or cause to be carried, in
lieu of the insurance required by the previous sentence, insurance otherwise
conforming with the provisions of said sentence except that the amounts of
coverage shall not be required to exceed the amounts of comprehensive airline
liability insurance, and the scope of risks covered and type of insurance shall
be the same, as are from time to time in effect with respect to aircraft owned
or leased by the Company of the same type as such Aircraft similarly on the
ground and not in operation. The Company may also self-insure a portion of these
risks by means of deductible or premium adjustment provisions subject to the
same limitations described above for insurance for risks of loss or damage to
such Aircraft. The Company is also permitted a deductible per occurrence not in
excess of the prevailing standard market deductible for similar aircraft. The
Trustee will be named as additional insured parties under all liability
insurance policies required with respect to the Aircraft. In addition, the
insurance policies will provide that, in respect of the interest of the Trustee,
the insurance shall not be invalidated by any action or inaction of the Company
and shall insure the interest of the Trustee as they appear, regardless of any
breach or violation of any warranty, declaration or condition contained in such
policies by the Company. If and to the extent that the Company or a lessee
operates an Aircraft (A) on routes where it maintains war risk insurance in
effect with respect to other similar equipment, or (B) on routes other than
routes within or between the United States, Canada, Mexico, Bermuda and islands
other than Cuba in the Caribbean Basin where the custom in the industry is to
carry war risk insurance, the Company or such lessee shall maintain such
insurance with respect to the Aircraft in an amount not less than the lesser of
the aggregate unpaid principal of, together with accrued interest on, a ratable
portion of any Notes (based on the initial appraised value of such Aircraft) and
the amount of such insurance customarily carried by corporations engaged in the
same or similar business similarly situated with the Company and with respect to
similar equipment on similar routes; provided that, if the requirement to
maintain war risk insurance arises solely by reason of clause (A) of this
sentence, such insurance shall be maintained in an amount not less than that
maintained by the Company or such lessee on other similar aircraft in its fleet.
Unless an Aircraft is operated or used under a contract with the United States
government pursuant to which the United States government assumes liability for
damage to or loss of such Aircraft and to other property or persons, the Company
may not operate or locate any Aircraft outside the United States and Canada (i)
in any war zone or recognized or, in the Company's reasonable judgment,
threatened area of hostilities, unless such Aircraft is fully covered by war
risk insurance, or (ii) in any area excluded from the insurance coverage
required under the Indenture. Insurance proceeds, if any, held from time to time
by the Trustee with respect to any Aircraft, prior to the distribution thereof,
will be invested and reinvested by the Trustee at the direction of the Company
(except after the occurrence and during the continuance of a Collateral Access
Event) in certain investments described in the Indenture. The net amount of any
loss resulting from any such investments will be paid by the Company.
EVENTS OF LOSS
If an Event of Loss occurs with respect to an Aircraft, the Company shall
either make an Offer to Purchase a pro rata portion of any Notes or the Company
shall subject a replacement aircraft to the Lien on the Collateral pursuant to
the Indenture. In the event the Company elects to replace an Aircraft, it must
do so within 365 days of the Event of Loss with an aircraft having a value at
least equal to, and in as good operating condition and repair and as airworthy
as, the Aircraft subject to the Event of Loss, assuming such Aircraft was
117
<PAGE> 119
in the condition and repair required by the Indenture immediately prior to the
occurrence of the Event of Loss, all as determined by the chief financial
officer of the Company in good faith. In the event the Company elects not to
replace such Aircraft, the Company is required to make an Offer to Purchase, not
later than 365 days after the occurrence of such Event of Loss, a pro rata
amount (based on the ratio borne by the initial appraised value of such Aircraft
to the initial aggregate appraised value) of the outstanding principal amount of
any Notes at 100% of the principal amount thereof together with accrued and
unpaid interest thereon. In the event of an Event of Loss with respect to the
Aircraft for which no initial appraisal was conducted, the "initial appraised
value" for the purpose of the prior sentence will be determined, in good faith,
by the chief financial officer of the Company. Upon such payment, the Lien on
the Collateral pursuant to the Indenture with respect to such Aircraft shall
terminate.
If an Event of Loss occurs with respect to an Engine alone, the Company
shall replace such Engine with another engine suitable for installation and use
on the Aircraft as determined by the chief financial officer of the Company in
good faith.
An "Event of Loss" with respect to the Aircraft or Engine means any of the
following events: (i) payment of an insurance settlement with respect to such
property on the basis of an actual or constructive total loss; (ii) destruction
or damage beyond repair; provided that, if it was not clear whether damage
constitutes damage beyond repair, an Event of Loss will be deemed to occur when
it is determined by the Company that such damage is beyond repair; (iii) theft
or disappearance for a period in excess of 120 days, unless the location of the
Aircraft is known and the Company is diligently pursuing its recovery; (iv) the
condemnation or taking of title to such Aircraft by the United States government
or any foreign government or instrumentality or agency thereof; (v) the
requisition or taking of use of such Aircraft or airframe by a foreign
government or instrumentality or agency for a continuous period of more than six
months; (vi) with respect to an Engine only, the requisition for use by any
government or the divestiture of title resulting from the installation of such
Engine on an airframe leased to the Company or purchased by the Company subject
to a conditional sale agreement, in either case, under circumstances where the
Trustee's security interest in such Engine is adversely affected thereby; or
(vii) "grounding" of such Aircraft for a period of twelve consecutive months (or
such shorter period determined by the Company) due to an action by a
governmental body, unless prior to and after the expiration of such period, the
Company is diligently carrying forward all necessary steps to permit normal use.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT
Upon the occurrence of a Change of Control Triggering Event, the Company
must commence, within 30 days of the occurrence of a Change of Control
Triggering Event, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase Notes will,
unless consents are obtained, require the Company to repay all indebtedness then
outstanding which by its terms would prohibit such Note repurchase, either prior
to or concurrently with such Note repurchase.
In the event that more than 90% of the outstanding principal amount of
Notes are tendered pursuant to such Offer to Purchase, the balance of Notes will
be redeemable, at the Company's option, in whole or in part, at any time or from
time to time thereafter, at a Redemption Price equal to the price specified in
such Offer to Purchase plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the Relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date).
118
<PAGE> 120
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times, whether or not the Company is then required to file reports
with the Commission, the Company shall file with the Commission all such reports
and other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were
subject thereto. The Company shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information. In addition, at all times
prior to the effectiveness of a Registration Statement, upon the request of any
Holder or any prospective purchaser of Notes designated by a Holder, the Company
shall supply to such Holder or such prospective purchaser the information
required under Rule 144A under the Securities Act.
COLLATERAL ACCESS EVENTS
Collateral Access Events under the Indenture include: (a) the failure by
the Company to make an expected payment of principal or any payment of interest
or premium when due, and the continuation of such failure unremedied for 15
days, (b) the failure to procure and maintain property and liability insurance
in accordance with the provisions of the Indenture and the continuation of such
failure, in the case of maintenance of such insurance, until the earlier of (i)
60 days after notice to the Company or the Trustee that such insurance is
subject to lapse or cancellation or (ii) the date such lapse or cancellation is
effective as to the Trustee, (c) operation of the Aircraft after receipt of
notice that the insurance required by the Indenture has been canceled, (d) the
failure by the Company to perform any covenants contained in the Indenture and
the continuation of such failure for a period of 60 days after notice to the
Company by the Trustee or by Holders of 25% of outstanding Notes under the
Indenture, unless such failure is curable and the Company is diligently
proceeding to correct such failure and shall in fact correct such failure within
180 days after delivery of such notice, (e) any representation or warranty made
by the Company in the Indenture, if any, or in any document or certificate
furnished to the Trustee or the Holders under the Indenture shall be incorrect
in any material respect as of the date made and shall be material at the time of
determination and shall not have been remedied within 60 days after notice has
been given to the Company by the Trustee or Holders of 25% of any outstanding
Notes under the Indenture, (f) operation of any Aircraft in a country that has
not recognized or does not adhere to the Convention and (g) the occurrence of
certain events of bankruptcy, reorganization or insolvency of the Company.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or "Repurchase of Notes upon a Change of Control" covenant; (d) the
Company or any Guarantor defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under any Notes (other
than a default specified in clause (a), (b) or (c) above) and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of any
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Guarantor or Significant Subsidiary having an outstanding
principal amount of $10 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (f) any final judgment or order (not
covered by insurance) for the payment of money in excess of $10 million in the
aggregate for all such final judgments or orders
119
<PAGE> 121
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Guarantor or
Significant Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed $10
million during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (g) a court
having jurisdiction in the premises enters a decree or order for (A) relief in
respect of the Company, any Guarantor or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; (h) the Company, any Guarantor or any Significant
Subsidiary (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors; or (i) any Note Guarantee shall cease
to be, or shall be asserted in writing by the Company or any Guarantor not to
be, in full force and effect or enforceable in accordance with its terms.
REMEDIES
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) or a Collateral Access
Event occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 25% in aggregate principal amount of Notes, then outstanding, by
written notice (a "Notice of Default or Collateral Access Event") to the Company
(and to the Trustee if such notice is given by the Holders), may, and the
Trustee at the request of such Holders shall, declare the principal of, premium,
if any, and accrued interest on such Notes to be immediately due and payable.
Upon a declaration of acceleration, such principal of, premium, if any, and
accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on any Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Indenture provides that upon receipt of a Notice
of Default or Collateral Access Event, the Trustee shall exercise such remedies
available to it under applicable law, including any remedies of a secured party
under applicable law or otherwise provided in the Indenture.
The Holders of at least a majority in principal amount of outstanding Notes
by written notice to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of the principal of,
premium, if any, and interest on Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "-- Modification
and Waiver."
The Holders of at least a majority in aggregate principal amount of
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
120
<PAGE> 122
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or Notes unless: (i) the
Holder gives the Trustee written notice of a continuing Event of Default; (ii)
the Holders of at least 25% in aggregate principal amount of outstanding Notes
make a written request to the Trustee to pursue the remedy; (iii) such Holder or
Holders offer the Trustee indemnity satisfactory to the Trustee against any
costs, liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (v)
during such 60 day period, the Holders of a majority in aggregate principal
amount of the outstanding Notes do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on, such Note or to bring suit for the enforcement of any
such payment, on or after the due date expressed in any Notes, which right shall
not be impaired or affected without the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and whether a Default, an Event of Default or a Collateral
Assess Event has occurred and, if there has been a Default, an Event of Default
or a Collateral Access Event, specifying each such default or event and the
nature and status thereof. The Company and the Guarantors will also be obligated
to notify the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis the Company, or any
Person becoming the successor obligor of Notes, as the case may be, could Incur
at least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant; provided that this clause (iii) shall not apply to a
consolidation, merger or sale of all (but not less than all) of the assets of
the Company if all Liens and Indebtedness of the Company or any Person becoming
the successor obligor of Notes, as the case may be, and its Restricted
Subsidiaries outstanding immediately after such transaction would, if Incurred
at such time, have been permitted to be Incurred (and all such Liens and
Indebtedness, other than Liens or Indebtedness of the Company and its Restricted
Subsidiaries outstanding immediately prior to the transaction, shall be deemed
to have been Incurred) for all purposes of the Indenture; and (iv) the Company
delivers to the Trustee an Officers' Certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii), if applicable) and
Opinion of Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this provision and that
all conditions precedent provided for herein relating to such transaction have
been complied with.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company and
the Guarantors will be deemed to have paid and will be discharged from any and
all obligations in respect of any Notes on the 123rd day after the deposit
referred to below, and the provisions of the Indenture will no longer be in
effect with respect to any Notes (except for, among other matters, certain
obligations to register the transfer or exchange of Notes, to replace stolen,
lost or mutilated Notes, to maintain paying agencies and to hold monies for
payment in trust) if, among other things, (A) the Company or the Guarantors has
deposited with the
121
<PAGE> 123
Trustee, in trust, money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on any Notes on the Stated Maturity of
such payments in accordance with the terms of the Indenture and Notes, (B) the
Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for federal income
tax purposes as a result of the Company's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound and (D) if at such time Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that such Notes will not be delisted as a result of such deposit,
defeasance and discharge, provided that if simultaneously with the deposit of
the money and/or U.S. Government Obligations referred to in (A) above, the
Company or any Guarantor has caused an irrevocable, transferrable, standby
letter of credit to be issued by a bank with capital and surplus exceeding the
principal amount of Notes then outstanding, expiring not earlier than 180 days
from its issuance, in favor of the Trustee which permits the Trustee to draw an
amount equal to the principal, premium, if any, and accrued interest on Notes
through the expiry date of the letter of credit, then the Company and the
Guarantors will be deemed to have paid and discharged any and all obligations in
respect of Notes on the date of the deposit and issuance of the letter of
credit.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on any Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to Notes as described in the immediately preceding
paragraph and any Notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of money and/or U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on such Notes at the time of their Stated
122
<PAGE> 124
Maturity but may not be sufficient to pay amounts due on Notes at the time of
the acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive (a) a default in the payment of principal of, premium,
if any, or interest on the Notes or (b) a Collateral Access Event, (vii) reduce
the percentage or aggregate principal amount of outstanding Notes the consent of
whose Holders is necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults or (viii) modify the provisions
of the Indenture relating to the Lien created thereunder or the distribution of
principal, interest or premium or other monies received or realized by the
Trustee from the Collateral.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any Notes or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture, or in any Notes or
because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer, director, employee or
controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Collateral may at the time be located, the Trustee will
have the power to appoint a co-trustee or separate trustee of all or any part of
the Collateral. To the extent permitted by law, all rights, powers, duties and
obligations conferred or imposed upon the Trustee will be conferred or imposed
upon and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee will be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Old Notes were issued, and certificates
representing the New Notes will be issued, in fully registered form without
interest coupons.
123
<PAGE> 125
Old Notes sold in reliance on Rule 144A were represented by, and the New
Notes initially will be, issued in two permanent global Notes in definitive,
fully registered form without interest coupons (each a "Restricted Global Note")
and the Old Notes were, and the New Notes will be, deposited with the Trustee,
as custodian for DTC. Restricted Global Notes are registered in the name of a
nominee of DTC.
Each Restricted Global Note (and any Old Notes issued for exchange
therefor) are subject to certain restrictions on transfer set forth therein as
described under "Transfer Restrictions."
Ownership of beneficial interests in a Restricted Global Note are limited
to persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a
Restricted Global Note are shown on, and the transfer of that ownership may be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in a Restricted Global Note directly through DTC if
they are participants in such system, or indirectly through organizations which
are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Restricted Global Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of Notes represented by such Restricted
Global Note for all purposes under the Indenture and Notes. No beneficial owner
of an interest in a Restricted Global Note will be able to transfer that
interest except in accordance with DTC's applicable procedures, in addition to
those provided for under the Indenture.
Payments of the principal of, and interest on, a Restricted Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Restricted
Global Note or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Restricted Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Restricted
Global Note as shown on the records of DTC or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in such
Restricted Global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Restricted Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable
Restricted Global Note for Certificated Notes, which it will distribute to its
participants and which may be legended as set forth under the heading "Transfer
Restrictions."
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear
124
<PAGE> 126
through or maintain a custodial relationship with a participant, either directly
or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Restricted Global Note among participants
of DTC they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or its respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Restricted Global Notes and a successor depositary is not appointed by the
Company within 90 days, the Company will issue Certificated Notes, which may
bear the legend referred to under "Transfer Restrictions," in exchange for the
Restricted Global Notes. Holders of an interest in a Restricted Global Note may
receive Certificated Notes, which may bear the legend referred to under
"Transfer Restrictions," in accordance with the DTC's rules and procedures in
addition to those provided for under the Indenture.
DESCRIPTION OF OTHER INDEBTEDNESS
The Term Loan was incurred to refinance the indebtedness incurred in
September 1997 to finance the acquisition of 16 Boeing 727s from the Kalitta
Companies. The Term Loan matures in November 2002 and is 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 accrues at LIBOR plus 3% or a Base Rate plus 1.5%,
subject to reduction. The Base Rate is WFB's Prime Rate or the Federal Funds
Rate plus .5%. The Term Loan is secured by accounts receivable, all spare parts
(including rotables), inventory, intangibles and contract rights, cash, the 16
Boeing 727s and related engines acquired from the Kalitta Companies prior to the
Merger, the stock of each of the Company's subsidiaries and the Company's 60%
interest in AIC. In addition, the New Credit Facility and Term Loan are
guaranteed by each of the Company's subsidiaries (other than AIC). As of January
31, 1998, there was an outstanding balance of approximately $45.9 million under
the Term Loan.
The Company also has a New Credit Facility with WFB, individually and as
agent for various lenders, which provides the Company with up to $100 million in
revolving loans (subject to a current borrowing base limitation of approximately
$28.7 million) and is secured by the same collateral as the Term Loan. The
facility bears interest at LIBOR plus 2.75% or a Base Rate plus 1.25%, 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 are subject to a borrowing base limitation based on eligible
inventory and accounts receivable and mature in November 2002. The borrowing
base limitations will be adjusted in March 1998 and each month thereafter until
maturity. As of January 31, 1998, there was no outstanding balance under the New
Credit Facility.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Haynes and Boone, LLP, special counsel to the Company,
the following discussion describes the material federal income tax consequences
expected to result to holders whose Old Notes are exchanged for New Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought with respect to the
Exchange Offer. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
of Old Notes (including insurance companies, tax exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF OLD NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING
125
<PAGE> 127
OLD NOTES FOR NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN LAWS.
The exchange of Old Notes for New Notes will be treated as a "non-event"
for federal income tax purposes because the New Notes will not be considered to
differ materially in kind or extent from the Old Notes. As a result, no material
federal income tax consequences will result to holders exchanging Old Notes for
New Notes.
PLAN OF DISTRIBUTION
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the holder (other than any such holder or such other person which
is an "affiliate" of the Company or any Guarantor within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided that the New
Notes are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person is engaging or intends
to engage in a distribution of the New Notes or has an arrangement or
understanding with any person to participate in the distribution of such New
Notes. The Company, however, has not sought, and does not intend to seek, its
own no-action letter and there can be no assurance that the Commission's staff
would make a similar determination with respect to the Exchange Offer. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes cannot rely on this interpretation by the
Commission's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Each broker-dealer that holds Old Notes that were acquired by that
broker-dealer as a result of market-making activities or other trading
activities may exchange such Old Notes pursuant to the Exchange Offer; provided
however, such broker-dealer may be deemed to be an "underwriter" within the
meaning of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Securities Act in connection with its initial resale of
each New Note received in the Exchange Offer. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes in such circumstances.
Neither the Company nor the Guarantors will receive any proceeds from any
sale of New Notes by broker-dealers. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes, or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices, or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such New Notes. Because any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, any profit on any such
resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
By acknowledging that it will deliver, and by delivering, a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal for such period of time as such
persons must comply with such requirements in order to resell the New Notes. The
Company and the Guarantors have agreed to pay certain expenses relating to their
performance under the Registration Rights Agreement, including the costs of
providing this Prospectus, and to indemnify the holders of Notes against certain
liabilities, including liabilities under the Securities Act.
126
<PAGE> 128
LEGAL MATTERS
The validity of the New Notes offered hereby, U.S. federal tax effects
relating to the Exchange Offer and certain other legal matters will be passed
upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
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 and incorporated by reference in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
incorporated herein by reference. Such financial statements are, and audited
financial statements to be included in subsequently filed documents will be,
incorporated herein in reliance upon the reports of Ernst & Young LLP pertaining
to such financial statements (to the extent covered by consents filed with the
Securities and Exchange Commission) 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 and the related financial statement
schedule, included in this Prospectus and Registration Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere and incorporated herein by reference
(which reports express an unqualified opinion and include 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). The statements of certain assets sold of AIA
for the years ended December 31, 1996 and 1995, and the related statements of
revenues and direct expenses for the years ended December 31, 1996 and 1995
incorporated by reference from Kitty Hawk, Inc.'s Amendment No. 1 to Form 8-K
dated November 6, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report incorporated herein by reference. Such
reports have been so included and so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The Appraised Market Value of the Collateral represented by Boeing 747s and
Boeing 727s included herein is based upon appraisals from Pro-Tech in reliance
upon its report and upon the authority of such firm as experts in valuing Boeing
747s and Boeing 727s.
The Appraised Market Value of the Collateral represented by Lockheed
L-1011s included herein is based upon appraisals from GRA in reliance upon its
report and upon the authority of such firm as experts in valuing Lockheed
L-1011s.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the New Notes offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information, exhibits and undertakings contained in the Registration
Statement. For further information with respect to the Company and the New Notes
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof. 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
Registration Statement (and the exhibits and schedules thereto) as well as
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
127
<PAGE> 129
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 the appraisal reports referenced under "Description of Notes," may be
obtained from the Company at 1515 West 20th Street, P.O. Box 612787, Dallas/Fort
Worth International Airport, Texas 75261, (972) 456-2200. The Company's Common
Stock is quoted on the Nasdaq National Market and the Registration Statement
(and the exhibits and schedules thereto) as well as 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. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
Pursuant to the Indenture, the Company has agreed that whether or not the
Company is then required to file reports with the Commission, the Company will
file all such reports and other information that the Company would be required
to file if it were subject to Section 13 or 15 of the Exchange Act. In addition,
the Company shall supply the Trustee and each holder of Notes or shall supply to
the Trustee for forwarding to each such holder of Notes, without cost to such
holder of Notes, copies of such reports and other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference in
this Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1996; (ii) the Company's Transition Report on Form 10-K
for the transition period from September 1, 1996 to December 31, 1996; (iii) the
Company's Amendment to its Transition Report on Form 10-K/A filed with the
Commission on April 7, 1997; (iv) the Company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1996; (v) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997; (vi) the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997; (vii) the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997; (viii)
the Company's Form 8-K dated December 4, 1996; (ix) the Company's Form 8-K dated
September 17, 1997; (x) the Company's Amendment No. 1 to its Form 8-K dated
November 6, 1997 and (xi) the Company's Form 8-K dated November 19, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed superseded or modified for purposes of this Prospectus to the extent that
a statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Company at 1515 West 20th Street, P.O. Box
612787, Dallas/Fort Worth International Airport, Texas 75261, (972) 456-2200.
128
<PAGE> 130
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 September 30,
1997 (unaudited).......................................... F-17
Condensed Consolidated Statements of Operations for the nine
month periods ended September 30, 1996 and 1997
(unaudited)............................................... F-18
Condensed Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 1997
(unaudited)............................................... F-19
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 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-24
Combined Balance Sheets at December 31, 1995 and 1996 and
September 30, 1997 (unaudited)............................ F-25
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-26
Combined Statements of Stockholder's Equity for the years
ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997 (unaudited)...................... F-27
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-28
Notes to Combined Financial Statements...................... F-30
</TABLE>
F-1
<PAGE> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<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> 140
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 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> 141
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> 142
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> 143
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> 144
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> 145
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>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Revenues:
Air freight carrier....................................... $ 55,504
Air logistics............................................. 77,168
--------
Total revenues.................................... 132,672
--------
Costs of revenues:
Air freight carrier....................................... 40,860
Air logistics............................................. 67,938
--------
Total costs of revenues........................... 108,798
--------
Gross profit................................................ 23,874
General and administrative expenses......................... 8,943
Non-qualified employee profit sharing expense............... 1,243
Stock option grants to executives........................... 4,231
--------
Operating income............................................ 9,457
Other income (expense):
Interest expense.......................................... (2,062)
Loss on asset disposal.................................... (589)
Other, net................................................ 880
--------
Income (loss) before income taxes........................... 7,686
Income taxes (benefit)...................................... 3,038
--------
Net income (loss)........................................... $ 4,648
========
Net income (loss) per share................................. $ 0.55
========
Net income, adjusted for non-recurring items................ $ 8,278
========
Net income per share, adjusted for non-recurring items...... $ 0.98
========
Weighted average common and common equivalent shares
outstanding............................................... 8,477
========
</TABLE>
F-16
<PAGE> 146
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Current assets
Cash and cash equivalents................................. $ 2,403,480
Trade accounts receivable................................. 21,644,727
Deferred income taxes..................................... 107,564
Inventory and aircraft supplies........................... 5,587,548
Prepaid expenses and other assets......................... 2,825,072
Deposits on aircraft...................................... 3,875,316
------------
Total current assets.............................. 36,443,707
------------
Property and equipment
Aircraft.................................................. 144,649,024
Aircraft work-in-progress................................. 8,178,161
Machinery and equipment................................... 5,122,368
Leasehold improvements.................................... 3,053,624
Building.................................................. 1,770,000
Furniture and fixtures.................................... 173,899
Transportation equipment.................................. 417,247
------------
163,364,323
Less: accumulated depreciation and amortization........... (23,007,382)
------------
Net property and equipment........................ 140,356,941
------------
Total assets...................................... $176,800,648
============
Current liabilities
Accounts payable.......................................... $ 8,522,412
Accrued expenses.......................................... 13,226,661
Income taxes payable...................................... 2,892,856
Accrued maintenance reserves.............................. 3,326,009
Current maturities of long-term debt...................... 8,373,261
------------
Total current liabilities......................... 36,341,199
Long-term debt.............................................. 72,673,469
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...................................... 33,260,862
Less common stock in treasury, -- 217,710 shares at
September 30, 1997 and December 31, 1996.............. (2,076,302)
------------
Total stockholders' equity........................ 65,241,080
------------
Total liabilities and stockholders' equity........ $176,800,648
============
</TABLE>
See accompanying notes.
F-17
<PAGE> 147
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1997
------------ -----------
<S> <C> <C>
Revenues:
Air freight carrier....................................... $ 39,615,267 $55,789,112
Air logistics............................................. 43,144,127 45,878,185
------------ -----------
Total revenues.................................... 82,759,394 101,667,297
------------ -----------
Costs of revenues:
Air freight carrier....................................... 29,688,049 38,075,855
Air logistics............................................. 39,139,436 42,037,740
------------ -----------
Total costs of revenues........................... 68,827,485 80,113,595
------------ -----------
Gross profit................................................ 13,931,909 21,553,702
General and administrative expenses......................... 6,877,198 7,550,059
Non-qualified employee profit sharing expense............... 446,928 1,161,261
Stock option grants to executives........................... 4,230,954 --
------------ -----------
Operating income............................................ 2,376,829 12,842,382
Other income (expense):
Interest expense.......................................... (1,530,003) (1,809,076)
Loss on asset disposal.................................... (589,049) --
Other, net................................................ 262,584 579,300
------------ -----------
Income before income taxes.................................. 520,361 11,612,606
Income taxes................................................ 268,912 4,645,042
------------ -----------
Net income.................................................. $ 251,449 $ 6,967,564
============ ===========
Net income per share........................................ $ 0.03 $ 0.67
============ ===========
Weighted average common and common equivalent shares
outstanding............................................... 7,891,431 10,451,807
============ ===========
</TABLE>
See accompanying notes.
F-18
<PAGE> 148
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............. -- -- -- 6,967,564 -- 6,967,564
---------- -------- ----------- ----------- ----------- -----------
Balance at September
30, 1997............. 10,669,517 $106,695 $33,949,825 $33,260,862 $(2,076,302) $65,241,080
========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 149
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net income................................................ $ 251,449 $ 6,967,564
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 4,301,437 7,617,367
Deferred income taxes..................................... 998,963 --
Stock option grants to executives......................... 4,230,954 --
Changes in operating assets and liabilities:
Trade accounts receivable................................. 26,916,983 16,183,291
Inventory and aircraft supplies........................... (2,074,509) (2,797,566)
Prepaid expenses and other................................ 3,761,048 (1,681,083)
Deposits on aircraft...................................... -- 1,563,312
Accounts payable and accrued expenses..................... (16,862,704) (10,772,828)
Accrued maintenance reserves.............................. (2,017,806) 366,119
Income taxes payable...................................... 125,059 952,852
------------ ------------
Net cash provided by operating activities................... 19,630,874 18,399,028
Investing activities:
Capital expenditures........................................ (31,367,208) (99,575,465)
------------ ------------
Financing activities:
Proceeds from issuance of long-term debt.................... 17,392,032 59,104,130
Repayments of long-term debt................................ (3,038,212) (2,825,740)
Additional costs relating to initial public offering........ -- (18,875)
Tax benefit of stock option grants to executives............ 404,570 --
Acquisition of treasury shares.............................. (2,076,302) --
Proceeds from issuance of common stock...................... 4,430 --
------------ ------------
Net cash provided by financing activities................... 12,686,518 56,259,515
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 950,184 (24,916,922)
Cash and cash equivalents at beginning of period............ 3,355,293 27,320,402
------------ ------------
Cash and cash equivalents at end of period.................. $ 4,305,477 $ 2,403,480
============ ============
</TABLE>
See accompanying notes.
F-20
<PAGE> 150
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine month period ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
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 1996 have been
included in the calculation of weighted average common and common equivalent
shares through their date of exercise for the nine month period ended September
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. INTEREST RATE RISK MANAGEMENT
The Company has entered into an interest rate swap contract to effectively
convert a portion of a floating rate obligation to a fixed rate obligation. This
agreement involves the exchange of amounts based on a fixed interest rate to
amounts based on floating interest rates over the life of the agreement without
an exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair value of the swap agreement is not
recognized in the financial statements. Gains and losses on a termination of the
interest rate swap agreement, should they occur, will be deferred as an
adjustment to the carrying amount of the outstanding obligation and amortized as
an adjustment to interest expense related to the obligation over the remaining
term of the original contract life of the terminated swap agreement. In the
event of the early extinguishment of a designated obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.
4. 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
F-21
<PAGE> 151
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
5. 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.
6. ACQUISITION OF AIRCRAFT AND MERGER
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 3,000,000 share common stock offering (of which Kitty Hawk
will sell 2,200,000 shares, not including up to 450,000 additional shares for
which Kitty Hawk has granted the underwriters a 30 day option to purchase) and
F-22
<PAGE> 152
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 substantially all of 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 providing for such loan. The loan
bears interest at a Eurodollar rate plus 1.5% to 2% based upon a debt-to-cash
flow ratio of the Company plus an additional 1% beginning in 1999 and 1.5%
beginning in 2000, with maturity on June 30, 2001.
F-23
<PAGE> 153
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 Service, 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 12 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 12. 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-24
<PAGE> 154
AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,091,960 $ 2,324,353 $ 3,282,142
Restricted cash........................................... 795,030 14,036,924
Accounts receivable, net (Notes 1 and 3).................. 88,273,823 67,081,125 64,908,684
Accounts receivable -- related parties.................... 4,390,261 2,960,778 1,254,798
Expendable parts and supplies............................. 12,330,854 20,742,140 24,624,354
Aircraft held for resale (Note 4)......................... 6,593,069 6,117,266 5,346,453
Deposits, prepaid expenses and other assets............... 4,914,056 8,018,273 7,326,008
Prepaid fuel.............................................. 4,080,373 5,828,047 6,999,565
Notes receivable, current................................. 186,085 186,085 100,804
------------ ------------ ------------
Total current assets.................................... 121,860,481 114,053,097 127,879,732
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 228,678 228,678 228,678
Building and leasehold improvements (Note 4).............. 9,347,825 12,752,356 14,363,228
Rotable parts (Note 3).................................... 14,560,287 16,779,386 17,661,392
Equipment (Note 3)........................................ 19,685,442 23,677,640 26,317,512
Aircraft (Note 3)......................................... 264,266,383 320,276,140 303,778,995
------------ ------------ ------------
Total............................................... 308,088,615 373,714,200 362,349,805
Less accumulated depreciation............................. 81,246,881 109,707,512 113,883,560
------------ ------------ ------------
Net................................................. 226,841,734 264,006,688 248,466,245
Aircraft in modification (Note 3)......................... 25,557,078 988,541 21,925,586
Construction in progress.................................. 3,152,560 923,150 1,427,361
------------ ------------ ------------
Total property and equipment, net................... 255,551,372 265,918,379 271,819,192
NOTES RECEIVABLE, LESS CURRENT PORTION...................... 184,968 131,805 --
RECEIVABLE FROM AFFILIATED COMPANY.......................... -- -- 777,284
------------ ------------ ------------
TOTAL ASSETS (Notes 3 and 4)................................ $377,596,821 $380,103,281 $400,476,208
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade (Note 1).......................................... $ 62,125,228 $ 46,070,230 $ 49,898,805
Related parties......................................... 4,421,143 77,450 121
Accrued liabilities....................................... 20,342,988 24,172,883 22,969,507
Deferred gain on sale of aircraft (Note 12)............... -- -- 30,255,291
Deferred revenue.......................................... -- 795,030 3,036,924
Notes payable to bank, reclassified as current (Note 3)... -- 47,105,413 55,434,351
Long term debt, reclassified as current (Note 4).......... -- 155,910,954 104,623,812
Notes payable to bank (Note 3)............................ 12,226,496 1,024,035 2,994,849
Current maturities of long-term debt (Note 4)............. 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Total current liabilities........................... 141,560,467 309,466,435 360,953,167
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................................... 307,360,952 309,466,435 361,253,629
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 9)
MINORITY INTEREST IN AMERICAN INTERNATIONAL CARGO........... 3,944,070 3,551,735 3,572,437
STOCKHOLDER'S 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 17,757,985
------------ ------------ ------------
Total stockholder's equity.......................... 66,291,799 67,085,111 35,650,142
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $377,596,821 $380,103,281 $400,476,208
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-25
<PAGE> 155
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 $275,211,481 $302,344,768
Maintenance and other........... 7,448,982 14,278,793 36,348,245 25,801,347 23,299,368
------------ ------------ ------------ ------------ ------------
Total revenues........... 305,529,832 373,683,041 424,540,724 301,012,828 325,644,136
Operating Costs and Expenses:
Flight.......................... 115,613,706 168,774,779 150,255,587 107,006,096 126,207,639
Maintenance..................... 64,722,079 103,388,710 115,081,955 81,561,290 107,432,257
Fuel............................ 57,361,888 54,538,321 82,717,539 58,433,493 55,094,783
Depreciation.................... 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Selling, general and
administrative................ 13,272,361 21,676,079 21,889,355 15,353,022 17,847,884
Provision for doubtful
accounts...................... 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
------------ ------------ ------------ ------------ ------------
Total cost and
expenses............... 267,010,800 371,211,577 403,046,218 288,698,509 334,684,121
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations..... 38,519,032 2,471,464 21,494,506 12,314,319 (9,039,985)
Other Income (Expense):
Interest expense, net........... (8,007,389) (14,748,611) (21,632,389) (15,755,315) (19,740,204)
Gain on disposition of property
and equipment, net............ 3,389,881 11,707,673 130,934 425,742 624,395
Gain on contract settlement..... -- -- 1,123,200 1,123,200 --
Gain on insurance
reimbursement................. -- 8,147,878 -- -- 542,302
Merger related costs............ -- -- -- -- (1,269,100)
Net, miscellaneous.............. (550,000) (110) 13,116 13,214 --
------------ ------------ ------------ ------------ ------------
Total other (expense)
income................. (5,167,508) 5,106,830 (20,365,139) (14,193,159) (19,842,607)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Minority
Interest in American
International Cargo............. 33,351,524 7,578,294 1,129,367 (1,878,840) (28,882,592)
Minority Interest in American
International Cargo............. (2,758,372) (3,092,513) (1,146,019) (907,730) (1,858,958)
------------ ------------ ------------ ------------ ------------
Net Income (Loss)................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============
Unaudited Pro forma Data (Note 1):
Income (loss) before provision
for income taxes.............. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
Provision for income taxes...... 11,625,398 1,704,597 -- -- --
------------ ------------ ------------ ------------ ------------
Pro forma net income (loss)....... $ 18,967,754 $ 2,781,184 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============
</TABLE>
See notes to combined financial statements.
F-26
<PAGE> 156
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 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, September 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)................ -- (693,419)
Net loss (unaudited)......... -- (30,741,550)
----------- ------------
Balance, September 30, 1997
(Unaudited).................. $17,839,157 $ 17,757,985
=========== ============
</TABLE>
See notes to combined financial statements.
F-27
<PAGE> 157
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 NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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) $ (2,786,570) $(30,741,550)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Provision for doubtful accounts.............. 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
Gain (loss) on disposition of property and
equipment.................................. (3,389,881) (11,707,673) (130,934) (425,742) (624,395)
Minority interest in American International
Cargo...................................... 2,758,372 3,093,262 1,143,637 907,730 1,858,958
Changes in assets and liabilities which
provided (used) cash:
Restricted cash............................ -- -- -- -- (11,000,000)
Accounts receivable........................ (20,725,807) (17,819,263) 21,611,518 33,008,115 2,819,463
Expendable parts and supplies.............. (4,454,286) (3,470,152) (7,034,678) (3,987,431) (4,118,881)
Deposits, prepaid expenses and other
assets................................... (1,845,978) (3,740,088) (3,972,997) (3,327,352) (1,466,394)
Aircraft held for resale................... (6,975,000) 21,754,521 (1,702,354) (440,061) (1,261,293)
Accounts payable........................... 17,099,346 26,128,641 (20,398,691) (21,757,622) 4,543,332
Accrued liabilities........................ 4,742,342 7,956,796 3,829,895 140,188 (1,203,376)
------------ ------------ ------------ ------------ ------------
Total adjustments........................ 3,249,874 45,029,732 26,447,178 30,462,433 17,648,972
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................. 33,843,026 49,515,513 26,430,526 27,675,863 (13,092,578)
Cash flows from investing activities:
Purchase of property and equipment............. (77,831,613) (153,719,347) (53,413,262) (43,597,858) (54,508,576)
Proceeds from disposition of property and
equipment.................................... 5,250,000 33,603,329 11,008,725 10,145,798 55,127,500
Collections on note receivable................. 139,620 119,324 53,163 53,163 --
Issuance of notes receivable to affiliated
company...................................... -- -- -- -- (777,284)
Disposal of Grand Holdings, Inc., net of
cash......................................... -- (948,818) -- -- --
Acquisition of Grand-Holdings, Inc. net of cash
acquired..................................... (97,077) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. (72,539,070) (120,945,512) (42,351,374) (33,398,897) (158,360)
Cash flows from financing activities:
Repayments of notes and long-term debt......... (21,997,617) (36,899,953) (52,117,964) (53,307,078) (63,198,575)
Borrowings under notes and long-term debt
agreements................................... 74,466,207 119,952,548 70,097,213 61,295,530 79,640,259
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 3,759,903 --
Distributions to American International Cargo
minority stockholder......................... (1,367,328) (2,106,000) (1,535,972) (1,540,000) (1,840,000)
Distributions to stockholder................... (8,830,125) (13,730,711) (2,966,524) (2,580,655) (693,419)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................. 42,271,137 67,785,986 17,153,241 7,968,162 14,208,727
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash...................... 3,575,093 (3,644,013) 1,232,393 2,245,128 957,789
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 $ 3,337,088 $ 3,282,142
============ ============ ============ ============ ============
Supplemental disclosure of cash flow
information -- Cash paid during the period for
interest....................................... $ 7,677,452 $ 16,334,750 $ 21,806,688 $ 13,688,820 $ 18,916,308
============ ============ ============ ============ ============
</TABLE>
F-28
<PAGE> 158
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 $2,241,894 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.
In 1997 (unaudited), the Companies transferred assets with a net book value of
$635,774 from property and equipment to assets held for resale.
In 1997 (unaudited), the Companies netted $217,086 due under notes receivable
with outstanding liabilities.
In 1997 (unaudited), the Companies deferred a gain of $30,255,291 on the sale
of 16 Boeing 727 aircraft to Kitty Hawk.
See notes to combined financial statements.
F-29
<PAGE> 159
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 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 Statements -- The combined financial statements as of and
for the nine months ended September 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. In addition, at September 30, 1997, $11 million was held in escrow for
the modification of a Boeing 747 aircraft (unaudited).
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 $3,381,000 for the nine
months ended September 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-30
<PAGE> 160
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 $1,016,667 for the nine months ended
September 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 $5,430,166 at September 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 nine months ended September 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 nine months ended
September 30, 1996 was $668,000, $1,692,000, $562,000 and $533,000,
respectively. No interest cost was capitalized for the nine months ended
September 30, 1997 (unaudited).
F-31
<PAGE> 161
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,
------------------------- SEPTEMBER 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 $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 2,994,849
----------- ----------- -----------
Total....................................... $12,226,496 $ 1,024,035 $ 2,994,849
=========== =========== ===========
</TABLE>
F-32
<PAGE> 162
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 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 September 30, 1997 (unaudited), the
credit available was $4,521,537 and $1,410,137,
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 $55,434,351
=========== =========== ===========
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% 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 September 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 to 1 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-33
<PAGE> 163
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, SEPTEMBER 30,
--------------------------- -------------
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Various notes payable with interest rates ranging
from 7.49% to 12%. 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 $231,792,981. 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 $196,363,319
Less:
Current maturities of long-term debt............. 37,608,059 31,568,769 88,072,920
Outstanding debt on aircraft held for resale..... 4,836,553 2,741,671 3,666,587
------------ ------------ ------------
Total.................................... 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Net long-term debt, reclassified as current........ -- 155,910,954 104,623,812
------------ ------------ ------------
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 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 September 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-34
<PAGE> 164
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, SEPTEMBER 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, $7,576,000 and $6,094,000, for
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 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>
F-35
<PAGE> 165
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 $91,771, for the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 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, SEPTEMBER 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 5,043,643 916,849
Cost of revenues.......... 2,366,288 6,097,447 28,727 28,646 121,511
Sale of DC8............... -- 5,200,000 -- -- --
Transactions and balances
with an affiliated
company:
Receivable from affiliated
company................... -- -- -- -- 777,284
Rental expense............ -- -- -- -- 266,342
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 1,206,529 898,209 315,934
Promotional expenses...... 2,602,038 3,643,611 3,096,724 2,128,292 2,344,562
</TABLE>
F-36
<PAGE> 166
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 $3,155,512,
at December 31, 1995 and 1996 and September 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-37
<PAGE> 167
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%, 15% and 7%
of combined revenues for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended September 30, 1996 and 1997 (unaudited), respectively.
Accounts receivable from these customers were approximately $45,118,000,
$12,024,000 and $3,997,000 at December 31, 1995, 1996 and September 30, 1997
(unaudited), respectively.
11. SUPPLEMENTAL GUARANTOR INFORMATION
The Companies (with the exception of American International Cargo) and the
subsidiaries of Kitty Hawk, Inc. (the "Guarantors"), jointly and severally, will
guarantee on a senior basis, the full and prompt performance of the obligations
of Kitty Hawk, Inc. under the $340,000,000 aggregate principal amount of senior
secured notes of Kitty Hawk, Inc. being registered with the Securities and
Exchange Commission (See Note 12). The note guarantees will rank senior in right
of payment to any subordinated indebtedness and, except with respect to
collateral, pari passu with all existing and future unsubordinated indebtedness
of the Guarantors.
F-38
<PAGE> 168
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
THE COMPANIES AIC
EXCLUDING AIC (NON-
(GUARANTORS) GUARANTOR) ELIMINATIONS TOTAL
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash............................... $ 1,591,823 $ 1,690,319 $ -- $ 3,282,142
Restricted cash.................... 14,036,924 -- -- 14,036,924
Accounts receivable, net........... 66,940,231 10,340,885 (11,117,634) 66,163,482
Intercompany receivables........... (9,409,387) 9,909,330 (499,943) --
Expendable parts and supplies...... 24,624,354 -- -- 24,624,354
Other current assets............... 19,717,564 55,266 -- 19,772,830
------------ ----------- ------------ ------------
Total current assets..... 117,501,509 21,995,800 (11,617,577) 127,879,732
Property & equipment, net.......... 271,252,108 567,084 -- 271,819,192
Investment in AIC.................. 2,654,987 -- (2,654,987) --
Other assets....................... 777,284 -- -- 777,284
------------ ----------- ------------ ------------
Total Assets............. $392,185,888 $22,562,884 $(14,272,564) $400,476,208
============ =========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable & accrued misc.
expenses......................... $ 51,272,195 $ 9,598,116 $(10,971,385) $ 49,898,926
Intercompany payables.............. (20,229) 267,403 (247,174) --
Other current liabilities.......... 25,722,949 682,500 (399,018) 26,006,431
Deferred gain on sale.............. 30,255,291 -- -- 30,255,291
Notes payable and long-term debt,
reclassified as current.......... 160,058,163 -- -- 160,058,163
Notes payable and long-term debt,
current portion.................. 91,734,356 3,000,000 -- 94,734,356
------------ ----------- ------------ ------------
Total Current
Liabilities............ 359,022,725 13,548,019 (11,617,577) 360,953,167
Other long-term liabilities........ 300,462 -- -- 300,462
------------ ----------- ------------ ------------
Total liabilities........ 359,323,187 13,548,019 (11,617,577) 361,253,629
Minority interest in AIC........... -- -- 3,572,437 3,572,437
Stockholder's Equity:
Common stock..................... 53,000 -- -- 53,000
Net contributions by partners.... -- 4,367,472 (4,367,472) --
Additional paid in capital....... 17,839,157 -- -- 17,839,157
Retained earnings................ 14,970,544 4,647,393 (1,859,952) 17,757,985
------------ ----------- ------------ ------------
Total Stockholder's
Equity................. 32,862,701 9,014,865 (6,227,424) 35,650,142
------------ ----------- ------------ ------------
Total Liabilities and
Stockholder's Equity... $392,185,888 $22,562,884 $(14,272,564) $400,476,208
============ =========== ============ ============
</TABLE>
F-39
<PAGE> 169
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash................................ $ 1,193,493 $ 1,130,860 $ -- $ 2,324,353
Restricted cash..................... 795,030 -- -- 795,030
Accounts receivable, net............ 66,500,715 8,729,351 (5,188,163) 70,041,903
Intercompany receivables............ (4,250,701) 6,015,653 (1,764,952) --
Expendable parts and supplies....... 20,742,140 -- -- 20,742,140
Other current assets................ 20,129,750 19,921 -- 20,149,671
------------ ----------- ------------ ------------
Total Current Assets...... 105,110,427 15,895,785 (6,953,115) 114,053,097
Property & equipment, net........... 265,323,065 595,314 -- 265,918,379
Other assets........................ 131,805 -- -- 131,805
Investment in AIC................... 5,380,033 -- (5,380,033) --
------------ ----------- ------------ ------------
Total Assets.............. $375,945,330 $16,491,099 $(12,333,148) $380,103,281
============ =========== ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable & accrued misc.
expenses....................... $ 47,154,986 $ 5,189,297 $ (6,196,603) $ 46,147,680
Intercompany payables............. (267,340) 722,951 (455,611) --
Other current liabilities......... 24,680,720 588,095 (300,902) 24,967,913
Notes payable and long-term debt,
reclassified as current........ 203,016,367 -- -- 203,016,367
Notes payable and long-term debt,
current portion................ 34,310,440 1,024,035 -- 35,334,475
------------ ----------- ------------ ------------
Total Current
Liabilities............. 308,895,173 7,524,378 (6,953,116) 309,466,435
Other long-term liabilities......... -- -- -- --
------------ ----------- ------------ ------------
Total Liabilities......... 308,895,173 7,524,378 (6,953,116) 309,466,435
Minority interest in AIC............ -- -- 3,551,735 3,551,735
Stockholder's Equity:
Common stock...................... 53,000 -- -- 53,000
Net contributions by partners..... -- 6,101,674 (6,101,674) --
Additional paid in capital........ 17,839,157 -- -- 17,839,157
Retained earnings................. 49,158,000 2,865,047 (2,830,093) 49,192,954
------------ ----------- ------------ ------------
Total Stockholder's
Equity.................. 67,050,157 8,966,721 (8,931,767) 67,085,111
------------ ----------- ------------ ------------
Total Liabilities and
Stockholder's Equity.... $375,945,330 $16,491,099 $(12,333,148) $380,103,281
============ =========== ============ ============
</TABLE>
F-40
<PAGE> 170
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash................................. $ 457,590 $ 634,370 $ -- $ 1,091,960
Accounts receivable, less
allowance.......................... 91,020,864 4,831,150 (3,187,930) 92,664,084
Intercompany receivables............. (9,009,347) 10,967,688 (1,958,341) --
Expendable parts and supplies........ 12,330,854 -- -- 12,330,854
Other current assets................. 15,760,388 13,195 -- 15,773,583
------------ ----------- ----------- ------------
Total Current Assets....... 110,560,349 16,446,403 (5,146,271) 121,860,481
Property & equipment, net............ 255,074,876 476,496 -- 255,551,372
Investment in AIC.................... 1,367,194 -- (1,367,194) --
Other assets......................... 184,968 -- -- 184,968
------------ ----------- ----------- ------------
Total Assets............... $367,187,387 $16,922,899 $(6,513,465) $377,596,821
============ =========== =========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable & accrued misc.
expenses........................... $ 67,784,061 $ 3,021,562 $(4,259,252) $ 66,546,371
Intercompany payables................ -- 887,019 (887,019) --
Other current liabilities............ 20,048,704 294,284 -- 20,342,988
Notes payable and long-term debt,
current portion.................... 51,901,108 2,770,000 -- 51,901,108
------------ ----------- ----------- ------------
Total Current
Liabilities.............. 139,733,873 6,972,865 (5,146,271) 141,560,467
Notes payable and long-term debt,
less current portion............... 165,700,485 -- -- 165,700,485
Other long-term liabilities.......... 100,000 -- -- 100,000
------------ ----------- ----------- ------------
Total Liabilities.......... 305,534,358 6,972,865 (5,146,271) 307,360,952
Minority interest in AIC............. -- -- 3,944,070 3,944,070
Stockholder's Equity:
Common stock....................... 53,000 -- -- 53,000
Net contributions by partners...... -- 2,218,754 (2,218,754) --
Additional paid in capital......... 14,062,669 -- -- 14,062,669
Retained earnings.................. 47,537,360 7,731,280 (3,092,510) 52,176,130
------------ ----------- ----------- ------------
Total Stockholder's
Equity................... 61,653,029 9,950,034 (5,311,264) 66,291,799
------------ ----------- ----------- ------------
Total Liabilities and
Stockholder's Equity..... $367,187,387 $16,922,899 $(6,513,465) $377,596,821
============ =========== =========== ============
</TABLE>
F-41
<PAGE> 171
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue
Air transportation
services................. $293,956,055 $47,718,171 $ (39,329,458) $302,344,768
Maintenance & other......... 23,299,368 -- -- 23,299,368
------------ ----------- ------------- ------------
Total Revenue....... 317,255,423 47,718,171 (39,329,458) 325,644,136
Operating Expense:
Flight expense.............. 123,330,585 42,206,512 (39,329,458) 126,207,639
Maintenance expense......... 107,432,257 -- -- 107,432,257
Aircraft fuel expense....... 55,094,783 -- -- 55,094,783
Depreciation expense........ 26,369,556 98,044 -- 26,467,600
SG&A expense................ 16,892,213 955,671 -- 17,847,884
Bad debt expense............ 1,635,977 (2,019) -- 1,633,958
------------ ----------- ------------- ------------
Total Operating
Expense........... 330,755,371 43,258,208 (39,329,458) 334,684,121
------------ ----------- ------------- ------------
Operating Income (Loss)....... (13,499,948) 4,459,963 -- (9,039,985)
Other Income (Expense)
Interest expense, net....... (19,927,635) 187,431 -- (19,740,204)
Gain (loss) on sale of
assets................... 624,395 -- -- 624,395
Gain on insurance
reimbursement............ 542,302 -- -- 542,302
Merger related costs........ (1,269,100) -- -- (1,269,100)
------------ ----------- ------------- ------------
Total Other Income
(Expense)......... (20,030,038) 187,431 -- (19,842,607)
------------ ----------- ------------- ------------
Income (Loss) Before Minority
Interest.................... (33,529,986) 4,647,394 -- (28,882,592)
Minority Interest in AIC...... -- -- (1,858,958) (1,858,958)
------------ ----------- ------------- ------------
Net Income (Loss)............. $(33,529,986) $ 4,647,394 $ (1,858,958) $(30,741,550)
============ =========== ============= ============
</TABLE>
F-42
<PAGE> 172
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Air transportation services....... $270,924,804 $30,002,226 $(25,715,549) $275,211,481
Maintenance and other............. 25,801,347 -- -- 25,801,347
------------ ----------- ------------ ------------
Total Revenue............. 296,726,151 30,002,226 (25,715,549) 301,012,828
Operating Expense:
Flight expense.................... 105,419,606 27,302,039 (25,715,549) 107,006,096
Maintenance expense............... 81,561,290 -- -- 81,561,290
Aircraft fuel expense............. 58,433,493 -- -- 58,433,493
Depreciation expense.............. 23,897,542 61,007 -- 23,958,549
SG&A expense...................... 14,714,614 638,408 -- 15,353,022
Bad debt expense.................. 2,380,244 5,815 -- 2,386,059
------------ ----------- ------------ ------------
Total Operating Expense... 286,406,789 28,007,269 (25,715,549) 288,698,509
------------ ----------- ------------ ------------
Operating Income.................... 10,319,362 1,994,957 -- 12,314,319
Other Income (Expense)
Interest expense, net............. (16,029,682) 274,367 -- (15,755,315)
Gain (loss) on sale of assets..... 425,742 -- -- 425,742
Gain on contract settlement....... 1,123,200 -- -- 1,123,200
Net, miscellaneous................ 13,214 -- -- 13,214
------------ ----------- ------------ ------------
Total Other Income
(Expense)............... (14,467,526) 274,367 -- (14,193,159)
------------ ----------- ------------ ------------
Income (Loss) Before Minority
Interest.......................... (4,148,164) 2,269,324 -- (1,878,840)
Minority Interest in AIC............ -- -- (907,730) (907,730)
------------ ----------- ------------ ------------
Net Income (Loss)................... $ (4,148,164) $ 2,269,324 $ (907,730) $ (2,786,570)
============ =========== ============ ============
</TABLE>
F-43
<PAGE> 173
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Air transportation services....... $381,473,358 $44,697,848 $(37,978,727) $388,192,479
Maintenance & other............... 36,348,245 -- -- 36,348,245
------------ ----------- ------------ ------------
Total Revenue............. 417,821,603 44,697,848 (37,978,727) 424,540,724
Operating Expense:
Flight expense.................... 147,282,092 40,952,222 (37,978,727) 150,255,587
Maintenance expense............... 115,081,955 -- -- 115,081,955
Aircraft fuel expense............. 82,717,539 -- -- 82,717,539
Depreciation expense.............. 31,970,112 121,007 -- 32,091,119
SG&A expense...................... 20,852,315 1,037,040 -- 21,889,355
Bad debt expense.................. 948,516 62,147 -- 1,010,663
------------ ----------- ------------ ------------
Total Operating Expense... 398,852,529 42,172,416 (37,978,727) 403,046,218
------------ ----------- ------------ ------------
Operating Income.................... 18,969,074 2,525,432 -- 21,494,506
Other Income (Expense)
Interest expense, net............. (21,972,004) 339,615 -- (21,632,389)
Gain (loss) on sale of assets..... 130,934 -- -- 130,934
Gain on contract settlement....... 1,123,200 -- -- 1,123,200
Net, miscellaneous................ 13,116 -- -- 13,116
------------ ----------- ------------ ------------
Total Other Income
(Expense)............... (20,704,754) 339,615 -- (20,365,139)
------------ ----------- ------------ ------------
Income (Loss) Before Minority
Interest.......................... (1,735,680) 2,865,047 -- 1,129,367
Minority Interest in AIC............ -- -- (1,146,019) (1,146,019)
------------ ----------- ------------ ------------
Net Income (Loss)................... $ (1,735,680) $ 2,865,047 $ (1,146,019) $ (16,652)
============ =========== ============ ============
</TABLE>
F-44
<PAGE> 174
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Air transportation services........... $348,654,226 $36,962,270 $(26,212,248) $359,404,248
Maintenance & other................... 14,278,793 -- -- 14,278,793
------------ ----------- ------------ ------------
Total Revenue................. 362,933,019 36,962,270 (26,212,248) 373,683,041
Operating Expense:
Flight expense........................ 167,501,984 27,485,043 (26,212,248) 168,774,779
Maintenance expense................... 103,119,112 269,598 -- 103,388,710
Aircraft fuel expense................. 54,538,321 -- -- 54,538,321
Depreciation expense.................. 20,860,503 110,902 -- 20,971,405
SG&A expense.......................... 20,152,642 1,523,437 -- 21,676,079
Bad debt expense...................... 1,839,271 23,012 -- 1,862,283
------------ ----------- ------------ ------------
Total Operating Expense....... 368,011,833 29,411,992 (26,212,248) 371,211,577
------------ ----------- ------------ ------------
Operating Income (Loss)................. (5,078,814) 7,550,278 -- 2,471,464
Other Income (Expense)
Interest expense, net................. (14,950,004) 201,393 -- (14,748,611)
Gain (loss) on sale of assets......... 11,728,064 (20,391) -- 11,707,673
Gain on insurance reimbursement....... 8,147,878 -- -- 8,147,878
Net, miscellaneous.................... (110) -- -- (110)
------------ ----------- ------------ ------------
Total Other Income............ 4,925,828 181,002 -- 5,106,830
------------ ----------- ------------ ------------
Income (Loss) Before Minority
Interest.............................. (152,986) 7,731,280 -- 7,578,294
Minority Interest in AIC................ -- -- (3,092,513) (3,092,513)
------------ ----------- ------------ ------------
Net Income (Loss)....................... $ (152,986) $ 7,731,280 $ (3,092,513) $ 4,485,781
============ =========== ============ ============
</TABLE>
F-45
<PAGE> 175
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Air transportation services...... $287,822,938 $31,344,294 $(21,086,382) $298,080,850
Maintenance and other.......... 7,448,982 -- -- 7,448,982
------------ ----------- ------------ ------------
Total Revenue.......... 295,271,920 31,344,294 (21,086,382) 305,529,832
Operating Expense:
Flight expense................. 113,365,324 23,334,764 (21,086,382) 115,613,706
Maintenance expense............ 64,564,123 157,956 -- 64,722,079
Aircraft fuel expense.......... 57,330,926 30,962 -- 57,361,888
Depreciation expense........... 13,739,189 70,092 -- 13,809,281
SG&A expense................... 12,424,454 847,907 -- 13,272,361
Bad debt expense............... 2,225,276 6,209 -- 2,231,485
------------ ----------- ------------ ------------
Total Operating
Expense.............. 263,649,292 24,447,890 (21,086,382) 267,010,800
------------ ----------- ------------ ------------
Operating Income................. 31,622,628 6,896,404 -- 38,519,032
Other Income (Expense)
Interest expense, net.......... (8,007,347) (42) -- (8,007,389)
Gain (loss) on sale of
assets...................... 3,390,314 (433) -- 3,389,881
Net, miscellaneous............. (550,000) -- -- (550,000)
------------ ----------- ------------ ------------
Total Other Expense.... (5,167,033) (475) -- (5,167,508)
------------ ----------- ------------ ------------
Income Before Minority
Interest....................... 26,455,595 6,895,929 -- 33,351,524
Minority Interest in AIC......... -- -- (2,758,372) (2,758,372)
------------ ----------- ------------ ------------
Net Income....................... $ 26,455,595 $ 6,895,929 $ (2,758,372) $ 30,593,152
============ =========== ============ ============
</TABLE>
F-46
<PAGE> 176
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash (Used in) Provided by
Operating Activities.......... $(18,204,844) $ 3,253,308 $ 1,858,958 $(13,092,578)
Cash Flows from Investing
Activities:
Purchase of PP&E.............. (54,438,762) (69,814) -- (54,508,576)
Proceeds on sale of PP&E...... 55,127,500 -- -- 55,127,500
Other......................... (777,284) -- -- (777,284)
------------ ----------- ----------- ------------
Net cash used in
investing
activities.......... (4,530,412) (69,814) (4,618,958) (158,360)
Financing Activities:
Repayments of notes and long-
term debt.................. (63,198,575) -- -- (63,198,575)
Borrowings under notes and
long-term debt
agreements................. 77,664,294 1,975,965 -- 79,640,259
Net repayments under note
payable to stockholder..... 300,462 -- -- 300,462
Distributions to
stockholder................ (693,419) -- -- (693,419)
Net partner contributions/
withdrawals................ -- (4,600,000) 4,600,000 --
Distributions to minority
interest stockholder....... -- -- (1,840,000) (1,840,000)
------------ ----------- ----------- ------------
Net cash provided by
(used in) financing
activities.......... 14,072,762 (2,624,035) 2,760,000 14,208,727
------------ ----------- ----------- ------------
Increase in Cash................ 398,330 559,459 -- 957,789
------------ ----------- ----------- ------------
Cash, Beginning of Period....... 1,193,493 1,130,860 -- 2,324,353
------------ ----------- ----------- ------------
Cash, End of Period............. $ 1,591,823 $ 1,690,319 $ -- $ 3,282,142
============ =========== =========== ============
</TABLE>
F-47
<PAGE> 177
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash Provided by Operating
Activities...................... $ 19,957,588 $ 6,810,545 $ 907,730 $ 27,675,863
Cash Flows from Investing
Activities:
Purchase of PP&E................ (43,529,439) (68,419) -- (43,597,858)
Proceeds on sale of PP&E........ 10,145,798 -- -- 10,145,798
Investment in AIC............... 3,217,730 -- (3,217,730) --
Other........................... 53,163 -- -- 53,163
------------ ----------- ----------- ------------
Net cash used in
investing
activities............ (30,112,748) (68,419) (3,217,730) (33,398,897)
Financing Activities:
Repayments of notes and
long-term debt............... (51,012,039) (2,295,039) -- (53,307,078)
Borrowings under notes and long-
term debt agreements......... 61,295,530 -- -- 61,295,530
Net repayments under note
payable to stockholder....... 340,462 -- -- 340,462
Distributions to stockholder.... (2,580,655) -- -- (2,580,655)
Contribution of capital by
stockholder.................. 3,759,903 -- -- 3,759,903
Net partner
contributions/withdrawals.... -- (3,850,000) 3,850,000 --
Distributions to minority
interest stockholder......... -- -- (1,540,000) (1,540,000)
------------ ----------- ----------- ------------
Net cash provided by
(used in) financing
activities............ 11,803,201 (6,145,039) 2,310,000 7,968,162
------------ ----------- ----------- ------------
Increase in Cash.................. 1,648,041 597,087 -- 2,245,128
Cash, Beginning of Period......... 457,590 634,370 -- 1,091,960
------------ ----------- ----------- ------------
Cash, End of Period............... $ 2,105,631 $ 1,231,457 $ -- $ 3,337,088
============ =========== =========== ============
</TABLE>
F-48
<PAGE> 178
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash Provided by Operating Activities... $ 18,952,227 $ 6,332,280 $ 1,146,019 $ 26,430,526
Cash Flows from Investing Activities:
Purchase of PP&E...................... (53,173,437) (239,825) -- (53,413,262)
Proceeds on sale of PP&E.............. 11,008,725 -- -- 11,008,725
Investment in AIC..................... 3,460,047 -- (3,460,047) --
Other................................. 53,163 -- -- 53,163
------------ ----------- ----------- ------------
Net cash used in investing
activities.................. (38,651,502) (239,825) (3,460,047) (42,351,374)
Financing Activities:
Repayments of notes and long-term
debt............................... (50,371,999) (1,745,965) -- (52,117,964)
Borrowings under notes and long-term
debt agreements.................... 70,097,213 -- -- 70,097,213
Net repayments under note payable to
stockholder........................ (100,000) -- -- (100,000)
Distributions to stockholder.......... (2,966,524) -- -- (2,966,524)
Contribution of capital by
stockholder........................ 3,776,488 -- -- 3,776,488
Net partner
contributions/withdrawals.......... -- (3,850,000) 3,850,000 --
Distributions to minority interest
stockholder........................ -- -- (1,535,972) (1,535,972)
------------ ----------- ----------- ------------
Net cash provided by (used in)
financing activities........ 20,435,178 (5,595,965) 2,314,028 17,153,241
------------ ----------- ----------- ------------
Increase in Cash........................ 735,903 496,490 -- 1,232,393
Cash, Beginning of Period............... 457,590 634,370 -- 1,091,960
------------ ----------- ----------- ------------
Cash, End of Period..................... $ 1,193,493 $ 1,130,860 $ -- $ 2,324,353
============ =========== =========== ============
</TABLE>
F-49
<PAGE> 179
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash Provided by Operating
Activities...................... $ 44,441,613 $ 11,954,605 $(6,880,705) $ 49,515,513
Cash Flows from Investing
Activities:
Purchase of PP&E................ (153,410,208) (309,139) -- (153,719,347)
Proceeds on sale of PP&E........ 33,603,329 -- -- 33,603,329
Interest bearing advances to
related companies............ -- (9,973,218) 9,973,218 --
Investment in AIC............... 6,249,639 -- (6,249,639) --
Disposal of Grand Holdings,
Inc., net of cash............ (948,818) -- -- (948,818)
Other........................... 119,324 -- -- 119,324
------------- ------------ ----------- -------------
Net cash used in
investing
activities............ (114,386,734) (10,282,357) 3,723,579 (120,945,512)
Financing Activities:
Repayments of notes and
long-term debt............... (36,899,953) -- -- (36,899,953)
Borrowings under notes and long-
term debt agreements......... 117,182,548 2,770,000 -- 119,952,548
Net repayments under note
payable to stockholder....... 14,000 -- -- 14,000
Issuance of common stock........ 2,000 -- -- 2,000
Contribution of capital by
stockholder.................. 554,102 -- -- 554,102
Distributions to stockholder.... (13,730,711) -- -- (13,730,711)
Net partner contributions/
withdrawals.................. -- (5,263,126) 5,263,126 --
Distributions to minority
interest stockholder......... -- -- (2,106,000) (2,106,000)
------------- ------------ ----------- -------------
Net cash provided by
(used in) financing
activities............ 67,121,986 (2,493,126) 3,157,126 67,785,986
------------- ------------ ----------- -------------
Decrease in Cash.................. (2,823,135) (820,878) -- (3,644,013)
Cash, Beginning of Period......... 3,280,725 1,455,248 -- 4,735,973
------------- ------------ ----------- -------------
Cash, End of Period............... $ 457,590 $ 634,370 $ -- $ 1,091,960
============= ============ =========== =============
</TABLE>
F-50
<PAGE> 180
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
THE COMPANIES
EXCLUDING AIC AIC
(GUARANTORS) (NON-GUARANTOR) ELIMINATIONS TOTAL
------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash Provided by Operating
Activities......................... $ 26,751,527 $ 4,664,502 $ 2,426,997 $ 33,843,026
Cash Flows from Investing Activities:
Purchase of PP&E................... (77,679,379) (152,234) -- (77,831,613)
Proceeds on sale of PP&E........... 5,250,000 -- -- 5,250,000
Interest bearing advances to
related companies............... -- (331,375) 331,375 --
Investment in AIC.................. 4,808,544 -- (4,808,544) --
Acquisition of GTAND Holdings,
Inc., net of cash acquired...... (97,077) -- -- (97,077)
Other.............................. 139,620 -- -- 139,620
------------ ----------- ----------- ------------
Net cash used in investing
activities............... (67,578,292) (483,609) (4,477,169) (72,539,070)
Financing Activities:
Repayments of notes and long-term
debt............................ (21,997,617) -- -- (21,997,617)
Borrowings under notes and
long-term debt agreements....... 74,466,207 -- -- 74,466,207
Distributions to stockholder....... (8,830,125) -- -- (8,830,125)
Net partner
contributions/withdrawals....... -- (3,417,500) 3,417,500 --
Distributions to minority interest
stockholder..................... -- -- (1,367,328) (1,367,328)
------------ ----------- ----------- ------------
Net cash provided by (used
in) financing
activities............... 43,638,465 (3,417,500) 2,050,172 42,271,137
------------ ----------- ----------- ------------
Increase in Cash..................... 2,811,700 763,393 -- 3,575,093
Cash, Beginning of Period............ 469,025 691,855 -- 1,160,880
------------ ----------- ----------- ------------
Cash, End of Period.................. $ 3,280,725 $ 1,455,248 $ -- $ 4,735,973
============ =========== =========== ============
</TABLE>
12. MANAGEMENT'S PLANS -- SALE OF AIRCRAFT AND 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-51
<PAGE> 181
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 3,000,000 share common stock offering (of which Kitty Hawk
will sell 2,200,000 shares, not including up to 450,000 additional shares for
which Kitty Hawk has granted the underwriters a 30 day option to purchase) 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. At September 30, 1997, the Companies deferred a gain of approximately
$30 million (unaudited) in connection with this transaction. This gain will be
recognized if the merger is not finalized and the put and call options are not
exercised.
F-52
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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.
Pursuant to the Merger Agreement, the Company has agreed to indemnify each
person who is, has been or becomes prior to November 19, 1997, an officer,
director, employee or agent of any of the Kalitta Companies against any losses
related to such person's service, as of or prior to November 19, 1997, as an
officer, director, employee or agent of any of the Kalitta Companies.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
II-1
<PAGE> 183
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
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, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-36125), which Exhibit
is herein incorporated by reference.
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, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
2.3 -- Amendment No. 2 to the Merger Agreement, dated October
29, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad Kalitta, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
2.4* -- Amendment No. 3 to the Merger Agreement, dated November
14, 1997 by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad 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 -- 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.
3.3* -- Amended and Restated Bylaws of Kitty Hawk.
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* -- Stockholders' Agreement dated November 1997 among the
Company, M. Tom Christopher and Conrad A. Kalitta.
4.3* -- Specimen Global Note in respect of 9.95% Senior Secured
Notes due 2004 (Old Notes).
4.4* -- Indenture, dated November 15, 1997, in regard to 9.95%
Senior Secured Notes due 2004 by and among the Company
and certain of its subsidiaries and Bank One, N.A. as
Trustee and Collateral Trustee.
4.5* -- Registration Rights Agreement, dated November 19, 1997,
by and among the Company and certain of its subsidiaries
and Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated and Fieldstone FPCG Services, L.P., as
Placement Agents.
4.6* -- Placement Agreement, dated November 1997 by and among the
Company and certain of its subsidiaries, and Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated,
and Fieldstone FPCG Services, L.P., as Placement Agents.
</TABLE>
II-2
<PAGE> 184
<TABLE>
<CAPTION>
<C> <S>
4.7* -- First Supplemental Indenture, dated February 5, 1998, in
regard to 9.95% Senior Secured Notes due 2004 by and
among the Company and certain of its subsidiaries and
Bank One, N.A. as Trustee and Collateral Trustee.
5.1* -- Opinion of Haynes and Boone, LLP, regarding legality of
the New Notes issued.
5.2* -- Opinion of Haynes and Boone, LLP, as to certain tax
matters.
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.
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.
</TABLE>
II-3
<PAGE> 185
<TABLE>
<CAPTION>
<C> <S>
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.
10.19* -- Second Amended and Restated Credit Agreement, dated as of November 19, 1997, by and
among the Company (as borrower) and Wells Fargo Bank (Texas), National Association (as
agent).
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, filed as an Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-36125), which Exhibit is herein incorporated by
reference.
10.21 -- Employment Agreement by and between Conrad A. Kalitta and AIA, filed as an Exhibit to
the Registrant's previously filed Registration Statement on Form S-1 (Reg. No.
333-36125), which Exhibit is herein incorporated by reference.
10.22 -- Amended and Restated Consulting Agreement by and between Conrad A. Kalitta and AIA,
filed as an Exhibit to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 333-36125), which Exhibit is herein incorporated by reference.
10.23 -- License Agreement (the "License Agreement"), dated May 15, 1995, by and between Roadway
Global Air, Inc. ("RGA") and American International Freight ("AIF"), a division of AIA,
filed as an Exhibit to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 333-36125), which Exhibit is herein incorporated by reference.
</TABLE>
II-4
<PAGE> 186
<TABLE>
<CAPTION>
<C> <S>
10.24 -- Amendment to License Agreement, dated August 14, 1997, by and between RGA and AIF,
filed as an Exhibit to the Registrant's previously filed Registration Statement on Form
S-1 (Reg. No. 333-36125), which Exhibit is herein incorporated by reference.
10.25* -- Escrow and Security Agreement, dated November 19, 1997, between the Company and Bank
One, N.A. as Trustee and Collateral Trustee placing the Pledged Securities into escrow.
12.1 -- Statement of computation of ratio of earnings to fixed charges, filed as an Exhibit to
the Registrant's previously filed Registration Statement on Form S-1 (Reg. No.
333-36125), which Exhibit is herein incorporated by reference.
21.1* -- Subsidiaries of the Registrant.
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).
23.4** -- Consent of Pro-Tech Advisors, Inc.
23.5** -- Consent of GRA Aviation Specialists, Inc.
24.1 -- The power of attorney of officers and directors of the Company (found on signature
pages).
25.1* -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939 of Bank One, N.A.
99.1* -- Form of Letter of Transmittal and related documents to be used in conjunction with the
Exchange Offer.
</TABLE>
- ---------------
* Filed herewith.
** 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.
ITEM 22. UNDERTAKINGS.
Each of the undersigned Registrants hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
II-5
<PAGE> 187
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the Form of prospectus filed
with the Securities and Exchange Commission pursuant to rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in this Registration Statement
when it becomes effective;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
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 Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant 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 Securities Act and will be governed by the final
adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Registration Statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-6
<PAGE> 188
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 29th day of January, 1998.
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
Registration Statement has been signed by the following persons in the
capacities indicated on the 29th day of January, 1998.
<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 and Director
- -----------------------------------------------------
Tilmon J. Reeves
/s/ CONRAD A. KALITTA* Vice Chairman and Director
- -----------------------------------------------------
Conrad A. Kalitta
/s/ RICHARD R. WADSWORTH Senior Vice President -- Finance, Chief
- ----------------------------------------------------- Financial Officer (Principal Financial and
Richard R. Wadsworth Accounting Officer) and Secretary
/s/ PHILIP J. SAUDER* Director
- -----------------------------------------------------
Philip J. Sauder
/s/ TED J. COONFIELD* Director
- -----------------------------------------------------
Ted J. Coonfield
/s/ GEORGE W. KELSEY* Director
- -----------------------------------------------------
George W. Kelsey
/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-7
<PAGE> 189
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-4. 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> 190
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> 191
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
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, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-36125), which Exhibit
is herein incorporated by reference.
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, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
2.3 -- Amendment No. 2 to the Merger Agreement, dated October
29, 1997, by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad Kalitta, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
2.4* -- Amendment No. 3 to the Merger Agreement, dated November
14, 1997 by and among Kitty Hawk and certain of its
subsidiaries, M. Tom Christopher, AIA, AIT, FOL, KFS, OK
and Conrad 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 -- 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.
3.3* -- Amended and Restated Bylaws of Kitty Hawk.
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* -- Stockholders' Agreement dated November 1997 among the
Company, M. Tom Christopher and Conrad A. Kalitta.
4.3* -- Specimen Global Note in respect of 9.95% Senior Secured
Notes due 2004 (Old Notes).
4.4* -- Indenture, dated November 15, 1997, in regard to 9.95%
Senior Secured Notes due 2004 by and among the Company
and certain of its subsidiaries and Bank One, N.A. as
Trustee and Collateral Trustee.
4.5* -- Registration Rights Agreement, dated November 19, 1997,
by and among the Company and certain of its subsidiaries
and Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated and Fieldstone FPCG Services, L.P., as
Placement Agents.
4.6* -- Placement Agreement, dated November 1997 by and among the
Company and certain of its subsidiaries, and Morgan
Stanley & Co. Incorporated, BT Alex. Brown Incorporated,
and Fieldstone FPCG Services, L.P., as Placement Agents.
</TABLE>
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
4.7* -- First Supplemental Indenture, dated February 5, 1998, in
regard to 9.95% Senior Secured Notes due 2004 by and
among the Company and certain of its subsidiaries and
Bank One, N.A. as Trustee and Collateral Trustee.
5.1* -- Opinion of Haynes and Boone, LLP, regarding legality of
the New Notes issued.
5.2* -- Opinion of Haynes and Boone, LLP, as to certain tax
matters.
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.
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.
</TABLE>
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
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.
10.19* -- Second Amended and Restated Credit Agreement, dated as of
November 19, 1997, by and among the Company (as borrower)
and Wells Fargo Bank (Texas), National Association (as
agent).
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, filed as an
Exhibit to the Registrant's previously filed Registration
Statement on Form S-1 (Reg. No. 333-36125), which Exhibit
is herein incorporated by reference.
10.21 -- Employment Agreement by and between Conrad A. Kalitta and
AIA, filed as an Exhibit to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No.
333-36125), which Exhibit is herein incorporated by
reference.
10.22 -- Amended and Restated Consulting Agreement by and between
Conrad A. Kalitta and AIA, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
10.23 -- License Agreement (the "License Agreement"), dated May
15, 1995, by and between Roadway Global Air, Inc. ("RGA")
and American International Freight ("AIF"), a division of
AIA, filed as an Exhibit to the Registrant's previously
filed Registration Statement on Form S-1 (Reg. No.
333-36125), which Exhibit is herein incorporated by
reference.
10.24 -- Amendment to License Agreement, dated August 14, 1997, by
and between RGA and AIF, filed as an Exhibit to the
Registrant's previously filed Registration Statement on
Form S-1 (Reg. No. 333-36125), which Exhibit is herein
incorporated by reference.
10.25* -- Escrow and Security Agreement, dated November 19, 1997,
between the Company and Bank One, N.A. as Trustee and
Collateral Trustee placing the Pledged Securities into
escrow.
12.1 -- Statement of computation of ratio of earnings to fixed
charges, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg.
No. 333-36125), which Exhibit is herein incorporated by
reference.
21.1* -- Subsidiaries of the Registrant.
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).
23.4** -- Consent of Pro-Tech Advisors, Inc.
23.5** -- Consent of GRA Aviation Specialists, Inc.
24.1 -- The power of attorney of officers and directors of the
Company (found on signature pages).
25.1* -- Statement of Eligibility and Qualification (Form T-1)
under the Trust Indenture Act of 1939 of Bank One, N.A.
99.1* -- Form of Letter of Transmittal and related documents to be
used in conjunction with the Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
** Previously filed
<PAGE> 1
EXHIBIT 2.4
AMENDMENT NO. 3 TO AGREEMENT AND PLAN OF MERGER
This Amendment No. 3 (the "AMENDMENT") made as of this 14th day of
November, 1997, is 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") and amends the Agreement and
Plan of Merger, dated September 22, 1997 among the parties hereto (the
"AGREEMENT"), as amended by Amendment No. 1 to Agreement and Plan of Merger
dated October 23, 1997 among the parties hereto and by Amendment No. 2 to
Agreement and Plan of Merger dated October 29, 1997 among the parties hereto.
WHEREAS, the parties desire to amend certain terms of the Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants herein contained, the parties hereto agree as follows:
1. Section 6.1.11 of the Agreement shall be amended by deleting
the entire section and replacing it with the following:
6.1.11 Financing. Kitty Hawk shall have received (a) net
proceeds of at least $37,000,000 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 $328,000,000.
2. Section 6.2.14 of the Agreement shall be amended by deleting
the entire section and replacing it with the following:
6.2.14 Financing. Kitty Hawk shall have received (a) net
proceeds of at least $37,000,000 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 $328,000,000.
3. The second sentence of Section 5.5.4(b) of the Agreement
shall be amended by deleting the entire sentence and replacing it with the
following:
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 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.
4. Except as amended, all other terms and provisions in the
Agreement shall remain unchanged.
5. This Amendment may be signed in multiple counterparts, all of
which together shall be deemed to constitute one amendment to the Agreement.
* * * * *
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment,
as of the date first written hereinabove.
KITTY HAWK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KITTY HAWK - AIA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KITTY HAWK - AIT, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KITTY HAWK - FOL, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KITTY HAWK - KFS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 2 -
<PAGE> 3
KITTY HAWK - OK, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
M. Tom Christopher
AMERICAN INTERNATIONAL AIRWAYS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AMERICAN INTERNATIONAL TRAVEL, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FLIGHT ONE LOGISTICS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
KALITTA FLYING SERVICES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
- 3 -
<PAGE> 4
O.K. TURBINES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
Conrad Kalitta
- 4 -
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
KITTY HAWK, INC.
A DELAWARE CORPORATION
NOVEMBER 18, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE: OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Notice of Stockholder Business;
Nomination of Director Candidates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Required Vote; Withdrawal of Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Method of Voting; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE THREE: DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Number; Qualification; Election; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Change in Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 Meetings of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Election of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.9 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.10 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.11 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.13 Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE FOUR: COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Number; Qualification; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Committee Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Alternate Members of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
4.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE FIVE: NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE SIX: OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Number; Titles; Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Chairman of the Board and Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . 12
6.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.9 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.10 Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.12 Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.13 Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Certificates for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Replacement of Lost or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . 14
7.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.4 Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.5 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.6 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.4 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.5 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.7 Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.8 Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Action Without a Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.10 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
8.11 Mortgages, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.13 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE NINE: GOVERNANCE PROVISIONS
DURING THE EFFECTIVE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.1 Definitions Applicable to Article Nine . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.2 Electing the Initial Effective Period Board . . . . . . . . . . . . . . . . . . . . . . . . 20
9.3 Effective Period Nominating Committees . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.4 Deadlock Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.5 Certain Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.6 Amendments to Article Nine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
- iii -
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
KITTY HAWK, INC.
A DELAWARE CORPORATION
PREAMBLE
These amended and restated bylaws ("BYLAWS") are subject to, and
governed by, the General Corporation Law of the State of Delaware (the
"DELAWARE CORPORATION LAW") and the certificate of incorporation ("CERTIFICATE
OF INCORPORATION") of Kitty Hawk, Inc., a Delaware corporation (the
"CORPORATION"). In the event of a direct conflict between the provisions of
these bylaws and the mandatory provisions of the Delaware Corporation Law or
the provisions of the Certificate of Incorporation, such provisions of the
Delaware Corporation Law or the Certificate of Incorporation, as the case may
be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation in the office of the Secretary of
State of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors of the Corporation (the "BOARD OF DIRECTORS") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may be properly brought before the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be
called by the Board of Directors pursuant to a resolution adopted by a majority
of the members of the Classified Directors (as defined in Section 3.2 hereof)
then serving, by the Chairman of the Board and Chief Executive Officer, or by
any holder or holders of record of at least 25% of the outstanding shares of
capital stock of the Corporation then entitled to vote on any matter for which
the respective special meeting is being called. A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the
<PAGE> 6
meeting or in a duly executed waiver of notice of such meeting. Only such
business shall be transacted at a special meeting as may be stated or indicated
in the notice of such meeting given in accordance with these bylaws or in a
duly executed waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be
held at any place within or without the State of Delaware designated by the
Board of Directors. A special meeting of stockholders may be held at any place
within or without the State of Delaware designated in the notice of the meeting
or a duly executed waiver of notice of such meeting. Meetings of stockholders
shall be held at the principal office of the Corporation unless another place
is designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and
time of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not
less than 10 nor more than 60 days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board and
Chief Executive Officer, the Secretary, or the officer or person(s) calling the
meeting, to each stockholder of record entitled to vote at such meeting. If
such notice is to be sent by mail, it shall be directed to such stockholder at
his address as it appears on the records of the Corporation, unless he shall
have filed with the Secretary of the Corporation a written request that notices
to him be mailed to some other address, in which case it shall be directed to
him at such other address. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall attend such meeting in person
or by proxy and shall not, at the beginning of such meeting, object to the
transaction of any business because the meeting is not lawfully called or
convened, or who shall, either before or after the meeting, submit a signed
waiver of notice, in person or by proxy.
2.5 Notice of Stockholder Business; Nomination of Director
Candidates.
(a) At annual meetings of the stockholders, only such business
shall be conducted as shall have been brought before the meetings (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors, or (iii) by any stockholder of
the Corporation who is a stockholder of record at the time of giving
of notice provided for in this Section 2.5, who shall be entitled to
vote at such meeting, and who complies with the notice procedures set
forth in this Section 2.5.
(b) Only persons who are nominated in accordance with the
procedures set forth in these bylaws shall be eligible to serve as
directors. Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of
- 2 -
<PAGE> 7
giving of notice provided for in this Section 2.5, who shall be
entitled to vote for the election of directors at the meeting, and who
complies with the notice procedures set forth in this Section 2.5.
(c) A stockholder must give timely, written notice to the
Secretary of the Corporation to nominate directors at an annual
meeting pursuant to Section 2.5(b) hereof or to propose business to be
brought before an annual or special meeting pursuant to clause (iii)
of Section 2.5(a) hereof. To be timely in the case of an annual
meeting, a stockholder's notice must be received at the principal
executive offices of the Corporation not more than 180 days nor less
than 120 days before the first anniversary of the preceding year's
annual meeting. To be timely in the case of a special meeting or in
the event that the date of the annual meeting is changed by more than
30 days from such anniversary date, a stockholder's notice must be
received at the principal executive offices of the Corporation no
later than the close of business on the tenth day following the
earlier of the day on which notice of the meeting date was mailed or
public disclosure of the meeting date was made. For purposes of this
Section 2.5(c), "PUBLIC DISCLOSURE" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934.
Such stockholder's notice shall set forth (i) with respect to each
matter, if any, that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting, (ii) with respect to each person, if any, whom the
stockholder proposes to nominate for election as a director, all
information relating to such person (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director) that is required under the Securities Exchange
Act of 1934, as amended, (iii) the name and address, as they appear on
the Corporation's records, of the stockholder proposing such business
or nominating such persons (as the case may be), and the name and
address of the beneficial owner, if any, on whose behalf the proposal
or nomination is made, (iv) the class and number of shares of capital
stock of the Corporation that are owned beneficially and of record by
such stockholder of record and by the beneficial owner, if any, on
whose behalf the proposal or nomination is made, and (v) any material
interest or relationship that such stockholder of record and/or the
beneficial owner, if any, on whose behalf the proposal or nomination
is made may respectively have in such business or with such nominee.
At the request of the Board of Directors, any person nominated for
election as a director shall furnish to the Secretary of the
Corporation the information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
- 3 -
<PAGE> 8
(d) Notwithstanding anything in these bylaws to the contrary, no
business shall be conducted, and no person shall be nominated to serve
as a director, at an annual or special meeting of stockholders, except
in accordance with the procedures set forth in this Section 2.5. The
chairman of the meeting shall, if the facts warrant, determine that
business was not properly brought before the meeting, or that a
nomination was not made, in accordance with the procedures prescribed
by these bylaws and, if he shall so determine, he shall so declare to
the meeting, and any such business not properly brought before the
meeting shall not be transacted and any defective nomination shall be
disregarded. A stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set
forth in this Section 2.5.
2.6 Voting List. At least 10 days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the Board of
Directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and number of shares of capital stock registered in the name of
each stockholder. For a period of 10 days prior to such meeting, such list
shall be kept on file at a place within the city where the meeting is to be
held, which place shall be specified in the notice of meeting or a duly
executed waiver of notice of such meeting or, if not so specified, at the place
where the meeting is to be held and shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours. Such list shall be produced at such meeting and kept at the meeting at
all times during such meeting and may be inspected by any stockholder who is
present.
2.7 Quorum. The holders of a majority of the outstanding shares
of capital stock entitled to vote on a matter, present in person or by proxy,
shall constitute a quorum at any meeting of stockholders, except as otherwise
provided by law, the Certificate of Incorporation, or these bylaws. If a
quorum shall not be present, in person or by proxy, at any meeting of
stockholders, the stockholders entitled to vote thereat who are present, in
person or by proxy (or, if no stockholder entitled to vote is present, any
officer of the Corporation), may adjourn the meeting from time to time without
notice other than announcement at the meeting (unless the Board of Directors,
after such adjournment, fixes a new record date for the adjourned meeting),
until a quorum shall be present, in person or by proxy. At any adjourned
meeting at which a quorum shall be present, in person or by proxy, any business
may be transacted which may have been transacted at the original meeting had a
quorum been present; provided that, if the adjournment is for more than 30 days
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the adjourned meeting.
- 4 -
<PAGE> 9
2.8 Required Vote; Withdrawal of Quorum. When a quorum is present
at any meeting, the vote of the holders of at least a majority of the
outstanding shares of capital stock entitled to vote thereat who are present,
in person or by proxy, shall decide any question brought before such meeting,
unless the question is one on which, by express provision of law, the
Certificate of Incorporation, or these bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question; provided, however, that the vote of the holders of a plurality of the
outstanding shares of capital stock entitled to vote in the election of
directors who are present, in person or by proxy, shall be required to effect
elections of directors. The stockholders present at a duly constituted meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.9 Method of Voting; Proxies. Except as otherwise provided in
the Certificate of Incorporation or by law, each outstanding share of capital
stock, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy shall be valid after three years from the
date of its execution, unless otherwise provided in the proxy. If no date is
stated in a proxy, such proxy shall be presumed to have been executed on the
date of the meeting at which it is to be voted. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an
interest sufficient in law to support an irrevocable power or unless otherwise
made irrevocable by law.
2.10 Record Date. For the purpose of determining stockholders
entitled (a) to notice of or to vote at any meeting of stockholders or any
adjournment thereof, (b) to receive payment of any dividend or other
distribution or allotment of any rights, or (c) to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, for any such determination of
stockholders, such date in any case to be not more than 60 days and not less
than 10 days prior to such meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
- 5 -
<PAGE> 10
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.11 Conduct of Meeting. The Chairman of the Board and Chief
Executive Officer, if such office has been filled, and, if such office has not
been filled or if the Chairman of the Board and Chief Executive Officer is
absent or otherwise unable to act, the President shall preside at all meetings
of stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these bylaws or by resolution
adopted by the Board of Directors, or if no officer has been given such
authority, by some person appointed at the meeting.
2.12 Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail
to appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count, and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector
of an election of directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
- 6 -
<PAGE> 11
3.2 Number; Qualification; Election; Term. The Board of Directors
shall consist of no less than one director (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). Subject
to the preceding sentence, the number of directors which shall constitute the
whole Board of Directors shall from time to time be fixed and determined by
resolution adopted by the Board of Directors. The directors of the Corporation
(exclusive of directors who are elected pursuant to the terms of, and serve as
representatives of the holders of, any series of preferred stock of the
Corporation) shall be referred to herein as "CLASSIFIED DIRECTORS" and shall be
divided into three classes, with the first class referred to herein as "CLASS
1," the second class as "CLASS 2," and the third class as "CLASS 3." If the
total number of Classified Directors equals a number divisible by three, then
the number of directors in each of Class 1, Class 2, and Class 3 shall be that
number of directors equal to the total number of directors divided by three.
If, however, the total number of Classified Directors equals a number that is
not divisible by three, each such class of directors shall consist of that
number of directors as nearly equal in number as possible to the total number
of directors divided by three, as determined by the Board of Directors in
advance of each respective election of directors by holders of shares of
capital stock of the Corporation then entitled to vote in such election. The
term of office of the initial Class 1 directors shall expire at the 1995 annual
meeting of stockholders, the term of office of the initial Class 2 directors
shall expire at the 1996 annual meeting of stockholders and the term of office
of the initial Class 3 directors shall expire at the 1997 annual meeting of
stockholders, with each director to hold office until his successor shall have
been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1995 annual meeting, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his successor shall have been
duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of common
stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of the Certificate of
Incorporation (including any amendment to the Certificate of Incorporation that
designates a series of preferred stock), and such directors so elected by the
holders of preferred stock shall not be divided into classes pursuant to this
Section 3.2 unless expressly provided by the terms of the Certificate of
Incorporation.
3.3 Change in Number. No decrease in the number of directors
constituting the entire Board of Directors shall have the effect of shortening
the term of any incumbent director.
- 7 -
<PAGE> 12
3.4 Vacancies. Any or all Classified Directors may be removed for
cause at any annual or special meeting of stockholders, upon the affirmative
vote of the holders of a majority of the outstanding shares of each class of
capital stock then entitled to vote in person or by proxy at an election of
such Classified Directors, provided that notice of the intention to act upon
such matter shall have been given in the notice calling such meeting. Newly
created directorships resulting from any increase in the authorized number of
directors and any vacancies occurring in the Board of Directors caused by
death, resignation, retirement, disqualification, removal or other termination
from office of any directors may be filled by the vote of a majority of the
directors then in office, though less than a quorum, or by the affirmative
vote, at a special meeting of the stockholders called for the purpose of
filling such directorship, of the holders of a majority of the outstanding
shares of capital stock then entitled to vote in person or by proxy at such
meeting. Each successor director so chosen shall hold office until the next
election of the class for which such director shall have been chosen and until
his respective successor shall have been duly elected and qualified. Any newly
created or eliminated directorships resulting from an increase or decrease in
the authorized number of directors shall be appointed or allocated by the Board
of Directors among the three classes of directors so as to maintain such
classes as nearly equal in number as possible.
3.5 Meetings of Directors. The directors may hold their meetings
and may have an office and keep the records of the Corporation, except as
otherwise provided by law, in such place or places within or without the State
of Delaware as the Board of Directors may from time to time determine or as
shall be specified in the notice of such meeting or duly executed waiver of
notice of such meeting.
3.6 First Meeting. Each newly elected Board of Directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of stockholders, and no notice of such meeting shall be
necessary.
3.7 Election of Officers. At the first meeting of the Board of
Directors after each annual meeting of stockholders at which a quorum shall be
present, the Board of Directors shall elect the officers of the Corporation.
3.8 Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by resolution of the Board of Directors. Notice of such regular meetings shall
not be required.
3.9 Special Meetings. Special meetings of the board of directors
shall be held whenever called by the Chairman of the Board and Chief Executive
Officer, or any director.
3.10 Notice. The Secretary shall give notice of each special
meeting to each director at least 24 hours before the meeting. Notice of any
such meeting need not
- 8 -
<PAGE> 13
be given to any director who, either before or after the meeting, submits a
signed waiver of notice or who shall attend such meeting without protesting,
prior to or at its commencement, the lack of notice to him. The purpose of any
special meeting shall be specified in the notice or waiver of notice of such
meeting.
3.11 Quorum; Majority Vote. At all meetings of the Board of
Directors, a majority of the directors fixed in the manner provided in these
bylaws shall constitute a quorum for the transaction of business. If at any
meeting of the Board of Directors there is less than a quorum present, a
majority of those present or any director solely present may adjourn the
meeting from time to time without further notice. Unless the act of a greater
number is required by law, the Certificate of Incorporation, or these bylaws,
the act of a majority of the directors present at a meeting at which a quorum
is in attendance shall be the act of the Board of Directors. At any time that
the Certificate of Incorporation provides that directors elected by the holders
of a class or series of stock shall have more or less than one vote per
director on any matter, every reference in these bylaws to a majority or other
proportion of directors shall refer to a majority or other proportion of the
votes of such directors.
3.12 Procedure. At meetings of the Board of Directors, business
shall be transacted in such order as from time to time the Board of Directors
may determine. The Chairman of the Board and Chief Executive Officer, if such
office has been filled, and, if such office has not been filled or if the
Chairman of the Board and Chief Executive Officer is absent or otherwise unable
to act, the President shall preside at all meetings of the Board of Directors.
In the absence or inability to act of such officers, a chairman shall be chosen
by the Board of Directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the Board of
Directors unless the Board of Directors appoints another person to act as
secretary of the meeting. The Board of Directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.13 Presumption of Assent. A director of the Corporation who is
present at the meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.14 Compensation. The Board of Directors shall have the authority
to fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the Board of
Directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any
- 9 -
<PAGE> 14
director from serving the Corporation in any other capacity or receiving
compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The Board of Directors may designate one or more
committees.
4.2 Number; Qualification; Term. Each committee shall consist of
one or more directors appointed by resolution adopted by a majority of the
entire Board of Directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
Board of Directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 Authority. Each committee, to the extent expressly provided in
the resolution establishing such committee, shall have and may exercise all of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation except to the extent expressly
restricted by law, the Certificate of Incorporation, or these bylaws.
4.4 Committee Changes. The Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of, and to discharge
any committee.
4.5 Alternate Members of Committees. The Board of Directors may
designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee. If no alternate committee members have been so
appointed to a committee or each such alternate committee member is absent or
disqualified, the member or members of such committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be
held without notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be
held whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least two days before such special meeting. Neither the business to
be transacted at, nor the
- 10 -
<PAGE> 15
purpose of, any special meeting of any committee need be specified in the
notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a
majority of the number of members designated by the Board of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting of any committee, a majority of the members present may adjourn
the meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present. The act of a majority of the members
present at any meeting at which a quorum is in attendance shall be the act of a
committee, unless the act of a greater number is required by law, the
Certificate of Incorporation, or these bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings
to be prepared and shall report the same to the Board of Directors upon the
request of the Board of Directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the
Board of Directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the Board of
Directors or any director of any responsibility imposed upon it or such
director by law.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the Certificate of
Incorporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may
be given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation,
or (b) by any other method permitted by law (including but not limited to
overnight courier service, telegram, telex, or telefax). Any notice required
or permitted to be given by mail shall be deemed to be delivered and given at
the time when the same is deposited in the United States mail as aforesaid.
Any notice required or permitted to be given by overnight courier service shall
be deemed to be delivered and given at the time delivered to such service with
all charges prepaid and addressed as aforesaid. Any notice required or
permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
- 11 -
<PAGE> 16
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
Certificate of Incorporation, or these bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be equivalent to the giving of such
notice. Attendance of a stockholder, director, or committee member at a
meeting shall constitute a waiver of notice of such meeting, except where such
person attends for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the
Corporation shall be a Chairman of the Board and Chief Executive Officer, a
President, a Secretary, and such other officers as the Board of Directors may
from time to time elect or appoint, including one or more Vice Presidents (with
each Vice President to have such descriptive title, if any, as the Board of
Directors shall determine) and a Treasurer. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified,
until his death, or until he shall resign or shall have been removed in the
manner hereinafter provided. Any two or more offices may be held by the same
person. None of the officers need be a stockholder or a director of the
Corporation or a resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interest of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the
Corporation (by death, resignation, removal, or otherwise) may be filled by the
Board of Directors.
6.4 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the Board of Directors not inconsistent
with these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the Board of Directors; provided, however,
that the Board of Directors may delegate the power to determine the
compensation of any officer and agent (other than the officer to whom such
power is delegated) to the Chairman of the Board and Chief Executive Officer or
the President.
6.6 Chairman of the Board and Chief Executive Officer. The
Chairman of the Board and Chief Executive Officer shall be the chief executive
officer of the Corporation and, subject to the supervision of the Board of
Directors of the
- 12 -
<PAGE> 17
Corporation, shall have the general management and control of the Corporation
and its subsidiaries (including the right to vote the voting securities of the
subsidiaries of the Corporation on behalf of the Corporation), shall preside at
all meetings of the stockholders and of the Board of Directors and may sign all
certificates for shares of capital stock of the Corporation.
6.7 President. The President shall be the chief operating officer
of the Corporation and, subject to the supervision of the Chairman of the Board
and Chief Executive Officer, he shall have general executive charge,
management, and control of the properties and operations of the Corporation in
the ordinary course of its business, with all such powers with respect to such
properties and operations as may be reasonably incident to such
responsibilities. In the absence or inability to act of the Chairman of the
Board and Chief Executive Officer, the President shall exercise all of the
powers and discharge all of the duties of the Chairman of the Board and Chief
Executive Officer. As between the Corporation and third parties, any action
taken by the President in the performance of the duties of the Chairman of the
Board and Chief Executive Officer shall be conclusive evidence that the
Chairman of the Board and Chief Executive Officer is absent or unable to act.
The President may sign all certificates for shares of stock of the Corporation.
6.8 Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the Board of Directors, the Chairman of
the Board and Chief Executive Officer, or the President, and (in order of their
seniority as determined by the Board of Directors or, in the absence of such
determination, as determined by the length of time they have held the office of
Vice President) shall exercise the powers of the President during that
officer's absence or inability to act. As between the Corporation and third
parties, any action taken by a Vice President in the performance of the duties
of the President shall be conclusive evidence of the absence or inability to
act of the President at the time such action was taken.
6.9 Treasurer. The Treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate account of
receipts and disbursements, shall deposit all monies and valuable effects in
the name and to the credit of the Corporation in such depository or
depositories as may be designated by the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board and Chief Executive Officer, or the President.
6.10 Assistant Treasurers. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board and Chief Executive Officer, or the President. The
Assistant Treasurers (in the order of their seniority as determined by the
Board of Directors or, in the absence of such a determination, as determined by
the length of time they have held the office of Assistant Treasurer) shall
exercise the powers of the Treasurer during that officer's absence or inability
to act.
- 13 -
<PAGE> 18
6.11 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the Board of Directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board and Chief Executive Officer or the President, in the name of the
Corporation, all contracts of the Corporation and affix the seal, if any, of
the Corporation thereto. He may sign with the Chairman of the Board and Chief
Executive Officer or the President all certificates for shares of stock of the
Corporation, and he shall have charge of the certificate books, transfer books,
and stock papers as the Board of Directors may direct, all of which shall at
all reasonable times be open to inspection by any director upon application at
the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the Board of Directors, the Chairman of the Board and Chief
Executive Officer, and the President.
6.12 Assistant Secretaries. Each Assistant Secretary shall have
such powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board and Chief Executive Officer, or the President. The
Assistant Secretaries (in the order of their seniority as determined by the
Board of Directors or, in the absence of such a determination, as determined by
the length of time they have held the office of Assistant Secretary) shall
exercise the powers of the Secretary during that officer's absence or inability
to act.
6.13 Vice Chairman of the Board. The Vice Chairman of the Board
shall have such powers and duties as may be provided herein or assigned to him
by the Board of Directors or the Chairman of the Board and Chief Executive
Officer.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of
the Corporation shall be in such form as shall be approved by the Board of
Directors. The certificates shall be signed by the Chairman of the Board and
Chief Executive Officer or the President or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and
may be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. The
certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued and shall exhibit the holder's name and
the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The Corporation
may direct a new certificate or certificates to be issued in place of a
certificate or
- 14 -
<PAGE> 19
certificates theretofore issued by the Corporation and alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate or certificates representing shares to be lost or
destroyed. When authorizing such issue of a new certificate or certificates
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond with a surety
or sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall
be transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The Board of Directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The Board of Directors shall have the power and
authority to provide that certificates representing shares of stock bear such
legends as the Board of Directors deems appropriate to assure that the
Corporation does not become liable for violations of federal or state
securities laws or other applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the Certificate of
Incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property, or in shares
of stock of the Corporation. Such declaration and payment shall be at the
discretion of the Board of Directors.
- 15 -
<PAGE> 20
8.2 Reserves. There may be created by the Board of Directors out
of funds of the Corporation legally available therefor such reserve or reserves
as the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the Board of
Directors shall consider beneficial to the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
8.3 Books and Records. The Corporation shall keep correct and
complete books and records of account, shall keep minutes of the proceedings of
its stockholders and Board of Directors and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed
by the Board of Directors; provided, that if such fiscal year is not fixed by
the Board of Directors and the selection of the fiscal year is not expressly
deferred by the Board of Directors, the fiscal year shall be the calendar year.
8.5 Seal. The seal of the Corporation shall be such as from time
to time may be approved by the Board of Directors.
8.6 Resignations. Any director, committee member, or officer may
resign by so stating at any meeting of the Board of Directors or by giving
written notice to the Board of Directors, the Chairman of the Board and Chief
Executive Officer, the President, or the Secretary. Such resignation shall
take effect at the time specified therein or, if no time is specified therein,
immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board
and Chief Executive Officer or the President shall have the power and authority
to transfer, endorse for transfer, vote, consent, or take any other action with
respect to any securities of another issuer which may be held or owned by the
Corporation and to make, execute, and deliver any waiver, proxy, or consent
with respect to any such securities.
8.8 Telephone Meetings. Members of the Board of Directors and
members of a committee of the Board of Directors may participate in and hold a
meeting of such Board of Directors or committee by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting, except where a person participates in
- 16 -
<PAGE> 21
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
8.9 Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or by these bylaws, any action required or
permitted to be taken at a meeting of the Board of Directors, or of any
committee of the Board of Directors, may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, shall be
signed by all the directors or all the committee members, as the case may be,
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a vote of such directors or committee
members, as the case may be, and may be stated as such in any certificate or
document filed with the Secretary of State of the State of Delaware or in any
certificate delivered to any person. Such consent or consents shall be filed
with the minutes of proceedings of the Board or committee, as the case may be.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
8.10 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust,
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the Board of
Directors authorizing such execution expressly state that such attestation is
necessary.
8.12 Headings. The headings used in these bylaws have been inserted
for administrative convenience only and do not constitute matter to be
construed in interpretation.
8.13 References. Whenever herein the singular number is used, the
same shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
- 17 -
<PAGE> 22
8.14 Amendments. The Board of Directors may, upon the affirmative
vote of at least two-thirds of the Classified Directors then serving, make,
adopt, alter, amend, and repeal from time to time these bylaws and make from
time to time new bylaws of the Corporation (subject to the right of the
stockholders entitled to vote thereon to adopt, alter, amend, and repeal bylaws
made by the Board of Directors or to make new bylaws); provided, however, that
the stockholders of the Corporation may adopt, alter, amend, or repeal bylaws
made by the Board of Directors or make new bylaws solely upon the affirmative
vote of the holders of at least two-thirds of the outstanding shares of capital
stock then entitled to vote thereon.
8.15 Citizenship Requirements of Officers and Directors. Persons
who are not U.S. Citizens (as defined in the Certificate of Incorporation) are
not qualified to serve as a director or officer of the Corporation.
ARTICLE NINE: GOVERNANCE PROVISIONS
DURING THE EFFECTIVE PERIOD
During the Effective Period (as defined below), the following Bylaws
shall be in effect and govern those affairs of the Corporation to which they
relate notwithstanding anything in these Bylaws to the contrary.
9.1 Definitions Applicable to Article Nine. As used in this
Article Nine, the following terms have the meanings ascribed to them in this
Section 9.1.
(a) "AIC" shall mean American International Cargo, a
co-partnership organized under the laws of the State of Michigan.
(b) "BENEFICIALLY OWNED" shall mean beneficial ownership within
the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, and the terms "BENEFICIAL OWNER" and
"BENEFICIALLY OWNS" have meanings correlative thereto.
(c) "CAUSE" shall have the meaning set forth in the Certificate of
Incorporation of the Corporation.
(d) "CHRISTOPHER" shall mean M. Tom Christopher.
(e) "CHRISTOPHER DESIGNEES" shall mean Ted Coonfield, Jim Reeves
and any successors thereto selected by the Christopher Nominating
Committee.
(f) "CHRISTOPHER NOMINATING COMMITTEE" shall have the meaning
ascribed to it in Section 9.3.
- 18 -
<PAGE> 23
(g) "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."
(h) "EFFECTIVE PERIOD" shall mean the period commencing at the
Effective Time and terminating upon the earlier of (a) 11:59 P.M. on
the 36-month anniversary of the Effective Time, (b) the death,
Disability or voluntary resignation as a director of the Corporation
of either Christopher or Kalitta or (c) the sale of all shares
Beneficially Owned by both Christopher and Kalitta.
(i) "EFFECTIVE TIME" shall mean the date and time when properly
executed certificates of merger, in such form as is required by and
executed in accordance with the Michigan Business Corporation Act to
effect the merger of Kitty Hawk - AIA, Inc. with and into American
International Airways, Inc., Kitty Hawk - AIT, Inc. with and into
American International Travel, Inc., Kitty Hawk - FOL, Inc. with and
into Flight One Logistics, Inc., Kitty Hawk - KFS, Inc. with and into
Kalitta Flying Service, Inc. and Kitty Hawk - OK, Inc. with and into
O.K. Turbines, Inc., are duly filed with the Department of Consumer
and Industry Services of the State of Michigan or at such later time
as the parties to the Merger Agreement shall have provided in such
certificates.
(j) "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.
(k) "JOINT DESIGNEE" shall mean Lewis White and any successors
thereto selected by the Joint Nominating Committee.
(l) "JOINT NOMINATING COMMITTEE" shall have the meaning ascribed
to it in Section 9.3.
- 19 -
<PAGE> 24
(m) "KALITTA" shall mean Conrad Kalitta.
(n) "KALITTA COMPANY" shall mean any of American International
Airways, Inc., American International Travel, Inc., Flight One
Logistics, Inc., Kalitta Flying Service, Inc. and O.K. Turbines, Inc.
(o) "KALITTA DESIGNEES" shall mean George Kelsey, Phil Sauder and
any successors thereto selected by the Kalitta Nominating Committee.
(p) "KALITTA NOMINATING COMMITTEE" shall have the meaning ascribed
to it in Section 9.3.
(q) "MERGER AGREEMENT" shall mean that certain Agreement and Plan
of Merger, dated as of September 22, 1997, entered into by and among
the Corporation, Kitty Hawk - AIA, Inc., a Michigan corporation, Kitty
Hawk - AIT, Inc., a Michigan corporation, Kitty Hawk - FOL, Inc., a
Michigan corporation, Kitty Hawk - KFS, Inc., a Michigan corporation,
Kitty Hawk - OK, Inc., a Michigan corporation, Christopher, American
International Airways, Inc., a Michigan corporation, American
International Travel, Inc., a Michigan corporation, Flight One
Logistics, Inc., a Michigan corporation, Kalitta Flying Service, Inc.,
a Michigan corporation, O.K. Turbines, Inc., a Michigan corporation,
and Kalitta, as amended by Amendment No. 1 to Agreement and Plan of
Merger dated October 23, 1997 among the parties thereto, Amendment No.
2 to Agreement and Plan of Merger dated October 29, 1997 among the
parties thereto and Amendment No. 3 to Agreement and Plan of Merger
dated November 14, 1997 among the parties thereto.
(r) "SUBS" shall mean, collectively, Kitty Hawk - AIA, Inc., Kitty
Hawk - AIT, Inc., Kitty Hawk - FOL, Inc., Kitty Hawk - KFS, Inc., and
Kitty Hawk - OK, Inc.
(s) "SUBSIDIARIES" shall mean Kitty Hawk Aircargo, Inc., Aircraft
Leasing, Inc., Kitty Hawk Charters, Inc. and Skyfreighters, Inc.
9.2 Electing the Initial Effective Period Board. The number of
directors comprising the full Board of Directors of the Corporation 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.
9.3 Effective Period Nominating Committees. The Corporation shall
have (a) a joint nominating committee (the "JOINT NOMINATING COMMITTEE"), a
Christopher nominating committee (the "CHRISTOPHER NOMINATING COMMITTEE") and a
Kalitta nominating committee (the "KALITTA NOMINATING COMMITTEE") of the Board
of Directors, (b) such Joint Nominating Committee shall consist of Christopher
- 20 -
<PAGE> 25
and Kalitta for so long as each is a director of the Corporation (c) the
Christopher Nominating Committee shall consist of Christopher for so long as he
is a director of the Corporation and (d) the Kalitta Nominating Committee shall
consist of Kalitta for so long as he is a director of the Corporation. The (i)
Joint Nominating Committee shall have the exclusive power on behalf of the
Board of Directors to nominate persons for election as directors of the
Corporation as a Joint Designee and to fill any vacancy of the Joint Designee
on the Board of Directors, (ii) Christopher Nominating Committee shall have the
exclusive power on behalf of the Board of Directors of the Corporation to
nominate Christopher and persons for election as directors of the Corporation
as Christopher Designees and to fill vacancies on the Board of Directors
vacated by Christopher Designees, and (iii) 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 Corporation as Kalitta
Designees and to fill vacancies on the Board of Directors vacated by the
Kalitta Designees. The (a) Joint Nominating Committee, (b) Christopher
Nominating Committee and (c) Kalitta Nominating Committee shall nominate (a)
Lewis White, (b) Tom Christopher, Ted Coonfield and Jim Reeves and (c) Conrad
Kalitta, George Kelsey and Phil Sauder, respectively, for re-election as
directors when their terms expire unless such persons are unable or unwilling
to serve or if such persons have been removed for Cause. 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 these Bylaws by either member of the Joint
Nominating Committee.
9.4 Deadlock Resolution. 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 Corporation 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
Corporation at any time after the tenth (10th) 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 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 AIC, the Corporation, 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
- 21 -
<PAGE> 26
Committee may call a meeting of the Joint Nominating Committee to choose
another person to serve as a director of the Corporation (in which case all of
the provisions of this Section 9.4 shall again apply).
9.5 Certain Officers.
(a) Until the first anniversary of the Effective Time, the
Chairman of the Board and Chief Executive Officer shall be elected
exclusively by the stockholders and shall serve as the Chairman of the
Board and Chief Executive Officer of the Corporation and, subject to
the supervision of the Board of Directors, shall have the general
management and control of the Corporation and its subsidiaries
(including the right to vote (except as set forth in Section 9.5(b) of
these Bylaws below solely for the one year period commencing with the
Effective Time) the voting securities of the subsidiaries of
Corporation on behalf of the Corporation).
(b) Until the first anniversary of the Effective Time, the Vice
Chairman of the Board shall be elected exclusively by the stockholders
and shall serve as an officer of the Corporation and shall have the
right to vote the voting securities of American International Airways,
Inc. solely for the purpose of electing the President of American
International Airways, Inc. and against his removal except for cause.
(c) The President of American International Airways, Inc. is to
report only to the Chairman of the Board and Chief Executive Officer
of the Corporation.
9.6 Amendments to Article Nine. During the Effective Period, the
provisions of Article Nine of the Bylaws 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 common stock of the Corporation.
* * * * *
- 22 -
<PAGE> 27
The undersigned Secretary of the Corporation hereby certifies that the
foregoing bylaws were adopted by unanimous consent of the directors of the
Corporation as of November 18, 1997.
/s/ RICHARD R. WADSWORTH
---------------------------------------
Richard R. Wadsworth,
Secretary
- 23 -
<PAGE> 1
EXHIBIT 4.2
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of November 19, 1997 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 22, 1997, as amended (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.
"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.
<PAGE> 2
"Beneficial Owner" means a "beneficial owner", as defined in
Regulation Section 240.13d-3 under the Exchange Act and the terms "Beneficially
Owns" and "Beneficially Owned" have meanings correlative thereto.
"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 including 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 Exempt Transfer of Common Stock
from Kalitta or another Kalitta Stockholder.
-2-
<PAGE> 3
"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 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,
-3-
<PAGE> 4
(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.
1.3 Other Definitions. To the extent not otherwise
defined herein, capitalized terms have the meanings ascribed to them in the
Merger Agreement.
-4-
<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 in their
capacities as stockholders:
(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 Chairman of the Board and Chief
Executive Officer and Vice Chairman 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 AIA, as
applicable); and
-5-
<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 Committees.
(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
-6-
<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 his removal except for cause,
(y) for Christopher and each of the nominees of the Christopher Nominating
Committee for election as a director of the Company as a Christopher Designee
and against their removal except for cause and (z) for Kalitta and each of the
nominees of the Kalitta Nominating Committee for election as a director of the
Company as a Kalitta Designee and against their removal except for cause and
(ii) not vote (or act by written consent with respect to) any shares of Common
Stock or other 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 Bylaws have been amended at or prior to the date of this
Agreement to provide that 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.
-7-
<PAGE> 8
(e) The Bylaws have been amended at or prior to the date of this
Agreement to provide that 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. The Bylaws have been amended at or prior to the date
of this Agreement to provide that 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
American International Cargo, a Michigan co-partnership, 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. The Bylaws have been amended at or prior to the date of
this Agreement to provide that 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 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
-8-
<PAGE> 9
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 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 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
Chairman of the Board and Chief Executive Officer of the Company. Until the
first anniversary of the date of this Agreement, 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 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 Chairman of the Board and 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
-9-
<PAGE> 10
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 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 November 19, 1997, 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.
-10-
<PAGE> 11
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
-11-
<PAGE> 12
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 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 September 22, 1997 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
-12-
<PAGE> 13
intended methods of disposition thereof set forth in such registration
statement or the expiration of thirty (30) days after such
registration statement becomes effective;
(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
-13-
<PAGE> 14
and, in the case of the accountants' letter, such other financial
matters, as such Selling Stockholder may reasonably request;
(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:
-14-
<PAGE> 15
(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 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:
-15-
<PAGE> 16
(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 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
-16-
<PAGE> 17
concerning such Selling Stockholder's specified plan of distribution and other
information.
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
-17-
<PAGE> 18
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.
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,
-18-
<PAGE> 19
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 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
-19-
<PAGE> 20
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 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
-20-
<PAGE> 21
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.
(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,
-21-
<PAGE> 22
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.
(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.
-22-
<PAGE> 23
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.
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
-23-
<PAGE> 24
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.
-24-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
Kitty Hawk, Inc.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Title: Richard R. Wadsworth
Its: Senior Vice President
/s/ M. TOM CHRISTOPHER
--------------------------------------
M. Tom Christopher
/s/ CONRAD KALITTA
--------------------------------------
Conrad Kalitta
-25-
<PAGE> 26
Schedule 1
Stockholders
<TABLE>
<CAPTION>
Name and Address Shares of Common Stock
---------------- ----------------------
<S> <C>
Conrad Kalitta 4,099,150
2701 N. I-94 Service Drive
Ypsilanti, Michigan 48197
Telecopy: (313) 484-3686
M. Tom Christopher 5,948,436
1515 West 20th Street
P.O. Box 612787
Dallas/Fort Worth
International Airport,
Texas 75261
Telecopy: (972) 456-2292
</TABLE>
-26-
<PAGE> 1
EXHIBIT 4.3
Speciman Global Note
KITTY HAWK, INC.
9.95% Senior Secured Notes Due 2004
CUSIP: 498326 AA 5
No. _________ $________________
KITTY HAWK, INC., a Delaware corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to Cede & Co., or its registered assigns, the
principal sum of __________________________ Dollars ($ __________) on November
15, 2004.
Interest Payment Dates: May 15 and November 15, commencing May
15, 1998.
Regular Record Dates: May 1 and November 1.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
THIS NOTE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT, AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCES. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER MAY
BE RELYING ON EXEMPTIONS FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES THAT IT WILL NOT, WITHIN THE
TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF
RULE 144(d), IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT WITH RESPECT
TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO KITTY
HAWK, INC. (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT AT
MATURITY OF NOTES OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT
IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
<PAGE> 2
2
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
Date: November 19, 1997 KITTY HAWK, INC.
By:
--------------------------------
Name: M. Tom Christopher
Title: Chairman of the Board and
Chief Executive Officer
By:
--------------------------------
Name: Richard R. Wadsworth
Title: Senior Vice President
-- Finance, Chief
Financial Officer and
Secretary
(Trustee's Certificate of Authentication)
This is one of the 9.95% Senior Secured Notes Due 2004 described in the within
mentioned Indenture.
BANK ONE, NA,
as Trustee
By:
--------------------------------
John Beacham
Trust Officer
<PAGE> 3
3
KITTY HAWK, INC.
9.95% Senior Secured Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on November 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record
of the Notes at the close of business on the May 1 or November 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
May 15, 1998.
If the exchange offer contemplated by Registration-Statement
under the Securities Act is not consummated or, if required, a Shelf
Registration Statement under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before May 19, 1998,
in accordance with the terms of the Registration Rights Agreement dated as of
November 19, 1997, between the Company, the Guarantors and Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated and Fieldstone FPCG Services, L.P.,
then the interest rate per annum accruing on the Notes shall, effective May 19,
1998, be increased by 0.5% per annum, until the exchange offer is completed or
such Shelf Registration Statement is declared effective. The Holder of this
Note is entitled to the benefits of such Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from November
19, 1997; provided that, if there is no existing default in the payment of
interest and this Note is authenticated between a Regular Record Date referred
to on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such Interest Payment Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at a rate borne by the Notes.
<PAGE> 4
4
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each May 15 and November 15
to the persons who are Holders (as reflected in the Security Register at the
close of business on the May 1 and November 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer, registration of exchange, redemption or repurchase
after such record date; provided that, with respect to the payment of
principal, the Company will make payment to the Holder that surrenders this
Note to a Paying Agent on or after November 15, 2004.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company, at
its option, may pay principal, premium, if any, and interest by its check
payable in such money. It may mail an interest check to a Holder's registered
address (as reflected in the Security Register). If a payment date is a date
other than a Business Day at a place of payment, payment may be made at that
place on the next succeeding day that is a Business Day and no interest shall
accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
November 19, 1997 (the "Indenture"), between the Company, the Guarantors and
Bank One, NA, as trustee and collateral trustee (collectively, the "Trustee").
Capitalized terms herein are used as defined in the Indenture unless otherwise
indicated. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Notes are subject to all such terms, and Holders are referred to the Indenture
and the Trust Indenture Act for a statement of all such terms. To the extent
permitted by applicable law, in the event of any inconsistency between the
terms of this Note and the terms of the Indenture, the terms of the Indenture
shall control.
The Notes are senior secured obligations of the Company.
<PAGE> 5
5
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after November 15, 2001 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing November 15, of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -------------
<S> <C>
2001 104.975%
2002 102.488%
2003 100.000%
</TABLE>
In addition, at any time prior to November 15, 2000, the
Company may redeem up to 35% of the principal amount of the Notes with the
proceeds of one or more Public Equity Offerings, at any time or from time to
time, at a Redemption Price (expressed as a percentage of principal amount) of
109.95%, plus accrued and unpaid interest to the Redemption Date (subject to
the rights of Holders of record on the relevant Regular Record Date that is
prior to the Redemption Date to receive interest due on an Interest Payment
Date); provided that at least $150 million aggregate principal amount of Notes
remains outstanding after each such redemption.
Notice of any optional redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his last address as it appears in the Security
Register. Notes in denominations larger than $1,000 may be redeemed in part.
On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. Repurchase upon Change of Control Triggering Event.
Upon the occurrence of a Change of Control Triggering Event,
the Company must commence, within 30 days of the occurrence of a Change of
Control Triggering Event, and consummate an Offer to Purchase for all Notes
then outstanding, at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest (if any) to the Payment Date.
<PAGE> 6
6
Notes in denominations larger than $1,000 may be sold to the
Company in part. On and after the Payment Date, interest ceases to accrue on
Notes or portions of Notes surrendered for purchase by the Company, unless the
Company defaults in the payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount and any integral multiple in excess
thereof. A Holder may register the transfer or exchange of Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Notes selected for redemption. Also,
it need not register the transfer or exchange of any Notes for a period of 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
The Company or the Guarantors generally will be discharged
from the Indenture and the Notes, except in certain circumstances for certain
sections thereof, if, among other things, the Company and the Guarantors (A)
deposit with the Trustee money or U.S. Government Obligations sufficient to pay
the then outstanding principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes and (B) deliver (i) an Opinion of Counsel or
Internal Revenue Service ruling directed to the Trustee with respect to the tax
effects of such deposits and (ii) an Opinion of Counsel
<PAGE> 7
7
concerning Investment Company Act of 1940 and United States Bankruptcy Code
ramifications of the deposits, (C) in conjunction with such deposits, ensure
there is an absence of certain Events of Default and (D) provide an Opinion of
Counsel concerning the potential delisting of the Notes from a national
securities exchange as a result of the deposits; provided that if
simultaneously with the deposit of the money and/or U.S. Government Obligations
referred to in (A) above, the Company or any Guarantor has caused an
irrevocable, transferable, standby letter of credit to be issued by a bank with
capital and surplus exceeding the principal amount of the Notes then
outstanding, expiring not earlier than 180 days from its issuance, in favor of
the Trustee which permits the Trustee to draw an amount equal to the principal,
premium, if any, and accrued interest on the Notes through the expiry date of
the letter of credit, then the Company and the Guarantors will be deemed to
have paid and discharged any and all obligations in respect of the Notes on the
date of the deposit and issuance of the letter of credit.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Escrow and
Security Agreement or the Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the Notes then
outstanding, and any existing default or compliance with any provision may be
waived with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding. Without notice to or the consent of any
Holder, the parties thereto may amend or supplement the Indenture, the Note
Guarantees or the Notes to, among other things, cure any ambiguity, defect or
inconsistency and make any change that, in the opinion of the Board of
Directors of the Company evidenced by a Board resolution, does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Restricted Subsidiaries, among other things, to Incur
additional Indebtedness, make Restricted Payments, suffer to exist restrictions
on the ability of Restricted Subsidiaries to make certain payments to the
Company, issue Capital Stock of Restricted Subsidiaries, engage in transactions
with Affiliates, suffer to exist or incur Liens, or merge, consolidate or
transfer substantially all of its assets. On or before a date not more than 90
days after the end of each fiscal year, the Company shall deliver to the
Trustee an Officers' Certificate stating whether or not the signers know of any
Default or Event of Default under such restrictive covenants or a Collateral
Access Event.
<PAGE> 8
8
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Events of Default" with
respect to the Notes under the Indenture: (a) the Company defaults in the
payment of principal of (or premium, if any, on) any Note when the same becomes
due and payable at maturity, upon acceleration, redemption or otherwise; (b)
the Company defaults in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
(c) the Company defaults in the performance or breaches the provisions of
Article Five or fails to make or consummate an Offer to Purchase in accordance
with Section 4.11 or Section 4.14; (d) the Company or any Guarantor defaults in
the performance of or breaches any other covenant or agreement of the Company
in the Indenture or under the Notes (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (e) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Guarantor or
Significant Subsidiary having an outstanding principal amount of $10 million or
more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Guarantor or Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, any Guarantor or any
Significant Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
<PAGE> 9
9
similar official of the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of the Company
or any Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days; (h) the
Company, any Guarantor or any Significant Subsidiary (A) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
or for all or substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or (i) any Note Guarantee shall cease to be, or shall be
asserted in writing by the Company or any Guarantor not to be, in full force
and effect or enforceable in accordance with its terms.
If an Event of Default, except for certain ones, or a
Collateral Access Event, as defined in the Indenture, occurs and is continuing
under the Indenture, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes, then outstanding, may declare all the Notes to
be due and payable. If a bankruptcy or insolvency default with respect to the
Company occurs and is continuing, the Notes automatically become due and
payable. Holders may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee may require indemnity satisfactory to it before
it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power.
15. Security.
The Collateral securing the Notes will consist of (i) nine
Boeing 747s (including the Optioned Boeing 747s), eight Lockheed L-1011s and
thirteen Boeing 727s, along with the Engines, (ii) all insurance and
requisition proceeds and other similar payments with respect to each of the
Aircraft, (iii) all monies or securities deposited or required to be deposited
with the Trustee, (iv) any purchase agreements and any related documentation to
the extent assignable for each Aircraft, (v) all logs, data and records related
to the Aircraft, (vi) the Pledged Securities on deposit in the Escrow Account,
the Escrow Account and certain related assets, (vii) all rights of any Owner
under any Lease relating to any Aircraft, and (viii) all proceeds of the
foregoing. The Pledged Securities shall be sufficient to provide for (i) the
purchase of the two Optioned Boeing 747s or other Eligible Aircraft and (ii)
the conversion of such Aircraft to freighter configuration.
<PAGE> 10
10
16. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from and perform services
for the Company or its Affiliates and may otherwise deal with the Company or
its Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator, stockholder, other officer, director,
employee or controlling person of the Company or any Guarantor or of any
successor Person thereof shall have any liability for any obligations of the
Company under the Notes, the Guarantees, the Escrow and Security Agreement or
the Indenture or for any claim based on, or otherwise in respect of or by
reason thereof, such obligations or their creation. Each Holder by accepting a
Note expressly waives and releases all such liability. The waiver and release
are a condition of, and part of the consideration for the issuance of the Notes
and the related Guarantees.
18. Guarantees.
The Company's obligations under the Notes are irrevocably
guaranteed by the Guarantors.
19. Authentication.
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Note.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to Kitty
Hawk, Inc., P.O. Box 612787, 1515 West 20th Street, Dallas/Fort Worth
International Airport, TX 75261, Attention: Chief Financial Officer
<PAGE> 11
11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -----------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing _________________________________ attorney to transfer said Note on
the books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the shelf registration statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933
provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with
(a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Note and the
Indenture.
<PAGE> 12
12
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
----------------- ---------------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the within-mentioned instrument in every
particular, without alteration or any change
whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Date:
----------------- ---------------------------------------------------
NOTICE: To be executed by an executive officer
<PAGE> 13
13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to an Offer to Purchase in accordance with the terms of the Indenture,
check the Box: [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to an Offer to Purchase in accordance with the terms the
Indenture, state the amount: $___________________.
Date:
---------------------------------------------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:(1)
------------------------------------------------------------
- -----------------------------------
(1) The Holder's signature must be guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act.
<PAGE> 1
EXHIBIT 4.4
[EXECUTION COPY]
================================================================================
KITTY HAWK, INC.,
as Issuer
EACH SUBSIDIARY
OF KITTY HAWK, INC. LISTED
ON THE SIGNATURE PAGES HEREOF
as Guarantors
and
BANK ONE, NA
as Trustee and Collateral Trustee
-------------------------
Indenture
Dated as of November 15, 1997
-------------------------
$340,000,000
9.95% Senior Secured Notes Due 2004
================================================================================
<PAGE> 2
[CONFORMED COPY]
================================================================================
KITTY HAWK, INC.,
as Issuer
EACH SUBSIDIARY
OF KITTY HAWK, INC. LISTED
ON THE SIGNATURE PAGES HEREOF
as Guarantors
and
BANK ONE, NA
as Trustee and Collateral Trustee
-------------------------
Indenture
Dated as of November 15, 1997
-------------------------
$340,000,000
9.95% Senior Secured Notes Due 2004
================================================================================
<PAGE> 3
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.03; 7.08
Section 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.03
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.03
Section 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
Section 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
Section 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . 4.15; 7.05; 11.02
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . 4.20; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . 11.03
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 10.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 4.20; 11.04
Section 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . 6.12
Section 316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . 6.06
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . 6.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 9.03
Section 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 6.09
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . 6.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(c) . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1.02. Incorporation by Reference of Trust Indenture Act . . . 27
SECTION 1.03. Rules of Construction . . . . . . . . . . . . . . . . . 27
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.02. Restrictive Legends . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Execution, Authentication and Denominations . . . . . . 30
SECTION 2.04. Registrar and Paying Agent . . . . . . . . . . . . . . 31
SECTION 2.05. Paying Agent to Hold Money in Trust . . . . . . . . . . 32
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . 33
SECTION 2.07. Book-Entry Provisions for Global Notes . . . . . . . . 33
SECTION 2.08. Special Transfer Provisions . . . . . . . . . . . . . . 35
SECTION 2.09. Replacement Notes . . . . . . . . . . . . . . . . . . . 37
SECTION 2.10. Outstanding Notes . . . . . . . . . . . . . . . . . . . 38
SECTION 2.11. Temporary Notes . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.12. Cancellation . . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.13. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.14. Defaulted Interest . . . . . . . . . . . . . . . . . . 39
SECTION 2.15. Record Date . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 2.16 Computation of Interest . . . . . . . . . . . . . . . . 40
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption . . . . . . . . . . . . . . . . . . 40
SECTION 3.02. Notices to Trustee . . . . . . . . . . . . . . . . . . 41
SECTION 3.03. Selection of Notes to Be Redeemed . . . . . . . . . . . 41
SECTION 3.04. Notice of Redemption . . . . . . . . . . . . . . . . . 42
SECTION 3.05. Effect of Notice of Redemption . . . . . . . . . . . . 43
SECTION 3.06. Deposit of Redemption Price . . . . . . . . . . . . . . 43
SECTION 3.07. Payment of Notes Called for Redemption . . . . . . . . 43
SECTION 3.08. Notes Redeemed in Part . . . . . . . . . . . . . . . . 43
</TABLE>
- -------------------------
(1) Note: The Table of Contents shall not for any purposes be deemed to be
a part of the Indenture.
i
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . 43
SECTION 4.02. Maintenance of Office or Agency . . . . . . . . . . . . 44
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . . 44
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . . . 47
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries . . . . . . . . 49
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries . . . . . . . . . . . . 51
SECTION 4.07. Issuances of Guarantees by New Restricted Subsidiaries . 51
SECTION 4.08. Limitation on Transactions with Shareholders and
Affiliates . . . . . . . . . . . . . . . . . . . 51
SECTION 4.09. Limitation on Liens . . . . . . . . . . . . . . . . . . 52
SECTION 4.10. Limitation on Sale-Leaseback Transactions . . . . . . . 53
SECTION 4.11. Limitation on Asset Sales . . . . . . . . . . . . . . . 54
SECTION 4.13. Events of Loss . . . . . . . . . . . . . . . . . . . . 55
SECTION 4.14. Repurchase of Notes upon a Change of Control
Triggering Event . . . . . . . . . . . . . . . . 55
SECTION 4.15. Commission Reports and Reports to Holders . . . . . . . 56
SECTION 4.16. Limitation on Collateral Sales; Event of Loss . . . . . 56
SECTION 4.17. Existence . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.18. Payment of Taxes and Other Claims . . . . . . . . . . . 57
SECTION 4.19. Maintenance of Properties and Insurance . . . . . . . . 58
SECTION 4.20. Compliance Certificates . . . . . . . . . . . . . . . . 58
SECTION 4.21. Waiver of Stay, Extension or Usury Laws . . . . . . . . 58
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. . . . . . . . . . . . . . 59
SECTION 5.02. Successor Substituted . . . . . . . . . . . . . . . . . 60
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . 60
SECTION 6.02. Collateral Access Events . . . . . . . . . . . . . . . 62
SECTION 6.03. Acceleration . . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.04. Other Remedies . . . . . . . . . . . . . . . . . . . . 63
SECTION 6.05. Waiver of Past Defaults . . . . . . . . . . . . . . . . 64
SECTION 6.06. Control by Majority . . . . . . . . . . . . . . . . . . 64
SECTION 6.07. Limitation on Suits . . . . . . . . . . . . . . . . . . 64
SECTION 6.08. Rights of Holders to Receive Payment . . . . . . . . . 65
SECTION 6.09. Collection Suit by Trustee . . . . . . . . . . . . . . 65
SECTION 6.10. Trustee May File Proofs of Claim . . . . . . . . . . . 65
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.11. Priorities . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 6.12. Undertaking for Costs . . . . . . . . . . . . . . . . . 66
SECTION 6.13. Restoration of Rights and Remedies . . . . . . . . . . 66
SECTION 6.14. Rights and Remedies Cumulative . . . . . . . . . . . . 67
SECTION 6.15. Delay or Omission Not Waiver . . . . . . . . . . . . . 67
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Rights of Trustee . . . . . . . . . . . . . . . . . . . 67
SECTION 7.02. Actions of Trustee . . . . . . . . . . . . . . . . . . 69
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . 70
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . 70
SECTION 7.05. Notice of Default or Collateral Access Events . . . . . 70
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . 71
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . 71
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . 72
SECTION 7.09. Successor Trustee by Merger, Etc. . . . . . . . . . . . 73
SECTION 7.10. Eligibility . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.11. Money Held in Trust . . . . . . . . . . . . . . . . . . 73
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations . . . . . . . . . 73
SECTION 8.02. Defeasance and Discharge of Indenture . . . . . . . . . 74
SECTION 8.03. Defeasance of Certain Obligations . . . . . . . . . . . 76
SECTION 8.04. Application of Trust Money . . . . . . . . . . . . . . 78
SECTION 8.05. Repayment to Company . . . . . . . . . . . . . . . . . 78
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . 78
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . 79
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . 79
SECTION 9.03. Revocation and Effect of Consent . . . . . . . . . . . 81
SECTION 9.04. Notation on or Exchange of Notes . . . . . . . . . . . 81
SECTION 9.05. Trustee to Sign Amendments, Etc. . . . . . . . . . . . 81
SECTION 9.06. Conformity with Trust Indenture Act . . . . . . . . . . 82
ARTICLE TEN
PLEDGED SECURITIES
SECTION 10.01. Security . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 10.02. Release upon Termination of the Company's Obligations . 83
</TABLE>
iii
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939 . . . . . . . . . . . . . 84
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 11.03. Certificate and Opinion As to Conditions Precedent . . 85
SECTION 11.04. Statements Required in Certificate or Opinion . . . . 85
SECTION 11.05. Acts of Holders . . . . . . . . . . . . . . . . . . . 86
SECTION 11.06. Rules by Trustee, Paying Agent or Registrar . . . . . 87
SECTION 11.07. Payment Date Other Than a Business Day . . . . . . . . 87
SECTION 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . 87
SECTION 11.09. No Adverse Interpretation of Other Agreements . . . . 87
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . 87
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 11.12. Duplicate Originals . . . . . . . . . . . . . . . . . 88
SECTION 11.13. Separability . . . . . . . . . . . . . . . . . . . . . 88
SECTION 11.14. Table of Contents, Headings, Etc. . . . . . . . . . . 88
ARTICLE TWELVE
MEETINGS OF HOLDERS
SECTION 12.01. Purposes for Which Meetings May Be Called . . . . . . 88
SECTION 12.02. Manner of Calling Meetings . . . . . . . . . . . . . . 88
SECTION 12.03. Call of Meetings by the Company or Holders . . . . . . 89
SECTION 12.04. Who May Attend and Vote at Meetings . . . . . . . . . 89
SECTION 12.05. Quorum; Action . . . . . . . . . . . . . . . . . . . . 89
SECTION 12.06. Regulations May Be Made by Trustee; Conduct
of the Meeting; Voting Rights; Adjournment . . . 90
SECTION 12.07. Voting at the Meeting and Record to Be Kept . . . . . 91
SECTION 12.08. Exercise of Rights of Trustee or Holders May
Not Be Hindered or Delayed by Call of Meeting . . 91
SECTION 12.09. Procedures Not Exclusive . . . . . . . . . . . . . . . 91
ARTICLE THIRTEEN
GUARANTEES
SECTION 13.01. Guarantees . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 13.02. Severability . . . . . . . . . . . . . . . . . . . . . 93
SECTION 13.03. Limitation of Guarantors' Liability . . . . . . . . . 93
SECTION 13.04. Contribution . . . . . . . . . . . . . . . . . . . . . 93
SECTION 13.05. Subrogation . . . . . . . . . . . . . . . . . . . . . 94
SECTION 13.06. Reinstatement . . . . . . . . . . . . . . . . . . . . 94
SECTION 13.07. Release of a Guarantor . . . . . . . . . . . . . . . . 94
SECTION 13.08. Benefits Acknowledged. . . . . . . . . . . . . . . . . 94
</TABLE>
iv
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOURTEEN
COVENANTS RELATING TO THE AIRCRAFT
SECTION 14.01. Registration of Aircraft. . . . . . . . . . . . . . . 95
SECTION 14.02. Insurance. . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 14.03. Maintenance, Lease and Possession. . . . . . . . . . . 97
SECTION 14.04. Liens. . . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 14.05. Certain Further Limitations on Leasing or Other
Relinquishment of Possession. . . . . . . . . . 98
SECTION 14.06. Trustee's Acknowledgment of Company's Right to
Foreign Registration. . . . . . . . . . . . . . . 99
ARTICLE FIFTEEN
SECURITY
SECTION 15.01. Registration; Replacement and Pooling of
Parts; Alterations, Modifications and Additions. 101
SECTION 15.02. [Intentionally Omitted] . . . . . . . . . . . . . . 103
SECTION 15.03. Inspection . . . . . . . . . . . . . . . . . . . . . 103
SECTION 15.04. Requisition for Use . . . . . . . . . . . . . . . . 104
SECTION 15.05. Substitution of Collateral. . . . . . . . . . . . . 104
SECTION 15.06. Release of Collateral. . . . . . . . . . . . . . . . 105
SECTION 15.07. Discontinuance of Proceedings . . . . . . . . . . . 105
SECTION 15.09. Termination of Interest in Collateral . . . . . . . 105
</TABLE>
EXHIBIT A Form of Note A-1
EXHIBIT B [Intentionally Omitted]
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S D-1
SCHEDULE A AIA Aircraft
SCHEDULE B-1 Aircraft Leasing Aircraft
SCHEDULE B-2 Leases of the Aircraft Leasing Aircraft
v
<PAGE> 9
INDENTURE, dated as of November 15, 1997, between Kitty Hawk, Inc., a
Delaware corporation, as Issuer (the "Company"), each Subsidiary of the
Company, other than American International Cargo, but including American
International Airways, Inc., a Michigan corporation ("AIA"), Kitty Hawk
Aircargo, Inc., a Texas corporation ("Aircargo), and Aircraft Leasing, Inc., a
Texas corporation ("Leasing"), each as owners of certain aircraft pledged to
secure the obligations hereunder (collectively, the "Guarantors") and Bank One,
NA, a national banking association, as trustee and collateral trustee
(individually, the "Trustee" and "Collateral Trustee" and, collectively, where
the context so requires, the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of up to $340,000,000 aggregate principal
amount of the Company's 9.95% Senior Secured Notes Due 2004 (the "Notes")
issuable. The Notes will be secured pursuant to the terms of an Escrow and
Security Agreement (as defined herein) by certain other assets, including
certain Pledged Securities (as defined herein) as provided by Article Ten of
this Indenture. All things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done, and the Company
has done all things necessary to make the Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company as hereinafter provided.
Each Guarantor has duly authorized the guarantee of up to $340,000,000
aggregate principal amount of the Notes (the "Guarantees") and upon the
issuance of the Exchange Notes, if any, up to $340,000,000 aggregate principal
amount of the Exchange Notes (the "Guarantees").
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AMERICAN INTERNATIONAL AIRWAYS, INC.
GRANTING CLAUSE
NOW, THEREFORE, THIS INDENTURE WITNESSETH, for and in consideration of
the premises and the purchase of the Notes by the Holders thereof, to secure
the prompt payment of the principal of and interest on, and all other amounts
due with respect to, all Notes from time to time outstanding under this
Indenture and the performance and observance by the Company of all the
agreements, covenants and provisions for the benefit of the Holders in this
Indenture and the Notes contained, and the prompt payment of any and all
amounts from time to time owing under this Indenture by the Company to the
Trustee, and for the uses and purposes and subject to the terms and provisions
hereof, and in consideration of the premises and the covenants herein
contained, and the acceptance of the Notes by the Holders and of the sum of $1
paid to the Company by the Collateral Trustee at or before the delivery hereof,
the receipt whereof is hereby acknowledged, AIA has granted, sold, assigned,
transferred, conveyed, pledged and confirmed, and does hereby grant, assign,
transfer, convey, pledge and confirm, unto the Collateral Trustee and its
successors and assigns, for the security and benefit of the Holders and the
Trustee as aforesaid, a first priority security interest in all
<PAGE> 10
estate, right, title and interest of AIA in, to and under the following
described property, rights and privileges (which, collectively, including all
property hereafter specifically subjected to the Lien of this Indenture by any
agreement supplemental hereto, or otherwise expressly subject to the terms and
provisions hereof, shall constitute a portion of the Collateral (as defined
herein)), to wit:
(i) seven Boeing 747s and eight Lockheed L-1011s, along with
the Engines, as specified on Schedule A hereto
(collectively, the "AIA Aircraft");
(ii) all insurance and requisition proceeds and other similar
payments with respect to each of the AIA Aircraft;
(iii) all monies or securities deposited or required to be
deposited with the Trustee;
(iv) any purchase agreements and any related documentation to
the extent assignable for each Aircraft
(v) all logs, data and records related to the Aircraft; and
(vi) all proceeds of the foregoing, other than accounts.
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so
long as no Event of Default shall have occurred and be continuing under this
Indenture, (a) the Collateral Trustee shall not take or cause to be taken any
action contrary to the Company's right hereunder to quiet enjoyment of the AIA
Aircraft and related hush kits, and to possess, use, retain and control the AIA
Aircraft and related hush kits and all revenues, income and profits derived
therefrom.
AIA HABENDUM CLAUSE
TO HAVE AND TO HOLD ALL and singular and aforesaid property unto the
Collateral Trustee and its successors and assigns, in trust for the benefit and
security of the Holders and the Trustee and for the uses and purposes and
subject to the terms and provisions set forth in this Indenture; provided,
however, that the Lien of this Indenture shall be subject to discharge as
provided in Section 8.02.
AIA does hereby constitute the Collateral Trustee the true and lawful
attorney of AIA, irrevocably, with full power (in the name of AIA or otherwise)
to ask, require, demand, receive, compound and give acquittance for any and all
monies and claims for monies (in each case including insurance and requisition
proceeds) due and to become due under or arising out of the this Indenture and
any documents related hereto and all other property which now or hereafter
constitutes part of the AIA Collateral, to endorse any checks or other
instruments or orders in connection therewith and to file any claims or to take
any action or to institute any proceedings which the Collateral Trustee may
deem to be necessary or advisable in the premises; providing, however, that the
Collateral Trustee shall not exercise any such rights except upon the
occurrence of an Event of Default under this Indenture.
2
<PAGE> 11
AIA agrees that at any time and from time to time, upon the written
request of the Collateral Trustee or the Holder of a majority in principal
amount of the Notes outstanding, AIA will promptly and duly execute and deliver
or cause to be duly executed and delivered any and all such further instruments
and documents as the Collateral Trustee or such Holder of a majority in
principal amount of the Notes outstanding may reasonably deem desirable in
obtaining the full benefits of the assignment hereunder and the rights and
powers granted herein.
AIRCRAFT LEASING, INC.
GRANTING CLAUSE
NOW, THEREFORE, THIS INDENTURE WITNESSETH, for and in consideration of
the premises and the purchase of the Notes by the Holders thereof, to secure
the prompt payment of the principal of and interest on, and all other amounts
due with respect to, all Notes from time to time outstanding under this
Indenture and the performance and observance by the Company of all the
agreements, covenants and provisions for the benefit of the Holders in this
Indenture and the Notes contained, and the prompt payment of any and all
amounts from time to time owing under this Indenture by the Company to the
Trustee, and for the uses and purposes and subject to the terms and provisions
hereof, and in consideration of the premises and the covenants herein
contained, and the acceptance of the Notes by the Holders and of the sum of $1
paid to the Company by the Collateral Trustee at or before the delivery hereof,
the receipt whereof is hereby acknowledged, Leasing has granted, sold,
assigned, transferred, conveyed, pledged and confirmed, and does hereby grant,
assign, transfer, convey, pledge and confirm, unto the Collateral Trustee and
its successors and assigns, for the security and benefit of the Holders and the
Trustee as aforesaid, a first priority security interest in all estate, right,
title and interest of Leasing in, to and under the following described
property, rights and privileges (which, collectively, including all property
hereafter specifically subjected to the Lien of this Indenture by any agreement
supplemental hereto, or otherwise expressly subject to the terms and provisions
hereof, shall constitute a portion of the Collateral (as defined herein)), to
wit:
(i) eleven Boeing 727s, along with the Engines, as specified
on Schedule B-1 hereto (collectively, the "Leasing
Aircraft");
(ii) all insurance and requisition proceeds and other similar
payments with respect to each of the Leasing Aircraft;
(iii) all monies or securities deposited or required to be
deposited with the Trustee;
(iv) any purchase agreements and any related documentation to
the extent assignable for each Aircraft
(v) all logs, data and records related to the Leasing
Aircraft;
(vi) all Leases of the Leasing Aircraft, including without
limitation, those described on Schedule B-2 attached
hereto; and
3
<PAGE> 12
(vii) all proceeds of the foregoing, other than accounts.
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so
long as no Event of Default shall have occurred and be continuing under this
Indenture, (a) the Collateral Trustee shall not take or cause to be taken any
action contrary to the Company's right hereunder to quiet enjoyment of the
Leasing Aircraft and related hush kits, and to possess, use, retain and control
the Leasing Aircraft and related hush kits and all revenues, income and profits
derived therefrom.
LEASING HABENDUM CLAUSE
TO HAVE AND TO HOLD ALL and singular and aforesaid property unto the
Collateral Trustee and its successors and assigns, in trust for the benefit and
security of the Holders and the Trustee and for the uses and purposes and
subject to the terms and provisions set forth in this Indenture; provided,
however, that the Lien of this Indenture shall be subject to discharge as
provided in Section 8.02.
Leasing does hereby constitute the Collateral Trustee the true and
lawful attorney of Leasing, irrevocably, with full power (in the name of
Leasing or otherwise) to ask, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies (in each case
including insurance and requisition proceeds) due and to become due under or
arising out of the this Indenture and any documents related hereto and all
other property which now or hereafter constitutes part of the Leasing
Collateral, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or to take any action or to institute any
proceedings which the Collateral Trustee may deem to be necessary or advisable
in the premises; providing, however, that the Collateral Trustee shall not
exercise any such rights except upon the occurrence of an Event of Default
under this Indenture.
Leasing agrees that at any time and from time to time, upon the written
request of the Collateral Trustee or the Holder of a majority in principal
amount of the Notes outstanding, Leasing will promptly and duly execute and
deliver or cause to be duly executed and delivered any and all such further
instruments and documents as the Collateral Trustee or such Holder of a
majority in principal amount of the Notes outstanding may reasonably deem
desirable in obtaining the full benefits of the assignment hereunder and the
rights and powers granted herein.
4
<PAGE> 13
KITY HAWK AIRCARGO, INC.
GRANTING CLAUSE
NOW, THEREFORE, THIS INDENTURE WITNESSETH, for and in consideration of
the premises and the purchase of the Notes by the Holders thereof, to secure
the prompt payment of the principal of and interest on, and all other amounts
due with respect to, all Notes from time to time outstanding under this
Indenture and the performance and observance by the Company of all the
agreements, covenants and provisions for the benefit of the Holders in this
Indenture and the Notes contained, and the prompt payment of any and all
amounts from time to time owing under this Indenture by the Company to the
Trustee, and for the uses and purposes and subject to the terms and provisions
hereof, and in consideration of the premises and the covenants herein
contained, and the acceptance of the Notes by the Holders and of the sum of $1
paid to the Company by the Collateral Trustee at or before the delivery hereof,
the receipt whereof is hereby acknowledged, Aircargo has granted, sold,
assigned, transferred, conveyed, pledged and confirmed, and does hereby grant,
assign, transfer, convey, pledge and confirm, unto the Collateral Trustee and
its successors and assigns, for the security and benefit of the Holders and the
Trustee as aforesaid, a first priority security interest in all estate, right,
title and interest of Aircargo in, to and under the following described
property, rights and privileges (which, collectively, including all property
hereafter specifically subjected to the Lien of this Indenture by any agreement
supplemental hereto, or otherwise expressly subject to the terms and provisions
hereof, shall constitute a portion of the Collateral (as defined herein)), to
wit:
(i) two Boeing 727s, along with the Engines, as specified on
Schedule C hereto (collectively, the "Aircargo Aircraft");
(ii) all insurance and requisition proceeds and other similar
payments with respect to each of the Aircargo Aircraft;
(iii) all monies or securities deposited or required to be
deposited with the Trustee;
(iv) any purchase agreements and any related documentation to
the extent assignable for each Aircraft
(v) all logs, data and records related to the Aircargo
Aircraft; and
(vi) all proceeds of the foregoing, other than accounts.
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so
long as no Event of Default shall have occurred and be continuing under this
Indenture, (a) the Collateral Trustee shall not take or cause to be taken any
action contrary to the Company's right hereunder to quiet enjoyment of the
Aircargo Aircraft and related hush kits, and to possess, use, retain and
control the Aircargo Aircraft and related hush kits and all revenues, income
and profits derived therefrom.
4A
<PAGE> 14
AIRCARGO HABENDUM CLAUSE
TO HAVE AND TO HOLD ALL and singular and aforesaid property unto the
Collateral Trustee and its successors and assigns, in trust for the benefit and
security of the Holders and the Trustee and for the uses and purposes and
subject to the terms and provisions set forth in this Indenture; provided,
however, that the Lien of this Indenture shall be subject to discharge as
provided in Section 8.02.
Aircargo does hereby constitute the Collateral Trustee the true and
lawful attorney of Aircargo, irrevocably, with full power (in the name of
Aircargo or otherwise) to ask, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies (in each case
including insurance and requisition proceeds) due and to become due under or
arising out of the this Indenture and any documents related hereto and all
other property which now or hereafter constitutes part of the Aircargo
Collateral, to endorse any checks or other instruments or orders in connection
therewith and to file any claims or to take any action or to institute any
proceedings which the Collateral Trustee may deem to be necessary or advisable
in the premises; providing, however, that the Collateral Trustee shall not
exercise any such rights except upon the occurrence of an Event of Default
under this Indenture.
Aircargo agrees that at any time and from time to time, upon the written
request of the Collateral Trustee or the Holder of a majority in principal
amount of the Notes outstanding, Aircargo will promptly and duly execute and
deliver or cause to be duly executed and delivered any and all such further
instruments and documents as the Collateral Trustee or such Holder of a
majority in principal amount of the Notes outstanding may reasonably deem
desirable in obtaining the full benefits of the assignment hereunder and the
rights and powers granted herein.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows:
4B
<PAGE> 15
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"ACMI Agreement" means a charter agreement pursuant to which the Company
or any Owner supplies aircraft, crew, maintenance and insurance under which the
Company or Owner retains operational control and maintains the Aircraft under
its operation specifications and, in no event, shall be deemed a lease of the
Aircraft.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate
net income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income of any Person that is not a Restricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of Section 4.04 (and in such case, except to
the extent includable pursuant to clause (i) above), the net income (or loss)
of any Person accrued prior to the date it becomes a Restricted Subsidiary or
is merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted (unless such permission could,
as determined by the chief financial officer of the Company in good faith, be
readily and reasonably obtained) by the operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv) any
gains or losses (on an after-tax basis) attributable to Asset Sales; (v) except
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04, any amount paid
or accrued as dividends on Preferred Stock of the Company or any Restricted
Subsidiary owned by Persons other than the Company and any of its Restricted
Subsidiaries; and (vi) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its
5
<PAGE> 16
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to Section 4.15.
"Adjusted Net Assets" has the meaning provided in Section 13.04.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise; provided that, with
respect to the Company, ownership of Capital Stock representing more than 10%
of the voting power of the Company's Capital Stock shall be deemed control.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar appointed as such pursuant to the provisions hereof.
"Agent Members" has the meaning provided in Section 2.07(a).
"Aircraft" means each of the Airframes together with the Engines
relating thereto and hush kits, if any, installed thereon, upon which the
Trustee has been granted a security interest and mortgage lien by the Owner
thereof pursuant to this Indenture and any Airframes which may from time to
time be substituted for such Airframes pursuant to the terms of this Indenture.
"Airframes" means each of the nine Boeing 747 Aircraft, eight Lockheed
L-1011 Aircraft and thirteen Boeing 727 Aircraft (except Engines or engines
from time to time installed on such Aircraft) initially pledged to secure the
Company's obligations under this Indenture and the Notes and any Aircraft
(except Engines or engines from time to time installed on such Aircraft) which
may from time to time be substituted for such Aircraft (except Engines or
engines from time to time installed on such Aircraft) pursuant to this
Indenture.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of
the Company and its Restricted Subsidiaries on the date of such investment or
(ii) an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
6
<PAGE> 17
"Asset Disposition" means the sale or other disposition, outside the
ordinary course of business, by the Company or any of its Restricted
Subsidiaries (other than to the Company or another Restricted Subsidiary) of
(i) all or substantially all of the Capital Stock of any Restricted Subsidiary
of the Company or (ii) all or substantially all of the assets that constitute a
division or line of business of the Company or any of its Restricted
Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary (other than director's qualifying shares), (ii) all or substantially
all of the property and assets of an operating unit or business of the Company
or any of its Restricted Subsidiaries or (iii) any other property and assets of
the Company or any of its Restricted Subsidiaries outside the ordinary course
of business of the Company or such Restricted Subsidiary and, in each case,
that is not governed by Article Five; provided that "Asset Sale" shall not
include (a) sales or other dispositions of inventory, receivables and other
current assets, (b) sales or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would satisfy clause (B) of Section
4.11, (c) leases of aircraft, including the Aircraft and any engines, including
the Engines, pursuant to the provisions of Section 14.03 or similar
arrangements, including pooling or interchange arrangements as described
therein, (d) sales, transfers or other dispositions of assets that have a fair
market value of less than $20.0 million from the Closing Date through the final
stated maturity of the Notes, (e) Sales or Events of Loss and (f) sales of
collateral which is pledged to secure the New Credit Facility or Term Loan, so
long as the proceeds are applied to reduce the aggregate Indebtedness
thereunder.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Aviation Act" means the Federal Aviation Act of 1958, as amended, and
recodified in Subtitle VII of Title 49 of the United States Code, and
applicable regulations thereunder.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978,
as amended, or any similar United States federal or state or foreign law
relating to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or
change in any such law.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of such Board of Directors.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
7
<PAGE> 18
"Borrowing Base" shall have the meaning given to such term in the New
Credit Facility, as in effect from time to time.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Cash Equivalents" means (i) United States dollars or foreign currency
that is readily exchangeable into United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than 12
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of 12 months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding 12 months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of
"B" or better, (iv) repurchase obligations with a term of not more than seven
days for the underlying securities of the types described in clauses (ii) and
(iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, and (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Corporation and in each case maturing not more than 90 days after the
date of acquisition.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act)
of more than 35% of the total voting power of the Voting Stock of the Company
on a fully diluted basis and such ownership represents a greater percentage of
the total voting power of the Voting Stock of the Company, on a fully diluted
basis, than is held by the Existing Stockholders on such date or (ii)
individuals who on the Closing Date constitute the Board of Directors (together
with any new directors whose election by the Board of Directors or whose
nomination by the Board of Directors for election by the Company's stockholders
was approved by a vote of at least two-thirds of the members of the Board of
Directors then in office who either were members of the Board of Directors on
the Closing Date or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the members of the
Board of Directors then in office.
8
<PAGE> 19
"Change of Control Triggering Event" means both the occurrence of a
Change of Control and a Rating Decline.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Collateral" means (i) the Aircraft, including Engines, as specified on
Schedule S, A, B-1, and C hereto, (ii) all insurance and requisition proceeds
and other similar payments with respect to each of the Aircraft, (iii) all
monies or securities deposited or required to be deposited with the Trustee,
(iv) any purchase agreements and any related documentation to the extent
assignable for each Aircraft, (v) all logs, data and records related to the
Aircraft, (vi) the Pledged Securities on deposit in the Escrow Account, the
Escrow Account and certain related assets, as described in the Escrow and
Security Agreement, (vii) all rights of any Owner under any Lease relating to
any Aircraft, including those specified on Schedule B-2 hereto, and (viii) all
proceeds of the foregoing. other than accounts. The Collateral shall also
include the Optioned Aircraft or Eligible Aircraft described in the Escrow and
Security Agreement, when acquired by AIA, which AIA will grant a lien and
security interest on to the Collateral Trustee upon their acquisition.
"Collateral Access Event" means any Collateral Access Event in Section
6.02.
"Collateral Trustee" means the Person named as the "Collateral Trustee"
in the first paragraph of this Indenture until a successor Collateral Trustee
shall have become such pursuant to the applicative provisions of this
Indenture, and thereafter "Collateral Trustee" shall mean such Collateral
Trustee.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the TIA, then the body performing such
duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether now outstanding or issued after the Closing Date,
including, without limitation, all series and classes of such common stock.
"Common Stock Offering" means the public offering by the Company and
certain selling stockholders of 3,000,000 shares of Common Stock of the Company
consummated on November 19, 1997.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to Article Five of this Indenture and,
thereafter, means the successor.
"Company Order" means a written request or order signed in the name of
the Company by its Chairman, its President or a Vice President and delivered to
the Trustee.
9
<PAGE> 20
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is,
or is required by GAAP to be, made), all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries otherwise in conformity with
GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced hereunder) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by the Company
or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be
accrued by the Company and its Restricted Subsidiaries during such period;
excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in
connection with the offering of the Notes and the establishment of the New
Credit Facility and the Term Loan and the other transactions contemplated by
the Transactions and Refinancing, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with
GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company (which shall be as of a date
not more than 90 days prior to the date of such computation, and which shall
exclude Unrestricted Subsidiaries), less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of the Company
or any of its Restricted Subsidiaries, each item to be determined in conformity
with GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Convention" means the Convention International Recognition of Rights in
Aircraft, as amended or recodified from time to time.
10
<PAGE> 21
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at c/o First Chicago Trust Company, 14 Wall Street, 8th Floor, New
York, New York 10002, Attention: Corporate Trust and Agency Group.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and their
respective successors, until a successor Depositary shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
hereunder.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes other than Capital
Stock issued to employees; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior
to the Stated Maturity of the Notes shall not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in Section 4.11 and Section 4.14 and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to Section 4.11 and Section
4.14.
"Eligible Aircraft" means one or more aircraft that would be useful in
the Company's business and having a value (or fair value or similar measure)
determined by an aircraft appraisal firm of national standing equal to or in
excess of the price paid therefor by the Company.
"Engines" means for each of the Boeing 747 Airframes, each of the 36
Pratt & Whitney JT9D-7A Engines and each of the 20 JT9D-7J Engines relating
thereto, as more specifically described on Schedule A or B-1 hereto, and any
engines which may from time to time be substituted for such engines pursuant to
this Indenture; and with respect to the Boeing 727 Airframes means each of the
9 Pratt & Whitney JT8D-B Engines, each of the 3 JT8D-15A Engines, each of the 3
JT8D-15/15A Engines, each of the 12 JT8D-15 Engines, each of the 6 JT8D-9A
Engines, and each of the 6 JT8D-9A/7B Engines relating thereto, as more
specifically described on Schedule A or B-1 hereto, and any engines
11
<PAGE> 22
which may from time to time be substituted for such engines pursuant to this
Indenture and with respect to the Lockheed L-1011 Airframes, each of the 24
Rolls Royce RB211-524 Engines relating thereto, as more specifically described
on Schedule A or B-1 hereto, and any engines which may from time to time be
substituted for such Engines pursuant to this Indenture.
"Escrow Account" means an account established with the Trustee pursuant
to the terms of the Escrow and Security Agreement for the deposit of the
Pledged Securities to be purchased by the Company with the net proceeds from
the sale of the Notes.
"Escrow and Security Agreement" means the Escrow and Security Agreement,
dated as of the Closing Date, made by the Company and the Guarantors in favor
of the Trustee, governing the disbursement of funds from the Escrow Account and
granting a security interest in certain assets, including the Pledged
Securities, as such agreement may be amended, restated, supplemented or
otherwise modified from time to time.
"Event of Default" has the meaning provided in Section 6.01.
"Event of Loss" with respect to the Aircraft or Engine means any of the
following events: (i) payment of an insurance settlement with respect to such
property on the basis of an actual or constructive total loss; (ii) destruction
or damage beyond repair; provided that, if it was not clear whether damage
constitutes damage beyond repair, an Event of Loss will be deemed to occur when
it is determined by the Company that such damage is beyond repair; (iii) theft
or disappearance for a period in excess of 120 days, unless the location of the
Aircraft is known and the Company is diligently pursuing its recovery; (iv) the
condemnation or taking of title to such Aircraft by the United States
government or any foreign government or instrumentality or agency thereof; (v)
the requisition or taking of use of such Aircraft or airframe by a foreign
government or instrumentality or agency for a continuous period of more than
six months; (vi) with respect to an Engine only, the requisition for use by any
government or the divestiture of title resulting from the installation of such
Engine on an airframe leased to the Company or purchased by the Company subject
to a conditional sale agreement, in either case, under circumstances where the
Trustee's security interest in such Engine is adversely affected thereby; or
(vii) "grounding" of such Aircraft for a period of twelve consecutive months
(or such shorter period determined by the Company) due to an action by a
governmental body, unless prior to and after the expiration of such period, the
Company is diligently carrying forward all necessary steps to permit normal
use.
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Notes" means any securities of the Company containing terms
substantially identical to the Notes (except that such Exchange Notes shall be
registered under the Securities Act) that are issued and exchanged for the
Notes pursuant to an exchange offer consummated in accordance with the
Registration Rights Agreement.
12
<PAGE> 23
"Excluded Restricted Subsidiary" means any Restricted Subsidiary
principally engaged in a business similar to that of the Company or any of its
Restricted Subsidiaries or any business reasonably related thereto and
domiciled outside the United States of America if the issuance of a Guarantee
by such Subsidiary would, as determined in good faith in a resolution of the
Board of Directors, create a material tax disadvantage or would be illegal
under applicable law.
"Existing Stockholders" means Mr. M. Tom Christopher, his spouse and
children and any trust the sole beneficiaries of which consist of the foregoing
persons.
"fair market value" means the price that would be paid in an arm's-
length transaction between an informed and willing seller under no compulsion
to sell and an informed and willing buyer under no compulsion to buy, as
determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Fraudulent Conveyance Act" means any statute based on or substantially
similar to the Uniform Fraudulent Conveyance Act.
"Fraudulent Transfer Act" means any statute based on or substantially
similar to the Uniform Fraudulent Transfer Act.
"Funding Guarantor" has the meaning provided in Section 13.04.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. The numbers used to
calculate all ratios and perform all computations contained or referred to in
this Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of this
Indenture shall be made without giving effect to (A) the amortization of any
expenses incurred in connection with the offering of the Notes and (B) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services (unless such purchase arrangements are on arm's-
length
13
<PAGE> 24
terms and are entered into in the ordinary course of business), to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means all Restricted Subsidiaries of the Company other than
AIC and any Excluded Restricted Subsidiary; provided that, upon the release and
discharge of any Guarantor from its Guarantee in accordance with this
Indenture, such Guarantor shall cease to be a Guarantor.
"Holder" or "Noteholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in clause (i) or (ii) above or
(v), (vi) or (vii) below) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
drawn upon, to the extent such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement),
(iv) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six months
after the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables and accrued
expenses, (v) all Capitalized Lease Obligations, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not
otherwise included in this definition, obligations under Currency Agreements
and Interest Rate Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided that (A) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of such
14
<PAGE> 25
Indebtedness less the then remaining unamortized portion of the original issue
discount of such Indebtedness as determined in conformity with GAAP, (B) money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall be
deemed not to be "Indebtedness" and (C) Indebtedness shall not include any
liability for federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures
supplemental to this Indenture entered into pursuant to the applicable
provisions of this Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been
filed with the Commission pursuant to Section 4.15 (the "Four Quarter Period")
to (ii) the aggregate Consolidated Interest Expense during such Four Quarter
Period. In making the foregoing calculation, (A) pro forma effect shall be
given to any Indebtedness Incurred or repaid during the period (the "Reference
Period") commencing on the first day of the Four Quarter Period and ending on
the Transaction Date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement)
in effect on the last day of such Four Quarter Period unless any portion of
such Indebtedness is projected, in the reasonable judgment of the senior
management of the Company, to remain outstanding for a period in excess of 12
months from the date of the Incurrence thereof), in each case as if such
Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining
term of such Indebtedness) had been the applicable rate for the entire period;
(C) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition) that occur during such Reference Period as if they
had occurred and such proceeds had been received on the first day of such
Reference Period; and (D) pro forma effect shall be given to asset dispositions
and asset acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition) that have been made by any Person that has
become a Restricted Subsidiary or has been merged with or into the Company or
any Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset
Acquisitions that occurred on the first day of such Reference Period; provided
that, to the extent that clause (C) or (D) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction
15
<PAGE> 26
Date of the Person, or division or line of business of the Person, that is
acquired or disposed for which financial information is available.
"Interest Payment Date" means each semiannual interest payment date on
May 15 and November 15 of each year, commencing May 15, 1998.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement, including, without limitation, any fuel hedging or
fuel protection agreement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including,
without limitation, by reason of any transaction permitted by clause (iii) of
Section 4.06; provided that the fair market value of the Investment remaining
in any Person that has ceased to be a Restricted Subsidiary shall be deemed not
to exceed the aggregate amount of Investments previously made in such Person
valued at the time such Investments were made less the net reduction of such
Investments. For purposes of the definition of "Unrestricted Subsidiary" and
Section 4.04, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer.
"Kalitta Companies" means American International Airways, Inc., a
Michigan corporation, Kalitta Flying Service, Inc., a Michigan corporation,
Flight One Logistics, Inc., a Michigan corporation, O.K. Turbines, Inc., a
Michigan corporation, American International Travel, Inc., a Michigan
corporation and American International Cargo, a co-partnership formed under the
laws of Michigan.
"Lease" means those certain leases (excluding, in all events any ACMI
Agreement), specified on Schedule B-2 hereto and any lease by the Owner of the
Aircraft pertaining to
16
<PAGE> 27
the Aircraft or such other substitute aircraft which becomes Collateral
pursuant to the terms hereof, which extends for a period in excess of six
months.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any agreement
to give any security interest), but excluding any operating lease.
"Merger" means the mergers of the Kalitta Companies (other than American
International Cargo) with and into certain Subsidiaries of Kitty Hawk pursuant
to that certain Agreement and Plan of Merger dated September 22, 1997, as
amended by Amendment No. 1 dated October 23, 1997 and Amendment No. 2 dated
October 29, 1997.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or Cash Equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or Cash Equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company
and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or Cash Equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or Cash
Equivalents, net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"New Credit Facility" means the $100 million senior secured revolving
credit facility with Wells Fargo Bank (Texas), National Association,
individually and as agent for
17
<PAGE> 28
other lenders, as amended, refinanced or substituted from time to time;
provided that Affiliates of the Company cannot constitute the majority of the
lenders thereunder.
"New York Debtor and Creditor Law" means the New York Debtor and
Creditor Law as from time to time in effect.
"Noise Regulations" means FAA noise standard regulations primarily
promulgated under the Airport Noise and Capacity Act of 1990.
"Note Guarantee" means the Guarantee by the Guarantors of the Company's
obligations under the Notes and this Indenture and any other Guarantee of such
obligations by any Person.
"Note Offering" means the offering by the Company of $340,000,000
aggregate principal amount of 9.95% Senior Secured Notes Due 2004 of the
Company being issued pursuant to the terms of this Indenture.
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a Business Day
no earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the purchase price, any Note accepted for payment pursuant to
the Offer to Purchase shall cease to accrue interest on and after the Payment
Date; (v) that Holders electing to have a Note purchased pursuant to the Offer
to Purchase will be required to surrender the Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof. On the Payment Date, the
Company shall (i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the
Trustee all Notes or
18
<PAGE> 29
portions thereof so accepted together with an Officers' Certificate specifying
the Notes or portions thereof accepted for payment by the Company. The
Company, Depositary or Paying Agent shall promptly mail or deliver to the
Holders of Notes so accepted payment in an amount equal to the purchase price,
and the Trustee shall promptly authenticate and mail or deliver to such Holders
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof. The Company
will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means with respect to the Company, the Chairman of the Board,
the President, any Vice President, the Chief Financial Officer, the Treasurer
or any Assistant Treasurer, or the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed on behalf of the
Company by an Officer. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Opinion of Counsel" means a written opinion signed by legal counsel who
is reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e). Opinions of Counsel
may have qualifications customary for similar opinions.
"Optioned Boeing 747s" means the two used Boeing 747s which the Company
has an option to acquire.
"Owner" means either AIA, Leasing or Aircargo, as the case may be, as
the registered owner of the Aircraft or such other registered owner of aircraft
which is substituted as Collateral pursuant to the provisions hereof.
"Parts" means all appliances, parts, instruments, appurtenances,
accessories, furnishings and other equipment of whatever nature other than
complete Engines or engines which are from time to time incorporated or
installed in or attached to the Airframe or any Engine, exclusive of any items
leased by the Company from third parties.
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Permitted Air Carrier" means (i) a United States "air carrier" within
the meaning of the Aviation Act or (ii) an air carrier which, among other
things, (A) is duly organized and operating pursuant to a license or
authorization issued under the laws of any
19
<PAGE> 30
Permitted Country and (B) will perform or cause to be performed maintenance or
engine preventative maintenance, and inspections for such Aircraft, Airframe or
any Engine in accordance with standards which are approved by the aeronautical
authority in the country or registration of the Aircraft.
"Permitted Aircraft Lease" by any Person means a lease of aircraft owned
by such Person to a third party on terms which permit the lessor to reacquire
possession of such aircraft, with good and marketable title thereto free and
clear of any adverse claim in favor of the lessee, upon a material breach of
such lease by the lessee.
"Permitted Country" means, with respect to any Aircraft, any country for
which (i) an insurer of national or international standing has provided
significant insurance coverage for such Aircraft or (ii) the United States
government has assumed liability, including, without limitation, a significant
portion of the cost of replacing such Aircraft, for operation of such Aircraft
within such country.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary (other than an Excluded Restricted Subsidiary) or a
Person which will, upon the making of such Investment, become a Restricted
Subsidiary (other than an Excluded Restricted Subsidiary) or be merged or
consolidated with or into or transfer or convey all or substantially all its
assets to, the Company or a Restricted Subsidiary (other than an Excluded
Restricted Subsidiary); provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company or its
Restricted Subsidiaries on the date of such Investment; (ii) Cash Equivalents
and Temporary Cash Investments; (iii) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) stock, obligations or
securities received in satisfaction of judgments; (v) loans or advances to
employees of the Company or any Restricted Subsidiary not to exceed $1 million
at any time outstanding; (vi) Investments of up to $25.0 million in Permitted
Joint Ventures; and (vii) Investments in Excluded Restricted Subsidiaries the
aggregate amount of which does not at any time outstanding exceed 10% of
Adjusted Consolidated Net Tangible Assets.
"Permitted Joint Ventures" means any Unrestricted Subsidiary or any
other Person in which the Company or a Restricted Subsidiary owns an ownership
interest, directly or indirectly (other than a Restricted Subsidiary) and whose
business is related or ancillary to the business of the Company or any of its
Restricted Subsidiaries at the time of determination.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (ii) statutory and common law Liens
of landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
20
<PAGE> 31
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (iii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof)
upon real or personal property acquired after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with Section 4.03, to finance the cost (including the
cost of improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within six months
after the later of the acquisition, the completion of construction or the
commencement of full operation of such property, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii) leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole; (viii) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at
the time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of
the Company or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against
the Company or any Restricted Subsidiary that does not give rise to an Event of
Default; (xiv) Liens securing reimbursement obligations with respect to letters
of credit that encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (xv) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (xvi) Liens encumbering
customary initial deposits and margin deposits, and other Liens that are within
the general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed
solely to protect the Company or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of commodities; (xvii)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in
21
<PAGE> 32
accordance with the past practices of the Company and its Restricted
Subsidiaries prior to the Closing Date; (xviii) Liens to secure Indebtedness
incurred pursuant to clause (vii) of the second paragraph of Section 4.03;
provided the assets securing such Indebtedness were or are acquired with the
proceeds of such Indebtedness; (xix) Liens on or sales of receivables; and (xx)
Liens created pursuant to the terms of any aircraft lease or any lease or
pooling or interchange arrangement relating to an Engine incurred in compliance
with Section 14.03; provided that no such Liens exist with respect to the
Collateral except as otherwise permitted pursuant to the terms hereof.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Pledged Securities" means the U.S. Government Obligations to be
purchased by the Company or any Guarantor (or on their respective behalf) and
held in the Escrow Account in accordance with the Escrow and Security
Agreement.
"principal" of a debt security, including the Notes, means the principal
amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or
Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized United States securities rating agency or agencies, as
the case may be, selected by the Company, which shall be substituted for S&P or
Moody's or both, as the case may be.
"Rating Category" means (i) with respect to S&P, any of the following
categories: A, BBB, BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: A,
Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii)
the equivalent of any such category of S&P or Moody's used by another Rating
Agency. In determining whether the rating of the Notes has decreased by one or
more gradations, gradations with Rating Categories (+ and -- for S&P; 1, 2 and
3 for Moody's; or equivalent gradations for another Rating Agency) shall be
taken into account (e.g., with respect to S&P, a decline in a rating from BB+
to BB, as well as from BB-- to B+, will constitute a decrease of one
gradation).
22
<PAGE> 33
"Rating Date" means the date which is 90 days prior to the earlier of
(x) Change of Control and (y) public notice of the occurrence of a Change of
Control or of the intention by the Company or any Person to effect a Change of
Control.
"Rating Decline" means the decrease (as compared with the Rating Date)
by one or more gradations (including gradations within the Rating Categories as
well as between Rating Categories) of the rating of the Notes by either Rating
Agency on, or within six months after, the date of public notice of the
occurrence of a Change of Control or of the intention of the Company or of any
Person to effect a Change of Control (which period shall be extended for so
long as the rating of the Notes is under publicly announced consideration for
possible downgrade by any of the Rating Agencies); provided, however, that in
the event the Notes are not rated by two Rating Agencies at the time a Change
of Control occurs, a Rating Decline shall be deemed to have occurred.
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which such Note is to be redeemed pursuant to this
Indenture.
"Refinancings" means the refinancing of substantially all of the
currently outstanding indebtedness of the Company and the Kalitta Companies
with a portion of the net proceeds of the Notes and the concurrent public
offering of Common Stock of the Company and the incurrence of the Term Loan.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of November 19, 1997, between the Company and Morgan Stanley & Co.,
Incorporated, BT Alex. Brown Incorporated and Fieldstone FPCG Services, L.P.,
as such agreement may be amended, modified or supplemented from time to time.
"Registration Statement" means the Registration Statement pursuant to
which the Exchange Notes are offered and exchanged for the Notes.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the May 1 or November 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Released Indebtedness" means, with respect to any Asset Sale,
Indebtedness (i) which is owed by the Company or any Restricted Subsidiary (the
"Obligors") prior to such Asset Sale, (ii) which is assumed by the purchaser or
any affiliate thereof in connection with such Asset Sale and (iii) with respect
to which each such Obligor receives written, unconditional releases from each
creditor, no later than the closing date of such Asset Sale.
23
<PAGE> 34
"Responsible Officer", when used with respect to the Trustee, means the
chairman of the board of directors, the chairman of the executive committee of
the board of directors, the chairman of the trust committee, the president, any
vice president, any assistant vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
(including any officer within the Corporate Trust and Agency Group (or any
successor group) of the Trustee) and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale" has the meaning provided in Section 4.17.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Security Registrar" has the meaning provided in Section 2.04.
"Shelf Registration Statement" has the meaning provided in the
Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Service and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding
24
<PAGE> 35
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of $50
million (or the foreign currency equivalent thereof) and has outstanding debt
which is rated "A" (or such similar equivalent rating) or higher by at least
one nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as of
which any investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P, and (v) securities with maturities of
six months or less from the date of acquisition issued or fully and
unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by S&P or Moody's.
"Term Loan" means the $45.9 million term loan with Wells Fargo Bank
(Texas), National Association, individually and as agent for other lenders,
entered into as of the Closing Date, together with any other loan or credit
agreements entered into from time to time with one or more banks or other
lenders, for the purpose of refinancing or refunding such Term Loan in an
amount not to exceed $45.9 million (plus premiums, accrued interest, fees and
expenses).
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended (15 U.S. Code Sections 77aaa-77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transactions" means the Note Offering, the Merger and the Common Stock
Offering.
25
<PAGE> 36
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978,
as amended and as codified in Title 11 of the United States Code, as amended
from time to time hereafter, or any successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below; and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the Company
or any Restricted Subsidiary; provided that (A) any Guarantee by the Company or
any Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation, (B) either (I) the Subsidiary to
be so designated has total assets of $1,000 or less or (II) if such Subsidiary
has assets greater than $1,000, such designation would be permitted under
Section 4.04 and (C) if applicable, the Incurrence of Indebtedness and the
Investment referred to in clause (A) of this proviso would be permitted under
Section 4.03 and Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (i) no
Default or Event of Default shall have occurred and be continuing at the time
of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of this Indenture.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof at any time
prior to the Stated Maturity of the Notes, and shall also include a depository
receipt issued by a bank or trust company as custodian with respect to any such
U.S. Government Obligation or a specific payment of interest on or principal of
any such U.S.
26
<PAGE> 37
Government Obligation held by such custodian for the account of the holder of a
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of interest on or
principal of the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law and up to 5% of the Capital Stock of such
Subsidiary) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
27
<PAGE> 38
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subdivision;
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections
or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate
of authentication shall be substantially in the form annexed hereto as Exhibit
A. The Notes may have notations, legends or endorsements required by law,
stock exchange agreements to which the Company is subject or usage. The
Company shall approve the form of the Notes and any notation, legend or
endorsement on the Notes. Each Note shall be dated the date of its
authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. The Company, the Guarantors and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "Global Notes"),
deposited on behalf of the Holders with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Notes offered and sold to Institutional Accredited Investors shall be
issued in the form of permanent certificated Notes in registered form in
substantially the form set forth in Exhibit A (the "Physical Notes").
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted
28
<PAGE> 39
by the rules of any securities exchange on which the Notes may be listed, all
as determined by the Officers executing such Notes, as evidenced by their
execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, each Global Note and
each Physical Note shall bear the legend, set forth below on the face thereof:
THIS NOTE WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT,
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCES.
EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON EXEMPTIONS FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR"), (2) AGREES
THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k)
(TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d), IF APPLICABLE) UNDER
THE SECURITIES ACT AS IN EFFECT WITH RESPECT TO SUCH TRANSFER, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO KITTY HAWK, INC. (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF
NOTES OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN
29
<PAGE> 40
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT
THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. Execution, Authentication and Denominations. The
aggregate principal amount of Notes which may be authenticated and delivered
under this Indenture is limited to up to $340 million at any time outstanding,
subject to the
30
<PAGE> 41
provisions of Section 2.09 hereof. The Notes shall be executed by two Officers
of the Company, by facsimile or manual signature, in the name and on behalf of
the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the
Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
Subject to the foregoing, at any time and from time to time after the
execution of this Indenture, the Trustee or an authenticating agent shall upon
receipt of a Company Order authenticate for issuance of Notes in the aggregate
principal amount specified in such Company Order; provided that the Trustee
shall be entitled to receive an Officers' Certificate and an Opinion of Counsel
of the Company that it may reasonably request in connection with such
authentication of Notes. Such Company Order shall specify the amount of Notes
to be authenticated and the date on which the issuance of Notes is to be
authenticated.
The Trustee may appoint an authenticating agent to authenticate Notes.
If the appointment of such authenticating agent is not at the discretion and
for the convenience of the Trustee, then such authenticating agent shall be
compensated by the Company. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such authenticating
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or an Affiliate of the Company.
Neither the Company nor the Trustee shall have any responsibility for
any defect in the CUSIP number that appears on any Note, check, advice of
payment or redemption notice, and any such document may contain a statement to
the effect that CUSIP numbers have been assigned by an independent service for
convenience of reference and that neither the Company nor the Trustee shall be
liable for any inaccuracy in such numbers.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple
thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer
or for exchange (the "Registrar"), an office or agency where Notes may be
presented for payment (the "Paying Agent") and an office or agency where
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City
of New York. The Company shall cause the Registrar to keep a register of the
Notes and of their transfer and exchange (the "Security Register"). The
Security Register shall be in written form or any other form capable of being
converted into written form within a reasonable time. The Company may have one
or
31
<PAGE> 42
more co-Registrars and one or more additional Paying Agents. The Company or
any of its Subsidiaries or any Affiliate of each may act as Paying Agent or
Registrar.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain
a Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become
effective until (i) the acceptance of an appointment by a successor Agent to
such Agent as evidenced by an appropriate agency agreement entered into by the
Company and such successor Agent and delivered to the Trustee or (ii)
notification to the Trustee that the Trustee shall serve as such Agent until
the appointment of a successor Agent in accordance with clause (i) of this
proviso. The Company, any Subsidiary of the Company, or any Affiliate of any
of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for
service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. If, at any
time, the Trustee is not the Registrar, the Company shall furnish, or cause to
be furnished, to the Trustee at least seven Business Days before each Interest
Payment Date and at such other times as the Trustee may reasonably request, the
names and addresses of the Holders as they appear in the Security Register. At
the option of the Company, payment of interest may be made by check mailed to
the address of the Holders as such address appears in the Security Register.
The Trustee shall act as the Paying Agent for any Offer to Purchase.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than each
due date of the principal, premium, if any, and interest on any Notes, the
Company shall deposit with the Paying Agent money in immediately available
funds sufficient to pay such principal, premium, if any, and interest so
becoming due. The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of the Holders or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Notes
(whether such money has been paid to it by the Company or any other obligor on
the Notes), and such Paying Agent shall promptly notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed, and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by
it to the Trustee and to account for any funds disbursed. Upon doing so, the
Paying Agent shall have no further liability for the money so paid over to the
Trustee. If the Company or any Subsidiary of the Company or any Affiliate of
any of them acts as Paying Agent, it will, on or before each due date of any
principal of, premium, if any, or interest on the Notes, segregate and hold in
a separate trust fund for
32
<PAGE> 43
the benefit of the Holders a sum of money sufficient to pay such principal,
premium, if any, or interest so becoming due until such sum of money shall be
paid to such Holders or otherwise disposed of as provided in this Indenture,
and will promptly notify the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. A Holder may transfer a Note by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until,
and such transferee shall succeed to the rights of a Holder only upon, final
acceptance and registration of the transfer by the Registrar in the Security
Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any agent of the Company shall treat the
person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations (including an exchange of Notes for Exchange Notes),
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided that no exchanges of
Notes for Exchange Notes shall occur until a Registration Statement shall have
been declared effective by the Commission (confirmed in an Officers'
Certificate delivered to the Trustee) and that any Notes that are exchanged for
Exchange Notes shall be cancelled by the Trustee. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Notes at the Registrar's request. No service charge shall be made
for any registration of transfer or exchange or redemption of the Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax
or similar governmental charge payable in connection therewith (other than any
such transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the
day of such mailing, or (ii) to register the transfer of or exchange any Note
so selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The Global
Notes initially shall (i) be registered in the name of the Depositary for such
Global Notes or the nominee of such Depositary, (ii) be delivered by the
Trustee to the Depositary or pursuant to the Depositary's instructions or held
by the Trustee as custodian for such Depositary and (iii) bear legends as set
forth in Section 2.02.
33
<PAGE> 44
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Guarantors,
the Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of such Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Guarantors, the
Trustee or any agent of the Company, the Guarantors or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Agent Members, the
operation of customary practices governing the exercise of the rights of a
holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary
and the provisions of Section 2.08. In addition, Physical Notes shall be
transferred to all beneficial owners in exchange for their beneficial interests
in the Global Notes if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Notes and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request to the foregoing effect from the Depositary.
(c) Any beneficial interest in the Global Notes that is transferred
to a person who takes delivery in the form of an interest in another Global
Note will, upon transfer, cease to be an interest in such Global Note and
become an interest in the other Global Note and, accordingly, will thereafter
be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer of a beneficial interest in a
Global Note to beneficial owners, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the Global Notes in
an amount equal to the principal amount of the beneficial interest in such
Global Notes to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Physical Notes of like tenor and
amount.
(e) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b) of this Section, the Global Note
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in the Global Note, an equal aggregate principal amount of Physical
Notes of authorized denominations.
(f) Any Physical Note delivered in exchange for an interest in the
Global Note pursuant to this Section shall, except as otherwise provided by
paragraph (e) of Section
34
<PAGE> 45
2.08, bear the legend regarding transfer restrictions applicable to the
Physical Note set forth in Section 2.02.
(g) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(h) Beneficial owners of interests in a Global Note may receive
Physical Notes (which shall bear the Private Placement Legend if required by
Section 2.02) in accordance with the procedures of the Depositary. In
connection with the execution, authentication and delivery of such Physical
Notes, the Registrar shall reflect on its books and records a decrease in the
principal amount of the relevant Global Note equal to the principal amount of
such Physical Notes and the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes having an equal aggregate
principal amount.
(i) The registered Holder of a Physical Note may exchange such Note
for a beneficial interest in the Global Note in accordance with the procedures
of the Depositary; provided that such Holder has certified to the Registrar
that it is a QIB or such Note has been exchanged for an Exchange Note in
connection with an effective Registration Statement pursuant to the
Registration Rights Agreement. In connection with such exchange, the Registrar
shall reflect on its books and records an increase in the principal amount of
the relevant Global Note equal to the principal amount of such Physical Note
and the Trustee shall cancel the Physical Notes so exchanged.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after the time period referred to in Rule 144(k)
under the Securities Act as in effect with respect to such transfer or
(y) the proposed transferee has delivered to the Registrar (A) a
certificate substantially in the form of Exhibit C hereto and (B) if the
aggregate principal amount of the Notes being transferred is less than
$250,000 at the time of such transfer, an opinion of counsel acceptable
to the Company that such transfer is in compliance with the Securities
Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books
35
<PAGE> 46
and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Physical Note or an
interest in a Global Note prior to the removal of the Private Placement Legend
to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) Physical
Notes the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for
on the form of Note stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that it is purchasing
the Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is
a QIB within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the Global Notes, the
transfer of such interest may be effected only through the book entry
system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Note to be transferred consists of Physical Notes, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the
date and an increase in the principal amount of the Global Notes in an
amount equal to the principal amount of the Physical Notes, to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) The Registrar shall register any proposed transfer to any
Non-U.S. Person if the Note to be transferred is a Physical Note or an
interest in the Global Note only upon receipt of a certificate
substantially in the form of Exhibit D from the proposed transferor;
(ii) (a) If the proposed Transferor is an Agent Member holding
a beneficial interest in a Global Note, upon receipt by the Registrar of
(x) the documents required by paragraph (i) and (y) instructions in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books
36
<PAGE> 47
and records the date and a decrease in the principal amount of such
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred and the Company shall
execute, and the Trustee shall authenticate and deliver one or more
Physical Notes of like tenor and amount.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement
Legend, the Registrar shall deliver only Notes that bear the Private Placement
Legend unless either (i) the circumstances contemplated by paragraph (a)(i)(x)
of this Section 2.08 exist or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to
the effect that neither such legend nor the related restrictions on transfer
are required in order to maintain compliance with the provisions of the
Securities Act.
(e) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees
by its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may conclusively rely on a determination made by the Company
with respect to) the sufficiency of any such certifications, legal opinions or
other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to
the Trustee or if the Holder claims and provides evidence to the Trustee's
reasonable satisfaction that the Note has been lost, destroyed or wrongfully
taken, then, in the absence of notice to the Company or the Trustee that such
Note has been acquired by a bona fide purchaser, the Company shall issue and
the Trustee shall authenticate a replacement Note of like tenor and principal
amount; provided that the requirements of this Section 2.09 are met. If
required by the Trustee or the Company, an indemnity bond must be furnished
that is sufficient in the judgment of both the Trustee and the Company to
protect the Company, the Trustee or any Agent from any loss that any of them
may suffer if a Note is replaced. The Company may charge such Holder for the
expenses of the Company and the Trustee in replacing a Note. In case any such
mutilated, lost, destroyed or wrongfully taken Note has become or is about to
become due and payable, the
37
<PAGE> 48
Company in its discretion may pay such Note instead of issuing a new Note in
replacement thereof.
Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
The provisions of this Section 2.09 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies against the Company and the
Trustee with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee (i) except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section 2.10 as not outstanding and (ii) except to the extent of any
reduction in the principal amount of any Global Note made by the Trustee in
accordance with the provisions hereof.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to each of them that the replaced Note is held by a bona fide
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on a Redemption Date or the Stated Maturity of the Notes money
sufficient to pay Notes payable on that date, then on and after that date such
Notes cease to be outstanding and interest on them shall cease to accrue.
Notes, or portions thereof, for the payment or redemption of which
moneys or U.S. Government Obligations (as provided for in Article Eight) in the
necessary amount shall have been deposited in trust with the Trustee or with
any Paying Agent (other than the Company) or shall have been set aside,
segregated and held in trust by the Company for the Holders of such Notes (if
the Company shall act as its own Paying Agent), on and after that time shall
cease to be outstanding and, in the case of redemption, interest on such Notes
shall cease to accrue, provided that if such Notes, or portions thereof, are to
be redeemed prior to the maturity thereof, notice of such redemption shall have
been given as herein provided, or provision satisfactory to the Trustee shall
have been made for giving such notice.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, provided, however, that, in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes shall
be disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee has actual knowledge to be so owned shall be so disregarded. Notes
so owned which have been pledged in good faith may be regarded as outstanding
if the pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with
38
<PAGE> 49
respect to such Notes and that the pledgee is not the Company or any other
obligor upon the Notes.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and execute and the Trustee shall
authenticate temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes but may have insertions, substitutions, omissions and
other variations determined to be appropriate by the Officers executing the
temporary Notes, as evidenced by their execution of such temporary Notes. If
temporary Notes are issued, the Company will cause definitive Notes to be
prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 4.02, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes the
Company shall execute and the Trustee shall authenticate and deliver in
exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall be entitled to
the same benefits under this Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver, or
cause to be delivered, Notes to the Trustee for cancellation. The Registrar
and the Paying Agent shall forward to the Trustee any Notes surrendered to them
for transfer, exchange or payment. The Trustee (and no one else) shall cancel
all Notes surrendered for transfer, exchange, payment, replacement or
cancellation and shall destroy them in accordance with its normal procedure
(subject to the record retention requirement of the Exchange Act).
Certification of the destruction of all cancelled Notes shall be delivered to
the Company. The Company may not issue new Notes to replace Notes that it has
redeemed or paid or that have been delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP," "CINS" and "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
CUSIP, CINS or ISIN numbers either as printed on the Notes or as contained in
any notice of redemption or exchange and that reliance may be placed only on
the other identification numbers printed on the Notes; and provided, further,
that failure to use CUSIP, CINS or ISIN numbers in any notice of redemption or
exchange shall not affect the validity or sufficiency of such notice. The
Company shall promptly notify the Trustee of any change in CUSIP, CINS or ISIN
numbers.
SECTION 2.14. Defaulted Interest. If the Company or any of the
Guarantors default in a payment of interest on the Notes, they shall pay, or
shall deposit with the Paying Agent money in immediately available funds
sufficient to pay the defaulted interest, plus (to the extent lawful) interest
on the defaulted interest, to the Persons who are Holders on a subsequent
special record date. A special record date, as used in this Section 2.14 with
respect to the payment of any defaulted interest, shall mean the 15th day next
preceding the date fixed by the Company for the payment of defaulted interest,
39
<PAGE> 50
whether or not such day is a Business Day. At least 15 days before the
subsequent special record date, the Company shall mail to each Holder and to
the Trustee a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.15. Record Date. The record date for purposes of determining
the identity of Holders of the Notes or consent to any action by vote or
consent authorized or permitted under this Indenture shall be determined as
provided for in TIA Section 316(c).
SECTION 2.16 Computation of Interest. Interest on the Notes shall be
computed on the basis of a 360-day year comprised of twelve 30-day months.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Notes will be redeemable,
at the Company's option, in whole or in part, at any time or from time to time,
on or after November 15, 2001 and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice mailed by first class mail to each Holder's
last address as it appears in the Security Register, at the following
Redemption Prices (expressed in percentages of principal amount), plus accrued
and unpaid interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on or prior to
the Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period commencing November 15, of the years set
forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . 104.975%
2002 . . . . . . . . . . . . . . . . . . 102.488%
2003 . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) In addition, at any time prior to November 15, 2000, the Company
may redeem up to 35% of the principal amount of the Notes with the proceeds of
one or more Public Equity Offerings, at any time or from time to time, at a
Redemption Price (expressed as a percentage of principal amount) of 109.95%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that at least $150 million aggregate principal amount of Notes remains
outstanding after each such redemption.
(c) If more than 90% of the outstanding principal amount of the Notes
are tendered pursuant to one or more Offers to Purchase pursuant to the terms
hereof, the balance of the Notes will be redeemable, at the Company's option,
in whole but not in part, at any time thereafter, upon not less than 30 nor
more than 60 days' prior notice
40
<PAGE> 51
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at a Redemption Price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on a record date that is on or prior
to the Redemption Date to receive interest due on the next Interest Payment
Date).
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.01(a) or (b), it shall notify the Trustee in
writing of the Redemption Date, the principal amount at Stated Maturity of
Notes to be redeemed and the clause of this Indenture pursuant to which the
redemption shall occur.
The Company shall give each notice provided for in this Section 3.02 in
an Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
If the Company is required to make an Offer to Purchase Notes pursuant
to the terms hereof or the Escrow and Security Agreement, it shall furnish to
the Trustee, at least 45 days before the scheduled Redemption Date, an
Officer's Certificate setting forth the section of the Indenture pursuant to
which the Offer to Purchase shall occur, the terms of the offer, the principal
amount of Notes to be purchased, the purchase price, the purchase date and a
statement to the effect that the Company or one of its Restricted Subsidiaries
has effected an Asset Sale and there are Excess Proceeds aggregating more than
10% of Adjusted Consolidated Net Assets or a Change of Control or Event of Loss
has occurred, as applicable.
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee will select the Notes, or
portions thereof, for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro
rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount or less shall be redeemed in part. If any Note is
to be redeemed in part only, the notice of redemption relating to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in
principal amount at Stated Maturity may only be redeemed in whole. The Trustee
may select for redemption portions (equal to $1,000 in principal amount at
Stated Maturity or any integral multiple thereof) of Notes that have
denominations larger than $1,000 in principal amount at Stated Maturity.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall promptly
notify the Company and the Registrar promptly in writing of the Notes or
portions of Notes to be called for redemption.
41
<PAGE> 52
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes pursuant to Section 3.01(a) or (b), at least 30 days but not more than 60
days before a Redemption Date the Company shall mail or cause to be mailed, a
notice of redemption by first class mail (pursuant to the requirements of
Section 11.02) to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to
the Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is
to receive payment of the Redemption Price plus accrued and unpaid
interest to the Redemption Date upon surrender of the Notes to the
Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion
of the principal amount (equal to $1,000 in principal amount at Stated
Maturity or any integral multiple thereof) of such Note to be redeemed
and that, on and after the Redemption Date, upon surrender of such Note,
a new Note or Notes in principal amount equal to the unredeemed portion
thereof will be reissued;
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may
be placed only on the other identification numbers printed on the Notes;
and
(viii) the aggregate principal amount at Stated Maturity of Notes
being redeemed.
At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee, at least 45 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption in the name and at the expense of
the Company. If, however, the Company gives such notice to the Holders, the
Company shall concurrently deliver to the Trustee an Officers' Certificate
stating that such notice has been given.
42
<PAGE> 53
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to
the Paying Agent, such Notes shall be paid at the Redemption Price, plus
accrued and unpaid interest to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to 10:00 a.m.
New York City time on any Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company is acting as its own Paying Agent, shall
segregate and hold in trust as provided in Section 2.05) money in immediately
available funds sufficient to pay the Redemption Price of and any accrued and
unpaid interest on all Notes to be redeemed on that date, other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued and unpaid interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at the
Redemption Price and accrued and unpaid interest to the Redemption Date, in
which case the principal, until paid, shall bear interest from the Redemption
Date at the rate prescribed in the Notes), such Notes shall cease to accrue
interest. Upon surrender of any Note for redemption in accordance with a
notice of redemption, such Note shall be paid and redeemed by the Company at
the Redemption Price, together with accrued and unpaid interest to the
Redemption Date; provided that installments of interest whose record date is
prior to the Redemption Date shall be payable to the Holders registered as such
at the close of business on such record date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that
is redeemed in part, the Company shall at its expense issue and execute and the
Trustee shall authenticate and deliver for the Holder a new Note equal in
principal amount to the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay or cause to be
paid the principal of, premium, if any, and interest on the Notes on the dates
and in the manner provided in the Notes and this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds as
43
<PAGE> 54
of 10:00 A.M. New York City time on the due date money deposited by the Company
in immediately available funds and designated for and sufficient to pay the
installment. If the Company or any Subsidiary of the Company or any Affiliate
of any of them, acts as Paying Agent, an installment of principal, premium, if
any, or interest shall be considered paid on the due date if the entity acting
as Paying Agent complies with the last sentence of Section 2.05. As provided
in Section 6.10, upon any bankruptcy or reorganization procedure relative to
the Company, the Trustee shall serve as the Paying Agent and conversion agent,
if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company shall
maintain an office or agency (which may be an office of the Trustee or
Registrar) where Notes may be surrendered for registration of transfer or
exchange or for presentation for payment and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee as such office of the Company in accordance with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not,
and shall not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes, the Guarantees and Indebtedness existing on
the Closing Date); provided that the Company and any Restricted Subsidiary may
Incur Indebtedness if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be at least 2.25:1 in the case of an Incurrence
during the period ending on the second anniversary of the Closing Date and
2.75:1 in the case of any subsequent Incurrence.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below), may Incur each and all of the following:
(i) Indebtedness of the Company or any Guarantor outstanding
at any time in an aggregate principal amount not to exceed the greater
of (A) $100
44
<PAGE> 55
million, less any amount of such Indebtedness permanently repaid as
provided under Section 4.11 and (B) the Borrowing Base;
(ii) Indebtedness owed (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to constitute an Incurrence
of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund, then outstanding Indebtedness
(other than Indebtedness Incurred under clause (i), (ii), (iv), (vi) or
(viii) of this paragraph) and any refinancing thereof in an amount not
to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to refinance or refund the Notes or Indebtedness that is
pari passu with, or subordinated in right of payment to, the Notes shall
only be permitted under this clause (iii) if (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right
of payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the
Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature
prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least
equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided, further, that in no event may Indebtedness of
the Company be refinanced by means of any Indebtedness of any Restricted
Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest Rate Agreements; provided that such
agreements (a) are designed solely to protect the Company or its
Restricted Subsidiaries against fluctuations in foreign currency
exchange rates, fuel rates, or interest rates and (b) do not increase
the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates, fuel rates,
or interest rates or by reason of fees, indemnities and compensation
payable thereunder, and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
45
<PAGE> 56
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by
the Company or any Restricted Subsidiary in connection with such
disposition;
(v) Indebtedness of the Company, to the extent the net
proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change in Control or (B)
deposited to defease the Notes as described under Sections 8.01, 8.02 or
8.03 hereof;
(vi) Note Guarantees and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with Section 4.07;
(vii) Indebtedness of the Company or any Guarantor Incurred to
finance the cost (including the costs of installation) of acquiring
aircraft, engines, spare engines, hush kits, spare parts or equipment
attached thereto or any other aircraft-related asset used or useful in
the business of the Company or any of its Restricted Subsidiaries on the
date of such Incurrence (including acquisitions by way of a Capitalized
Lease and any acquisitions of the Capital Stock of a Person that becomes
a Restricted Subsidiary, to the extent of the fair market value of the
aircraft, engines, equipment related thereto and such aircraft-related
assets of such Person at the time of such Incurrence); provided that (a)
such Indebtedness is created solely for the purpose of financing the
costs (including transaction costs and the costs of improvement or
construction) of property or assets and is Incurred prior to, at the
time of or within 12 months after, the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or assets, and (b) the principal amount of such Indebtedness
does not exceed 100% of such costs;
(viii) the Term Loan; and
(ix) Indebtedness not to exceed $50.0 million in aggregate
principal amount at any one time outstanding.
(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, (1) Guarantees, Liens, letters of credit or other
obligations supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included and (2) any Liens granted pursuant
to the equal and ratable provisions referred to in Section 4.09 shall not be
treated as Indebtedness. For purposes of
46
<PAGE> 57
determining compliance with this Section 4.03, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock) held
by any Affiliate of the Company (other than a Wholly Owned Restricted
Subsidiary), (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have occurred and
be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.03 or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be determined in
good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) made after the Closing Date shall exceed
the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of
the amount of such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken
as one accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the last
fiscal quarter preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to Section 4.15 plus
(2) the aggregate Net Cash Proceeds received by the Company after the Closing
Date from the issuance and sale permitted by this Indenture of its Capital
Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of
the Company, including an issuance or sale permitted by this Indenture of
Indebtedness of the Company for cash subsequent to the Closing Date upon the
conversion of such Indebtedness into Capital Stock (other than Disqualified
Stock) of the Company, or from the issuance to a Person who is not a Subsidiary
of the Company of any options, warrants or other rights to acquire Capital
Stock of the Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated
47
<PAGE> 58
Maturity of the Notes) plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary plus (4)
$5 million.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date
of declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated
in right of payment to the Notes including premium, if any, and accrued
and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of part
(a) of Section 4.03;
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out
of the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of the Company (or
options, warrants or other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights
to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with Section
5.01;
(vi) Investments acquired in exchange for or out of the
proceeds of a substantially concurrent issuance of Capital Stock (other
than Disqualified Stock) of the Company;
(vii) the repurchase, redemption, retirement, defeasance or
other acquisition for value of subordinated Indebtedness of the Company
in the event of
48
<PAGE> 59
a change of control (to the extent required pursuant to the terms of
such Indebtedness when Incurred), if prior thereto or contemporaneously
therewith the Company has made or makes an Offer to Purchase the Notes
and has repurchased and accepted and paid for all Notes validly tendered
and not withdrawn with respect thereto; or
(viii) the repurchase, redemption or other acquisition of Capital
Stock of the Company issued to employees of the Company or any
Restricted Subsidiary, for consideration not to exceed $1.0 million in
any 12-month period and $3.0 million in aggregate;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this Section 4.04 have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of Section 4.04 only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
Any Restricted Payments made other than in cash shall be valued at fair
market value. The amount of any Investment "outstanding" at any time shall be
deemed to be equal to the amount of such Investment on the date made, less the
return of capital to the Company and its Restricted Subsidiaries with respect
to such Investment (up to the amount of such Investment on the date made).
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company shall not, and shall not permit
any Restricted Subsidiary other than a Guarantor to, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Restricted Subsidiary to (i)
pay dividends or make any other distributions permitted by applicable law on
any Capital Stock of such Restricted Subsidiary owned by the Company or any
other Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or
any other Restricted Subsidiary, (iii) make loans or advances to the Company or
any other Restricted Subsidiary or (iv) transfer any of its property or assets
to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
49
<PAGE> 60
(i) existing on the Closing Date in any agreement, and any
extensions, refinancing, renewals or replacements of any such agreement;
provided that the encumbrances and restrictions in any such extensions,
refinancing, renewals or replacements are no less favorable in any
material respect to the Holders, when looked at in the aggregate, than
those encumbrances or restrictions that are then in effect and that are
being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other
than such Person or the property or assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by this Indenture
or (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of the Company
or any Restricted Subsidiary in any manner material to the Company or
any Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary; or
(vi) contained in the terms of any Indebtedness or any
agreement pursuant to which such Indebtedness was issued if (A) the
encumbrance or restriction applies only in the event of a payment
default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is
not materially more disadvantageous to the Holders of the Notes than is
customary in comparable financings (as determined by the Company) and
(C) the Company determines that any such encumbrance or restriction will
not materially affect the Company's ability to make principal or
interest payments on the Notes.
Nothing contained in this Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure
50
<PAGE> 61
Indebtedness of the Company or any of its Restricted Subsidiaries, including,
without limitation, the Collateral in accordance with the terms hereof.
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries. The Company shall not sell, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been
permitted to be made under Section 4.04 if made on the date of such issuance or
sale or (iv) issuances or sales of Common Stock of a Restricted Subsidiary if
the Net Cash Proceeds thereof are applied in accordance with clause (A) or (B)
of Section 4.11.
SECTION 4.07. Issuances of Guarantees by New Restricted Subsidiaries.
The Company shall provide to the Trustee, on the date that any Person (other
than an Excluded Restricted Subsidiary) becomes a Restricted Subsidiary, a
supplemental indenture to this Indenture, executed by such new Restricted
Subsidiary, providing for a full and unconditional guarantee on a senior basis
by such new Restricted Subsidiary of the Company's obligations under the Notes
and this Indenture to the same extent as that set forth in this Indenture;
provided that, in the case of any new Restricted Subsidiary that becomes a
Restricted Subsidiary through the acquisition of a majority of its voting
Capital Stock by the Company or any other Restricted Subsidiary, such guarantee
may be subordinated to the extent required by the obligations of such new
Restricted Subsidiary existing on the date of such acquisition that were not
incurred in contemplation of such acquisition.
SECTION 4.08. Limitation on Transactions with Shareholders and
Affiliates. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or (B) for which the
Company or a Restricted Subsidiary delivers to the Trustee a written
opinion of a nationally recognized investment
51
<PAGE> 62
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Company and any of its
Restricted Subsidiaries or solely between Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company;
(iv) any payments or other transactions pursuant to any tax-
sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is
part of a consolidated group for tax purposes;
(v) any Restricted Payments not prohibited by Section 4.04;
(vi) the execution of, and transactions pursuant to, employment
agreements entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' business that are consistent with the Company's
or such Restricted Subsidiaries' past practice;
(vii) transactions pursuant to agreements existing on the
Closing Date, as in effect on the Closing Date; or
(viii) grants of stock options, restricted stock and other non-
cash equity incentive compensation.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this Section 4.08 and not covered by clauses (ii) through (v) of
this paragraph, (a) the aggregate amount of which exceeds $3 million in value,
must be approved or determined to be fair in the manner provided for in clause
(i)(A) or (B) above and (b) the aggregate amount of which exceeds $10 million
in value, must be determined to be fair in the manner provided for in clause
(i)(B) above.
SECTION 4.09. Limitation on Liens. Other than the rights of the
Trustee under this Indenture, the Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any of its assets or properties of any character, including, without
limitation, the Collateral, without making effective provision for all of the
Notes and all other amounts due under this Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens granted on the Closing Date on assets whenever
acquired, and substitutions and replacements for such Liens;
52
<PAGE> 63
(ii) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in
favor of the Holders;
(iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a
Restricted Subsidiary to secure Indebtedness owing to the Company or
such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of Section 4.03; provided that such Liens
do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced;
(v) Liens on any property or assets of a Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary permitted under
Section 4.03;
(vi) Permitted Liens;
(vii) Liens on assets having a fair market value not in excess
(on the date any such Lien is incurred) of 20% of Adjusted Consolidated
Net Tangible Assets; or
(viii) Liens on Capital Stock of Subsidiaries in favor of the
lenders incurred under clause (i) of the second paragraph of Section
4.03.
SECTION 4.10. Limitation on Sale-Leaseback Transactions. The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
sale-leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties
which the Company or such Restricted Subsidiary, as the case may be, intends to
use for substantially the same purpose or purposes as the assets or properties
sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if:
(i) the lease is for a period, including renewal rights, of
not in excess of three years;
(ii) the lease secures or relates to industrial revenue or
pollution control bonds;
(iii) the transaction is solely between the Company and any
Restricted Subsidiary or solely between Restricted Subsidiaries; or
(iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is
completed, applies an amount not
53
<PAGE> 64
less than the net proceeds received from such sale in accordance with
clause (A) or (B) of subsection (ii) of Section 4.11.
SECTION 4.11. Limitation on Asset Sales. The Company shall not, and
shall not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless
(i) the consideration received by the Company or such
Restricted Subsidiary (including the amount of any Released
Indebtedness) is at least equal to the fair market value of the assets
sold or disposed of; and
(ii) at least 75% of the consideration received (excluding the
amount of any Released Indebtedness) consists of cash or Cash
Equivalents or Temporary Cash Investments. In the event and to the
extent that the Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries from one or more Asset Sales occurring on or
after the Closing Date in any period of 12 consecutive months exceed 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been
filed with the Commission pursuant to Section 4.15), then the Company
shall or shall cause the relevant Restricted Subsidiary to (i) within 12
months after the date Net Cash Proceeds so received exceed 10% of
Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to
such excess Net Cash Proceeds to permanently repay unsubordinated
Indebtedness of the Company, or any Restricted Subsidiary providing a
Note Guarantee or Indebtedness of any other Restricted Subsidiary, in
each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not
so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a
nature or type or that are used in a business (or in a company having
property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of,
or the business of, the Company and its Restricted Subsidiaries existing
on the date of such investment and (ii) apply (no later than the end of
the 12-month period referred to in clause (i)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided
in the following paragraph of this Section 4.11.
The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period as set forth in
clause (ii) above and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this Section 4.11 totals at least 10% of Adjusted Consolidated Net Tangible
Assets, the Company must commence, not later than the fifteenth Business Day of
such month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate principal amount of Notes equal to the Excess Proceeds on
such date, at a purchase price equal to 100% of the principal amount of the
Notes, plus, in each case, accrued interest (if any) to the Payment
54
<PAGE> 65
Date. If the aggregate principal amount of Notes tendered pursuant to an Offer
to Purchase pursuant to this covenant is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes.
Upon completion of such Offer to Purchase, the amount of Excess Proceeds shall
be reset at zero.
SECTION 4.12 [Left Blank]
SECTION 4.13. Events of Loss. If an Event of Loss occurs with respect
to an Aircraft, the Company shall either make an Offer to Purchase a pro rata
portion of the Notes or the Company shall subject a replacement aircraft to the
Lien on the Collateral pursuant to this Indenture. In the event the Company
elects to replace an Aircraft, it must do so within 365 days of the Event of
Loss with an aircraft having a value at least equal to, and in as good
operating condition and repair and as airworthy as, the Aircraft subject to the
Event of Loss, assuming such Aircraft was in the condition and repair required
by this Indenture immediately prior to the occurrence of the Event of Loss, all
as determined by the chief financial officer of the Company in good faith. In
the event the Company elects not to replace such Aircraft, the Company is
required to make an Offer to Purchase, not later than 365 days after the
occurrence of such Event of Loss, a pro rata amount (based on the ratio borne
by the initial appraised value of such Aircraft to the initial aggregate
appraised value) of the outstanding principal amount of the Notes at 100% of
the principal amount thereof together with accrued and unpaid interest thereon.
In the event of an Event of Loss with respect to the Aircraft for which no
initial appraisal was conducted, the "initial appraised value" for the purpose
of the prior sentence will be determined, in good faith, by the chief financial
officer of the Company, as evidenced by an Officer's Certificate delivered to
the Trustee. Upon such payment, the Lien on the Collateral pursuant to this
Indenture with respect to such Aircraft shall terminate and be released and the
Trustee shall execute and deliver to the Company any and all such documentation
necessary or required to evidence same.
If an Event of Loss occurs with respect to an Engine alone, the Company
shall replace such Engine with another engine suitable for installation and use
on the Aircraft with respect to which such Engine was used, as determined by
the chief financial officer of the Company in good faith, as evidenced by an
Officer's Certificate delivered to the Trustee.
SECTION 4.14. Repurchase of Notes upon a Change of Control Triggering
Event. Upon the occurrence of a Change of Control Triggering Event, the
Company must commence, within 30 days of the occurrence of a Change of Control
Triggering Event, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date.
The Company shall not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in this Indenture applicable to a Change of Control Offer made by the
Company, and purchases all Notes
55
<PAGE> 66
validly tendered and not withdrawn under such Change of Control Offer, in
accordance with the terms hereof.
The Change of Control provisions described above will be applicable
whether or not any other provisions of this Indenture are also applicable.
SECTION 4.15. Commission Reports and Reports to Holders. At all times,
whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by
Section 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were
subject thereto. The Company shall supply the Trustee and each Holder or shall
supply to the Trustee for forwarding to each such Holder, without cost to such
Holder, copies of such reports and other information. In addition, at all
times prior to the consummation of an exchange offer pursuant to the
effectiveness of a Registration Statement or a Shelf Registration Statement,
upon the request of any Holder or any prospective purchaser of the Notes
designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
SECTION 4.16. Limitation on Collateral Sales; Event of Loss. Neither
Company nor any Owner will transfer, convey, sell, lease or otherwise dispose
of (other than by lease, in compliance with Section 14.03 hereof) (a "Sale")
any Aircraft or Engine unless (i) the Owner thereof receives (x) consideration,
consisting solely of cash, at the time of such Sale at least equal to the fair
market value of the Aircraft or Engine disposed of (determined by the chief
financial officer of the Company in good faith, as evidenced by an Officer's
Certificate delivered to the Trustee) or (y) an Aircraft or Engine having a
value at least equal to, and in as good operating condition and repair and as
airworthy as, the Aircraft or Engine subject to the Sale, assuming such
Aircraft or Engine, as the case may be, was in the condition and repair
required by this Indenture immediately prior to such Sale (determined by the
chief financial officer of the Company in good faith, as evidenced by an
Officer's Certificate delivered to the Trustee). If any Owner consummates a
Sale for cash, or if an Event of Loss occurs, with respect to any Aircraft or
Engine, the Trustee will receive and hold, and if received by the Owner, the
Owner will pay over to the Trustee, the proceeds of such Sale or Event of Loss.
The Owner may, within 365 days after such Sale or Event of Loss, subject to the
Lien created pursuant to this Indenture, substitute an Aircraft or Engine,
having a value at least equal to, and in as good operating condition and repair
and as airworthy as, the Aircraft or Engine subject to the Sale or Event of
Loss, assuming such Aircraft or Engine was in the condition and repair required
by this Indenture immediately prior to the occurrence of such Sale or Event of
Loss (determined by the chief financial officer of the Company in good faith,
as evidenced by an Officer's Certificate delivered to the Trustee), and the
Trustee shall, upon receipt of evidence of such substitution pursuant to an
Officer's Certificate and receipt of documentation in the reasonable judgment
of the Trustee necessary or required for the creation of a Lien, in favor of
the Holders, on such substitute Collateral, pay to the Owner the proceeds of
such Sale or Event of Loss and any related additional amounts held by it. In
the event the Company elects not to replace such Aircraft (or in the event such
Aircraft or Engine is not replaced within 365 days after such Sale or Event of
Loss), the Trustee
56
<PAGE> 67
shall refund to the Owner, and the Company shall be required to apply, an
amount equal to the proceeds received from such Sale or Event of Loss to make
an Offer to Purchase Notes in accordance with Section 4.13; provided that with
respect to the proceeds of any Sale or Event of Loss with respect to an
Aircraft, in no event shall any Owner be required to so apply, and the Owner
shall be permitted to retain, amounts, if any, in excess of the initial
appraised value of such Aircraft. Notwithstanding the foregoing, if the Owner
consummates a Sale, or an Event of Loss occurs, with respect to an Engine
alone, the Owner must replace such Engine with another engine suitable for
installation and use on the Aircraft, and having a value at least equal to and
in as good operating condition as, the Engine subject to the Sale or Event of
Loss, assuming such Engine was of the value and in the condition and repair
required by this Indenture immediately prior to the occurrence of such Sale or
Event of Loss (as determined by the chief financial officer of the Company in
good faith). Any cash received in connection with a Sale or an Event of Loss
shall be held by the Trustee and invested as directed by the Company in Cash
Equivalents or Temporary Cash Investments until applied in accordance with this
covenant. Upon payment to the Trustee of the proceeds from the Sale or an
Event of Loss with respect to an Aircraft as required by this Section 4.16, the
Lien created pursuant to this Indenture with respect to such Aircraft (but not
the proceeds with respect thereto) shall terminate and be released and the
Trustee shall execute and deliver to the Company all such documentation
necessary or required to evidence such.
SECTION 4.17. Existence. Subject to Articles Four and Five of this
Indenture, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary as each shall
be amended from time to time and the rights (whether pursuant to charter,
partnership certificate, agreement, statute or otherwise), licenses and
franchises of the Company and each such Subsidiary; provided that the Company
shall not be required to preserve any such right, license or franchise, or the
existence of any Restricted Subsidiary, if the maintenance or preservation
thereof is no longer desirable in the conduct of the business of the Company or
any of its Restricted Subsidiaries; and provided further that any Restricted
Subsidiary may consolidate with, merge into, or sell, convey, transfer, lease
or otherwise dispose of all or part of its property and assets to the Company
or any Wholly Owned Restricted Subsidiary.
SECTION 4.18. Payment of Taxes and Other Claims. The Company shall pay
or discharge and shall cause each of its Restricted Subsidiaries to pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all material taxes, assessments and governmental charges levied
or imposed upon (a) the Company or any such Restricted Subsidiary, (b) the
income or profits of any such Restricted Subsidiary which is a corporation or
(c) the property of the Company or any such Restricted Subsidiary and (ii) all
material lawful claims for labor, materials and supplies that, if unpaid, might
by law become a lien upon the property of the Company or any such Restricted
Subsidiary; provided that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings.
57
<PAGE> 68
SECTION 4.19. Maintenance of Properties and Insurance. The Company
shall cause all properties used or useful in the conduct of its business or the
business of any Restricted Subsidiary and material to the Company and its
Restricted Subsidiaries taken as a whole, to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.19 shall prevent the Company or any such Restricted Subsidiary
from discontinuing the use, operation or maintenance of any of such properties
or disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors or the board of directors of such Restricted
Subsidiary having managerial responsibility for any such property, desirable in
the conduct of the business of the Company or such Restricted Subsidiary.
Without limiting or increasing the Company's obligations pursuant to
Section 4.12 hereof, the Company shall provide or cause to be provided, for
itself and its Restricted Subsidiaries, insurance (including appropriate self-
insurance) against loss or damage of the kinds customarily insured against by
corporations similarly situated and owning like properties, including, but not
limited to, products liability insurance and public liability insurance, with
reputable insurers or with the government of the United States of America, or
an agency or instrumentality thereof, in such amounts, with such deductibles
and by such methods as the Company in good faith shall determine to be
reasonable and appropriate in the circumstances.
SECTION 4.20. Compliance Certificates. (a) The Company and each
Guarantor shall deliver to the Trustee, on or before a date not more than 90
days after the end of each fiscal year, an Officers' Certificate stating
whether or not the signers know of any Default, Event of Default or a
Collateral Access Event that occurred during such fiscal year. In the case of
the Officers' Certificate delivered within 90 days of the end of the Company's
fiscal year, such certificate shall comply with the applicable provisions of
the TIA. If any of the signers of the Officers' Certificate have knowledge of
such a Default, Event of Default or a Collateral Access Event, the certificate
shall describe any such Default, Event of Default or a Collateral Access Event
and its status. The first certificate to be delivered pursuant to this Section
4.20(a) shall be for the first fiscal year beginning after the execution of
this Indenture.
(b) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default, Event of Default or a Collateral Access Event, an Officers'
Certificate specifying such Default, Event of Default or a Collateral Access
Event and what action the Company is taking or proposes to take with respect
thereto.
SECTION 4.21. Waiver of Stay, Extension or Usury Laws. Each of the
Company, the Guarantors and any other obligor on the Notes covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any
58
<PAGE> 69
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of, premium, if any, or interest on the
Notes as contemplated herein, wherever enacted, now or at any time hereafter in
force, or that may affect the covenants or the performance of this Indenture;
and each of the Company, the Guarantors and any other obligor on the Notes (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The Company shall not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company unless:
(i) the Company shall be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which
the Company is merged or that acquired or leased such property and
assets of the Company shall be a corporation organized and validly
existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the obligations
of the Company on all of the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a
pro forma basis the Company, or any Person becoming the successor
obligor of the Notes, as the case may be, could Incur at least $1.00 of
Indebtedness under the first paragraph of Section 4.03; provided that
this clause (iii) shall not apply to a consolidation, merger or sale of
all (but not less than all) of the assets of the Company if all Liens
and Indebtedness of the Company or any Person becoming the successor
obligor of the Notes, as the case may be, and its Restricted
Subsidiaries outstanding immediately after such transaction would, if
Incurred at such time, have been permitted to be Incurred (and all such
Liens and Indebtedness, other than Liens or Indebtedness of the Company
and its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been Incurred) for all purposes of
this Indenture; and
(iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iii), if applicable) and Opinion of Counsel, in
each case stating that such consolidation,
59
<PAGE> 70
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating
to such transaction have been complied with.
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer or other disposition of all or substantially
all of the property and assets of the Company in accordance with Section 5.01,
the successor Person formed by such consolidation or into which the Company is
merged or to which such sale, conveyance, transfer or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company; provided that the Company shall
not be released from the obligation to pay the principal of and interest on the
Notes.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Notes if:
(a) the Company defaults in the payment of principal of (or
premium, if any, on) any Note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any
Note when the same becomes due and payable, and such default continues
for a period of 30 days;
(c) the Company defaults in the performance or breaches the
provisions of Article Five or fails to make or consummate an Offer to
Purchase in accordance with Section 4.11, Section 4.13 or Section 4.14
hereof;
(d) the Company or any Guarantor defaults in the performance
of or breaches any other covenant or agreement of the Company in this
Indenture or under the Notes (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period
of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Guarantor or Significant Subsidiary
having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness
to be due and payable prior to its Stated Maturity and such Indebtedness
has not been discharged in full or such acceleration has not been
60
<PAGE> 71
rescinded or annulled within 30 days of such acceleration and/or (II)
the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been
made, waived or extended within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Guarantor or Significant Subsidiary
and shall not be paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or order that
causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
(g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, any Guarantor
or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C)
the winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company, any Guarantor or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant Subsidiary or for all
or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or
(i) any Note Guarantee shall cease to be, or shall be asserted
in writing by the Company or any Guarantor not to be, in full force and
effect or enforceable in accordance with its terms.
If the last day of the period referred to in clause (b), (d), (e), (f)
or (g) of the immediately preceding paragraph is not a Business Day, then the
first Business Day following such day shall be deemed to be the last day of the
period referred to in such clauses. Any "day" will be deemed to end as of
11:59 p.m., New York City time.
61
<PAGE> 72
SECTION 6.02. Collateral Access Events. A "Collateral Access Event"
shall occur with respect to the Notes if:
(a) the Company fails to make a payment of principal or any
payment of interest, or premium when due, and the continuation of such
failure unremedied for 15 days;
(b) The Company fails to procure and maintain property and
liability insurance in accordance with the provisions of this Indenture
and the continuation of such failure, in the case of maintenance of such
insurance, until the earlier of (i) 60 days after notice to the Company
or the Trustee that such insurance is subject to lapse or cancellation
or (ii) the date such lapse or cancellation is effective as to the
Trustee;
(c) The Company or any Owner operates the Aircraft after
receipt of notice that the insurance required by this Indenture has been
canceled;
(d) the Company fails to perform any covenants contained in
this Indenture and such failure continues for a period of 60 days after
notice to the Company by the Trustee or by Holders of 25% of outstanding
Notes under this Indenture, unless such failure is curable and the
Company is diligently proceeding to correct such failure and shall in
fact correct such failure within 180 days after delivery of such notice;
(e) any representation or warranty made by the Company in this
Indenture, if any, or in any document or certificate furnished to the
Trustee or the Holders under this Indenture, shall be incorrect in any
material respect as of the date made and shall be material at the time
of determination and shall not have been remedied within 60 days after
notice has been given to the Company by the Trustee or Holders of 25% of
outstanding Notes under this Indenture;
(f) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, any Guarantor
or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C)
the winding up or liquidation of the affairs of the Company or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days; and
(g) the Company, any Guarantor or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee,
62
<PAGE> 73
sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If the last day of the period referred to in clause (b), (d), (e) or (f)
of the immediately preceding paragraph is not a Business Day, then the first
Business Day following such day shall be deemed to be the last day of the
period referred to in such clauses. Any "day" will be deemed to end as of
11:59 p.m., New York City time.
SECTION 6.03. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs
with respect to the Company) or a Collateral Access Event (other than a
Collateral Access Event specified in clause (f) or (g) of Section 6.02) occurs
and is continuing under this Indenture, the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes, then outstanding, by written
notice (a "Notice of Default or Collateral Access Event") to the Company (and
to the Trustee if such notice is given by the Holders), may, and the Trustee at
the request of such Holders shall, declare the principal of, premium, if any,
and accrued interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) of Section
6.01 or clause (c) of Section 6.02 has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to such clause
(e) or (c) shall be remedied or cured by the Company or, with respect to clause
(c) of Section 6.01 only, by the Company or the relevant Significant Subsidiary
or waived by the holders of the relevant Indebtedness, within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 or a Collateral Access Event
specified in clause (f) or (g) of Section 6.02 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in aggregate principal amount of
the outstanding Notes by written notice to the Company and to the Trustee may
waive all past Defaults and rescind and annul such declaration of acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived and (ii) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction.
SECTION 6.04. Other Remedies. Upon receipt of a Notice of Default or
Collateral Access Event, the Trustee shall exercise such remedies available to
it under applicable law, including any remedies of a secured party under
applicable law or otherwise provided in this Indenture to collect the payment
of principal of, premium, if any, or interest on the
63
<PAGE> 74
Notes or to enforce the performance of any provision of the Notes, the Escrow
and Security Agreement or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding.
SECTION 6.05. Waiver of Past Defaults. The Holders of at least a
majority in aggregate principal amount of then outstanding Notes (including
pursuant to consents obtained pursuant to a purchase, tender or exchange offer
of Notes), by notice to the Trustee, may waive an existing Default, Event of
Default or a Collateral Access Event and its consequences, except a Default in
the payment of principal of, premium, if any, or interest on any Note as
specified in clause (a) or (b) of Section 6.01 (including in connection with an
Offer to Purchase) or in respect of a covenant or provision of this Indenture
or any Guarantee which cannot be modified or amended without the consent of the
Holder of each outstanding Note affected. Upon any such waiver, such Default
shall cease to exist, and any Event of Default or Collateral Access Event
arising therefrom shall be deemed to have been cured, for every purpose of this
Indenture and the Guarantees; but no such waiver shall extend to any subsequent
or other Default, Event of Default or Collateral Access Event or impair any
right consequent thereto.
SECTION 6.06. Control by Majority. The Holders of at least a majority
in aggregate principal amount of the outstanding Notes, by notice to the
Trustee, may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee; provided that the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith may
be unduly prejudicial to the rights of Holders not joining in the giving of
such direction; and provided further that the Trustee may take any other action
it deems proper that is not inconsistent with any directions received from
Holders of Notes pursuant to this Section 6.06.
SECTION 6.07. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture, the Notes or
the Note Guarantees, or for the appointment of a receiver or trustee, or for
any other remedy hereunder, unless:
(i) such Holder has previously given to the Trustee written
notice of a continuing Event of Default or Collateral Access Event;
(ii) the Holders of at least 25% in aggregate principal amount
of outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default or Collateral
Access Event in its own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity satisfactory to the Trustee against any costs, liabilities or
expenses to be incurred in compliance with such request;
64
<PAGE> 75
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes have not given the
Trustee a direction that is inconsistent with such written request.
For purposes of Section 6.06 of this Indenture and this Section 6.07,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture
or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.08. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of the principal amount of, premium, if any, or interest on
such Holder's Note on or after the respective due dates expressed on such Note
(including in a notice with respect to an Offer to Purchase), or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.09. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a) or (b) of
Section 6.01 or a Collateral Access Event in clause (a) of Section 6.02 occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company, any Guarantor (in accordance
with the applicable Note Guarantee) or any other obligor of the Notes for the
whole amount of principal, premium, if any, and accrued interest remaining
unpaid, together with interest on overdue principal, premium, if any, and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate specified in the Notes, and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
SECTION 6.10. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes, including any Guarantor), its
creditors or its property and shall be entitled and empowered to collect and
receive any monies, securities or other property payable or deliverable upon
conversion or exchange of the Notes or upon any such claims and to distribute
the same, and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar
65
<PAGE> 76
official in any such judicial proceeding is hereby authorized by each Holder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.11. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07,
including payment of all compensation, expense and liabilities incurred,
and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders for amounts then due and unpaid for principal
amount of, premium, if any, and accrued interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal, premium, if any,
and accrued interest, respectively; and
Third: to the Company or any other obligors of the Notes or as a
court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.11.
SECTION 6.12. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.12 does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.08 of this Indenture, or a
suit by Holders of more than 10% in principal amount of the outstanding Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder,
then, and in every such case, subject to any determination in such proceeding,
the Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
66
<PAGE> 77
SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default or any Collateral Access Event shall impair any such right or
remedy or constitute a waiver of any such Event of Default or any Collateral
Access Event or an acquiescence therein. Every right and remedy given by this
Article Six or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Rights of Trustee. (i) Except during the continuance of
an Event of Default or a Collateral Access Event,
(a) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee;
(b) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth and correctness of the statements and
certificates or opinions furnished to it and conforming to the
requirements of this Indenture; but in the case of any such certificates
or opinions which by any provision hereof are specifically required to
be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Indenture; and
(c) for purposes of meeting the legal requirements of any
jurisdictions in which any part of the Collateral may at the time be
located, the Trustee will have the power to appoint a co-trustee or
separate trustee of all or any part of the Collateral. To the extent
permitted by law, all rights, powers, duties and obligations conferred
or imposed upon the Trustee will be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-
trustee jointly, or, in any jurisdiction in which the Trustee will be
incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of the
Trustee.
67
<PAGE> 78
(ii) In case an Event of Default or a Collateral Access Event has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in its exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(iii) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(a) this Subsection shall not be construed to limit the effect
of Subsection (i) of this Section;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
outstanding Notes, relating to the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Notes.
(iv) Subject to TIA Sections 315(a) through (d):
(a) the Trustee may rely upon any document believed by it to
be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the
document;
(b) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 11.04. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(c) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with
such request or direction;
(d) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers; provided that the Trustee's conduct does not
constitute negligence or bad faith;
(e) no provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it
68
<PAGE> 79
shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it;
(f) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Trustee
(unless other evidence be herein specifically prescribed), may, in the
absence of bad faith on its part, rely upon an Officers' Certificate;
(g) the Trustee may consult with counsel and the advice of
such counsel or any opinion of counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(h) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney;
(i) the Trustee may execute any of the trusts or powers
hereunder either directly or by or through agents or attorneys and the
Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(j) the Trustee may conclusively rely as to the identity and
addresses of Holders and other matters contained therein on the register
of the Notes maintained by the Registrar pursuant to Section 2.04 hereof
and shall not be affected by notice to the contrary; and
(k) unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
SECTION 7.02. Actions of Trustee. The Trustee may, and upon the
request of a majority of the Holders shall, take such actions (including the
giving of direction or notice) as are permitted or required to be taken by the
Trustee under this Indenture including, but not limited to, the following:
(i) sending notice of a Collateral Access Event (which, if
required by this Indenture, shall specify the applicable section of this
Indenture under which any such event arises);
69
<PAGE> 80
(ii) sending a Notice of Default or Collateral Access Event
pursuant to Section 6.03 of this Indenture; and
(iii) exercising any or all remedies under this Indenture;
provided, however, that without the consent of each Holder, the Trustee will
not take any action which, pursuant to Section 9.01 hereof, expressly requires
the consent of each Holder affected thereby.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, (ii) shall not be accountable for the Company's
use of the proceeds from the Notes, (iii) shall not be responsible for the use
or application of any money received by any Paying Agent other than the
Trustee, and (iv) shall not be responsible for any statement in the Notes other
than its certificate of authentication.
SECTION 7.05. Notice of Default or Collateral Access Events. If any
Default, Event of Default or Collateral Access Event occurs and is continuing
and if such Default, Event of Default or Collateral Access Event is known to a
Responsible Officer of the Trustee, the Trustee shall mail to each Holder in
the manner and to the extent provided in TIA Section 313(c) notice of the
Default, Event of Default or Collateral Access Event within 45 days after it
occurs, unless such Default, Event of Default or Collateral Access Event has
been cured or waived; provided, however, that, except in the case of a default
in the payment of the principal of, premium, if any, or interest on any Note,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
The Trustee shall not be deemed to have knowledge of any Default, Event
of Default or Collateral Access Event except (i) a default described in Section
6.01(a) or (b) so long as the Trustee is the Paying Agent or (ii) any Default,
Event of Default or Collateral Access Event of which the Trustee shall have
received written notification or a Responsible Officer charged with the
administration of this Indenture shall have obtained actual knowledge, and such
notification shall not be deemed to include receipt of information obtained in
any report or other reports and documents furnished under Section 4.20 of this
Indenture which reports and documents the Trustee shall have no duty to
examine.
70
<PAGE> 81
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
May 15, beginning with May 15, 1998, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services
hereunder. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, expenses and
advances incurred or made by it in addition to compensation for its services.
Such expenses shall include the reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee (including its agents, officers,
directors and employees) for, and hold it harmless against, any loss or
liability or expense incurred by it without negligence or bad faith on its part
in connection with the acceptance or administration of this Indenture and its
duties under this Indenture and the Notes, including the costs and expenses of
defending itself against any claim or liability and of complying with any
process served upon it or any of its officers in connection with the exercise
or performance of any of its powers or duties under this Indenture and the
Notes. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay reasonable fees and expenses of such
counsel. The Company need not pay for any settlements made without its
consent; provided that such consent shall not be unreasonably withheld. The
Company need not reimburse any expense or indemnity against any loss or
liability incurred by the Trustee through negligence or bad faith.
The Trustee shall have a claim prior to the Notes on all money or
property held or collected by the Trustee, in its capacity as Trustee, for any
amount owing it pursuant to this Section 7.07, except money or property held in
trust to pay principal of, premium, if any, and interest on particular Notes.
If the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in clause (g) or (h) of Section 6.01 or a
Collateral Access Event specified in clauses (g) and (h) of Section 6.02, the
expenses and the compensation for the services (including the reasonable fees
and expenses of its agents and counsel) will be intended to constitute expenses
of administration under Title 11 of the United States Bankruptcy Code or any
applicable federal or state law for the relief of debtors.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the
71
<PAGE> 82
Trustee under this Section 7.07 out of the estate in any such proceeding, shall
be denied for any reason, other than solely because of the misconduct of the
Trustee or its Agents, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Trustee in writing and may appoint a successor Trustee with
the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in aggregate principal amount of the outstanding
Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company. If the successor Trustee does not take office within
30 days after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, (ii) the resignation or removal of the
retiring Trustee shall become effective and (iii) the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
72
<PAGE> 83
If the Trustee fails to comply with Section 7.10, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect provided in this Section.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. Eligibility. Any Trustee serving hereunder shall be a
bank or trust company, within or without the state, which is authorized by law
to perform all of the duties imposed upon it hereby and which either (i) has a
reported capital and surplus aggregating at least $25 million or (ii) is a
wholly owned subsidiary of a bank, a trust company or a bank holding company
having a reported capital and surplus aggregating at least $25 million, and
shall at all times satisfy the requirements of TIA Section 310(a)(1).
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company and the Guarantors may
terminate their obligations under the Notes, the Note Guarantees and this
Indenture and obtain a release of the Collateral if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or securities have theretofore been held in trust and thereafter repaid
to the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company or the Guarantors have paid all
sums payable by them hereunder; or
73
<PAGE> 84
(ii) (A) the Notes have become due and payable, mature within
one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption, (B) the Company or any Guarantor irrevocably deposits in
trust with the Trustee during such one-year period, under the terms of
an irrevocable trust agreement in form and substance satisfactory to the
Trustee, as trust funds solely for the benefit of the Holders for that
purpose, money or U.S. Government Obligations sufficient (in the opinion
of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee),
without consideration of any reinvestment of any interest thereon, to
pay, through the payment of principal and interest in accordance with
their terms not later than one day prior to the relevant due date,
principal, premium, if any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by it
hereunder, (C) no Default, Event of Default or Collateral Access Event
with respect to the Notes shall have occurred and be continuing on the
date of such deposit, (D) such deposit will not result in a breach or
violation of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Company is a party or by which it
is bound and (E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction
and discharge of this Indenture have been complied with;
provided that, if simultaneously with the deposit of the money and/or U.S.
Government Obligations referred to in (B) above, the Company or any Guarantor
has caused an irrevocable, transferrable, standby letter of credit to be issued
by a bank with capital and surplus exceeding the principal amount of the Notes
then outstanding, expiring not earlier than 180 days from its issuance, in
favor of the Trustee which permits the Trustee to draw an amount equal to the
principal, premium, if any, and accrued interest on the Notes through the
expiry date of the letter of credit, then the Company and the Guarantors will
be deemed to have paid and discharged any and all obligations in respect of the
Notes on the date of the deposit and issuance of the letter of credit, and the
Collateral shall be deemed released.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii),
the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.09, 2.14, 4.01,
4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Notes are no
longer outstanding. Thereafter, only the Company's obligations in Sections
7.07, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company and
the Guarantors will be deemed to have paid and will be discharged from any and
all obligations in respect of the Notes and the Note Guarantees and the
Collateral shall be deemed released on the 123rd day after the date of the
deposit referred to in clause (A) of this Section 8.02, and the provisions of
this Indenture will no longer be in effect with
74
<PAGE> 85
respect to the Notes, the Collateral and the Note Guarantees, and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
the same, except as to (i) rights of registration of transfer and exchange,
(ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen
Notes, (iii) rights of Holders to receive payments of principal thereof and
interest thereon, (iv) the Company's obligations under Section 4.02, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the rights
of the Holders as beneficiaries of this Indenture with respect to the property
so deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(A) the Company or the Guarantors have deposited with the
Trustee, in trust, money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the Notes on the
Stated Maturity of such payments in accordance with the terms of this
Indenture and the Notes;
(B) the Company has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this Section 8.02 and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must
be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days
following the deposit, the trust fund will not be subject to the effect
of Section 547 of the United States Bankruptcy Code or Section 15 of the
New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of
notice or lapse of time or both would become an Event of Default, shall
have occurred and be continuing on the date of such deposit or during
the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute
a default under, any other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(D) if at such time the Notes are listed on a national
securities exchange, the Company has delivered to the Trustee an Opinion
of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge; and
75
<PAGE> 86
(E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with;
provided that, if simultaneously with the deposit of the money and/or U.S.
Government Obligations referred to in (A) above, the Company or any Guarantor
has caused an irrevocable, transferrable, standby letter of credit to be issued
by a bank with capital and surplus exceeding the principal amount of the Notes
then outstanding, expiring not earlier than 180 days from its issuance, in
favor of the Trustee which permits the Trustee to draw an amount equal to the
principal, premium, if any, and accrued interest on the Notes through the
expiry date of the letter of credit, then the Company and the Guarantors will
be deemed to have paid and discharged any and all obligations in respect of the
Notes on the date of the deposit and issuance of the letter of credit.
Notwithstanding the foregoing, prior to the end of the 123-day period
referred to in clause (B)(ii) of this Section 8.02, none of the Company's
obligations under this Indenture shall be discharged. Subsequent to the end of
such 123-day period with respect to this Section 8.02, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.09, 2.14, 4.01, 4.02, 7.06,
7.07, 8.04, 8.05 and 8.06 shall survive until the Notes are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.06, 8.05
and 8.06 shall survive. If and when a ruling from the Internal Revenue Service
or an Opinion of Counsel referred to in clause (B)(i) of this Section 8.02 is
able to be provided specifically without regard to, and not in reliance upon,
the continuance of the Company's obligations under Section 4.01, then the
Company's obligations under such Section 4.01 shall cease upon delivery to the
Trustee of such ruling or Opinion of Counsel and compliance with the other
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) of Section 5.01, all the covenants under Article Four (excluding Sections
4.01 and 4.02) and Article Fourteen hereof, and clause (c) of Section 6.01, and
such clauses (iii) and (iv) of Section 5.01, clause (d) of Section 6.01, and
such other covenants and clauses (e) and (f) of Section 6.01 shall be deemed
not to be Events of Default, in each case with respect to the Notes, if:
(i) the Company has deposited with the Trustee in trust, money
and/or U.S. Government Obligations that, through the payment of interest
and principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount sufficient in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to
the
76
<PAGE> 87
Trustee to pay the principal of, premium, if any, and accrued interest
on the Notes on the Stated Maturity of such payments in accordance with
the terms of this Indenture and the Notes and shall have irrevocably
instructed the Trustee to apply such money to the payment of such
principal, premium and interest;
(ii) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of
notice or lapse of time or both would become an Event of Default, shall
have occurred and be continuing on the date of such deposit or during
the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute
a default under, any other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; it being understood that after such 123-day
period the Collateral shall be released;
(iii) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust does
not violate the Investment Company Act of 1940, (B) the Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and Events
of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred and (C) after the
passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15
of the New York Debtor and Creditor Law in a case commenced by or
against the Company under either such statute, and either (I) the trust
funds will no longer remain the property of the Company (and therefore
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally) or (II) if a court were to rule under any such law in any
case or proceeding that the trust funds remained property of the
Company, (a) assuming such trust funds remained in the possession of the
Trustee prior to such court ruling to the extent not paid to the
Holders, the Trustee will hold, for the benefit of the Holders, a valid
and perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise except for the effect of Section
552(b) of the United States Bankruptcy Code on interest on the trust
funds accruing after the commencement of a case under such statute, (b)
the Holders will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used in such case
or proceeding and (c) no property, rights in property or other interests
granted to the Trustee or the Holders in exchange for, or with respect
to, such trust funds will be subject to any prior rights of holders of
other Indebtedness of the Company or any of its Subsidiaries;
(iv) at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel
to the effect that
77
<PAGE> 88
the Notes will not be delisted as a result of such deposit, defeasance
and discharge; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with;
provided that, if simultaneously with the deposit of the money and/or U.S.
Government Obligations referred to in (i) above, the Company or any Guarantor
has caused an irrevocable, transferrable, standby letter of credit to be issued
by a bank with capital and surplus exceeding the principal amount of the Notes
then outstanding, expiring not earlier than 180 days from its issuance, in
favor of the Trustee which permits the Trustee to draw an amount equal to the
principal, premium, if any, and accrued interest on the Notes through the
expiry date of the letter of credit, then the Company and the Guarantors will
be deemed to have paid and discharged any and all obligations in respect of the
Notes on the date of the deposit and issuance of the letter of credit; and the
Collateral shall be deemed released.
SECTION 8.04. Application of Trust Money. Subject to Sections 8.05 and
8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money need not be segregated from other funds except to the extent required by
law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money
held by them at any time and thereupon shall be relieved from all liability
with respect to such money. The Trustee and the Paying Agent shall pay to the
Company upon written request any money held by them for the payment of
principal, premium, if any, or interest that remains unclaimed for two years;
provided that the Trustee or such Paying Agent before being required to make
any payment may cause to be published at the expense of the Company once in a
newspaper of general circulation in the City of New York, or mail to each
Holder entitled to such money at such Holder's address (as set forth in the
Security Register) notice that such money remains unclaimed and that after a
date specified therein (which shall be at least 30 days from the date of such
publication or mailing) any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to
such money must look to the Company for payment as general creditors unless an
applicable law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by
reason of any order or
78
<PAGE> 89
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such money
or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03,
as the case may be; provided that, if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company and the
Guarantors, when authorized by a resolution of its Board of Directors and the
Trustee may amend or supplement this Indenture, the Escrow and Security
Agreement, the Registration Rights Agreement, the Note Guarantees or the Notes
without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee;
(5) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(6) to add one or more subsidiary guarantees on the terms
required by this Indenture; or
(7) to make any change that, in the opinion of the Board of
Directors of the Company evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.05 and
6.08 and without prior notice to the Holders, the Company and the Guarantors,
when authorized by its Board of Directors (as evidenced by a Board Resolution),
and the Trustee may amend this Indenture, the Notes or the Escrow and Security
Agreement with the written consent of the Holders of not less than a majority
in principal amount of the Notes then outstanding, and the Holders of not less
than a majority in principal amount of the Notes
79
<PAGE> 90
then outstanding by written notice to the Trustee may waive future compliance
by the Company with any provision of this Indenture, the Notes or the Escrow
and Security Agreement.
Notwithstanding the provisions of this Section 9.02, without the consent
of each Holder affected, an amendment or waiver, including a waiver pursuant to
Section 6.05, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal of, or premium, if any, or interest
on, any Note or adversely affect any right of repayment at the option of
any Holder;
(iii) change the place or currency of payment of principal of,
or premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of
any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note;
(v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend this
Indenture;
(vi) waive (a) a default in the payment of principal of,
premium, if any, or interest on the Notes or (b) a Collateral Access
Event;
(vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver
of compliance with certain provisions of this Indenture or for waiver of
certain defaults;
(viii) modify Article Ten, the Escrow and Security Agreement or
the Registration Rights Agreement in a manner that adversely affects the
rights of any Holder in any material respect or the distribution of
principal, interest or premium or other monies received or realized by
the Trustee from the Collateral; or
(ix) modify any of the provisions of this Section 9.02, except
to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly
80
<PAGE> 91
describing the amendment, supplement or waiver. The Company will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on
receipt by the Trustee of written consents from the Holders of the requisite
percentage principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the
last two sentences of the immediately preceding paragraph, those persons who
were Holders at such record date (or their duly designated proxies) and only
those persons shall be entitled to consent to such amendment, supplement or
waiver or to revoke any consent previously given, whether or not such persons
continue to be Holders after such record date. No such consent shall be valid
or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (v) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and
the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or issue a new Note shall not affect the validity and effect of such
amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does
81
<PAGE> 92
not adversely affect the rights of the Trustee. The Trustee may, but shall not
be obligated to, execute any such amendment, supplement or waiver that affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
PLEDGED SECURITIES
SECTION 10.01. Security. (a) On the Closing Date, the Company shall
grant to the Trustee on behalf of the Holders an additional security interest
in certain of the Collateral pursuant to the terms of the Escrow and Security
Agreement of even date herewith.
(b) On the Closing Date, the Company shall (i) enter into the Escrow
and Security Agreement and comply with the terms and provisions thereof and
(ii) purchase $56 million of Pledged Securities to be pledged to the Trustee as
security for the benefit of the Holders. The Pledged Securities shall be
pledged by the Company to the Trustee for the benefit of the Holders and shall
be held by the Trustee in the Escrow Account pending disposition pursuant to
the Escrow and Security Agreement.
(c) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Escrow and Security Agreement (including, without limitation,
the provisions providing for foreclosure and release of the Pledged Securities)
as the same may be in effect or may be amended from time to time in accordance
with its terms, and authorizes and directs the Trustee to enter into the Escrow
and Security Agreement and to perform its respective obligations and exercise
its respective rights thereunder in accordance therewith. The Company shall do
or cause to be done all such acts and things as may be necessary or proper, or
as may be required by the provisions of the Escrow and Security Agreement, to
assure and confirm to the Trustee the security interest in the Pledged
Securities contemplated hereby, by the Escrow and Security Agreement or any
part thereof, as from time to time constituted, so as to render the same
available for the security and benefit of this Indenture and of the Notes
secured hereby, according to the intent and purposes herein expressed. The
Company shall take, or shall cause to be taken, upon request of the Trustee,
any and all actions reasonably required to cause the Escrow and Security
Agreement to create and maintain, as security for the obligations of the
Company under this Indenture and the Notes, valid and enforceable first
priority liens in and on all the Pledged Securities, in favor of the Trustee,
superior to and prior to the rights of third Persons and subject to no other
Liens.
(d) The Collateral as now or hereafter constituted shall be held for
the equal and ratable benefit of the Holders without preference, priority or
distinction of any thereof over any other by reason of difference in time of
issuance, sale or otherwise, as security for the Notes.
82
<PAGE> 93
(e) The release of any Pledged Securities pursuant to the Escrow and
Security Agreement shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Pledged Securities are released pursuant to this Indenture and the Escrow and
Security Agreement.
(f) The Trustee may, in its sole discretion and without the consent
of the Holders, on behalf of the Holders, take all actions it deems necessary
or appropriate in order to (i) enforce any of the terms of the Escrow and
Security Agreement and (ii) collect and receive any and all amounts payable in
respect of the obligations of the Company thereunder. The Trustee shall have
power to institute and to maintain such suits and proceedings as the Trustee
may deem expedient to preserve or protect its interests and the interests of
the Holders in the Pledged Securities (including power to institute and
maintain suits or proceedings to restrain the enforcement of or compliance with
any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance
with, such enactment, rule or order would impair the security interest
hereunder or be prejudicial to the interests of the Holders or of the Trustee).
(g) Notwithstanding anything herein to the contrary, the Company
shall not be obligated to comply with the provisions of TIA Section 314(b) or
(d) in connection with the release of the Pledged Securities until such time as
it is legally required that the Indenture be qualified under the TIA. After
such time, to the extent applicable, the Company shall cause TIA Section 314(d)
relating to the release of property or securities from the Lien and security
interest of the Escrow and Security Agreement and relating to the substitution
therefor of any property or securities to be subjected to the Lien and security
interest of the Escrow and Security Agreement to be complied with. Any
certificate or opinion required by TIA Section 314(d) may be made by an officer
of the Company, except in cases where TIA Section 314(d) requires that such
certificate or opinion be made by an independent Person, which Person shall be
an independent engineer, appraiser or other expert selected by the Company.
After such time, the Company shall also cause TIA Section 314(b), relating to
opinions of counsel regarding the Lien under the Escrow and Security Agreement,
to be complied with. The Trustee may, to the extent permitted by Sections 7.01
and 7.02 hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such instruments.
SECTION 10.02. Release upon Termination of the Company's Obligations.
In the event that this Indenture shall be satisfied and discharged in
accordance with Section 8.02, the Trustee shall, on behalf of the Holders,
disclaim and give up any and all rights it has in or to the Collateral and the
Trustee shall not be deemed to hold the Collateral for the benefit of the
Holders.
83
<PAGE> 94
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939. This Indenture is subject
to the provisions of the TIA that are required to be a part of this Indenture
and shall, to the extent applicable, be governed by such provisions.
SECTION 11.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery addressed as
follows:
if to the Company:
Kitty Hawk, Inc.
P.O. Box 612787
1515 West 20th Street
Dallas/Fort Worth International Airport, Texas 75261
Telecopier No.: (972) 456-2303
Attention: Chief Financial Officer
with a copy to: (which shall not constitute notice)
Haynes and Boone, LLP
901 Main Street
Dallas, Texas 75202
Telecopier No.: (214) 651-5940
Attention: Janice V. Sharry
if to the Trustee:
Bank One, NA
100 E. Broad Street
8th Floor
Columbus, Ohio 43215
Telecopier No.: (614) 248-5195
Attention: Corporate Trust and Agency Group
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
84
<PAGE> 95
Any notice or communication to a Holder shall be mailed by first class
mail (certified or registered, return receipt requested) to its address shown
on the register kept by the Registrar and shall be sufficiently given to such
Holder if so mailed or delivered within the time presented. Any notice or
communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. Except for
a notice to the Trustee, which is deemed given only when received, and except
as otherwise provided in this Indenture, if a notice or communication is mailed
in the manner provided in this Section 11.02, it is duly given, whether or not
the addressee receives it.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
SECTION 11.03. Certificate and Opinion As to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate reasonably satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(ii) an Opinion of Counsel reasonably satisfactory to the
Trustee stating that, in the opinion of such Counsel, all such
conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with, and such
other opinions as the Trustee may reasonably request; provided, however,
that, with respect to matters
85
<PAGE> 96
of fact, an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
SECTION 11.05. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such
Holders in person or by an agent duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The ownership of Notes shall be proved by the Security Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Note shall bind every future Holder
of the same Note or the Holder of every Note issued upon the transfer thereof
or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company
in reliance thereon, whether or not notation of such action is made upon such
Note.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver of other act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of such Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or
other act, but the Company shall have no obligation to do so. Notwithstanding
TIA Section 316(c), any such record date shall be the record date specified in
or pursuant to such Board Resolution, which shall be a date not more than 30
days prior to the first solicitation of Holders generally in connection
therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Notes then outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for this purpose the Notes
then outstanding shall be computed as of such record date; provided that no
such request, demand, authorization, direction, notice, consent, waiver or
other act by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not
later than six months after the record date.
86
<PAGE> 97
SECTION 11.06. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.07. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date for an Offer to Purchase, Stated
Maturity or date of maturity of any Note shall not be a Business Day at any
place of payment, then payment of principal of, premium, if any, or interest on
such Note, as the case may be, need not be made on such date, but may be made
on the next succeeding Business Day at such place of payment with the same
force and effect as if made on the Interest Payment Date, Payment Date for an
Offer to Purchase, or Redemption Date, or at the Stated Maturity or date of
maturity of such Note; provided that no interest shall accrue for the period
from and after such Interest Payment Date, Payment Date for an Offer to
Purchase, Redemption Date, Stated Maturity or date of maturity, as the case may
be.
SECTION 11.08. Governing Law. This Indenture and the Notes shall be
governed by the laws of the State of New York. The Trustee, the Company and
the Holders agree to submit to the jurisdiction of the courts of the County of
New York in any action or proceeding arising out of or relating to this
Indenture, the Note Guarantees or the Notes.
SECTION 11.09. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any Subsidiary of the Company, except the Escrow
and Security Agreement and the Registration Rights Agreement. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest on any of the Notes, or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company or any Guarantor
contained in this Indenture or in any of the Notes, or because of the creation
of any Indebtedness represented thereby, shall be had against any incorporator
or against any past, present or future partner, shareholder, other
equityholder, officer, director, employee or controlling person, as such, of
the Company or any Guarantor or of any successor Person, either directly or
through the Company or any successor Person, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes
and the Note Guarantees.
SECTION 11.11. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
87
<PAGE> 98
SECTION 11.12. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
SECTION 11.13. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.14. Table of Contents, Headings, Etc. The Table of
Contents, Cross-Reference Table and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
ARTICLE TWELVE
MEETINGS OF HOLDERS
SECTION 12.01. Purposes for Which Meetings May Be Called. A meeting of
Holders may be called at any time and from time to time pursuant to the
provisions of this Article Twelve for any of the following purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to waive or to consent to the
waiving of any Default, Event of Default or Collateral Access Event
hereunder and its consequences, or to take any other action authorized
to be taken by Holders pursuant to any of the provisions of Article Six;
(b) to remove the Trustee or appoint a successor Trustee
pursuant to the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant
to the provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the
Notes under any other provision of this Indenture, or authorized or
permitted by law.
SECTION 12.02. Manner of Calling Meetings. The Trustee may at any time
call a meeting of Holders to take any action specified in Section 12.01, to be
held at such time and at such place in The City of New York, New York or
elsewhere as the Trustee will determine. Notice of every meeting of Holders,
setting forth the time and place of such meeting and in general terms the
action proposed to be taken at such meeting, will be mailed by the Trustee,
first-class postage prepaid, to the Company and to the Holders at their last
addresses as they will appear on the registration books of the Registrar not
less than 10 nor more than 60 days prior to the date fixed for a meeting.
88
<PAGE> 99
Any meeting of Holders will be valid without notice if the Holders of
all outstanding Notes are present in Person or by proxy, or if notice is waived
before or after the meeting by the Holders of all outstanding Notes, and if the
Company and the Trustee are either present by duly authorized representatives
or have, before or after the meeting, waived notice.
SECTION 12.03. Call of Meetings by the Company or Holders. In case at
any time the Company, pursuant to a Board Resolution, or the Holders of not
less than 10% in aggregate principal amount of the outstanding Notes will have
requested the Trustee to call a meeting of Holders to take any action specified
in Section 12.01, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee will not have
mailed the notice of such meeting within 20 days after receipt of such request,
then the Company or the Holders of Notes in the amount above specified may
determine the time and place in The City of New York, New York or elsewhere for
such meeting and may call such meeting for the purpose of taking such action,
by mailing or causing to be mailed notice thereof as provided in Section 12.02,
or by causing notice thereof to be published at least once in each of two
successive calendar weeks (on any Business Day during such week) in a newspaper
or newspapers printed in the English language, customarily published at least
five days a week of a general circulation in The City of New York, State of New
York, the first such publication to be not less than 10 nor more than 60 days
prior to the date fixed for the meeting.
SECTION 12.04. Who May Attend and Vote at Meetings. To be entitled to
vote at any meeting of Holders, a Person will (i) be a registered Holder of one
or more Notes, or (ii) be a Person appointed by an instrument in writing as
proxy for the registered Holder or Holders of Notes. The only Persons who will
be entitled to be present or to speak at any meeting of Holders will be the
Persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and their counsel.
SECTION 12.05. Quorum; Action. The Persons entitled to vote a majority
in principal amount of the outstanding Notes shall constitute a quorum. In the
absence of a quorum within 30 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Holders of Notes, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 12.02, except that such
notice need be given only once and not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage of the principal
amount of the outstanding Notes which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned
for a lack of a quorum, the Persons entitled to vote 25% in principal amount of
the outstanding Notes
89
<PAGE> 100
at the time shall constitute a quorum for the taking of any action set forth in
the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any action or matter, except as otherwise
specified herein, shall be effectively passed and decided if passed or decided
by the Persons entitled to vote not less than a majority in principal amount of
outstanding Notes represented and voting at such meeting.
Any action or matter passed or decision taken at any meeting of Holders
of Notes duly held in accordance with this Section 12.05 shall be binding on
all the Holders of Notes, whether or not present or represented at the meeting.
SECTION 12.06. Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of
this Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any action by or any meeting of Holders, in regard to proof of
the holding of Notes and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, and submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it will think
appropriate. Such regulations may fix a record date and time for determining
the Holders of record of Notes entitled to vote at such meeting, in which case
those and only those Persons who are Holders of Notes at the record date and
time so fixed, or their proxies, will be entitled to vote at such meeting
whether or not they will be such Holders at the time of the meeting.
The Trustee will, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting will have been called by the
Company or by Holders as provided in Section 12.03, in which case the Company
or the Holders calling the meeting, as the case may be, will in like manner
appoint a temporary chairman. A permanent chairman and a permanent secretary
of the meeting will be elected by vote of the Holders of a majority in
principal amount of the Notes represented at the meeting and entitled to vote.
At any meeting each Holder or proxy will, subject to the provisions of
Section 12.04 hereof, be entitled to one vote for each $1,000 principal amount
of Notes held or represented by him or her; provided, however, that no vote
will be cast or counted at any meeting in respect of any Notes challenged as
not outstanding and ruled by the chairman of the meeting to be not outstanding.
The chairman may adjourn any such meeting if he is unable to determine whether
any Holder or proxy will be entitled to vote at such meeting. The chairman of
the meeting will have no right to vote other than by virtue of Notes held by
him or instruments in writing as aforesaid duly designating him as the proxy to
vote on behalf of other Holders. Any meeting of Holders duly called pursuant
to the provisions of Section 12.02 or Section 12.03 may be adjourned from time
to time by vote of the Holders of a majority in aggregate principal amount of
the Notes represented at the meeting and entitled to vote, and the meeting may
be held as so adjourned without further notice.
90
<PAGE> 101
SECTION 12.07. Voting at the Meeting and Record to Be Kept. The vote
upon any resolution submitted to any meeting of Holders will be by written
ballots on which will be subscribed the signatures of the Holders of Notes
or/of their representatives by proxy and the principal amount of the Notes
voted by the ballot. The permanent chairman of the meeting will appoint two
inspectors of votes, who will count all votes cast at the meeting for or
against any resolution and will make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting.
A record in duplicate of the proceedings of each meeting of Holders will be
prepared by the secretary of the meeting and there will be attached to such
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more Persons having knowledge of the
facts, setting forth a copy of the notice of the meeting and showing that such
notice was mailed as provided in Section 12.02. The record will be signed and
verified by the affidavits of the permanent chairman and the secretary of the
meeting and one of the duplicates will be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have
attached thereto the ballots voted at the meeting.
Any record so signed and verified will be conclusive evidence of the
matters therein stated.
SECTION 12.08. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting. Nothing contained in this Article
Twelve will be deemed or construed to authorize or permit, by reason of any
call of a meeting of Holders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any
right or rights conferred upon or reserved to the Trustee or to the Holders
under any of the provisions of this Indenture or of the Notes.
SECTION 12.09. Procedures Not Exclusive. The procedures set forth in
this Article Twelve are not exclusive and the rights and obligations of the
Company, the Trustee and the Holders under other Articles of this Indenture
(including, without limitation, Articles Six, Seven, Eight and Nine) will in no
way be limited by the provisions of this Article Twelve.
ARTICLE THIRTEEN
GUARANTEES
SECTION 13.01. Guarantees.
Each Guarantor hereby jointly and severally, absolutely, unconditionally
and irrevocably guarantees the Notes and obligations of the Company hereunder
and thereunder, and guarantees to each Holder of a Note authenticated and
delivered by the Trustee, and to the Trustee on behalf of such Holder, that:
(a) the principal of (and premium, if any) and interest on the Notes will be
paid in full when due, whether at Stated Maturity, by acceleration or otherwise
(including, without limitation, the amount that would become due but for the
operation of the automatic stay under Section 362(a) of
91
<PAGE> 102
the Bankruptcy Law), together with interest on the overdue principal, if any,
and interest on any overdue interest, to the extent lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or of any such other obligations, the same will be paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at Stated Maturity, by acceleration or otherwise, subject,
however, in the case of clauses (a) and (b) above, to the limitations set forth
in Section 13.04 hereof.
Each Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
Each Guarantor hereby waives (to the extent permitted by law) the
benefits of diligence, presentment, demand for payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company or any other Person, protest,
notice and all demands whatsoever and covenants that the Note Guarantee of such
Guarantor will not be discharged as to any Note except by complete performance
of the obligations contained in such Note. Each of the Guarantors hereby
agrees that, in the event of a default in payment of principal (or premium, if
any) or interest on such Note, whether at its Stated Maturity, by acceleration,
purchase or otherwise, legal proceedings may be instituted by the Trustee on
behalf of, or by, the Holder of such Note, subject to the terms and conditions
set forth in this Indenture, directly against each of the Guarantors to enforce
such Guarantor's Note Guarantee without first proceeding against the Company or
any other Guarantor. Each Guarantor agrees that if, after the occurrence and
during the continuance of an Event of Default or Collateral Access Event, the
Trustee or any of the Holders are prevented by applicable law from exercising
their respective rights to accelerate the maturity of the Notes, to collect
interest on the Notes, or to enforce or exercise any other right or remedy with
respect to the Notes, such Guarantor will pay to the Trustee for the account of
the Holders, upon demand therefor, the amount that would otherwise have been
due and payable had such rights and remedies been permitted to be exercised by
the Trustee or any of the Holders.
If any Holder or the Trustee is required by any court or otherwise to
return to the Company or any Guarantor, or any custodian, trustee, liquidator
or other similar official acting in relation to either the Company or any
Guarantor, any amount paid by any of them to the Trustee or such Holder, the
Note Guarantee of each of the Guarantors, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor further agrees
that, as between each Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (x) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Article Six hereof for the purposes of
the Note Guarantee of such Guarantor, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any
92
<PAGE> 103
acceleration of such obligations as provided in Article Six hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of the Note Guarantee of such
Guarantor.
SECTION 13.02. Severability.
In case any provision of any Note Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 13.03. Limitation of Guarantors' Liability.
Each Guarantor and, by its acceptance of a Note, each Holder confirms
that it is the intention of all such parties that the guarantee by each such
Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer
or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law or the provisions of its local law relating to fraudulent transfer or
conveyance. To effectuate the foregoing intention, the Holders and each such
Guarantor hereby irrevocably agree that the maximum liability of each Guarantor
will be $1.00 less than the lesser of (a) the amount which would render the
Note Guarantee voidable under either Section 548 or 544(b) of the Bankruptcy
Code, (b) the amount permitting avoidance of the Note Guarantee as a fraudulent
transfer under any applicable Fraudulent Transfer Act or similar law and (c)
the amount permitting the Note Guarantee to be set aside as a fraudulent
conveyance under any applicable Fraudulent Conveyance Act or similar law. In
addition, if the execution and delivery and/or incurrence evidenced by the Note
Guarantee constitutes a "distribution" under the Michigan Business Corporation
Act (the "MCBA"), the maximum liability under the Note Guarantee with respect
to such Guarantor shall be limited to $1.00 less than the maximum liability
which such Guarantor is permitted to incur under Section 345 of the MCBA.
SECTION 13.04. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under a Note
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets (as
defined below) of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company's obligations with respect to the Notes or any other
Guarantor's obligations with respect to the Guarantee of such Guarantor.
"Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of
(x) the amount by which the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
the Guarantee of such Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Guarantor at such date exceeds
the
93
<PAGE> 104
amount that will be required to pay the probable liability of such Guarantor on
its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), excluding debt in respect of the Guarantee
of such Guarantor, as they become absolute and matured.
SECTION 13.05. Subrogation.
Each Guarantor shall be subrogated to all rights of Holders against the
Company in respect of any amounts paid by any Guarantor pursuant to the
provisions of Section 13.01; provided, however, that, if an Event of Default or
Collateral Access Event has occurred and is continuing, the rights of any
Guarantor to enforce or receive any payments arising out of, or based upon,
such right of subrogation shall be subordinated to the rights of the Trustee
and any Holder until all amounts then due and payable by the Company under this
Indenture or the Notes shall have been paid in full.
SECTION 13.06. Reinstatement.
Each Guarantor hereby agrees (and each Person who becomes a Guarantor
shall be deemed to agree) that the Guarantee provided for in Section 13.01
shall continue to be effective or be reinstated, as the case may be, if at any
time, payment, or any part thereof, of any obligations or interest thereon is
rescinded or must otherwise be restored by a Holder to the Company upon the
bankruptcy or insolvency of the Company or any Guarantor.
SECTION 13.07. Release of a Guarantor.
(a) The Note Guarantee issued by any Guarantor under this Indenture
shall be automatically and unconditionally released and discharged (i) upon any
sale, exchange or transfer to any Person not an Affiliate of the Company or a
Restricted Subsidiary of all of the Company's and its Subsidiaries' Capital
Stock in, or all or substantially all the assets of, such Guarantor (which
sale, exchange or transfer is not prohibited by this Indenture).
(b) Concurrently with the defeasance and discharge of the Notes under
Section 8.02, the Guarantors shall be released from all their obligations under
their Note Guarantees under this Article Thirteen.
SECTION 13.08. Benefits Acknowledged.
Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and
that its Note Guarantee and waivers pursuant to its Note Guarantee are
knowingly made in contemplation of such benefits.
94
<PAGE> 105
ARTICLE FOURTEEN
COVENANTS RELATING TO THE AIRCRAFT
SECTION 14.01. Registration of Aircraft.
(a) The Company shall keep the Aircraft registered under the
provisions of the Aviation Act, and record this Indenture at the FAA registry
and, if applicable, the aircraft registry of other aeronautics authorities.
(b) The operation of the Aircraft by the Company (or by any lessee of
the Company) shall be geographically limited to Permitted Countries.
SECTION 14.02. Insurance.
(a) The Company will, at its expense, maintain or cause to be
maintained all-risk aircraft hull insurance covering the Aircraft, and, to the
extent available at reasonable cost, all-risk property damage insurance
covering the Engines and parts, including while temporarily removed from an
Aircraft pending replacement, at all times in an amount not less than the sum
of (i) the aggregate outstanding principal amount of the Notes and (ii) the
scheduled amount of interest payable on the Notes on the next interest payment
date. During any period when an Aircraft is on the ground and not in operation,
the Company may carry or cause to be carried, in lieu of the insurance required
by the previous sentence, insurance otherwise conforming with the provisions of
said sentence except that the scope of the risks covered and the type of
insurance shall be the same as are from time to time applicable to aircraft
owned or leased by the Company of the same type as such Aircraft similarly on
the ground and not in operation, provided that in all cases full amounts shall
not be less than that described in the immediately preceding sentence.
(b) All policies covering loss of or damage to an Aircraft shall be
made payable to the Trustee for any loss in excess of $5 million. With respect
to the Collateral, the Company may maintain customary deductibles. With respect
to all other aircraft owned by the Company or any Restricted Subsidiary, the
Company shall insure such aircraft in a manner consistent with past practice.
(c) The Company shall, at its expense, maintain or cause to be
maintained comprehensive airline liability (including, without limitation,
passenger, contractual, bodily injury and property damage liability) insurance
(exclusive of manufacturer's product liability insurance) and cargo liability
insurance with respect to each Aircraft (i) in amounts that are not less than
the comprehensive airline liability insurance as is from time to time normally
applicable to aircraft owned and operated by the Company of the same type as
such Aircraft and (ii) of the types and covering the same risks as are from
time to time applicable to aircraft owned or operated by the Company of the
same type as such Aircraft and which is maintained in effect with insurers of
recognized responsibility. During any period when an Aircraft is on the ground
and not in operation, the Company may carry or cause to be carried, in lieu of
the insurance required by the previous sentence, insurance otherwise conforming
with the provisions of said sentence except that
95
<PAGE> 106
the amounts of coverage shall not be required to exceed the amounts of
comprehensive airline liability insurance, and the scope of risks covered and
type of insurance shall be the same, as are from time to time in effect with
respect to aircraft owned or leased by the Company of the same type as such
Aircraft similarly on the ground and not in operation.
(d) The Company may self-insure a portion of the risks described in
subsections (a) through (c) above by means of deductible or premium adjustment
provisions subject to the same limitations described above for insurance for
risks of loss or damage to such Aircraft. The Company shall be permitted a
deductible per occurrence not in excess of the prevailing standard market
deductible for similar aircraft.
(e) The Trustee shall be named as additional insured parties under
all liability insurance policies required with respect to the Aircraft. The
insurance policies will provide that, in respect of the interest of the
Trustee, the insurance shall not be invalidated by any action or inaction of
the Company and shall insure the interest of the Trustee as they appear,
regardless of any breach or violation of any warranty, declaration or condition
contained in such policies by the Company.
(f) If and to the extent that the Company or a lessee operates an
Aircraft (A) on routes where it maintains war risk insurance in effect with
respect to other similar equipment, or (B) on routes other than routes within
or between the United States, Canada, Mexico, Bermuda and islands other than
Cuba in the Caribbean Basin where the custom in the industry is to carry war
risk insurance, the Company or such lessee shall maintain such insurance with
respect to the Aircraft in an amount not less than the lesser of the aggregate
unpaid principal of, together with accrued interest on, a ratable portion of
the Notes (based on the initial appraised value of such Aircraft) and the
amount of such insurance customarily carried by corporations engaged in the
same or similar business similarly situated with the Company and with respect
to similar equipment on similar routes; provided that, if the requirement to
maintain war risk insurance arises solely by reason of clause (A) of this
sentence, such insurance shall be maintained in an amount not less than that
maintained by the Company or such lessee on other similar aircraft in its
fleet. Unless an Aircraft is operated or used under a contract with the United
States government pursuant to which the United States government assumes
liability for damage to or loss of such Aircraft and to other property or
persons, the Company may not operate or locate any Aircraft outside the United
States and Canada (i) in any war zone or recognized or, in the Company's
reasonable judgment, threatened area of hostilities, unless such Aircraft is
fully covered by war risk insurance, or (ii) in any area excluded from the
insurance coverage required under this Section 14.02.
(g) Insurance proceeds, if any, held from time to time by the Trustee
with respect to any Aircraft, prior to the distribution thereof, shall be
invested and reinvested by the Trustee at the direction of the Company (except
after the occurrence and during the continuance of a Collateral Access Event)
in Cash Equivalents or Temporary Cash Investments. The net amount of any loss
resulting from any such investments will be paid by the Company.
96
<PAGE> 107
SECTION 14.03. Maintenance, Lease and Possession.
(a) The Company shall or shall cause each Aircraft to be, at its
expense or at the expense of the Owner), maintained, serviced, and repaired so
as to keep each Aircraft in as good operating condition as on the Closing Date,
ordinary wear and tear excepted, and shall cause the airworthiness
certification thereof to be maintained in good standing at all times (other
than during temporary periods of repair, maintenance, modification, storage or
grounding) under the Aviation Act, including compliance with all then
applicable and effective Noise Regulations and FAA Directives; provided that in
the event the Company or any Owner leases any of its Aircraft in accordance
with the terms of this Indenture to a Permitted Air Carrier organized and
operating under the laws of a Permitted Country, such lease shall provide that
the lessee shall (i) throughout the terms of such lease, inspect, service,
repair, overhaul, and test the Aircraft in compliance with such lessee's
maintenance program as approved by the applicable governmental authority and
maintain the airworthiness certification of such Aircraft in such Permitted
Country in good standing throughout the term of the lease; and (ii) return the
Aircraft at the end of the term of the lease in an operating condition
sufficient to qualify for a United States standard FAA certificate of
airworthiness, including compliance with all then applicable and effective
Noise Regulation and FAA Service Bulletins and Directives.
Notwithstanding the foregoing, if a FAA Service Bulletin, Directive or
the Noise Regulations requires the Owner to maintain a specified portion of its
fleet in a given condition, the Owner must maintain such portion of the
Aircraft in such condition. The Company shall be obligated, at its expense, to
replace, or cause to be replaced, all parts (other than severable parts added
at the option of the Company or any Restricted Subsidiary and obsolete or
unsuitable parts that the Company is permitted to remove to the extent
described below) that may from time to time be incorporated or installed in or
attached to any aircraft and that may become worn out, lost, stolen, destroyed,
seized, confiscated, damaged beyond repair or rendered permanently unfit for
use. The Company or any Owner shall have the right to make (or cause to be
made) such alterations and modifications in and additions to (including removal
of parts from) each Aircraft as the Company or any Owner deems desirable;
provided that no such alteration, modification, addition, or removal shall
materially diminish the value, utility, or condition of such Aircraft in the
service in which it is operated by the Company or any Restricted Subsidiary or
impair the airworthiness thereof.
(b) The Company or any Owner may: (i) sell, lease or transfer any
Aircraft or Engine to any Restricted Subsidiary (other than any Excluded
Restricted Subsidiary), or to the Company, and (ii) lease any Aircraft or
Engine to a Permitted Air Carrier; provided that the Trustee shall have
received one or more Opinion of Counsel to the effect that, among other things,
the Lien pursuant to this Indenture continues to be perfected and in full force
and effect, this Indenture continues to be enforceable against the parties
thereto, and the Trustee maintains its right to repossession thereunder, in
each case pursuant to applicable law.
(c) Subject to certain limitations, the Company or any Restricted
Subsidiary (and any permitted lessee) may (i) transfer possession of any
Aircraft pursuant to "wet
97
<PAGE> 108
lease" or similar arrangements, in each case whereby the Company or any
Restricted Subsidiary (or such permitted lessee) maintains operational control
of the Aircraft, (ii) transfer possession of any Aircraft or Engine, other than
by lease, to the United States Government and transfers of possession in
connection with maintenance or modifications, (iii) transfer possession of any
Engine and any parts from time to time installed on any Aircraft or Engine,
other than by lease, through transfers in connection with interchange and
pooling arrangements with certified "air carriers" within the meaning of the
Aviation Act, and transfers of possession to FAA licensed repair stations, or
(iv) install one or more of the Engines on airframes owned, mortgaged, leased,
or subject to conditional purchase by, the Company or any Restricted Subsidiary
(or any such permitted lessee); provided that such Engines shall not become
subject to any Lien other than the Lien securing the Notes under this Indenture
notwithstanding the installation thereof on such airframe, and (iv) enter into
any ACMI Agreement. If any Aircraft is leased or the possession is otherwise
transferred, such Aircraft will remain subject to the Lien under this
Indenture.
Other than pursuant to a "wet lease" or similar arrangement, no lease of
any Aircraft shall be for a term in excess of five years beyond the maturity of
the Notes. If the lease is for a period in excess of six months, the Owner
shall grant to the Trustee, for the equal and ratable benefit of the Holders of
the Notes, a security interest in such lease and if the lease if for a period
in excess of two years, shall deliver an Opinion of Counsel to the Trustee
stating (subject to customary qualifications) that such security interest has
been created and perfected under the law of the United States or a state of the
United States; provided that at all times, other than when an Event of Default
has occurred and is continuing, the Company or any Affiliate (x) shall be
entitled to receive and retain all payments made pursuant to the lease; and (y)
shall be entitled to exercise (to the exclusion of the Trustee) all rights and
remedies of the "lessor" under the lease and grant such consents, waivers and
enter into such amendments to the lease as are consistent with the provisions
of this Indenture as the Company may determine appropriate in its sole
discretion. Nothing permitted herein shall be deemed an "Asset Sale."
SECTION 14.04. Liens.
The Aircraft shall be maintained by the Company free of any Liens, other
than the rights of the Trustee under this Indenture and Permitted Liens.
SECTION 14.05. Certain Further Limitations on Leasing or Other
Relinquishment of Possession.
Notwithstanding anything to the contrary in Section 1103:
(a) The rights of any person that receives possession of the
Aircraft in accordance with Section 14.03 shall be subject and
subordinate to all the terms of this Indenture, and to the Trustee's
rights, powers and remedies hereunder; and
(b) The Company shall ensure that no sublease, delivery,
transfer or relinquishment permitted under Section 14.03 shall affect
the United States
98
<PAGE> 109
registration of the Aircraft, unless made in accordance with the
provisions of Section 14.06.
SECTION 14.06. Trustee's Acknowledgment of Company's Right to Foreign
Registration.
The Trustee hereby agrees:
(a) that the Company, or any subsequent lessee of the Aircraft,
shall be entitled, at its own expense, to register any Aircraft or cause any
Aircraft to be registered, in the Permitted Countries subject to the following
conditions:
(i) no Event of Default or Collateral Access Event
shall have occurred and be continuing at the time of such
registration;
(ii) such proposed change of registration is made in
connection with a Permitted Aircraft Lease to a Permitted Air
Carrier;
(iii) such country is a Permitted Country with which the
United States maintains normal diplomatic relations at the time
of such registration; and
(iv) prior to any such change in the jurisdiction of
registry, the Trustee shall have received an Opinion of Counsel
(subject to customary exceptions) reasonably satisfactory to the
Trustee addressed to each such party to the effect that:
(A) after giving effect to such change in registration,
such Permitted Country would recognize the
Company's right of ownership and repossession;
(B) after giving effect to such change in registration,
the right of repossession by the Trustee upon the
exercise of remedies is valid under the laws of
such Permitted Country;
(C) the obligations of the Company, and the rights and
remedies of the Trustee, under this Indenture in
connection with such change in registration are
valid, binding and enforceable under the laws of
such Permitted Country (or the laws of the country
to which the laws of such Permitted Country would
refer as the applicable governing law);
(D) after giving effect to such change in registration,
the Lien of the Indenture on the Trustee's right,
title and interest in and to the Aircraft shall be
a valid and duly perfected first priority security
interest and all filing, recording or other action
necessary to protect the same shall have been
accomplished
99
<PAGE> 110
or, if such opinion cannot be given at the time of
such proposed change in registration because such
change in registration is not yet effective, (1)
the opinion shall detail what filing, recording or
other action is necessary and (2) the Trustee shall
have received a certificate from the Company that
all possible preparations to accomplish such
filing, recording and other action shall have been
done, and such filing, recording and other action
shall be accomplished and a supplemental opinion to
that effect shall be delivered to the Trustee on or
prior to the effective date of such change in
registration;
(E) it is not necessary, solely as a consequence of
such change in registration and without giving
effect to any other activity of the Trustee, as the
case may be, for the Trustee to qualify to do
business in such Permitted Country as a result of
such reregistration in order to exercise any rights
or remedies with respect to the Aircraft pursuant
to the lease; and
(F) unless the Company or the lessee shall have agreed
to provide insurance covering the risk of
requisition of use of the Aircraft by the
government of such Permitted Country (so long as
the Aircraft is registered under the laws of such
Permitted Country), the laws of such Permitted
Country require fair compensation by the government
of such Permitted Country payable in currency
freely convertible into United States dollars and
freely removable from such Permitted Country
(without license or permit, unless the Company,
prior to such proposed reregistration, has obtained
such license or permit) for the taking or
requisition by such government of such use.
(b) In addition, as a condition precedent to any change
in registration, the Company shall have given to the Trustee assurances
reasonably satisfactory to it:
(i) to the effect that the provisions of Sections 14.01
and 14.03 shall be complied with after giving effect to such
change of registration; and
(ii) of the payment by the Company of all reasonable
out-of-pocket expenses of the Trustee in connection with such
change of registry, including, without limitation (A) the
reasonable fees and disbursements of counsel to the Company and
the Trustee, (B) any filing or recording fees, taxes or similar
payments incurred in connection with the change of registration
of the Aircraft and the creation and perfection of the security
interest therein in favor of Trustee for the benefit of Holders,
and (C) all costs and expenses incurred in connection with any
filings necessary to
100
<PAGE> 111
continue in the United States the perfection of the security
interest in the Aircraft in favor of the Trustee for the benefit
of Holders.
(c) The Trustee shall cooperate in, and shall execute and
deliver such documents as may be reasonably required to effectuate a
lease of an Aircraft or Engine in accordance with the foregoing.
ARTICLE FIFTEEN
SECURITY
SECTION 15.01. Registration; Replacement and Pooling of Parts;
Alterations, Modifications and Additions.
(a) The Company will be required, except under certain circumstances,
to record, or maintain the recordation of, this Indenture, among other
documents, with respect to the Collateral under the Aviation Act or the Uniform
Commercial Code, as applicable. Such recordation of this Indenture with
respect to such Collateral will give the Trustee a first priority perfected
security interest in the related Collateral, no matter where located.
(b) Except as otherwise provided in Section 4.16 and the proviso to
the third sentence of paragraph (e) of this Section 15.01, the Company (and its
permitted lessee), at its own cost and expense, will, so long as such Airframe
or Engine is subject to the Lien of this Indenture promptly replace (or cause
to be replaced) all Parts that may from time to time become worn out, obsolete,
lost, stolen, destroyed, seized, confiscated, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever. In the ordinary
course of maintenance, service, repair, overhaul or testing, the Company (or
its permitted lessee), at its own cost and expense, may remove any Parts,
whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged
beyond repair or permanently rendered unfit for use; provided, however, that
the Company, at its own cost and expense, shall, except as otherwise provided
in Section 4.16 or the proviso to the third sentence of paragraph (e) of this
Section 15.01, replace such Parts as promptly as practicable with replacement
Parts or temporary replacement parts as provided in paragraph (d) of this
Section 15.01. All replacement Parts shall be free and clear of all Liens
except for Permitted Liens and shall be in as good operating condition as, and
shall have a value and utility at least equal to, the Parts replaced assuming
such replaced Parts were in the condition and repair required to be maintained
by the terms hereof.
(c) Except as otherwise provided in the proviso to the third sentence
of paragraph (e) of this Section 15.01, any Part at any time removed from an
Airframe or Engine shall remain subject to the Lien of this Indenture, no
matter where located, until such time as such Part shall be replaced by a Part
that has been incorporated or installed in or attached to such Airframe or
Engine and that meets the requirements for replacement Parts specified in
paragraph (b) of this Section. Immediately upon any replacement Part becoming
incorporated or installed in or attached to such Airframe or Engine as provided
in paragraph (b) of this Section, without further act, (i) the replaced
101
<PAGE> 112
Part shall thereupon be free and clear of all rights of the Trustee and shall
no longer be deemed a Part hereunder, and (ii) such replacement Part shall
become subject to this Indenture and be deemed part of such Airframe or Engine,
as the case may be, for all purposes hereof to the same extent as the Parts
originally incorporated or installed in or attached to such Airframe or Engine.
(d) Any Part removed from an Airframe or Engine as provided in
paragraph (b) of this Section may be subjected by the Company (or any permitted
lessee) to a pooling or parts leasing agreement or arrangement of a type
customary in the airline industry entered into in the ordinary course of the
Company's (or any permitted lessee's) business with any air carrier; provided
that the part replacing such removed Part shall be incorporated or installed in
or attached to such Airframe or Engine in accordance with paragraphs (b) and
(c) of this Section as promptly as practicable after the removal of such
removed Part. In addition, any temporary replacement part when incorporated or
installed in or attached to an Airframe or any Engine in accordance with
paragraph (b) of this Section may be owned by another airline or vendor as
customary in the U.S. airline industry, subject to a pooling or parts leasing
arrangement; provided, however, that the Company (or any permitted lessee), at
its expense within a commercially reasonable time, either (i) causes such
temporary replacement part to become subject to the Lien of this Indenture,
free and clear of all Liens except Permitted Liens, at which time such
temporary replacement part shall become a Part or (ii) replaces such temporary
replacement part by incorporating or installing in or attaching to such
Airframe or Engine a further replacement Part owned by the Company (or any
permitted lessee) free and clear of all Liens except Permitted Liens and which
shall become subject to the Lien of this Indenture in accordance with paragraph
(c) of this Section.
(e) The Company (and any permitted lessee), at its own expense, shall
make alterations and modifications in and additions to each Airframe and Engine
as may be required to be made from time to time by applicable law regardless of
upon whom such requirements are, by their terms, nominally imposed; provided,
however, that the Company (and any permitted lessee) may, in good faith,
contest the validity or application of any such standard in any reasonable
manner which does not materially adversely affect the Lien of this Indenture.
In addition, the Company, at its own expense, may from time to time make or
cause to be made such alterations and modifications in and additions to any
Airframe or Engine as the Company (or any permitted lessee) may deem desirable
in the proper conduct of its business (including, without limitation, removal
of Parts); provided, however, that no such alteration, modification or addition
diminishes, in the Company's reasonable judgment, the value, utility,
condition, airworthiness or remaining useful life of such Airframe or Engine
below the value, utility, condition, airworthiness or remaining useful life
thereof immediately prior to such alteration, modification or addition,
assuming such Airframe or Engine was then in the condition required to be
maintained by the terms of this Indenture, except that the value (but not the
utility, condition, airworthiness or remaining useful life) of any Aircraft may
be reduced by the value of Parts which the Company (or any permitted lessee)
deems obsolete or no longer suitable or appropriate for use in such Aircraft
which shall have been removed and not replaced, if the aggregate value of all
such obsolete or unsuitable Parts removed from such Aircraft and not replaced
shall not exceed $500,000. All Parts incorporated or
102
<PAGE> 113
installed in or attached or added to any Airframe or Engine as the result of
any alteration, modification or addition effected by the Company (or any
permitted lessee) shall be free and clear of any Liens except Permitted Liens
and become subject to the Lien of this Indenture; provided, however, that the
Company (or any permitted lessee) may, at any time so long as an Airframe or
Engine is subject to the Lien of this Indenture, remove any such Part from such
Airframe or Engine if (i) such Part is in addition to, and not in replacement
of or in substitution for, any Part originally incorporated or installed in or
attached to such Airframe or Engine at the time of delivery thereof hereunder
or any Part in replacement of, or in substitution for, any such original Part,
(ii) such Part is not required to be incorporated or installed in or attached
or added to such Airframe or Engine pursuant to the terms of Section 14.03 or
the first sentence of this paragraph (e) and (iii) such Part can be removed
from such Airframe or Engine without diminishing or impairing the value,
condition, utility, airworthiness or remaining useful life which such Airframe
or Engine would have had at the time of removal had such alteration,
modification or addition not been effected by the Company (or any permitted
lessee), assuming the Aircraft was otherwise maintained in the condition
required by this Indenture. Upon the removal by the Company (or any permitted
lessee) of any such Part as above provided, title thereto shall, without
further act, be free and clear of all rights of the Trustee and such Part shall
no longer be deemed a Part hereunder.
SECTION 15.02. [Left Blank]
SECTION 15.03. Inspection.
At all reasonable times so long as an Aircraft is subject to the Lien of
this Indenture, upon at least 15 days' prior notice to the Company and at a
time and place reasonably acceptable to the Company, the Trustee or its
authorized representative may at its own expense and risk conduct a visual
walk-around inspection of such Aircraft and any Engine and may inspect the
books, logs and records of the Company relating to the operation and
maintenance thereof; provided, however, that (a) any such inspection shall be
subject to the safety, security and workplace rules applicable at the location
where such inspection is conducted and any applicable governmental rules or
regulations, (b) in the case of an inspection during a maintenance visit, such
inspection shall not in any respect interfere with the normal conduct of such
maintenance visit or extend the time required for such maintenance visit or, in
any event, at any time interfere with the use or operation of any Airframe or
Engine or with the normal conduct of the Company's or a permitted lessee's
business, and (c) the Company shall not be required to undertake or incur any
additional liabilities in connection with any such inspection. All information
obtained in connection with any such inspection shall be held confidential by
the Trustee and shall not be furnished or disclosed by it to anyone other than
its bank examiners, regulators, auditors, accountants, agents and legal
counsel, and except as may be required by an order of any court or
administrative agency or by any statute, rule, regulation or order of any
governmental authority or as may be necessary to enforce the terms of this
Indenture. The Trustee shall have no duty to make any such inspection and
shall not incur any liability or obligation by reason of not making any such
inspection. No
103
<PAGE> 114
inspection under this Section shall relieve the Company of any of its
obligations under this Indenture.
SECTION 15.04. Requisition for Use.
In the event of a requisition for use by any government of any Airframe
and the Engines, if any, or engines installed on such Airframe while such
Airframe is subject to the Lien of this Indenture, the Company shall promptly
notify the Trustee of such requisition and all of the Company obligations under
this Indenture shall continue to the same extent as if such requisition had not
occurred except to the extent that the performance or observance of any
obligation by the Company shall have been prevented or delayed by such
requisition; provided, however, that the Company's obligations under this
Section 15.04 with respect to the occurrence of an Event of Loss, for the
payment of money and under Sections 4.12 and 14.02 shall not be reduced or
delayed by such requisition. Any payments received by the Trustee or the
Company from such government with respect to such requisition of use shall be
paid over to, or retained by, the Company. In the event of an Event of Loss of
an Aircraft or Engine resulting from the requisition for use by a government of
such Aircraft or Engine, the Company will replace such Aircraft or Engine
hereunder by complying with the terms of Section 4.16 and any payments received
by the Trustee or the Company from such government with respect to such
requisition shall be paid over to, or retained by, the Company.
SECTION 15.05. Substitution of Collateral.
Upon the request of any Owner of any Aircraft or Engine to release such
Aircraft or Engine from the Lien pursuant to the Indenture, the Trustee shall
be required to immediately release such Aircraft or Engine from such Lien upon
fulfillment of the following conditions: (i) the Owner delivers a written
request to the Trustee, requesting such release and specifically describing the
Aircraft or Engine so to be released and the replacement Aircraft or
replacement Engine therefor; (ii) the replacement Aircraft or replacement
Engine has a value at least equal to, and in as good operating condition and
repair and as airworthy as the Aircraft or Engine subject to the substitution
(determined by the chief financial officer of the Company in good faith); (iii)
the Owner delivers to the Trustee a supplemental indenture subjecting the
replacement Aircraft or replacement Engine to the Lien pursuant to the
Indenture; (iv) the Owner delivers an opinion of counsel that the Trustee has a
valid, perfected, first priority security interest in the replacement Aircraft
or replacement Engine; and (v) the replacement Aircraft or replacement Engine
otherwise complies with the terms and provisions of the Indenture.
Notwithstanding the foregoing, with respect to any substitution of Collateral,
or any series of related substitutions of Collateral, where the initial
appraised value of such Collateral exceeds $25.0 million, the Company shall be
required to obtain one or more appraisals from an aircraft appraisal firm of
national standing. Such appraisal(s) must indicate that the value (or fair
value or similar measure) of the replacement Collateral is at least equal to
the value (or fair value or similar measure) of the Collateral which is being
replaced.
104
<PAGE> 115
SECTION 15.06. Release of Collateral.
(a) If at any time, or from time to time, the aggregate principal
amount of the Notes outstanding is less than $340.0 million, and no Event of
Default has occurred and is continuing, the Company shall be entitled to
release a portion of the Collateral, so long as the aggregate value of the
Collateral so released does not exceed the aggregate principal amount of Notes
which are no longer outstanding (in the good faith opinion of the chief
financial officer of the Company as evidenced by a written certificate of such
chief financial officer).
(b) The Company shall be entitled to substitute additional Collateral
in connection with any such release (in accordance with Section 15.05) if the
aggregate value of Collateral released exceeds the aggregate principal amount
of Notes which are no longer outstanding. Upon delivery of a certificate
regarding such good faith opinion the Trustee shall immediately execute and
deliver all releases and certificates necessary or desirable to release such
Collateral from the Lien of the Indenture. Notwithstanding the foregoing, in
the event of any release of Collateral, or any series of related releases of
Collateral, where the initial appraised value of such Collateral exceeds $10.0
million, the Company shall be required to obtain one or more appraisals from an
aircraft appraisal firm of national standing. Such appraisal(s) must indicate
that the aggregate value (or fair value or similar measure) of the Collateral
released.
SECTION 15.07. Discontinuance of Proceedings.
In case the Trustee shall have instituted any proceeding to enforce any
right, power or remedy under this Indenture by foreclosure, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason
or shall have been determined adversely to the Person instituting such
proceeding, then and in every such case the Company, the Trustee shall, subject
to any determination in such proceedings, be restored to their former positions
and rights hereunder with respect to the Collateral, and all rights, remedies
and powers of the Trustee shall continue as if no such proceedings had been
instituted.
SECTION 15.09. Termination of Interest in Collateral.
A Holder shall not, as such, have any further interest in, or other
right with respect to, the Collateral when and if the principal amount of, and
interest on, and other amounts due under all Securities held by such Holder and
all other sums due to such Holder under this Indenture shall have been paid in
full.
105
<PAGE> 116
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, all as of the date first written above.
KITTY HAWK, INC.,
as Issuer
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Senior Vice President-Finance
KITTY HAWK CHARTERS, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
AIRCRAFT LEASING, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: President
KITTY HAWK AIRCARGO, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
<PAGE> 117
AMERICAN INTERNATIONAL AIRWAYS, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
KALITTA FLYING SERVICE, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
FLIGHT ONE LOGISTICS, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
O.K. TURBINES, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
AMERICAN INTERNATIONAL TRAVEL, INC.
By: /s/ Richard R. Wadsworth
--------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
<PAGE> 118
BANK ONE, NA,
as Trustee
By: /s/ John Beacham
--------------------------------------------
Name: John Beacham
Title: Trust Officer
<PAGE> 119
EXHIBIT A
[FACE OF NOTE]
KITTY HAWK, INC.
9.95% Senior Secured Notes Due 2004
[CUSIP][__________]
No. $_________
KITTY HAWK, INC., a Delaware corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to _____________, or its registered assigns,
the principal sum of ____________ ($____) on November 15, 2004.
Interest Payment Dates: May 15 and November 15, commencing May
15, 1998.
Regular Record Dates: May 1 and November 1.
Reference is hereby made to the further provisions of this Note
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE> 120
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: November 19, 1997 KITTY HAWK, INC.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 9.95% Senior Secured Notes due 2004 described in the within
mentioned Indenture.
BANK ONE, NA,
as Trustee
By:
------------------------------------
Trust Officer
A-2
<PAGE> 121
[REVERSE SIDE OF NOTE]
KITTY HAWK, INC.
9.95% Senior Secured Note Due 2004
1. Principal and Interest.
The Company will pay the principal of this Note on November 15,
2004.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record
of the Notes at the close of business on the May 1 or November 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
May 15, 1998.
If the exchange offer contemplated by the Registration Statement
under the Securities Act is not consummated or, if required, a Shelf
Registration Statement under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before May 19, 1998 in
accordance with the terms of the Registration Rights Agreement dated as of
November 19, 1997 between the Company, the Guarantors and Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated and Fieldstone FPCG Services, L.P.,
then the interest rate per annum accruing on the Notes shall, effective May 19,
1998, be increased by 0.5% from 9.95% per annum, payable in cash semiannually,
in arrears, on each May 15 and November 15, commencing November 15, 1998, until
the exchange offer is completed or such Shelf Registration Statement is
declared effective. The Holder of this Note is entitled to the benefits of
such Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from November
19, 1997; provided that, if there is no existing default in the payment of
interest and this Note is authenticated between a Regular Record Date referred
to on the face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such Interest Payment Date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium,
if any, and interest on overdue installments of interest, to the extent lawful,
at a rate borne by the Notes.
A-3
<PAGE> 122
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each May 15 and November 15
to the persons who are Holders (as reflected in the Security Register at the
close of business on the May 1 and November 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer, registration of exchange, redemption or repurchase
after such record date; provided that, with respect to the payment of
principal, the Company will make payment to the Holder that surrenders this
Note to a Paying Agent on or after November 15, 2004.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company, at
its option, may pay principal, premium, if any, and interest by its check
payable in such money. It may mail an interest check to a Holder's registered
address (as reflected in the Security Register). If a payment date is a date
other than a Business Day at a place of payment, payment may be made at that
place on the next succeeding day that is a Business Day and no interest shall
accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of
November 19, 1997 (the "Indenture"), between the Company, the Guarantors and
Bank One, NA, as trustee and collateral trustee (collectively, the "Trustee").
Capitalized terms herein are used as defined in the Indenture unless otherwise
indicated. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Notes are subject to all such terms, and Holders are referred to the Indenture
and the Trust Indenture Act for a statement of all such terms. To the extent
permitted by applicable law, in the event of any inconsistency between the
terms of this Note and the terms of the Indenture, the terms of the Indenture
shall control.
The Notes are senior secured obligations of the Company.
A-4
<PAGE> 123
5. Redemption.
The Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, on or after November 15, 2001 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at the following Redemption Prices (expressed in percentages
of principal amount), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to receive
interest due on an Interest Payment Date), if redeemed during the 12-month
period commencing November 15, of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -------------
<S> <C>
2001 . . . . . . . . . . . . . . . 104.975%
2002 . . . . . . . . . . . . . . . 102.488%
2003 . . . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, at any time prior to November 15, 2000, the Company
may redeem up to 35% of the principal amount of the Notes with the proceeds of
one or more Public Equity Offerings, at any time or from time to time, at a
Redemption Price (expressed as a percentage of principal amount) of 109.95%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that at least $150 million aggregate principal amount of Notes remains
outstanding after each such redemption.
Notice of any optional redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at his last address as it appears in the Security Register. Notes
in denominations larger than $1,000 may be redeemed in part. On and after the
Redemption Date, interest ceases to accrue on Notes or portions of Notes called
for redemption, unless the Company defaults in the payment of the Redemption
Price.
6. Repurchase upon Change of Control Triggering Event.
Upon the occurrence of a Change of Control Triggering Event, the
Company must commence, within 30 days of the occurrence of a Change of Control
Triggering Event, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date.
A-5
<PAGE> 124
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Security Register. Notes in denominations larger than $1,000
may be sold to the Company in part. On and after the Payment Date, interest
ceases to accrue on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change of Control
Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations
of $1,000 of principal amount and any integral multiple in excess thereof. A
Holder may register the transfer or exchange of Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar need not register
the transfer or exchange of any Notes selected for redemption. Also, it need
not register the transfer or exchange of any Notes for a period of 15 days
before the day of the mailing of a notice of redemption of Notes selected for
redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all
purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company at its written request. After that, Holders
entitled to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
A-6
<PAGE> 125
10. Discharge Prior to Redemption or Maturity.
The Company or the Guarantors generally will be discharged from
the Indenture and the Notes, except in certain circumstances for certain
sections thereof, if, among other things, the Company and the Guarantors (A)
deposit with the Trustee money or U.S. Government Obligations sufficient to pay
the then outstanding principal of, premium, if any, and accrued interest on the
Notes on the Stated Maturity of such payments in accordance with the terms of
the Indenture and the Notes and (B) deliver (i) an Opinion of Counsel or
Internal Revenue Service ruling directed to the Trustee with respect to the tax
effects of such deposits and (ii) an Opinion of Counsel concerning Investment
Company Act of 1940 and United States Bankruptcy Code ramifications of the
deposits, (C) in conjunction with such deposits, ensure there is an absence of
certain Events of Default and (D) provide an Opinion of Counsel concerning the
potential delisting of the Notes from a national securities exchange as a
result of the deposits; provided that if simultaneously with the deposit of the
money and/or U.S. Government Obligations referred to in (A) above, the Company
or any Guarantor has caused an irrevocable, transferable, standby letter of
credit to be issued by a bank with capital and surplus exceeding the principal
amount of the Notes then outstanding, expiring not earlier than 180 days from
its issuance, in favor of the Trustee which permits the Trustee to draw an
amount equal to the principal, premium, if any, and accrued interest on the
Notes through the expiry date of the letter of credit, then the Company and the
Guarantors will be deemed to have paid and discharged any and all obligations
in respect of the Notes on the date of the deposit and issuance of the letter
of credit.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that, in the opinion of
the Board of Directors of the Company evidenced by a Board resolution, does not
materially and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur
additional Indebtedness, make Restricted Payments, suffer to exist restrictions
on the ability of Restricted Subsidiaries to make certain payments to the
Company, issue Capital Stock of Restricted Subsidiaries, engage in transactions
with Affiliates, suffer to exist or incur Liens, or merge, consolidate or
transfer substantially all of its assets. On or before a date not more than 90
days after the end of each fiscal year, the Company
A-7
<PAGE> 126
shall deliver to the Trustee an Officers' Certificate stating whether or not
the signers know of any Default or Event of Default under such restrictive
covenants or a Collateral Access Event.
13. Successor Persons.
When a successor person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture, the
predecessor person will be released from those obligations.
14. Defaults and Remedies.
The following events constitute "Event of Default" with respect
to the Notes under the Indenture: (a) the Company defaults in the payment of
principal of (or premium, if any, on) any Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise; (b) the
Company defaults in the payment of interest on any Note when the same becomes
due and payable, and such default continues for a period of 30 days; (c) the
Company defaults in the performance or breaches the provisions of Article Five
or fails to make or consummate an Offer to Purchase in accordance with Section
4.11 or Section 4.14; (d) the Company or any Guarantor defaults in the
performance of or breaches any other covenant or agreement of the Company in
the Indenture or under the Notes (other than a default specified in clause (a),
(b) or (c) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes; (e) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Guarantor or
Significant Subsidiary having an outstanding principal amount of $10 million or
more in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of default
that has caused the holder thereof to declare such Indebtedness to be due and
payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Guarantor or Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, any Guarantor or any
Significant Subsidiary in an involuntary case under any applicable
A-8
<PAGE> 127
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
or for all or substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) the winding up or liquidation of the affairs
of the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company, any Guarantor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary
or for all or substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or (i) any Note Guarantee shall cease to be, or shall be
asserted in writing by the Company or any Guarantor not to be, in full force
and effect or enforceable in accordance with its terms.
If an Event of Default, except for certain ones, or a Collateral
Access Event, as defined in the Indenture, occurs and is continuing under the
Indenture, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes, then outstanding may declare all the Notes to be due and
payable. If a bankruptcy or insolvency default with respect to the Company
occurs and is continuing, the Notes automatically become due and payable.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders
of at least a majority in principal amount of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power.
15. Security.
The Collateral securing the Notes will consist of (i) nine Boeing
747s (including the Optioned Boeing 747s), eight Lockheed L-1011s and thirteen
Boeing 727s, along with the Engines, (ii) all insurance and requisition
proceeds and other similar payments with respect to each of the Aircraft, (iii)
all monies or securities deposited or required to be deposited with the
Trustee, (iv) any purchase agreements and any related documentation to the
extent assignable for each Aircraft, (v) all logs, data and records related to
the Aircraft, (vii) the Pledged Securities on deposit in the Escrow Account,
the Escrow Account and certain related assets, (vii) all rights of any Owner
under any Lease relating to any Aircraft and (viii) all proceeds of the
foregoing. The Pledged Securities shall be sufficient to provide for (i) the
purchase of the two Optioned Boeing 747s or other Eligible Aircraft and (ii)
the conversion of such Aircraft to freighter configuration.
A-9
<PAGE> 128
16. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator, stockholder, other officer, director, employee
or controlling person as such, of the Company or any Guarantor or of any
successor Person thereof shall have any liability for any obligations of the
Company under the Notes, the Guarantees, the Escrow and Security Agreement or
the Indenture or for any claim based on, or otherwise in respect of or by
reason of, such obligations or their creation. Each Holder by accepting a Note
expressly waives and releases all such liability. The waiver and release are
a condition of, and part of the consideration for the issuance of the Notes and
the related Guarantees.
18. Guarantees.
The Company's obligations under the Notes are irrevocably
guaranteed by the Guarantors.
19. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Kitty Hawk,
Inc., P.O. Box 612787, 1515 West 20th Street, Dallas/Fort Worth International
Airport, TX 75261, Attention: Chief Financial Officer.
A-10
<PAGE> 129
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the shelf registration statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by
Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
A-11
<PAGE> 130
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
-------------- ---------------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933 and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
--------------------- -----------------------------------------------
NOTICE: To be executed by an executive officer
A-12
<PAGE> 131
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant
to an Offer to Purchase in accordance with the terms of the Indenture, check
the Box: [ ]
If you wish to have a portion of this Note purchased by the
Company pursuant to an Offer to Purchase in accordance with the terms of the
Indenture, state the amount: $___________________.
Date:
-----------------
Your Signature:
---------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Note)
Signature Guarantee: *
------------------------------
- -------------------------
* The Holders signature must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an eligible guarantor institution as
defined by Rule 17Ad-15 under the Exchange Act.
A-13
<PAGE> 132
EXHIBIT B
[Intentionally Omitted]
<PAGE> 133
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
_______________________, ____
Bank One, NA
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Attention: Corporate Trust and Agency Group
Re: Kitty Hawk, Inc. (the "Company")
9.95% Senior Secured Notes due 2004 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of $__________________
aggregate principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of November 15, 1997 (the "Indenture"), relating to the Notes, and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933 (the "Securities Act").
2. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Notes, we will do so only (A) to the Company
or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
to an institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to you and to the Company a signed letter substantially in the
form of this letter, (D) outside the United States in accordance with Rule 904
of Regulation S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act, or (F) pursuant to
an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing any of the Notes from us a notice
advising such purchaser that resales of the Notes are restricted as stated
herein.
<PAGE> 134
3. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes, and
we and any accounts for which we are acting are each able to bear the economic
risk of our or its investment.
5. We are acquiring the Notes purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
----------------------------------
Authorized Signature
C-2
<PAGE> 135
EXHIBIT D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
_____________________, ____
Bank One, NA
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Attention: Corporate Trust and Agency Group
Re: Kitty Hawk, Inc. (the "Company")
9.95% Senior Secured Notes due 2004 (the "Notes")
Dear Sirs:
In connection with our proposed sale of U.S.$__________________
aggregate principal amount of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933 and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf reasonably
believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any
<PAGE> 136
administrative or legal proceedings or official inquiry with respect to the
matters covered hereby. Terms used in this certificate have the meanings set
forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------------------
Authorized Signature
D-2
<PAGE> 1
EXHIBIT 4.5
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated November 19, 1997
between
KITTY HAWK, INC.,
Issuer,
KITTY HAWK CHARTER, INC.,
AIRCRAFT LEASING, INC.,
KITTY HAWK AIRCARGO, INC.,
AMERICAN INTERNATIONAL AIRWAYS, INC.,
KALITTA FLYING SERVICES, INC.,
FLIGHT ONE LOGISTICS, INC.,
O.K. TURBINES, INC. AND
AMERICAN INTERNATIONAL TRAVEL, INC.
Subsidiary Guarantors
and
MORGAN STANLEY & CO. INCORPORATED
BT ALEX. BROWN INCORPORATED
FIELDSTONE FPCG SERVICES, L.P.,
Placement Agents
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into November 19, 1997, between Kitty Hawk, Inc, a Delaware
corporation (the "Company"), Kitty Hawk Charter, Inc., a Texas corporation,
Aircraft Leasing, Inc., a Texas corporation, Kitty Hawk Aircargo, Inc., a Texas
corporation, American International Airways, Inc., a Michigan corporation,
Kalitta Flying Services, Inc., a Michigan corporation, Flight One Logistics,
Inc., a Michigan corporation, O.K. Turbines, Inc., a Michigan corporation and
American International Travel, Inc., a Michigan corporation (collectively, the
"Subsidiary Guarantors") and Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated and Fieldstone FPCG Services, L.P. (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement
dated November 13, 1997, between the Company, the Subsidiary Guarantors, the
Kalitta Companies (as defined in the Placement Agreement), M. Tom Christopher,
Tilmon J. Reeves, Richard R. Wadsworth, Conrad Kalitta and the Placement Agents
(the "Placement Agreement"), which provides for the sale by the Company and the
Subsidiary Guarantors to the Placement Agents of an aggregate of $340 million
principal amount of the Company's 9.95% Senior Secured Notes due 2004 (the
"Securities"). The obligations of the Company under the Securities and the
Indenture will be guaranteed by the Subsidiary Guarantors pursuant to the terms
of the Indenture (the "Subsidiary Guarantees"). The Trustee and the Placement
Agents and their direct and indirect transferees will have a first priority
security interest in the Collateral (as defined in the Indenture). In order to
induce the Placement Agents to enter into the Placement Agreement, the Company
and the Subsidiary Guarantors have agreed to provide to the Placement Agents
and their direct and indirect transferees the registration rights set forth in
this Agreement. The execution of this Agreement is a condition to the closing
under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time.
<PAGE> 3
2
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Business Day" shall mean any day except a Saturday, Sunday or
other day in the City of New York, or in the city of the corporate
trust office of the Trustee on which banks are authorized to close.
"Closing Date" shall mean the Closing Date as defined in the
Placement Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Securities for Registrable Securities pursuant to Section
2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on
another appropriate form) and all amendments and supplements to such
registration statement, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Exchange Securities" shall mean securities issued by the
Company under the Indenture containing terms identical to the
Securities (except that (i) interest thereon shall accrue from the
last date on which interest was paid on the Securities or, if no such
interest has been paid, from the date of issuance and (ii) the
interest rate per annum on the Exchange Securities shall be the rate
initially payable on the Securities) and to be offered to Holders of
Securities in exchange for Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as it
owns any Registrable Securities, and each of their respective
successors, assigns and direct and indirect transferees who become
registered owners of Registrable Securities under the Indenture;
provided that for purposes of Sections 4 and 5 of this Agreement, the
term "Holder" shall include Participating Broker-Dealers (as defined
in Section 4(a)).
<PAGE> 4
3
"Indenture" shall mean the Indenture relating to the
Securities dated as of November 19, 1997 between the Company, the
Subsidiary Guarantors and Bank One, N.A., as trustee, and as the same
may be amended from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities;
provided that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by (i) for purposes of Section 6(b)
hereof, the Company or any of its affiliates (as such term is defined
in Rule 405 under the 1933 Act) and (ii) for all other purposes
hereof, the Company and its subsidiaries shall not be counted in
determining whether such consent or approval was given by the Holders
of such required percentage or amount.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Placement Agents" shall have the meaning set forth in the
preamble.
"Placement Agreement" shall have the meaning set forth in the
preamble.
"Prospectus" shall mean the prospectus included in a
Registration Statement at the same time such Registration Statement is
declared effective, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement,
including a prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by a
Shelf Registration Statement, and by all other amendments and
supplements to such prospectus, and in each case including all
material incorporated by reference therein.
"Registrable Securities" shall mean the Securities and the
Subsidiary Guarantees; provided, however, that the Securities and the
Subsidiary Guarantees shall cease to be Registrable Securities upon
the earliest of (i) when a Registration Statement with respect to such
Securities and the Subsidiary Guarantees shall have been declared
effective under the 1933 Act and such Securities and the Subsidiary
Guarantees shall have been disposed of pursuant to such Registration
Statement, (ii) when such Securities and the Subsidiary Guarantees
have been sold to the public
<PAGE> 5
4
pursuant to Rule 144(k) (or any similar provision then in force, but
not Rule 144A) under the 1933 Act, (iii) when such Securities and the
Subsidiary Guarantees shall have ceased to be outstanding or (iv) the
date on which such Securities and such Subsidiary Guarantees are
exchanged in the Exchange Offer.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company and the
Subsidiary Guarantors with this Agreement, including without
limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance
with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Securities or
Registrable Securities), (iii) all reasonable expenses of any Persons
in preparing or assisting in preparing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance with
this Agreement, (iv) all reasonable fees and disbursements relating to
the qualification of the Indenture under applicable securities laws,
(v) the reasonable fees and disbursements of the Trustee and its
counsel, (vi) the fees and disbursements of counsel for the Company
and the Subsidiary Guarantors and, in the case of a Shelf Registration
Statement, the reasonable fees and disbursements of one counsel for
the Holders (which counsel shall be selected by the Majority Holders
and which counsel may also be counsel for the Placement Agents) and
(vii) the reasonable fees and disbursements of the independent public
accountants of the Company and the Subsidiary Guarantors, including
the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, but excluding fees
and expenses of counsel to the underwriters (other than fees and
expenses set forth in clause (ii) above) or the Holders and
underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration statement
of the Company that covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement
and all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
<PAGE> 6
5
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Subsidiary Guarantors
pursuant to the provisions of Section 2(b) of this Agreement which
covers all of the Registrable Securities (but no other securities
unless approved by the Holders of a majority of the Registrable
Securities covered by such Shelf Registration Statement) on an
appropriate form under Rule 415 under the 1933 Act, or any similar
rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Subsidiary Guarantees" shall have the meaning set forth in
the preamble.
"Subsidiary Guarantors" shall have the meaning set forth in
the preamble and shall include the Subsidiary Guarantors' successors.
"Trustee" shall mean the trustee with respect to the
Securities under the Indenture.
"Underwritten Registration" or "Underwritten Offering" shall
mean a registration in which Registrable Securities are sold to an
Underwriter (as hereinafter defined) for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the SEC or its staff, the Company and the
Subsidiary Guarantors shall use their reasonable best efforts to cause to be
filed an Exchange Offer Registration Statement covering the offer by the
Company and the Subsidiary Guarantors to the Holders to exchange all of the
Registrable Securities for Exchange Securities and to have such Registration
Statement remain effective until the closing of the Exchange Offer. The
Exchange Securities will be issued under the Indenture. The Company and the
Subsidiary Guarantors shall use their reasonable best efforts to commence the
Exchange Offer promptly after the Exchange Offer Registration Statement has
been declared effective by the SEC
<PAGE> 7
6
and use their reasonable best efforts to have the Exchange Offer consummated
not later than 120 days after such effective date. If the Company and the
Subsidiary Guarantors effect the Exchange Offer, the Company and the Subsidiary
Guarantors will be entitled to close the Exchange Offer twenty Business Days
after the commencement thereof provided that the Company and the Subsidiary
Guarantors have accepted all the Notes validly tendered in accordance with the
terms of the Exchange Offer. The Company and the Subsidiary Guarantors shall
commence the Exchange Offer by mailing the related exchange offer Prospectus
and accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to
this Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which dates
extend for a period of at least 20 Business Days from the date such
notice is mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered will
remain outstanding and continue to accrue interest from the last
interest payment date on which interest was paid on the Notes
surrendered in exchange therefore or, if no interest has been paid on
the Notes, from the date of original issue of the Notes, but will not
retain any rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Security, together with the enclosed letters of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their
election, not later than the close of business on the last Exchange
Date, by sending to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice a
telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Securities
delivered for exchange and a statement that such Holder is withdrawing
his election to have such Securities exchanged.
<PAGE> 8
7
As soon as practicable after the last Exchange Date, the
Company and the Subsidiary Guarantors shall:
(i) accept for exchange Registrable Securities or
portions thereof tendered and not validly withdrawn pursuant to the
Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so
accepted for exchange by the Company and the Subsidiary Guarantors and
issue, and cause the Trustee to promptly authenticate and mail to each
Holder, an Exchange Security equal in principal amount to the
principal amount of the Registrable Securities surrendered by such
Holder.
The Company and the Subsidiary Guarantors shall use their reasonable best
efforts to complete the Exchange Offer as provided above and shall comply in
all material respects with the applicable requirements of the 1933 Act, the
1934 Act and other applicable laws and regulations in connection with the
Exchange Offer. Except as set forth in the immediately succeeding sentence or
as customary in similar transactions, the Exchange Offer shall not be subject
to any conditions, other than that the Exchange Offer does not violate
applicable law or any applicable interpretation of the SEC or its staff. As a
condition to its participation in the Exchange Offer pursuant to the terms of
this Agreement, each Holder of Registerable Securities shall furnish, upon the
request of the Company but prior to consummation of the Exchange Offer, a
written representation to the Company and the Subsidiary Guarantors (which may
be contained in the letter of transmittal contemplated by the Exchange Offer)
to the effect that (i) it is not an affiliate of the Company, (ii) it is not
engaged in, does not intend to engage in, and has no arrangement or
understanding with any person to participate in, and has no arrangement or
understanding with any person to participate in, a distribution of the Exchange
Securities to be issued in the Exchange Offer and (iii) it is acquiring the
Exchange Securities in the ordinary course of its business. The Company shall
inform the Placement Agents of the names and addresses of the Holders to whom
the Exchange Offer is made, and the Placement Agents shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate the
tender of Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the
Exchange Offer Registration provided for in Section 2(a) above is not available
or may not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of
the SEC or its staff, or (ii) the Exchange Offer is not for any other reason
consummated by May 19, 1998, the Company shall use its reasonable best efforts
<PAGE> 9
8
to cause to be filed as soon as practicable after such determination or date,
as the case may be, a Shelf Registration Statement providing for the sale by
the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. The Company and the
Subsidiary Guarantors agree to use their reasonable best efforts to keep the
Shelf Registration Statement continuously effective until the second
anniversary of the Closing Date or such shorter period that will terminate when
all of the Registrable Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement. The Company and
the Subsidiary Guarantors further agree to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company and the Subsidiary
Guarantor, for such Shelf Registration Statement or by the 1933 Act or by any
other rules and regulations thereunder for shelf registration or if reasonably
requested by a Holder with respect to information relating to such Holder, and
to use its reasonable best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company and the Subsidiary Guarantors agree to
furnish to the Holders of Registrable Securities copies of any such supplement
or amendment promptly after its being used or filed with the SEC.
(c) The Company and the Subsidiary Guarantors shall pay
all Registration Expenses in connection with the registration pursuant to
Section 2(a) or Section 2(b). Each Holder shall pay all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale or disposition
of such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective until it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or
court, such Registration Statement will be deemed not to have become effective
during the period of such interference until the offering of Registrable
Securities pursuant to such Registration Statement may legally resume.
(e) Without limiting the remedies available to the
Placement Agents and the Holders, the Company and the Subsidiary Guarantors
acknowledge that any failure by the Company and the Subsidiary Guarantors to
comply with their obligations under Section 2(a) and Section 2(b) hereof may
<PAGE> 10
9
result in material irreparable injury to the Placement Agents or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's and the Subsidiary Guarantors'
obligations under Section 2(a) and Section 2(b) hereof.
(f) No Holder of Registerable Securities may include any
of its Registerable Securities in any Shelf Registration Statement pursuant to
this Agreement unless and until such Holder furnishes to the Company, in
writing, such information specified in item 507 of Regulation S-K under the
1933 Act and such other information as the Company may reasonably request for
use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. Each Holder as to which any Shelf
Registration Statement is being declared effective agrees to furnish promptly
to the Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
(g) If the Exchange Offer is not consummated or, if
required, a Shelf Registration Statement under the Securities Act with respect
to resales of the Notes is not declared effective by the Commission, on or
before May 19, 1998, in accordance with the terms of this Agreement, then the
interest rate per annum accruing on the Notes shall, effective May 19, 1998, be
increased by 0.5% from 9.95% per annum, payable in cash semiannually, in
arrears, on each May 15 and November 15, commencing November 15, 1998, until
the Exchange Offer is completed or such Shelf Registration Statement is
declared effective. The foregoing shall constitute liquidated damages for
failure to have consummated the Exchange Offer or, if required, caused such
Shelf Registration Statement to have been declared effective by May 19, 1998.
3. Registration Procedures.
In connection with the obligations of the Company and the
Subsidiary Guarantors' with respect to the Registration Statements pursuant to
Section 2(a) and Section 2(b) hereof, the Company and the Subsidiary Guarantors
shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration
Statement on the appropriate form under the 1933 Act, which form (x)
shall be selected by the Company and the Subsidiary Guarantors' and
(y) shall, in the case of a Shelf Registration, be available for the
re-sale of the Registrable Securities by the selling Holders thereof
and (z) shall comply as to form in all material
<PAGE> 11
10
respects with the requirements of the applicable form and include all
financial statements required by the SEC to be filed therewith, and
use their reasonable best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2
hereof;
(b) use their reasonable best efforts to prepare and file
with the SEC such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement
and, as so supplemented, to be filed pursuant to Rule 424 under the
1933 Act; to keep each Prospectus current during the period described
under Section 4(3) and Rule 174 under the 1933 Act that is applicable
to transactions by brokers or dealers with respect to the Registrable
Notes or Exchange Notes;
(c) in the case of a Shelf Registration, subject to any
confidentiality requirements, furnish to each Holder of Registrable
Securities, to counsel for the Placement Agents, to counsel for the
Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment
or supplement thereto and such other documents as such Holder or
Underwriter may reasonably request, in order to facilitate the public
re-sale or other disposition of the Registrable Securities; and the
Company consents, subject to the provisions of this Agreement, to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling holders of
Registrable Securities and any such Underwriters in connection with
the offering and re-sale of the Registrable Securities covered by and
in the manner described in such Prospectus or any amendment or
supplement thereto in accordance with applicable law;
(d) use their reasonable best efforts to register or
qualify the Registrable Securities under all applicable state
securities or "blue sky" laws of such jurisdictions as any Holder of
Registrable Securities covered by a Registration Statement shall
reasonably request in writing by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with such
Holders in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. and to do any and all
other acts and things which may be reasonably necessary or advisable
to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that neither the Company nor the Subsidiary
Guarantors shall be
<PAGE> 12
11
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general
consent to service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, use all
reasonable efforts to notify each Holder of Registrable Securities,
counsel for the Holders and counsel for the Placement Agents promptly
and, if requested by any such Holder or counsel, confirm such advice
in writing (i) when a Registration Statement has become effective and
when any post-effective amendment thereto has been filed and becomes
effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement
and Prospectus or for additional information after the Registration
Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company or the Subsidiary Guarantors contained in any underwriting
agreement, securities sales agreement or other similar agreement, if
any, relating to the offering cease to be true and correct in all
material respects or if the Company receives any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (v) of the happening of any event during
the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order
to make the statements therein not misleading and (vi) of any
determination by the Company and the Subsidiary Guarantors that a
post-effective amendment to a Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement
at the earliest possible moment and provide prompt notice to each
Holder of the withdrawal of any such order;
(g) in the case of a Shelf Registration, take reasonable
measures to furnish to each Holder of Registrable Securities, without
charge, at least one conformed copy of each Registration Statement and
any post-effective
<PAGE> 13
12
amendment thereto (without documents incorporated therein by reference
or exhibits thereto, unless a Holder so requests in writing);
(h) in the case of a Shelf Registration, cooperate with
the selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders may reasonably request at least two
business days prior to the closing of any sale of Registrable
Securities;
(i) in the case of a Shelf Registration, upon the
occurrence of any event contemplated by Section 3(e)(v) hereof, use
their reasonable best efforts to prepare and file with the SEC a
supplement or post-effective amendment to a Registration Statement or
the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company agrees to notify the Holders to suspend use
of the Prospectus as promptly as practicable after the occurrence of
such an event, and the Holders hereby agree to suspend use of the
Prospectus until the Company and the Subsidiary Guarantors have
amended or supplemented the Prospectus to correct such misstatement or
omission; provided, however, that not withstanding anything herein to
the contrary, the Company shall not be required to prepare and file
such documents if such misstatement or omission or the event which
caused such misstatement or omission no longer exists;
(j) a reasonable time prior to the filing of any
Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or
any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after initial filing of a
Registration Statement, provide copies of such document to the
Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company and the Subsidiary Guarantors as
shall be reasonably requested by the Placement Agents or their counsel
(and, in the case of a Shelf Registration Statement, the Holders or
their counsel) available for discussion of such document, and shall
not at any
<PAGE> 14
13
time file or make any amendment to the Registration Statement, any
Prospectus or any amendment of or supplement to a Registration
Statement or a Prospectus or any document which is to be incorporated
by reference into a Registration Statement or a Prospectus, of which
the Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not have
previously been advised and furnished a copy or to which the Placement
Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall object, except for any
amendment or supplement or document (a copy of which has been
previously furnished to the Placement Agents and their counsel and, in
the case of a Shelf Registration Statement, the Holders and their
counsel) which counsel to the Company and the Subsidiary Guarantors
shall advise the Company and the Subsidiary Guarantors, in the form of
a written legal opinion, is required in order to comply with
applicable law; the Placement Agents agree that, if they receive
timely notice and drafts under this clause (j), they will not
unreasonably object to any such filing;
(k) obtain a CUSIP number for all Exchange Securities not
later than the first Exchange Date of the Exchange Offer;
(l) to the extent required, cause the Indenture to be
qualified under the Trust Indenture Act of 1939, as amended (the
"TIA"), in connection with the registration of the Exchange Securities
or Registrable Securities, as the case may be, cooperate with the
Trustee and the Holders to effect such changes to the Indenture as may
be required for the Indenture to be so qualified in accordance with
the terms of the TIA and execute, and use their reasonable best
efforts to cause the Trustee to execute, all documents as may be
required to effect such changes and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(m) in the case of a Shelf Registration, use their
reasonable best efforts to make available for inspection by a
representative of the Holders of the Registrable Securities, any
Underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and attorneys and accountants designated by
the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the
Company and the Subsidiary Guarantors, and cause the respective
officers, directors and employees of the Company and the Subsidiary
Guarantors to supply all information reasonably requested by
<PAGE> 15
14
any such representative, Underwriter, attorney or accountant in
connection with a Shelf Registration Statement;
(n) in the case of a Shelf Registration, use their
reasonable best efforts to cause all Registrable Securities to be
listed on any securities exchange or any automated quotation system on
which similar securities issued by the Company are then listed if
requested by the Majority Holders, to the extent such Registrable
Securities satisfy applicable listing requirements;
(o) if reasonably requested by any Holder of Registrable
Securities covered by a Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment
such information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
the Company has received notification of the matters to be
incorporated in such filing; and
(p) in the case of a Shelf Registration, enter into such
customary agreements and take all such other actions in connection
therewith (including those requested by the Holders of a majority of
the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities including,
but not limited to, an Underwritten Offering and in such connection,
(i) to the extent possible, make such representations and warranties
to the Holders and any Underwriters of such Registrable Securities
with respect to the business of the Company and its subsidiaries, the
Registration Statement, Prospectus and documents incorporated by
reference or deemed incorporated by reference, if any, in each case,
in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and
when requested, (ii) obtain opinions of counsel to the Company (which
counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter
of Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant
of any subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
<PAGE> 16
15
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, subject to receipt of appropriate
documentation as contemplated by SAS No. 72 and (iv) deliver such
documents and certificates as may be reasonably requested by the
Holders of a majority in principal amount of the Registrable
Securities being sold or the Underwriters, and which are customarily
delivered in underwritten offerings, to evidence the continued
validity of the representations and warranties of the Company made
pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder
of such Registrable Securities as the Company may from time to time reasonably
request in writing. No Holder may participate in any Underwritten Offering
hereunder unless such Holder (a) agrees to sell such Holder's Registerable
Securities on the basis provided in customary underwriting agreements entered
into in connection therewith, and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the
terms of such underwriting agreements.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the Company shall
give any such notice to suspend the disposition of Registrable Securities
pursuant to a Registration Statement, the Company shall extend the period
during which the Registration Statement shall be maintained effective pursuant
to this Agreement by the number of days during the period from and including
the date of the giving of such notice to and including the date when the
Holders shall have received copies of the supplemented or amended Prospectus
necessary to resume such dispositions. The Company may give any such notice
only for four non-consecutive 30 day periods during any 365 day period.
<PAGE> 17
16
By acquiring a Registrable Security each Holder agrees that,
upon receipt of any notice from the Company or the Subsidiary Guarantors of the
existence of any fact or event of the kind described in Section 3(e) hereof,
such Holder shall (i) keep the fact of such notice confidential and (ii)
refrain from selling or offering for sale Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of copies of a supplemented
or amended Prospectus, as contemplated by Section 3(i) hereof, or until it
receives advice, in writing, from the Company or the Subsidiary Guarantors that
the use of any Prospectus may be resumed and has received copies of any
additional or supplemental filings that are incorporated by reference therein.
If so directed by the Company or the Subsidiary Guarantors, each Holder shall
deliver to the Company or the Subsidiary Guarantors (at the expense of the
Company or the Subsidiary Guarantors) all copies, other than permanent file
copies then in such Holder's possession, of any Prospectus covering such
Registrable Securities that was current at the time of receipt of such notice.
The Company and the Subsidiary Guarantors shall have no
obligation to keep a Prospectus or any supplements or amendments thereto usable
or to give notice that such documents are not usable by a particular Holder to
the extent such documents are not usable by such Holder because information
with respect to such Holder is not included therein because such Holder has not
provided such information to the Company and the Subsidiary Guarantors in
accordance with the provisions of this Agreement.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering, subject to the right of the
Company to reasonably object to such selections up to three times.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The SEC or its staff has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer for its own account as a result of market-making or other trading
activities (a "Participating Broker-Dealer"), may be deemed to be an
"underwriter" within the meaning of the 1933 Act and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Securities.
<PAGE> 18
17
The Company and the Subsidiary Guarantors understands that it
is the SEC or its staff's current position that if the Prospectus contained in
the Exchange Offer Registration Statement includes a plan of distribution
containing a statement to the above effect and the means by which Participating
Broker-Dealers may resell the Exchange Securities, without naming the
Participating Broker-Dealers or specifying the amount of Exchange Securities
owned by them, such Prospectus may be delivered by Participating Broker-Dealers
to satisfy their prospectus delivery obligation under the 1933 Act in
connection with resales of Exchange Securities for their own accounts, so long
as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above and subject to any change in
SEC policy prior to the effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors agree that the provisions
of this Agreement as they relate to a Shelf Registration shall also apply to an
Exchange Offer Registration to the extent, and with such reasonable
modifications thereto as may be, reasonably requested by the Placement Agents
or by one or more Participating Broker-Dealers, in each case as provided in
clause (ii) below, in order to expedite or facilitate the disposition of any
Exchange Securities by Participating Broker-Dealers consistent with the
positions of the Staff recited in Section 4(a) above; provided that:
(i) the Company and the Subsidiary Guarantors shall not
be required to amend or supplement the Prospectus contained in the
Exchange Offer Registration Statement, as would otherwise be
contemplated by Section 3(i), for a period exceeding 180 days after
the last Exchange Date (as such period may be extended pursuant to the
penultimate paragraph of Section 3 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures
set forth in Section 3 of this Agreement to an Exchange Offer
Registration, to the extent not required by the positions of the SEC
or its staff or the 1933 Act and the rules and regulations thereunder,
will be in conformity with the reasonable request to the Company by
the Placement Agents or with the reasonable request in writing to the
Company by one or more broker-dealers who certify to the Placement
Agents and the Company in writing that they anticipate that they will
be Participating Broker-Dealers; and provided further that, in
connection with such application of the Shelf Registration procedures
set forth in Section 3 to an Exchange Offer Registration, the
<PAGE> 19
18
Company shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall be the
Placement Agents unless it elects not to act as such representative,
(y) to pay the fees and expenses of only one counsel representing the
Participating Broker-Dealers, which shall be counsel to the Placement
Agents unless such counsel elects not to so act and (z) to cause to be
delivered only one, if any, "cold comfort" letter with respect to the
Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected
during the period specified in clause (i) above; provided, further
that in no event shall the provisions applicable to Underwritten
Offerings apply to the Exchange Offer Registration.
(c) The Placement Agents shall have no liability to the
Company or any Holder with respect to any request that it may make pursuant to
Section 4(b) above.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Placement Agents, each Holder and each person, if any, who controls the
Placement Agents or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or is
controlled by, the Placement Agents or any Holder, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by the Placement Agents, any Holder
or any such controlling or affiliated person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or caused by any
untrue statement or alleged untrue statement of a material fact contained in
any Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Placement Agents or any Holder
furnished to the Company in writing by the Placement Agents or any selling
Holder expressly for use in any Registration
<PAGE> 20
19
Statement or Prospectus, or amendment or supplement thereto; provided that the
foregoing indemnity agreement with respect to any Prospectus shall not inure to
the benefit of any Holder from whom the person asserting any such losses,
claims, damages or liabilities purchased Registrable Securities, or any person
controlling or affiliated with such Holder, if a copy of the Prospectus (as
then amended or supplemented if the Company or Subsidiary Guarantor shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Holder to such person at or prior to the written confirmation of
the sale of the Registrable Securities to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability. In connection with any Underwritten Offering
permitted by Section 3, the Company will also indemnify the Underwriters, if
any, selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the Securities Act and the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders, if requested in connection with any
Registration Statement. In any case where indemnification is sought against
the Company and the Subsidiary Guarantors under this Section 5(a), the parties
seeking indemnification shall promptly notify the Company and Subsidiary
Guarantors in writing of any claims under this Section 5(a).
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Subsidiary Guarantors, the
Placement Agents and the other selling Holders, and each of their respective
directors, officers who sign the Registration Statement and each Person, if
any, who controls the Company, the Subsidiary Guarantors, the Placement Agents
and any other selling Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing
indemnity from the Company to the Placement Agents and the Holders, but only
with reference to information relating to such Holder furnished to the Company
in writing by such Holder expressly for use in any Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto). In claims brought under this Section 5(b), parties seeking
indemnification shall have the same rights as parties seeking indemnification
under Section 5(a) and parties against whom indemnification is sought under
this Section 5(b) shall have the same rights as parties against whom
indemnification is sought in Section 5(a).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b)
above, such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the
<PAGE> 21
20
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for the Placement Agents and all persons, if any, who control the
Placement Agents within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, (b) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either such Section and (c) the fees
and expenses of more than one separate firm (in addition to any local counsel)
for all Holders and all persons, if any, who control any Holders within the
meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In such case involving the Placement Agents
and persons who control the Placement Agents, such firm shall be designated in
writing by the Placement Agents. In such case involving the Holders and such
persons who control Holders, such firm shall be designated in writing by the
Majority Holders. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed
the indemnified party for such fees and expenses of counsel in accordance with
such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified
<PAGE> 22
21
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a)
or paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Holders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Holders' respective obligations to contribute
pursuant to this Section 5(d) are several in proportion to the respective
number of Registrable Securities of such Holder that were registered pursuant
to a Registration Statement.
(e) The Company, the Subsidiary Guarantors, and any other
Persons with indemnity rights under this Agreement, including each Holder,
agree that it would not be just or equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (d) above. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages and liabilities referred to in
paragraph (d) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 5, no Holder shall be
required to indemnify or contribute any amount in excess of the amount by which
the total price at which Registrable Securities were sold by such Holder
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be
<PAGE> 23
22
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 5 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents, any Holder or any person controlling the Placement
Agents or any Holder, or by or on behalf of the Company, its officers or
directors or any person controlling the Company, (iii) acceptance of any of the
Exchange Securities and (iv) any sale of Registrable Securities pursuant to a
Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. Neither the Company nor
the Subsidiary Guarantors have entered into, nor on or after the date of this
Agreement, will the Company or Subsidiary Guarantors enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's or
the Subsidiary Guarantors's other issued and outstanding securities under any
such agreements.
(b) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company and the Subsidiary
Guarantors has obtained the written consent of Holders of at least a majority
in aggregate principal amount of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that with respect to Section 5 hereof, no amendment,
modification, supplement, waiver or consents shall be effective as against any
Holder of Registrable Securities unless consented to in writing by such Holder.
(c) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail (registered or certified, return receipt
requested), telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with
<PAGE> 24
23
respect to the Placement Agents, the address set forth in the Placement
Agreement; and (ii) if to the Company or the Subsidiary Guarantors, initially
at the Company's address set forth in the Placement Agreement and thereafter at
such other address, notice of which is given in accordance with the provisions
of this Section 6(c), with a copy to Haynes and Boone, LLP, 3100 Nations Bank
Plaza, 901 Main Street, Dallas, Texas 75202-3789, Attention: Janice Sharry.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person giving the same to the Trustee,
at the address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors, assigns and transferees
of each of the parties, including, without limitation and without the need for
an express assignment, subsequent Holders; provided that nothing herein shall
be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Placement Agreement.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and such person shall be entitled to receive the benefits
hereof. The Placement Agents (in their capacity as Placement Agents) shall
have no liability or obligation to the Company with respect to any failure by a
Holder to comply with, or any breach by any Holder of, any of the obligations
of such Holder under this Agreement.
(e) Third Party Beneficiary. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company and
the Subsidiary Guarantors, on the one hand, and the Placement Agents, on the
other hand, and shall have the right to enforce such agreements directly to the
extent they deem such enforcement necessary or advisable to protect their
rights or the rights of any Holder hereunder.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which
<PAGE> 25
24
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
(i) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(j) Entire Agreement. This Agreement and the Indenture
are intended by the parties as a final expression of their agreement and are
intended to be the complete and exclusive statement of the agreement and
understanding of the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and in the Indenture with respect to the
registration rights granted with respect to the Registerable Securities. This
Agreement and the Indenture supersede all prior agreements and understandings
between the parties with respect to such subject matter.
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance
KITTY HAWK CHARTER, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Senior Vice President
AIRCRAFT LEASING, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
President
KITTY HAWK AIRCARGO, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Vice President
AMERICAN INTERNATIONAL AIRWAYS
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Senior Vice President
<PAGE> 27
26
KALITTA FLYING SERVICES, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Vice President
FLIGHT ONE LOGISTICS, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Vice President
O.K. TURBINES, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Vice President
AMERICAN INTERNATIONAL
TRAVEL, INC.
By: /s/ RICHARD R. WADSWORTH
-----------------------------------
Richard R. Wadsworth
Vice President
<PAGE> 28
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
BT ALEX. BROWN INCORPORATED
FIELDSTONE FPCG SERVICES, L.P.
By MORGAN STANLEY & CO. INCORPORATED
By ILLEGIBLE
--------------------------------------
Name:
------------------------
Title:
-----------------------
<PAGE> 1
EXHIBIT 4.6
EXECUTION COPY
KITTY HAWK, INC.
PLACEMENT AGREEMENT
November 13, 1997
Morgan Stanley & Co. Incorporated,
for itself and the other several
Placement Agents named in Schedule I hereto
1585 Broadway
New York, New York 10036-8293
Dear Sirs:
Kitty Hawk, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Manager") and the other several
purchasers named in Schedule I hereto (collectively with the Manager, the
"Placement Agents") $340.0 million principal amount of its 9.95% Senior Secured
Notes due 2004 (the "Securities") to be issued pursuant to the provisions of an
Indenture to be dated as of November 19, 1997 (the "Indenture") among the
Company, the Guarantors (as defined below) and Bank One, NA, as trustee (the
"Trustee"). Pursuant to the Indenture, the obligations of the Company under
the Indenture and the Securities will be guaranteed, jointly and severally, by
each subsidiary of the Company other than American International Cargo, a
partnership formed under the laws of Michigan ("AIC") as of the Closing Date
(as defined below), (collectively, the "Guarantors"). The Placement Agents and
their direct and indirect transferees will have a first priority security in
the Collateral (as defined in the Indenture) pursuant to the Indenture and the
Escrow and Security Agreement. Capitalized terms used but not defined herein
shall have the meanings given to such terms in the Indenture.
The Securities will be offered without being registered under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom. The Placement Agents and their direct and indirect
transferees will be entitled to the benefits of a Registration Rights
Agreement, to be dated the Closing Date and to be substantially in the form
attached hereto as Annex A.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum (the "Preliminary Memorandum") and
will prepare a final offering memorandum (the "Final Memorandum" and, with the
Preliminary Memorandum, each a "Memorandum") setting forth or including a
description of the terms of the Securities, the terms of the offering and a
description of the Company and its business. As used herein, the
<PAGE> 2
term "Final Memorandum" shall mean the Final Memorandum in the form first used
to confirm sales of Securities hereunder.
1. Representations and Warranties. Reference is made to
the Agreement and Plan of Merger (the "Merger Agreement"), dated September 22,
1997, as amended on October 23, 1997 and October 29, 1997, among American
International Airways, Inc., a Michigan corporation, Kalitta Flying Service,
Inc., a Michigan corporation, Flight One Logistics, Inc., a Michigan
corporation, O.K. Turbines, Inc., a Michigan corporation, and American
International Travel, Inc., a Michigan corporation (together with AIC,
collectively, the "Kalitta Companies"), Conrad Kalitta, the Company, certain
subsidiaries of the company formed for the sole purpose of effecting the Merger
(as defined below) and M. Tom Christopher. Pursuant to the Merger Agreement,
each of the Kalitta Companies will be merged (collectively, the "Merger") with
and into certain subsidiaries of the Company. As a result of the Merger, each
of the Kalitta Companies other than AIC will become a wholly owned subsidiary
of the Company and AIC will become a subsidiary of the Company.
(a) The Company represents and warrants to, and agrees
with, you that as of the date hereof:
(i) The Preliminary Memorandum as of the date thereof and
the Final Memorandum as of the date thereof and on the Closing Date do
not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties set
forth in this Section 1(a)(i) do not apply to statements or omissions
in either Memorandum based upon information furnished in writing by
you expressly for use therein.
(ii) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole, after
giving pro forma effect to the Merger.
(iii) Each subsidiary of the Company as of the date hereof
is listed on Schedule II hereto. The subsidiaries on such schedule
denoted thereon with an asterisk will be Guarantors and each such
denoted Guarantor has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its
property and to conduct its business as described in each Memorandum
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
<PAGE> 3
3
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole, after giving pro forma effect to
the Merger. As of the Closing Date, the Company will own all of the
outstanding shares of capital stock of each of the Guarantors free and
clear of any and all claims, liens, pledges or other encumbrances,
other than liens granted to Wells Fargo Bank (Texas), National
Association as referenced in the Final Memorandum.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Securities have been duly authorized and, when
each is executed, authenticated and delivered to and paid for by the
Placement Agents in accordance with the terms of this Agreement and
the Indenture, will be valid and binding obligations of the Company
and the Guarantors enforceable against the Company and each such
Guarantor, as the case may be, in accordance with their terms, subject
to the effect of any applicable bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers) or
reorganization, moratorium or similar laws affecting creditors' rights
generally and to the effect of general principles of equity, including
without limitation, concepts of materiality, good faith and fair
dealing (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(vi) The Indenture (including the first priority security
interest in certain of the Collateral granted thereunder to the
Trustee for the benefit of any Holders of the Securities and the
guarantee of the obligations of the Company by the Guarantors included
therein), the Escrow and Security Agreement, the Merger Agreement and
the Registration Rights Agreement have each been duly authorized,
executed and delivered by, and, assuming due authorization, execution
and delivery by the other parties thereto, are valid and binding
agreements of, the Company, enforceable against the Company in
accordance with their terms, subject to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors' rights generally and to the effect
of general principles of equity, including without limitation,
concepts of materiality, good faith and fair dealing (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
(vii) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Merger Agreement, the Registration Rights
Agreement, the Escrow and Security Agreement and the Securities will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries or any
judgment, order or decree of any
<PAGE> 4
4
governmental body, agency or court having jurisdiction over the
Company or any of its subsidiaries, and, with respect to the Merger
Agreement, other than as contemplated therein, no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its
obligations under this Agreement, the Indenture, the Merger Agreement,
the Registration Rights Agreement, the Escrow and Security Agreement
or the Securities (except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and
sale of the Securities and the shares of common stock to be issued to
Mr. Kalitta pursuant to the Merger Agreement and except for any such
failure to receive such consent, approval, authorization, order or
qualification that, singly or in the aggregate, would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole, after giving pro forma effect to the Merger).
(viii) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
after giving pro forma effect to the Merger, from that set forth in
the Final Memorandum.
(ix) There are no legal or governmental proceedings
pending or, to the knowledge of the Company, threatened to which the
Company or any of its subsidiaries as of the date hereof is a party or
to which any of the properties of the Company or any of its
subsidiaries as of the date hereof is subject other than proceedings
accurately described in all material respects in the Final Memorandum
and proceedings that would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole, after giving pro forma
effect to the Merger, or on the power or ability of the Company to
perform its obligations under this Agreement, the Indenture, the
Merger Agreement, the Registration Rights Agreement, the Escrow and
Security Agreement or the Securities or to consummate the transactions
contemplated by the Final Memorandum, or on the power or ability of
the Guarantors that are currently subsidiaries of the Company to
perform their obligations under the Indenture, the Registration Rights
Agreement or the Securities, or on the power or ability of Kitty
Hawk-AIA, Inc., Kitty Hawk-KFS, Inc., Kitty Hawk-FOL, Inc., Kitty
Hawk-O.K., Inc. or Kitty Hawk-AIT, Inc. (each, an "Acquisition Sub"
and collectively, the "Acquisition Subs") to perform their obligations
under the Merger Agreement.
(x) Neither the Company nor any affiliate (as defined in
Rule 501(b) of Regulation D under the Securities Act, an "Affiliate")
of the Company has directly, or through any agent, (A) sold, offered
for sale, solicited offers to buy or otherwise negotiated in respect
of, any security (as defined in the Securities Act) which is or will
be integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or
(B) engaged in any form of general
<PAGE> 5
5
solicitation or general advertising in connection with the offering of
the Securities (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(xi) The Company is not and, immediately after the
Transactions and the Refinancings (each as defined in the Final
Memorandum), will not be, an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended.
(xii) Assuming the accuracy of the representations and
warranties of the Placement Agents as set forth herein and without
giving effect to the terms of the Registration Rights Agreement, it is
not necessary in connection with the offer, sale and delivery of the
Securities to the Placement Agents in the manner contemplated by this
Agreement to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as
amended.
(xiii) The Company and its subsidiaries as of the date
hereof are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole, after giving pro forma
effect to the Merger.
(xiv) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92- 198, Laws of Florida).
(xv) Subject to the limitations on enforceability of the
Note Guarantees as set forth in the Indenture, each of the Guarantors
is, and immediately after the Closing (as defined below) will be,
Solvent. As used herein, the term "Solvent" means, with respect to
each Guarantor, on a particular date, that on such date (A) the fair
market value of the assets of such Guarantor is greater than the total
amount of liabilities (including contingent liabilities) of such
Guarantor, (B) the present fair salable value of the assets of such
Guarantor is greater than the amount that will be required to pay the
probable liabilities of such Guarantor on its debts as they become
absolute and matured, (C) such Guarantor is able to realize upon its
assets and pay its debts and other liabilities,
<PAGE> 6
6
including contingent obligations, as they mature and (D) such
Guarantor does not have an unreasonably small capital.
(xvi) Upon filing of the Indenture at the Federal Aviation
Administration ("FAA") registry and the filing of certain UCC-1s in
the States of Michigan and Texas with the respective Secretaries of
State, the grant of a security interest in the Collateral to the
Trustee (other than that granted pursuant to the Escrow and Security
Agreement) for the benefit of any Holders of the Securities will
constitute a first priority security interest in the Collateral (other
than that granted pursuant to the Escrow and Security Agreement),
enforceable as against all creditors of the Company or all creditors
of any subsidiary thereof following the Merger, subject to certain
limitations on enforceability as set forth in the Indenture. Such
filings will occur substantially contemporaneously with or prior to
the Closing Date.
(xvii) Upon the transfer to the Trustee of the Pledged
Securities, the acquisition by the Trustee of a security entitlement
with respect thereto, the maintenance of the Pledged Securities in a
securities account in accordance with the terms of the Escrow and
Security Agreement, and the filing of financing statements with the
offices of the Texas Secretary of State, the New York Secretary of
State and the New York County Recorder, the pledge of and grant of a
security interest in the Pledged Securities and the Escrow Account to
the Trustee for the benefit of any Holders of the Securities will
constitute a first priority perfected security interest in such
Pledged Securities and the Escrow Account.
(xviii) Other than the permanent approval of the Department
of Transportation (the "DOT") required to transfer the Kalitta
Companies foreign operating authority to the Company, each of the
Company and its subsidiaries as of the date thereof has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities (including
the FAA and all non-U.S. regulatory authorities), all self-regulatory
organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business
in the manner described in each Memorandum, except to the extent that
the failure to obtain or file would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole, after giving
pro forma effect to the Merger.
(xix) Each of the Company and each Acquisition Sub has
properly taken all corporate actions and obtained all consents of
stockholders necessary to approve the Merger. The Merger will occur
substantially contemporaneously with the closing hereunder.
<PAGE> 7
7
(xx) The Company's Registration Statement on Form S-1 (the
"Registration Statement"), filed with the Securities and Exchange
Commission (the "Commission") on September 22, 1997, with respect to
3,000,000 shares of common stock, par value $ .01 per share (the
"Common Stock") of the Company, as amended has become effective; no
stop order suspending the effectiveness of the Registration Statement
is in effect, and no proceedings for such purpose are pending before
or threatened by the Commission.
(xxi) No event of default has occurred or will occur prior
to the Closing Date under any material agreement to which the Company
or any of its subsidiaries is a party on a pro forma basis after
giving effect to the Transactions and the Refinancings.
(xxii) The pro forma financial statements and other pro forma
financial information included in each Memorandum present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(xxiii) The statements set forth in the Final Memorandum
under the caption "Description of the Notes" insofar as they purport
to constitute a summary of the terms of the Securities or the
Indenture are accurate and complete in all material respects.
(xxiv) The Merger Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of,
each of the Acquisition Subs, enforceable in accordance with its
terms, subject to the effect of any applicable bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
creditors' rights generally and to the effect of general principles of
equity, including without limitation, concepts of materiality, good
faith and fair dealing (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xxv) The execution and delivery by each of the Acquisition
Subs of, and the performance by each of the Acquisition Subs of its
obligations under, the Merger Agreement will not contravene any
provision of applicable law or the certificate or articles of
incorporation or by-laws of such Acquisition Sub or any agreement or
other instrument binding upon such Acquisition Sub or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Acquisition Sub, and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by any of the
Acquisition Subs of its obligations under Merger Agreement, except for
any such failure to receive such consent, approval, authorization,
order or qualification that, singly or in the aggregate, would not
<PAGE> 8
8
have a material adverse effect on the Company and its subsidiaries,
taken as a whole, after giving pro forma effect to the Merger.
(b) Each of the Kalitta Companies (other than AIC)
represents and warrants to, and agrees with, you that as of the date hereof:
(i) The Preliminary Memorandum as of the date thereof and
the Final Memorandum as of the date thereof and on the Closing Date,
did not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein not misleading, in the light of the circumstances under which
they were made, not misleading, in each case to the extent related to
the Kalitta Companies, except that the representations and warranties
set forth in this Section 1(b)(i) do not apply to statements or
omissions in either Memorandum based upon information relating to any
Placement Agent furnished in writing to the Company by you expressly
for use therein.
(ii) Each of the Kalitta Companies (other than AIC) has
been duly incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
the corporate power and authority to own its property and to conduct
its business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as
a whole, after giving pro forma effect to the Merger.
(iii) AIC has been duly formed and exists as a
co-partnership under the laws of the State of Michigan, has the
requisite partnership power and authority to own its property and to
conduct its business as described in each Memorandum and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole, after giving pro forma effect to the Merger.
(iv) The Kalitta Companies have no subsidiaries.
(v) This Agreement has been duly authorized, executed and
delivered by each of the Kalitta Companies (other than AIC).
<PAGE> 9
9
(vi) The Merger Agreement has been duly authorized,
executed and delivered by each of the Kalitta Companies (other than
AIC), and assuming due authorization, execution and delivery by, and
binding effect upon the other parties thereto, is a valid and binding
agreement of, each of the Kalitta Companies (other than AIC),
enforceable against each of the Kalitta Companies (other than AIC) in
accordance with its terms subject to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting creditors' rights generally and to the effect
of general principles of equity, including without limitation,
concepts of materiality, good faith and fair dealing (regardless of
whether enforcement is considered in a proceeding in equity or at
law).
(vii) The execution and delivery by each of the Kalitta
Companies (other than AIC) of, and the performance by each of the
Kalitta Companies (other than AIC) of its obligations under, this
Agreement, the Merger Agreement and the Indenture and the performance
by the Kalitta Companies (other than AIC) of their obligations under
the Securities will not contravene any provision of applicable law or
the articles of incorporation or by-laws of any of the Kalitta
Companies (other than AIC) or any agreement or other instrument
binding upon any of the Kalitta Companies (other than AIC) or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over any of the Kalitta Companies (other than
AIC), and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by each of the Kalitta Companies (other than AIC) of
its obligations under this Agreement, the Merger Agreement, the
Indenture or the Securities (except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Securities and the shares of common stock to
be issued to Mr. Kalitta pursuant to the Merger Agreement and except
for any such failure to receive such consent, approval, authorization,
order or qualification that, singly or in the aggregate, would not
have a material adverse effect to the Company and its subsidiaries,
taken as a whole, after giving pro forma effect to the Merger).
(viii) There has not occurred any material adverse change,
or any development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Kalitta Companies, taken as a whole, from that set
forth in the Final Memorandum.
(ix) There are no legal or governmental proceedings
pending or, to the knowledge of the Kalitta Companies, threatened to
which any of the Kalitta Companies is a party or to which any of the
properties of any of the Kalitta Companies is subject other than
proceedings accurately described in all material respects in the Final
Memorandum and proceedings that would not have a material adverse
effect on the Kalitta Companies or on the power or ability of any of
the Kalitta Companies (other than AIC) to perform its
<PAGE> 10
10
obligations under this Agreement, the Indenture, the Securities, the
Escrow and Security Agreement or the Merger Agreement or to consummate
the transactions contemplated by the Final Memorandum.
(x) Each of the Kalitta Companies is in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct its respective business and (iii) is in
compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as
a whole, after giving pro forma effect to the Merger.
(xi) Each of the Kalitta Companies has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from, and have made all declarations and filings with, all
federal, state, local and other governmental authorities (including
the FAA and all non-U.S. regulatory authorities), all self- regulatory
organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business
in the manner described in each Memorandum, except to the extent that
the failure to obtain or file would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole, after giving
pro forma effect to the Merger and the Refinancings.
(xii) Each of the Kalitta Companies (other than AIC) has
properly taken all actions, corporate and otherwise, and obtained all
consents of stockholders or partners, as the case may be, necessary to
approve the Merger. The Merger will occur substantially
contemporaneously with the closing hereunder.
(xiii) No event of default has occurred or will occur prior
to the Closing Date under any material agreement to which any of the
Kalitta Companies is a party, on a pro forma basis after giving effect
to the Transactions and Refinancings.
(xiv) Neither the Kalitta Companies nor any affiliate of
the Kalitta Companies has directly, or through any agent, (A) sold,
offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any security (as defined in the Securities Act) which is
or will be integrated with the sale of the Securities in a manner that
would require the registration under the Securities Act of the
Securities or (B) engaged in any form of general solicitation or
general advertising in connection with the offering of the Securities
(as those terms are used in Regulation D under the Securities Act) or
in any
<PAGE> 11
11
manner involving a public offering within the meaning of Section 4(2)
of the Securities Act.
(c) The Guarantors each represent and warrant to, and
agree with, you that as of the date hereof:
(i) This Agreement has been duly authorized, executed and
delivered by each Guarantor.
(ii) The Indenture (including the first priority security
interest in certain of the Collateral granted thereunder to the
Trustee and any Holders of the Securities and the guarantee of the
obligations of the Company by the Guarantors included therein), the
Merger Agreement and the Registration Rights Agreement have each been
duly authorized, executed and delivered by, and are valid and binding
agreements of, each such Guarantor, enforceable in accordance with
their terms, subject to the effect of any applicable bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws
affecting creditors' rights generally and to the effect of general
principles of equity, including without limitation, concepts of
materiality, good faith and fair dealing (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(iii) The execution and delivery by each Guarantor of, and
the performance by each of the Guarantors of its obligations under,
this Agreement, the Indenture, the Merger Agreement, the Registration
Rights Agreement and the Escrow and Security Agreement and the
performance by each of the Guarantors of its obligations under the
Securities will not contravene any provision of applicable law or the
certificate or articles of incorporation or by-laws of any Guarantor
or any agreement or other instrument binding upon any Guarantor or any
of its subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over any
Guarantor, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by each Guarantor of its obligations under this
Agreement, the Indenture, the Merger Agreement, the Registration
Rights Agreement or the Securities (except such as may be required by
the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Securities and the shares of common
stock to be issued to Mr. Kalitta pursuant to the Merger Agreement and
except for any such failure to receive consent, approval,
authorization, order or qualification that, singly or in the
aggregate, would not have a material adverse effect to the Company and
its subsidiaries, taken as a whole, after giving pro forma effect to
the Merger).
<PAGE> 12
12
(iv) It is not necessary in connection with the offer,
sale and delivery of the Securities to the Placement Agents in the
manner contemplated by this Agreement to qualify the Indenture under
the Trust Indenture Act of 1939, as amended.
(v) Subject to the limitations on enforceability of the
Note Guarantees as set forth in the Indenture, each of the Guarantors
is, and immediately after the Closing will be, Solvent.
(d) The Company and each of its subsidiaries that owns
any Collateral and each of the Kalitta Companies that owns any Collateral
represents and warrants to, and agrees with, you that as of the date hereof:
(i) The Company and each such subsidiary that owns any
Collateral and each of the Kalitta Companies that owns any Collateral
has good and marketable title to such Collateral which is owned by it;
each of the Aircraft owned by the Company or any of its subsidiaries
or any of the Kalitta Companies that is included in the Collateral is
duly registered in the name of the Company or one of its subsidiaries
or one of the Kalitta Companies pursuant to and in accordance with the
Federal Aviation Act of 1958, as amended (the "Aviation Act"), and
title to such Aircraft is vested in the Company or such subsidiary or
one of the Kalitta Companies; in each case title to such Aircraft is
held by the Company or one of its subsidiaries or the Kalitta
Companies, as the case may be, free and clear of all liens,
encumbrances and defects, except (x) those that arise by operation by
law and will be discharged in accordance with customary practices, (y)
those that are described in the Final Memorandum and (z) those that do
not materially affect the value of such Aircraft and do not interfere
with the use made and proposed to be made of such Aircraft by the
Company and its subsidiaries or the Kalitta Companies, as the case may
be.
(ii) Upon filing of the Indenture at the FAA registry and
the filing of certain UCC-1s in the States of Michigan and Texas with
the respective Secretaries of State, the grant of a security interest
in the Collateral to the Trustee (other than that granted pursuant to
the Escrow and Security Agreement) for the benefit of any Holders of
the Securities will constitute a first priority security interest in
the Collateral (other than that granted pursuant to the Escrow and
Security Agreement), enforceable as against all creditors of the
Company or all creditors of any subsidiary thereof following the
Merger, subject to certain limitations on enforceability as set forth
in the Indenture. Such filings will occur substantially
contemporaneously with or prior to the Closing Date.
2. Offering. You have advised the Company that the
Placement Agents will make an offering of the Securities purchased by the
Placement Agents hereunder on the terms set forth in the Final Memorandum as
soon as practicable after this Agreement is entered into as in your judgment is
advisable.
<PAGE> 13
13
3. Purchase and Delivery. The Company hereby agrees to
sell to the several Placement Agents, and the Placement Agents, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agree, severally and not jointly, to purchase
from the Company the respective principal amount of Securities set forth in
Schedule I hereto opposite their names at a purchase price of 97% of the
principal amount thereof.
Payment for the Securities shall be made against delivery of
the Securities at a closing (the "Closing") to be held at the office of Haynes
and Boone, LLP, 3100 Nations Bank Plaza, 901 Main Street, Dallas, Texas, at
10:00 A.M., local time, on November 19, 1997 or at such other time on the same
or such other date, not later than December 19, 1997 as shall be designated in
writing by you. The time and date of such payment are herein referred to as
the Closing Date. Payment for the Securities shall be made by wire transfer of
immediately available funds to the respective bank accounts designated in
writing by the Company.
One or more certificates for the Securities shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not less than two full business days prior to the
Closing Date. The certificates evidencing the Securities shall be delivered to
you on the Closing Date for the respective accounts of the several Placement
Agents, with any transfer taxes payable in connection with the transfer of the
Securities to the Placement Agents duly paid.
4. Conditions to Closing. (a) The obligations of the
Company, each of the Guarantors and each of the Kalitta Companies, and the
several obligations of the Placement Agents hereunder are subject to the
condition that (i) the Registration Statement shall have become effective not
later than the date hereof, (ii) the Merger shall occur substantially
contemporaneously with the Closing hereunder and (iii) the closing of the
offering by the Company and certain selling stockholders named in the
Registration Statement on Form S-1 of approximately 3,000,000 shares of Common
Stock shall occur substantially contemporaneously with the Closing hereunder.
(b) The several obligations of the Placement Agents under
this Agreement to purchase the Securities will be subject to the following
conditions:
(i) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date,
(A) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or of any review for a
possible change that does not indicate the direction of the
possible change, in the rating accorded the Securities by
any "nationally recognized
<PAGE> 14
14
statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act;
and
(B) there shall not have occurred any change, or
any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations, of the Company and its
subsidiaries, taken as a whole, after giving pro forma
effect to the Merger, from that set forth in the Final
Memorandum that, in your judgment, is material and adverse
and that makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner
contemplated in the Final Memorandum. For the purposes
hereof, it is agreed that (i) the loss of the operating
certificate of any of the Company, its subsidiaries or the
Kalitta Companies, (ii) any regulatory order to materially
curtail or otherwise materially limit the use of any of the
aircraft of the Company or its subsidiaries or the Kalitta
Companies (other than pursuant to an existing Notice of
Proposed Rule Making issued by the FAA, the DOT, the
National Transportation Safety Board ("NTSB") or any other
regulatory authority) or (iii) any accident (as defined in
the regulations of the NTSB) of a material nature involving
any aircraft (other than turbo-prop or piston aircraft)
operated by the Company, its subsidiaries or the Kalitta
Companies would constitute a material and adverse change in
the condition of Company and its subsidiaries, taken as a
whole, after giving pro forma effect to the Merger.
(ii) You shall have received on the Closing Date
certificates, dated the Closing Date and signed by (i) an executive
officer of the Company (solely in his capacity as such) (ii) an
executive officer of each of the Guarantors (solely in his capacity as
such) and (iii) an executive officer of each of the Kalitta Companies
(other than AIC) (solely in his capacity as such) to the effect that
the representations and warranties of the Company, the Guarantors and
the Kalitta Companies (other than AIC), respectively, contained in
this Agreement are true and correct as of the Closing Date and that
the Company, the Guarantors and the Kalitta Companies (other than
AIC), respectively, have each complied with all of the agreements and
satisfied all of the conditions on their part to be performed or
satisfied hereunder by it on or before the Closing Date.
The officer signing and delivering such certificates of the
Company, the Kalitta Companies (other than AIC) and the Guarantors may
rely upon the best of his knowledge as to proceedings threatened and
such certificates will be expressly so qualified.
(iii) You shall have received on the Closing Date an
opinion of Haynes and Boone, LLP, independent counsel for the Company,
dated the Closing Date, to the effect set forth in Exhibit A.
<PAGE> 15
15
(iv) You shall have received on the Closing Date opinions
of Burke, Wright & Keiffer, P.C., counsel for the Company, dated the
Closing Date, to the effect set forth in Exhibit B.
(v) You shall have received on the Closing Date an
opinion of Miller, Canfield, Paddock & Stone, P.L.C., independent
special counsel for the Kalitta Companies, dated the Closing Date, to
the effect set forth in Exhibit C.
(vi) You shall have received on the Closing Date an
opinion of Kelsey Law Offices, P.C., independent counsel for the
Kalitta Companies, dated the Closing Date, to the effect set forth in
Exhibit D.
(vii) You shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Placement Agents,
dated the Closing Date, in form and substance reasonably satisfactory
to you covering (i) due authorization, execution and delivery of this
Agreement, the Escrow and Security Agreement, the Merger Agreement and
the Registration Rights Agreement, (ii) the validity of the
Securities, (iii) the accuracy of certain legal summaries in the Final
Memorandum and (iv) the private placement of the Securities. You
shall have received from Shearman & Sterling a letter, in form and
substance reasonably satisfactory to you, commenting on the adequacy
of the disclosure contained in the Memorandum.
(viii) You shall have received on each of the date hereof
and the Closing Date a letter, dated the date hereof or the Closing
Date, as the case may be, in form and substance satisfactory to you,
from Ernst & Young LLP, the Company's independent public accountants,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements, and certain other financial information
including pro forma financial statements contained in the Memorandum.
(ix) You shall have received on each of the date hereof
and the Closing Date a letter, dated the date hereof of the Closing
Date, as the case may be, in form and substance satisfactory to you,
from Deloitte & Touche, LLP, the Kalitta Companies' independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
in the respect to the financial statements and certain other financial
information, other than the pro forma financial statements contained
in the Memorandum.
5. Covenants of the Company. In further consideration
of the agreements of the Placement Agents contained in this Agreement, the
Company and the Guarantors covenant as follows:
<PAGE> 16
16
(a) To furnish to you, without charge, during the period
mentioned in paragraph (c) below, as many copies of the Final
Memorandum, any documents incorporated by reference therein and any
supplements and amendments thereto as you shall reasonably request.
(b) Before amending or supplementing either Memorandum,
to furnish to you a copy of each such proposed amendment or supplement
and not to use any such proposed amendment or supplement to which you
reasonably object in writing.
(c) If, during such period after the date hereof and
prior to the date on which all of the Securities shall have been sold
by the Placement Agents, any event shall occur or condition exist as a
result of which it is necessary in your judgment to amend or
supplement the Final Memorandum in order to make the statements
therein, in the light of the circumstances when such Memorandum is
delivered to a purchaser, not misleading, or if, with the reasonable
opinion of counsel to the Placement Agents it is necessary to amend or
supplement such Memorandum to comply with applicable law, forthwith to
prepare and furnish, at its own expense, to the Placement Agents,
either amendments or supplements to such Memorandum so that the
statements in such Memorandum as so amended or supplemented will not,
in the light of the circumstances when such Memorandum is delivered to
a purchaser, be misleading or so that such Memorandum, as so amended
or supplemented, will comply with applicable law.
(d) To endeavor to qualify the Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as
you shall reasonably request.
(e) Whether or not any sale of such Securities is
consummated, to pay all expenses incident to the performance of its
obligations under this Agreement, including: (i) the preparation of
each Memorandum and all amendments and supplements thereto, (ii) the
preparation, issuance and delivery of the Securities, (iii) the fees
and disbursements of the Company's counsel and accountants and the
Trustee and its counsel, (iv) the qualification of such Securities
under securities or Blue Sky laws in accordance with the provisions of
Section 5(d), including filing fees and the fees and disbursements of
counsel for the Placement Agents in connection therewith and in
connection with the preparation of any Blue Sky or legal investment
memoranda, (v) the printing and delivery to the Placement Agents in
quantities as hereinabove stated of copies of the Memorandum and any
amendments or supplements thereto, (vi) any fees charged by rating
agencies for the rating of such Securities, (vii) all reasonable
document production charges and expenses of counsel to the Placement
Agents (but not including their fees for professional services) in
connection with the preparation of this Agreement, (viii) the fees and
expenses, if any, incurred in connection with the admission of such
Securities for trading in PORTAL and the Luxembourg Stock Exchange,
(ix) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in
<PAGE> 17
17
connection with the marketing of the Securities, including, without
limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of
the Company, travel and lodging expense of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (x) all other
costs and expenses incident to the performance of the obligations of
the Company hereunder for which provision is not otherwise made in
this Section.
(f) Neither the Company nor any Affiliate will sell,
offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) which could
be integrated with the sale of the Securities in a manner which would
require the registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(h) While any of the Securities remain outstanding, to
make available, upon request, to any seller of such Securities the
information specified in Rule 144A(d)(4) under the Securities Act,
unless the Company and the Guarantors are then subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(i) None of the Company, the Guarantors, their Affiliates
or any person acting on behalf of any of them (other than the
Placement Agents) will engage in any directed selling efforts (as that
term is defined in Regulation S) with respect to the Securities, and
the Company and its Affiliates and each person acting on its or their
behalf (other than the Placement Agents) will comply with the offering
restrictions of Regulation S.
(j) To use their reasonable best efforts to permit the
Securities to be (i) designated PORTAL securities in accordance with
the rules and regulations adopted by the National Association of
Securities Dealers, Inc. relating to trading in the PORTAL Market and
(ii) listed on the Luxembourg Stock Exchange.
6. Representations and Warranties of the Placement
Agent; Offering of Securities; Restrictions on Transfer. (a) Each Placement
Agent, severally and not jointly, represents and warrants to the Company, each
of the Guarantors and each of the Kalitta Companies that such Placement Agent
is a qualified institutional buyer as defined in Rule 144A under the Securities
Act (a "QIB"). Each Placement Agent, severally and not jointly, agrees with
<PAGE> 18
18
the Company that (i) it will not solicit offers for, or offer or sell, such
Securities by any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) it will solicit offers for such Securities only from,
and will offer such Securities only to, persons that it reasonably believes to
be (A) in the case of offers inside the United States, (x) QIBs or (y) other
institutional accredited investors (as defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act) ("institutional accredited investors") that,
prior to their purchase of the Securities, deliver to such Placement Agent a
letter containing the representations and agreements set forth in Annex A to
the Memorandum and (B) in the case of offers outside the United States, to
persons other than U.S. persons ("foreign purchasers", which term shall
include dealers or other professional fiduciaries in the United States acting
on a discretionary basis for foreign beneficial owners (other than an estate or
trust)) that, in each case, in purchasing such Securities are deemed to have
represented and agreed as provided in the Final Memorandum under the caption
"Transfer Restrictions."
(b) Each Placement Agent, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) it understands that no action has been or will be
taken in any jurisdiction by the Company that would permit a public
offering of the Securities, or possession or distribution of either
Memorandum or any other offering or publicity material relating to the
Securities, in any country or jurisdiction where action for that
purpose is required;
(ii) such Placement Agent will comply with all applicable
laws and regulations in each jurisdiction in which it acquires,
offers, sells or delivers Securities or has in its possession or
distributes either Memorandum or any such other material, in all cases
at its own expense;
(iii) the Securities have not been and will not be
registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Regulation S under the Securities
Act or pursuant to an exemption from the registration requirements of
the Securities Act;
(iv) such Placement Agent has (A) not offered or sold and
will not offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public
in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"); (B) complied and will
comply with all applicable provisions of the Financial Services Act
1986 and the Regulations with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United
Kingdom; and (C)
<PAGE> 19
19
only issued or passed on and will only issue or pass on to any person
in the United Kingdom any document received by it in connection with
the issue of the Securities if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such
document may otherwise lawfully be issued or passed on; and
(v) such Placement Agent understands that the Securities
have not been and will not be registered under the Securities and
Exchange Law of Japan, and represents that it has not offered or sold,
and agrees that it will not offer or sell, any Securities, directly or
indirectly in Japan or to any resident of Japan except (A) pursuant to
an exemption from the registration requirements of the Securities and
Exchange Law of Japan and (B) in compliance with any other applicable
requirements of Japanese law.
7. Indemnification and Contribution. (a) The Company
and the Guarantors agree, jointly and severally, to indemnify and hold harmless
each Placement Agent, and each person, if any, who controls such Placement
Agent within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, or is under common control with, or is controlled by,
such Placement Agent, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Placement Agent or any such controlling of
affiliated person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in either Memorandum (as amended or supplemented if the
Company and the Guarantors shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished to the Company in writing by such Placement Agent through you
expressly for use therein; provided, however, that the indemnification
contained in this paragraph with respect to any Preliminary Memorandum shall
not inure to the benefit of a Placement Agent (or to the benefit of any
director or officer of such Placement Agent or any person controlling or under
common control with such Placement Agent) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Securities by such
Placement Agent to any person if a copy of the Final Memorandum shall not have
been delivered or sent to such person at or prior to the written confirmation
of such sale, and the untrue statement or alleged untrue statement or omission
or alleged omission of a material fact contained in such Preliminary Memorandum
was corrected in the Final Memorandum.
(b) Each Placement Agent agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantors, their
directors and officers, and each person, if any, who controls the Company and
the Guarantors within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing
<PAGE> 20
20
indemnity from the Company and the Guarantors to such Placement Agent, but only
with reference to information relating to such Placement Agent furnished to the
Company and the Guarantors in writing by such Placement Agent through you
expressly for use in either Memorandum or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all such indemnified parties and that all such fees and expenses
shall be reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated in the case of parties indemnified
pursuant to paragraph (a) above and by the Company and the Guarantors in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
<PAGE> 21
21
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 7 is unavailable to an indemnified party
or insufficient in respect of any losses, claims, damages or liabilities, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Guarantors, on the one hand, and the
Placement Agents, on the other hand, from the offering of such Securities or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Guarantors on the one hand and the Placement Agents on
the other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Guarantors on the one hand and the Placement Agents on the other hand in
connection with the offering of such Securities shall be deemed to be in the
same respective proportions as the net proceeds from the offering of such
Securities (before deducting expenses) received by the Company and the
Guarantors and the total discounts and commissions received by the Placement
Agents in respect thereof bear to the aggregate offering price of such
Securities. The relative fault of the Company and the Guarantors on the one
hand and of the Placement Agents on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Guarantors
on the one hand or by the Placement Agents on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Placement Agents' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective principal amount of Securities they have purchased hereunder,
and not joint.
(e) The Company, each of the Guarantors and each of the
Placement Agents agree that it would not be just or equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
Placement Agents were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in paragraph (d) above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Placement Agent shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities resold by it in the
initial placement of such Securities were offered to investors exceeds the
amount of any damages that such Placement Agent has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
<PAGE> 22
22
any person who was not guilty of such fraudulent misrepresentation. The
indemnity and contribution provisions contained in this Section 7 and the
representations and warranties of the Company and the Guarantors contained in
this Agreement shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of the Placement Agents or any person controlling the Placement Agents
or by or on behalf of the Company, its officers or directors or any person
controlling the Company or the Guarantors, their officers or directors or any
Person controlling the Guarantors and (iii) acceptance of and payment for any
of the Securities. The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
You hereby confirm to the Company that the last full paragraph
of text on the front cover page of the Final Memorandum and the statements
under the caption "Private Placement" is the only information that has been
furnished to the Company by you expressly for use in the Final Memorandum.
8. Termination. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the
Luxembourg Stock Exchange, (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities, (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your reasonable judgment, is
material and adverse or (v) (A) the Company or any of its subsidiaries or any
of the Kalitta Companies (1) loses its FAA operating certificate, or (2)
receives any regulatory order which materially curtails or otherwise materially
limits the use of any of the aircraft of the Company or its subsidiaries or the
Kalitta Companies (other than pursuant to an existing Notice of Proposed Rule
Making issued by the FAA, the DOT, the NTSB or any other regulatory authority),
or (B) there shall occur any accident (as defined in the regulations of the
NTSB) of a material nature involving any aircraft (other than turbo-prop or
piston aircraft) operated by the Company, its subsidiaries or the Kalitta
Companies and (b) in the case of any of the events specified in clauses (a)(i)
through (v), such event singly or together with any other such event makes it,
in your reasonable judgment, impracticable to market the Securities on the
terms and in the manner contemplated in the Final Memorandum.
9. Miscellaneous. If, on the Closing Date, any one or
more of the Placement Agents shall fail or refuse to purchase Securities that
it or they have agreed to purchase hereunder on such date, and the aggregate
principal amount of Securities which such defaulting Placement Agent or
Placement Agents agreed but failed or refused to purchase is not more than
<PAGE> 23
23
one-tenth of the aggregate principal amount of Securities to be purchased on
such date, the other Placement Agents shall be obligated severally in the
proportions that the principal amount of Securities set forth opposite their
respective names in Schedule I bears to the aggregate principal amount of
Securities set forth opposite the names of all such non- defaulting Placement
Agents, or in such other proportions as you may specify, to purchase the
Securities which such defaulting Placement Agent or Placement Agents agreed but
failed or refused to purchase on such date; provided that in no event shall the
principal amount of Securities that any Placement Agent has agreed to purchase
pursuant to Section 3 be increased pursuant to this Section 9 by an amount in
excess of one-ninth of such principal amount of Securities without the written
consent of such Placement Agent. If, on the Closing Date, any Placement Agent
or Placement Agents shall fail or refuse to purchase Securities which it or
they have agreed to purchase hereunder on such date and the aggregate principal
amount of Securities with respect to which such default occurs is more than
one-tenth of the aggregate principal amount of Securities to be purchased on
such date and arrangements satisfactory to you and the Company for the purchase
of such Securities are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Placement Agent or of the Company. In any such case either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Final
Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Placement
Agent from liability in respect of any default of such Placement Agent under
this Agreement.
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.
If this Agreement shall be terminated by the Placement Agents,
or any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Placement Agents or such
Placement Agents as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Placement Agents in
connection with this Agreement or the offering contemplated hereunder.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
<PAGE> 24
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement shall constitute a binding agreement between us.
Very truly yours,
KITTY HAWK, INC.
By:
----------------------------------
KITTY HAWK CHARTER, INC.
By:
----------------------------------
AIRCRAFT LEASING, INC.
By:
----------------------------------
KITTY HAWK AIRCARGO, INC.
By:
----------------------------------
AMERICAN INTERNATIONAL
AIRWAYS, INC.
By:
----------------------------------
<PAGE> 25
KALITTA FLYING SERVICE,
INC.
By:
----------------------------------
FLIGHT ONE LOGISTICS, INC.
By:
----------------------------------
O.K. TURBINES, INC.
By:
----------------------------------
AMERICAN INTERNATIONAL
TRAVEL, INC.
By:
----------------------------------
<PAGE> 26
Agreed, November 19, 1997
Morgan Stanley & Co.
Incorporated
Acting severally on behalf
of itself and the several
Placement Agents named herein.
By Morgan Stanley & Co.
Incorporated
By:
-----------------------------
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount of
Securities
Placement Agent to Be Purchased
--------------- ---------------------
<S> <C>
Morgan Stanley & Co. Incorporated $204,000,000
BT Alex. Brown Incorporated $102,000,000
Fieldstone FPCG Services, L.P. $ 34,000,000
------------
Total . . . . . . . . . . . $340,000,000
============
</TABLE>
<PAGE> 28
SCHEDULE II
<TABLE>
<CAPTION>
Ownership State of
Subsidiary Percentage Incorporation
- ---------- ---------- -------------
<S> <C> <C>
Kitty Hawk Charter, Inc.* 100% Texas
Aircraft Leasing, Inc.* 100% Texas
Kitty Hawk Aircargo, Inc.* 100% Texas
Kitty Hawk - AIA, Inc. 100% Michigan
Kitty Hawk - KFS, Inc. 100% Michigan
Kitty Hawk - FOL, Inc. 100% Michigan
Kitty Hawk - O.K., Inc. 100% Michigan
Kitty Hawk - AIT, Inc. 100% Michigan
</TABLE>
<PAGE> 29
EXHIBIT A
[To be provided by H&B]
Include H&B statement regarding good standing certificates of
Aircraft Leasing, Inc.
<PAGE> 30
EXHIBIT B
[Jim Craig]
Opinion of Counsel
for the Company
The opinion of the counsel for the Company to be delivered pursuant to
Section 4(iv) of the Placement Agreement shall be to the effect that:
(A) to the best of such counsel's knowledge, the
execution and delivery by the Company of, and the performance by the
Company of its obligations under, the Placement Agreement, the
Indenture, the Merger Agreement, the Registration Rights Agreement,
the Escrow and Security Agreement and the Securities will not
contravene any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary
(except for any such contravention that, singly or in the aggregate,
would not have a material adverse effect to the Company and its
subsidiaries, taken as a whole, after giving pro forma effect to the
Merger), and, with respect to the Merger Agreement, other than as
contemplated by the Merger Agreement, no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its
obligations under the Placement Agreement, the Indenture, the Merger
Agreement, the Registration Rights Agreement, the Escrow and Security
Agreement or the Securities (except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Securities by the Placement Agents and the
shares of common stock to be issued to Mr. Kalitta pursuant to the
Merger Agreement and except for such failure to receive such consent,
approval, authorization, order or qualification that, singly or in the
aggregate, would not have a material adverse effect to the Company and
its subsidiaries, taken as a whole, after giving pro forma effect to
the Merger);
(B) to the best of such counsel's knowledge, the
execution and delivery by each of the Guarantors (other than the
Kalitta Companies) of, and the performance by each such Guarantor of
its obligations under, the Placement Agreement, the Escrow and
Security Agreement, the Indenture and the Registration Rights
Agreement and the performance by each such Guarantor of its
obligations under the Securities will not contravene any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Guarantor (except for any such contravention
that, singly or in the aggregate, would not have a material adverse
effect to the Company and its subsidiaries, taken as a whole, after
giving pro forma effect to the Merger), and no consent, approval,
authorization or order of, or qualification with, any governmental
body or agency is required for the performance by such Guarantor or
its subsidiaries of its obligations under the Placement Agreement, the
Indenture, the Registration Rights Agreement or the Securities,
(except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the
Securities by
B-1
<PAGE> 31
the Placement Agents and the shares of common stock to be issued to
Mr. Kalitta pursuant to the Merger Agreement and except for such
failure to such receive consent, approval, authorization, order or
qualification that, singly or in the aggregate, would not have a
material adverse effect to the Company and its subsidiaries, taken as
a whole after giving pro forma effect to the Merger);
(C) such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject other than
proceedings accurately described in all material respects in the Final
Memorandum and proceedings that such counsel believes are not likely
to have a material adverse effect on the Company and its subsidiaries,
taken as a whole after giving pro forma effect to the Merger, or on
the power or ability of the Company to perform its obligations under
the Placement Agreement, the Indenture, the Merger Agreement, the
Registration Rights Agreement, the Escrow and Security Agreement or
the Securities or to consummate the transactions contemplated by the
Final Memorandum, or on the power or ability of the Guarantors (other
than the Kalitta Companies) to perform their obligations under the
Placement Agreement, the Indenture, the Registration Rights Agreement
or the Securities;
(D) Upon filing of the Indenture at the Federal Aviation
Administration ("FAA") registry and the filing of certain UCC-1s in
the States of Michigan and Texas, the grant of a security interest in
the Collateral (other than the Pledged Securities and the Escrow
Account) for the benefit of any Holders of the Securities will
constitute a first priority security interest in the Collateral (other
than the Pledged Securities and the Escrow Account), enforceable as
against all creditors of the Company and all creditors of any
subsidiary thereof, subject to certain limitations on enforceability
as set forth in the Indenture; and
(E) (i) The Indenture is in due form for recording in
accordance with the Aviation Act, and (ii) assuming that the Indenture
is properly recorded in accordance with the Aviation Act, the Lien of
the Indenture creates for the benefit of the Trustee a valid first
priority security interest in the Aircraft in the United States.
B-2
<PAGE> 32
EXHIBIT C
[Miller, Canfield]
Opinion of Special Counsel
for the Kalitta Companies
The opinion of the special counsel for the Kalitta Companies
to be delivered pursuant to Section 4(v) of the Placement Agreement shall be to
the effect that:
(A) each of the Kalitta Companies (other than AIC) is
duly incorporated, validly existing as a corporation under the laws of
the State of Michigan and has the requisite corporate power and
authority to own its property and to conduct its business as described
in the Final Memorandum (references herein to the Final Memorandum
being taken to mean the same, as amended or supplemented);
(B) the Placement Agreement has been duly authorized,
executed and delivered by each of the Kalitta Companies (other than
AIC);
(C) the Merger Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of,
each of the Kalitta Companies (other than AIC), enforceable in
accordance with its terms except as (x) the enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (y) rights of acceleration, if
applicable, and the availability of equitable remedies may be limited
by equitable principles of general applicability;
(D) the execution and delivery by each of the Kalitta
Companies (other than AIC) of, and the performance by each of the
Kalitta Companies (other than AIC) of its obligations under, the
Placement Agreement, the Merger Agreement and the Indenture and the
performance by the Kalitta Companies (other than AIC) of their
obligations under the Securities will not contravene its articles of
incorporation or by-laws; and
(E) the Kalitta Companies have properly taken all
actions, corporate and otherwise, and obtained all consents of
stockholders, necessary to approve the Merger; the Merger will be
effective upon the filing of certificates of merger with the
Department of Consumer and Industry Services of the State of Michigan
in accordance with the terms and provisions of the Merger Agreement.
Miller, Canfield, Paddock & Stone, P.L.C. shall confirm in its
opinion letter that it has received certificates of good standing dated not
earlier than five days prior to the Closing Date for the Company from the State
of Michigan, which certificates shall be attached as an exhibit to such
opinion.
C-1
<PAGE> 33
Subject to the qualification that such counsel has not
undertaken in its opinion to independently determine or otherwise verify,
and does not assume any responsibility for, the accuracy or completeness of the
statements in the Final Memorandum, and based solely upon the participation of
such counsel in various meetings at which representatives of each of Kitty Hawk,
the Kalitta Companies and the Placement Agents and their respective counsel and
independent accountants were at various times present, nothing has come to the
attention of such counsel that has caused it to believe that anything contained
in the Final Memorandum relating to the Kalitta Companies and their respective
businesses and assets, as of the date of the Final Memorandum and as of the
Closing Date, contained an untrue statement of material fact or omitted to state
a material fact required to be stated therein to make the statements therein
relating to the Kalitta Companies, in the light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and the notes
thereto and the schedules and the other financial or statistical data included
in the Final Memorandum).
In rendering such opinions, such counsel may make
qualifications and assumptions customary to the transactions contemplated by
this Agreement, including, without limitation, that such opinions shall be
limited exclusively and in all respects to the federal laws of the United
States of America and the laws of the State of Michigan (but not including the
laws of the any of the political subdivisions thereof), and shall not be deemed
to be opinions with respect to the laws of any other state or foreign
jurisdiction; because the Merger Agreement and the Placement Agreement are by
their terms governed respectively by the laws of the States of Texas and New
York, for purposes of its opinions, such counsel may assume that the internal
substantive laws of the State of Michigan govern the Merger Agreement and the
Placement Agreement rather than the laws of the States of Texas and New York,
and need not express any opinion as to what law will actually govern the Merger
Agreement or the Placement Agreement.
C-2
<PAGE> 34
EXHIBIT D
[Kelsey]
Opinion of Counsel
for the Kalitta Companies
The opinion of the counsel for the Kalitta Companies to be
delivered pursuant to Section 4(vi) of the Placement Agreement shall be to the
effect that:
(A) the execution and delivery by each of the Kalitta
Companies (other than AIC) of, and the performance by each of the
Kalitta Companies (other than AIC) of its obligations under, the
Placement Agreement, the Merger Agreement, the Registration Rights
Agreement and the Indenture and the performance by the Kalitta
Companies of their obligations under the Securities will not
contravene (i) to such counsel's knowledge, any agreement or other
instrument binding upon any of the Kalitta Companies that is material
to the Kalitta Companies, taken as a whole, or (ii) to such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over any of the Kalitta Companies
(other than AIC), and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by any of the Kalitta Companies (other than AIC) or
its subsidiaries of their obligations under the Placement Agreement,
the Merger Agreement, the Indenture, the Registration Rights Agreement
or the Securities; and
(B) such counsel does not know of any legal or
governmental proceedings pending or threatened to which any of the
Kalitta Companies is a party or to which any of the properties of any
of the Kalitta Companies is subject other than proceedings fairly
summarized in all material respects in the Final Memorandum and
proceedings which such counsel believes are not likely to have a
material adverse effect on the Kalitta Companies, taken as a whole, or
on the power or ability of any of the Kalitta Companies to perform
their obligations under the Placement Agreement, the Indenture, the
Registration Rights Agreement, the Securities or the Merger Agreement
or to consummate the transactions contemplated by the Final
Memorandum.
Kelsey Law Offices, P.C. shall also confirm that, to its
knowledge (based solely upon the investigation described in such
opinion letter), the description in the Final Memorandum under the
caption "Business--Legal Proceedings" constitutes a fair summary in
all material respects of such proceedings insofar as they relate to
the Kalitta Companies.
<PAGE> 1
================================================================================
Exhibit 4.7
KITTY HAWK, INC.,
As Issuer
KITTY HAWK AIRCARGO, INC.
KITTY HAWK CHARTERS, INC.
AIRCRAFT LEASING, INC.
AMERICAN INTERNATIONAL AIRWAYS, INC.
AMERICAN INTERNATIONAL TRAVEL, INC.
KALITTA FLYING SERVICE, INC.
O.K. TURBINES, INC.
FLIGHT ONE LOGISTICS, INC.
As Guarantors
AND
BANK ONE, NA
As Trustee and Collateral Trustee
------------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of February 5, 1998
to
INDENTURE
Dated as of November 15, 1997
------------------------------
$340,000,000
9.95% Senior Secured Notes Due 2004
================================================================================
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of February 5, 1998, among
KITTY HAWK, INC., a Delaware corporation (the "Company"), as Issuer, KITTY HAWK
AIRCARGO, INC., a Texas corporation, KITTY HAWK CHARTERS, INC., a Texas
corporation, AIRCRAFT LEASING, INC., a Texas corporation, AMERICAN
INTERNATIONAL AIRWAYS, INC., a Michigan corporation ("AIA"), AMERICAN
INTERNATIONAL TRAVEL, INC., a Michigan corporation, KALITTA FLYING SERVICE,
INC., a Michigan corporation, O.K. TURBINES, INC., a Michigan corporation,
FLIGHT ONE LOGISTICS, INC., a Michigan corporation, as Guarantors
(collectively, the "Guarantors"), and BANK ONE, NA, as Trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Company and the Guarantors have heretofore executed and
delivered to the Trustee a certain indenture, dated as of November 15, 1997,
which was recorded by the FAA on December 8, 1997 and assigned Conveyance No.
T055950 (the "Indenture"), pursuant to which $340,000,000 aggregate principal
amount of 9.95% Senior Secured Notes Due 2004 (collectively, the "Notes") were
issued by the Company and unconditionally guaranteed by the Guarantors; and
WHEREAS the Company and the Guarantors desire and have requested the
Trustee to join with it in the execution and delivery of this First
Supplemental Indenture for the purpose of furnishing additional collateral to
secure the Company's and the Guarantor's obligations under the Indenture; and
WHEREAS, Section 9.01 of the Indenture provides that a supplemental
indenture may be entered into among the Company, the Guarantor, and the Trustee
without the consent of holders of Notes for certain purposes; and
WHEREAS, the Company has furnished the Trustee with an Officer's
Certificate complying with the requirements of Sections 11.03 and 11.04 of the
Indenture; and
WHEREAS, the Company has furnished the Trustee with an Opinion of
Counsel complying with the requirements of Sections 9.05, 11.03 and 11.04 of
the Indenture; and
WHEREAS, all things necessary to make this First Supplemental
Indenture a valid agreement of the Company and the Guarantors and the Trustee
and a valid amendment of and supplement to the Indenture have been done;
AMERICAN INTERNATIONAL AIRWAYS, INC.
GRANTING CLAUSE
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH, for and
in consideration of the premises and the purchase of the Notes by the Holders
thereof, to secure the prompt payment of the principal of and interest on, and
all other amounts due with respect to, all Notes from time to time outstanding
under the Indenture and the performance and observance by the Company of all
the agreements, covenants and provisions for the benefit of the Holders in the
Indenture and the Notes contained, and the prompt payment of any and all
amounts from time to time owing under the Indenture by the Company to the
Trustee, and for the uses and purposes and subject to the terms and provisions
hereof, and in consideration of the premises and the covenants herein
contained, and the acceptance of the Notes by the Holders and of the
- 2 -
<PAGE> 3
sum of $1 paid to the Company by the Collateral Trustee at or before the
delivery hereof, the receipt whereof is hereby acknowledged, AIA has granted,
sold, assigned, transferred, conveyed, pledged and confirmed, and does hereby
grant, assign, transfer, convey, pledge and confirm, unto the Collateral
Trustee and its successors and assigns, for the security and benefit of the
Holders and the Trustee as aforesaid, a first priority security interest in all
estate, right, title and interest of AIA in, to and under the following
described property, rights and privileges (which, collectively, including all
property hereafter specifically subjected to the Lien of the Indenture and this
First Supplemental Indenture by any agreement supplemental hereto or thereto,
or otherwise expressly subject to the terms and provisions hereof or thereof,
shall constitute a portion of the Collateral, to wit:
(i) two Boeing 747s, along with their engines, as
specified on Schedule A hereto (collectively, known,
herein and in the Indenture, as the "Optioned Boeing
747s");
(ii) all insurance and requisition proceeds and other
similar payments with respect to each of the Optioned
Boeing 747s;
(iii) all monies or securities deposited or required to be
deposited with the Trustee;
(iv) any purchase agreements and any related documentation
to the extent assignable for each Optioned Boeing
747; and
(v) all logs, data and records related to the Optioned
Boeing 747s; and
(vi) all proceeds of the foregoing, other than accounts;
and
(vii) all rights of AIA under any Lease relating to the
Optioned Boeing 747s.
PROVIDED, HOWEVER, that notwithstanding any of the foregoing provisions, so
long as no Event of Default shall have occurred and be continuing under the
Indenture, (a) the Collateral Trustee shall not take or cause to be taken any
action contrary to the Company's right hereunder to quiet enjoyment of the
Optioned Boeing 747s and related hush kits, and to possess, use, retain and
control the Optioned Boeing 747s and related hush kits and all revenues, income
and profits derived therefrom.
AIA HABENDUM CLAUSE
TO HAVE AND TO HOLD ALL and singular and aforesaid property unto the
Collateral Trustee and its successors and assigns, in trust for the benefit and
security of the Holders and the Trustee and for the uses and purposes and
subject to the terms and provisions set forth in the Indenture; provided,
however, that the Lien of this First Supplemental Indenture and the Indenture
shall be subject to discharge as provided in Section 8.02 of the Indenture.
AIA does hereby constitute the Collateral Trustee the true and lawful
attorney of AIA, irrevocably, with full power (in the name of AIA or otherwise)
to ask, require,
- 3 -
<PAGE> 4
demand, receive, compound and give acquittance for any and all monies and
claims for monies (in each case including insurance and requisition proceeds)
due and to become due under or arising out of the Indenture and this First
Supplemental Indenture and any documents related hereto and all other property
which now or hereafter constitutes part of the Optioned Boeing 747s, to endorse
any checks or other instruments or orders in connection therewith and to file
any claims or to take any action or to institute any proceedings which the
Collateral Trustee may deem to be necessary or advisable in the premises;
providing, however, that the Collateral Trustee shall not exercise any such
rights except upon the occurrence of an Event of Default under the Indenture.
AIA agrees that at any time and from time to time, upon the written
request of the Collateral Trustee or the Holder of a majority in principal
amount of the Notes outstanding, AIA will promptly and duly execute and deliver
or cause to be duly executed and delivered any and all such further instruments
and documents as the Collateral Trustee or such Holder of a majority in
principal amount of the Notes outstanding may reasonably deem desirable in
obtaining the full benefits of the assignment hereunder and the rights and
powers granted herein.
ARTICLE TWO
Section 2.01 Defined Terms. All terms used in this First
Supplemental Indenture not otherwise defined herein shall have the meanings
ascribed thereto in the Indenture.
Section 2.02 Execution in Counterparts. This First Supplemental
Indenture may be executed in any number of counterparts. Each such counterpart
shall be an original, but such counterparts shall together constitute one and
the same instrument.
Section 2.03 Confirmation of Indenture. Except as amended and
supplemented hereby, all of the provisions of the Indenture shall remain and
continue in full force and effect and are hereby confirmed in all respects.
* * * * *
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the Company and each of the Guarantors has caused
this First Supplemental Indenture to be duly executed and the Trustee has
caused this First Supplemental Indenture to be duly executed, all as of the day
and year first above written.
KITTY HAWK, INC.,
as Issuer
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Senior Vice President-Finance
KITTY HAWK CHARTERS, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
AIRCRAFT LEASING, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: President
KITTY HAWK AIRCARGO, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
AMERICAN INTERNATIONAL AIRWAYS, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
- 5 -
<PAGE> 6
KALITTA FLYING SERVICE, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
FLIGHT ONE LOGISTICS, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
O.K. TURBINES, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
AMERICAN INTERNATIONAL TRAVEL, INC.
By: /s/ RICHARD R. WADSWORTH
-------------------------------------------
Name: Richard R. Wadsworth
Title: Vice President
BANK ONE, NA,
as Trustee and Collateral Trustee
By: /s/ JON BEACHAM
-------------------------------------------
Name: Jon Beacham
Title: Trust Officer
- 6 -
<PAGE> 7
SCHEDULE A
-6-
<PAGE> 8
Schedule A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Airframe Manufacturer and Serial Number U.S. Reg. No. Engine Manufacturer and Serial Numbers
Model Model
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Boeing 747-2B4B 21098 N203AE Pratt Whitney JT9D- 689475, 689461, 689497, 689460
7JCN
- ------------------------------------------------------------------------------------------------------------------------------------
Boeing 747-2B4B 21099 N204AE Pratt Whitney JT9D- 689522, 689477, 689458, 689478
7JCN
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Engines have 750 or more rated takeoff horsepower.
- 7 -
<PAGE> 1
EXHIBIT 5.1
[HAYNES AND BOONE, LLP LETTERHEAD]
February 3, 1998
Kitty Hawk, Inc.
Kitty Hawk Aircargo, Inc.
Kitty Hawk Charters, Inc.
Aircraft Leasing, Inc.
American International Airways, Inc.
American International Travel, Inc.
O.K. Turbines, Inc.
Flight One Logistics, Inc.
Kalitta Flying Services, Inc.
P.O. Box 612787
1515 West 20th Street
D/FW International Airport, Texas 75261
Re: Registration Statement on Form S-4; $340,000,000
Aggregate Principal Amount of 9.95% Senior Secured
Notes due 2004 and the Guarantees thereof
Ladies and Gentlemen:
We have acted as special counsel for Kitty Hawk, Inc., a Delaware corporation
(the "Company"), and Kitty Hawk Aircargo, Inc., a Texas corporation, Kitty Hawk
Charters, Inc., a Texas corporation, Aircraft Leasing, Inc., a Texas
corporation, American International Airways, Inc., a Michigan corporation,
American International Travel, Inc., a Michigan corporation, O.K. Turbines,
Inc., a Michigan corporation, Flight One Logistics, Inc., a Michigan
corporation, and Kalitta Flying Services, Inc., a Michigan corporation (the
"Guarantors"), in connection with the proposed issuance by the Company of
$340,000,000 aggregate principal amount of 9.95% Senior Secured Notes due 2004
(the "Notes") and the guarantees thereof by the Guarantors (the "Guarantees")
in exchange for an equivalent amount of the Company's outstanding 9.95% Senior
Secured Notes due 2004 (the "Old Notes"), which are also guaranteed by the
Guarantors. The terms of the offer to exchange are described in the
Registration Statement on Form S-4 (the "Registration Statement") filed with
the Securities and Exchange Commission for the registration of the Notes and
the Guarantees under the Securities Act of 1933, as amended (the "Act"). The
Old Notes have been, and the Notes will be, issued pursuant to an indenture
(the "Indenture") dated as of November 15, 1997, among the Company, the
Guarantors and Bank One, NA, as Trustee and Collateral Trustee (the "Trustee").
In connection with the foregoing, we have examined the Indenture, the
Registration Statement and such corporate records and instruments of the
Company and the Guarantors as we have deemed necessary or appropriate for
purposes of this opinion.
We are opining herein as to the effect on the proposed issuance of the Notes
and the Guarantees of the federal laws of the United States, the laws of the
State of Texas, the laws of the State of New York and the general corporate law
of the State of Delaware.
<PAGE> 2
Kitty Hawk, Inc.
Kitty Hawk Aircargo, Inc.
Kitty Hawk Charters, Inc.
Aircraft Leasing, Inc.
American International Airways, Inc.
American International Travel, Inc.
O.K. Turbines, Inc.
Flight One Logistics, Inc.
Kalitta Flying Services, Inc.
February 3, 1998
Page 2
Specific Limitations and Qualifications on
Opinions Regarding Enforceability of the Notes and Guarantees
The enforceability of the Notes and the Guarantees are subject to (a) the
effects of (i) applicable bankruptcy, insolvency, reorganization, moratorium,
rearrangement, liquidation, conservatorship or similar laws of general
application now or hereafter in effect relating to or affecting the rights or
remedies of creditors generally, (ii) general equity principles (regardless of
whether enforcement is sought in a proceeding in equity or law), and (iii)
statutory provisions of the federal Bankruptcy Code and the Uniform Fraudulent
Conveyance Act as adopted by the State of New York (and related court
decisions) pertaining to the voidability of preferential or fraudulent
transfers, conveyances and obligations, (b) the rights of the United States
under the Federal Tax Lien Act of 1966, as amended, (c) the application of a
standard of "good faith" such as that defined in Section 1.203 of the Uniform
Commercial Code as adopted in the State of New York (the "Code") and (d) any
limitations on rights to indemnity and contribution as may be imposed by
federal and state securities laws or the policies underlying them; provided,
however, that we note that any limitations referred to in clauses (a)(ii), and
(c) imposed by such laws on the enforceability of the Notes and the Guarantees
will not prevent the holders thereof from the ultimate realization of the
practical benefits of such instruments, except for the economic consequences of
any judicial, administrative or other procedural delay that may result from
such laws.
We express no opinion as to the enforceability of provisions of the Notes or
the Guarantees to the extent that such provisions: (i) state that any party's
failure or delay in exercising rights, powers, privileges or remedies under the
Notes or the Guarantees, as the case may be, shall not operate as a waiver
thereof; (ii) purport to preclude the amendment, waiver, release or discharge
of obligations except by an instrument in writing; (iii) purport to indemnify
any person for (A) such person's violations of federal or state securities laws
or environmental laws, or (B) any obligation to the extent such obligation
arises from or is a result of such person's own negligence; (iv) purport to
establish or satisfy certain factual standards or conditions; (v) purport to
sever unenforceable provisions from the Notes or the Guarantees, to the extent
that the enforcement of remaining provisions would frustrate the fundamental
intent of the parties to such instruments; (vi) restrict access to legal or
equitable remedies; or (vii) purport to waive any claim arising out of, or in
any way related to, the Notes or the Guarantees. We advise you that the
inclusion of such provisions in the Notes or the Guarantees does not render
void or invalidate the obligations and liabilities of the Company under other
provisions of such instruments.
We express no opinion as to: (i) whether a court would grant specific
performance or any other equitable remedy with respect to enforcement of any
provision contained in the Notes or the Guarantees; or (ii) the enforceability
of any provision contained in the Indenture relating to the appointment of a
receiver, to the
<PAGE> 3
Kitty Hawk, Inc.
Kitty Hawk Aircargo, Inc.
Kitty Hawk Charters, Inc.
Aircraft Leasing, Inc.
American International Airways, Inc.
American International Travel, Inc.
O.K. Turbines, Inc.
Flight One Logistics, Inc.
Kalitta Flying Services, Inc.
February 3, 1998
Page 3
extent that appointment of a receiver is governed by applicable statutory
requirements, and to the extent that such provision may not be in compliance
with such requirements.
We express no opinion as to the enforceability of those provisions of the
Guarantees that state or mean that the Guarantees shall not be impaired,
adversely affected or released by any of the following: (i) any action taken by
any holder of the Notes in bad faith, for the purpose of or with the effect of,
impairing any of the Guarantors' rights of subrogation, reimbursement,
contribution, indemnity or exoneration against the Company, any other guarantor
or collateral for the obligations guaranteed; or (ii) a legal determination
that the obligations guaranteed are void as a result of illegality.
Based upon the foregoing and subject to the qualifications stated herein, it is
our opinion that, when (i) the Registration Statement has been declared
effective under the Act, (ii) the Old Notes have been validly exchanged by the
Company, and (iii) the Notes and the Guarantees have been executed and
delivered by the Company and the Guarantors and authenticated by the Trustee,
all in accordance with the terms of the Indenture and the Registration
Statement, the Notes and the Guarantees will constitute valid and binding
obligations of the Company and the Guarantors, respectively, enforceable
against the Company and the Guarantors in accordance with their terms.
To the extent that the obligations of the Company or the Guarantors under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee
is duly qualified to engage in the activities contemplated by the Indenture;
that the Indenture has been duly authorized, executed and delivered by the
Trustee and constitutes the legally valid and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms; that the
Trustee is in compliance, generally and with respect to acting as a trustee
under the Indenture, with all applicable laws and regulations; and that the
Trustee has the requisite organizational and legal power and authority to
perform its obligations under the Indenture.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained therein under
the headings "Legal Matters."
Very truly yours,
/s/ HAYNES AND BOONE, LLP
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 5.2
[HAYNES & BOONE, LLP LETTERHEAD]
February 3, 1998
Kitty Hawk, Inc.
Kitty Hawk Aircargo, Inc.
Kitty Hawk Charters, Inc.
Aircraft Leasing, Inc.
American International Airways, Inc.
American International Travel, Inc.
O.K. Turbines, Inc.
Flight One Logistics, Inc.
Kalitta Flying Services, Inc.
P.O. Box 612787
1515 West 20th Street
D/FW International Airport, Texas 75261
Re: Offer by Kitty Hawk, Inc., Kitty Hawk Aircargo, Inc., a Texas
corporation, Kitty Hawk Charters, Inc., a Texas corporation,
Aircraft Leasing, Inc., a Texas corporation, American
International Airways, Inc., a Michigan corporation, American
International Travel, Inc., a Michigan corporation, O.K.
Turbines, Inc., a Michigan corporation, Flight One Logistics,
Inc., a Michigan corporation, and Kalitta Flying Services, Inc.,
a Michigan corporation, to exchange 9.95% Senior Secured Notes
Due 2004 and the Guarantees thereof for any and all of 9.95%
Senior Secured Notes Due 2004 and the Guarantees thereof
Ladies and Gentlemen:
We have acted as special counsel to Kitty Hawk, Inc. (the "COMPANY") and its
subsidiaries, Kitty Hawk Aircargo, Inc., a Texas corporation, Kitty Hawk
Charters, Inc., a Texas corporation, Aircraft Leasing, Inc., a Texas
corporation, American International Airways, Inc., a Michigan corporation,
American International Travel, Inc., a Michigan corporation, O.K. Turbines,
Inc., a Michigan corporation, Flight One Logistics, Inc., a Michigan
corporation, and Kalitta Flying Services, Inc., a Michigan corporation (the
"GUARANTORS"), in connection with the offer (the "EXCHANGE OFFER") to exchange
the 9.95% Senior Secured Notes Due 2004 and the Guarantees thereof (the
"EXCHANGE NOTES") for any and all outstanding 9.95% Senior Secured Notes Due
2004 and the Guarantees thereof (the "PRIVATE NOTES").
You have requested our opinion as to certain United States federal income tax
consequences of the Exchange Offer. In preparing our opinion, we have reviewed
and relied upon the Company's Registration Statement on Form S-4, filed with
the Securities and Exchange Commission on December 31, 1997 (the "REGISTRATION
STATEMENT"), and such other documents as we deemed necessary.
On the basis of the foregoing, it is our opinion that the exchange of the
Private Notes for Exchange Notes pursuant to the Exchange Offer will not be
treated as an "exchange" for United States federal income tax purposes and
therefore, is not a taxable transaction for such purposes.
<PAGE> 2
Kitty Hawk, Inc.
Kitty Hawk Aircargo, Inc.
Kitty Hawk Charters, Inc.
Aircraft Leasing, Inc.
American International Airways, Inc.
American International Travel, Inc.
O.K. Turbines, Inc.
Flight One Logistics, Inc.
Kalitta Flying Services, Inc.
February 3, 1998
Page 2
The opinion set forth above is based upon the applicable provisions of the
Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated
or proposed thereunder, current positions of the Internal Revenue Service (the
"IRS") contained in published revenue rulings, revenue procedures, and
announcements, existing judicial decisions, and other applicable authorities.
No tax rulings have been or will be sought from the IRS with respect to any of
the matters discussed herein. Unlike a ruling from the IRS, opinions of counsel
are not binding on the IRS. Hence, no assurance can be given that the opinion
stated in this letter will not be successfully challenged by the IRS. We
express no opinion concerning any U.S. federal income tax consequences of the
Exchange Offer except as expressly set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm and the summarization
of this opinion under the section titled "Certain U.S. Federal Income Tax
Considerations" in the Registration Statement.
Very truly yours,
/s/ HAYNES AND BOONE, LLP
Haynes and Boone, LLP
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
dated as of November 19, 1997
among
KITTY HAWK, INC.
as Borrower
and
KITTY HAWK AIRCARGO, INC.
AIRCRAFT LEASING, INC.
KITTY HAWK CHARTERS, INC.
SKYFREIGHTERS CORPORATION
AMERICAN INTERNATIONAL AIRWAYS, INC.
AMERICAN INTERNATIONAL TRAVEL, INC.
FLIGHT ONE LOGISTICS, INC.
KALITTA FLYING SERVICE, INC.
and
O. K. TURBINES, INC.
as Guarantors
and
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
as Agent
and
THE LENDERS NAMED HEREIN
$100,000,000 REVOLVING CREDIT LOANS FACILITY
and
$45,900,000 TERM LOANS FACILITY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 1.3 Accounting Terms and Determinations. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 1.4 Financial Covenants and Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 2 - Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.2 The Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.3 Repayment of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.4 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.5 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans . . . . . . . . . . . . . . 38
Section 2.7 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.8 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.9 Certain Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.10 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.12 Computations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.13 Termination or Reduction of Commitments. . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.14 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 3 - Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.1 Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.2 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.3 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.4 Non-Receipt of Funds by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.5 Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.6 Withholding Tax Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.7 Reinstatement of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 4 - Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.1 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.2 Limitation on Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.3 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.4 Treatment of Affected Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.5 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.6 Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 4.7 Additional Interest on Eurodollar Loans. . . . . . . . . . . . . . . . . . . . . . . . 52
Section 4.8 Mitigation of Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.1 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.2 Guaranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.3 New AIA Aircraft Related Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.4 New Subsidiaries; New Issuances of Capital Stock. . . . . . . . . . . . . . . . . . . . . 54
Section 5.5 Release of Certain Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.6 Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.7 Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 6 - Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.1 Initial Extension of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 6.2 All Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.3 Closing Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 7 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 7.1 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.2 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.3 Corporate Action; No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.4 Operation of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.5 Litigation and Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.6 Rights in Properties; Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.7 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.8 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.9 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.11 Margin Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.13 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.14 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.15 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 7.16 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.17 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.18 Public Utility Holding Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.19 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.20 Labor Disputes and Acts of God. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.21 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.22 Outstanding Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 7.23 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.24 Employee Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.25 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.26 Common Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.27 Related Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.28 Purchase Money Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 8 - Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.1 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.2 Maintenance of Existence; Conduct of Business. . . . . . . . . . . . . . . . . . . . . . 74
Section 8.3 Maintenance of Properties; Hush Kits. . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.4 Taxes and Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.6 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.7 Keeping Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.9 Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.10 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.12 Aircraft Registration, Maintenance, Operation, Insignia. . . . . . . . . . . . . . . . 79
Section 8.13 Replacement of Parts; Alterations, Modifications and Additions . . . . . . . . . . . . . 80
Section 8.14 Ownership of Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 8.15 Collateral Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE 9 - Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.1 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.2 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.3 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.4 Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.5 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.6 Limitation on Issuance of Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.7 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 9.8 Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.9 Lines of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.10 Environmental Protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.11 Certain Encumbrances or Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 9.12 Management Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 9.13 Modification of Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 9.14 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 9.15 Territorial Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 9.16 Sale and Leaseback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ARTICLE 10 - Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.1 Maximum Funded Debt to Adjusted EBITDA Ratio. . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.2 Minimum Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.3 Minimum Cash Flow Coverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 10.4 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE 11 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 11.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 11.3 Performance by Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page iii
<PAGE> 5
<TABLE>
<S> <C>
Section 11.4 Cash Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE 12 - Agency and Intercreditor Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 12.1 Appointment, Powers and Immunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 12.2 Rights of Agent as a Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 12.3 Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 12.4 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 12.5 Independent Credit Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.6 Several Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.8 Beneficiaries of Article 12. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
ARTICLE 13 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 13.1 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 13.2 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 13.3 Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 13.4 No Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.5 No Fiduciary Relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.6 Equitable Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.7 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.8 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 13.9 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.10 ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT;
WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 13.11 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.12 Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 13.13 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.15 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.16 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.17 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.18 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 13.19 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13.20 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13.21 Approvals and Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13.22 Joint and Several Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 13.23 AGREEMENT FOR BINDING ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 105
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page iv
<PAGE> 6
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<S> <C>
A Assignment and Acceptance
B Borrowing Base Report
C Revolving Credit Loans Note
D Term Loans Note
E Notice of Borrowing, Conversion,
Continuation or Prepayment
F Arbitration Program
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description of Schedule
-------- -----------------------
<S> <C>
1.1(a) AIA Aircraft Release Amounts
1.1(b) Approved Foreign Account Debtors
1.1(c) Existing Liens and Existing Debt
2.14 Existing Letters of Credit
6.1 Debt to be Paid at Closing
7.5 Litigation
7.9 Debt
7.10 Taxes
7.12 ERISA Matters
7.14 Capitalization
7.21 Material Contracts
7.24 Employee Matters
7.25 Insurance
9.5 Investments
9.12 Consulting Fees
</TABLE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page v
<PAGE> 7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), dated
as of November 19, 1997, is among KITTY HAWK, INC., a Delaware corporation
("Kitty Hawk"), KITTY HAWK AIRCARGO, INC., a Texas corporation ("Aircargo"),
AIRCRAFT LEASING, INC., a Texas corporation ("Leasing"), KITTY HAWK CHARTERS,
INC., a Texas corporation ("Charters"), SKYFREIGHTERS CORPORATION, a Texas
corporation ("Skyfreighters"), 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"), WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, a national banking association ("Wells Fargo"), and each
of the lending institutions which may from time to time become a party hereto
and any successor or assignee thereof (individually, a "Lender" and,
collectively, "Lenders"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a
national banking association, as agent for itself and the other Lenders (in
such capacity, together with its successors and assigns in such capacity,
"Agent").
RECITALS:
A. Kitty Hawk, Aircargo, Leasing, Charters, Skyfreighters, Wells
Fargo (individually and as agent) and Bank One are parties to that certain
Amended and Restated Credit Agreement dated as of August 14, 1996, as amended
by that certain (i) letter agreement dated as of August 14, 1996, (ii) letter
agreement dated as of June 1, 1997, and (iii) First Amendment (as amended, the
"Prior Credit Agreement"), which Prior Credit Agreement, among other things,
provided for a $60,900,000 revolving credit loans facility, a $12,744,000.45
term loans A facility, a $11,225,000 term loans B facility, and a $10,000,000
term loans C facility. The First Amendment provided for, among other things,
the AIA Fleet Advance (in the amount of $45,900,000) to Kitty Hawk under the
revolving credit loans facility provided under the Prior Credit Agreement to
finance Aircargo's purchase of 16 aircraft from AIA.
B. The credit facilities provided under the Prior Credit
Agreement are secured by Liens affecting various airframes and engines owned by
Aircargo and Leasing and other personal property of Kitty Hawk, Aircargo,
Leasing, Charters and Skyfreighters.
C. Kitty Hawk is, concurrently herewith, acquiring all of the
issued and outstanding Capital Stock of each of AIA, AIT, FOL, KFS and OK
pursuant to that certain Agreement and Plan of Merger dated as of September 22,
1997, among Kitty Hawk, Kitty Hawk - AIA, Inc., Kitty Hawk - AIT, Inc., Kitty
Hawk - FOL, Inc., Kitty Hawk - KFS, Inc., Kitty Hawk - OK, Inc., M. Tom
Christopher, AIA, AIT, FOL, KFS, OK and Conrad Kalitta (as amended, the "Merger
Agreement").
D. Kitty Hawk is, concurrently herewith, issuing up to an
additional 3,000,000 shares of its common stock pursuant to a registered public
offering (the "Common Stock Offering").
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 1
<PAGE> 8
E. Kitty Hawk is, concurrently herewith, issuing up to
$340,000,000 in principal amount of its 9.95% Senior Secured Notes Due 2004
(the "Senior Notes") pursuant to an offering that is not registered under the
Securities Act of 1933, as amended (the "Note Offering").
F. The Common Stock Offering and the Note Offering are
conditioned on (i) the concurrent consummation of the Merger and (ii) the
execution and delivery of this Agreement.
G. A portion of the proceeds of the Common Stock Offering and the
Note Offering are, concurrently herewith, being used (i) to pay the cash
portion of the purchase price payable by Kitty Hawk pursuant to the Merger
Agreement, (ii) to pay a portion of the indebtedness owed by Kitty Hawk,
Leasing and/or other Kitty Hawk Companies under the Prior Credit Agreement, and
(iii) to pay a portion of the indebtedness owed by the Kalitta Companies under
their outstanding credit facilities.
H. Bank One is, substantially concurrently herewith but
immediately prior hereto, assigning all of its interest in the outstanding
loans (including the AIA Fleet Advance) under the Prior Credit Agreement to
Wells Fargo.
I. The parties hereto desire to amend and restate the Prior
Credit Agreement, among other things, (i) to reflect the payment of certain
indebtedness owed by Kitty Hawk, Leasing and/or other Kitty Hawk Companies
under the Prior Credit Agreement, (ii) to refinance the AIA Fleet Advance with
the Term Loans, and (iii) to provide for a $100,000,000 revolving credit
facility to refinance and replace the revolving credit facility provided under
the Prior Credit Agreement and to provide working capital for the Companies.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms have the following meanings:
"ACMI Agreement" means a charter agreement pursuant to which Aircargo
or any other Company supplies aircraft, crew, maintenance and insurance and as
to which a Company (a) retains operational control of such aircraft and (b)
maintains such aircraft on its operations specifications. An ACMI Agreement is
not included within the term "lease" as such term is used in this Agreement.
"Additional Costs" has the meaning specified in Section 4.1.
"Adjusted EBITDA" means, for any period, without duplication, the sum
of the following for Kitty Hawk and its Subsidiaries for such period, each
determined on a consolidated basis in accordance with GAAP: (a) Net Income,
plus (b) Interest Expense, plus (c) income and franchise
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
<PAGE> 9
taxes to the extent deducted in determining Net Income, plus (d) depreciation
and amortization, minus (e) extraordinary gains to the extent included in
determining Net Income, plus (f) extraordinary losses to the extent deducted in
determining Net Income (provided, however, that no more than $3,000,000 of
integration costs or expenses directly attributable to the Merger during each
of 1997 and 1998 shall be included for purposes of this clause (f)); provided,
however, that, for purposes of determining Adjusted EBITDA of the Kalitta
Companies prior to consummation of the Merger, such Adjusted EBITDA shall be
restated utilizing the accounting principles used in the calculation of
Adjusted EBITDA for Kitty Hawk and its Subsidiaries.
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of one percent determined by Agent (which determination shall
be conclusive in the absence of manifest error) to be equal to (a) the
Eurodollar Rate for such Eurodollar Loan for such Interest Period divided by
(b) one minus the Reserve Requirement for such Eurodollar Loan for such
Interest Period.
"Advance Rate" means a specific percentage for each of Eligible
Receivables and Eligible Parts, which percentage is to be determined by Agent
in its sole discretion in connection with the determination of the initial
Borrowing Base Report in accordance with Section 2.1(a), equal to (a) for
Eligible Receivables, a minimum of 65% and a maximum of 80% and (b) for
Eligible Parts, a minimum of 20% and a maximum of 40%. Once such specific
percentage has been determined by Agent for each of Eligible Receivables and
Eligible Parts, such percentage shall not thereafter be changed without the
agreement of Borrower, Agent and Required Lenders.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds five percent or more of any
class of voting Capital Stock of such first Person, or (c) five percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise; provided, however, in no event shall
Agent or any Lender be deemed an Affiliate of Kitty Hawk or any its
Subsidiaries.
"Agent" has the meaning specified in the introductory paragraph of
this Agreement.
"Agent's Letter" means that certain letter agreement dated November 5,
1997 between Wells Fargo and Kitty Hawk, accepted and agreed to by Kitty Hawk
as of November 6, 1997, relating to certain fees payable by Kitty Hawk in
connection with this Agreement.
"Aggregate Loan Percentage" means, as to any Lender, the percentage
equivalent of a fraction, (a) the numerator of which is the sum of (i) the
outstanding Revolving Credit Loans Commitment (or, if such Commitment has
terminated or expired, the aggregate outstanding principal amount of the
Revolving Credit Loans and Letter of Credit Liabilities) of such Lender, plus
(ii) the outstanding Term Loans of such Lender, and (b) the denominator of
which is the sum of (i) the outstanding Revolving Credit Loans Commitments (or,
if such Commitments have terminated or
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
<PAGE> 10
expired, the aggregate outstanding principal amount of the Revolving Credit
Loans and Letter of Credit Liabilities) of all Lenders, plus (ii) the
outstanding Term Loans of all Lenders.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions, restatements or replacements
hereof.
"AIA" means as specified in the introductory paragraph of this
Agreement.
"AIC" means American International Cargo, a Michigan copartnership.
"AIA Acquisition Agreement" means that certain Agreement for Sale and
Purchase of AIA 727 Fleet dated as of July 31, 1997, among AIA, KFS, Conrad
Kalitta, Aircargo and Kitty Hawk.
"AIA Aircraft" means Aircraft O, Aircraft P, Aircraft Q, Aircraft R,
Aircraft S, Aircraft T, Aircraft U, Aircraft V, Aircraft W, Aircraft X,
Aircraft Y, Aircraft Z, Aircraft AA, Aircraft AB, Aircraft AC and Aircraft AD.
The term "AIA Aircraft" shall also mean and refer to any replacement aircraft
which is required or permitted, under this Agreement or an Aircraft Mortgage,
to replace an AIA Aircraft as Collateral and with respect to which the
Companies comply with each of the applicable requirements contained in this
Agreement and the applicable Aircraft Mortgage.
"AIA Aircraft Release Amount" means, with respect to each particular
AIA Aircraft as of the date of determination, an amount determined by Agent in
good faith equal to (a) the amount for such AIA Aircraft set forth under the
heading "Initial AIA Aircraft Release Amount" on Schedule 1.1 hereto, minus (b)
the product of (i) the aggregate amount of principal of the Term Loans repaid
subsequent to the Closing Date multiplied by (ii) the percentage for such AIA
Aircraft set forth under the heading "Percentage Allocation" on Schedule 1.1.
"AIA Fleet Advance" means the loans in the aggregate amount of
$45,900,000 made, on or about September 17, 1997, by the Prior Lenders to Kitty
Hawk under the Prior Credit Agreement to finance the purchase by Aircargo of
the AIA Aircraft pursuant to the AIA Acquisition Agreement.
"Aircargo" means as specified in the introductory paragraph of this
Agreement.
"Aircraft O" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N719CK (formerly N6806),
Manufacturer's Serial No. 19481, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and avionics
installed in or appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 649038, (iii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 654584, and (iv) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665195.
"Aircraft P means, collectively, (i) one Boeing 727-251 airframe,
United States Aircraft Registration Number N255US, Manufacturer's Serial No.
19974, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
<PAGE> 11
No. 665401, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
649240, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665357.
"Aircraft Q" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N856AA, Manufacturer's Serial No.
20997, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 653766, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665228, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666119.
"Aircraft R" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N858AA, Manufacturer's Serial No.
21085, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666095, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666098, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666059.
"Aircraft S" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6831, Manufacturer's Serial No.
20184, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666253, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665419, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
654979.
"Aircraft T" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6834, Manufacturer's Serial No.
20187, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666123, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666354, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
654076.
"Aircraft U" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6808, Manufacturer's Serial No.
19483, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666034, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665214, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665280.
"Aircraft V" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6811, Manufacturer's Serial No.
19486, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666031, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666125, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
654009.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
<PAGE> 12
"Aircraft W" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N6816, Manufacturer's Serial No.
19491, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 665188, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665232, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
665190.
"Aircraft X" means, collectively, (i) one Boeing 727-23 airframe,
United States Aircraft Registration Number N1908, Manufacturer's Serial No.
19183, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-7B Engine, Manufacturer's Serial
No. 654427, (iii) one Pratt & Whitney JT8D-7B Engine, Manufacturer's Serial No.
654417, and (iv) one Pratt & Whitney JT8D-7B Engine, Manufacturer's Serial No.
654365.
"Aircraft Y" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N729CK (formerly N6807),
Manufacturer's Serial No. 19482, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and avionics
installed in or appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 649269, (iii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665955, and (iv) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665452.
"Aircraft Z" means, collectively, (i) one Boeing 727-22C airframe,
United States Aircraft Registration Number N727CK, Manufacturer's Serial No.
19195, together with any and all parts, appliances, components, instruments,
accessories, accessions, equipment, and avionics installed in or appurtenant to
such airframe, (ii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial
No. 666035, (iii) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
666109, and (iv) one Pratt & Whitney JT8D-9A Engine, Manufacturer's Serial No.
654884.
"Aircraft AA" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N720CK (formerly N6812),
Manufacturer's Serial No. 19487, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and avionics
installed in or appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665365, (iii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665248, and (iv) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 666137.
"Aircraft AB" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N722CK (formerly N6810),
Manufacturer's Serial No. 19485, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and avionics
installed in or appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665466, (iii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 649124, and (iv) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 665160.
"Aircraft AC" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N723CK (formerly N6838),
Manufacturer's Serial No. 20191, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
<PAGE> 13
avionics installed in or appurtenant to such airframe, (ii) one Pratt & Whitney
JT8D-9A Engine, Manufacturer's Serial No. 665348, (iii) one Pratt & Whitney
JT8D-9A Engine, Manufacturer's Serial No. 665395, and (iv) one Pratt & Whitney
JT8D-9A Engine, Manufacturer's Serial No. 665464.
"Aircraft AD" means, collectively, (i) one Boeing 727-223 airframe,
United States Aircraft Registration Number N706CA (formerly N6821),
Manufacturer's Serial No. 19496, together with any and all parts, appliances,
components, instruments, accessories, accessions, equipment, and avionics
installed in or appurtenant to such airframe, (ii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 666153, (iii) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 666346, and (iv) one Pratt & Whitney JT8D-9A
Engine, Manufacturer's Serial No. 666196.
"Aircraft Mortgages" means (a) the Amended and Restated Aircraft
Chattel Mortgage, Security Agreement and Assignment of Rents executed by
Aircargo dated the Closing Date, (b) any Aircraft Chattel Mortgage, Security
Agreement and Assignment of Rents at any time executed pursuant to Article 5
hereof, evidencing or creating a Lien as security for the Obligations in form
and substance reasonably satisfactory to Agent, and (c) any and all amendments,
modifications, supplements, renewals, extensions, restatements or replacements
thereof.
"Airframes" means those certain airframes identified in the
definitions of Aircraft O, Aircraft P, Aircraft Q, Aircraft R, Aircraft S,
Aircraft T, Aircraft U, Aircraft V, Aircraft W, Aircraft X, Aircraft Y,
Aircraft Z, Aircraft AA, Aircraft AB, Aircraft AC and Aircraft AD, together
with any and all parts, appliances, components, instruments, accessories,
accessions, attachments, equipment or avionics (including, without limitation,
communications, radar, navigation systems or other electronic equipment)
installed in, appurtenant to or delivered with or in respect of such airframes.
The term "Airframes" shall also mean and refer to any replacement airframe
which is required or permitted, under this Agreement or an Aircraft Mortgage,
to replace an Airframe as Collateral and with respect to which the Companies
comply with each of the applicable requirements contained in this Agreement and
the applicable Aircraft Mortgage.
"AIT" means as specified in the introductory paragraph of this
Agreement.
"Applicable Base Rate Margin" means, for the period commencing with
the Closing Date and thereafter, the rate per annum set forth in the table
below that corresponds to the ratio of Funded Debt to Adjusted EBITDA for the
four fiscal quarters of Kitty Hawk and its Subsidiaries on a consolidated basis
then most recently ended:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 7
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Applicable
Funded Debt to Adjusted EBITDA Ratio Base Rate Margin
- --------------------------------------------------------------------------------
<S> <C>
Greater than 4.25 to 1.00 1.25%
- --------------------------------------------------------------------------------
Greater than 4.00 to 1.00,
but equal to or less than 4.25 to 1.00 1.00%
- --------------------------------------------------------------------------------
Greater than 3.50 to 1.00,
but equal to or less than 4.00 to 1.00 0.75%
- --------------------------------------------------------------------------------
Greater than 3.00 to 1.00,
but equal to or less than 3.50 to 1.00 0.50%
- --------------------------------------------------------------------------------
Greater than 2.50 to 1.00,
but equal to or less than 3.00 to 1.00 0.25%
- --------------------------------------------------------------------------------
Greater than 2.00 to 1.00,
but equal to or less than 2.50 to 1.00 0.00%
- --------------------------------------------------------------------------------
Equal to or less than 2.00 to 1.00 0.00%
- --------------------------------------------------------------------------------
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the Applicable
Base Rate Margin for the period from the Closing Date to May 19, 1998 shall be
deemed to be 1.25% for Revolving Credit Loans and 1.50% for Term Loans and
shall thereafter be calculated on each Calculation Date based upon the
preceding table and the financial statements delivered by Kitty Hawk pursuant
to Section 8.1(b) and the certificate delivered by Kitty Hawk pursuant to
Section 8.1(c); provided, that if Kitty Hawk fails to deliver to Agent such
financial statements or certificate at least five Business Days before the
relevant Calculation Date, the Applicable Base Rate Margin shall be deemed to
be 1.25% for Revolving Credit Loans and 1.50% for Term Loans until five
Business Days after such statements and certificate are delivered by Kitty Hawk
to Agent, after which the Applicable Base Rate Margin shall be determined as
otherwise provided herein.
"Applicable Commitment Fee Rate" means, for the period commencing with
the Closing Date and thereafter, the rate per annum set forth in the table
below that corresponds to the ratio of Funded Debt to Adjusted EBITDA for the
four fiscal quarters of Kitty Hawk and its Subsidiaries on a consolidated basis
then most recently ended:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 8
<PAGE> 15
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Applicable
Funded Debt to Adjusted EBITDA Ratio Commitment
Fee Rate
- --------------------------------------------------------------------------------
<S> <C>
Greater than 4.25 to 1.00 0.50%
- --------------------------------------------------------------------------------
Greater than 4.00 to 1.00,
but equal to or less than 4.25 to 1.00 0.50%
- --------------------------------------------------------------------------------
Greater than 3.50 to 1.00,
but equal to or less than 4.00 to 1.00 0.50%
- --------------------------------------------------------------------------------
Greater than 3.00 to 1.00,
but equal to or less than 3.50 to 1.00 0.375%
- --------------------------------------------------------------------------------
Greater than 2.50 to 1.00,
but equal to or less than 3.00 to 1.00 0.375%
- --------------------------------------------------------------------------------
Greater than 2.00 to 1.00,
but equal to or less than 2.50 to 1.00 0.375%
- --------------------------------------------------------------------------------
Equal to or less than 2.00 to 1.00 0.250%
- --------------------------------------------------------------------------------
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the Applicable
Commitment Fee Rate for the period from the Closing Date to May 19, 1998 shall
be deemed to be 0.50% and shall thereafter be calculated on each Calculation
Date based upon the preceding table and the financial statements delivered by
Kitty Hawk pursuant to Section 8.1(b) and the certificate delivered by Kitty
Hawk pursuant to Section 8.1(c); provided, that if Kitty Hawk fails to deliver
to Agent such financial statements or certificate at least five Business Days
before the relevant Calculation Date, the Applicable Commitment Fee Rate shall
be deemed to be 0.50% until five Business Days after such statements and
certificate are delivered by Kitty Hawk to Agent, after which the Applicable
Commitment Fee Rate shall be determined as otherwise provided herein.
"Applicable Eurodollar Margin" means, for the period commencing with
the Closing Date and thereafter, the rate per annum set forth in the table
below that corresponds to the ratio of Funded Debt to Adjusted EBITDA for the
four fiscal quarters of Kitty Hawk and its Subsidiaries on a consolidated basis
then most recently ended:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 9
<PAGE> 16
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Applicable
Funded Debt to Adjusted EBITDA Ratio Eurodollar Margin
- --------------------------------------------------------------------------------
<S> <C>
Greater than 4.25 to 1.00 2.75%
- --------------------------------------------------------------------------------
Greater than 4.00 to 1.00,
but equal to or less than 4.25 to 1.00 2.50%
- --------------------------------------------------------------------------------
Greater than 3.50 to 1.00,
but equal to or less than 4.00 to 1.00 2.25%
- --------------------------------------------------------------------------------
Greater than 3.00 to 1.00,
but equal to or less than 3.50 to 1.00 2.00%
- --------------------------------------------------------------------------------
Greater than 2.50 to 1.00,
but equal to or less than 3.00 to 1.00 1.75%
- --------------------------------------------------------------------------------
Greater than 2.00 to 1.00,
but equal to or less than 2.50 to 1.00 1.50%
- --------------------------------------------------------------------------------
Equal to or less than 2.00 to 1.00 1.25%
- --------------------------------------------------------------------------------
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the Applicable
Eurodollar Margin for the period from the Closing Date to May 19, 1998 shall be
deemed to be 2.75% for Revolving Credit Loans and 3.00% for Term Loans and
shall thereafter be calculated on each Calculation Date based upon the
preceding table and the financial statements delivered by Kitty Hawk pursuant
to Section 8.1(b) and the certificate delivered by Kitty Hawk pursuant to
Section 8.1(c); provided, that if Kitty Hawk fails to deliver to Agent such
financial statements or certificate at least five Business Days before the
relevant Calculation Date, the Applicable Eurodollar Margin shall be deemed to
be 2.75% for Revolving Credit Loans and 3.00% for Term Loans until five
Business Days after such statements and certificate are delivered by Kitty Hawk
to Agent, after which the Applicable Eurodollar Margin shall be determined as
otherwise provided herein.
"Applicable Lending Office" means for each Lender and each Type of
Loan, the lending office of such Lender (or of an Affiliate of such Lender)
designated for such Type of Loan below its name on the signature pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant
to an assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to Agent as the
office by which its Loans of such Type are to be made and maintained.
"Applicable Rate" means: (a) during the period that any Loan is a
Base Rate Loan, the Base Rate plus the Applicable Base Rate Margin; and (b)
during the period that any Loan is a Eurodollar Loan, the Eurodollar Rate plus
the Applicable Eurodollar Margin.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 10
<PAGE> 17
"Asset Disposition" means the disposition of any or all of the
Property (other than the grant of a Lien as security) of any Company, whether
by sale, lease, transfer, assignment, condemnation or otherwise, but excluding
(a) any involuntary disposition resulting from casualty damage to Property, (b)
any disposition of Parts, any disposition of engines which do not constitute
Collateral and any disposition of other equipment which does not constitute
Collateral, in each case in the ordinary course of business, and (c) any
disposition of Property which constitutes collateral securing, and permitted to
secure in accordance with this Agreement, the Debt evidenced by the Senior
Notes.
"Assignee" has the meaning specified in Section 13.8(b).
"Assigning Lender" has the meaning specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by Agent pursuant to Section
13.8(e), in substantially the form of Exhibit A hereto.
"Bank One" means Bank One, Texas, N.A., a national banking
association.
"Bank One Interest Rate Protection Agreement" means that certain ISDA
Master Agreement dated as of December 19, 1995, between Bank One and Leasing,
as it may be amended, modified, supplemented or restated at any time and from
time to time, and all Confirmations (as defined therein) issued pursuant
thereto, including, without limitation, the two Confirmations dated December
18, 1995.
"Bankruptcy Code" has the meaning specified in Section 11.1(e).
"Base Rate" means, at any time, the higher of (a) the Prime Rate then
in effect or (b) the sum of (i) the Federal Funds Rate then in effect plus (ii)
one-half of one percent (0.50%).
"Base Rate Loans" means any Loans that bear interest at rates based
upon the Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or any replacement
thereof.
"Borrowing Base" means, (a) prior to the earlier to occur of the date
of delivery of the initial Borrowing Base Report in accordance with Section
2.1(a) or January 19, 1998, 65% of Eligible Receivables and (b) at any date of
determination thereafter (commencing with the earlier to occur of the date of
delivery of the initial Borrowing Base Report in accordance with Section 2.1(a)
or January 19, 1998) an amount equal to the sum of (i) the Advance Rate of
Eligible Receivables plus (ii) the lesser of the Advance Rate of Eligible Parts
or $20,000,000.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 11
<PAGE> 18
"Borrowing Base Report" means a report in substantially the form of
Exhibit B attached hereto and completed and certified by a Responsible Officer
of Kitty Hawk certifying as to the Borrowing Base.
"Business Day" means (a) any day on which commercial banks are not
authorized or required to close in Dallas, Texas, or San Francisco, California,
and (b) with respect to all borrowings, payments, Conversions, Continuations,
Interest Periods and notices in connection with Eurodollar Loans, any day which
is a Business Day described in clause (a) above and which is also a day on
which dealings in Dollar deposits are carried out in the London interbank
market.
"Calculation Date" means the date occurring each quarter during the
term of this Agreement which is 15 days after the date on which quarterly
financial statements of Kitty Hawk and its Subsidiaries are required by Section
8.1(b) to be delivered to Agent.
"Capital Expenditures" means, for any period, expenditures (including
Capital Lease Obligations incurred) made by Kitty Hawk and its Subsidiaries to
acquire or construct fixed assets, plant or equipment (including renewals,
improvements or replacements, but excluding repairs) during such period and
which, in accordance with GAAP, are classified as capital expenditures.
"Capital Lease Obligations" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) real and/or personal Property, which
obligations are required to be classified or accounted for as a capital lease
on a balance sheet of such Person under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all shares,
partnership interests, limited partnership interests, limited liability company
interests, membership interests, equity interests, participations, rights or
other equivalents (however designated) of corporate stock or any of the
foregoing issued by any entity (whether a corporation, a partnership or another
entity).
"Change of Control" means any of the following events: (a) Kitty Hawk
shall at any time fail to own, legally and beneficially, 100% of the
outstanding Capital Stock of any of the Operating Subsidiaries other than AIC;
(b) M. Tom Christopher or a successor reasonably acceptable to Required Lenders
shall at any time fail to own, legally and beneficially, at least ten percent
(10%) of the outstanding voting Capital Stock of Kitty Hawk; (c) after the
consummation of a Public Offering, any Person or two or more Persons (other
than the Permitted Holders) acting as a group (as defined in Section 13d-3 of
the Securities Exchange Act of 1934) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 25% or more of the outstanding
shares of voting Capital Stock of Kitty Hawk; (d) individuals who, as of the
Closing Date, constitute the Board of Directors of Kitty Hawk (the "Kitty Hawk
Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of Kitty Hawk, provided, however, that any individual
becoming a director of Kitty Hawk subsequent to the Closing Date whose election
or nomination for election by Kitty Hawk's shareholders was approved by a vote
of at least a majority of the directors then comprising
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 12
<PAGE> 19
the Kitty Hawk Incumbent Board shall be considered as though such individual
were a member of the Kitty Hawk Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934) or other actual or threatened solicitation of proxies or contest
by or on behalf of a Person other than the Board of Directors of Kitty Hawk; or
(e) M. Tom Christopher or a successor reasonably acceptable to Required Lenders
shall at any time cease to be chief executive officer of Kitty Hawk.
"Charters" means as specified in the introductory paragraph of this
Agreement.
"Closing Date" means November 19, 1997, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any nature whatsoever upon which a
Lien is created or purported to be created as security for the Obligations or
any portion thereof.
"Commitment Percentage" means, as to any Lender and as to any of its
Commitments (as may be applicable based upon the context in which such term is
used), the percentage equivalent of a fraction, the numerator of which is the
amount of the applicable outstanding Commitment of such Lender (or, if such
Commitment has terminated or expired, the aggregate outstanding principal
amount of the Loans and Letter of Credit Liabilities (with respect to the
Revolving Credit Loans Commitment) of such Lender made or issued, respectively,
pursuant to such Commitment) and the denominator of which is the aggregate
amount of such applicable outstanding Commitments of all Lenders (or, if such
Commitments have terminated or expired, the aggregate outstanding principal
amount of the Loans and Letter of Credit Liabilities (with respect to the
Revolving Credit Loans Commitments) of all Lenders made or issued,
respectively, pursuant to such Commitments), as adjusted from time to time in
accordance with Section 13.8.
"Commitments" means the Revolving Credit Loans Commitments and the
Term Loans Commitments.
"Common Stock Offering" means as specified in Recital D.
"Company" means any Kitty Hawk Company and any Kalitta Company, and
"Companies" means any one or more of such Persons.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of any Eurodollar Loan as a Eurodollar
Loan from one Interest Period to the next Interest Period.
"Contract Rate" has the meaning specified in Section 13.12(a).
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 13
<PAGE> 20
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into another Type of
Loan.
"Current Date" means a date occurring no more than 30 days prior to
the Closing Date or such earlier date which is reasonably acceptable to Agent.
"Debt" means as to any Person at any time (without duplication): (a)
all indebtedness, liabilities and obligations of such Person for borrowed
money; (b) all indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments; (c) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or performed services, except trade accounts payable
of such Person arising in the ordinary course of business that are not past due
by more than 90 days; (d) all Capital Lease Obligations of such Person; (e) all
Debt of others Guaranteed by such Person; (f) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by such Person,
whether or not the indebtedness, liabilities or obligations secured thereby
have been assumed by such Person or are non-recourse to such Person (exclusive
of operating leases as to which such Person is lessee); (g) all reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers' acceptances, surety or other bonds and similar
instruments; (h) all indebtedness, liabilities and obligations of such Person
to redeem or retire shares of Capital Stock of such Person; (i) all liabilities
and obligations (exclusive of liabilities and obligations which are not yet
due) of such Person in connection with any interest rate swap, cap or collar
agreement or similar arrangement between such Person and one or more
counterparties providing for the transfer or mitigation of interest rate risks
either generally or under specified contingencies; and (j) all indebtedness,
liabilities and obligations of such Person in respect of unfunded vested
benefits under any Plan.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan, any
Reimbursement Obligation or any other amount payable by Kitty Hawk or any other
Company under this Agreement or any other Loan Document which is not paid when
due (whether at stated maturity, by acceleration or otherwise), a rate per
annum during the period commencing on the due date until such amount is paid in
full equal to the sum of two percent plus the Applicable Rate as in effect from
time to time.
"Deposit Account" means a deposit account maintained by Kitty Hawk
with a bank selected by Kitty Hawk and reasonably acceptable to Agent.
"Dollars" and "$" mean lawful money of the U. S.
"Eligible Assignee" means (a) any Affiliate of a Lender or (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership or other entity) approved by Agent and,
prior to the occurrence and continuation of a Default, approved by Kitty Hawk,
which approval by Kitty Hawk shall not be unreasonably withheld, conditioned or
delayed; provided, however, that, prior to the occurrence and continuation of a
Default, Kitty Hawk shall not be obligated to approve,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 14
<PAGE> 21
as an Eligible Assignee, any potential Lender which would be entitled to
receive additional payments from Kitty Hawk in accordance with Section 3.5(a)
or indemnification from Kitty Hawk in accordance with Section 3.5(b).
"Eligible Parts" means, at any date of determination, the value of all
Parts then owned by, and in the possession of, Aircargo, Leasing, AIA, KFS or
OK and held for use in the ordinary course of business, in which Agent has a
perfected, first priority Lien pursuant to the Security Documents as security
for payment and performance of the Obligations, valued at an amount determined
by Agent in good faith not to exceed fair market value. Eligible Parts shall
not include (i) Parts with respect to which a claim exists disputing any such
Company's title to or right to possession of such Parts, (ii) Parts that are
not in good condition or do not comply with any Governmental Requirement with
respect to manufacture, use or sale, (iii) Parts that are located outside of
the U.S., (iv) Parts produced in violation of the Fair Labor Standards Act, (v)
Parts that are evidenced by a negotiable or non-negotiable document of title,
and (vi) Parts that have become obsolete or have been damaged or are not usable
in their present state for the use for which they were manufactured or
purchased.
"Eligible Receivables" means, at any date of determination, without
duplication, the aggregate of each Receivable of any Company created in the
ordinary course of business which satisfies each of the following requirements
or conditions:
(a) Such Receivable complies with all applicable
Governmental Requirements, including, without limitation, usury laws,
the Federal Truth in Lending Act and Regulation Z of the Board of
Governors of the Federal Reserve System;
(b) Such Receivable, at the date of issuance of its
invoice, was payable not more than 30 days after the original date of
issuance of the invoice therefor;
(c) Such Receivable has not been outstanding for more
than 30 days past the date upon which the invoice is payable;
(d) Such Receivable was created in connection with the
performance of services by such Company in the ordinary course of
business and such services have been completed;
(e) Such Receivable represents a legal, valid and binding
payment obligation of the account debtor enforceable in accordance
with its terms and arising from an enforceable contract, the
performance of which contract, insofar as it relates to such
Receivable, has been completed by such Company;
(f) Such Company has good and indefeasible title to such
Receivable, Agent holds a perfected first priority Lien on such
Receivable pursuant to the Security Documents as security for payment
and performance of the Obligations;
(g) Such Receivable does not arise out of a contract
with, or an order from, an account debtor that, by its terms (other
than terms which are invalid under applicable law),
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 15
<PAGE> 22
prohibits or makes void or unenforceable the grant of a security
interest to Agent in and to such Receivable;
(h) The amount of such Receivable included in Eligible
Receivables is not subject to any setoff, counterclaim, defense,
dispute, recoupment or adjustment other than normal discounts for
prompt payment; provided, however, that only the portion of such
Receivable affected by such setoff, counterclaim, defense, dispute,
recoupment or adjustment shall be excluded by virtue of this clause
(h);
(i) The account debtor with respect to such Receivable is
not insolvent or the subject of any bankruptcy or insolvency
proceeding and has not made an assignment for the benefit of
creditors, suspended normal business operations, dissolved,
liquidated, terminated its existence, ceased to pay its debts as they
become due or suffered a receiver or trustee to be appointed for any
of its assets or affairs; provided, however, that this exclusion shall
not apply to the extent that such Receivable is the subject of a valid
order, in form and substance satisfactory to Agent in its sole
discretion, issued by a bankruptcy court with jurisdiction over the
account debtor's assets which provides adequate protection for the
payment of such Receivable or Agent is otherwise satisfied as to such
adequate protection with respect to such Receivable;
(j) Such Receivable is not evidenced by chattel paper or
instruments (including, without limitation, leases of aircraft
securing the Debt evidenced by the Senior Notes) unless the Lien on
such chattel paper or instrument is a perfected first priority Lien on
such chattel paper or instrument in favor of Agent pursuant to the
Security Documents;
(k) The account debtor has not notified such Company of
any dispute concerning, or claimed nonconformity of, any of the
services relating to such Receivable; provided, however, that only the
portion of such Receivable affected by such dispute or nonconformity
shall be excluded by virtue of this clause (k);
(l) Such Receivable is not owed by an Affiliate of such
Company;
(m) Such Receivable is payable in Dollars by the account
debtor;
(n) The account debtor with respect to such Receivable is
not domiciled in or organized under the laws of any country other than
the U.S., unless such Receivable has been approved by Agent for
inclusion in the Borrowing Base (subject to the other requirements
contained in this definition); for purposes of this clause (n),
Receivables owed by any Person identified on Schedule 1.1(b) are
approved by Agent for such inclusion;
(o) Such Receivable is not owed by an account debtor as
to which more than twenty percent (20%) of the aggregate balances then
outstanding on Receivables owed by such account debtor thereon and/or
its Affiliates to any one or more of the Companies are more than 30
days past due from the date upon which such invoice is payable;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 16
<PAGE> 23
(p) The account debtor with respect to such Receivable is
not the U.S. or any department, agency or instrumentality thereof,
unless, with respect to the Lien on such Receivable in favor of the
Lender, the Federal Assignment of Claims Act of 1940, as amended,
shall have been complied with;
(q) The account debtor with respect to such Receivable is
not located in New Jersey, Minnesota, West Virginia or any other state
denying creditors access to its courts in the absence of a notice of
business activities report or other similar filing, unless such
Company has either qualified as a foreign corporation authorized to
transact business in such state or has filed a notice of business
activities report or similar appropriate filing with the applicable
state agency for the then current year; and
(r) Such Receivable is not owed by an account debtor as
to which the aggregate of all Receivables owing by such account debtor
or an Affiliate of such account debtor exceeds twenty-five percent
(25%) of the aggregate of all Receivables at such date, provided that
an amount of Receivables owing by such account debtor that do not
exceed twenty-five percent (25%) of the aggregate of all Receivables
at such date shall not be excluded pursuant to this clause (r).
The amount of the Eligible Receivables owed by an account debtor to each
Company shall be net of, and shall be reduced by (if and to the extent not
already so reduced by virtue of the preceding clauses of this definition), the
amount of all contra accounts, reserves, credits, rebates and (subject to the
proviso below) other indebtedness or obligations owed by such Company to such
account debtor; provided, however, that the existence of any such other
indebtedness or obligations owed by such Company to such account debtor shall
not, in and of itself, reduce the amount of Eligible Receivables owed by such
account debtor by the amount of such other indebtedness or obligations (for
purposes of this sentence or clause (i) preceding of this definition) except to
the extent that such other indebtedness or obligations are then due.
"Engines" means those certain aircraft engines identified in the
definitions of Aircraft A, Aircraft O, Aircraft P, Aircraft Q, Aircraft R,
Aircraft S, Aircraft T, Aircraft U, Aircraft V, Aircraft W, Aircraft X,
Aircraft Y, Aircraft Z, Aircraft AA, Aircraft AB, Aircraft AC and Aircraft AD,
together with any and all parts, appliances, components, accessories,
accessions, attachments or equipment (collectively, "such equipment") installed
on, appurtenant to, or delivered with or in respect of such engines prior to
the time when such equipment is replaced by replacement equipment in accordance
with this Agreement. The term "Engines" shall also mean and refer to any
replacement aircraft engine which is required or permitted, under this
Agreement or an Aircraft Mortgage, to be installed upon the Airframes and with
respect to which the Companies comply with each of the applicable requirements
contained in this Agreement and the applicable Aircraft Mortgage.
"Environmental Law" means any federal, state, local or foreign law,
statute, code or ordinance, principle of common law, rule or regulation, as
well as any Permit, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution or the protection,
cleanup or restoration of the environment or natural resources, or to the
public health or
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 17
<PAGE> 24
safety, or otherwise governing the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling, discharge or disposal
of Hazardous Materials, including, without limitation as to U.S. laws, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. Section 9601 et seq., the Superfund Amendment and Reauthorization
Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation and Recovery Act
of 1976, 42 U. S. C. Section 6901 et seq., the Occupational Safety and Health
Act, 29 U S.C. Section 651 et seq., the Clean Air Act, 42 U.S.C. Section 7401
et seq., the Clean Water Act, 33 U. S. C. Section 1251 et seq., the Emergency
Planning and Community Right to Know Act, 42 U. S. C. Section 11001 et seq.,
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136
et seq., and the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.,
and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"Equity Issuance" means any issuance by Kitty Hawk of any Capital
Stock of Kitty Hawk.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
a member of a group of entities, organizations or employers of which Kitty Hawk
or any of its Subsidiaries is also a member and which is treated as a single
employer within the meaning of Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans the interest rate of which are
determined on the basis of the rates referred to in the definition of
"Eurodollar Rate" and "Adjusted Eurodollar Rate" in this Section 1.1.
"Eurodollar Rate" means, for any Eurodollar Loan, for any Interest
Period therefor, the average rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) at which Dollar deposits are offered to the Reference
Lender at approximately 11:00 a.m. London time (or as soon thereafter as
practicable) two Business Days prior to the first day of such Interest Period
by two or more (as the Reference Lender may determine) leading banks in the
London interbank market in immediately available funds, which deposits have a
term comparable to such Interest Period and are in an amount comparable to the
principal amount of the Eurodollar Loan made by the Reference Lender to which
such Interest Period relates, and which rate shall be determined by the
Reference Lender in good faith based upon its standard procedures therefor in
effect from time to time. Subject to the proviso contained in the immediately
preceding sentence, if the Reference Lender is not
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 18
<PAGE> 25
participating in any Eurodollar Loans during any Interest Period therefor
(whether as a result of Section 4.4 or for any other reason), the Eurodollar
Rate and the Adjusted Eurodollar Rate for such Loans for such Interest Period
shall be determined by reference to the amount of the Loans which the Reference
Lender would have made had it been participating in such Loans.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Insurance Proceeds" means any and all proceeds of any
Insurance Recovery which Kitty Hawk or any of its Subsidiaries (as applicable)
(a) has elected to not apply to the repair, construction or replacement of the
Collateral affected or to the purchase of other, similar Property for use in
its business or (b) has not both (i) elected to apply to the repair,
construction or replacement of the Collateral affected or to the purchase of
other, similar Property for use in its business within 90 days of the event
giving rise to the Insurance Recovery and (ii) actually applied to such repair,
construction, replacement or purchase commencing within 180 days after the
receipt of such proceeds by Kitty Hawk or any of its Subsidiaries or Agent and
continuing in a reasonably prompt and diligent fashion thereafter.
"FAA" means the United States Federal Aviation Administration (or any
successor or replacement Governmental Authority having the same or similar
authority and responsibilities).
"Federal Aviation Act" means the Federal Aviation Act of 1958, now
primarily codified in Title 49 of the United States Code, as amended.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one- sixteenth of one percent 1/16 of
1%)) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day provided, that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if
such rate is not so published on such next succeeding Business Day, the Federal
Funds Rate for any day shall be the average rate charged to the Reference
Lender on such day on such transactions as determined by Agent.
"First Amendment" means that certain First Amendment to Credit
Agreement dated as of September 17, 1997, among Kitty Hawk, Leasing, Aircargo,
Charters, Skyfreighters, Wells Fargo, Bank One and Agent.
"FOL" means as specified in the introductory paragraph of this
Agreement.
"Foreign Subsidiary" means any Subsidiary of Kitty Hawk which is
organized and existing under the laws of a foreign country (or political
subdivision thereof).
"Free Cash Flow" means the remainder of (a) Adjusted EBITDA, minus (b)
the sum of (i) Capital Expenditures, plus (ii) income, franchise and other
taxes paid or payable in cash or cash
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 19
<PAGE> 26
equivalents, plus (iii) dividends and other distributions with respect to any
form of Capital Stock paid or payable, plus (iv) the amount paid or payable for
purchases of Capital Stock as treasury shares or interests; provided, however,
that, for purposes of determining Free Cash Flow as such term is used in
Section 10.3 for each fiscal quarter ending during fiscal year 1998 only,
Capital Expenditures shall be calculated by subtracting therefrom the aggregate
cash balances of Kitty Hawk and its Subsidiaries as of December 31, 1997 not to
exceed the amount of such Capital Expenditures.
"Funded Debt" means, at any particular time without duplication, (a)
all Debt of Kitty Hawk and its Subsidiaries which matures by its terms, or is
renewable at the option of Kitty Hawk or any of its Subsidiaries, to a date
more than one year after the original creation of such Debt, (b) all other Debt
which would be classified as "funded indebtedness" or "long-term indebtedness"
on a consolidated balance sheet of Kitty Hawk and its Subsidiaries as of such
date in accordance with GAAP, (c) all Debt of Kitty Hawk and its Subsidiaries
for borrowed money (including, without limitation, the Loans, the Senior Notes
and the Subordinated Debt), (d) all Capital Lease Obligations of Kitty Hawk and
its Subsidiaries, and (e) the sum of the aggregate undrawn face amount of all
outstanding letters of credit (including, without limitation, the Letters of
Credit) and all unreimbursed drawings thereunder for which Kitty Hawk or any of
its Subsidiaries is an account party or otherwise liable.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, or other Governmental Authority or
any department, commission, board, court, agency or any other instrumentality
of any of them.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any indebtedness, liability or obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other indebtedness, liability or obligation as to the payment thereof or to
protect the obligee against loss in respect thereof (in whole
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 20
<PAGE> 27
or in part), provided that the term Guarantee shall not include endorsements
for collection or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning. The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee is made or,
if not stated or determinable, the maximum anticipated liability in respect
thereof (assuming such Person is required to perform thereunder).
"Guaranties" means the guaranty agreements executed by the Companies
(other than Kitty Hawk) or any Subsidiary of Kitty Hawk, dated the Closing Date
(or such other date as any Company or such Subsidiary may execute such guaranty
agreement), guaranteeing payment and performance of the Obligations in form and
substance reasonably satisfactory to Agent, and any other guaranty agreement at
any time executed pursuant to Article 5 hereof, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Guarantor" means any Person which executes a Guaranty.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is,
or is deemed to be, alone or in any combination, hazardous, hazardous waste,
toxic, a pollutant, a deleterious substance, a contaminant or a source of
pollution or contamination under any Environmental Law, including, without
limitation, asbestos, petroleum, underground storage tanks (whether empty or
containing any substance) and polychlorinated biphenyls.
"Hush Kit" means a Stage 3 noise reduction kit for installation on the
engine of any aircraft.
"Indenture" means that certain Indenture, dated as of November 15,
1997, among Kitty Hawk, each Subsidiary of Kitty Hawk other than AIC and Bank
One, NA, as Trustee (as amended from time to time except as may be otherwise
stated herein) relating to the Senior Notes.
"Insurance Recovery" means, with respect to any Collateral and any
single occurrence or related occurrences with respect thereto, the receipt or
constructive receipt by any Company, or the payment by an insurance company to
Agent, of proceeds of any such Collateral or casualty insurance.
"Interest Expense" means, for any period, and in accordance with GAAP,
all interest on Debt of the Companies (or other applicable Person) paid or
accrued during such period, including the interest portion of payments under
Capital Lease Obligations.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from a Base Rate
Loan or, in the case of each subsequent, successive Interest Period applicable
to a Eurodollar Loan, the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as Kitty Hawk may
select as provided in Section 2.9, except that each such Interest Period which
commences on the last Business Day of a calendar month
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 21
<PAGE> 28
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of
the appropriate subsequent calendar month. Notwithstanding the foregoing: (a)
each Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day or, if such succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day; (b) any Interest Period which would otherwise extend beyond an
applicable Maturity Date shall end on such Maturity Date; (c) no more than five
Interest Periods for Eurodollar Loans shall be in effect at the same time for
the Revolving Credit Loans and no more than two Interest Periods for Eurodollar
Loans shall be in effect at the same time for the Term Loans; (d) no Interest
Period for any Eurodollar Loan shall have a duration of less than one month
and, if the Interest Period for any Eurodollar Loans would otherwise be a
shorter period, such Loans shall not be available hereunder; and (e) no
Interest Period for the Term Loans may commence before and end after any
principal repayment date unless, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of the
Term Loans scheduled to be outstanding hereunder after such principal payment
date.
"Investments" has the meaning specified in Section 9.5.
"Issuing Bank" means Wells Fargo or such other Lender which is a
commercial bank as Kitty Hawk and Agent may mutually designate from time to
time which agrees to be the issuer of a Letter of Credit.
"Kalitta Companies" means AIA, AIT, FOL, KFS and OK, and "Kalitta
Company" means any of such corporations.
"KFS" means as specified in the introductory paragraph of this
Agreement.
"Kitty Hawk" means as specified in the introductory paragraph of this
Agreement.
"Kitty Hawk Aircraft" means, collectively, AIA Aircraft and
Non-Collateral Aircraft.
"Kitty Hawk Companies" means, collectively, Kitty Hawk, Aircargo,
Charters, Leasing and Skyfreighters, and "Kitty Hawk Company" means any of such
corporations.
"Leasing" means as specified in the introductory paragraph of this
Agreement.
"Lender" and "Lenders" means as specified in the introductory
paragraph of this Agreement, and includes, without limitation unless otherwise
provided herein, any Lender in its status as an Issuing Bank.
"Letter of Credit" means any standby letter of credit issued by the
Issuing Bank for the account of Kitty Hawk pursuant to this Agreement.
"Letter of Credit Agreement" means, with respect to each Letter of
Credit to be issued by the Issuing Bank therefor, the letter of credit
application and reimbursement agreement which such
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 22
<PAGE> 29
Issuing Bank requires to be executed by Kitty Hawk in connection with the
issuance of such Letter of Credit.
"Letter of Credit Liabilities" means, at any time, the aggregate
undrawn face amounts of all outstanding Letters of Credit and all unreimbursed
drawings under Letters of Credit.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment, preference,
priority or other encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or title retention agreement), whether
arising by contract, operation of law or otherwise.
"Loans" means the Revolving Credit Loans and the Term Loans, and
"Loan" means any of the Revolving Credit Loans or the Term Loans.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the Letter of Credit Agreements and any and
all other promissory notes, chattel mortgages, deeds of trust, security
agreements, assignments, financing statements, guaranties and other agreements,
documents, instruments and certificates now or hereafter executed and/or
delivered pursuant to or in connection with any of the foregoing and any and
all amendments, modifications, supplements, renewals, extensions or
restatements thereof.
"Material Adverse Effect" means the occurrence of any event or the
existence of any condition that has materially and adversely affected, or is
reasonably expected (given the totality of circumstances then existing) to have
a material adverse effect on: (a) the Properties, business, operations,
financial condition or performance, cash flow, liabilities or capitalization of
Kitty Hawk or any of its Subsidiaries; (b) the ability of Kitty Hawk or any of
its Subsidiaries to pay and perform when due its Obligations under any Loan
Document to which it is a party; (c) the value or condition of the AIA Aircraft
taken as a whole; or (d) the validity or enforceability of (i) any of the Loan
Documents, (ii) any Lien created or purported to be created by any of the Loan
Documents or the required priority of any such Lien, or (iii) the rights and
remedies of Agent or Lenders under any of the Loan Documents.
"Material Contracts" means, as to any Person, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
which is deemed to be a material contract of such Person as provided in
Regulation S-K promulgated by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and any and all amendments, modifications,
supplements, renewals or restatements thereof.
"Maturity Date" means the Revolving Credit Loans Maturity Date or the
Term Loans Maturity Date, as the case may be.
"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate, if any, that any time or from time to time may be
contracted for, taken, reserved, charged or received with respect to the
particular Obligations as to which such rate is to be determined, payable to
such Lender pursuant to this Agreement or any other Loan Document, under laws
applicable to such
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 23
<PAGE> 30
Lender which are presently in effect or, to the extent allowed by law, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to Kitty Hawk or any other Company at the time
of such change in the Maximum Rate. For purposes of determining the Maximum
Rate under Texas law, the applicable rate ceiling shall be the weekly ceiling
described in, and computed in accordance with, Article 5069, Vernon's Texas
Civil Statutes, as amended and in effect from time to time, or any successor or
replacement statute; provided, however, that, to the extent permitted by
applicable law, Agent shall have the right to change the applicable rate
ceiling from time to time in accordance with applicable law.
"Merger" means the mergers of Wholly-Owned Subsidiaries of Kitty Hawk
with and into AIA, AIT, FOL, KFS and OK in accordance with the Merger Agreement
and pursuant to which AIA, AIT, FOL, KFS and OK are the surviving entities.
"Merger Agreement" means as specified in Recital C.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from any Company or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Income" means, for any period, the net income (or loss) of the
Companies (or other applicable Person) for such period, determined on a
consolidated basis in accordance with GAAP.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by Kitty Hawk or any of its Subsidiaries from
such Asset Disposition, minus (b) the amount, if any, of all taxes paid or
payable by Kitty Hawk or any of its Subsidiaries directly resulting from such
Asset Disposition (including the amount, if any, estimated by Kitty Hawk in
good faith at the time of such Asset Disposition for taxes payable by Kitty
Hawk or any of its Subsidiaries on or measured by net income or gain resulting
from such Asset Disposition), minus (c) the reasonable out-of-pocket costs and
expenses incurred by Kitty Hawk or such Subsidiary in connection with such
Asset Disposition (including reasonable brokerage fees paid to a Person other
than an Affiliate of Kitty Hawk) excluding any fees or expenses paid to an
Affiliate of Kitty Hawk, minus (d) amounts applied to the repayment of Debt
(other than the Obligations) secured by any Permitted Lien (if any) on the
Property subject to the Asset Disposition. "Net Proceeds" with respect to any
Asset Disposition shall also include proceeds (after deducting any amounts
specified in clauses (b), (c) and (d) of the preceding sentence) of insurance
with respect to any actual or constructive loss of Property, an agreed or
compromised loss of Property or the taking of any Property under the power of
eminent domain and condemnation awards and awards in lieu of condemnation for
the taking of Property under the power of eminent domain, except such proceeds
and awards as are released to and used by Kitty Hawk or any of its Subsidiaries
in accordance with Section 8.5. "Net Proceeds" means, with respect to any
Equity Issuance, (i) the gross amount of cash or cash equivalents plus the
gross value of all other consideration received from such Equity Issuance,
exclusive of the proceeds of sales of
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 24
<PAGE> 31
Capital Stock of Kitty Hawk to employees or directors of Kitty Hawk or its
Subsidiaries in connection with the provision of compensation or benefits to
such employees or directors for their activities as such, minus (ii) the
out-of-pocket costs and expenses incurred by Kitty Hawk in connection with such
Equity Issuance (including any underwriting fees paid to a Person) excluding
any fees or expenses paid to an Affiliate of Kitty Hawk which are in excess of
those that would be paid or payable in connection with an arms' length
transaction with a Person who is not an Affiliate of Kitty Hawk.
"Net Worth" means, at any particular time, all amounts which, in
conformity with GAAP, would be included as stockholders' equity on a
consolidated balance sheet of Kitty Hawk and its Subsidiaries; provided,
however, there shall be excluded therefrom any amount at which shares of
Capital Stock of Kitty Hawk appear as an asset on Kitty Hawk's balance sheet.
"Non-Collateral Aircraft" means (a) any and all aircraft, engines,
propellers, appliances and Parts hereafter owned by Kitty Hawk or any of its
Subsidiaries that (i) are not subject to any Lien in favor of Agent securing
any Obligation and (ii) are not required to be subject to such a Lien in
accordance with this Agreement or any other Loan Document, and (b) all products
and proceeds thereof other than accounts (including, without limitation,
Receivables), chattel paper, general intangibles and other personal property
referred to in Section 5.1.
"Note Offering" means as specified in Recital E.
"Notes" means the Revolving Credit Loans Notes and the Term Loans
Notes and any and all amendments, modifications, supplements, renewals,
extensions, restatements or replacements thereof and all substitutions therefor
(including promissory notes issued by Kitty Hawk pursuant to Section 13.8), and
"Note" means any one of such promissory notes.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of Kitty Hawk and its Subsidiaries, or any of them, to Agent, the
Issuing Bank and Lenders, or any of them, evidenced by and/or arising pursuant
to any of the Loan Documents (including, without limitation, the Guaranties),
now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of Kitty Hawk
and its Subsidiaries, or any of them, to repay the Loans and the Reimbursement
Obligations, to pay interest on the Loans and the Reimbursement Obligations
(including, without limitation, interest accruing after any, if any,
bankruptcy, insolvency, reorganization or similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees and expenses)
provided for in the Loan Documents and (ii) the indebtedness constituting the
Loans, the Reimbursement Obligations and interest accrued thereon and such
fees, indemnities, costs and expenses, and (b) liabilities and obligations of
Kitty Hawk and its Subsidiaries, or any of them, under any interest rate swap,
cap or collar agreement or similar arrangement between Kitty Hawk or any of its
Subsidiaries and another Person providing for the transfer or mitigation of
interest rate risks approved by Agent and Required Lenders as being a part of
the "Obligations" hereunder.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 25
<PAGE> 32
"Offering Memorandum" means that certain Offering Memorandum issued
November 19, 1997, by Kitty Hawk relating to the Senior Notes.
"OK" means as specified in the introductory paragraph of this
Agreement.
"Operating Lease" means, with respect to any Person, any lease, rental
or other agreement for the use by that Person of any Property which is not a
Capital Lease Obligation.
"Operating Lease Expense" means, with respect to any Person, means all
payments of such Person with respect to any Operating Lease.
"Operating Subsidiaries" means, collectively, Aircargo, Leasing,
Charters, AIA, AIT, FOL, KFS, OK, AIC and any other Subsidiary of Kitty Hawk
that is an operating company, and "Operating Subsidiary" means any of such
corporations.
"Outstanding Revolving Credit" means, at any particular time, the sum
of (a) the aggregate outstanding principal amount of the Revolving Credit
Loans, plus (b) all Letter of Credit Liabilities.
"Parts" means all parts, appliances (including, without limitation,
communication equipment and other equipment capable of being used, or intended
to be used, in operating or controlling aircraft in flight), components,
instruments, appurtenances, accessories, furnishings, instruments and other
equipment of whatever nature (other than completed engines) which may be from
time to time, or are suitable for, attachment to, installation in or other
incorporation in an airframe or engine, in each case prior to the time of such
attachment, installation or other incorporation.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Payor" means as specified in Section 3.4.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the
case of a Multiemployer Plan, at any time since September 2, 1974, by Kitty
Hawk or any of its Subsidiaries or ERISA Affiliates for employees of Kitty Hawk
or any of its Subsidiaries or ERISA Affiliates.
"Peril" means as specified in Section 8.5(a).
"Permit" means any permit, certificate, approval, order, license or
other authorization.
"Permitted Holders" means (a) the officers and directors of the
Companies as of the Closing Date, (b) all other individuals who own Capital
Stock of Kitty Hawk on the Closing Date, and (c) any spouse, parent, sibling,
child or grandchild of any of the aforesaid individuals (in each case, whether
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 26
<PAGE> 33
such relationship arises from birth, adoption or through marriage) or any trust
established for the benefit of any such individuals or any spouse, parent,
sibling, child or grandchild of any such individuals (in each case whether such
relationship arises from birth, adoption or through marriage).
"Permitted Liens" means:
(a) Liens in favor of Agent (for the benefit of Agent and
Lenders) securing the Obligations pursuant to the Loan Documents;
(b) Liens in favor of the Trustee securing the Debt
evidenced by the Senior Notes, which Liens are required to be granted
in accordance with the Indenture (including Section 15.05 of the
Indenture), as the Indenture is in effect as of the Closing Date (or
may thereafter be amended with the prior written consent of Agent and
Required Lenders, which consent of Agent and Required Lenders shall
not be deemed given by Section 9.13);
(c) Liens for taxes, assessments or other governmental
charges which (i) are not delinquent or (ii) are being contested in
good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the Property subject to
such Liens, and for which adequate reserves have been established in
accordance with GAAP;
(d) Eurocontrol Liens, landing fee Liens, Liens of
mechanics, materialmen and artisans and other similar statutory
Liens, which Liens (in each case) secure obligations incurred in the
ordinary course of business, which (i) are not yet due or (ii) are
being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of
the Property subject to such Liens, and for which adequate reserves
have been established in accordance with GAAP;
(e) Purchase-money Liens on any Property hereafter
acquired or the assumption after the Closing Date of any Lien on
Property existing at the time of such acquisition (and not created in
contemplation of such acquisition), or a Lien incurred after the
Closing Date in connection with any conditional sale or other title
retention agreement or Capital Lease Obligation; provided that:
(i) any Property subject to the foregoing is
acquired by Kitty Hawk or any of its Subsidiaries in the
ordinary course of its respective business and the Lien on the
Property attaches concurrently or within 90 days after the
acquisition thereof;
(ii) the Debt secured by any Lien so created,
assumed or existing shall not exceed the lesser of the cost or
fair market value at the time of acquisition of the Property
covered thereby;
(iii) each such Lien shall attach only to the
Property so acquired and the proceeds thereof; and
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 27
<PAGE> 34
(iv) the Debt secured by all such Liens shall not
exceed $75,000,000 at any time outstanding in the aggregate;
(f) Liens existing as of the Closing Date and identified
on Schedule 1.1(c); and
(g) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be
extended or spread to cover any additional indebtedness or Property;
provided, however, that (i) none of the Liens referred to in clauses (b) or (f)
preceding may attach or relate to any Collateral, (ii) none of the Liens
referred to in clause (e) preceding may attach or relate to any AIA Aircraft,
Receivables or Parts, (iii) none of the Permitted Liens that attach or relate
to any Collateral may have a priority equal to or greater than the priority of
the Permitted Liens referred to in clause (a) preceding, and (iv) none of the
Permitted Liens, except those referred to in clause (a) preceding, may attach
or relate to any Capital Stock issued by any Subsidiary of Kitty Hawk.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, Governmental
Authority, or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Company or any ERISA
Affiliate, including any Pension Plan.
"Prime Rate" means, at any time, the rate of interest per annum then
most recently announced within Wells Fargo, at the principal office of its
affiliated bank in San Francisco, California, as its highest commercial prime
rate then in effect, which rate (a) is one of its base rates and serves as the
basis upon which effective rates of interest are calculated for loans making
reference thereto, (b) may not be the lowest rate of interest charged by Wells
Fargo to its commercial borrowers, and (c) is evidenced by the recording
thereof after such announcement in such internal publication or publications as
Wells Fargo may designate from time to time. Each change in any interest rate
provided for herein based upon the Prime Rate resulting from a change in the
Prime Rate shall take effect at the time such change is announced within Wells
Fargo and without notice to Kitty Hawk or any of its Subsidiaries at the time
of such change in the Prime Rate.
"Principal Office" means the principal office of Agent in Dallas,
Texas, presently located at 1445 Ross Avenue, Dallas, Texas 75202.
"Prior Credit Agreement" means as specified in Recital A.
"Prior Lenders" means Wells Fargo and Bank One in their capacities as
lenders under the Prior Credit Agreement.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 28
<PAGE> 35
"Pro Forma Balance Sheet" means the pro forma balance sheet of Kitty
Hawk and its consolidated Subsidiaries dated as of September 30, 1997 after
giving effect to the initial Loans under this Agreement and the Related
Transactions.
"Projections" means the financial projections of Kitty Hawk and its
Subsidiaries dated as of the Closing Date and delivered to Agent.
"Property" means, unless the context otherwise requires, property of
all kinds, real, personal or mixed, tangible or intangible (including, without
limitation, all rights relating thereto), whether owned or acquired on or after
the Closing Date.
"Public Offering" means a public offering of any Capital Stock of
Kitty Hawk.
"Quarterly Payment Date" means the last day of each March, June,
September and December of each year, commencing December 31, 1997.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of any
Company in respect of goods sold and shipped or services rendered by a Company.
"Reference Lender" means Wells Fargo.
"Register" has the meaning specified in Section 13.8(d).
"Registration Statement" means that certain Amendment No. 3 to Form
S-1, Registration No. 333-36125, filed with the SEC on November 12, 1997,
relating to the Common Stock Offering.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change
after the Closing Date in any U.S. federal or state, or any foreign, laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of lenders
including such Lender of or under any U.S. federal or state, or any foreign,
laws or regulations (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"Reimbursement Obligations" means the obligation of Kitty Hawk to
reimburse the Issuing Bank for any drawing under a Letter of Credit.
"Related Transactions" means, collectively, (a) the Merger, (b) the
Common Stock Offering, (c) the Note Offering, and (d) the execution, delivery
and performance of the Related Transactions Documents.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 29
<PAGE> 36
"Related Transactions Documents" means, collectively, (a) the Merger
Agreement, (b) the Registration Statement, (c) the Offering Memorandum, (d) the
Indenture, and (e) all other agreements, documents, instruments and
certificates executed and/or delivered pursuant to or in connection with the
Related Transactions.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, discharge, disposal, disbursement,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or in the air, soil,
surface water or ground water.
"Remedial Action" means all actions required to (a) clean up, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043
of ERISA.
"Required Lenders" means, at any date of determination, Lenders having
in the aggregate at least 66 2/3% (in Dollar amount as to any one or more of
the following) of the sum of (a) the aggregate outstanding Revolving Credit
Loans Commitments (or, if such Revolving Credit Loans Commitments have
terminated or expired, the aggregate outstanding principal amount of the
Revolving Credit Loans and Letter of Credit Liabilities), plus (b) the
aggregate outstanding principal amount of the Term Loans.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
or the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to Kitty Hawk or any of its
Subsidiaries, the chief financial officer, chief operating officer or chief
executive officer of such Person.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 30
<PAGE> 37
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of Kitty Hawk or any of its Subsidiaries
now or hereafter outstanding, except a dividend payable solely in shares of
that class of stock to the holders of that class; (b) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
Capital Stock of Kitty Hawk or any of its Subsidiaries now or hereafter
outstanding; (c) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, purchase, retirement or
defeasance of, or payment with respect to, any Subordinated Debt; (d) any loan,
advance or payment to any officer, director or shareholder of Kitty Hawk or any
of its Subsidiaries (other than as may be made in the ordinary course of
business to Kitty Hawk as a shareholder), exclusive of reasonable compensation
paid to officers or directors paid in the ordinary course of business; and (e)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of Kitty Hawk or any of its Subsidiaries now or hereafter outstanding.
"Revolving Credit Loans" means as specified in Section 2.1(a).
"Revolving Credit Loans Commitment" means, as to any Lender, the
obligation of such Lender, in accordance with this Agreement, to make or
continue Revolving Credit Loans and to incur or participate in Letter of Credit
Liabilities hereunder in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount set forth opposite the name of
such Lender on the signature pages hereto under the heading "Revolving Credit
Loans Commitment" or, if such Lender is a party to an Assignment and
Acceptance, the amount of the "Revolving Credit Loans Commitment" set forth in
the most recent Assignment and Acceptance of such Lender, as the same may be
reduced or terminated pursuant to Section 2.13 or 11.2, and "Revolving Credit
Loans Commitments" means such obligations of all Lenders. As of the Closing
Date, the aggregate principal amount of the Revolving Credit Loans Commitments
is $100,000,000.
"Revolving Credit Loans Lender" means, as of any date of
determination, each Lender which has a Revolving Credit Loans Commitment or (if
such Commitment has terminated or expired) which is the holder of (or is owed
by Kitty Hawk any Debt evidenced by) any of the Revolving Credit Loans Notes.
"Revolving Credit Loans Maturity Date" means November 19, 2002.
"Revolving Credit Loans Notes" means the promissory notes, in the form
of Exhibit C hereto, made by Kitty Hawk evidencing the Revolving Credit Loans.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Securities" means any and all securities and other equity rights or
ownership interests of any type or character in any Person which is not a
natural Person, including, without limitation, (a) Capital Stock or other
equity rights, bonds, notes or other instruments convertible into Capital Stock
or other
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 31
<PAGE> 38
equity interests, (b) options, warrants or other rights to acquire Capital
Stock or other equity interests, and (c) partnership and joint venture
interests.
"Security Agreements" means (a) security agreements, pledge agreements
and other agreements, documents or instruments executed by the Companies and
any Subsidiaries of Kitty Hawk dated the Closing Date (or such other date as
any Company or such Subsidiary may execute such Security Agreement), (b) any
such agreement, document or instrument at any time executed pursuant to Article
5 hereof, evidencing or creating a Lien on the Collateral as security for the
Obligations and in form and substance reasonably satisfactory to Agent, and (c)
any and all amendments, modifications, supplements, renewals, extensions,
restatements or replacements thereof.
"Security Documents" means the Guaranties, Aircraft Mortgages and the
Security Agreements, as they may be amended, modified, supplemented, renewed,
extended, restated or replaced from time to time, and any and all other
agreements, deeds of trust, mortgages, chattel mortgages, security agreements,
pledges, guaranties, assignments of proceeds, assignments of income,
assignments of contract rights, assignments of partnership interests,
assignments of royalty interests, assignments of performance or other
collateral assignments, completion or surety bonds, standby agreements,
subordination agreements, undertakings and other agreements, documents,
instruments and financing statements now or hereafter executed and/or delivered
by Kitty Hawk or any of its Subsidiaries in connection with or as security or
assurance for the payment or performance of the Obligations or any part
thereof.
"Senior Notes" means as specified in Recital E.
"Skyfreighters" means as specified in the introductory paragraph of
this Agreement.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's Property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which, in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means any and all Debt of Kitty Hawk or any of its
Subsidiaries which is subordinate in right of payment to the payment of the
Obligations or any portion thereof.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 32
<PAGE> 39
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.
"Term Loans" means as specified in Section 2.1(b).
"Term Loans Commitment" means, as to any Lender, the obligation of
such Lender to make or continue Term Loans hereunder in an aggregate principal
amount up to but not exceeding the amount set forth opposite the name of such
Lender on the signature pages hereto under the heading "Term Loans Commitment",
as the same may be terminated pursuant to Section 11.2, and "Term Loans
Commitments" means such obligations of all Lenders. As of the Closing Date,
the aggregate principal amount of the Term Loans Commitments is $45,900,000.
"Term Loans Lenders" means, as of any date of determination, each
Lender which has a Term Loans Commitment or (if such Commitment has terminated
or expired) which is the holder of (or is owed by Kitty Hawk any Debt evidenced
by) any of the Term Loans Notes.
"Term Loans Maturity Date" means November 19, 2002.
"Term Loans Notes" means the promissory notes made by Kitty Hawk
evidencing the Term Loans, in the form of Exhibit D hereto.
"Title Company" means Federal Aviation Title and Guaranty Company,
Oklahoma City, Oklahoma.
"Trustee" means Bank One, NA, as Trustee under the Indenture, and any
successor trustee thereunder.
"Type" means any type of Loan (i.e., Base Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of
Texas and/or any other jurisdiction, the laws of which may be applicable to or
in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"U.S." means the United States of America.
"Wells Fargo" means as specified in the introductory paragraph of this
Agreement.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 33
<PAGE> 40
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock is owned by
such Person and/or one or more of its Wholly-Owned Subsidiaries.
Section 1.2 Other Definitional Provisions. All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein" and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as
a whole and not to any particular provision of this Agreement. Unless
otherwise specified, all Article, Section and Recital references pertain to
this Agreement. Terms used herein that are defined in the UCC, unless
otherwise defined herein, shall have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations.
(a) All accounting terms not specifically defined herein
shall be construed in accordance with GAAP (subject to year end
adjustments, if applicable) consistent with such accounting principles
applied in the preparation of the audited financial statements
referred to in Section 7.2(a). All financial information delivered to
Agent pursuant to Section 8.1 shall be prepared in accordance with
GAAP (subject to year end adjustments, if applicable) applied on a
basis consistent with such accounting principles applied in the
preparation of the audited financial statements referred to in Section
7.2(a) or in accordance with Section 8.7.
(b) Kitty Hawk shall deliver to Agent and Lenders, at the
same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail,
of any material variation between the application of GAAP employed in
the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with
the last sentence of subsection (a) preceding and (ii) reasonable
estimates of the difference between such statements arising as a
consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in this Agreement (including
Article 10 hereof), neither Kitty Hawk nor any of its Subsidiaries
will change the last day of its fiscal year from December 31st or the
last days of its first three fiscal quarters from March 31st, June
30th and September 30th, respectively.
Section 1.4 Financial Covenants and Reporting. The financial
covenants contained in Article 10 shall be calculated on a consolidated basis
for Kitty Hawk and its Subsidiaries.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 34
<PAGE> 41
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Revolving Credit Loans. Subject to the terms and
conditions of this Agreement (including, without limitation, Section
2.13), each Revolving Credit Loans Lender severally agrees to make one
or more revolving credit loans to Kitty Hawk from time to time from
and including the Closing Date to but excluding the Revolving Credit
Loans Maturity Date in an aggregate principal amount outstanding not
to exceed the positive remainder of (i) the amount of such Lender's
Revolving Credit Loans Commitment as then in effect, minus (ii) such
Lender's Commitment Percentage of the Letter of Credit Liabilities
then outstanding (such revolving credit loans referred to in this
Section 2.1(a) now or hereafter made by Lenders to Kitty Hawk from and
including and after the Closing Date are hereinafter collectively
called the "Revolving Credit Loans"); provided, however, that the
Outstanding Revolving Credit shall not at any time exceed the
Borrowing Base then most recently determined. Subject to the
foregoing limitations and the other terms and conditions of this
Agreement, Kitty Hawk may borrow, repay and reborrow the Revolving
Credit Loans hereunder prior to the Revolving Credit Loans Maturity
Date. The Borrowing Base shall be determined in good faith by Agent
as of the Closing Date and shall be redetermined in good faith by
Agent monthly thereafter within five Business Days after the delivery,
or the required date of delivery, of the Borrowing Base Report to be
delivered in accordance with Section 8.1(e), subject to Agent's right
to redetermine the Borrowing Base in accordance with the immediately
succeeding sentence; provided, however, that, until the earlier to
occur of delivery of the initial Borrowing Base Report in accordance
with Section 8.1(e) or January 19, 1998, the Borrowing Base shall be
deemed to be 65% of Eligible Receivables (as determined in good faith
by Agent) and the Borrowing Base thereafter shall be calculated based
upon the applicable Advance Rate for Eligible Receivables and Eligible
Parts. In addition, the Borrowing Base may be redetermined at any
time and from time to time by Agent in good faith upon the occurrence
and during the continuation of a Default.
(b) Term Loans. Subject to the terms and conditions of
this Agreement, each Term Loans Lender severally agrees to make a
term loan to Kitty Hawk in a single disbursement on the Closing Date
in an amount equal to such Lender's Term Loans Commitment (such term
loans referred to in this Section 2.1(b) made by the Term Loans
Lenders to Kitty Hawk are hereinafter collectively called the "Term
Loans"). The Term Loans Commitments shall terminate upon the making
of the Term Loans. Kitty Hawk agrees to borrow the Term Loans on the
Closing Date for the purpose of refinancing the AIA Fleet Advance as
specified in the first sentence of Section 2.10(b).
(c) Continuation and Conversion of Loans. Subject to the
terms of this Agreement, Kitty Hawk may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the respective Maturity Date
thereof, Kitty Hawk may Continue Eurodollar Loans or Convert Loans of
one Type into Loans of the other Type.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 35
<PAGE> 42
(d) Lending Offices. Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable
Lending Office for Loans of such Type.
Section 2.2 The Notes. The Revolving Credit Loans made by each
Revolving Credit Loans Lender shall be evidenced by a single promissory note of
Kitty Hawk in substantially the form of Exhibit C hereto, dated the Closing
Date, payable to the order of such Lender in a principal amount equal to its
Revolving Credit Loans Commitment as originally in effect, and otherwise duly
completed. The Term Loans made by each Term Loans Lender shall be evidenced by
a single promissory note of Kitty Hawk in substantially the form of Exhibit D
hereto, dated the Closing Date, payable to the order of such Lender in a
principal amount equal to its Term Loans Commitment as originally in effect,
and otherwise duly completed. Each Lender is hereby authorized by Kitty Hawk
to endorse on the schedule (or a continuation thereof) attached to each Note of
such Lender, to the extent applicable, the date, amount and Type of and the
Interest Period for each Loan made by such Lender to Kitty Hawk and the amount
of each payment or prepayment of principal of such Loan received by such
Lender, provided that any failure by such Lender to make any such endorsement
shall not affect the obligations of Kitty Hawk or any other Company under such
Note or this Agreement in respect of such Loan.
Section 2.3 Repayment of Loans.
(a) Kitty Hawk shall pay to Agent for the account of the
Revolving Credit Loans Lenders the entire outstanding principal of the
Revolving Credit Loans (and the entire outstanding principal of the
Revolving Credit Loans shall be due and payable in full) on the
Revolving Credit Loans Maturity Date.
(b) Kitty Hawk shall pay to Agent for the account of the
Term Loans Lenders the entire outstanding principal of the Term Loans
(and the entire outstanding principal of the Term Loans shall be due
and payable in full) in 16 installments, commencing on March 31, 1999
and continuing on each Quarterly Payment Date thereafter through and
including September 30, 2002 and ending on the Term Loans Maturity
Date, each of which installments, other than the final installment due
on the Term Loans Maturity Date, shall be in the amount of $2,250,000
and the final of which installments (due on the Term Loans Maturity
Date) shall be in the amount equal to the then unpaid principal amount
of the Term Loans.
Section 2.4 Interest.
(a) Interest Rate. Kitty Hawk shall pay to Agent for the
account of each applicable Lender interest on the unpaid principal
amount of each Loan made by such Lender to Kitty Hawk for the period
commencing on the date of such Loan to but excluding the date such
Loan shall be paid in full, at the following rates per annum:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 36
<PAGE> 43
(i) during the periods any such Loan is a Base
Rate Loan, the lesser of (A) the Base Rate plus the Applicable
Base Rate Margin or (B) the Maximum Rate; and
(ii) during the periods any such Loan is a
Eurodollar Loan, the lesser of (A) the Eurodollar Rate plus
the Applicable Eurodollar Margin or (B) the Maximum Rate.
(b) Payment Dates. Accrued interest on the Loans shall
be due and payable as follows:
(i) in the case of Base Rate Loans, on each
Quarterly Payment Date;
(ii) in the case of each Eurodollar Loan, on the
last day of the Interest Period with respect thereto and, in
the case of an Interest Period greater than three months, at
three-month intervals after the first day of such Interest
Period;
(iii) upon the payment or prepayment (whether
mandatory or optional) of any Loan or the Conversion of any
Loan to a Loan of the other Type (but only on the principal
amount so paid, prepaid or Converted); and
(iv) on the Maturity Date for such Loan.
(c) Default Interest. Notwithstanding the foregoing,
Kitty Hawk shall pay to Agent for the account of each applicable
Lender interest at the applicable Default Rate (i) at all times during
which any Event of Default has occurred and is continuing, on any
principal of any Loan or Reimbursement Obligation outstanding and (ii)
on any principal of any Loan or any Reimbursement Obligation
outstanding and (to the fullest extent permitted by law) any other
amount payable by Kitty Hawk or any other Company under this Agreement
or any other Loan Document to or for the account of such Lender, which
is not paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full.
Interest payable at the Default Rate shall be payable from time to
time on demand by Agent.
Section 2.5 Borrowing Procedure. Kitty Hawk shall give Agent
notice of each borrowing of Loans hereunder in accordance with Section 2.9.
Not later than 10:00 a.m. (San Francisco, California time) on the date
specified for each borrowing hereunder, each Lender will make available the
amount of the Loan to be made by it on such date to Agent, at the Applicable
Lending Office of Agent, in immediately available funds, for the account of
Kitty Hawk. The amount so received by Agent shall, subject to the terms and
conditions of this Agreement, be made available to Kitty Hawk promptly by wire
transfer of immediately available funds to the applicable Deposit Account;
provided, however, that the Term Loans shall be automatically applied by Agent
to refinance the existing indebtedness referred to in Section 2.10(b); and
provided, further, however, that the Term Loans shall be deemed to have been
automatically advanced under this Agreement for and on behalf of Kitty Hawk in
accordance with this Agreement if and when Agent determines that all conditions
precedent
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 37
<PAGE> 44
set forth in Section 6.1 have been complied with to the satisfaction of Agent
and/or have been waived by Agent and, upon execution of this Agreement by Kitty
Hawk, Agent's determination regarding such automatic advancement shall be
deemed conclusive.
Section 2.6 Optional Prepayments, Conversions and Continuations
of Loans. Subject to Section 2.7, Kitty Hawk shall have the right from time to
time to prepay the principal of the Loans, to Convert all or part of a Loan of
one Type into a Loan of another Type or to Continue Eurodollar Loans; provided
that: (a) Kitty Hawk shall give Agent notice of each such prepayment,
Conversion or Continuation as provided in Section 2.9, (b) Eurodollar Loans may
only be Converted on the last day of the Interest Period, (c) except for
Conversions of Eurodollar Loans into Base Rate Loans, no Conversions or
Continuations shall be made while a Default has occurred and is continuing, and
(d) optional prepayments of the Term Loans shall be applied pro rata to the
then remaining installments of principal of the Term Loans.
Section 2.7 Mandatory Prepayments.
(a) Insurance Recovery. Kitty Hawk shall, within two
Business Days after any Insurance Recovery results in any Excess
Insurance Proceeds, pay (or cause to be paid) to Agent an aggregate
amount equal to such Excess Insurance Proceeds. The proceeds of any
Excess Insurance Proceeds shall be applied first to the Term Loans
and, after the Term Loans are paid in full, then to the Revolving
Credit Loans.
(b) Asset Dispositions. Kitty Hawk shall (i)
concurrently with any Asset Disposition of any Collateral, pay to
Agent an aggregate amount equal to 100% of the Net Proceeds resulting
from such Asset Disposition of such Collateral and (ii) concurrently
with any Asset Disposition of any other Property, pay to Agent an
aggregate amount equal to 100% of the Net Proceeds resulting from such
Asset Disposition of other Property if and to the extent the aggregate
of Net Proceeds from Asset Dispositions of all such other Property
exceeds $15,000,000 during the fiscal year in which such Asset
Disposition occurs. The proceeds of each such Asset Disposition
referred to in this Section 2.7(b) shall be applied first to the Term
Loans and, after the Term Loans are paid in full, then to the
Revolving Credit Loans. Nothing contained in this Section 2.7 shall
be construed to authorize or permit the sale or other disposition of
any Collateral other than in compliance with Section 9.8(a).
(c) Equity Issuances. Kitty Hawk shall, concurrently
with the consummation of each Equity Issuance after the Closing Date,
pay to Agent an aggregate amount equal to 50% of the Net Proceeds of
such Equity Issuance; provided, however, that Net Proceeds of any such
Equity Issuance which are, substantially concurrently with such Equity
Issuance, used by Kitty Hawk to pay all or any portion of the purchase
price payable with respect to any asset acquisition or stock
acquisition permitted in accordance with Section 9.3 shall be excluded
for purposes of this Section 2.7(c).
(d) Revolving Credit Loans. If at any time the
Outstanding Revolving Credit exceeds an amount equal to the lesser of
the Revolving Credit Loans Commitments then in effect or the Borrowing
Base then most recently determined or redetermined, within one
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 38
<PAGE> 45
Business Day after the occurrence thereof Kitty Hawk shall pay to
Agent the amount of such excess as a prepayment of the Revolving
Credit Loans.
(e) Application of Mandatory Prepayments. All
prepayments pursuant to subsections (a), (b) and (c) preceding, if and
to the extent the same are required to be applied to the Term Loans in
accordance with such subsections, shall be applied pro rata to the
then remaining installments of principal of the Term Loans.
Section 2.8 Minimum Amounts. Except for Conversions pursuant to
Article 4, each borrowing and each Conversion of principal of the Revolving
Credit Loans shall be in an amount at least equal to (a) $5,000,000 or an
integral multiple of $1,000,000 in excess thereof with respect to Eurodollar
Loans or (b) $500,000 or an integral multiple of $100,000 in excess thereof
with respect to Base Rate Loans (borrowings, prepayments or Conversions of or
into Loans of different Types or, in the case of Eurodollar Loans, having
different Interest Periods at the same time hereunder shall be deemed separate
borrowings, prepayments and Conversions for purposes of the foregoing, one for
each Type or Interest Period). Furthermore, all optional prepayments of
principal of the Term Loans shall be in an amount equal to $5,000,000 or an
integral multiple of $1,000,000 in excess thereof.
Section 2.9 Certain Notices. Notices by Kitty Hawk to Agent of
terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by Agent not later
than 8:00 a.m. (San Francisco, California time) on the Business Day prior to
the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of
Notice Business Days
Prior
- --------------------------------------------------------------------------------
<S> <C>
Terminations or Reductions of Commitments 5
- --------------------------------------------------------------------------------
Borrowings of Revolving Credit Loans as Base Rate Loans 1
- --------------------------------------------------------------------------------
Borrowings of Revolving Credit Loans as Eurodollar Loans 3
- --------------------------------------------------------------------------------
Conversions or Continuations of Loans 3
- --------------------------------------------------------------------------------
Prepayments of Revolving Credit Loans which are Base Rate Loans 1
- --------------------------------------------------------------------------------
Prepayments of Revolving Credit Loans which are Eurodollar Loans 3
- --------------------------------------------------------------------------------
Prepayments of Term Loans 3
- --------------------------------------------------------------------------------
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 39
<PAGE> 46
in the case of a Conversion, the Type of Loans to result from such Conversion)
and the date of borrowing, Conversion, Continuation or prepayment (which shall
be a Business Day). Notices of borrowings, Conversions, Continuations or
prepayments shall be in the form of Exhibit E hereto, appropriately completed
as applicable. Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. Agent shall
promptly notify Lenders of the contents of each such notice. In the event that
Kitty Hawk fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 2.9, such Loan (if outstanding as Eurodollar Loan)
will be automatically Converted into a Base Rate Loan on the last day of the
preceding Interest Period for such Loan or (if outstanding as a Base Rate Loan)
will remain as, or (if not then outstanding) will be made as, a Base Rate Loan.
Kitty Hawk may not borrow any Eurodollar Loans, Convert any Loans into
Eurodollar Loans or Continue any Loans as Eurodollar Loans if the interest rate
for such Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Kitty Hawk agrees with Agent and Lenders that (i) the
proceeds of the Revolving Credit Loans to be made on and after the
Closing Date shall be used by Kitty Hawk and its Wholly-Owned
Subsidiaries which are Guarantors and Operating Subsidiaries for
working capital and general corporate purposes and (ii) the Letters of
Credit requested to be issued pursuant to this Agreement shall be used
for insurance and contract performance by Kitty Hawk and its
Wholly-Owned Subsidiaries which are Guarantors and Operating
Subsidiaries and for other purposes approved by Agent.
(b) Kitty Hawk and Aircargo agree with Agent and Lenders
that the proceeds of the Term Loans shall be used by Kitty Hawk to pay
in full $45,900,000 of existing Debt representing the AIA Fleet
Advance owed by Kitty Hawk to Wells Fargo under the Prior Credit
Agreement, and Kitty Hawk and Aircargo hereby irrevocably request that
Agent deliver all of such proceeds to Wells Fargo (as agent under the
Prior Credit Agreement) to pay such indebtedness (and Wells Fargo
agrees to apply such proceeds to pay such indebtedness). Kitty Hawk,
Aircargo, Agent and Lenders agree that, as of the Closing Date, the
aggregate outstanding principal amount of the Debt representing the
AIA Fleet Advance under the Prior Credit Agreement is $45,900,000.
(c) None of the proceeds of any Loan have been or will be
used to acquire any security in any transaction that is subject to
Section 13 or 14 of the Securities Exchange Act of 1934, as amended,
or to purchase or carry any margin stock (within the meaning of
Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System).
Section 2.11 Fees.
(a) Kitty Hawk agrees to pay to Agent for the account of
each Revolving Credit Loans Lender a commitment fee in the amount
equal to the product of (i) the daily average unused or unfunded
amount of such Lender's Revolving Credit Loans Commitment, for the
period from and including the Closing Date to and including the
Revolving Credit Loans
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 40
<PAGE> 47
Maturity Date, multiplied by (ii) the Applicable Commitment Fee Rate
per annum based on a 360 day year and the actual number of days
elapsed, which accrued commitment fees shall be payable in arrears on
each Quarterly Payment Date and on the Revolving Credit Loans Maturity
Date.
(b) Kitty Hawk agrees to pay to Agent for the account of
Wells Fargo an up-front fee in the amount set forth in the Agent's
Letter, which fee shall be payable in such amounts and on such dates
as are specified therein (or, if the date for payment of any amount
thereof is not specified therein, on the Closing Date).
(c) Kitty Hawk agrees to pay to Agent, for its own
account, an annual agency fee in the amount set forth in the Agent's
Letter, which fee shall be payable in such amounts and on such dates
as specified therein.
Section 2.12 Computations. Interest and fees payable by Kitty
Hawk hereunder and under the other Loan Documents on all Loans shall be
computed on the basis of a year of 360 days (with respect to Eurodollar Loans)
or 365 or 366 days, as the case may be (with respect to Base Rate Loans) and
the actual number of days elapsed (including the first day but excluding the
last day) occurring in the period for which payable unless, in the case of
interest, such calculation would result in a usurious rate, in which case
interest shall be calculated on the basis of a year of 365 or 366 days, as the
case may be.
Section 2.13 Termination or Reduction of Commitments.
(a) Notwithstanding anything to the contrary contained in
this Agreement, the Revolving Credit Loans Commitments shall
automatically terminate at 8:00 a.m. (San Francisco, California time)
on the Revolving Loans Commitments Maturity Date and the Term Loans
Commitments shall automatically terminate upon the making of the Term
Loans on the Closing Date.
(b) Kitty Hawk shall have the right to terminate or
reduce in part the unused portion of the Revolving Credit Loans
Commitments at any time and from time to time, provided that (i) it
shall give notice of each such termination or reduction as provided in
Section 2.9 and (ii) each partial reduction shall be in an aggregate
amount at least equal to $5,000,000 or an integral multiple of
$100,000 in excess thereof. The Revolving Credit Loans Commitments
may not be reinstated after they have been terminated or increased
after they have been reduced.
Section 2.14 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Kitty Hawk may utilize the Revolving Credit Loans
Commitments by requesting that the Issuing Bank issue Letters of
Credit; provided, that the aggregate amount of outstanding Letter of
Credit Liabilities shall not at any time exceed $20,000,000 and no
Letter of Credit shall be issued if, after giving effect to the
issuance thereof, the Outstanding Revolving Credit would exceed the
Borrowing
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 41
<PAGE> 48
Base then most recently determined. Upon the date of issue of each
Letter of Credit, the Issuing Bank shall be deemed, without further
action by any party hereto, to have sold to each Revolving Credit
Loans Lender, and each Revolving Credit Loans Lender shall be deemed,
without further action by any party hereto, to have purchased from the
Issuing Bank, a participation to the extent of such Revolving Credit
Loans Lender's Commitment Percentage of the Revolving Credit Loans
Commitments.
(b) Kitty Hawk shall give the Issuing Bank (with a copy
to Agent) at least five Business Days prior notice (effective upon
receipt and irrevocable unless appropriately revoked sufficiently
prior to issuance of the Letter of Credit) specifying the date of each
Letter of Credit and the nature of the transactions to be supported
thereby. Upon receipt of such notice and confirmation by the Issuing
Bank with Agent that such Letter of Credit may be issued in compliance
with this Agreement, the Issuing Bank shall promptly notify Agent of
the contents thereof and of each such Lender's Commitment Percentage
of the amount of the proposed Letter of Credit, and Agent shall
promptly thereupon notify the Revolving Credit Loans Lenders of such
information. In addition, the Issuing Bank shall promptly deliver to
the Agent a photocopy of such Letter of Credit. Each Letter of Credit
shall have an expiration date that does not exceed one year from the
date of issuance and that does not extend beyond the Revolving Credit
Loans Maturity Date, shall be payable in Dollars, shall support a
transaction entered into in the ordinary course of business of Kitty
Hawk or its Wholly-Owned Subsidiaries which are Guarantors and
Operating Subsidiaries, shall be satisfactory in form and substance to
the Issuing Bank, and shall be issued pursuant to such agreements,
documents and instruments (including a Letter of Credit Agreement) as
the Issuing Bank may reasonably require, none of which shall be
inconsistent with this Section 2.14. Each Letter of Credit shall (i)
provide for the payment of drafts presented for, on or thereunder by
the beneficiary in accordance with the terms thereof, when such drafts
are accompanied by the documents (if any) described in the Letter of
Credit and (ii) to the extent not inconsistent with the terms hereof
or any applicable Letter of Credit Agreement, be subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500 (together with
any subsequent revision thereof approved by a Congress of the
International Chamber of Commerce and adhered to by the Issuing Bank,
the "UCP"), and shall, as to matters not governed by the UCP, be
governed by, and construed and interpreted in accordance with, the
laws of the State of Texas.
(c) Kitty Hawk agrees to pay to Agent for the account of
each Lender, in arrears on each Quarterly Payment Date (beginning on
December 31, 1997) and on the expiration date of each Letter of
Credit, a nonrefundable letter of credit fee with respect to each
Letter of Credit issued in an amount equal to the Applicable
Eurodollar Margin (as in effect from time to time) per annum of the
daily average face amount of the Letter of Credit in effect during the
period then ended. Agent agrees to pay to each Lender, promptly after
receiving any payment of such Letter of Credit fees, such Lender's
Commitment Percentage of such fees. Kitty Hawk agrees to pay to
Issuing Bank for its own account, concurrently with the issuance of
each Letter of Credit, a nonrefundable letter of credit fee with
respect to each Letter of Credit issued by the Issuing Bank in an
amount equal to one-quarter of one percent
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 42
<PAGE> 49
(0.25%) of the face amount of the Letter of Credit issued. In
addition to the foregoing fees, Kitty Hawk shall pay or reimburse the
Issuing Bank for such normal and customary costs and expenses,
including, without limitation, administrative, issuance, amendment,
payment and negotiation charges, as are incurred or charged by the
Issuing Bank in issuing, effecting payment under, amending or
otherwise administering any Letter of Credit.
(d) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment or other drawing under such Letter of
Credit, the Issuing Bank shall promptly notify Kitty Hawk and each
Revolving Credit Loans Lender as to the amount to be paid as a result
of such demand or drawing and the respective payment date. If at any
time the Issuing Bank shall make a payment to a beneficiary of a
Letter of Credit pursuant to a drawing under such Letter of Credit,
each Revolving Credit Loans Lender will pay to the Issuing Bank,
immediately upon the Issuing Bank's demand at any time commencing
after such payment until reimbursement therefor in full by Kitty Hawk,
an amount equal to such Lender's Commitment Percentage of such
payment, together with interest on such amount for each day from the
date of such payment to the date of payment by such Lender of such
amount at a rate of interest per annum equal to the Federal Funds
Rate.
(e) Kitty Hawk shall be irrevocably and unconditionally
obligated to immediately reimburse the Issuing Bank for any amounts
paid by the Issuing Bank upon any drawing under any Letter of Credit,
without presentment, demand, protest or other formalities of any kind.
The Issuing Bank will pay to each Revolving Credit Loans Lender such
Revolving Credit Loans Lender's Commitment Percentage of all amounts
received from or on behalf of Kitty Hawk for application in payment,
in whole or in part, of the Reimbursement Obligation in respect of any
Letter of Credit, but only to the extent such Revolving Credit Loans
Lender has made payment to the Issuing Bank in respect of such Letter
of Credit pursuant to subsection (d) above. Outstanding Reimbursement
Obligations shall bear interest at the Default Rate and such interest
shall be payable on demand.
(f) The Reimbursement Obligations of Kitty Hawk under
this Agreement and the other Loan Documents shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and the other Loan
Documents under all circumstances whatsoever, including, without
limitation, the following circumstances:
(i) Any lack of validity or enforceability of any
Letter of Credit or any other Loan Document;
(ii) Any amendment or waiver of or any consent to
departure from any Loan Document;
(iii) The existence of any claim, setoff,
counterclaim, defense or other right which Kitty Hawk or any
of its Subsidiaries or other Person may have at any time
against any beneficiary of any Letter of Credit, Agent, the
Issuing Bank, Lenders or
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 43
<PAGE> 50
any other Person, whether in connection with this Agreement or
any other Loan Document or any unrelated transaction;
(iv) Any statement, draft or other document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever;
(v) Payment by the Issuing Bank under any Letter
of Credit against presentation of a draft or other document
that does not comply with the terms of such Letter of Credit,
provided, that such payment shall not have constituted gross
negligence or willful misconduct of the Issuing Bank; and
(vi) Any other circumstance whatsoever, whether or
not similar to any of the foregoing, provided that such other
circumstance or event shall not have been the result of the
gross negligence or willful misconduct of the Issuing Bank.
(g) Kitty Hawk assumes all risks of the acts or omissions
of any beneficiary of any Letter of Credit with respect to its use of
such Letter of Credit. Neither Agent, the Issuing Bank, Lenders nor
any of their respective officers or directors shall have any
responsibility or liability to Kitty Hawk or any other Person for: (a)
the failure of any draft to bear any reference or adequate reference
to any Letter of Credit, or the failure of any documents to accompany
any draft at negotiation, or the failure of any Person to surrender or
to take up any Letter of Credit or to send documents apart from drafts
as required by the terms of any Letter of Credit, or the failure of
any Person to note the amount of any instrument on any Letter of
Credit, (b) errors, omissions, interruptions or delays in transmission
or delivery of any messages, (c) the validity, sufficiency or
genuineness of any draft or other document, or any endorsement(s)
thereon, even if any such draft, document or endorsement should in
fact prove to be in any and all respects invalid, insufficient,
fraudulent or forged or any statement therein is untrue or inaccurate
in any respect, (d) the payment by the Issuing Bank to the beneficiary
of any Letter of Credit against presentation of any draft or other
document that does not comply with the terms of the Letter of Credit,
or (e) any other circumstance whatsoever in making or failing to make
any payment under a Letter of Credit; provided, however, that,
notwithstanding the foregoing, Kitty Hawk shall have a claim against
the Issuing Bank, and the Issuing Bank shall be liable to Kitty Hawk,
to the extent of any direct, but not indirect or consequential,
damages suffered by Kitty Hawk which Kitty Hawk proves in a final
nonappealable judgment were caused by (i) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents
presented under any Letter of Credit complied with the terms thereof
or (ii) the Issuing Bank's willful failure to pay under any Letter of
Credit after presentation to it of documents strictly complying with
the terms and conditions of such Letter of Credit. The Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 44
<PAGE> 51
(h) All letters of credit issued pursuant to the Prior
Credit Agreement which are outstanding as of the Closing Date shall be
deemed to be Letters of Credit issued pursuant to this Agreement,
which outstanding Letters of Credit are described in Schedule 2.14.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal,
interest, fees and other amounts to be made by Kitty Hawk or any Guarantor
under this Agreement or any other Loan Document shall be made via wire transfer
of funds to Agent c/o Wells Fargo Bank, NA, San Francisco, California, ABA #
1210-00248, for Account No. 4518-151709, Reference: Kitty Hawk, for the account
of each Lender's Applicable Lending Office in Dollars and in immediately
available funds, without setoff, deduction or counterclaim, not later than
11:00 a.m. (Dallas, Texas time) on the date on which such payment shall become
due (each such payment made after such time on such due date to be deemed to
have been made on the next succeeding Business Day). Kitty Hawk or such
Guarantor shall, at the time of making each such payment, specify to Agent the
sums payable by such Person under this Agreement or the other Loan Document to
which each such payment is to be applied (and in the event that such Person
fails to so specify, or if an Event of Default has occurred and is continuing
or if a Default would exist after the making of such payment, Agent may apply
such payment to such Person's Loans, Reimbursement Obligations and other
Obligations in such order and manner as Agent may elect, subject to Section
3.2). Upon the occurrence and during the continuation of an Event of Default,
all proceeds of any Collateral and all other funds of Kitty Hawk or any
Guarantor in the possession of Agent or any Lender may be applied by Agent to
the Obligations in such order and manner as Agent may elect, subject to the
provisions of Section 3.2 and 12.8. Notwithstanding the foregoing, however,
but subject to and except as otherwise provided in Section 12.8, if an Event of
Default has occurred and is continuing, Agent and Lenders agree among
themselves that all such payments, proceeds and funds, shall be applied (or, in
the case of Letter of Credit Liabilities consisting of the undrawn face amount
of Letters of Credit, held by Agent as cash collateral for application against)
pro rata to the Outstanding Revolving Credit and to the outstanding principal
amount of the Term Loans (based upon (a) the Outstanding Revolving Credit and
(b) the outstanding principal amount of the Term Loans, in each case as a
percentage of the sum of the Outstanding Revolving Credit plus the aggregate
outstanding principal amount of the Term Loans). Each payment received by
Agent under this Agreement or any other Loan Document for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for the account of such Lender's Applicable Lending Office. Whenever any
payment under this Agreement or any other Loan Document shall be stated to be
due on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided in this Agreement: (a) each Loan shall be made by Lenders under
Section 2.1, each payment of commitment fees under Section 2.11(a) shall be
made for the account of Lenders, and each termination or reduction of the
Commitments under Section 2.13 shall be applied to the appropriate Commitments
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 45
<PAGE> 52
of the applicable Lenders, pro rata according to the respective unused
Commitments; (b) the making, Conversion and Continuation of Loans of a
particular Type (other than Conversions provided for by Section 4.4) shall be
made pro rata among Lenders holding Loans of such Type according to the amounts
of their respective appropriate Commitments; (c) each payment and prepayment by
Kitty Hawk of principal of or interest on Loans of a particular Type shall be
made to Agent for the account of Lenders holding Loans of such Type pro rata in
accordance with the respective unpaid principal amounts of such Loans held by
such Lenders; (d) Interest Periods for Loans of a particular Type shall be
allocated among Lenders holding Loans of such Type pro rata according to the
respective principal amounts held by such Lenders; and (e) Lenders (other than
the Issuing Bank) shall purchase participations in the Letters of Credit pro
rata in accordance with their respective Commitment Percentages of the
Revolving Credit Loans Commitments.
Section 3.3 Sharing of Payments, Etc. Subject to Section 12.8,
if a Lender shall obtain payment of any principal of or interest on any of the
Obligations due to such Lender hereunder through the exercise of any right of
setoff, banker's lien, counterclaim or similar right, or otherwise, it shall
promptly purchase from the other Lenders participations in the Obligations held
by other Lenders in such amounts, and make such adjustments from time to time,
as shall be equitable to the end that all Lenders shall share pro rata in
accordance with the unpaid principal and interest on the Obligations then due
to each of them. To such end, all Lenders shall make appropriate adjustments
among themselves (by the resale of participations sold or otherwise) if all or
any portion of such excess payment is thereafter rescinded or must otherwise be
restored. Each of Kitty Hawk and its Subsidiaries agrees, to the fullest
extent it may effectively do so under applicable law, that any Lender so
purchasing a participation in the Obligations by the other Lenders may exercise
all rights of setoff, banker's lien, counterclaim or similar rights with
respect to such participation as fully as if such Lender were a direct holder
of Obligations in the amount of such participation. Nothing contained herein
shall require any Lender to exercise any such right or shall affect the right
of any Lender to exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness, liability or obligation of Kitty
Hawk or any of its Subsidiaries.
Section 3.4 Non-Receipt of Funds by Agent. Unless Agent shall
have been notified by a Lender or Kitty Hawk ("Payor") prior to the date on
which such Lender is to make payment to Agent of the proceeds of a Loan to be
made by it hereunder or Kitty Hawk is to make a payment to Agent for the
account of one or more of Lenders, as the case may be (such payment being
herein called the "Required Payment"), which notice shall be effective upon
receipt, that Payor does not intend to make the Required Payment to Agent,
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient on such date and, if Payor has not in fact
made the Required Payment to Agent, the recipient of such payment shall, on
demand, pay to Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by Agent until the date Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such period.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 46
<PAGE> 53
Section 3.5 Withholding Taxes.
(a) All payments by Kitty Hawk of principal of and
interest on the Loans and the Letter of Credit Liabilities and of all
fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without deduction by reason of, any present or
future taxes, levies, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than any taxes
imposed on the overall net income of Agent or any Lender or any
lending office of Agent or such Lender by any jurisdiction in which
Agent or such Lender or any such lending office is located). If any
such taxes, levies, duties, imposts, assessments or other charges are
so levied or imposed, Kitty Hawk will (i) make additional payments in
such amounts so that every net payment of principal of and interest on
the Loans and the Letter of Credit Liabilities and of all other
amounts payable by it under the Loan Documents, after withholding or
deduction for or on account of any such present or future taxes,
levies, duties, imposts, assessments or other charges (including any
tax imposed on or measured by net income of a Lender attributable to
payments made to or on behalf of a Lender pursuant to this Section 3.5
and any penalties or interest attributable to such payments), will not
be less than the amount provided for herein or therein absent such
withholding or deduction (provided that Kitty Hawk shall not have any
obligation to pay such additional amounts to any Lender to the extent
that such taxes, levies, duties, imposts, assessments or other charges
are levied or imposed by reason of the failure of such Lender to
comply with the provisions of Section 3.6), (ii) make such withholding
or deduction and (iii) remit the full amount deducted or withheld to
the relevant Governmental Authority in accordance with applicable law.
Without limiting the generality of the foregoing, Kitty Hawk will,
upon written request of any Lender, reimburse each such Lender for the
amount of (A) such taxes, levies, duties, imports, assessments or
other charges so levied or imposed by any Governmental Authority and
paid by such Lender as a result of payments made by Kitty Hawk under
or with respect to the Loans other than such taxes, levies, duties,
imports, assessments and other charges previously withheld or deducted
by Kitty Hawk which have previously resulted in the payment of the
required additional amount to Lender, and (B) such taxes, levies,
duties, assessments and other charges so levied or imposed with
respect to any Lender reimbursement under the foregoing clause (A), so
that the net amount received by such Lender (net of payments made
under or with respect to the Loans and the Letter of Credit
Liabilities) after such reimbursement will not be less than the net
amount such Lender would have received if such taxes, levies, duties,
assessments and other charges on such reimbursement had not been
levied or imposed. Kitty Hawk shall furnish promptly to Agent for
distribution to each affected Lender, as the case may be, upon request
of such Lender, official receipts evidencing any such payment,
withholding or reduction.
(b) Kitty Hawk will indemnify Agent and each Lender
(without duplication) against, and reimburse Agent and each Lender
for, all present and future taxes, levies, duties, imposts,
assessments or other charges (including interest and penalties) levied
or collected (whether or not legally or correctly imposed, assessed,
levied or collected), excluding, however, any taxes imposed on the
overall net income of Agent or such Lender or any lending office of
Agent or such Lender by any jurisdiction in which Agent or such Lender
or any such lending office is located, on or in respect of this
Agreement, any of the Loan Documents or
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 47
<PAGE> 54
the Obligations or any portion thereof ("reimbursable taxes"). Any
such indemnification shall be on an after- tax basis, taking into
account any such reimbursable taxes imposed on the amounts paid as
indemnity.
(c) If and to the extent actually known by such Lender,
each Lender will use reasonable efforts to notify Kitty Hawk and
Agent, in a reasonably prompt fashion after such assignment is made,
of any assignment of the Commitments or the Loans by such Lender to an
Eligible Assignee which is subject to a withholding tax that will
impose any payment obligation upon Kitty Hawk pursuant to this Section
3.5. Each Lender will use reasonable efforts to notify Kitty Hawk and
Agent of any amounts to be paid by Kitty Hawk pursuant to this Section
3.5 in a reasonably prompt fashion after such Lender becomes aware of
the circumstances which require the payment of such amounts by Kitty
Hawk. Kitty Hawk shall not be obligated to pay any amounts to a
Lender pursuant to this Section 3.5 which accrued more than 90 days
prior to the date upon which such Lender initially notified Kitty Hawk
of the general circumstances which require such payment.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it becomes a party to this Agreement, deliver to Kitty Hawk and Agent two
duly completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8,
as appropriate, certifying in any case that such Lender is entitled to receive
payments from Kitty Hawk under any Loan Document without deduction or
withholding of any U.S. federal income taxes. Each Lender which so delivers a
Form 1001, 4224 or W-8 further undertakes to deliver to Kitty Hawk and Agent
two additional copies of such form (or a successor form) on or before the date
such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by Kitty Hawk or Agent, in each case certifying that such Lender is
entitled to receive payments from Kitty Hawk under any Loan Document without
deduction or withholding of any U.S. federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it and
such Lender advises Kitty Hawk and Agent that it is not capable of receiving
such payments without any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding
anything to the contrary contained in this Agreement or any other Loan
Document, if the payment of any amount of principal of or interest with
respect to the Loans, the Reimbursement Obligations or any other amount of the
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by Agent, any Lender or Issuing Bank upon the insolvency, bankruptcy
or reorganization of Kitty Hawk or any of its Subsidiaries or otherwise for any
reason whatsoever, then each of (a) the Obligations, (b) the Loan Documents
(including, without limitation, this Agreement, the Notes and the Security
Documents), (c) the indebtedness, liabilities and obligations of Kitty Hawk and
its Subsidiaries under the Loan Documents, and (d) all Liens for the benefit of
Agent and Lenders created under or evidenced by the Loan Documents, will be
automatically reinstated and become automatically effective and in full force
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 48
<PAGE> 55
and effect, all to the extent that and as though such payment so rescinded,
voided or otherwise refunded had never been made.
ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) Kitty Hawk shall pay directly to each Lender from
time to time, within ten days after the request of such Lender, the
costs incurred by such Lender which such Lender reasonably determines
are attributable to its making or maintaining of any Eurodollar Loans
or its obligation to make any of such Loans, or any reduction in any
amount receivable by such Lender hereunder in respect of any such
Loans or obligations (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"), resulting
from any Regulatory Change occurring after the Closing Date which:
(i) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or its Notes in
respect of any of such Loans (other than income taxes and
franchise taxes attributable to net income of such Lender or
its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Lender has its principal office or
such Applicable Lending Office);
(ii) imposes or modifies any reserve, special
deposit, minimum capital, capital ratio or similar requirement
relating to any extensions of credit or other assets of, or
any deposits with or other liabilities or commitments of, such
Lender (including any of such Loans or any deposits referred
to in the definition of "Eurodollar Rate" in Section 1.1
hereof, but excluding the Reserve Requirement to the extent it
is included in the calculation of the Adjusted Eurodollar
Rate); or
(iii) imposes any other condition affecting this
Agreement or the Notes or any of such extensions of credit or
liabilities or commitments.
Each applicable Lender will notify Kitty Hawk (with a copy to Agent)
of any event occurring after the Closing Date which will entitle such
Lender to compensation pursuant to this Section 4.1(a) as promptly as
practicable after it obtains knowledge thereof and determines to
request such compensation, and (if so requested by Kitty Hawk) will,
if and to the extent that it is reasonably feasible for such Lender to
do so given administrative and other considerations, designate a
different Applicable Lending Office for the Eurodollar Loans of such
Lender if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the reasonable opinion
of such Lender, violate any law, rule or regulation or be in any way
disadvantageous to such Lender. Each applicable Lender will furnish
Kitty Hawk with a certificate setting forth the basis and the amount
of each request of such Lender for compensation under this Section
4.1(a). If any Lender requests compensation from Kitty
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 49
<PAGE> 56
Hawk under this Section 4.1(a), Kitty Hawk may, by notice to such
Lender (with a copy to Agent), suspend the obligation of such Lender
to make or Continue making, or Convert Base Rate Loans into,
Eurodollar Loans until the Regulatory Change giving rise to such
request ceases to be in effect (in which case the provisions of
Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing
provisions of this Section 4.1, in the event that, by reason of any
Regulatory Change, any Lender either (i) incurs Additional Costs based
on or measured by the excess above a specified level of the amount of
a category of deposits or other liabilities of such Lender which
includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Lender which
includes Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may
hold, then, if such Lender so elects by notice to Kitty Hawk (with a
copy to Agent), the obligation of such Lender to make or Continue
making, or Convert Base Rate Loans into, Eurodollar Loans hereunder
shall be suspended until such Regulatory Change ceases to be in effect
(in which case the provisions of Section 4.4 hereof shall be
applicable).
(c) Determinations and allocations by any Lender for
purposes of this Section 4.1 of the effect of any Regulatory Change on
its costs of maintaining its obligation to make Loans or issue Letters
of Credit or of making or maintaining Loans or issuing Letters of
Credit or on amounts receivable by it in respect of Loans or Letters
of Credit, and of the additional amounts required to compensate such
Lender in respect of any Additional Costs, shall be conclusive in the
absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) Agent determines (which determination shall be made
reasonably and in good faith and shall be conclusive absent manifest
error) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1
hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest
for such Loans as provided in this Agreement; or
(b) any Lender determines (which determination shall be
in good faith and shall be conclusive absent manifest error) and
notifies Agent that the relevant rates of interest referred to in the
definition of "Eurodollar Rate" or "Adjusted Eurodollar Rate" in
Section 1.1 hereof on the basis of which the rate of interest for such
Loans for such Interest Period is to be determined do not accurately
reflect the cost to such Lender of making or maintaining such Loans
for such Interest Period;
then Agent shall give Kitty Hawk prompt notice thereof and, so long as such
condition remains in effect, such Lender shall be under no obligation to make
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans and Kitty
Hawk shall, on the last day(s) of the then current Interest
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 50
<PAGE> 57
Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or
Convert such Loans into Base Rate Loans in accordance with the terms of this
Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify Kitty
Hawk thereof (with a copy to Agent) and such Lender's obligation to make or
maintain Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans
hereunder shall be suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of Section 4.4 hereof
shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of
any Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans
(or, in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on
such earlier date as such Lender may specify to Kitty Hawk (with a copy to
Agent) and, unless and until such Lender gives notice as provided below that
the circumstances specified in Section 4.1 or 4.3 hereof which gave rise to
such Conversion no longer exist:
(a) To the extent that such Lender's Eurodollar Loans
have been so Converted, all payments and prepayments of principal
which would otherwise be applied to such Lender's Eurodollar Loans
shall be applied instead to its Base Rate Loans; and
(b) All Loans which would otherwise be made or Continued
by such Lender as Eurodollar Loans shall be made as or Converted into
Base Rate Loans and all Loans of such Lender which would otherwise be
Converted into Eurodollar Loans shall be Converted instead into (or
shall remain as) Base Rate Loans.
If such Lender gives notice to Kitty Hawk (with a copy to Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 4.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans are outstanding, such
Lender's Base Rate Loans shall be automatically Converted, on the first day(s)
of the next succeeding Interest Period(s) for such outstanding Eurodollar
Loans, to the extent necessary so that, after giving effect thereto, all Loans
held by Lenders holding Eurodollar Loans and by such Lender are held pro rata
(as to principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
Section 4.5 Compensation. Kitty Hawk shall pay to Agent for the
account of each Lender, promptly upon the request of such Lender through Agent,
such amount or amounts as shall be sufficient (in the reasonable opinion of
such Lender) to compensate it for any loss, cost or expense incurred by it as a
result of:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 51
<PAGE> 58
(a) any payment, prepayment or Conversion of a Eurodollar
Loan for any reason (including, without limitation, the acceleration
of the outstanding Loans pursuant to Section 11.2) on a date other
than the last day of an Interest Period for such Loan; or
(b) any failure by Kitty Hawk for any reason (including,
without limitation, the failure of any conditions precedent specified
in Article 6 to be satisfied) to borrow, Convert or prepay a
Eurodollar Loan on the date for such borrowing, Conversion or
prepayment specified in the relevant notice of borrowing, prepayment
or Conversion under this Agreement.
The loss (as opposed to cost or expense) to be compensated under clause (a) of
this Section 4.5 shall not exceed an amount equal to the excess, if any, of (i)
the amount of interest which otherwise would have accrued on the principal
amount so paid, prepaid or Converted to the last day of the Interest Period at
the applicable rate for such Eurodollar Loan over (ii) the cost to the
applicable Lender of the interest component of such Eurodollar Loan which
otherwise would have accrued.
Section 4.6 Capital Adequacy. If, after the Closing Date, any
Lender shall have determined that the adoption or implementation of any
applicable law, rule or regulation regarding capital adequacy (excluding any
law, rule or regulation in existence as of the Closing Date which implements
the Basle Accord as it exists as of the Closing Date but including any other
law, rule or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(excluding any guideline or other requirement in existence as of the Closing
Date which implements the Basle Accord as it exists as of the Closing Date but
including any other guideline or other requirement implementing the Basle
Accord), has or would have the effect of reducing the rate of return on such
Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender
to be material, then from time to time, within ten Business Days after demand
by such Lender (with a copy to Agent), Kitty Hawk shall pay to such Lender such
additional amount or amounts as will compensate such Lender (or its parent) for
such reduction. A certificate of such Lender claiming compensation under this
Section 4.6 and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive absent manifest error, provided that the
determination thereof is made on a reasonable basis. In determining such
amount or amounts, such Lender may use any reasonable averaging and attribution
methods.
Section 4.7 Additional Interest on Eurodollar Loans. Kitty Hawk
shall pay, directly to Agent for the account of each Lender from time to time,
additional interest on the unpaid principal amount of each Eurodollar Loan held
by such Lender, from the date of the making of such Eurodollar Loan until such
principal amount is paid in full, at an interest rate per annum determined by
such Lender in good faith equal to the positive remainder (if any) of (a) the
Adjusted Eurodollar Rate applicable to such Eurodollar Loan minus (b) the
Eurodollar Rate applicable to such Eurodollar Loan.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 52
<PAGE> 59
Each payment of additional interest pursuant to this Section 4.7 shall be
payable by Kitty Hawk on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that Kitty Hawk
shall not be obligated to make any such payment of additional interest until
the first Business Day after the date when Kitty Hawk has been informed (i)
that such Lender is subject to a Reserve Requirement and (ii) of the amount of
such Reserve Requirement (after which time Kitty Hawk shall be obligated to
make all such payments of additional interest, including, without limitation,
such payment of additional interest that otherwise would have been payable by
Kitty Hawk on or prior to such time had Kitty Hawk been earlier informed).
Section 4.8 Mitigation of Additional Costs. It is the general
intent of the parties hereto that, with respect to the matters referred to in
Sections 3.5, 4.1(a) and 4.6, Kitty Hawk shall not be discriminated against by
any Lender relative to such Lender's general practice with respect to borrowers
of comparable credits extended by such Lender under comparable circumstances.
Accordingly, for purposes of Sections 3.5, 4.1(a) and 4.6, each Lender agrees
to use reasonable efforts to ensure that Kitty Hawk is not requested to pay
increased costs of a kind or type which are not also generally requested to be
paid by borrowers of comparable credits extended by such Lender under
comparable circumstances. In connection with any request that Kitty Hawk pay
increased costs pursuant to Section 3.5, 4.1(a) or 4.6, the Lender requesting
such payment shall deliver to Kitty Hawk and Agent information in reasonable
detail specifying the events giving rise to such increased costs, the basis for
determining and allocating such increased costs and a good faith estimate (if
and to the extent feasible) of the amounts of such particular increased costs
which may be incurred in the future.
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment
and performance of the Obligations, each of Kitty Hawk and its Subsidiaries,
other than AIC, shall, on or before the Closing Date, grant to Agent for the
benefit of Agent and Lenders a perfected, first priority Lien on all of its
right, title and interest in and to the following Property and all products and
proceeds thereof, whether now owned or hereafter acquired, pursuant to the
Security Documents as more specifically provided in the Security Documents, all
of which Collateral shall secure payment and performance of all of the
Obligations:
(a) all Capital Stock of each of the Subsidiaries of
Kitty Hawk other than AIC and other than Foreign Subsidiaries, and 65%
of the shares of each class of Capital Stock of each of the Foreign
Subsidiaries of Kitty Hawk;
(b) all AIA Aircraft and all engines, appliances and
spare parts installed in or appurtenant to any such AIA Aircraft; and
(c) all accounts (including, without limitation,
Receivables), Parts (including, without limitation, rotable spare
parts), inventory, chattel paper and general intangibles
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 53
<PAGE> 60
(including, without limitation, contract rights) and other personal
Property specified in the Security Agreements.
Kitty Hawk and its Subsidiaries covenant to Agent and Lenders that none of the
Capital Stock to be pledged in accordance with this Section 5.1 shall be
subject to any transfer restriction, shareholders' agreement or other
restriction except for such restrictions under applicable securities laws and
such restrictions, if any, as may be reasonably acceptable to Agent. In
connection with and in addition to the foregoing, Kitty Hawk and its
Subsidiaries shall execute and/or deliver such further agreements, documents
and instruments (including, without limitation, stock certificates, stock
powers and financing statements) as Agent may reasonably request in order for
it to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Section 5.1.
Section 5.2 Guaranties. Each of the Subsidiaries of Kitty Hawk,
other than AIC, in existence on the Closing Date shall guarantee the payment
and performance of the Obligations pursuant to the applicable Guaranty.
Section 5.3 New AIA Aircraft Related Collateral. Kitty Hawk and
its Subsidiaries shall, promptly (and, in any event within ten Business Days)
after any request made by Agent after the acquisition of any equipment or
enhancement to any AIA Aircraft, execute, acknowledge and deliver to Agent, in
favor of Agent for the benefit of Agent and Lenders, such agreements, documents
and instruments, including, without limitation, Aircraft Mortgages or Security
Agreements or amendments or modifications to Aircraft Mortgages or Security
Agreements, covering such acquired equipment or enhancements as may reasonably
be requested by Agent, together with evidence reasonably satisfactory to Agent
and its counsel of Agent's valid, first priority Lien on the equipment and
enhancements acquired as security for the payment and performance of the
Obligations.
Section 5.4 New Subsidiaries; New Issuances of Capital Stock.
Contemporaneously with the creation or acquisition of any Subsidiary of Kitty
Hawk, Kitty Hawk or the Subsidiary of Kitty Hawk which owns such new Subsidiary
(as applicable) shall, and (with respect to clauses (b) and (c) below) shall
cause each such new Subsidiary to:
(a) grant or cause to be granted to Agent a perfected,
first priority Lien in (i) all Capital Stock or other ownership
interests in or indebtedness of such Subsidiary, other than a Foreign
Subsidiary, owned by Kitty Hawk or any Subsidiary of Kitty Hawk (to
the extent such Capital Stock or other ownership interests or
indebtedness are already not so pledged to Agent) and (ii) 65% of the
shares of each class of Capital Stock of each of the Foreign
Subsidiaries of Kitty Hawk, in each case as security for the payment
and performance of the Obligations;
(b) Guarantee the payment and performance of the
Obligations by executing and delivering to Agent an appropriate
Guaranty; provided, however, that no Foreign Subsidiary shall be
required to execute and deliver any such Guaranty; and
(c) execute and deliver to Agent an appropriate Security
Agreement and such other Security Documents as Agent may reasonably
request to grant to Agent, for the benefit
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 54
<PAGE> 61
of Agent and Lenders, a perfected, first priority Lien on all Property
of such Subsidiary of the type described in clause (c) of Section 5.1
as security for the payment and performance of the Obligations;
provided, however, that no Foreign Subsidiary shall be required to
execute and delivery any such Security Agreement or other Security
Document or grant any such Lien.
Contemporaneously with the issuance of any additional Capital Stock of any of
the Subsidiaries of Kitty Hawk after the Closing Date, Kitty Hawk (as
applicable) shall, and shall cause each of its Subsidiaries (as applicable) to,
grant or cause to be granted to Agent, for the benefit of Agent and Lenders, a
perfected, first priority Lien in all Capital Stock or other ownership
interests in such Subsidiary (or, if such Subsidiary is a Foreign Subsidiary,
in 65% of the shares of each class of Capital Stock) owned by Kitty Hawk or any
Subsidiary of Kitty Hawk (to the extent such Capital Stock or other ownership
interests were not previously pledged to Agent) as security for the payment and
performance of the Obligations. Kitty Hawk and its Subsidiaries covenant to
Agent and Lenders that none of the Capital Stock to be pledged in accordance
with this Section 5.4 shall be subject to any transfer restriction,
shareholders' agreement or other restriction except for such restrictions under
applicable securities laws and such restrictions, if any, as may be reasonably
acceptable to Agent. In connection with and in addition to the foregoing,
Kitty Hawk and its Subsidiaries shall execute and/or deliver such further
agreements, documents and instruments (including, without limitation, stock
certificates, stock powers and financing statements) as Agent may reasonably
request in order for it to obtain and maintain the perfected, first priority
Liens to be granted in accordance with this Section 5.4.
Section 5.5 Release of Certain Collateral.
(a) Single Aircraft Release. Agent and Lenders
agree that, upon five Business Days prior written request from Kitty
Hawk and if (but only if) Kitty Hawk prepays the applicable
outstanding principal amount of the Term Loans by an aggregate amount
equal to the AIA Aircraft Release Amount attributable to a particular
AIA Aircraft, Agent shall (at Kitty Hawk's expense) release its Lien
on such AIA Aircraft; provided, however, that, in the event that Agent
requests such an appraisal in connection with such request for a
release made at any time after November 19, 1999, and such request is
not made by Kitty Hawk in connection with a casualty loss of such AIA
Aircraft, Agent shall have no obligation to release its Lien on such
AIA Aircraft unless Agent shall have received a then current appraisal
of all AIA Aircraft that will remain subject to Agent's Lien under the
Aircraft Mortgages after giving effect to such requested release (the
"Remaining AIA Aircraft"), which appraisal must be in form, substance
and content reasonably satisfactory to Agent and must be performed by
an appraiser reasonably satisfactory to Agent and must show that,
after giving effect to such prepayment, the aggregate outstanding
principal amount of the Term Loans will be less than or equal to 80%
of the appraised value of the Remaining AIA Aircraft; and provided,
further, however, that Agent shall have no obligation to release its
Lien on such AIA Aircraft if a Default shall have occurred and be
continuing. Furthermore, and notwithstanding anything to the contrary
contained herein, Agent shall not be required to execute any document
effectuating any release of a Lien on terms which, in Agent's
reasonable judgment, would expose Agent to liability or create any
obligation not reimbursed by Kitty Hawk or entail any warranty by
Agent (other than that Agent holds the Lien and enforceably releases
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 55
<PAGE> 62
it) or would, in any manner, discharge, affect or impair any of the
Obligations or any of Agent's Liens on any Collateral not required to
be so released or any proceeds thereof.
(b) Mandatory Engine Release. Agent and Lenders agree
that, upon five Business Days prior written request from Kitty Hawk,
Agent shall (at Kitty Hawk's expense) release its Lien on a particular
Engine if (but only if) (i) Aircargo grants to Agent, for the benefit
of Agent and Lenders as security for the payment and performance of
the Obligations, a perfected, first priority Lien on a replacement
Engine having a fair market value, as determined by Agent in good
faith, equal to or greater than the fair market value of such Engine
to be released (which value shall be evidenced by an appraisal if
Agent so requests) pursuant to an Aircraft Mortgage, and (ii) such
Lien referred to in clause (i) preceding is insured by a mortgagee's
policy of title insurance in form and substance reasonably
satisfactory to Agent.
(c) Optional Engine Release. Agent may, but shall not at
any time be obligated to, in its discretion from time to time and
without the consent of any Lender or Lenders, release Agent's Liens
securing the Obligations on engines which constitute a part of the AIA
Aircraft but which have been detached from the AIA Aircraft for
overhaul or maintenance; provided, however, that (i) no such release
may occur prior to January 1, 1999, (ii) no more than six engines may
be so released during calendar year 1999, no more than 12 engines may
be released during calendar years 1999 and 2000, no more than 18
engines may be released during calendar years 1999, 2000 and 2001 and
no more than 24 engines may be released during calendar years 1999,
2000, 2001 and 2002, in each case in the aggregate for all such years,
and (iii) Agent may, in its discretion, impose any one or more
conditions to any such release, including, without limitation, the
condition that Agent be granted perfected, first priority Liens
securing the Obligations on substitute engines.
Section 5.6 Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time
to time, without notice to Kitty Hawk or any of its Subsidiaries or any other
Person (any such notice being hereby expressly waived by Kitty Hawk and its
Subsidiaries), to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness
at any time owing by such Lender to or for the credit or the account of Kitty
Hawk or any of its Subsidiaries against any and all of the Obligations of Kitty
Hawk or any of its Subsidiaries now or hereafter existing under this Agreement,
any of such Lender's Notes or any other Loan Document, irrespective of whether
or not Agent or such Lender shall have made any demand under this Agreement,
any of such Lender's Notes or any such other Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify Kitty Hawk
(with a copy to Agent) after any such setoff and application, provided that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights and remedies of each Lender hereunder are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which such Lender may have.
Section 5.7 Title Insurance. Aircargo shall (at its sole cost
and expense) purchase and maintain owner and mortgagee policies of title
insurance (or, if acceptable to Required Lenders, amendments or endorsements to
existing polices of title insurance) insuring that Aircargo has
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 56
<PAGE> 63
indefeasible title to each of the AIA Aircraft and that Agent, for the benefit
of Agent and Lenders, holds a perfected, first priority Lien on each of the AIA
Aircraft pursuant to the Loan Documents as security for the payment and
performance of the Obligations. The mortgagee policy of title insurance in
favor of Agent shall be in the amount of $45,900,000 and shall be issued by the
Title Company or another title insurance company reasonably acceptable to Agent
and shall contain such terms and provisions as are reasonably acceptable to
Agent.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each
Lender to make its initial Loan under this Agreement and the obligation of the
Issuing Bank to issue the initial Letter of Credit under this Agreement are
subject to the conditions precedent that Agent shall have received, on or
before the Closing Date, all of the following in form and substance reasonably
satisfactory to Agent and, in the case of actions to be taken, evidence that
the following required actions have been taken to the satisfaction of Agent:
(a) Resolutions. Resolutions of the Board of Directors
of each Company certified by its Secretary or an Assistant Secretary
which authorize the execution, delivery and performance by such
Company of the Loan Documents to which it is or is to be a party
(including, without limitation, with respect to Aircargo, resolutions
which authorize the Aircraft Mortgages and the other Security
Documents relating to the AIA Aircraft);
(b) Incumbency Certificate. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of each Company
certifying the name of each officer or other representative of such
Company (i) who is authorized to sign the Loan Documents to which such
Company is or is to be a party (including any certificates
contemplated therein), together with specimen signatures of each such
officer or other representative, and (ii) who will, until replaced by
other officers or representatives duly authorized for that purpose,
act as its representative for the purposes of signing documents and
giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Articles or Certificates of Incorporation, etc. The
articles or certificates of incorporation, certificate of formation,
certificate of limited partnership, partnership agreement or other
applicable constitutional document of each Company certified by the
Secretary of State or other applicable Governmental Authority of the
jurisdiction of incorporation or organization of such Company and
dated as of a Current Date;
(d) Bylaws. The bylaws of each Company certified by the
Secretary or an Assistant Secretary of such Company;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 57
<PAGE> 64
(e) Governmental Certificates. Certificates of
appropriate officials confirming (i) the existence and good standing,
status or compliance, as applicable, of each Company in its respective
jurisdiction of incorporation or organization and any and all
jurisdictions where such Company is qualified to do business as a
foreign corporation or other entity, each such certificate to be dated
as of a Current Date, (ii) that Aircargo is an air carrier certified
by the FAA and qualifies in all respects as a citizen of the U.S. as
defined in the Federal Aviation Act, (iii) that Aircargo is the
registered owner of each of the AIA Aircraft pursuant to proper
registrations under the Federal Aviation Act, and (iv) that each of
the AIA Aircraft is airworthy as evidenced by a valid, current
Certificate of Airworthiness issued by the FAA with respect to such
AIA Aircraft;
(f) Revolving Credit Loans Notes. The Revolving Credit
Loans Notes duly completed and executed by Kitty Hawk;
(g) Term Loans Notes. The Term Loans Notes duly
completed and executed by Kitty Hawk;
(h) Guaranties. A Guaranty executed by each of the
Companies other than Kitty Hawk;
(i) Security Documents. The Security Documents executed
by each of the Companies, including, without limitation, Security
Agreements executed by each of the Companies and Aircraft Mortgages
executed by Aircargo;
(j) Stock Certificates. The stock certificates
representing all of the issued and outstanding Capital Stock of each
of the Companies, other than Kitty Hawk, in each case accompanied by
appropriate instruments of transfer or stock powers signed in blank
(as appropriate);
(k) Insurance Policies. Copies of all insurance policies
required by this Agreement and the other Loan Documents, together with
loss payable endorsements naming Agent as loss payee under all such
casualty insurance policies and Agent as an additional insured party
under all such liability policies;
(l) Financing Statements. Financing statements and all
other requisite filing documents executed by the Companies necessary
to perfect the Liens created pursuant to the Security Documents;
(m) Title and Lien Searches. (i) Title and Lien searches
performed by the Title Company confirming that (A) each of the AIA
Aircraft is duly registered with the FAA in the name of Aircargo, (B)
Agent, for the benefit of Agent and Lenders, has a perfected, first
priority Lien in the AIA Aircraft as security for the payment and
performance of the Obligations; (ii) a policy of title insurance (or
amendments or endorsements thereto) for each of the AIA Aircraft with
Agent as named insured as required pursuant to Section 5.7; and (iii)
Lien searches in the names of each of the Companies (and in all names
under which each
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 58
<PAGE> 65
such Person has done business within the last five years and in all
names of Persons who previously owned any of the material Properties
constituting Collateral as Agent may reasonably require) in each state
where each such Person maintains an office or has Property, showing no
financing statements or other Lien instruments of record except for
Permitted Liens and Liens not otherwise prohibited by Section 9.2;
(n) Consents. Copies of all material consents necessary
for the execution, delivery and performance by each of the Companies
of the Loan Documents to which it is a party, including, without
limitation, any consents or waivers to the grant of a Lien in the
Collateral or execution of a Guaranty, which consents shall be
certified by a Responsible Officer of the applicable Company as true
and correct copies of such consents as of the Closing Date;
(o) Permits. If and to the extent required by Agent,
copies of all material Permits affecting each Company in connection
with its businesses or any of the Properties owned or leased by it,
and evidence reasonably satisfactory to Agent that such Permits are in
full force and effect;
(p) Payment of Fees and Expenses. Kitty Hawk shall have
paid to Agent the up-front fee and agency fee referred to in Section
2.11 that are payable on or before the Closing Date and, to the extent
required by Agent, Kitty Hawk shall have paid all fees, costs and
expenses of or incurred by Agent and its counsel referred to in
Section 13.1 to the extent billed on or before the Closing Date and
payable pursuant to this Agreement;
(q) Regulatory Approvals. Evidence reasonably
satisfactory to Agent that all filings, consents or approvals with or
of Governmental Authorities necessary to consummate each of (i) the
Merger, (ii) the Common Stock Offering, (iii) the Note Offering, and
(iv) the transactions contemplated by this Agreement and the other
Loan Documents, have been made and obtained, as applicable (including,
without limitation, all approvals or filings (if any) required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the lapse
of all waiting periods with respect thereto);
(r) Compliance with Laws. As of the Closing Date, each
Company shall have complied with all Governmental Requirements
necessary to consummate each of (i) the Merger, (ii) the Common Stock
Offering, (iii) the Note Offering, and (iv) the transactions
contemplated by this Agreement and the other Loan Documents;
(s) No Prohibitions. No Governmental Requirement shall
prohibit the consummation of the transactions contemplated by each of
(i) the Merger, (ii) the Common Stock Offering, (iii) the Note
Offering, and (iv) this Agreement or any other Loan Document, and no
order, judgment or decree of any Governmental Authority or arbitrator
shall, and no litigation or other proceeding shall be pending or
threatened which would, enjoin, prohibit, restrain or otherwise
adversely affect the consummation of any of such transactions or
otherwise have a Material Adverse Effect;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 59
<PAGE> 66
(t) No Material Adverse Change. As of the Closing Date,
no material adverse change shall have occurred with respect to the
financial condition, results of operations, business, operations,
capitalization, liabilities or prospects of Kitty Hawk or any of its
Subsidiaries since June 30, 1997;
(u) Disbursement Instructions. On or before the Closing
Date, written instructions to Agent from Kitty Hawk regarding the
disbursement of the proceeds of the Loans on the Closing Date, which
instructions shall include the request that the proceeds of the Term
Loans to be advanced on the Closing Date shall be disbursed to Wells
Fargo (as agent under the Prior Credit Agreement) in payment of the
AIA Fleet Advance in accordance with Section 2.10(b);
(v) Financial Statements. Copies of each of the
financial statements referred to in Section 7.2;
(w) Opinions of Counsel. Favorable opinions of counsel
for Kitty Hawk and its Subsidiaries relating to (i) the Loan Documents
and the transactions contemplated thereby, (ii) the Related
Transactions Documents and the Related Transactions contemplated
thereby, (iii) Kitty Hawk and its Subsidiaries, and (iv) such other
matters as Agent may reasonably request;
(x) Appraisals. A current appraisal of each of the AIA
Aircraft, which appraisals must be in form, substance and content
reasonably satisfactory to Agent and must be performed by an
independent appraiser or appraisers reasonably satisfactory to Agent
and must show that the aggregate appraised value of the AIA Aircraft
is $63,200,000 or more (which Agent acknowledges has been received);
(y) Consummation of Merger. The Merger shall have been
consummated in accordance with the Merger Agreement, a true and
correct copy of which Merger Agreement and certificate of merger
therefor issued by the Secretary of State of Michigan shall have been
delivered to Agent, and the aggregate purchase price paid or payable
by Kitty Hawk and its Subsidiaries in connection with the Merger shall
not exceed any of the following (individually or in the aggregate):
(i) the assumption and/or repayment of an aggregate amount in excess
of $305,000,000 of indebtedness of any Kalitta Company or any of its
Affiliates; (ii) $20,000,000 in cash or cash equivalents paid or
payable in connection with Kitty Hawk's acquisition of the Capital
Stock of KFS; and (iii) 4,099,000 of shares of common stock of Kitty
Hawk issued in connection with Kitty Hawk's acquisition of the Capital
Stock of the Kalitta Companies other than KFS;
(z) Consummation of Common Stock Offering. The Common
Stock Offering shall have been consummated as (in all material
respects) described in the Registration Statement, a true and correct
copy of which shall have been delivered to Agent, and, in connection
therewith, Kitty Hawk shall have received gross proceeds of
$40,000,000 or more;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 60
<PAGE> 67
(aa) Consummation of Note Offering. The Note Offering
shall have been consummated in accordance with the Indenture, a true
and correct copy of which shall have been delivered to Agent, and as
(in all material respects) described in the Offering Memorandum and,
in connection therewith, Kitty Hawk shall have received gross proceeds
of $325,000,000 or more;
(bb) Minimum Adjusted EBITDA. For the 9 month period
ended September 30, 1997, Kitty Hawk and its Subsidiaries and the
Kalitta Companies (without duplication) shall have combined Adjusted
EBITDA of $47,000,000 or more;
(cc) Environmental Reports. Agent shall have received
environmental reports pertaining to the real Properties of Kitty Hawk
and its Subsidiaries which evidence that, to the satisfaction of
Agent, there do not exist any material environmental liabilities;
(dd) Solvency Certificate. A Solvency Certificate
(together with the Pro Forma and Projections referred to therein)
executed by the chief financial officer of each of the Companies which
evidences that each of the Companies (including the Kalitta
Companies), both immediately prior to and immediately after giving
effect to the Related Transactions, is Solvent.
(ee) Maximum Funded Debt; Payment of Existing Debt;
Minimum Cash. As of the Closing Date (and after giving effect to the
consummation of the Related Transactions and the use of proceeds of
the Common Stock Offering and the Notes Offering), (i) Funded Debt of
Kitty Hawk and its Subsidiaries (including the Kalitta Companies)
shall not exceed $400,000,000; (ii) the Debt of Kitty Hawk and its
Subsidiaries identified on Schedule 6.1 shall have been paid in full
with the proceeds of the Common Stock Offering, the Note Offering
and/or the proceeds of the initial Loans to be advanced under this
Agreement; and (iii) Kitty Hawk and its Subsidiaries shall have cash
of $40,000,000 or more;
(ff) Payment of Amounts owed under the Prior Credit
Agreement. Kitty Hawk or Leasing (as applicable), i.e., whichever is
the primary obligor with respect to such indebtedness under the Prior
Credit Agreement, shall have paid to Wells Fargo (as agent under the
Prior Credit Agreement) all accrued interest, fees, costs and expenses
and other amounts payable by it under the Prior Credit Agreement;
(gg) Letters of Credit. With respect to the issuance of a
Letter of Credit, the Letter of Credit Agreement in the form required
by the Issuing Bank with respect thereto executed by Kitty Hawk; and
(hh) Bank One Interest Rate Protection Agreement. The
Bank One Interest Rate Protection Agreement shall have been
terminated.
Kitty Hawk shall deliver, or cause to be delivered, to Agent sufficient
counterparts of each agreement, document or instrument to be received by Agent
under this Section 6.1 to permit Agent to distribute a copy of the same to each
of Lenders. After the request of Kitty Hawk, Agent shall inform Kitty
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 61
<PAGE> 68
Hawk in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each
Lender to make any Loan (including the initial Loans) under this Agreement and
the obligation of the Issuing Bank to issue any Letter of Credit (including the
initial Letter of Credit) under this Agreement are subject to the satisfaction
of each of the conditions precedent set forth in Section 6.1 and each of the
following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default
shall have occurred and be continuing or would result from such Loan
or Letter of Credit, and no Material Adverse Effect shall have
occurred since June 30, 1997;
(b) Representations and Warranties. All of the
representations and warranties of the Companies contained in Article 7
hereof and in the other Loan Documents shall be true and correct on
and as of the date of such Loan or Letter of Credit with the same
force and effect as if such representations and warranties had been
made on and as of such date;
(c) Borrowing Base. After giving effect to such Loan
and/or Letter of Credit requested to be made and/or issued,
respectively, the Outstanding Revolving Credit shall not exceed the
Borrowing Base then in effect; and
(d) Additional Documentation. Agent shall have received
such additional approvals, opinions, agreements, documents,
instruments and certificates as Agent may reasonably request.
Each notice of borrowing or request for the issuance of a Letter of Credit by
Kitty Hawk hereunder shall constitute a representation and warranty by Kitty
Hawk that the conditions precedent set forth in Sections 6.2(a) and (b) have
been satisfied (both as of the date of such notice and, unless Kitty Hawk
otherwise notifies Agent prior to the date of such borrowing or Letter of
Credit, as of the date of such borrowing or Letter of Credit).
Section 6.3 Closing Certificates. The Companies shall,
concurrently with the Closing Date, execute and deliver to Agent a Closing
Certificate in form and substance reasonably satisfactory to Agent certifying
as to the satisfaction of each of the conditions precedent set forth in Section
6.1 and 6.2 which are required to be satisfied on or before the Closing Date.
ARTICLE 7
Representations and Warranties
Each of the Companies jointly and severally represents and warrants
to Agent and Lenders that the following statements are, and after giving effect
to the funding of the initial Loans on the Closing Date will be, true, correct
and complete:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 62
<PAGE> 69
Section 7.1 Corporate Existence. Each of Kitty Hawk and its
Subsidiaries (a) is a corporation or, with respect to AIC, a partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, (b) has all requisite power
and authority to own its Properties and carry on its business as now being or
as proposed to be conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Each of Kitty Hawk and its Subsidiaries has the power, authority and legal
right to execute, deliver and perform its obligations under the Loan Documents
and the Related Transaction Documents to which it is or may become a party.
Section 7.2 Financial Statements.
(a) Kitty Hawk has delivered to Agent and Lenders (i)
audited consolidated and consolidating financial statements of Kitty
Hawk and its Subsidiaries as of and for the fiscal years ended August
31, 1995 and August 31, 1996, and for the four month period ended
December 31, 1996, (ii) unaudited interim financial statements of
Kitty Hawk and its Subsidiaries as of and for the periods ended March
31, 1997, (iii) audited consolidated and consolidating financial
statements of AIA and its Subsidiaries as of and for the fiscal year
ended December 31, 1996, and (iv) unaudited interim financial
statements of AIA and its Subsidiaries as of and for the period ended
June 30, 1997. Such financial statements are complete, true and
correct, have been prepared in accordance with GAAP and fairly and
accurately present, on a consolidated and consolidating (where
applicable) basis, the financial condition of Kitty Hawk and its
consolidated Subsidiaries or AIA and its consolidated Subsidiaries (as
applicable) as of the respective dates indicated therein and the
results of operations for the respective periods indicated therein.
Neither Kitty Hawk nor any of its Subsidiaries, nor AIA or any of its
Subsidiaries, has any material contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments, or unrealized or
anticipated losses from any unfavorable commitments except as referred
to or reflected in such financial statements. There has not been, as
of the Closing Date, any material adverse change in the business,
condition (financial or otherwise), operations, prospects or
Properties of any Company since the effective dates of the most recent
applicable financial statements referred to in this Section 7.2.
(b) The Pro Forma Balance Sheet was prepared by Kitty
Hawk on a basis substantially consistent with the financial statements
referred to in Section 7.2(a), with only such adjustments thereto as
would be required in accordance with GAAP. Neither Kitty Hawk nor any
of its Subsidiaries has any contingent liabilities, liabilities for
taxes, unusual forward or long-term commitments or unrealized or
unanticipated losses from any unfavorable commitments except as
referred to or reflected in the Pro Forma.
(c) The Projections were prepared by Kitty Hawk on a
basis substantially consistent with the financial statements referred
to in Section 7.2(a). The Projections represent, as of the Closing
Date, the good faith estimate of Kitty Hawk and its senior management
concerning the probable financial condition and performance of Kitty
Hawk and its Subsidiaries based on assumptions believed to be
reasonable at the time made.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 63
<PAGE> 70
Section 7.3 Corporate Action; No Breach. The execution, delivery
and performance by each Company of the Loan Documents and the Related
Transaction Documents to which it is or may become a party and compliance with
the terms and provisions hereof and thereof have been duly authorized by all
requisite corporate or other entity action on the part of each Company and do
not and will not (a) violate or conflict with, or result in a breach of, or
require any consent under (i) the articles or certificates of incorporation or
bylaws of any Company, (ii) any Governmental Requirement or any order, writ,
injunction or decree of any Governmental Authority or arbitrator, or (iii) any
agreement, document or instrument to which any Company is a party or by which
any Company or any of its Property is bound or subject, or (b) constitute a
default under any such agreement, document or instrument, or result in the
creation or imposition of any Lien (except a Lien in favor of Agent for and on
behalf of Lenders under the Security Documents as provided in Article 5) upon
any of the revenues or Property of any Company.
Section 7.4 Operation of Business. Each of Kitty Hawk and its
Subsidiaries possesses all Permits, franchises, licenses, patents, copyrights,
trademarks, tradenames and authorizations or rights thereto necessary or
appropriate to conduct its business substantially as now conducted and as
presently proposed to be conducted. None of such Persons is in violation of
any valid rights of others with respect to any of the foregoing.
Section 7.5 Litigation and Judgments. Except as disclosed on
Schedule 7.5 hereto, there is no action, suit, investigation or proceeding
before or by any Governmental Authority or arbitrator pending or, to the
knowledge of any Company, threatened against or affecting Kitty Hawk or any of
its Subsidiaries that could, if adversely determined, reasonably be expected to
have a Material Adverse Effect. There are no outstanding judgments against any
Company. No Company has received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed to any liability or disadvantage
that could reasonably be expected to have a Material Adverse Effect.
Section 7.6 Rights in Properties; Liens. Aircargo is the true
and lawful owner of each of the AIA Aircraft and is the registered owner of
each of the AIA Aircraft pursuant to proper registrations under the Federal
Aviation Act. Aircargo is an air carrier certified by the FAA and qualifies in
all respects as a citizen of the U.S. as defined in the Federal Aviation Act.
Each of the AIA Aircraft, other than Aircraft AD, is in freight configuration
and, as of the Closing Date, 14 of the AIA Aircraft are subject to an ACMI
Agreement which is in full force and effect. None of the AIA Aircraft is
subject to a true lease which constitutes an interest in such aircraft which is
recordable with the FAA. None of the Companies owns any material Parts other
than Aircargo, Leasing, AIA, KFS and OK, and, as of the Closing Date, no
material portion of the Parts owned by such Companies, other than Parts in
transit for installation or Parts in the process of being refurbished, are
located at other than the addresses specified in the Security Agreement
executed by such Company. None of the Properties or leasehold interests
(excluding Non-Collateral Aircraft) of any Kitty Hawk or any of its
Subsidiaries is subject to any Lien, except Permitted Liens.
Section 7.7 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Companies that is a party thereto
as of the Closing Date, and such Loan
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 64
<PAGE> 71
Documents constitute the legal, valid and binding obligations of the Companies,
enforceable against the Companies in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights and general
principles of equity.
Section 7.8 Approvals. No authorization, approval or consent of,
and no filing or registration with or notice to, any Governmental Authority or
third party is or will be necessary for the execution, delivery or performance
by any Company of any of the Loan Documents to which it is or will be a party
or for the validity or enforceability thereof, except for such consents,
approvals and filings as have been (or will have been as of the Closing Date)
validly obtained or made and are in full force and effect. None of Kitty Hawk
or any of its Subsidiaries has failed to obtain any material governmental
consent, approval, license, Permit, franchise or other governmental
authorization necessary for the ownership or use of any of its Properties or
the conduct of its business.
Section 7.9 Debt. As of the Closing Date, neither Kitty Hawk nor
any of its Subsidiaries has any Debt except for (a) the Obligations, (b) the
Senior Notes, and (c) the Debt disclosed on Schedule 7.9 hereto.
Section 7.10 Taxes. Except as disclosed on Schedule 7.10 hereto,
Kitty Hawk and its Subsidiaries have filed all tax returns (federal, state and
local) required to be filed, including all income, franchise, employment,
Property and sales tax returns, and have paid all of their respective
liabilities for taxes, assessments, governmental charges and other levies that
are due and payable. No Company is aware of any pending investigation of Kitty
Hawk or any of its Subsidiaries by any taxing authority or of any pending but
unassessed tax liability of Kitty Hawk or any of its Subsidiaries. No tax
Liens have been filed and, except as disclosed on Schedule 7.10, no claims are
being asserted against Kitty Hawk or any of its Subsidiaries with respect to
any taxes. Except as disclosed on Schedule 7.10 hereto, as of the Closing
Date, none of the income tax returns of Kitty Hawk or any of its Subsidiaries
is under audit. The charges, accruals and reserves on the books of Kitty Hawk
and its Subsidiaries in respect of taxes or other governmental charges are in
accordance with GAAP.
Section 7.11 Margin Securities. Neither Kitty Hawk nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loan will be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying margin stock.
Section 7.12 ERISA. Neither any Company nor any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan
other than the Pension Plans identified on Schedule 7.12. Each Plan of each
Company is in compliance in all material respects with all applicable
provisions of ERISA and the Code. Neither a Reportable Event nor a Prohibited
Transaction has occurred within the last 60 months with respect to any Plan.
No notice of intent to terminate a Pension Plan has been filed, nor has any
Pension Plan been terminated. No circumstances exist which constitute grounds
entitling the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Pension Plan, nor has the PBGC instituted any such
proceedings. Neither
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 65
<PAGE> 72
any Company nor any ERISA Affiliate has completely or partially withdrawn from
a Multiemployer Plan. Each Company and each ERISA Affiliate has met its
minimum funding requirements under ERISA and the Code with respect to all of
its Plans subject to such requirements, and, as of the Closing Date, except as
specified on Schedule 7.12, the present value of all vested benefits under each
funded Plan (exclusive of any Multiemployer Plan) do not and will not exceed
the fair market value of all such Plan assets allocable to such benefits, as
determined on the most recent valuation date of such Plan and in accordance
with ERISA. Neither any Company nor any ERISA Affiliate has incurred any
liability to the PBGC under ERISA. No litigation is pending or threatened
concerning or involving any Plan. There are no unfunded or unreserved
liabilities (on either a going-concern basis or a wind-up basis) relating to
any Plan that could, individually or in the aggregate, have a Material Adverse
Effect if such Company were required to fund or reserve such liability in full.
As of the Closing Date, no funding waivers have been or will have been
requested or granted under Section 412 of the Code with respect to any Plan.
As of the Closing Date, no unfunded or unreserved liability for benefits under
any Plan exceed $100,000, with respect to any Plan, or $100,000 in the
aggregate with respect to all such Plans or Plans (exclusive of any
Multiemployer Plans) on either a going-concern basis or a wind-up basis.
Section 7.13 Disclosure. No written statement, information,
report, representation or warranty made by any Company in any Loan Document or
furnished to Agent or any Lender by any Company in connection with the Loan
Documents or any transaction contemplated hereby or thereby contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading. There is no fact known
to any Company which has had a Material Adverse Effect or which could
reasonably be expected to have a Material Adverse Effect.
Section 7.14 Capitalization.
(a) On and as of the Closing Date, the number and class
of the authorized Capital Stock, the par value per share and the
number of shares issued and outstanding with respect to the Capital
Stock of each of the Subsidiaries of Kitty Hawk is as set forth on
Schedule 7.14. Kitty Hawk owns all of the issued and outstanding
Capital Stock each of its Subsidiaries other than AIC, and AIA owns
60% of the partnership interests of AIC.
(b) On and as of the Closing Date, Kitty Hawk has no
Subsidiaries other than Aircargo, Leasing, Charters, Skyfreighters
(an inactive Texas corporation), AIA, AIT, FOL, KFS, OK and AIC.
(c) All of the issued and outstanding Capital Stock of
each of the Subsidiaries of Kitty Hawk has been validly issued and is
fully paid and nonassessable, and there are no outstanding
subscriptions, options, warrants, calls or rights (including
preemptive rights) to acquire, and no outstanding securities or
instruments convertible into, Capital Stock of any Subsidiary of Kitty
Hawk.
Section 7.15 Agreements. Neither Kitty Hawk nor any of its
Subsidiaries is a party to any indenture, loan, credit agreement, stock
purchase agreement or any lease or other agreement,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 66
<PAGE> 73
document or instrument, or subject to any charter or corporate restriction,
that could reasonably be expected to have a Material Adverse Effect. Neither
Kitty Hawk nor any of its Subsidiaries is in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement, document or instrument material to
its business to which it is a party.
Section 7.16 Compliance with Laws. Neither Kitty Hawk nor any of
its Subsidiaries is in violation in any material respect of any Governmental
Requirement.
Section 7.17 Investment Company Act. Neither Kitty Hawk nor any
of its Subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. Neither Kitty
Hawk nor any of its Subsidiaries is a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or a
"public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or
exceptions to any of the following representations and warranties that
could not have, individually or in the aggregate, a Material Adverse
Effect:
(i) Each of Kitty Hawk and its Subsidiaries and
all of its Properties and operations is in full compliance
with all Environmental Laws. No Company is aware of, or has
received any written notice of, any past, present or future
conditions, events, activities, practices or incidents which
may interfere with or prevent the compliance or continued
compliance by Kitty Hawk or any of its Subsidiaries with all
Environmental Laws;
(ii) Each of Kitty Hawk and its Subsidiaries has
obtained all Permits that are required under applicable
Environmental Laws, and all such Permits are in good standing
and all such Persons are in compliance with all of the terms
and conditions thereof;
(iii) No Hazardous Materials exist on, about or
within or have been (to the knowledge of any Company) or are
being used, generated, stored, transported, disposed of on or
Released from any of the Properties of Kitty Hawk or any of
its Subsidiaries except in compliance with applicable
Environmental Laws. The use which each of Kitty Hawk and its
Subsidiaries makes and intends to make of its respective
Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any
Hazardous Material on, in or from any of its Properties except
in compliance with applicable Environmental Laws;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 67
<PAGE> 74
(iv) Neither Kitty Hawk nor any of its
Subsidiaries nor any of its currently or previously owned or
leased Properties or operations are subject to any outstanding
or, to the knowledge of any Company, threatened order from or
agreement with any Governmental Authority or other Person or
subject to any judicial or administrative proceeding with
respect to (A) any failure to comply with Environmental Laws,
(B) any Remedial Action, or (C) any Environmental Liabilities;
(v) There are no conditions or circumstances
associated with the currently or previously owned or leased
Properties or operations of Kitty Hawk or any of its
Subsidiaries that could reasonably be expected to give rise to
any Environmental Liabilities or claims resulting in any
Environmental Liabilities. Neither Kitty Hawk nor any of its
Subsidiaries is subject to, or has received written notice of,
any claim from any Person alleging that it is or will be
subject to any Environmental Liabilities;
(vi) No Property of Kitty Hawk or any of its
Subsidiaries is a treatment facility (except for the recycling
of Hazardous Materials generated on-site and the treatment of
liquid wastes subject to the Clean Water Act or for temporary
storage of Hazardous Materials generated on-site prior to
their disposal off-site) or disposal facility requiring a
permit under the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., regulations thereunder or any
comparable provision of state law. Each of Kitty Hawk and its
Subsidiaries is in compliance with all applicable financial
responsibility requirements of all Environmental Laws; and
(vii) Neither Kitty Hawk nor any of its
Subsidiaries has failed to file any notice required under
applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that
could have, individually or in the aggregate, a Material Adverse
Effect has attached to any Property or revenues of Kitty Hawk or any
of its Subsidiaries.
Section 7.20 Labor Disputes and Acts of God. Neither the business
nor the Properties of Kitty Hawk or any of its Subsidiaries are affected by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that is having or could have a
Material Adverse Effect.
Section 7.21 Material Contracts. Attached hereto as Schedule 7.21
is a complete list, as of the Closing Date, of all Material Contracts of Kitty
Hawk or any of its Subsidiaries, other than the Loan Documents. All of the
Material Contracts are in full force and effect and neither Kitty Hawk nor any
of its Subsidiaries is in default under any Material Contract and no other
Person that is a party thereto is, to the knowledge of any Company, in default
under any of the Material Contracts. None of the Material Contracts prohibit
the transactions contemplated under the Loan Documents.
Section 7.22 Outstanding Securities. As of the Closing Date, all
outstanding securities (as defined in the Securities Act of 1933, as amended,
or any successor thereto, and the rules and
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 68
<PAGE> 75
regulations of the Securities and Exchange Commission thereunder) of each of
Kitty Hawk and its Subsidiaries have been offered, issued, sold and delivered
in compliance with all applicable Governmental Requirements.
Section 7.23 Solvency. Each of Kitty Hawk and the Operating
Subsidiaries, as a separate entity, is Solvent, both before and after giving
effect to the Loans.
Section 7.24 Employee Matters. Except as set forth on Schedule
7.24, as of the Closing Date (a) neither Kitty Hawk nor any of its Subsidiaries
is subject to any collective bargaining agreement, and (b) no petition for
certification or union election is pending with respect to the employees of
Kitty Hawk or any of its Subsidiaries, and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of Kitty Hawk or any of its Subsidiaries. There are no strikes, slowdowns,
work stoppages or controversies pending or, to the knowledge of the Companies,
threatened against Kitty Hawk or any of its Subsidiaries which could have,
either individually or in the aggregate, a Material Adverse Effect. Except as
set forth on Schedule 7.24, as of the Closing Date, neither Kitty Hawk nor any
of its Subsidiaries is subject to an employment contract with any executive
officer or director of a Company.
Section 7.25 Insurance. Schedule 7.25 sets forth an accurate
summary description of all policies of insurance (including, without
limitation, the coverage and deductibles thereunder, the limits of such
insurance and the issuers of such insurance) that will be in effect as of the
Closing Date for Kitty Hawk and its Subsidiaries. To the extent such policies
have not been replaced, no notice of cancellation has been received for such
policies and Kitty Hawk and its Subsidiaries are in compliance with all of the
terms and conditions of such policies.
Section 7.26 Common Enterprise. Each of Kitty Hawk and its
Subsidiaries is a member of an affiliated group, and Kitty Hawk and its
Subsidiaries are collectively engaged in a common enterprise with one another.
Each of Kitty Hawk and the Operating Subsidiaries expects to derive substantial
benefit (and may reasonably be expected to derive substantial benefit),
directly and indirectly, from all Loans and Letters of Credit contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group. Each of Kitty Hawk and the Operating Subsidiaries will
receive reasonably equivalent value in exchange for the Collateral and
Guaranties being provided by it as security for the payment and performance of
the Obligations.
Section 7.27 Related Transactions.
(a) All representations and warranties made by Kitty Hawk
and its Subsidiaries in the Related Transactions Documents are true
and correct in all material respects on and as of each date made or
deemed made and as of the Closing Date; provided, however, that, with
respect to the representations and warranties of the Kalitta Companies
contained in the Merger Agreement, such representations and warranties
are, to the knowledge of Kitty Hawk, true and correct in all material
respects only to the extent necessary to avoid a claim of indemnity by
any Kitty Hawk Company under the indemnification provisions of the
Merger Agreement. No rights of cancellation or rescission and, to the
knowledge of Kitty Hawk and its Subsidiaries, no defaults or defenses
exist with respect to any of the Related Transactions
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 69
<PAGE> 76
Documents. Kitty Hawk has delivered to Agent complete and correct
copies of all Related Transactions Documents, including all schedules
and exhibits thereto. The Related Transactions Documents set forth
the entire agreement and understanding of the parties thereto relating
to the subject matter thereof, and there are no other agreements,
arrangements or understandings, written or oral, relating to the
matters covered thereby.
(b) As of the Closing Date, all conditions precedent to
the Related Transactions pursuant to the Related Transactions
Documents have been fulfilled in all material respects or (with the
prior written consent of Agent) waived, the Related Transactions
Documents have not been amended or otherwise modified in any material
respect (except as permitted by this Agreement), and there has not
been any breach of any material term or condition contained in the
Related Transactions Documents. After giving effect to the
consummation of the Merger, Kitty Hawk has acquired all issued and
outstanding Capital Stock of each of the Kalitta Companies free and
clear of any Liens, except the Liens securing the Obligations in favor
of Agent. In connection with the Merger, neither Kitty Hawk nor any
of its Subsidiaries has assumed or will assume any liabilities other
than those required to be assumed by Kitty Hawk and its Subsidiaries
in accordance with the express terms and provisions of the Merger
Agreement. All approvals, authorizations, consents, licenses,
exemptions of, filings or registrations with any Governmental
Authority or other Person required in connection with the Related
Transactions have been obtained (including, without limitation,
notification under the Hart-Scott-Rodino Antitrust Improvements Act of
1976) and all waiting periods (if any) relating thereto have lapsed.
Section 7.28 Purchase Money Security Interest. The Aircraft
Mortgage executed by Aircargo dated the Closing Date evidences and continues or
creates a purchase-money equipment security interest (as such phrase is used in
Section 1110(a) of the Bankruptcy Code) in each of the AIA Aircraft to the
extent that such security interest secures the Term Loans, and Agent (for and
on behalf of Agent and Lenders) has the benefits provided by Section 1110(a) of
the Bankruptcy Code to the extent of such purchase-money equipment security
interest.
ARTICLE 8
Affirmative Covenants
Each of the Companies jointly and severally covenants and agrees that,
as long as the Obligations or any part thereof are outstanding or any Lender
has any Commitment hereunder or any Letter of Credit remains outstanding, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. Kitty Hawk will furnish to
Agent and each Lender:
(a) Annual Financial Statements. As soon as available,
and in any event within 90 days after the end of each fiscal year of
Kitty Hawk, beginning with the fiscal year ending December 31, 1997:
(i) a copy of the annual audit report of Kitty Hawk and its
Subsidiaries
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 70
<PAGE> 77
for such fiscal year containing, on a consolidated basis, a balance
sheet and statements of income, shareholders' equity and sources and
uses of cash as at the end of such fiscal year and for the 12-month
period then ended, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and
audited and certified by Ernst & Young or other independent certified
public accountants of recognized standing reasonably acceptable to
Agent and containing no qualification thereto except as may be
reasonably acceptable to Agent, to the effect that such report has
been prepared in accordance with GAAP; (ii) consolidating schedules
with respect to the balance sheet, statement of income, shareholders'
equity and sources and uses of cash for each of Kitty Hawk and its
Subsidiaries; and (iii) a copy of Kitty Hawk's Form 10- K annual
report filed or to be filed with the SEC;
(b) Quarterly Financial Statements. As soon as
available, and in any event within 45 days after the end of each of
the first three fiscal quarters of each fiscal year of Kitty Hawk,
beginning with the fiscal quarter ending March 31, 1998, (i) an
unaudited financial report of Kitty Hawk and its Subsidiaries as of
the end of such fiscal quarter and for the portion of the fiscal year
then ended containing, on a consolidated basis, balance sheets and
statements of income, shareholders' equity and sources and uses of
cash, in each case setting forth in comparative form the figures for
the corresponding period of the preceding fiscal year, all in
reasonable detail certified by a Responsible Officer of Kitty Hawk to
have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit adjustments) the
financial condition and results of operations of Kitty Hawk and its
Subsidiaries, on a consolidated and consolidating basis, at the date
and for the periods indicated therein, and (ii) a copy of Kitty Hawk's
Form 10-Q quarterly report filed or to be filed with the SEC;
(c) Compliance Certificate. Concurrently with the
delivery of each of the financial statements referred to in Sections
7.1(a) and 7.1(b), a certificate of a Responsible Officer of Kitty
Hawk (i) stating that, to the best of such officer's knowledge, no
Default has occurred and is continuing or, if a Default has occurred
and is continuing, stating the nature thereof and the action that has
been taken and is proposed to be taken with respect thereto, and (ii)
showing in reasonable detail the calculations demonstrating compliance
with Sections 10.1, 10.2, 10.3, 10.4 and 10.5.
(d) Applicable Margin and Commitment Fee Rate
Certificate. Concurrently with the delivery of the financial
statements referred to in Section 8.1(b), a certificate of a
Responsible Officer of Kitty Hawk showing in reasonable detail the
calculation of the Applicable Base Rate Margin, the Applicable
Commitment Fee Rate and the Applicable Eurodollar Margin as of the
next Calculation Date;
(e) Borrowing Base Report. Within 30 days after the end
of each calendar month, commencing with the month of January 1998, a
Borrowing Base Report certified by a Responsible Officer of Kitty
Hawk, together with information regarding the aging of accounts and
Parts reports as Agent may reasonably request from time to time;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 71
<PAGE> 78
(f) Management Letters. Promptly upon receipt thereof, a
copy of any management or comment letter submitted to Kitty Hawk or
any of its Subsidiaries by independent certified public accountants
with respect to the business, condition (financial or otherwise),
operations, prospects, or Properties of Kitty Hawk or any of its
Subsidiaries;
(g) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, and proceedings
before any Governmental Authority or arbitrator affecting Kitty Hawk
or any of its Subsidiaries which, if determined adversely to Kitty
Hawk or such Subsidiary, could reasonably be expected to have a
Material Adverse Effect;
(h) Notice of Default. As soon as possible and in any
event within 5 days after the occurrence of each Default, a written
notice setting forth the details of such Default and the action that
Kitty Hawk and its Subsidiaries have taken and propose to take with
respect thereto;
(i) ERISA Reports. Promptly after the filing or receipt
thereof, copies of all reports, including annual reports, and notices
which Kitty Hawk or any of its Subsidiaries or ERISA Affiliates files
with or receives from the PBGC or the U.S. Department of Labor under
ERISA, and as soon as possible and in any event within five days after
such Person knows or has reason to know that any Pension Plan is
insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the
PBGC or Kitty Hawk or any of its Subsidiaries or ERISA Affiliates has
instituted or will institute proceedings under ERISA to terminate or
withdraw from or reorganize any Pension Plan, a certificate of a
Responsible Officer of Kitty Hawk setting forth the details as to such
insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that Kitty Hawk and its Subsidiaries have
taken and propose to take with respect thereto;
(j) Reports to Other Creditors. Promptly after the
furnishing thereof, copies of each written statement or report
required to be furnished by Kitty Hawk or any of its Subsidiaries to
any other party pursuant to or in connection with the terms of any
indenture (including the Indenture), loan, or credit or similar
agreement and not otherwise required to be furnished to Agent pursuant
to this Section 8.1;
(k) Notice of Material Adverse Effect. As soon as
possible and in any event within five days after the occurrence
thereof, written notice of any event, circumstance or other matter
that could reasonably be expected to have a Material Adverse Effect;
(l) Proxy Statements, Etc. As soon as available, one
copy of each financial statement, report, notice or proxy statement
sent by Kitty Hawk or any of its Subsidiaries to its stockholders
generally and one copy of each regular, periodic or special report,
registration statement or prospectus filed by Kitty Hawk or any of its
Subsidiaries with any securities exchange or the SEC, and of all press
releases and other statements made by Kitty Hawk or any of its
Subsidiaries to the public containing material developments in its
business;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 72
<PAGE> 79
(m) Notice of New Subsidiaries. Concurrently with the
delivery of each of the financial statements referred to in Sections
8.1(a) and 8.1(b), notice of the creation or acquisition of any
Subsidiary of Kitty Hawk after the Closing Date and subsequent to the
last delivery of such information;
(n) Appraisals. From time to time upon the request of
Agent, appraisals of the AIA Aircraft reasonably satisfactory in form
and substance to Agent, which appraisals shall be at the expense of
Kitty Hawk except if and to the extent that such appraisals are
required by Agent on more than one occasion during any fiscal year of
Kitty Hawk;
(o) Insurance. Within 60 days prior to the end of each
fiscal year of Kitty Hawk, a report in form and substance reasonably
satisfactory to Agent summarizing all material insurance coverage
maintained by Kitty Hawk and its Subsidiaries as of the date of such
report and all material insurance coverage planned to be maintained by
such Persons in the subsequent fiscal year;
(p) Plan Information. From time to time, as reasonably
requested by Agent or any Lender, such books, records and other
documents relating to any Pension Plan as Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a
Pension Plan covering employees of Kitty Hawk or any of its
Subsidiaries or ERISA Affiliates, or a transfer of assets of a Pension
Plan covering employees of Kitty Hawk or any of its Subsidiaries or
ERISA Affiliates, written notification thereof; promptly upon Kitty
Hawk's or any of its Subsidiaries' receipt thereof, a copy of any
determination letter or advisory opinion regarding any Pension Plan
received from any Governmental Authority and any amendment or
modification thereto as may be necessary as a condition to obtaining a
favorable determination letter or advisory opinion; and promptly upon
the occurrence thereof, written notification of any action requested
by any Governmental Authority to be taken as a condition to any such
determination letter or advisory opinion;
(q) Environmental Assessments and Notices. Promptly
after the receipt thereof, a copy of each environmental assessment
(including any analysis relating thereto) prepared with respect to any
real Property of Kitty Hawk or any of its Subsidiaries and each notice
sent by any Governmental Authority relating to any failure or alleged
failure to comply with any Environmental Law or any liability with
respect thereto;
(r) Annual Projections. On or before 30 days prior to
the end of each fiscal year of Kitty Hawk, financial projections,
prepared in reasonable detail, for Kitty Hawk and its Subsidiaries for
the immediately succeeding fiscal year which reflect a good faith
estimate of Kitty Hawk and its senior management concerning the
probable financial condition and performance of Kitty Hawk and its
Subsidiaries for such succeeding fiscal year based on assumptions
believed to be reasonable at the time made; and
(s) General Information. Promptly, such other
information concerning Kitty Hawk or any of its Subsidiaries as Agent
may from time to time reasonably request.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 73
<PAGE> 80
Section 8.2 Maintenance of Existence; Conduct of Business. Each
of Kitty Hawk and its Subsidiaries will preserve and maintain its corporate or
other entity existence (except for mergers of Subsidiaries permitted by Section
9.3) and all of its material leases, privileges, licenses, Permits, franchises,
qualifications, patents, trademarks, copyrights, intangible Property and rights
that are necessary or appropriate in the ordinary conduct of its business
(including, without limitation, as to Aircargo and AIA, its Federal Aviation
Act Part 121 air carrier operating certificate and, as to KFS and OK, its
Federal Aviation Act Part 135 air carrier operating certificate). Each of
Kitty Hawk and its Subsidiaries will conduct its business in an orderly and
efficient manner in accordance with good business practices. All AIA Aircraft
will be maintained as ready and available for regular, uninterrupted revenue
generating operation in compliance with all laws and FAA regulations.
Section 8.3 Maintenance of Properties; Hush Kits. Aircargo will,
at all times, have good and indefeasible title to each of the AIA Aircraft free
and clear of any Lien other than the perfected, first priority Liens of Agent
for the benefit of Agent and Lenders pursuant to the Loan Documents as security
for the Obligations. Each of Kitty Hawk and its Subsidiaries will maintain,
keep and preserve all of its material Properties necessary, useful or
appropriate in the proper conduct of its business in good repair, working order
and condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals, replacements, betterments and improvements thereof. All AIA Aircraft
maintenance and service will be performed in compliance with all airworthiness
directives and mandatory service bulletins and any and all repairs,
modifications and conversions of the AIA Aircraft and the installation of Hush
Kits shall be done in accordance with any and all FAA specifications and
requirements. Kitty Hawk and Aircargo (a) will cause a Hush Kit to be
maintained on (and added to if applicable) each of the AIA Aircraft on or
before December 31, 1999, or (b) if and to the extent that such a Hush Kit is
not added to any such aircraft by such date, will, from time to time within 30
days after any request by Agent and pursuant to an Aircraft Mortgage and other
Security Documents reasonably satisfactory to Agent, grant to Agent a
perfected, first priority Lien (as security for the Obligations) on other Stage
3 (as so qualifying under the Airport Noise and Capacity Act of 1990 and the
regulations promulgated thereunder) Kitty Hawk Aircraft reasonably acceptable
to Agent that have an aggregate fair market value at least equal to the value
of the AIA Aircraft specified by Agent which does not then have a Hush Kit in
exchange for Agent's release of its Lien on such aircraft specified by Agent.
In addition, Kitty Hawk and its Subsidiaries will add Hush Kits to the AIA
Aircraft that do not presently have a Hush Kit at a rate that is not less than
the rate (based upon the absolute number of aircraft as opposed to the number
of aircraft as a percentage of the AIA Aircraft and the Non-Collateral
Aircraft) at which such Hush Kits are added to the Non-Collateral Aircraft that
do not presently have a Hush Kit.
Section 8.4 Taxes and Claims. Each of Kitty Hawk and its
Subsidiaries will pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments and governmental charges imposed
on it or its income or profits or any of its Property and (b) all lawful claims
for labor, material and supplies, which, if unpaid, might become a Lien upon
any of its Property; provided, however, that neither Kitty Hawk nor any of its
Subsidiaries will be required to pay or discharge any tax, levy, assessment or
governmental charge or claim for labor, material or supplies whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings being diligently pursued and for which adequate reserves have been
established under GAAP.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 74
<PAGE> 81
Section 8.5 Insurance.
(a) Public Liability and Property Damage Insurance. Each
of Kitty Hawk and its Subsidiaries shall carry or cause to be carried
with respect to the AIA Aircraft, and with respect to all other Kitty
Hawk Aircraft in operation, at their expense, comprehensive airline
liability (including, without limitation, passenger, contractual,
bodily injury, cargo and property damage liability) insurance (i) in
an amount for each such aircraft of not less than (A) except as
provided in clause (B) succeeding, $50,000,000 per occurrence combined
single limit with respect to each Kitty Hawk Aircraft except, with
respect to Boeing model 727 and 747 aircraft and Lockhead model L1011
aircraft, $200,000,000 per occurrence combined single limit and
except, with respect to model DC8 and DC9 aircraft and Convair
aircraft, $100,000,000 per occurrence combined single limit and (B)
with respect to aircraft operated under KFS' or OK's Federal Aviation
Act Part 135 air carrier operating certificate, the amount of such
insurance that is not less than such insurance as in effect as of the
Closing Date for such aircraft or other aircraft of the same type as
represented in the written communication dated November 13, 1997, from
counsel to Kitty Hawk to Wells Fargo, (ii) of the type and covering
the same risks as from time to time are applicable to similar aircraft
owned or leased by Kitty Hawk and its Subsidiaries, (iii) of the type
customarily carried by U.S. commercial air carriers similarly situated
with Kitty Hawk or its Subsidiary (as applicable) and operating
similar aircraft and engines and covering risks of the kind
customarily insured against by such carriers, and (iv) which is
maintained in effect with insurers of recognized reputation and
responsibility.
(b) Insurance Against Loss or Damage. Each of Kitty Hawk
and its Subsidiaries shall maintain or cause to be maintained in
effect, at their expense, with insurers of recognized reputation and
responsibility, all-risk aircraft hull insurance covering the AIA
Aircraft and all-risk property damage insurance covering engines and
parts while removed from such aircraft and not replaced by similar
components title to which is vested in Aircargo free and clear of all
Liens, which insurance shall include, without limitation, except with
respect to all-risk property damage insurance and to the extent
commercially available, aircraft war risk and governmental
confiscation and expropriation and hijacking insurance; provided, that
such insurance shall at all times be for an amount not less than the
greater of 110% of the aggregate outstanding principal amount of the
Term Loans advanced against such aircraft or the amount which, in the
judgment of Kitty Hawk, is sufficient to fully insure the fair market
value of such aircraft (but shall not be required to exceed such fair
market value as of the Closing Date). In addition, each of Kitty Hawk
and its Subsidiaries shall maintain or cause to be maintained in
effect, at their expense, insurance of the types and in the amounts
specified in this Section 8.5(b) preceding covering all other Kitty
Hawk Aircraft in operation if and to the extent that such insurance is
commercially available; provided, however, that aircraft war risk and
governmental confiscation and expropriation and hijacking insurance
shall not be required to be maintained with respect to such other
Kitty Hawk Aircraft.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 75
<PAGE> 82
(c) Adjustment. Except during a period when a Default
has occurred and is continuing, all losses covered by insurance will
be adjusted by Kitty Hawk and its Subsidiaries with the insurers.
(d) Application of Insurance Proceeds if no Default.
Each of Kitty Hawk and its Subsidiaries will cause each Insurance
Recovery relating to the Collateral to be deposited promptly with
Agent as security for the Obligations. If no Default shall have
occurred and be continuing, the applicable Company may use each such
Insurance Recovery to repair, restore or replace the Property that was
the subject of such Insurance Recovery. An Insurance Recovery will
only be released to a Company pursuant to this Section 8.5(d) upon
delivery by such Company to Agent of evidence reasonably satisfactory
to Agent of the expenditure of amounts in repair, restoration or
replacement of the Property that was the subject of the Insurance
Recovery or the purchase of other, similar Property for use in the
Company's business in which Agent, for the benefit of Agent and
Lenders, shall have a perfected, first priority Lien as security for
the Obligations. Each of Kitty Hawk and its Subsidiaries will
promptly pay all Excess Insurance Proceeds to Agent for application
against the Obligations in accordance with Section 2.7(a).
(e) Application of Insurance Proceeds if a Default. If a
Default shall have occurred and be continuing, each of Kitty Hawk and
its Subsidiaries will cause all proceeds of insurance paid on account
of the loss of or damage to any Collateral and all awards of
compensation for any Collateral taken by condemnation or eminent
domain to be paid directly to Agent to be applied against or held as
security for the Obligations, at the election of the Required Lenders.
(f) Certificates. Kitty Hawk shall furnish, or cause to
be furnished, to Agent, on or before the Closing Date and concurrently
with the renewal of each insurance policy (but in no event less
frequently than once each calendar year commencing in 1997), a
certificate signed by an authorized representative of the insureds
(the "Insurance Broker"), describing in reasonable detail the hull and
liability insurance (and property insurance for detached engines and
parts) then carried and maintained with respect to the AIA Aircraft
and stating the opinion of such Insurance Broker that (i) such
insurance complies with the terms hereof and (ii) that such insurance
provides coverages against risks that are customarily insured against
by U.S. air carriers, and that such coverages are in substantially
similar forms, are of such types and have limits within the range of
limits as are customarily carried by U.S. carriers. Kitty Hawk shall
cause such Insurance Brokers to agree to advise Agent in writing of
any default in the payment of any premium and of any other act or
omission on the part of Kitty Hawk or any of its Subsidiaries of which
it has knowledge and which might invalidate or render unenforceable,
in whole or in part, any insurance on the AIA Aircraft, and to advise
Agent in writing at least 30 days (except a maximum of 7 days with
respect to war risk coverages) prior to the cancellation (but not
scheduled expiration if renewed prior thereto) or material adverse
change of any insurance maintained pursuant to this Section 8.5.
Kitty Hawk shall also cause such Insurance Brokers to agree to deliver
to Agent, at or before the expiration of any insurance policy
referenced in a previously delivered certificate of insurance, a new
certificate substantially in the form delivered on the Closing Date
except for changes
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 76
<PAGE> 83
in the coverage consistent with the terms hereof. If Kitty Hawk or
any of its Subsidiaries fails to maintain or cause to be maintained
insurance as herein provided, the Required Lenders may at their sole
option, but shall be under no duty to, provide such insurance and, in
such event, Kitty Hawk and its Subsidiaries shall, upon demand,
reimburse the Required Lenders for the costs thereof; provided,
however, that no exercise by the Required Lenders of said option shall
affect the provisions of this Agreement, including the provisions that
failure by Kitty Hawk or any of its Subsidiaries to maintain the
prescribed insurance shall constitute an Event of Default.
(g) Deductibles. Kitty Hawk and its Subsidiaries shall
have the right to self-insure to the extent of any applicable
mandatory minimum per aircraft (or, if applicable, per annum or other
period) hull or liability insurance deductible imposed by the aircraft
hull or liability insurer.
(h) Terms of Insurance Policies. Any policies of
insurance carried in accordance with this Sections 8.5 covering the AIA
Aircraft, and any policies taken out in substitution or replacement
for any such policies, (i) shall name Agent, for and on behalf of each
of the Lenders, and the Lenders as additional insured, with respect to
liability policies, and Agent, for and on behalf of each of the
Lenders as loss payee, with respect to casualty policies (but without
imposing on any such party liability to pay premiums with respect to
such insurance), (ii) may provide for self-insurance to the extent
permitted in Section 8.5(g), (iii) shall provide that, if the insurers
cancel such insurance for any reason whatever or if the same is
allowed to lapse for non-payment of premium or if any material change
is made in the insurance which adversely affects the interest of
Agent, such lapse, cancellation or change shall not be effective as to
Agent for 30 days (except a maximum of seven days with respect to war
risk coverages in accordance with standard industry practice) after
receipt by Agent of written notice by such insurers of such lapse,
cancellation or change, (iv) shall provide that the interests of Agent
and the Lenders in such policies shall not be invalidated by any
action or inaction of Kitty Hawk or any of its Subsidiaries or any
other Person having possession and shall insure the interests of Agent
and the Lenders, as they appear, regardless of any breach or violation
of any warranty, declaration or condition contained in such policies
by Kitty Hawk or any of its Subsidiaries or by any such Person having
possession, (v) shall be primary without any right of contribution
from any other insurance which is carried by Agent or the Lenders,
(vi) shall expressly provide that all of the provisions thereof,
except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured, (vii) shall waive
any right of the insurers to set-off or counterclaim or any other
deduction, whether by attachment or otherwise, in respect of any
liability of Agent, and (viii) shall provide that, in the event of
loss involving the AIA Aircraft, Agent shall be sole loss payee for
the account of all interests.
(i) Additional Insurance Requirements. Kitty Hawk and
its Subsidiaries will, in connection with the ownership and operation
of all Kitty Hawk Aircraft, maintain such insurance as is required to
be maintained in accordance with the Indenture.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 77
<PAGE> 84
Section 8.6 Inspection Rights. At any reasonable time and from
time to time, each of Kitty Hawk and its Subsidiaries will permit
representatives and agents of Agent and each Lender to examine, copy and make
extracts from its books and records (including, without limitation, for the
purpose of verifying the Borrowing Base), to visit and inspect its Properties
and to discuss its business, operations and financial condition with its
officers and independent certified public accountants. Each of Kitty Hawk and
its Subsidiaries will authorize their accountants in writing (with a copy to
Agent) to comply with this Section 8.6.
Section 8.7 Keeping Books and Records. Each of Kitty Hawk and
its Subsidiaries will maintain appropriate books of record and account in
accordance with GAAP consistently applied in which true, full and correct
entries will be made of all their respective dealings and business affairs. If
any changes in accounting principles from those used in the preparation of the
financial statements referenced in Section 8.1 are hereafter required or
permitted by GAAP and are adopted by Kitty Hawk or any of its Subsidiaries with
the concurrence of its independent certified public accountants and such
changes in GAAP result in a change in the method of calculation or the
interpretation of any of the financial covenants, standards or terms found in
Section 8.1 or Article 10 or any other provision of this Agreement, then Kitty
Hawk and its Subsidiaries and the Required Lenders agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating the financial condition of Kitty Hawk
and its Subsidiaries shall be the same after such changes in GAAP as if such
changes in GAAP had not been made; provided that, until any necessary
amendments have been made, the certificate required to be delivered under
Section 8.1(c) hereof demonstrating compliance with Article 10 shall include
calculations setting forth the adjustments from the relevant items as shown in
the current financial statements based on the changes to GAAP to the
corresponding items based on GAAP as used in the financial statements
referenced in Section 7.2(a), in order to demonstrate how such financial
covenant compliance was derived from the current financial statements. All
airframe and engine logs for the AIA Aircraft and other Kitty Hawk Aircraft
will be correct, complete and accurate.
Section 8.8 Compliance with Laws. Each of Kitty Hawk and its
Subsidiaries will comply in all material respects with all applicable
Governmental Requirements.
Section 8.9 Compliance with Agreements. Each of Kitty Hawk and
its Subsidiaries will comply in all material respects with all material
agreements, contracts, documents and instruments binding on it or affecting its
Properties or business.
Section 8.10 Further Assurances. Each of Kitty Hawk and its
Subsidiaries will execute and deliver such further agreements, documents and
instruments and take such further action as may be requested by Agent to carry
out the provisions and purposes of this Agreement and the other Loan Documents,
to evidence the Obligations and to create, preserve, maintain and perfect the
Liens of Agent for the benefit of itself and Lenders in and to the Collateral
and the required priority of such Liens. Without limiting the generality of
the foregoing, each of Kitty Hawk and its Subsidiaries will use all reasonable
efforts to obtain agreements (e.g., landlord and mortgagee consents and
waivers) of the owners of the leased real properties and the lenders of such
owners, in form and substance reasonably satisfactory to Agent, as Agent may
request from time to time.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 78
<PAGE> 85
Section 8.11 ERISA. Each of Kitty Hawk and its Subsidiaries will,
and will cause each of its ERISA Affiliates to, comply with all minimum funding
requirements and all other material requirements of ERISA so as not to give
rise to any liability thereunder.
Section 8.12 Aircraft Registration, Maintenance, Operation,
Insignia.
(a) Registration and Maintenance. Each of Kitty Hawk and
its Subsidiaries, at their own cost and expense, shall:
(i) cause the AIA Aircraft to be duly registered
in the name of Aircargo and to remain duly registered in the
name of Aircargo under the Federal Aviation Act;
(ii) maintain, service, repair and overhaul each
of the AIA Aircraft (A) so as to keep such aircraft in good
operating condition and so as to keep the such aircraft in
such condition as may be necessary to enable the airworthiness
certification for such aircraft to be maintained in good
standing at all times under the Federal Aviation Act, (B) so
as to comply with all airworthiness directives (at the time
and to the extent applicable to Kitty Hawk and its
Subsidiaries or other operators of such aircraft),
manufacturer manuals and mandatory service bulletins and all
applicable insurance policies, and (C) in substantially the
same manner as Kitty Hawk and its Subsidiaries maintain,
service, repair or overhaul similar aircraft and without in
any way discriminating against such aircraft (or in such other
manner as shall have been approved by Required Lenders in
writing);
(iii) maintain or cause to be maintained all
records, logs and other materials required to be maintained in
respect of the AIA Aircraft by the Federal Aviation Act or any
applicable Government Authority; and
(iv) continuously cause the AIA Aircraft to remain
in normal revenue generating operation (subject to maintenance
requirements in the ordinary course of business).
(b) Insignia. On or before March 31, 1998, Kitty Hawk
and Aircargo agree to affix and maintain (or cause to be affixed and
maintained), conspicuously displayed, on the cockpit bulkhead of each
AIA Aircraft and on each engine, a nameplate (or, with respect to
engines, a stencil) bearing the inscription:
Mortgaged To
Wells Fargo Bank (Texas), National Association
(as Agent for itself and other Lenders)
(such nameplate to be replaced, if necessary, with a nameplate
reflecting the name of any successor mortgagee). Kitty Hawk and its
Subsidiaries shall not allow the name of any Person to be placed on
any AIA Aircraft as a designation that might be interpreted as a claim
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 79
<PAGE> 86
of ownership; provided, that nothing herein shall prohibit Kitty Hawk
and its Subsidiaries from placing its or its vendee's customary colors
and insignia on the AIA Aircraft.
Section 8.13 Replacement of Parts; Alterations, Modifications and
Additions.
(a) Replacement of Parts. Each of Kitty Hawk and its
Subsidiaries shall, at their own cost and expense, promptly replace or
cause to be replaced all parts for any AIA Aircraft which may from
time to time become worn out, lost, stolen, destroyed, seized,
confiscated, damaged beyond repair, obsolete or permanently rendered
unfit for use for any reason whatsoever. All replacement parts shall
be owned by a Company free and clear of all Liens (other than Liens in
favor of Agent securing the Obligations) and shall be in as good an
operating condition as, and shall have a value at least equal to, the
parts replaced, assuming such replaced parts were in the condition and
repair required to be maintained by the terms hereof. All parts at
any time removed from the AIA Aircraft shall remain the property of a
Company and remain subject to the Lien of the Loan Documents, no
matter where located, until such time as such parts shall be replaced
by parts which are free and clear of all Liens and have become subject
to the Lien of the Loan Documents.
(b) Alterations, Modifications and Additions. Each of
Kitty Hawk and its Subsidiaries shall, at their own expense, make (or
cause to be made) such alterations and modifications in and additions
to the AIA Aircraft as may be required to meet the applicable
standards of the FAA and to maintain the standard certificate of
airworthiness for such aircraft. In addition, Kitty Hawk and its
Subsidiaries may, at their own expense, from time to time make such
alterations and modifications in and additions to the AIA Aircraft as
they may deem desirable in the proper conduct of their business;
provided, that no such alteration, modification or addition impairs
the condition or airworthiness of any such AIA Aircraft or diminishes
the value below the value thereof immediately prior to such
alteration, modification or addition assuming any such AIA Aircraft
were then in the condition required to be maintained by the terms of
the Loan Documents. All parts incorporated or installed in or
attached or added to the AIA Aircraft as the result of any such
alteration, modification or addition (the "Additional Parts") shall,
without further act, become subject to the Lien of the Loan Documents.
Kitty Hawk and its Subsidiaries may, at their own expense at any time,
so long as no Default shall have occurred and be continuing, remove or
suffer to be removed any Additional Part, provided that such
Additional Part:
(i) is in addition to, and not in replacement of
or substitution for, (A) any part originally incorporated or
installed in or attached to such aircraft upon the cargo
conversion of and installation of Hush Kits on such aircraft,
or (B) any part in replacement of or substitution for any such
part;
(ii) is not required to be incorporated or
installed in or attached or added to such aircraft pursuant to
the terms hereof or under any contract; and
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 80
<PAGE> 87
(iii) can be removed from such aircraft without
impairing the condition or airworthiness or diminishing the
value of such aircraft which such aircraft would have had at
such time had such alteration, modification or addition not
occurred.
Upon the removal thereof as provided above, such Additional Part shall
no longer be deemed subject to the Lien of the Loan Documents.
Section 8.14 Ownership of Subsidiaries. Kitty Hawk shall at all
times own all issued and outstanding Capital Stock of each of the Operating
Subsidiaries and Skyfreighters.
Section 8.15 Collateral Audit. Kitty Hawk and its Subsidiaries
will cooperate fully with Agent to allow Agent to promptly complete a
collateral audit of the accounts and Parts of the Companies and to facilitate
determinations of the Borrowing Base at any time and from time to time in
accordance with this Agreement.
ARTICLE 9
Negative Covenants
Each of the Companies jointly and severally covenants and agrees that,
as long as the Obligations or any part thereof are outstanding or any Lender
has any Commitment hereunder or any Letter of Credit remains outstanding, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. Neither Kitty Hawk nor any of its Subsidiaries
will, without the prior written consent of Required Lenders, incur, create,
assume or permit to exist any Debt, except:
(a) Debt of Kitty Hawk and its Subsidiaries to Agent and
Lenders pursuant to the Loan Documents;
(b) Debt of Kitty Hawk and its Subsidiaries in an
aggregate principal amount not to exceed $340,000,000 evidenced by the
Senior Notes;
(c) Debt (in addition to the Debt referred to in clauses
(a) and (b) preceding) incurred in the ordinary course of business
(including, without limitation, Debt incurred to finance the
acquisition of additional aircraft) not to exceed $75,000,000 in
aggregate principal amount at any time outstanding;
(d) Debt owed by Operating Subsidiaries, other than AIC,
of Kitty Hawk to Kitty Hawk or other Operating Subsidiaries, other
than AIC, in connection with advancement of funds to such
Subsidiaries, other than AIC, for working capital purposes in the
ordinary course of business, which Debt shall be unsecured and, if
evidenced by promissory notes or similar instruments, such promissory
notes or similar instruments shall be pledged and delivered to Agent,
together with appropriate endorsements thereto, for and on behalf of
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 81
<PAGE> 88
Agent and Lenders as security for the payment and performance of the
Obligations pursuant to pledge agreements in form and substance
reasonably satisfactory to Agent; and
(e) the existing Debt specified in Schedule 1.1(c), which
Debt shall not exceed the principal amounts thereof specified in such
Schedule.
Section 9.2 Limitation on Liens. Neither Kitty Hawk nor any of
its Subsidiaries will incur, create, assume or permit to exist any Lien upon
any Property (including, without limitation, the Collateral) except Permitted
Liens. Neither Kitty Hawk nor any of its Subsidiaries will incur, create,
assume or permit to exist any Lien upon any Capital Stock issued by any
Subsidiary of Kitty Hawk other than Permitted Liens in favor of Agent (for the
benefit of Agent and Lenders) securing the payment and performance of
Obligations pursuant to the Loan Documents.
Section 9.3 Mergers, Etc. Neither Kitty Hawk nor any of its
Subsidiaries will, without the prior written consent of the Required Lenders,
(a) become a party to a merger or consolidation, (b) wind-up, dissolve or
liquidate itself, (c) form, purchase or acquire a Subsidiary, or (d) purchase
or acquire all or a material or substantial part of the business or Properties
of any Person; provided, however, that any Subsidiary of Kitty Hawk may merge
with and into Kitty Hawk or any Operating Subsidiary if (but only if) (i) the
surviving entity in such merger is Kitty Hawk or a Wholly-Owned Subsidiary of
Kitty Hawk, (ii) if an Operating Subsidiary is a party to such merger, the
surviving entity in such merger is Kitty Hawk or an Operating Subsidiary, (iii)
at the time of such merger, each entity that is a party thereto is Solvent, and
(iv) the parties to such merger execute and deliver to Agent such agreements,
documents and instruments as Agent may reasonably request in order to ensure
that the Loan Documents and the Liens in the Collateral in favor of Agent are
not affected by such merger; and provided, further, however, that Kitty Hawk or
a Operating Subsidiary may acquire the business or Properties of any Person
pursuant to an asset acquisition or stock acquisition if and to the extent that
the business or Properties acquired are used in the present lines of business
of Kitty Hawk and the Operating Subsidiaries if (but only if) (A) both
immediately prior to and after giving pro forma effect to such acquisition, the
ratio of Funded Debt to Adjusted EBITDA for the four fiscal quarters of Kitty
Hawk then most recently ended is less than 3.00 to 1.00 (assuming that such
acquisition had been consummated as of the beginning of such four fiscal
quarter period), and (B) the aggregate amount paid or payable by Kitty Hawk or
any of its Subsidiaries in connection with all such asset acquisitions and
stock acquisitions and in connection with all Investments made in any Person as
permitted in accordance with Section 9.5(g) shall not exceed $75,000,000 during
any fiscal year of Kitty Hawk.
Section 9.4 Restricted Payments. Neither Kitty Hawk nor any of
its Subsidiaries will make or permit to be made any Restricted Payments,
except:
(a) subject to the subordination provisions relating
thereto, Kitty Hawk and its Subsidiaries may make regularly scheduled
payments (as opposed to prepayments) of principal and accrued interest
on any Subordinated Debt permitted to be incurred in accordance with
Section 9.1;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 82
<PAGE> 89
(b) Subsidiaries of Kitty Hawk other than the Operating
Subsidiaries may declare and pay dividends to Kitty Hawk to the extent
permitted by applicable law;
(c) the Operating Subsidiaries may declare and pay
dividends to Kitty Hawk to the extent permitted by applicable law and
consistent with prudent business practices; and
(d) purchases by Kitty Hawk of shares of Capital Stock of
Kitty Hawk from employees of Kitty Hawk and its Subsidiaries upon the
termination of the employment of such employees, provided that the
amount paid therefor shall not exceed the fair market value of such
shares to be purchased and shall not exceed $500,000 in the aggregate
during any fiscal year; and
provided, however, that no Restricted Payments may be made pursuant to any of
clauses (a) or (d) preceding if a Default exists at the time of such Restricted
Payment or would result therefrom.
Section 9.5 Investments. Neither Kitty Hawk nor any of its
Subsidiaries will make or permit to be made or remain outstanding any advance,
loan or extension of credit (except an advance, loan or extension of credit to
customers and suppliers in the ordinary course of business not to exceed
$5,000,000 in aggregate amount at any time outstanding) or any capital
contribution to or investment in any Person, or purchase or own any stock,
bonds, notes, debentures or other securities of any Person, or be or become a
joint venturer with or partner of any Person (all such transactions being
herein called "Investments"), except:
(a) Investments in obligations or securities received in
settlement of debts (created in the ordinary course of business) owing
to Kitty Hawk or any of its Subsidiaries;
(b) existing Investments identified on Schedule 9.5
hereto;
(c) Investments in securities issued or guaranteed by the
U.S. with maturities of one year or less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar
time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any Lender or
with any domestic commercial bank having capital and surplus in excess
of $500,000,000;
(e) Investments in repurchase obligations with a term of
not more than seven days for securities of the types described in
clause (c) preceding with any Lender or with any domestic commercial
bank having capital and surplus in excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer
rated A-1 or better or P-1 or better by Standard & Poor's Corporation
or Moody's Investors Services, Inc., respectively, maturing not more
than six months from the date of acquisition;
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 83
<PAGE> 90
(g) Investments by Kitty Hawk in its Operating
Subsidiaries existing on the Closing Date and, if a Default does not
exist at the time of such Investment or would not result therefrom,
additional Investments by Kitty Hawk in its Operating Subsidiaries,
other than AIC, made after the Closing Date;
(h) Investments consisting of Debt permitted in
accordance with Section 9.1(d); and
(i) Investments resulting from and consisting of stock
acquisitions permitted in accordance with Section 9.3.
Without limiting the generality of the foregoing, neither Kitty Hawk nor any
Operating Subsidiary will, except as may be expressly permitted by the
preceding clauses (a) through (h), make any Investment in (i) Skyfreighters
(except for the Investment of Kitty Hawk in Skyfreighters made prior to the
Closing Date), (ii) any other Subsidiary other than an Operating Subsidiary in
existence as of the Closing Date, or (iii) any other entity.
Section 9.6 Limitation on Issuance of Capital Stock. No
Subsidiary of Kitty Hawk will at any time issue, sell, assign or otherwise
dispose of (a) any of its Capital Stock, (b) any securities exchangeable for or
convertible into or carrying any rights to acquire any of its Capital Stock, or
(c) any option, warrant or other right to acquire any of its Capital Stock;
provided, however, that, if and to the extent not otherwise prohibited by this
Agreement or the other Loan Documents, a Operating Subsidiary may issue
additional shares of its Capital Stock to Kitty Hawk.
Section 9.7 Transactions with Affiliates. Neither Kitty Hawk nor
any of its Subsidiaries will enter into any transaction, including, without
limitation, the purchase, sale or exchange of Property or the rendering of any
service, with any of its Affiliates except in the ordinary course of and
pursuant to the reasonable requirements of its business and upon fair and
reasonable terms no less favorable to it than would be obtained in a comparable
arms-length transaction with a Person not an Affiliate of Kitty Hawk or its
Subsidiaries; provided, however, that the following transactions shall be
exempt from the requirements of this Section 9.7:
(a) transactions in the ordinary course of business
between or among Kitty Hawk and its Wholly- Owned Subsidiaries which
are Guarantors;
(b) ACMI Agreements between Aircargo and AIC and between
AIA and AIC, in each case existing as of the Closing Date which are
consistent with past practices;
(c) the sale of the personal property assets of the
Kalitta Companies used in their promotional drag racing assets to
another entity for $350,000 as provided in Section 5.2.8 of the Merger
Agreement, and the promotional undertakings of the Kalitta Companies
relating thereto, all pursuant to and as provided in that certain
Racing Entity Purchase Agreement to be entered into among AIA, as
seller, and such entity, a true and correct copy of which agreement is
attached as Exhibit 5.2.8 to the Merger Agreement; and
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 84
<PAGE> 91
(d) that certain Corporate Offices Lease between AIA, as
tenant, and Kalitta LLC, as landlord, dated February 25, 1997, as such
agreement may be amended in accordance with the Merger Agreement.
Section 9.8 Disposition of Property. Neither Kitty Hawk nor
any of its Subsidiaries will sell, lease, assign, transfer or otherwise dispose
of any of its Property, except:
(a) subject to Section 2.7(b), dispositions of Property,
other than Collateral, in the ordinary course of business or
consistent with prudent business practices; and
(b) with respect to AIA Aircraft, ACMI Agreements
affecting such AIA Aircraft entered into in the ordinary course of
business for fair consideration, none of which ACMI Agreements shall
constitute a lease or other interest in such aircraft which is
recordable with the FAA or shall include a grant to any Person of any
option to purchase the AIA Aircraft or any portion thereof.
Section 9.9 Lines of Business. Neither Kitty Hawk nor any of its
Subsidiaries will (a) engage in any scheduled airline passenger service, or in
any material line or lines of business activity other than the businesses in
which it is engaged on the Closing Date and lines of business reasonably
related thereto or (b) discontinue any material line or lines of business in
which it is engaged on the Closing Date. Each of Kitty Hawk and its
Subsidiaries acknowledges and agrees that (i) each of the ACMI Agreements is
subject and subordinate to the Aircraft Mortgages and this Agreement and that
all indebtedness, liabilities and obligations of Kitty Hawk and its
Subsidiaries under the Aircraft Mortgages and this Agreement shall be deemed to
be incorporated into each of the ACMI Agreements as if independently stated
therein, and (ii) it shall not, without the prior written consent of Required
Lenders, permit any lease or sublease of any of the AIA Aircraft while it is,
or is required to be, subject to a Lien in accordance with this Agreement or
the other Loan Documents, except an ACMI Agreement relating to such aircraft
with a customer of Kitty Hawk or its Subsidiaries under which such aircraft
remains listed on Aircargo's operations specifications and Aircargo remains
fully responsible for maintenance and operation of such aircraft.
Section 9.10 Environmental Protection. Neither Kitty Hawk nor any
of its Subsidiaries will (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which Kitty Hawk
or any of its Subsidiaries would be responsible, except for circumstances or
events described in clauses (a) through (d) preceding that could not,
individually or in the aggregate, have a Material Adverse Effect.
Section 9.11 Certain Encumbrances or Restrictions. Except as
provided in the Indenture (as the Indenture is in effect as of the Closing Date
or may be thereafter amended with the prior written consent of Agent and
Required Lenders, which consent shall not be deemed given by
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 85
<PAGE> 92
Section 9.13) and as may be expressly permitted or required by the Loan
Documents, neither Kitty Hawk nor any of its Subsidiaries will create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of (a) any Subsidiary of
Kitty Hawk to pay dividends or make any other distribution to Kitty Hawk or any
of its Subsidiaries in respect of the Capital Stock of any such Subsidiary or
with respect to any other interest or participation in, or measured by, its
profits, (b) any Subsidiary of Kitty Hawk to pay any indebtedness owed to Kitty
Hawk or any of its Subsidiaries, (c) any Subsidiary of Kitty Hawk to make any
loan or advance to Kitty Hawk or any of its Subsidiaries, (d) any Subsidiary
of Kitty Hawk to sell, lease or transfer any of its Property to Kitty Hawk or
any of its Subsidiaries, or (e) Kitty Hawk or any of its Subsidiaries to
Guarantee, or grant any Lien to secure, payment or performance of the
Obligations or any portion thereof.
Section 9.12 Management Fees. Except for the consulting fees
payable pursuant to the consulting agreements specified on Schedule 9.12 hereto
(as in effect as of the Closing Date or as thereafter amended with the prior
written consent of Agent and Required Lenders), neither Kitty Hawk nor any of
its Subsidiaries will pay any management, consulting or similar fees (excluding
directors' fees and regular professional fees for services rendered) to any
Affiliate of Kitty Hawk or any of its Subsidiaries or to any director, officer
or employee of Kitty Hawk or any of its Subsidiaries or any Affiliate of any
such Person.
Section 9.13 Modification of Other Agreements. Neither Kitty Hawk
nor any of its Subsidiaries will consent to or implement any termination,
amendment, modification, supplement or waiver of (a) the Merger Agreement, (b)
any Subordinated Debt or any agreement, document or instrument evidencing or
governing such Debt, (c) the certificate or articles of incorporation or bylaws
(or analogous constitutional documents) of Kitty Hawk or any of its
Subsidiaries, (d) any ACMI Agreement to which any of the AIA Aircraft is
subject, or (e) any Material Contract to which it is a party or any Permit
which it possesses, in each case unless such termination, amendment,
modification, supplement or waiver could not be materially adverse to Kitty
Hawk or any of its Subsidiaries or Agent or any Lender. In addition, Kitty
Hawk shall not consent to or implement any termination, amendment,
modification, supplement or waiver of the Indenture which would (i) increase
the principal amount of the Senior Notes or any other Debt evidenced or
governed by the Indenture, (ii) shorten the maturity of, or any date for the
payment of any principal of or interest on, the Senior Notes or any such other
Debt, (iii) increase the rate of interest on or with respect to the Senior
Notes or any such other Debt, (iv) amend or modify the payment terms of the
Senior Notes or any such other Debt, (v) increase any cost, fee or expense
payable by Kitty Hawk or any of its Subsidiaries in connection with the
Indenture, (vi) provide any additional Collateral or security for payment or
collection of the Senior Notes or any such other Debt (other than replacement
and substitute collateral as contemplated by the Indenture), or (vii) be
materially adverse to Kitty Hawk or any of its Subsidiaries or Agent or any
Lender. Furthermore, Kitty Hawk shall not make or otherwise permit to occur
any prepayment (whether by redemption, repurchase or otherwise) of the Debt
evidenced by the Senior Notes except for (A) mandatory prepayments required by
Sections 4.11, 4.13 and 4.16 of the Indenture and (B) optional redemptions in
accordance with Section 3.01(b) of the Indenture.
Section 9.14 ERISA. Neither Kitty Hawk nor any of its
Subsidiaries will:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 86
<PAGE> 93
(a) allow, or take (or permit any ERISA Affiliate to
take) any action which would cause, any unfunded or unreserved
liability for benefits under any Plan (exclusive of any Multiemployer
Plan) to exist or to be created that exceeds $500,000 with respect to
any such Plan or $1,000,000 with respect to all such Plans in the
aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or
take (or permit any ERISA Affiliate to take) any action which would
cause, any unfunded or unreserved liability for benefits under any
Multiemployer Plan to exist or to be created, either individually as
to any such Plan or in the aggregate as to all such Plans, that could,
upon any partial or complete withdrawal from or termination of any
such Multiemployer Plan or Plans, have a Material Adverse Effect.
Section 9.15 Territorial Restrictions. Neither Kitty Hawk nor any
of its Subsidiaries will:
(a) use, repair, maintain, overhaul or operate any Kitty
Hawk Aircraft (including, without limitation, the AIA Aircraft), or
permit any other Person to use, repair, maintain, overhaul or operate
any Kitty Hawk Aircraft, in violation of any applicable law or any
applicable rule, regulation, treaty, order or certification of any
government or Governmental Authority (domestic or foreign), or in
violation of any airworthiness certificate, license or registration
issued by any such authority; or
(b) operate or permit any other Person to operate a Kitty
Hawk Aircraft (including, without limitation, the AIA Aircraft), while
it is, or is required to be, subject to a Lien in favor of Agent in
accordance with this Agreement or the other Loan Documents, to or in
any area (i) excluded from coverage by any insurance policy or
policies required to be carried or maintained by the terms of this
Agreement, unless with U.S. governmental indemnity or with other
insurance or governmental indemnity reasonably acceptable to Agent and
(ii) in the event that such aircraft is not covered by aircraft war
risk and governmental confiscation and expropriation and hijacking
insurance, unless the Geneva Convention on the International
Recognition of Rights in Aircraft shall be in effect in such
jurisdictions in which such area lies and any agreements, documents
or instruments evidencing Agent's Lien in and to such aircraft as
Agent may reasonably require have been executed by the appropriate
Persons and appropriately filed in such jurisdictions.
Section 9.16 Sale and Leaseback. Neither Kitty Hawk nor any of
its Subsidiaries will enter into any arrangement with any Person pursuant to
which it leases from such Person real or personal Property that has been or is
to be sold or transferred, directly or indirectly, by it to such Person.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 87
<PAGE> 94
ARTICLE 10
Financial Covenants
Each of the Companies jointly and severally covenants and agrees that,
as long as the Obligations or any part thereof are outstanding or any Lender
has any Commitment hereunder or any Letter of Credit remains outstanding, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 10.1 Maximum Funded Debt to Adjusted EBITDA Ratio. Kitty
Hawk and its Subsidiaries will not permit the ratio, calculated as of the end
of each fiscal quarter of Kitty Hawk commencing with the fiscal quarter ending
December 31, 1997, of (a) Funded Debt to (b) Adjusted EBITDA for the four
fiscal quarters of Kitty Hawk then ended, to be greater than the ratio set
forth below for the applicable fiscal quarter end:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal Quarter Ending Maximum Ratio
- --------------------------------------------------------------------------------
<S> <C>
December 31, 1997 through and
including June 30, 1998 4.50 to 1.00
- --------------------------------------------------------------------------------
September 30, 1998 through and
including December 31, 1998 3.75 to 1.00
- --------------------------------------------------------------------------------
March 31, 1999 through and
including December 31, 2000 3.00 to 1.00
- --------------------------------------------------------------------------------
March 31, 2001 and each fiscal
quarter ending thereafter 2.50 to 1.00
- --------------------------------------------------------------------------------
</TABLE>
Section 10.2 Minimum Net Worth. Kitty Hawk and its Subsidiaries
will at all times maintain Net Worth in an amount equal to not less than the
sum of (a) $160,000,000, plus (b) 75% of Net Income, if positive, for each
fiscal quarter ending after the Closing Date (i.e., exclusive of any negative
Net Income for any such fiscal quarter) determined on a cumulative basis for
all such fiscal quarters during which such Net Income is positive, plus (c)
100% of the Net Proceeds of each Equity Issuance which occurs after the Closing
Date.
Section 10.3 Minimum Cash Flow Coverage Ratio. Kitty Hawk and its
Subsidiaries will not permit the ratio, calculated as of the end of each fiscal
quarter of Kitty Hawk commencing with the fiscal quarter ending March 31, 1998,
of (a) Free Cash Flow to (b) the sum of (i) Interest Expense, plus (ii) Capital
Lease Obligations, plus (iii) the aggregate amount of all scheduled payments of
Funded Debt which are due within one year or less after the date of
determination, in each case for the four fiscal quarters of Kitty Hawk then
ended, to be less than 1.25 to 1.00 or, with respect to the determination of
such ratio for each of the fiscal quarters ending during fiscal years 1998 and
1999, to be less than 1.10 to 1.00; provided, however, that, for each of the
first three fiscal quarters of 1998, such ratio shall be determined based upon
the number of fiscal quarters during fiscal year 1998 then ended.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 88
<PAGE> 95
Section 10.4 Capital Expenditures. Kitty Hawk and its
Subsidiaries will not permit the aggregate of Capital Expenditures during
fiscal year 1998 to exceed $92,000,000.
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be
deemed an "Event of Default":
(a) Kitty Hawk or any of its Subsidiaries shall fail to
pay, repay or prepay when due (i) any amount of principal or interest
owing to Agent or any Lender pursuant to this Agreement or any other
Loan Document, or (ii) any fee, expense or other amount or other
Obligation (other than principal or interest as referred to in clause
(i) preceding owing to Agent or any Lender pursuant to this Agreement
or any other Loan Document within three Business Days after the due
date thereof.
(b) Any representation or warranty made or deemed made by
Kitty Hawk or any of its Subsidiaries in this Agreement or any other
Loan Document or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any
material respect when made or deemed to have been made.
(c) Kitty Hawk or any of its Subsidiaries shall fail to
perform, observe or comply with any covenant, agreement or term
contained in Sections 5.1, 5.2, 8.1(h), 8.1(k), 8.1(m), 8.1(o), 8.2
(other than the last two sentences of Section 8.2), clause (i) of
8.12(a), 8.14 or Article 9 of this Agreement; or Kitty Hawk or any of
its Subsidiaries shall fail to perform, observe or comply with any
other covenant, agreement or term contained in this Agreement or any
other Loan Document (other than covenants to pay the Obligations) and
such failure is not remedied or waived within the earlier to occur of
20 days after such failure commenced or, if a different grace period
is expressly made applicable in such other Loan Document, such
applicable grade period.
(d) Any of Kitty Hawk or any Operating Subsidiary ceases
to be Solvent or shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due.
(e) Kitty Hawk or any of its Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, examiner, liquidator or the like of
itself or of all or any substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the U. S. Bankruptcy Code (11 U.S.C. Section
101, et seq.) (as now or hereafter in effect, the "Bankruptcy Code"),
(iv) institute any proceeding or file a petition seeking to take
advantage
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 89
<PAGE> 96
of any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, winding-up or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or (vi) take any corporate
or other action for the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the
application, approval or consent of Kitty Hawk and its Subsidiaries in
any court of competent jurisdiction, seeking as to any such Person (i)
its reorganization, liquidation, dissolution, arrangement or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a receiver, custodian, trustee, examiner, liquidator or
the like of all or any substantial part of its Property, or (iii)
similar relief under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or
more days; or an order for relief against Kitty Hawk or any of its
Subsidiaries shall be entered in an involuntary case under the
Bankruptcy Code.
(g) Kitty Hawk or any of its Subsidiaries shall fail to
discharge within a period of 30 days after the commencement thereof
any attachment, sequestration, forfeiture or similar proceeding or
proceedings involving an aggregate amount in excess of $250,000
against any of its Properties.
(h) A final judgment or judgments for the payment of
money in excess of $1,000,000 in the aggregate shall be rendered by a
court or courts against Kitty Hawk and its Subsidiaries or any of them
on claims not covered by insurance or as to which the insurance
carrier has denied responsibility and the same shall not be
discharged, or a stay of execution thereof shall not be procured,
within five days from the date of entry thereof and Kitty Hawk and its
Subsidiaries or any of them shall not, within said period of five
days, or such longer period during which execution of the same shall
have been stayed, appeal therefrom and cause the execution thereof to
be stayed during such appeal.
(i) Kitty Hawk or any of its Subsidiaries shall fail to
pay when due any principal of or interest on any Debt (other than the
Obligations) having (either individually or in the aggregate) a
principal amount of at least $500,000, or the maturity of any such
Debt shall have been accelerated, or any such Debt shall have been
required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred (and shall not have been waived or otherwise
cured) that permits (or, with the giving of notice or lapse of time or
both, would permit) any holder or holders of such Debt or any Person
acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment; provided, however, that
prepayment of the Debt evidenced by the Senior Notes which is
permitted to be prepaid in accordance with Section 9.13 shall not
constitute an Event of Default.
(j) This Agreement or any other Loan Document shall cease
to be in full force and effect or shall be declared null and void or
the validity or enforceability thereof shall be
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 90
<PAGE> 97
contested or challenged by Kitty Hawk or any of its Subsidiaries or
any of its shareholders, or Kitty Hawk or any of its Subsidiaries
shall deny that it has any further liability or obligation under any
of the Loan Documents, or any Lien created by the Loan Documents shall
for any reason cease to be a valid, first priority perfected Lien
(except for Permitted Liens, if any, which are permitted by the Loan
Documents to have priority over the Liens in favor of Agent) upon any
of the Collateral purported to be covered thereby.
(k) Any of the following events shall occur or exist with
respect to Kitty Hawk or any of its Subsidiaries or ERISA Affiliates:
(i) any Prohibited Transaction involving any Plan; (ii) any Reportable
Event with respect to any Pension Plan; (iii) the filing under Section
4041 of ERISA of a notice of intent to terminate any Pension Plan or
the termination of any Pension Plan; (iv) any event or circumstance
that could reasonably be expected to constitute grounds entitling the
PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any
Pension Plan, or the institution by the PBGC of any such proceedings;
(v) any "accumulated funding deficiency" (as defined in Section 406 of
ERISA or Section 412 of the Code), whether or not waived, shall exist
with respect to any Plan; or (vi) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Plan or the reorganization,
insolvency or termination of any Pension Plan; and in each case above,
such event or condition, together with all other events or conditions,
if any, have subjected or could in the reasonable opinion of Required
Lenders subject Kitty Hawk or any of its Subsidiaries or ERISA
Affiliates to any tax, penalty or other liability to a Plan, a
Multiemployer Plan, the PBGC or otherwise (or any combination thereof)
which in the aggregate exceed or could reasonably be expected to
exceed $1,000,000.
(l) The occurrence of a Change of Control.
(m) The occurrence of a default or event of default (no
matter how used or defined) under any Subordinated Debt or any
agreement, document or instrument creating or evidencing such Debt,
unless (i) such default has been waived, cured or consented to in
accordance with such agreement, document or instrument, (ii) such
default is not a payment default, (iii) the maturity of the Debt
affected thereby has not been accelerated, and (iv) such waiver or
consent is not made in connection with any amendment or modification
of any such agreement, document or instrument or in connection with
any payment to the holders of any such Debt.
(n) If, at any time, any event or circumstance shall
occur which gives any holder of any Subordinated Debt the right to
request or require Kitty Hawk or any of its Subsidiaries to redeem,
purchase or prepay any such Debt.
(o) The occurrence of an "Event of Default" or a
"Collateral Access Event" as such terms are defined in the Indenture.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, Agent may, and, if directed by the Required Lenders, Agent shall,
do any one or more of the following:
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 91
<PAGE> 98
(a) Acceleration. Declare all outstanding principal of
and accrued and unpaid interest on the Loans and Reimbursement
Obligations and all other amounts payable by Kitty Hawk or any of its
Subsidiaries under the Loan Documents immediately due and payable, and
the same shall thereupon become immediately due and payable, without
notice, demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, protest or other
formalities of any kind, all of which are hereby expressly waived;
(b) Termination of Commitments. Terminate the
Commitments (including, without limitation, any obligation of Issuing
Bank to issue Letters of Credit) without notice to Kitty Hawk or any
of its Subsidiaries;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien
granted to Agent for the benefit of Agent and Lenders to secure
payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies
afforded by the laws of the State of Texas or any other jurisdiction,
by any of the Loan Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under
Section 11.1(e) or Section 11.1(f), the Commitments of all of Lenders
(including, without limitation, any obligation of Issuing Bank to issue Letters
of Credit) shall immediately and automatically terminate, and the outstanding
principal of and accrued and unpaid interest on the Loans and all other amounts
payable under the Loan Documents shall thereupon become immediately and
automatically due and payable, all without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived.
Section 11.3 Performance by Agent. If Kitty Hawk or any of its
Subsidiaries shall fail to perform any covenant or agreement in accordance with
the terms of the Loan Documents, Agent may, at the direction of the Required
Lenders, perform or attempt to perform such covenant or agreement on behalf of
such Person. In such event, Kitty Hawk shall, at the request of Agent,
promptly pay any amount expended by Agent or Lenders in connection with such
performance or attempted performance to Agent at the Principal Office, together
with interest thereon at the applicable Default Rate from and including the
date of such expenditure to but excluding the date such expenditure is paid in
full. Notwithstanding the foregoing, it is expressly agreed that neither Agent
nor any Lender shall have any liability or responsibility for the performance
of any obligation of Kitty Hawk or any of its Subsidiaries under this Agreement
or any of the other Loan Documents.
Section 11.4 Cash Collateral. If an Event of Default shall have
occurred and be continuing, Kitty Hawk shall, if requested by Agent or Required
Lenders, pledge to Agent as security for the Obligations an amount in
immediately available funds equal to the then outstanding Letter of Credit
Liabilities, such funds to be held in a cash collateral account satisfactory to
Agent without any right of withdrawal by Kitty Hawk or any of its Subsidiaries.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 92
<PAGE> 99
ARTICLE 12
Agency and Intercreditor Provisions
Section 12.1 Appointment, Powers and Immunities. Each Lender
hereby irrevocably appoints and authorizes Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. Neither
Agent nor any of its Affiliates, officers, directors, employees, attorneys or
agents shall be liable for any action taken or omitted to be taken by any of
them hereunder or otherwise in connection with this Agreement or any of the
other Loan Documents except for its or their own gross negligence or willful
misconduct. Without limiting the generality of the preceding sentence, Agent
(a) may treat the payee of any Note as the holder thereof until Agent receives
written notice of the assignment or transfer thereof signed by such payee and
in form satisfactory to Agent, (b) shall have no duties or responsibilities
except those expressly set forth in this Agreement and the other Loan
Documents, and shall not by reason of this Agreement or any other Loan Document
be a trustee or fiduciary for any Lender, (c) shall not be required to initiate
any litigation or collection proceedings hereunder or under any other Loan
Document except to the extent requested by the Required Lenders, (d) shall not
be responsible to Lenders for any recitals, statements, representations or
warranties contained in this Agreement or any other Loan Document, or any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, enforceability or sufficiency of this Agreement or any
other Loan Document or any other document referred to or provided for herein or
therein or for any failure by any Person to perform any of its obligations
hereunder or thereunder, (e) may consult with legal counsel (including counsel
for Kitty Hawk or any of its Subsidiaries), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts, and (f) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing reasonably believed by it to be genuine and signed
or sent by the proper party or parties. As to any matters not expressly
provided for by this Agreement, Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Required Lenders, and such instructions of the Required Lenders
and any action taken or failure to act pursuant thereto shall be binding on all
of Lenders; provided, however, that Agent shall not be required to take any
action which exposes Agent to liability or which is contrary to this Agreement
or any other Loan Document or applicable law.
Section 12.2 Rights of Agent as a Lender. With respect to its
Commitments, the Loans made by it and the Notes and Letters of Credit issued to
or by it, Wells Fargo (and any successor acting as Agent) in its capacity as a
Lender or Issuing Bank hereunder shall have the same rights and powers
hereunder as any other Lender or Issuing Bank and may exercise the same as
though it were not acting as Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include Agent in its individual
capacity. Agent and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to, act as trustee under
indentures of, provide merchant banking services to, own securities of, and
generally engage in any kind of banking,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 93
<PAGE> 100
trust or other business with, Kitty Hawk and its Subsidiaries or any of their
Affiliates and any other Person who may do business with or own securities of
Kitty Hawk or any of its Subsidiaries or Affiliates, all as if it were not
acting as Agent and without any duty to account therefor to Lenders.
Section 12.3 Defaults. Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default (other than the non-payment
of principal of or interest on the Loans or Reimbursement Obligations or of
commitment fees) unless Agent has received notice from a Lender or Kitty Hawk
specifying such Default and stating that such notice is a "notice of default".
In the event that Agent receives such a notice of the occurrence of a Default,
Agent shall give prompt notice thereof to Lenders (and shall give each Lender
prompt notice of each such non-payment). Agent shall (subject to Section 12.1)
take such action with respect to such Default as shall be directed by the
Required Lenders, provided that unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall seem
advisable and in the best interest of Lenders.
Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO
INDEMNIFY AGENT FROM AND HOLD AGENT HARMLESS AGAINST (TO THE EXTENT NOT
REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE OBLIGATIONS
OF KITTY HAWK OR ANY OF ITS SUBSIDIARIES UNDER SECTIONS 13.1 AND 13.2), RATABLY
IN ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF THE AGGREGATE
LOAN PERCENTAGES), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES AND
EXPENSES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (BUT EXCLUDING
NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF AGENT'S
DUTIES AS AGENT HEREUNDER) WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY AGENT UNDER OR IN
RESPECT OF ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL
BE LIABLE FOR ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING,
IT IS THE EXPRESS INTENTION OF LENDERS THAT AGENT SHALL BE INDEMNIFIED
HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES AND EXPENSES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING ANY OTHER PROVISION OF
THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND
FOR ITS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 94
<PAGE> 101
PRO RATA SHARE (CALCULATED ON THE BASIS OF THE AGGREGATE LOAN PERCENTAGES) OF
ANY AND ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES)
INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT AGENT
IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY KITTY HAWK OR ANY OF ITS
SUBSIDIARIES.
Section 12.5 Independent Credit Decisions. Each Lender agrees
that it has independently and without reliance on Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of Kitty Hawk and its Subsidiaries and its own decision
to enter into this Agreement and that it will, independently and without
reliance upon Agent or any other Lender, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. Agent shall not be required to keep itself
informed as to the performance or observance by Kitty Hawk or any of its
Subsidiaries of this Agreement or any other Loan Document or to inspect the
Properties or books of Kitty Hawk or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to Lenders by Agent hereunder or under the other Loan Documents,
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other financial information concerning the affairs, financial
condition or business of Kitty Hawk or any of its Subsidiaries (or any of their
Affiliates) which may come into the possession of Agent or any of its
Affiliates.
Section 12.6 Several Commitments. The Commitments and other
obligations of Lenders under this Agreement are several. The default by any
Lender in making a Loan in accordance with its Commitment shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event
shall any Lender be required to advance an amount or amounts with respect to
any of the Loans which would in the aggregate exceed such Lender's Commitment
with respect to such Loans. No Lender shall be responsible for any act or
omission of any other Lender.
Section 12.7 Successor Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to Lenders and Kitty Hawk. Upon any such resignation,
the Required Lenders will have the right to appoint another Lender as a
successor Agent; provided, however, that, prior to the occurrence and
continuation of a Default, the identify of such successor Agent shall be
approved by Kitty Hawk, which approval shall not be unreasonably withheld,
conditioned or delayed. If no successor Agent shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of resignation, then the retiring
Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the U.S.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 95
<PAGE> 102
or any state thereof or of a foreign country if acting through its U.S. branch
and having combined capital and surplus of at least $100,000,000. Upon the
acceptance of its appointment as successor Agent, such successor Agent shall
thereupon succeed to and become vested with all rights, powers, privileges,
immunities and duties of the resigning Agent, and the resigning Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any Agent's resignation as Agent, the provisions of this
Article 12 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was Agent. Each Agent (including
each successor Agent) agrees that, so long as it is acting as Agent under this
Agreement, it shall be a Lender under this Agreement.
Section 12.8 Beneficiaries of Article 12. Notwithstanding
anything to the contrary contained in this Agreement, each of Kitty Hawk and
its Subsidiaries acknowledges and agrees that the terms and provisions of this
Article 12 other than Section 12.6 are intended solely for the benefit of Agent
and Lenders and that neither Kitty Hawk nor any of its Subsidiaries is a
beneficiary of any of such terms or provisions or may enforce any of such terms
or provisions against Agent or any Lender.
ARTICLE 13
Miscellaneous
Section 13.1 Expenses. Whether or not the transactions
contemplated hereby are consummated, Kitty Hawk hereby agrees, on demand, to
pay or reimburse Agent and each of Lenders for paying: (a) all reasonable
out-of-pocket costs and expenses of Agent in connection with the preparation,
negotiation, execution and delivery of this Agreement and the other Loan
Documents, and any and all waivers, amendments, modifications, renewals,
extensions and supplements thereof and thereto, and the syndication of the
Commitments and the Loans, including, without limitation, the reasonable fees
and expenses of legal counsel for Agent, (b) all out-of-pocket costs and
expenses of Agent and Lenders in connection with any Default, the exercise of
any right or remedy and the enforcement of this Agreement or any other Loan
Document or any term or provision hereof or thereof, including, without
limitation, the fees and expenses of all legal counsel for Agent and/or any
Lender (unless, with respect to legal counsel of any Lender other than Wells
Fargo, Agent has not approved of the payment by Kitty Hawk of the fees and
expenses of such counsel), (c) all transfer, stamp, documentary or other
similar taxes, assessments or charges levied by any Governmental Authority in
respect of this Agreement or any of the other Loan Documents, (d) all costs,
expenses, assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any Lien contemplated by this
Agreement or any other Loan Document, and (e) all out-of-pocket costs and
expenses incurred by Agent in connection with due diligence, computer services,
copying, appraisals, environmental audits, collateral audits, field exams,
insurance, consultants and search reports.
Section 13.2 INDEMNIFICATION. EACH OF KITTY HAWK AND ITS
SUBSIDIARIES HEREBY JOINTLY AND SEVERALLY AGREES TO INDEMNIFY AGENT AND EACH
LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS AND AGENTS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 96
<PAGE> 103
FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' AND CONSULTANTS' FEES AND EXPENSES) TO WHICH ANY OF THEM MAY BECOME
SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE
NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF
ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN
DOCUMENTS, (C) THE RELATED TRANSACTIONS, (D) ANY BREACH BY KITTY HAWK OR ANY OF
ITS SUBSIDIARIES OF ANY REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (E) THE USE OR PROPOSED USE OF ANY LOAN
OR LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVEES, DEDUCTIONS AND CHARGES
IMPOSED ON AGENT, ISSUING BANK OR ANY LENDER IN RESPECT OF ANY LOAN OR LETTER
OF CREDIT (EXCLUSIVE OF INCOME AND FRANCHISE TAXES ATTRIBUTABLE TO NET INCOME),
(G) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE
PROPERTIES OF KITTY HAWK OR ANY OF ITS SUBSIDIARIES, EXCEPT TO THE EXTENT THAT
THE LOSS, DAMAGE OR CLAIM IS THE DIRECT RESULT OF AN INTENTIONAL AND
AFFIRMATIVE ACT BY THE PERSON TO BE INDEMNIFIED THAT CONSTITUTES GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON, OR (H) ANY INVESTIGATION,
LITIGATION OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING;
BUT EXCLUDING ANY OF THE FOREGOING TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITING ANY
PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS
INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS
SECTION 13.2 SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL
LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES),
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF OR RESULTING
FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. THE OBLIGATIONS OF
EACH OF KITTY HAWK AND ITS SUBSIDIARIES UNDER THIS SECTION 13.2 SHALL SURVIVE
THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND TERMINATION OF THE
COMMITMENTS.
Section 13.3 Limitation of Liability. None of Agent, any Issuing
Bank, any Lender or any Affiliate, officer, director, employee, attorney or
agent thereof shall be liable for any error of judgment or act done in good
faith, or be otherwise liable or responsible under any circumstances whatsoever
(including such Person's negligence), except for such Person's gross negligence
or willful misconduct. None of Agent, any Issuing Bank, any Lender or any
Affiliate, officer, director,
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 97
<PAGE> 104
employee, attorney or agent thereof shall have any liability with respect to,
and each of Kitty Hawk and its Subsidiaries hereby waives, releases and agrees
not to sue any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by Kitty Hawk or any of its
Subsidiaries in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. Each of
Kitty Hawk and its Subsidiaries hereby waives, releases and agrees not to sue
Agent, any Issuing Bank or any Lender or any of their respective Affiliates,
officers, directors, employees, attorneys or agents for exemplary or punitive
damages in respect of any claim in connection with, arising out of or in any
way related to this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and
other professional Persons and consultants retained by Agent and Lenders shall
have the right to act exclusively in the interest of Agent and Lenders and
shall have no duty of disclosure, duty of loyalty, duty of care or other duty
or obligation of any type or nature whatsoever to Kitty Hawk or any of its
Subsidiaries or any of their shareholders or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between
each of Kitty Hawk and its Subsidiaries, on the one hand, and Agent and each
Issuing Bank and Lender, on the other hand, is solely that of debtor and
creditor, and neither Agent, any Issuing Bank nor any Lender has any fiduciary
or other special relationship with Kitty Hawk or any of its Subsidiaries, and
no term or condition of any of the Loan Documents shall be construed so as to
deem any such relationship to be other than that of debtor and creditor. No
joint venture or partnership is created by this Agreement between or among
Agent or any Issuing Bank or any Lender or between or among Kitty Hawk or any
of its Subsidiaries and Agent or any Issuing Bank or any Lender.
Section 13.6 Equitable Relief. Each of Kitty Hawk and its
Subsidiaries recognizes that, in the event it fails to pay, perform, observe or
discharge any or all of the Obligations, any remedy at law may prove to be
inadequate relief to Agent and Lenders. Each of Kitty Hawk and its
Subsidiaries therefore agrees that Agent and Lenders, if Agent or Lenders so
request, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the
part of Agent or any Lender to exercise and no delay in exercising, and no
course of dealing with respect to, any right, power or privilege under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under
this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement and the other Loan Documents
are cumulative and not exclusive of any rights and remedies provided by law.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 98
<PAGE> 105
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and
assigns. Neither Kitty Hawk nor any of its Subsidiaries may assign or
transfer any of its rights or obligations under this Agreement or any
other Loan Document without the prior written consent of Agent and
Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, all or a portion of its
Commitments and the Loans owing to it and the Letters of Credit issued
by it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without
limitation, its Commitments) shall remain unchanged, (ii) such Lender
shall remain solely responsible to Kitty Hawk for the performance of
such obligations, (iii) such Lender shall remain the holder of its
Notes for all purposes of this Agreement, and (iv) Kitty Hawk shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement and the
other Loan Documents.
(b) Each of Kitty Hawk and its Subsidiaries and each of
Lenders agree that any Lender (the "Assigning Lender") may at any time
assign to one or more Eligible Assignees all, or a proportionate part
of all, of its rights and obligations under this Agreement and the
other Loan Documents (including, without limitation, its Commitments
and Loans and Letters of Credit) (each an "Assignee"); provided,
however, that (i) each such assignment may be of a varying percentage
of the Assigning Lender's rights and obligations under this Agreement
and the other Loan Documents and may relate to some but not all of
such rights and/or obligations, (ii) except in the case of an
assignment of all of a Lender's rights and obligations under this
Agreement and the other Loan Documents, the amount of the Commitments
and Loans and Letters of Credit of the Assigning Lender being assigned
pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no
event be less than an aggregate amount equal to $5,000,000 calculated
based upon the sum of the Revolving Credit Loans Commitment assigned
(or, if such Commitment has terminated or expired, the aggregate
outstanding principal amount of the Revolving Credit Loans and face
amount of outstanding Letters of Credit assigned) plus the aggregate
outstanding principal amount of the Term Loans assigned, and (iii) the
parties to each such assignment shall execute and deliver to Agent for
its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Notes subject to such
assignment, and a processing and recordation fee of $2,500. Upon such
execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by Agent, (1)
the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and under the Loan Documents, and
(2) the Assigning Lender thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement and the other Loan Documents
(and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's rights and obligations under the Loan
Documents, such Lender shall cease to be a party
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 99
<PAGE> 106
thereto, provided that such Lender's rights under Article 4, Section
13.1 and Section 13.2 accrued through the date of assignment shall
continue).
(c) By executing and delivering an Assignment and
Acceptance, the Assigning Lender thereunder and the Assignee
thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and
Acceptance, such Assigning Lender makes no representation or warranty
and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other
instrument or document furnished pursuant thereto; (ii) such Assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition or results of
operations of Kitty Hawk or any of its Subsidiaries or the performance
or observance by Kitty Hawk or any of its Subsidiaries of its
obligations under the Loan Documents; (iii) such Assignee confirms
that it has received a copy of the other Loan Documents, together with
copies of the financial statements referred to in Section 7.2 and such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such Assignee will, independently and without
reliance upon Agent or such Assigning Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee
appoints and authorizes Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are
delegated to Agent by the terms thereof, together with such powers as
are reasonably incidental thereto; and (vii) such Assignee agrees that
it will perform in accordance with their terms all of the obligations
which by the terms of the Loan Documents are required to be performed
by it as a Lender.
(d) Agent shall maintain at its Principal Office a copy
of each Assignment and Acceptance delivered to and accepted by it and
a register for the recordation of the names and addresses of Lenders
and the Commitments of, and principal amount of the Loans owing to and
Letters of Credit issued by, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and Kitty Hawk, Agent
and Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by Kitty
Hawk or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an Assigning Lender and Assignee representing that it is
an Eligible Assignee, together with the Notes subject to such
assignment, Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit A hereto, (i)
accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register, and (iii) give prompt written
notice thereof to Kitty Hawk. Within five Business Days after its
receipt of such notice, Kitty Hawk, at its expense, shall execute and
deliver to Agent in exchange for each
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 100
<PAGE> 107
surrendered Note evidencing particular Loans, a new Note evidencing
such Loans payable to the order of such Eligible Assignee in an amount
equal to such Loans assigned to it and, if the Assigning Lender has
retained any Loans, a new Note evidencing such Loans payable to the
order of the Assigning Lender in the amount of such Loans retained by
it (each such promissory note shall constitute a "Note" for purposes
of the Loan Documents). Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibits C and/or D hereto, as applicable.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 13.8, disclose to the Assignee or participant or proposed
Assignee or participant any information relating to Kitty Hawk or any
of its Subsidiaries furnished to such Lender by or on behalf of Kitty
Hawk or any of its Subsidiaries; provided that each such actual or
proposed Assignee or participant shall agree to be bound by the
provisions of Section 13.20.
(g) Any Lender may assign and pledge all or any of the
Notes held by it to any Federal Reserve Bank or the U.S. Treasury as
collateral security pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any operating circular issued by the
Federal Reserve System and/or Federal Reserve Bank; provided, however,
that any payment made by Kitty Hawk for the benefit of such assigning
and/or pledging Lender in accordance with the terms of the Loan
Documents shall satisfy Kitty Hawk's obligations under the Loan
Documents in respect thereof to the extent of such payment. No such
assignment and/or pledge shall release the assigning and/or pledging
Lender from its obligations hereunder.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by Agent or any
Lender or any closing shall affect the representations and warranties or the
right of Agent or any Lender to rely upon them. Without prejudice to the
survival of any other obligation of each of Kitty Hawk and its Subsidiaries
hereunder, the obligations of each of Kitty Hawk and its Subsidiaries under
Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans, the
Reimbursement Obligations and the other Obligations.
Section 13.10 ENTIRE AGREEMENT; AMENDMENT AND RESTATEMENT; WAIVER
OF CLAIMS. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN
EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY
AND ALL PRIOR COMMITMENTS, TERM SHEETS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. This Agreement amends and
restates in its entirety (but does
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 101
<PAGE> 108
not extinguish the indebtedness, liabilities or obligations evidenced by or
outstanding under) the Prior Credit Agreement. The execution of this Agreement
and the other Loan Documents executed in connection herewith does not
extinguish the indebtedness, liabilities or obligations evidenced by or
outstanding under the Prior Credit Agreement, nor does such execution
constitute a novation with respect to any such indebtedness, liabilities or
obligations. Each of Kitty Hawk and its Subsidiaries represents and warrants
to Agent and Lenders that, as of the Closing Date, there are no claims or
offsets against, or defenses or counterclaims to, its indebtedness, liabilities
and obligations under the Prior Credit Agreement or the promissory notes or the
other "Loan Documents" as defined therein. TO INDUCE AGENT AND LENDERS TO
ENTER INTO THIS AGREEMENT, EACH OF KITTY HAWK AND ITS SUBSIDIARIES WAIVES ANY
AND ALL SUCH CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR
UNKNOWN, ARISING PRIOR TO THE DATE HEREOF AND RELATING TO ANY OF THE PRIOR
CREDIT AGREEMENT OR SUCH "LOAN DOCUMENTS" OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
Section 13.11 Amendments. No amendment or waiver of any term or
provision of this Agreement, the Notes or any other Loan Document to which
Kitty Hawk or any of its Subsidiaries is a party, nor any consent to any
departure by Kitty Hawk or any of its Subsidiaries therefrom, shall in any
event be effective unless the same shall be agreed or consented to by Required
Lenders and Kitty Hawk in writing, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, waiver or consent shall, unless in writing
and signed by all of Lenders and Kitty Hawk, do any of the following: (a)
increase the Commitments of Lenders or subject Lenders to any additional
obligations; (b) reduce the principal of, or interest on, the Loans or any fees
or other amounts payable hereunder; (c) postpone any date fixed for any payment
(including, without limitation, any mandatory prepayment) of principal of, or
interest on, the Loans or any fees or other amounts payable hereunder; (d)
waive any of the conditions precedent specified in Article 6; (e) change the
Commitment Percentages or the Aggregate Loan Percentages or the aggregate
unpaid principal amount of the Loans, the Reimbursement Obligations or other
Obligations or the number or interests of Lenders which shall be required for
Lenders or any of them to take any action under this Agreement; (f) change any
provision contained in Section 3.2, Section 3.3 or this Section 13.11 or modify
the definition of "Required Lenders" contained in Section 1.1; or (g) except as
expressly authorized by this Agreement, release any Collateral from any of the
Liens created by the Security Documents or release any guaranty of all or any
portion of the Obligations. Notwithstanding anything to the contrary contained
in this Section 13.11, no amendment, waiver or consent shall be made with
respect to Article 12 hereof without the prior written consent of Agent and
Agent and Lenders may, without the agreement of Kitty Hawk, amend the terms and
provisions of Article 12 other than Section 12.6.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any
other Loan Document shall at any time exceed the Maximum Rate. If at
any time the interest rate (the "Contract Rate") for any Obligation
shall exceed the Maximum Rate, thereby causing the interest accruing
on such Obligation to be limited to the Maximum Rate, then any
subsequent reduction in the Contract Rate for such Obligation shall
not reduce the rate of interest on such Obligation
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 102
<PAGE> 109
below the Maximum Rate until the aggregate amount of interest accrued
on such Obligation equals the aggregate amount of interest which would
have accrued on such Obligation if the Contract Rate for such
Obligation had at all times been in effect.
(b) Notwithstanding anything to the contrary contained in
this Agreement or the other Loan Documents, none of the terms and
provisions of this Agreement or the other Loan Documents shall ever be
construed to create a contract or obligation to pay interest at a rate
in excess of the Maximum Rate, and neither Agent nor any Lender shall
ever charge, receive, take, collect, reserve or apply, as interest on
the Obligations, any amount in excess of the Maximum Rate. The
parties hereto agree that any interest, charge, fee, expense or other
obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall be,
ipso facto and under any and all circumstances, limited or reduced to
an amount equal to the lesser of (i) the amount of such interest,
charge, fee, expense or other obligation that would be payable in the
absence of this Section 13.12(b) or (ii) an amount, which when added
to all other interest payable under this Agreement and the other Loan
Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, Agent or any Lender ever contracts for, charges, receives,
takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive
interest shall be deemed a partial payment or prepayment of principal
of the Obligations and treated hereunder as such, and if the
Obligations, or applicable portions thereof, are paid in full, any
remaining excess shall promptly be paid to Kitty Hawk. In determining
whether the interest paid or payable, under any specific contingency,
exceeds the Maximum Rate, Kitty Hawk and its Subsidiaries, Agent and
Lenders shall, to the maximum extent permitted by applicable law, (i)
characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate and spread in
equal or unequal parts the total amount of interest throughout the
entire contemplated term of the Obligations, or applicable portions
thereof, so that the interest rate does not exceed the Maximum Rate at
any time during the term of the Obligations; provided that, if the
unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the
Maximum Rate, Agent and/or Lenders, as appropriate, shall refund to
Kitty Hawk the amount of such excess and, in such event, Agent and
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or
applying interest in excess of the Maximum Rate.
(c) Pursuant to Chapter 346 of the Finance Code of the
State of Texas, as amended, each of Kitty Hawk and its Subsidiaries
agrees that such Chapter 346 (which regulates certain revolving credit
loan accounts and revolving tri-party accounts) shall not govern or in
any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications
provided for in this Agreement and the other Loan Documents to which Kitty Hawk
or any of its Subsidiaries is a party shall be given or made by telecopy or in
writing and telecopied, mailed by certified mail return receipt requested or
delivered to the intended recipient at the "Address for Notices" specified
below its name on the
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 103
<PAGE> 110
signature pages hereof (or, with respect to a Lender that becomes a party to
this Agreement pursuant to an assignment made in accordance with Section 13.8,
in the Assignment and Acceptance executed by it); or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party given in accordance with this Section 13.13. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telecopy or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid; provided, however, that notices to Agent shall be deemed given when
received by Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE
U.S. EACH OF KITTY HAWK AND ITS SUBSIDIARIES HEREBY SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS, AND (2) ANY TEXAS STATE COURT SITTING IN DALLAS COUNTY,
TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY. EACH OF KITTY HAWK AND ITS SUBSIDIARIES HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET
FORTH UNDERNEATH ITS SIGNATURE HERETO. EACH OF KITTY HAWK AND ITS SUBSIDIARIES
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held
by a court of competent jurisdiction to be invalid or unenforceable shall not
impair or invalidate the remainder of this Agreement and the effect thereof
shall be confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Construction. Each of Kitty Hawk and its
Subsidiaries, Agent and each Lender acknowledges that it has had the benefit of
legal counsel of its own choice and has been afforded an
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 104
<PAGE> 111
opportunity to review this Agreement and the other Loan Documents with its
legal counsel and that this Agreement and the other Loan Documents shall be
construed as if jointly drafted by the parties hereto.
Section 13.19 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or such
condition exists.
Section 13.20 Confidentiality. Each Lender agrees to exercise its
best efforts to keep any information delivered or made available by Kitty Hawk
or any of its Subsidiaries to it which is clearly indicated to be confidential
information, confidential from anyone other than Persons employed or retained
by such Lender who are or are expected to become engaged in evaluating,
approving, structuring or administering the Loans; provided that nothing herein
shall prevent any Lender from disclosing such information (a) to any other
Lender, (b) to any Person if reasonably incidental to the administration of the
Loans, (c) upon the order of any court or administrative agency, (d) upon the
request or demand of any regulatory agency or authority having jurisdiction
over such Lender, (e) which has been publicly disclosed, (f) in connection with
any litigation to which Agent, any Lender or their respective Affiliates may be
a party, (g) to the extent reasonably required in connection with the exercise
of any right or remedy under the Loan Documents, (h) to such Lender's legal
counsel, independent auditors and affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 13.20.
Section 13.21 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of Agent or any Lender is
requested or required, (a) the granting or denial of such approval or consent
and the exercise of such judgment shall be within the sole discretion of Agent
or such Lender, respectively, and Agent and such Lender shall not, for any
reason or to any extent, be required to grant such approval or consent or to
exercise such judgment in any particular manner, regardless of the
reasonableness of the request or the action or judgment of Agent or such
Lender, and (b) no approval or consent of Agent or any Lender shall in any
event be effective unless the same shall be in writing and the same shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 13.22 Joint and Several Obligations. Each and every
representation, warranty, covenant or agreement of Kitty Hawk and its
Subsidiaries (or any two or more of them) contained herein shall be, and shall
be deemed to be, the joint and several representation, warranty, covenant and
agreement of each such Person.
Section 13.23 AGREEMENT FOR BINDING ARBITRATION. EACH OF THE
PARTIES HERETO AGREES TO BE BOUND BY THE TERMS AND PROVISIONS OF THE CURRENT
ARBITRATION PROGRAM OF WELLS FARGO, WHICH
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 105
<PAGE> 112
ARBITRATION PROGRAM IS ATTACHED HERETO AS EXHIBIT F. ALL DISPUTES AMONG THE
PARTIES HERETO SHALL BE RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE
REQUEST OF ANY PARTY HERETO.
[The remainder of this page intentionally left blank.]
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 106
<PAGE> 113
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
KITTY HAWK:
KITTY HAWK, INC.
By: /s/ M. TOM CHRISTOPHER
----------------------------------------
Name: M. Tom Christopher
Title: Chairman of the Board of Directors
and Chief Executive Officer
AIRCARGO:
KITTY HAWK AIRCARGO, INC.
By: /s/ TILMON J. REEVES
----------------------------------------
Name: Tilmon J. Reeves
Title: President
LEASING:
AIRCRAFT LEASING, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: President
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 107
<PAGE> 114
CHARTERS:
KITTY HAWK CHARTERS, INC.
By: /s/ M. TOM CHRISTOPHER
----------------------------------------
Name: M. Tom Christopher
Title: President
SKYFREIGHTERS:
SKYFREIGHTERS CORPORATION
By: /s/ M. TOM CHRISTOPHER
----------------------------------------
Name: M. Tom Christopher
Title: President
AIA:
AMERICAN INTERNATIONAL AIRWAYS, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
AIT:
AMERICAN INTERNATIONAL TRAVEL, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 108
<PAGE> 115
FOL:
FLIGHT ONE LOGISTICS, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
KFS:
KALITTA FLYING SERVICE, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
OK:
O. K. TURBINES, INC.
By: /s/ RICHARD R. WADSWORTH, JR.
----------------------------------------
Name: Richard R. Wadsworth, Jr.
Title: Vice President
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 109
<PAGE> 116
Address for Notices to Kitty Hawk
and each of its Subsidiaries:
Kitty Hawk, Inc., Kitty Hawk Aircargo, Inc.,
Aircraft Leasing, Inc., Kitty Hawk Charters, Inc.,
Skyfreighters Corporation, American International
Airways, Inc., American International Travel, Inc.,
Flight One Logistics, Inc., Kalitta Flying Service, Inc.
and O. K. Turbines, Inc. (as applicable)
P.O. Box 612787
Dallas, Texas 75261
Attention: Mr. M. Tom Christopher
1515 W. 20th Street
DFW Airport, Texas 75261
Fax No.: (214) 456-2210
Telephone No.: (214) 456-2220
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 110
<PAGE> 117
AGENT AND A LENDER:
COMMITMENTS: WELLS FARGO BANK (TEXAS) NATIONAL
Revolving Credit Loans ASSOCIATION
Commitment: $100,000,000
By: /s/ DREW KEITH
-----------------------------
Term Loans Name: Drew Keith
Commitment: $45,900,000 Title: Vice President
Address for Notices:
Wells Fargo Bank (Texas),
National Association
1445 Ross Avenue, Suite 300
Dallas, Texas 75202
Attention: Drew Keith
Fax No.: (214) 855-1340
Telephone No.: (214) 740-0099
Lending Office for Base Rate Loans:
Wells Fargo Bank, NA
Commercial Bank Loan Center
Agency Dept. 2840
201 3rd Street, 8th Floor
San Francisco, CA 94103
Attention: Manager
Fax No.: (415) 512-9408
Telephone No.: (415) 477-5227
Lending Office for Eurodollar Loans:
Wells Fargo Bank, NA
Commercial Bank Loan Center
Agency Dept. 2840
201 3rd Street, 8th Floor
San Francisco, CA 94103
Attention: Manager
Fax No.: (415) 512-9408
Telephone No.: (415) 477-5227
SECOND AMENDED AND RESTATED CREDIT AGREEMENT - Page 111
<PAGE> 118
EXHIBIT A
ASSIGNMENT AND ACCEPTANCE
<PAGE> 119
ASSIGNMENT AND ACCEPTANCE
Date:_____, 19__
Reference is made to that certain Second Amended and Restated Credit
Agreement, dated as of November 19, 1997 (as the same may be amended and in
effect from time to time, the "Credit Agreement") among Kitty Hawk, Inc., Kitty
Hawk Aircargo, Inc., Aircraft Leasing, Inc., Kitty Hawk Charters, Inc.,
Skyfreighters Corporation, American International Airways, Inc., American
International Travel, Inc., Flight One Logistics, Inc., Kalitta Flying Service,
Inc., 0.K. Turbines, Inc., the lenders named therein ("Lenders") and Wells
Fargo Bank (Texas), National Association, as agent for the Lenders (in such
capacity, "Agent"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
This Assignment and Acceptance is being executed pursuant to Section 13.8 of
the Credit Agreement.
_____________________ ("Assignor and ____________________ ("Assignee")
agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee
hereby purchases and assumes from Assignor, the following interests in and to
Assignor's rights and obligations under the Credit Agreement and the other Loan
Documents as of the Effective Date (as defined below):
(a) a % interest in the Revolving Credit Loans Commitments
(which percentage interest represents a $ commitment with
respect to the aggregate Revolving Credit Loans Commitments of
$ ); and/or
(b) a % interest in the aggregate outstanding principal
amount of the Term Loans (which percentage interest represents
a $ interest in the $ aggregate principal amount of the
Term Loans presently outstanding).
After giving effect to this Assignment and Acceptance, the Revolving Credit
Loans Commitment of Assignor will be $ , and the outstanding principal
amount of Assignor's interest in the Term Loans will be $ .
2. Assignor (i) represents that, as of the date hereof and
immediately prior to giving effect to this Assignment and Acceptance, (A) its
Revolving Credit Loans Commitment is $ and the outstanding principal
balance of its Revolving Credit Loans is $ , (B) the outstanding
principal balance of its Term Loans is $ , and (C) its pro rata share of the
Letters of Credit outstanding under its Revolving Credit Loans Commitment is
$ , (ii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Credit Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other Loan Document, other than that it is
the legal and beneficial owner of the interest being assigned by it hereunder
and that such interest
ASSIGNMENT AND ACCEPTANCE - Page 1
<PAGE> 120
is free and clear of any adverse claim, (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
or results of operations of any Company or the performance or observance by any
Company of any of its obligations under the Credit Agreement or any other Loan
Document, and (iv) attaches the assigned Notes held by Assignor and requests
that Agent exchange such Notes for a new [Revolving Credit Loans and/or Term
Loans Note] payable to the order of (A) Assignee in an amount equal to (1) in
the case of the Revolving Credit Loans Note, the amount of Assignor's Revolving
Credit Loans Commitment assumed by Assignee hereunder, and (2) in the case of
the Term Loans Note, the principal amount of the Term Loans assigned to
Assignee pursuant hereto, and (B) Assignor in an amount equal to (1) in the
case of the Revolving Credit Loans Note, the amount of the Revolving Credit
Loans commitment retained by Assignor, and (2) in the case of the Term Loans
Note, the principal amount of the Term Loans retained by Assignor.(1)
3. Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance, (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 8.1 thereof, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance, (iii)
agrees that it will, independently and without reliance upon Agent, Assignor or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement and other Loan Documents, (iv)
confirms that it is an Eligible Assignee, (v) appoints and authorizes Agent to
take such action on Assignee's behalf and to exercise such powers under the
Loan Documents as are delegated to Agent by the terms thereof, together with
such powers as are reasonably incidental thereto, (vi) agrees that it will
perform in accordance with their terms all obligations which by the terms of
the Credit Agreement and the other Loan Documents are required to be performed
by it as a Lender, (vii) agrees that it will keep confidential all information
with respect to the Companies furnished to it by any Company or Assignor marked
as being confidential (other than information generally available to the
public) in accordance with Section 13.20 of the Credit Agreement, and (viii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to Assignee's exemption from United States withholding
taxes with respect to all payments to be made to Assignee under the Credit
Agreement, or certificate as to Assignee's exemption from United States
withholding taxes with respect to all payments to be made to Assignee under the
Credit Agreement, or such other documents as are necessary to indicate that all
such payments are subject to such tax at a rate reduced by an applicable tax
treaty.(2)
- -------------------------
(1) If this Assignment and Acceptance does not relate to all of the Loans,
this language is to be revised accordingly.
(2) If Assignee is organized under the laws of a jurisdiction outside the
United States.
ASSIGNMENT AND ACCEPTANCE - Page 2
<PAGE> 121
4. The effective date for this Assignment and Acceptance shall be
____ , ___ (the "Effective Date").(3) Following the execution of this Assignment
and Acceptance, it will be delivered to Agent for acceptance and recording by
Agent.
5. Upon such acceptance and recording, from and after the
Effective Date, (i) Assignee shall be a party to the Credit Agreement and, to
the extent provided in this Assignment and Acceptance, shall have the rights
and obligations of a Lender thereunder and under the other Loan Documents and
(ii) Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement and the other Loan Documents.
6. Upon such acceptance and recording, from and after the
Effective Date, Agent shall make all payments in respect of the interest
assigned hereby (including payments of principal, interest, fees and other
amounts) to Assignee. Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.
8. Assignee's address for notices and Applicable Lending Office
for purpose of the Credit Agreement (until such address or office are
subsequently changed in accordance with the Credit Agreement) are specified
below its name on the signature pages of this Assignment and Acceptance.
[NAME OF ASSIGNOR]
By:
-------------------------
Name:
-----------------------
Title:
----------------------
- -------------------------
(3) Such date shall be at least five (5) Business Days after the execution
of this Assignment and Acceptance and delivery thereof to Agent, unless
otherwise agreed by Agent.
ASSIGNMENT AND ACCEPTANCE - Page 3
<PAGE> 122
[NAME OF ASSIGNEE]
By:
-----------------------------------
Name
---------------------------------
Title:
--------------------------------
Address for Notices:
--------------------------------------
--------------------------------------
--------------------------------------
Fax No. (_)
---------------------------
Telephone No. (___)
-------------------
Attention:
----------------------------
Lending Office for Prime Rate Loans:
--------------------------------------
--------------------------------------
--------------------------------------
Lending Office for Eurodollar Loans:
--------------------------------------
--------------------------------------
--------------------------------------
ACCEPTED BY:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as Agent
By:
-----------------------------------
Name
---------------------------------
Title:
--------------------------------
KITTY HAWK, INC.(1)
By:
-----------------------------------
Name
---------------------------------
Title:
--------------------------------
Date:
---------------------------------
- -------------------------
(1) Applicable only prior to the occurrence and continuation of a Default.
ASSIGNMENT AND ACCEPTANCE - Page 4
<PAGE> 123
EXHIBIT B
BORROWING BASE REPORT
<PAGE> 124
BORROWING BASE REPORT
TO: Wells Fargo Bank (Texas), National Association
1445 Ross Avenue, Suite 300
Dallas, Texas 75202
Attention: Drew Keith
Ladies/Gentlemen:
This Borrowing Base Report ("Report") for the month ending ____, 19 __,
is executed and delivered by Kitty Hawk, Inc. ("Borrower") pursuant to that
certain Second Amended and Restated Credit Agreement, dated as of November 19,
1997 (as the same may be amended and in effect from time to time, the
"Agreement"), among Borrower, Kitty Hawk Aircargo, Inc., Aircraft Leasing, Inc.,
Kitty Hawk Charters, Inc., Skyfreighters Corporation, American International
Airways, Inc., American International Travel, Inc., Flight One Logistics, Inc.,
Kalitta Flying Service, Inc., 0. K. Turbines, Inc., the lenders named therein
("Lenders") and Wells Fargo Bank (Texas), National Association, as agent for
Lenders (in such capacity, "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Agreement.
Borrower hereby represents and warrants to Agent that all information
contained herein is true, correct and complete, and that the Eligible
Receivables and Eligible Parts referred to below represent the Eligible
Receivables and Eligible Parts that qualify for purposes of determining the
Borrowing Base under the Agreement. Borrower further represents and warrants to
Agent that (a) attached hereto as Schedule 1 is a list of Eligible Receivables
for the month ending _____, _____, showing all Eligible Receivables aged in
thirty-day intervals, (b) attached hereto as Schedule 2 is a calculation showing
the amounts of all Receivables and showing the amounts of all exclusions
therefrom for purposes of calculating Eligible Receivables (set forth separately
for each entity and for each exclusion specified in clauses (a) through (r) of
the definition of Eligible Receivables and for any exclusion resulting from the
last paragraph of such definition) and (c) attached hereto as Schedule 3 is a
calculation showing the amounts of all Eligible Parts showing the amounts of all
exclusions therefrom for purposes of calculating Eligible Parts (set forth
separately for each entity and for each exclusion specified in clauses (i)
through (vi) of the definition of Eligible Parts).
CALCULATION OF BORROWING BASE
Receivables:
1. Eligible Receivables . . . . . . . . . . . . . . . . . . $_______
Parts:
2. Eligible Parts . . . . . . . . . . . . . . . . . . . . . . $_______
BORROWING BASE REPORT - Page 1
<PAGE> 125
<TABLE>
<S> <C> <C>
Borrowing Base:
3. __% of line 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
4. __% of line 2(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
5. Borrowing Base (line 3 plus line 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
6. Revolving Loans Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000,000
7. Outstanding principal amount of Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
8. Outstanding Letter of Credit Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
9. Outstanding Revolving Credit (line 7 plus line 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $___________
10. Availability under Revolving Loans Commitment (the lesser of line 5 or line 6, minus line 9) . . . . . . . . . $___________
</TABLE>
Borrower further represents and warrants to Agent that the
representations and warranties contained in Article 7 of the Agreement are true
and correct on and as of the date of this Borrowing Base Report as if made on
and as of the date hereof, and that no Default or Event of Default has occurred
and is continuing.
Date:
--------------------
KITTY HAWK, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
- -------------------------
(1) The percentages referred to in line 3 and line 4 are to be determined
by Agent in accordance with the Agreement.
BORROWING BASE REPORT - Page 2
<PAGE> 126
SCHEDULE 1
ELIGIBLE RECEIVABLES
SCHEDULE 1 - ELIGIBLE RECEIVABLES AGING SCHEDULE
<PAGE> 127
SCHEDULE 2
RECEIVABLES AND EXCLUSIONS
SCHEDULE 2 - RECEIVABLES OF THE BORROWER AND ITS WHOLLY-OWNED SUBSIDIARIES
<PAGE> 128
SCHEDULE 3
ELIGIBLE PARTS
SCHEDULE 3 - INVENTORY OF THE BORROWER AND ITS WHOLLY-OWNED SUBSIDIARIES
<PAGE> 129
EXHIBIT C
REVOLVING CREDIT LOANS NOTE
<PAGE> 130
REVOLVING CREDIT LOANS NOTE
$____________ Dallas, Texas November 19, 1997
FOR VALUE RECEIVED, the undersigned, KITTY HAWK, INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of ___________
("Lender"), in accordance with the instructions for payment to Agent specified
in Section 3.1 of the Credit Agreement and for the account of the Applicable
Lending Office of Lender, in lawful money of the United States of America and in
immediately available funds, the principal amount of ______________ and NO/100
Dollars ($________________) or such lesser amount as shall equal the aggregate
unpaid principal amount of the Revolving Credit Loans (hereinafter "Loans") made
by Lender (or its predecessor in interest) to Borrower under the Credit
Agreement referred to below, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such office, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
Borrower hereby authorizes Lender to endorse in its records the amount
and Type of Loans made to Borrower by Lender (or its predecessor in interest)
and all Continuations, Conversions and payments of principal in respect of such
Loans, which endorsements shall, in the absence of manifest error and in the
absence of disagreement between Lender and Agent as to such amount, be
conclusive as to the outstanding principal amount of all such Loans; provided,
however, that the failure to make such notation with respect to any such Loans
or payment shall not limit or otherwise affect the obligations of Borrower
under the Credit Agreement or this Note.
This Note is one of the Revolving Credit Loans Notes referred to in
the Second Amended and Restated Credit Agreement dated as of November 19, 1997,
among Borrower, Kitty Hawk Aircargo, Inc., Aircraft Leasing, Inc., Kitty Hawk
Charters, Inc., Skyfreighters Corporation, American International Airways,
Inc., American International Travel, Inc., Flight One Logistics, Inc., Kalitta
Flying Service, Inc., OK Turbines, Inc., Wells Fargo Bank (Texas), National
Association, as Agent, and the Lenders named therein (such agreement, as the
same may be amended, modified or supplemented from time to time, being referred
to herein as the "Credit Agreement"), and evidences Loans made by Lender (or
its predecessor in interest) thereunder. The Credit Agreement, among other
things, contains provisions limiting the amount of interest that may be charged
on this Note, for acceleration of the maturity of this Note upon the happening
of certain stated events and for prepayments of Loans prior to the maturity of
this Note upon the terms and conditions specified in the Credit Agreement.
Capitalized terms used in this Note and not otherwise defined herein have the
respective meanings assigned to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
REVOLVING CREDIT LOANS NOTE - Page 1
<PAGE> 131
Each of Borrower and each surety, Guarantor, endorser and other party
ever liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent
to accelerate, notice of intent to demand, diligence in collecting, grace and
all other formalities of any kind, and consent to all extensions without notice
for any period or periods of time and partial payments, before or after
maturity, and any impairment of any collateral securing this Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute part or all of
the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.
This Note, in part, is issued in amendment and restatement of, but not
in extinguishment of the indebtedness evidenced by, (a) that certain Revolving
Credit Loans Note, dated September 17, 1997, in the original principal amount
of $30,450,000 made by Borrower payable to the order of Wells Fargo Bank
(Texas), National Association and (b) that certain Revolving Credit Loans Note,
dated September 17, 1997, in the original principal amount of $30,450,000 made
by Borrower payable to the order of Bank One, Texas, N.A.
KITTY HAWK, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
REVOLVING CREDIT LOANS NOTE - Page 2
<PAGE> 132
EXHIBIT D
TERM LOANS NOTE
<PAGE> 133
TERM LOANS NOTE
$_____________ Dallas, Texas November 19, 1997
FOR VALUE RECEIVED, the undersigned, KITTY HAWK, INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of _____________
("Lender"), in accordance with the instructions for payment to Agent specified
in Section 3.1 of the Credit Agreement and for the account of the Applicable
Lending Office of Lender, in lawful money of the United States of America and in
immediately available funds, the principal amount of ____________ Dollars
($____________) on the dates and in the principal amounts provided in the Credit
Agreement referred to below, and to pay interest on the unpaid principal amount
of each of the Term Loans (hereinafter "Loans") made by Lender (or its
predecessor in interest) to Borrower under the Credit Agreement, at such office,
in like money and funds, for the period commencing on the date of such Loans
until such Loans shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
Borrower hereby authorizes Lender to endorse in its records the amount
and Type of Loans made to Borrower by Lender (or its predecessor in interest)
and all Continuations, Conversions and payments of principal in respect of such
Loans, which endorsements shall, in the absence of manifest error and in the
absence of disagreement between Lender and Agent as to such amount, be
conclusive as to the outstanding principal amount of all such Loans; provided,
however, that the failure to make such notation with respect to any such Loans
or payment shall not limit or otherwise affect the obligations of Borrower
under the Credit Agreement or this Note.
This Note is one of the Term Loans Notes referred to in the Second
Amended and Restated Credit Agreement dated as of November 19, 1997, among
Borrower, Kitty Hawk Aircargo, Inc., Aircraft Leasing, Inc., Kitty Hawk
Charters, Inc., Skyfreighters Corporation, American International Airways,
Inc., American International Travel, Inc., Flight One Logistics, Inc., Kalitta
Flying Service, Inc., OK Turbines, Inc., Wells Fargo Bank (Texas), National
Association, as Agent, and the Lenders named therein (such agreement, as the
same may be amended, modified or supplemented from time to time, being referred
to herein as the "Credit Agreement"), and evidences Loans made by Lender (or
its predecessor in interest) thereunder. The Credit Agreement, among other
things, contains provisions limiting the amount of interest that may be charged
on this Note, for acceleration of the maturity of this Note upon the happening
of certain stated events and for prepayments of Loans prior to the maturity of
this Note upon the terms and conditions specified in the Credit Agreement.
Capitalized terms used in this Note and not otherwise defined herein have the
respective meanings assigned to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
TERM LOANS NOTE - Page 1
<PAGE> 134
Each of Borrower and each surety, Guarantor, endorser and other party
ever liable for payment of any sums of money payable on this Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent
to accelerate, notice of intent to demand, diligence in collecting, grace and
all other formalities of any kind, and consent to all extensions without notice
for any period or periods of time and partial payments, before or after
maturity, and any impairment of any collateral securing this Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute part or all of
the collateral securing this Note, or to grant any other indulgences or
forbearances whatsoever, without notice to any other party and without in any
way affecting the personal liability of any party hereunder.
This Note, in part, is issued in amendment and restatement of, but not
in extinguishment of the indebtedness evidenced by, (a) that certain Revolving
Credit Loans Note, dated September 17, 1997, in the original principal amount
of $30,450,000 made by Borrower payable to the order of Wells Fargo Bank
(Texas), National Association and (b) that certain Revolving Credit Loans Note,
dated September 17, 1997, in the original principal amount of $30,450,000 made
by Borrower payable to the order of Bank One, Texas, N.A.
KITTY HAWK, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
TERM LOANS NOTE - Page 2
<PAGE> 135
EXHIBIT E
NOTICE OF BORROWING, CONVERSION, CONTINUATION OR PREPAYMENT
<PAGE> 136
NOTICE OF BORROWING, CONVERSION,
CONTINUATION OR PREPAYMENT
Date:_________, ____
Wells Fargo Bank (Texas), National Association, as Agent
1445 Ross Avenue, Suite 300
Dallas, Texas 75202
Attention: Mr. Drew Keith
Reference is made to that certain Second Amended and Restated Credit
Agreement, dated as of November 19, 1997 (as the same may be amended and in
effect from time to time, the "Credit Agreement"), among Kitty Hawk, Inc.
("Borrower"), Kitty Hawk Aircargo, Inc., Aircraft Leasing, Inc., Kitty Hawk
Charters, Inc., Skyfreighters Corporation, American International Airways,
Inc., American International Travel, Inc., Flight One Logistics, Inc., Kalitta
Flying Service, Inc., 0. K. Turbines, Inc., the lenders named therein
("Lenders") and Wells Fargo Bank (Texas), National Association, as agent for
Lenders (in such capacity, "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
Borrower hereby gives this Notice, irrevocably, pursuant to Section
2.9 of the Credit Agreement. Borrower hereby notifies you of the following
(check and/or complete the applicable item):(1)
_____ (a) New Loan.
(i) Borrower requests Revolving Credit Loans in the
amount of $ on __________, _____.
(ii) The Revolving Credit Loans will be of the following
Type: [Base Rate Loan] [Eurodollar Loan].
(iii) If the Revolving Credit Loans will be a Eurodollar
Loan, the Interest Period will be _____ months.
_____ (b) [Conversion] [Continuation] of Loan
(i) Revolving Credit Loans:
(A) Borrower requests a [Conversion]
[Continuation] of a Revolving Credit Loan in the amount of $
on __________, ______.
- -------------------------
(1) Borrower shall also be required to provide the additional information
(if any) required by the Credit Agreement.
NOTICE OF BORROWINGS, CONVERSIONS, CONTINUATIONS OR PREPAYMENTS - Page 1
<PAGE> 137
(B) The Type of Revolving Credit Loans to be
[Converted] [Continued] will be a [Base Rate Loan] [Eurodollar
Loan].
(C) The Revolving Credit Loans resulting from the
[Conversion] [Continuation] will be a [Base Rate Loan] [Eurodollar
Loan].
(D) If the Revolving Credit Loans resulting from the
[Conversion] [Continuation] will be a Eurodollar Loan, the
Interest Period for such Loan will be ______ month[s].
(ii) Term Loans:
(A) Borrower requests a [Conversion] [Continuation]
of the Term Loans in the amount of $ ____________ on
__________,___________.
(B) The Type of Term Loans to be [Converted]
[Continued] ill be a [Base Rate Loan] [Eurodollar Loan].
(C) The Term Loans resulting from the [Conversion]
[Continuation] will be a [Base Rate Loan] [Eurodollar Loan].
(D) If the Term Loans resulting from the [Conversion]
[Continuation] will be a Eurodollar Loan, the Interest Period for
such Loan will be _______ month[s].
_____ (c) Prepayment:
(i) Revolving Credit Loans:
(A) Borrower will make a prepayment of the principal
of the Revolving Credit Loans in the amount of $ on , .
(B) The Revolving Credit Loans to be prepaid will be
of the following Type: [Base Rate Loan] [Eurodollar Loan].
(C) If the Revolving Credit Loans to be prepaid is a
Eurodollar Loan, it has an Interest Period of _____ month[s] that
will end on __________, _____.
(ii) Term Loans:
(A) Borrower will make a prepayment of the
principal of the Term Loans in the amount of $ _____ on , .
(B) The Term Loans to be prepaid will be of the
following Type: [Base Rate Loan] [Eurodollar Loan].
NOTICE OF BORROWINGS, CONVERSIONS, CONTINUATIONS OR PREPAYMENTS - Page 2
<PAGE> 138
(C) If the Term Loans to be prepaid is a
Eurodollar Loan, it has an Interest Period of _____ month[s]
that will end on __________,_____.
KITTY HAWK, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
NOTICE OF BORROWINGS, CONVERSIONS, CONTINUATIONS OR PREPAYMENTS - Page 3
<PAGE> 139
EXHIBIT F
ARBITRATION PROGRAM
<PAGE> 140
ARBITRATION PROGRAM
(a) Binding Arbitration. Upon the demand of any party, whether made
before or after the institution of any judicial proceeding, any Dispute (as
defined below) shall be resolved by binding arbitration in accordance with the
terms of this Arbitration Program. A "Dispute" shall include any action,
dispute, claim or controversy of any kind (e.g., whether in contract or in
tort, statutory or common law, legal or equitable or otherwise) now existing or
hereafter arising between the parties in any way arising out of, pertaining to
or in connection with (1) any agreement, document or instrument to which this
Arbitration Program is attached or in which it is referred to or any related
agreements, documents or instruments (the "Documents"), (2) all past, present
or future loans, notes, instruments, drafts, credits, accounts, deposit
accounts, safe deposit boxes, safekeeping agreements, guarantees, letters of
credit, goods or services or other transactions, contracts or agreements of any
kind whatsoever, (3) any past, present or future incidents, omissions, acts,
errors, practices or occurrences causing injury to either party whereby the
other party or its agents, employees or representatives may be liable, in whole
or in part, or (4) any other aspect of the past, present or future
relationships of the parties including any agency, independent contractor or
employment relationship but excluding claims for workers' compensation and
unemployment benefits ("Relationship"). Any party to this Arbitration Program
may, by summary proceedings (e.g., a plea in abatement or motion to stay
further proceedings), bring any action in court to compel arbitration of any
Disputes. Any party who fails or refuses to submit to binding arbitration
following a lawful demand by the opposing party shall bear all costs and
expenses incurred by the opposing party in compelling arbitration of any
Dispute. The parties agree that by engaging in activities with or involving
each other as described above, they are participating in transactions involving
interstate commerce.
(b) Governing Rules. All Disputes between the parties submitted to
arbitration shall be resolved by binding arbitration administered by the
American Arbitration Association (the "AAA") in accordance with, and in the
following order of priority: (1) the terms of this Arbitration Program, (2) the
Commercial Arbitration Rules of the AAA, (3) the Federal Arbitration Act (Title
9 of the United States Code) and (4) to the extent the foregoing are
inapplicable, unenforceable or invalid, the laws of the State of Texas. The
validity and enforceability of this Arbitration Program shall be determined in
accordance with this same order of priority. In the event of any inconsistency
between this Arbitration Program and such rules and statutes, this Arbitration
Program shall control. Judgment upon any award rendered hereunder may be
entered in any court having jurisdiction; provided, however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C. Section 91 or Texas Banking
Code art. 342-609.
(c) No Waiver; Preservation of Remedies; Multiple Parties. No
provision of, nor the exercise of any rights under, this Arbitration Program
shall limit the right of any party, during any Dispute, to seek, use and employ
ancillary or preliminary remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing or proceeding under
forcible entry and detainer for possession of any real or personal property,
and any such action shall not be deemed an election of remedies. Such rights
shall include, without limitation, rights and remedies relating to (1)
foreclosing against any real or personal property collateral or other security
by the exercise of power of sale under a deed of trust, mortgage or other
security agreement or instrument, or applicable law, (2) exercising self-help
remedies (including setoff rights) or (3) obtaining provisional or ancillary
remedies such as injunctive relief, sequestration, attachment, garnishment or
the appointment of a
<PAGE> 141
receiver from a court having jurisdiction. Such rights can be exercised at any
time except to the extent such action is contrary to a final award or decision
in any arbitration proceeding. The institution and maintenance of an action for
judicial relief or pursuit of provisional or ancillary remedies or exercise of
self-help remedies shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the Dispute to arbitration, nor render
inapplicable the compulsory arbitration provisions hereof. In Disputes involving
indebtedness or other monetary obligations, each party agrees that the other
party may proceed against all liable persons, jointly or severally, or against
one or more of them, less than all, without impairing rights against other
liable persons. Nor shall a party be required to join the principal obligor or
any other liable persons (e.g., sureties or guarantors) in any proceeding
against a particular person. A party may release or settle with one or more
liable persons as the party deems fit without releasing or impairing rights to
proceed against any persons not so released.
(d) Statute of Limitations. All statutes of limitation applicable
to any Dispute shall apply to any proceeding in accordance with this
Arbitration Program.
(e) Arbitrator Powers and Qualifications; Award; Modification or
Vacation of Award. Arbitrators are empowered to resolve Disputes by summary
rulings substantially similar to summary judgments and motions to dismiss.
Arbitrators shall resolve all Disputes in accordance with the applicable
substantive law. Any arbitrator selected shall be required to be a practicing
attorney licensed to practice law in the State of Texas and shall be required
to be experienced and knowledgeable in the substantive laws applicable to the
subject matter of the Dispute. With respect to a Dispute in which the claims or
amounts in controversy do not exceed $1,000,000, a single arbitrator shall be
chosen and shall resolve the Dispute. In such case, the arbitrator shall be
required to make specific, written findings of fact, and shall have authority
to render an award up to but not to exceed $1,000,000, including all damages of
any kind whatsoever, including costs, fees and expenses. A Dispute involving
claims or amounts in controversy exceeding $1,000,000, shall be decided by a
majority vote of a panel of three arbitrators (an "Arbitration Panel"), the
determination of any two of the three arbitrators constituting the
determination of the Arbitration Panel, provided, however, that all three
Arbitrators on the Arbitration Panel must actively participate in all hearings
and deliberations. Arbitrators, including any Arbitration Panel, may grant any
remedy or relief deemed just and equitable and within the scope of this
Arbitration Program and may also grant such ancillary relief as is necessary to
make effective any award. Arbitration Panels shall be required to make
specific, written findings of fact and conclusions of law, and in such
proceedings before an Arbitration Panel only, the parties shall have the
additional right to seek vacation or modification of any award of an
Arbitration Panel that is based in whole, or in part, on an incorrect or
erroneous ruling of law by appeal to a Federal or State Court of Appeals,
following the entry of judgment on the award in Federal or State District
Court, as appropriate. For these purposes, the award and judgment entered by
the Federal or State District Court shall be considered to be the same as the
award and judgment of the Arbitration Panel. All requirements applicable to
appeals from any Federal or State District Court judgment shall be applicable
to appeals from judgments entered on decisions rendered by Arbitration Panels.
The Appellate Courts shall have the power and authority to vacate or modify an
award based upon a determination that there has been an incorrect or erroneous
ruling of law. The Appellate Court shall also have the power to reverse and/or
remand the decision of an Arbitration Panel. Subject to the foregoing, the
determination of an Arbitrator or
<PAGE> 142
Arbitration Panel shall be binding on all parties and shall not be subject to
further review or appeal except as otherwise allowed by applicable law.
(f) Other Matters and Miscellaneous. To the maximum extent
practicable, the AAA, the Arbitrator (or the Arbitration Panel, as appropriate)
and the parties shall take any action necessary to require that an arbitration
proceeding hereunder shall be concluded within 180 days of the filing of the
Dispute with the AAA. Arbitration proceedings hereunder shall be conducted at
one of the following locations in the State of Texas agreed to in writing by
the parties or, in the absence of such agreement, selected by the AAA: (1)
Austin; (2) Dallas; (3) Fort Worth; (4) Houston; or (5) San Antonio.
Arbitrators shall be empowered to impose sanctions and to take such other
actions as they deem necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the Texas Rules of Civil Procedure and
applicable law. With respect to any Dispute, each party agrees that all
discovery activities shall be expressly limited to matters directly relevant to
the Dispute and any Arbitrator, Arbitration Panel and the AAA shall be required
to fully enforce this requirement. This Arbitration Program constitutes the
entire agreement of the parties with respect to its subject matter and
supersedes all prior discussions, arrangements, negotiations and other
communications on dispute resolution. The provisions of this Arbitration
Program shall survive any termination, amendment or expiration of the Documents
or the Relationship, unless the parties otherwise expressly agree in writing.
To the extent permitted by applicable law, Arbitrators, including any
Arbitration Panel, shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees and arbitrators' fees) to the
prevailing party. This Arbitration Program may be amended, changed or modified
only by the express provisions of a writing which specifically refers to this
Arbitration Program and which is signed by all the parties hereto. If any term,
covenant, condition or provision of this Arbitration Program is found to be
unlawful, invalid or unenforceable, such illegality, or invalidity or
unenforceability shall not affect the legality, validity or enforceability of
the remaining parts of this Arbitration Program, and all such remaining parts
hereof shall be valid and enforceable and have full force and effect as if the
illegal, invalid or unenforceable part had not been included. The captions or
headings in this Arbitration Program are for convenience of reference only and
are not intended to constitute any part of the body or text of this Arbitration
Program. Each party agrees to keep all Disputes and arbitration proceedings
strictly confidential, except for disclosures of information required in the
ordinary course of business of the parties or by applicable law or regulation.
To the maximum extent permitted by law, this Arbitration Program modifies and
supersedes any and all prior agreements for arbitration between the parties.
<PAGE> 143
SCHEDULE 1.1(a)
AIA AIRCRAFT RELEASE AMOUNTS
<PAGE> 144
SCHEDULE 1.1(a)
AIA AIRCRAFT RELEASE AMOUNTS
<TABLE>
<CAPTION>
================================================================================
Appraised Initial AIA Aircraft Percentage
AIA Aircraft Value Release Amount Allocation
================================================================================
<S> <C> <C> <C> <C>
1. Aircraft O 719CK $ 4,100,000 $ 2,974,301 6.4800%
- --------------------------------------------------------------------------------
2. Aircraft P 255US $ 5,800,000 $ 4,207,548 9.1668%
- --------------------------------------------------------------------------------
3. Aircraft Q 856AA $ 4,800,000 $ 3,482,109 7.5863%
- --------------------------------------------------------------------------------
4. Aircraft R 858AA $ 4,644,000 $ 3,368,940 7.3397%
- --------------------------------------------------------------------------------
5. Aircraft S 6831 $ 3,800,000 $ 2,756,670 6.0058%
- --------------------------------------------------------------------------------
6. Aircraft T 6834 $ 3,700,000 $ 2,684,126 5.8478%
- --------------------------------------------------------------------------------
7. Aircraft U 6808 $ 3,300,000 $ 2,393,950 5.2156%
- --------------------------------------------------------------------------------
8. Aircraft V 6811 $ 4,000,000 $ 2,901,757 6.3219%
- --------------------------------------------------------------------------------
9. Aircraft W 6816 $ 3,600,000 $ 2,611,582 5.6897%
- --------------------------------------------------------------------------------
10. Aircraft X 1908 $ 1,828,000 $ 1,326,103 2.8891%
- --------------------------------------------------------------------------------
11. Aircraft Y 729CK $ 3,800,000 $ 2,756,670 6.0058%
- --------------------------------------------------------------------------------
12. Aircraft Z 727CK $ 2,400,000 $ 1,741,054 3.7931%
- --------------------------------------------------------------------------------
13. Aircraft AA 720CK $ 3,700,000 $ 2,684,126 5.8478%
- --------------------------------------------------------------------------------
14. Aircraft AB 722CK $ 5,400,000 $ 3,917,373 8.5346%
- --------------------------------------------------------------------------------
15. Aircraft AC 723CK $ 6,000,000 $ 4,352,636 9.4829%
- --------------------------------------------------------------------------------
16. Aircraft AD 706CA $ 2,400,000 $ 1,741,054 3.7931%
- --------------------------------------------------------------------------------
Total: $63,272,000 $45,900,000 100.0000%
================================================================================
</TABLE>
<PAGE> 145
SCHEDULE 1.1 (b)
APPROVED FOREIGN ACCOUNT DEBTORS
<PAGE> 146
Schedule 1.1(b)
Approved Foreign Account Debtors
None.
Schedule 1.1(b) - Approved Foreign Account Debtors Lone Page
<PAGE> 147
SCHEDULE 1.1(c)
EXISTING LIENS AND EXISTING DEBT
<PAGE> 148
SCHEDULE 1.1(c)
Section 9.1(e) Existing Debt
and Permitted Liens (f)
<TABLE>
<CAPTION>
Principal
Holder Description Balance Liens
------ ----------- ------- -----
<S> <C> <C> <C>
1. Iosco County EDC Business loan note $ 613,250 Security interest in
for renovation and airplane hangar sublease
expansion of airplane and furniture, fixtures
and equipment in
the hangar
2. GE Capital Equipment loan 2,680,198 Security interest in
ground handling
equipment
3. GE Capital Aircraft loan 428,024 Aircraft mortgage on
Lear N500JS aircraft
and engines
4. Michigan Nat'l Equipment loan 740,048 Security interest in
Bank ground handling
equipment
5. Concord Equipment loan 213,490 Security interest in
ground handling
equipment
6. Imperial Insurance premium 699,100 Policy claim
financing
7. First Source Aircraft loan 2,669,904 Aircraft mortgage on
DC-8 aircraft N801MG
and engines
8. First Source Aircraft loan 1,950,844 Aircraft mortgage on
DC-9 aircraft N112PS
----------- and engines
Total $9,994,858
</TABLE>
SCHEDULE 1.1(C) - EXISTING DEBT AND PERMITTED LIENS Lone Page
<PAGE> 149
SCHEDULE 2.14
EXISTING LETTERS OF CREDIT
<PAGE> 150
SCHEDULE 2.14
EXISTING LETTERS OF CREDIT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Letter of Face Account
Credit No. Amount Issuer Party Beneficiary Expires
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
285536 $ 500,000.00 Wells Fargo Aircargo Air Transport 12-1-97
International
- --------------------------------------------------------------------------------------
241386 $ 25,000.00 Wells Fargo Aircargo Exxon 2-15-98
- --------------------------------------------------------------------------------------
281229 $ 945,000.00 Wells Fargo Aircargo Atlas Air Inc. 1-7-98
- --------------------------------------------------------------------------------------
286204 $1,303,200.00 Wells Fargo Kitty Hawk Comerica Bank 11-17-98
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE> 151
SCHEDULE 6.1
DEBT TO BE PAID AT CLOSING
<PAGE> 152
SCHEDULE 6.1
Debt to be Paid at Closing
All existing debt of Kitty Hawk and its Subsidiaries will be paid at
closing except for current accounts payable and debt described in Section 9.1
(d), if any; the debt of Kitty Hawk and its Subsidiaries to Agent and Lenders
pursuant to the Loan Documents, under Section 9.1(a); the debt of Kitty Hawk and
its Subsidiaries evidenced by the Senior Notes, under Section 9.1(b); and the
existing debt described in Section 9.1(e) and identified in Schedule 1.1(c).
SCHEDULE 6.1 - DEBT TO BE PAID AT CLOSING Lone Page
<PAGE> 153
SCHEDULE 7.5
LITIGATION
<PAGE> 154
SCHEDULE 7.5
Litigation Reasonably Likely to Have
a Material Adverse Effect
None.
SCHEDULE 7.5 - LITIGATION REASONABLY LIKELY TO HAVE Lone Page
MATERIAL ADVERSE EFFECT
<PAGE> 155
SCHEDULE 7.9
DEBT
<PAGE> 156
SCHEDULE 7.9
Debt at Closing
Debt of Kitty Hawk and its Subsidiaries at closing, other than current
accounts payable, will be only that described in Subsections 9.1(a),(b),(d)
and (e).
SCHEDULE 7.9 - DEBT AT CLOSING Lone Page
<PAGE> 157
SCHEDULE 7.10
TAXES
<PAGE> 158
SCHEDULE 7.10
Taxes
None.
SCHEDULE 7.10 - TAXES Lone Page
<PAGE> 159
SCHEDULE 7.12
ERISA MATTERS
<PAGE> 160
SCHEDULE 7.12
ERISA Matters
Neither Kitty Hawk nor any of its Subsidiaries maintains or has any obligation
to contribute to any defined benefit pension plan.
SCHEDULE 7.12 - ERISA MATTERS Lone Page
<PAGE> 161
SCHEDULE 7.14
CAPITALIZATION
<PAGE> 162
SCHEDULE 7.14
Capitalization
On the Closing Date, the number and class of the authorized Capital Stock,
the par value per share, and the number of shares issued and outstanding of the
Capital Stock of Kitty Hawk's Subsidiaries, are:
Kitty Hawk Aircargo, Inc.:
1,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
Kitty Hawk Leasing, Inc.:
100,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
Kitty Hawk Charters, Inc.:
10,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
Skyfreighters Corporation:
1,000,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
American International Airways, Inc.:
50,000 shares of $1 par value common stock are authorized. 25,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
American International Travel, Inc.:
50,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
Flight One Logistics, Inc.:
50,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
Kalitta Flying Service, Inc.:
50,000 shares of $1 par value common stock are authorized. 25,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
O.K. Turbines, Inc.:
50,000 shares of $1 par value common stock are authorized. 1,000 shares are
issued and outstanding, all of which are held by Kitty Hawk, Inc.
SCHEDULE 7.14- CAPITALIZATION Lone Page
<PAGE> 163
SCHEDULE 7.21
MATERIAL CONTRACTS
<PAGE> 164
SCHEDULE 7.21
Material Contracts
The Material Contracts of Kitty Hawk and its Subsidiaries are listed as items
1.1, items 2.1 through 2.3, item 4.2, and items 10.1 through 10.25 in the Index
to Exhibits of Kitty Hawk's Form S-1 Registration Statement under the Securities
Act of 1933, as filed with the Securities and Exchange Commission in November
1997.
A copy of that Index is attached to and incorporated into this Schedule 7.21.
SCHEDULE 7.21 - MATERIAL CONTRACTS Lone Page
<PAGE> 165
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- ----
<S> <C>
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.
2.3*** - Amendment No. 2 to the Merger Agreement, dated October 29 1997, by
and among Kitty Hawk and certain of its subsidiaries, M. Tom
Christopher, AIA, AIT, FOL, KFS, OK and Conrad 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 - 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.
3.3 - Bylaws of Kitty Hawk, filed as an Exhibit to the Registrant's
previously filed Registration Statement on Form S-1 (Reg. No.
33-85698) dated as of October 1996, which exhibit is incorporated
herein by reference.
3.4 - Amendment No. 1 to Bylaws of Kitty Hawk, filed as an Exhibit to the
Registrant's previously filed Registration Statement on Form S-1 (Reg.
No. 33-85698) dated as of October 1996, 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.
</TABLE>
<PAGE> 166
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- ----
<S> <C>
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>
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------- ----
<S> <C>
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 (the "Credit Agreement"),
dated as of August 14, 1996, by and among the Company, Wells Fargo
Bank (Texas), National Association ("WFB") and Bank One, Texas, N.A.
("BOT"), 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* - Amended and Restated Consulting Agreement by and between Conrad A.
Kalitta and AIA.
10.23***- First Amendment to the Credit Agreement, dated September 17, 1997,
by and among the Company, WFB and BOT.
10.24* - License Agreement (the "License Agreement"), dated May 15, 1995, by
and between Roadway Global Air, Inc. ("RGA") and American
International Freight ("AIF"), a division of AIA.
10.25* - Amendment to License Agreement, dated August 14, 1997, by and
between RGA and AIR
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.
<PAGE> 168
SCHEDULE 7.24
EMPLOYEE MATTERS
<PAGE> 169
SCHEDULE 7.24
Employee Matters
American International Airways, Inc. ("AIA"), one of Kitty Hawk's Subsidiaries,
is subject to a collective bargaining agreement, dated July 20, 1995, with the
pilots, co-pilots and flight engineers employed by AIA, who are represented by
The International Brotherhood of Teamsters - Airline Division.
Neither Kitty Hawk nor any of its Subsidiaries is subject to any other
collective bargaining agreement, and there is no petition for certification or
union election pending with respect to any other employees of Kitty Hawk or its
Subsidiaries.
Neither Kitty Hawk nor any of its Subsidiaries is subject to an employment
contract with any executive officer or director except:
1. those employment agreements by Kitty Hawk with Tom Christopher,
Richard Wadsworth, and Tilmon J. Reeves that are listed as items 10.9,
10.10, and 10.11 in the Index to Exhibits (the "Index") of Kitty
Hawk's Form S-1 Registration Statement under the Securities Act of
1933, as filed with the Securities and Exchange Commission in November
1997, a copy of which is attached to and incorporated into Schedule
7.21;
2. the employment agreement by AIA with Conrad A. Kalitta that is listed
as item 10.21 in the Index;
3. certain severance and noncompetition agreements that may be effective
as of the Closing Date between AIA and David Ahles, William Gray,
Michael Hartley, M. Hutchinson, Douglas Kalitta, Michael Maraone, Jane
Phifer, R. Pickett, Vince Puccia and Donald Schilling, in accordance
with Section 7.3(a) of the Merger Agreement among Kitty Hawk, AIA and
others; and
4. certain consulting agreements described in Schedule 9.12.
SCHEDULE 7.24 - EMPLOYEE MATTERS Lone Page
<PAGE> 170
SCHEDULE 7.25
INSURANCE
<PAGE> 171
SCHEDULE 7.25
Insurance
Kitty Hawk and its Subsidiaries maintain the insurance coverage that is
reasonably required with prudent risk management to conduct their business. That
insurance is placed by The Aviation Agency, Inc., and is with coverage,
deductibles, limits and insurers consistent with prior practice by Kitty Hawk.
Aviation-related aircraft casualty and liability coverage complies with the
requirements of Section 8.5, as evidenced by a certificate of The Aviation
Agency, Inc. that has been supplied to the Agent in connection with closing
under this Agreement.
SCHEDULE 7.25 - INSURANCE Lone Page
<PAGE> 172
SCHEDULE 9.5
INVESTMENTS
<PAGE> 173
SCHEDULE 9.5
Investments
None.
SCHEDULE 9.5 - INVESTMENTS Lone Page
<PAGE> 174
SCHEDULE 9.12
CONSULTING FEES
<PAGE> 175
SCHEDULE 9.12
Consulting Fees
Consulting fees are payable by AIA under a written consulting agreement with
Conrad A. Kalitta, dated October 23, 1997, in connection with certain litigation
in the United States District Court for the Northern District of California
captioned American International Airways, Inc. v. GATX Capital Corporation, et
al, No. C-97-0378 WHO, under which among other things a significant portion of
any recovery might be paid to Mr. Kalitta;
Consulting fees are payable by Conrad A. Kalitta to Donald L. Schilling, George
W. Kelsey, Douglas A. Kalitta under written consulting agreements, each dated
October 23, 1997, for services to Mr. Kalitta in connection with the Merger
pursuant to the Merger Agreement. Neither Kitty Hawk nor any of its Subsidiaries
has any material obligations under any of those consulting agreements.
Various members of Kitty Hawk's board of directors from time to time provide and
will continue to provide professional services to Kitty Hawk and its
Subsidiaries, at regular professional fees for services rendered.
SCHEDULE 9.12 - CONSULTING FEES Lone Page
<PAGE> 1
EXHIBIT 10.25
ESCROW AND SECURITY AGREEMENT
This ESCROW AND SECURITY AGREEMENT (this "Escrow Agreement")
is made and entered into as of November 19, 1997 between KITTY HAWK, INC., a
Delaware corporation (the "Issuer") and BANK ONE, N.A., as Trustee and
Collateral Trustee (the "Trustee") for the holders (the "Holders") of the Notes
(as defined herein) issued by the Issuer under the Indenture referred to below.
All capitalized terms used herein which are not specifically defined shall have
the meanings assigned thereto in the Indenture.
W I T N E S S E T H
WHEREAS, pursuant to the Indenture (the "Indenture") dated as
of November 15, 1997, among the Issuer, each Subsidiary of the Issuer (other
than AIC), as a Guarantor (each, a "Guarantor") and the Trustee, the Issuer is
issuing $340,000,000 aggregate principal amount of 9.95% Senior Secured Notes
due November 15, 2004 (the "Notes");
WHEREAS, pursuant to the Indenture, the Issuer is required to
(i) purchase or cause the purchase of Pledged Securities (as defined herein) as
detailed on Schedule I hereto to provide for (a) the purchase of the two
Optioned Boeing 747s or other Eligible Aircraft and (b) the conversion of such
aircraft to freighter configuration and (ii) place such Pledged Securities (or
cause them to be placed) in an account held by the Trustee for the benefit of
Holders of the Notes; and
WHEREAS, to secure the obligations of the Issuer and the
Guarantors under the Notes (the "Obligations") and fund its commitment to
purchase the two Optioned Boeing 747s or other Eligible Aircraft and convert
such aircraft to freighter configuration, the Issuer has agreed to (i) pledge
to the Trustee for its benefit and the ratable benefit of the Holders of the
Notes, a security interest in the Pledged Securities, the Escrow Account and
certain related items, as specified herein and (ii) execute and deliver this
Escrow and Security Agreement (the "Escrow Agreement") in order to specify the
terms of such pledge which secures the payment and performance by the Issuer of
the Obligations and provide for the escrow of such Pledged Securities in
accordance with the terms hereof. Unless otherwise defined herein or in the
Indenture, terms used in Articles 8 or 9 of the Uniform Commercial Code ("UCC")
as in effect in the State of New York are used herein as therein defined.
<PAGE> 2
2
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained and contained in the Indenture, and in order to induce the Holders of
the Notes to purchase the Notes, the Issuer hereby agrees with the Trustee, for
the benefit of the Trustee and for the ratable benefit of the Holders of the
Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. The
Issuer hereby pledges to the Trustee for its benefit and for the ratable
benefit of the Holders of the Notes, and grants to the Trustee for its benefit
and for the ratable benefit of the Holders of the Notes, a continuing first
priority security interest in and to all of the Issuer's right, title and
interest in, to and under the following (hereinafter collectively referred to
as the "Collateral"), whether characterized as investment property, general
intangibles or otherwise: (a) the United States Treasury securities identified
in Annex 1 to Exhibit A to this Escrow Agreement (the "Pledged Securities"),
(b) any and all applicable security entitlements with respect to the Pledged
Securities, (c) the Bank One, N.A. account in the name of "Bank One, N.A., as
Trustee for the benefit of the holders of the 9.95% Senior Secured Notes due
2004 of Kitty Hawk, Inc. Escrow Account", Administrative Account No. 6802026999
(the "Escrow Account") established and maintained by the Trustee pursuant to
this Escrow Agreement, (d) any and all related securities accounts in which
security entitlements with respect to the Pledged Securities are held, and (e)
all proceeds of any and all of the foregoing Collateral (including, without
limitation, proceeds that constitute property of the types described in clauses
(a) - (d) of this Section 1) and, to the extent not otherwise included, all
cash. The Issuer in its discretion may from time to time in writing delivered
to the Trustee direct the Trustee to sell any Pledged Securities. Upon receipt
of net proceeds with respect to any sale of the Pledged Securities, the Issuer
shall be entitled to re-invest such net proceeds in any other U.S. Government
Obligations subject to the provisions hereof; provided that the Trustee and
Holders shall receive a continuing perfected first priority security interest
therein until the release of any of such Collateral or any portion thereof from
time to time pursuant to Section 4 hereof.
SECTION 2. Security for Obligation. This Escrow
Agreement and the pledge of Collateral hereunder secures, in conjunction with
the Collateral specified in the Indenture, the prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the Obligations.
SECTION 3. Delivery of Collateral; Escrow Account;
Interest. (a) The Pledged Securities shall be pledged and transferred to or
acquired by the Company or the Trustee in the name of the Trustee and the
Trustee shall become the holder of a security entitlement to the Pledged
Securities, through action by the Federal Reserve Bank of New York ("FRBNY") or
another securities intermediary, as confirmed (in writing or electronically or
otherwise in accordance with standard industry practice) to the Trustee by
FRBNY or such other securities intermediary (i) indicating by book- entry that
the Pledged Securities or a security entitlement
<PAGE> 3
3
thereto has been credited to the Trustee's account, or (ii) acquiring the
Pledged Securities or a security entitlement thereto for the Trustee and
accepting the same for credit to a securities account of the Trustee.
(b) Prior to or concurrently with the execution and delivery
hereof and prior to the transfer to or acquisition by the Company or the
Trustee of the Pledged Securities on behalf of the Holders (or acquisition by
the Trustee of any security entitlement thereto), as provided in subsection (a)
of this Section 3, the Trustee shall establish the Escrow Account on its books
as an account segregated from all other custodial or collateral accounts at its
office at 100 E. Broad Street, 8th Floor, Columbus, Ohio 43215. Upon transfer
to or the acquisition of the Pledged Securities by the Company or the Trustee
(or the Trustee's acquisition of a security entitlement thereto), as confirmed
by FRBNY or another securities intermediary, the Trustee shall make appropriate
book entries indicating that the Pledged Securities and/or such security
entitlement have been credited to and are held in the Escrow Account. Subject
to the other terms and conditions of this Escrow Agreement, all funds or other
property held by the Trustee pursuant to this Escrow Agreement shall be held in
the Escrow Account subject (except as expressly provided in Sections 4 hereof)
to the exclusive dominion and control of the Trustee and exclusively for the
benefit of the Trustee and for the ratable benefit of the Holders of the Notes
and segregated from all other funds or other property otherwise held by the
Trustee.
(c) All Collateral shall be retained in the Escrow Account pending
disbursement pursuant to the terms hereof.
(d) Concurrently with the execution and delivery of this Escrow
Agreement, the Trustee is delivering to the Issuer a duly executed certificate,
in the form of Exhibit A hereto, of an officer of the Trustee, confirming the
Trustee's establishment and maintenance of the Escrow Account and its receipt
and holding of the Pledged Securities or a security entitlement thereto and the
crediting of the Pledged Securities or such security entitlement to the Escrow
Account, all in accordance with this Escrow Agreement.
(e) Concurrently with the execution and delivery of this Escrow
Agreement, the Issuer is delivering to the Trustee copies of financing
statements, which have been submitted for filing on the Closing Date (as
defined in the Indenture) under the UCC of the States of Texas and New York,
covering the Collateral described in this Escrow Agreement.
SECTION 4. Disbursements. (a) Concurrent with or
immediately prior to the closing of the purchase of one or more Optioned Boeing
747s or other Eligible Aircraft, the Issuer may, pursuant to written
instructions given by the Issuer to the Trustee in the form attached hereto as
Exhibit B (an "Issuer Order") given from time to time, direct the Trustee to
release an amount from the Escrow Account for the purchase of such aircraft,
not to exceed the purchase price therefor or to be paid by and/or on behalf of
the Issuer or a subsidiary of Issuer. Upon receipt of an Issuer Order, the
Trustee shall sell Pledged Securities in an amount necessary
<PAGE> 4
4
to deliver funds to the Issuer in such amount and release to the Issuer or
Issuer's Designee such amount from the Escrow Account in accordance with the
Issuer Order.
(b) Subsequent to the closing of the purchase of one or more
Optioned Boeing 747s or other Eligible Aircraft or immediately prior thereto,
the Issuer may, from time to time, direct the Trustee in writing in the form
attached hereto as Exhibit C (an "Issuer Reconfiguration Order") to release an
amount from the Escrow Account sufficient to pay for any portion of the
conversion of such aircraft to freighter configuration. Upon receipt of the
Issuer Reconfiguration Order, the Trustee shall sell Pledged Securities in an
amount necessary to deliver funds to the Issuer in such amount and release to
the Issuer or Issuer's Designee the amount from the Escrow Account specified
therein as provided for therein.
(c) If the Issuer makes any payment or portion of a payment (other
than interest payments with respect to the Notes) for which the Collateral is
security from a source of funds other than the Escrow Account ("Issuer Funds"),
the Issuer may, after payment in full of such payment, direct the Trustee in
writing in the form attached hereto as Exhibit D (an "Other Release Order") to
release to the Issuer or to another party at the direction of the Issuer (the
"Issuer's Designee") from the Escrow Account in an amount less than or equal to
the amount of Issuer Funds applied to such payment. Upon receipt by the
Trustee of such Other Release Order, the Trustee shall sell Pledged Securities
in an amount necessary to deliver funds to the Issuer in such amount and pay
over to the Issuer or the Issuer's Designee, as the case may be, the requested
amount from the Escrow Account as soon as practicable.
(d) To the extent Pledged Securities are sold to distribute funds
or cash is otherwise distributed to the Company in accordance with the terms
hereof, the security interest in the Collateral evidenced by this Escrow
Agreement and held in the Escrow Account will automatically terminate and be of
no further force and effect and the Collateral shall promptly be paid over and
transferred to the Issuer, except to the extent of a sale of Pledged Securities
provided for in Section I hereof. Furthermore, upon the release of any
Collateral from the Escrow Account in accordance with the terms of this Escrow
Agreement, whether upon release of Collateral to Holders as payment of the
Obligations or otherwise, the security interest evidenced by this Escrow
Agreement in such released Collateral will automatically terminate and be of no
further force and effect and the Trustee shall execute and deliver to the
Issuer or file any and all documentation necessary or required to evidence
same.
(e) On the date that is 18 months after the Closing Date (the
"Valuation Date"), the chief financial officer of the Issuer shall in good
faith determine the value of the assets remaining in the Escrow Account, which
shall be evidenced by delivery of an Officers' Certificate to the Trustee. If
the value of such assets (as so determined) exceeds $5,000,000 the Issuer shall
make an Offer to Purchase Notes having a principal amount equal to such value
(as so determined). On the Business Day immediately prior to the expiration
date of such Offer to Purchase, the Trustee shall release all assets then held
in the Escrow Account to the Issuer, which assets, to the
<PAGE> 5
5
extent necessary, will be used to consummate such Offer to Purchase or, if not
needed for such purpose, may be used by the Issuer for general corporate
purposes. If the value of the assets in the Escrow Account on the Valuation
Date (as so determined) is equal to or less than $5,000,000, the Trustee will
promptly release all assets then held in the Escrow Account (whether cash,
proceeds from the sale of Pledged Securities or Pledged Securities) to the
Issuer and release and discharge any security interest in the Collateral. The
Issuer will be entitled to liquidate such assets and use such assets for
general corporate purposes. Any Offer to Purchase hereunder shall be
consummated in accordance with the terms of the Indenture and for all purposes
of the Indenture shall be treated identically to an Offer to Purchase for an
Asset Sale or upon the occurrence of a Change of Control Triggering Event.
(f) Nothing contained in this Escrow Agreement shall (i) afford
the Issuer any right to issue entitlement orders with respect to any security
entitlement to the Pledged Securities or any securities account in which any
such security entitlement may be carried, or otherwise afford the Issuer
control of any such security entitlement or (ii) otherwise give rise to any
rights of the Issuer with respect to the Pledged Securities, any security
entitlement thereto or any securities account in which any such security
entitlement may be carried, other than the Issuer's rights under this Escrow
Agreement as the beneficial owner of Collateral pledged to and subject to the
exclusive dominion and control (except as expressly provided in this Sections
4) of the Trustee in its capacity as such (and not as a securities
intermediary). The Issuer acknowledges, confirms and agrees that the Trustee
is an entitlement holder of the security entitlements to the Pledged Securities
solely as Trustee for the Holders of the Notes and not as a securities
intermediary.
SECTION 5. Representations and Warranties. The Issuer
hereby represents and warrants that:
(a) The execution and delivery by the Issuer of, and the
performance by the Issuer of its obligations under, this Escrow
Agreement will not contravene any provision of applicable law or the
Certificate of Incorporation of the Issuer or any material agreement
or other material instrument binding upon the Issuer or any of its
subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Issuer or any of
its subsidiaries, or result in the creation or imposition of any lien
on any assets of the Issuer, except for the security interests granted
under this Escrow Agreement; no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required (i) for the performance by the Issuer of its obligations
under this Escrow Agreement, (ii) for the pledge by the Issuer of the
Collateral pursuant to this Escrow Agreement or (iii) except for any
such consents, approvals, authorizations or orders required to be
obtained by the Trustee (or the Holders) for reasons other than the
consummation of this transaction, for the exercise by the Trustee of
the rights provided for in this Escrow Agreement or the remedies in
respect of the Collateral pursuant to this Escrow Agreement.
<PAGE> 6
6
(b) The Issuer is the beneficial owner of the Collateral,
free and clear of any Lien or claims of any person or entity (except
for the security interests granted under this Escrow Agreement). No
financing statement covering the Issuer's interest in the Pledged
Securities is on file in any public office, other than the financing
statements filed pursuant to this Escrow Agreement.
(c) This Escrow Agreement has been duly authorized,
validly executed and delivered by the Issuer and constitutes a valid
and binding agreement of the Issuer, enforceable against the Issuer in
accordance with its terms, except as (i) the enforceability hereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium or similar laws now or
hereafter in effect relating to or affecting creditors' rights or
remedies generally, (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability, (iii) the
exculpation provisions and rights to indemnification hereunder may be
limited by U.S. federal and state securities laws and public policy
considerations and (iv) the waiver of rights and defenses contained in
Section 11(b), Section 14.11 and Section 14.15 hereof may be limited
by applicable law.
(d) Upon the transfer to or acquisition by the Trustee of
the Pledged Securities and the acquisition by the Trustee of any
security entitlement relating thereto, in accordance with Section 3,
the pledge of and grant of a security interest in the Collateral
securing the payment of the Obligations for the benefit of the Trustee
and the Holders of the Notes will constitute a perfected security
interest in such Collateral with first priority against all creditors
of the Issuer (and any persons purporting to purchase any of the
Collateral from the Issuer).
(e) There are no legal or governmental proceedings
pending or, to the best of the Issuer's knowledge, threatened to which
the Issuer or any of its subsidiaries is a party or to which any of
the properties of the Issuer or any such subsidiary is subject that
would materially adversely affect the power or ability of the Issuer
to perform its obligations under this Escrow Agreement or to
consummate the transactions contemplated hereby.
(f) The pledge of the Collateral pursuant to this Escrow
Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Issuer.
(g) No Event of Default exists.
SECTION 6. Further Assurances. The Issuer will,
promptly upon request by the Trustee, execute and deliver or cause to be
executed and delivered, or use its reasonable best
<PAGE> 7
7
efforts to procure, all assignments, instruments and other documents, all in
form and substance reasonably satisfactory to the Trustee, deliver any
instruments to the Trustee and take any other actions that are necessary or, in
the reasonable opinion of the Trustee, desirable to perfect, continue the
perfection of, or protect the first priority of the Trustee's security interest
in and to the Collateral, to protect the Collateral against the rights, claims,
or interests of third persons (other than any such rights, claims or interests
created by or arising through the Trustee) or to effect the purposes of this
Escrow Agreement including those contemplated by the Final Offering Memorandum
dated November 14, 1997 relating to the Notes. The Issuer also hereby
authorizes the Trustee to file any financing or continuation statements in the
United States with respect to the Collateral without the signature of the
Issuer (to the extent permitted by applicable law). The Issuer will promptly
pay all reasonable costs incurred in connection with any of the foregoing
within 45 days of receipt of an invoice therefor. The Issuer also agrees,
whether or not requested by the Trustee, to take all actions that are necessary
to perfect or continue the perfection of, or to protect the first priority of,
the Trustee's security interest in and to the Collateral, including the filing
of all necessary financing and continuation statements, and to protect the
Collateral against the rights, claims or interests of third persons (other than
any such rights, claims or interests created by or arising through the
Trustee).
SECTION 7. Covenants. The Issuer covenants and agrees with
the Trustee and the Holders of the Notes that from and after the date of this
Escrow Agreement until the earlier of payment in full in cash of the
Obligations:
(a) that (i) it will not (and will not purport to) sell
or otherwise dispose of, or grant any option or warrant with respect
to, any of the Collateral or its beneficial interest therein, and (ii)
it will not create or permit to exist any Lien or other adverse
interest in or with respect to its beneficial interest in any of the
Collateral (except for the security interests granted under this
Escrow Agreement); and
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the trustee's right to sell or otherwise dispose of the
Collateral or (ii) fail to pay or discharge any tax, assessment or
levy of any nature with respect to its beneficial interest in the
Collateral not later than five days prior to the date of any proposed
sale under any judgment, writ or warrant of attachment with respect to
such beneficial interest.
SECTION 8. Power of Attorney. In addition to all of the
powers granted to the Trustee pursuant to the Indenture, the Issuer hereby
appoints and constitutes the Trustee as the Issuer's attorney-in-fact (with
full power of substitution) to exercise to the fullest extent permitted by law
all of the following powers upon and at any time after the occurrence and
during the continuance of an Event of Default: (a) collection of proceeds of
any Collateral; (b) conveyance of any item of Collateral to any purchaser
thereof; (c) giving of any notices or
<PAGE> 8
8
recording of any Liens under Section 6 hereof; and (d) paying or discharging
taxes or Liens levied or placed upon the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by the
Trustee in its sole reasonable discretion, and such payments made by the
Trustee to become part of the Obligations of the Issuer to the Trustee, due and
payable immediately upon demand. The Trustee's authority under this Section 8
shall include, without limitation, the authority to endorse and negotiate any
checks or instruments representing proceeds of Collateral in the name of the
Issuer, execute and give receipt for any certificate of ownership or any
document constituting Collateral, transfer title to any item of Collateral,
sign the Issuer's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, protect or perfect the security interest in the Collateral
and to file the same, prepare, file and sign the Issuer's name on any notice of
Lien, and to take any other actions arising from or incident to the powers
granted to the Trustee in this Escrow Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Issuer.
SECTION 9. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Trustee hereunder are being granted in order
to preserve and protect the security interest of the Trustee and the Holders of
the Notes in and to the Collateral granted hereby and shall not be interpreted
to, and shall not impose any duties on the Trustee in connection therewith
other than those expressly provided herein, in the Indenture or imposed under
applicable law. Except as provided by applicable law or by the Indenture, the
Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Trustee accords similar
property held by the Trustee for similar accounts, it being understood that the
Trustee in its capacity as such shall not have any responsibility for (a)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities or other matters relative to any Collateral, whether or not the
Trustee has or is deemed to have knowledge of such matters, (b) taking any
necessary steps to preserve rights against any parties with respect to any
Collateral or (c) investing or reinvesting any of the Collateral or any loss on
any investment. The Trustee may reasonably rely on the written instructions of
the Issuer without any further investigation on its part. Furthermore, the
Trustee assumes no responsibility for the validity of the Pledged Securities
nor the sufficiency of such Pledged Securities to cover the payment of the
Obligations.
SECTION 10. Indemnity. The Issuer shall indemnify, hold
harmless and defend the Trustee and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including reasonable defense costs, reasonable
investigative fees and costs, and reasonable legal fees and damages arising
from the Trustee's performance as Trustee under this Escrow Agreement, except
to the extent that such claim, action, obligation, liability or expense is
directly attributable to the bad faith, gross negligence or wilful misconduct
of such indemnified person.
<PAGE> 9
9
SECTION 11. Remedies Upon Event of Default. If any Event of
Default under the Indenture or default hereunder (any such Event of Default or
default being referred to in this Escrow Agreement as an "Event of Default")
shall have occurred and be continuing:
(a) The Trustee and the Holders of the Notes shall have,
in addition to all other rights given by law or by this Escrow
Agreement or the Indenture, all of the rights and remedies with
respect to the Collateral of a secured party under the UCC in effect
in the State of New York at that time. In addition, with respect to
any Collateral that shall then be in or shall thereafter come into the
possession or custody of the Trustee, the Trustee may sell or cause
the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price or prices as the
Trustee may deem best, for cash or on credit or for future delivery,
without assumption of any credit risk. The purchaser of any or all
Collateral so sold shall thereafter hold the same absolutely, free
from any claim, encumbrance or right of any kind whatsoever created by
or through the Issuer. Unless any of the Collateral threatens, in the
reasonable judgment of the Trustee, to decline speedily in value or is
or becomes of a type sold on a recognized market, the Trustee will
give the Issuer reasonable notice of the time and place of any public
sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any requirements of reasonable
notice shall be met if such notice is mailed to the Issuer as provided
in Section 14.1 hereof at least ten (10) days before the time of the
sale or disposition. The Trustee or any Holder of Notes may, in its
own name or in the name of a designee or nominee, buy any of the
Collateral at any public sale and, if permitted by applicable law, at
any private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the
enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Collateral.
(b) The Issuer further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Collateral pursuant to this Section 11 valid and binding and in
compliance with any and all other applicable requirements of law. The
Issuer further agrees that a breach of any of the covenants contained
in this Section 11 will cause irreparable injury to the Trustee and
the Holders of the Notes, that the Trustee and the Holders of the
Notes have no adequate remedy at law in respect of such breach and, as
a consequence, that each and every covenant contained in this Section
11 shall be specifically enforceable against the Issuer, and the
Issuer hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense
that no Event of Default has occurred.
SECTION 12. Expenses. Except as otherwise provided for
herein, the Issuer will upon demand pay to the Trustee the amount of any and
all reasonable expenses, including, without limitation, the reasonable fees,
expenses and disbursements of its counsel, experts and
<PAGE> 10
10
agents retained by the Trustee, that the Trustee may incur in connection with
(a) the review, negotiation and administration of this Escrow Agreement, (b)
the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (c) the exercise or enforcement of any
of the rights of the Trustee and the Holders of the Notes hereunder or (d) the
failure by the Issuer to perform or observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of the
Trustee and the Holders of the Notes and security interests hereunder, and all
obligations of the Issuer hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the
Indenture or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the
Indenture;
(c) any exchange, surrender, release or non-perfection of
any Liens on any other collateral for all or any of the Obligations;
or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, the Issuer in respect of the Obligations or of this
Escrow Agreement.
SECTION 14. Miscellaneous Provisions.
Section 14.1. Notices. Any notice or communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:
if to the Issuer:
Kitty Hawk, Inc.
P.O. Box 612787
1515 West 20th Street
DFW International Airport, TX 75261
Fax: (972) 456-2303
Attention: Richard R. Wadsworth
<PAGE> 11
11
with copy to:
Haynes and Boone, LLP
901 Main Street
Dallas, TX 75202
Fax: (214) 651-5940
Attention: Janice V. Sharry, Esq.
if to the Trustee:
Bank One, N.A.
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Fax: (614) 248-5195
Attention: Corporate Trust Department
Section 14.2. No Adverse Interpretation of Other Agreements.
This Escrow Agreement may not be used to interpret another pledge, security or
debt agreement of the Issuer. No such pledge, security or debt agreement
(other than the Indenture) may be used to interpret this Escrow Agreement.
Section 14.3. Severability. The provisions of this Escrow
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Escrow Agreement in any jurisdiction.
Section 14.4. Headings. The headings in this Escrow
Agreement have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 14.5. Counterpart Originals. This Escrow Agreement
may be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same
agreement.
Section 14.6. No Third Party Beneficiaries. Nothing in this
Escrow Agreement, express or implied, shall give the Holders of the Notes, any
Placement Agent with respect to the Notes or any person, other than the parties
hereto and their permitted successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Escrow Agreement.
<PAGE> 12
12
Section 14.7. Amendments, Waivers and Consents. Any
amendment or waiver of any provision of this Escrow Agreement and any consent
to any departure by the Issuer from any provision of this Escrow Agreement
shall be effective only if made or duly given in compliance with all of the
terms and provisions of the Indenture, and neither the Trustee nor any Holder
of Notes shall be deemed, by any act, delay, indulgence, omission or otherwise,
to have waived any right or remedy hereunder or to have acquiesced in any Event
of Default or in any breach of any of the terms and conditions hereof. Failure
of the Trustee or any Holder of Notes to exercise, or delay in exercising, any
right, power or privilege hereunder shall not preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Trustee or any Holder of Notes of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy that
the Trustee or such Holder of Notes would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
Section 14.8. Entireties; Interpretation of Agreement. The
Escrow Agreement and Indenture shall constitute the entire agreement of the
parties hereto with respect to the subject matter hereof; provided, that to the
extent a term or provision of this Escrow Agreement conflicts with the
Indenture, the Indenture shall control with respect to the subject matter of
such term or provision. Acceptance of or acquiescence in a course of
performance rendered under this Escrow Agreement shall not be relevant to
determine the meaning of this Escrow Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
Section 14.9. Continuing Security Interest; Termination. (a)
This Escrow Agreement shall create a continuing security interest in and to the
Collateral and shall, unless otherwise provided in this Escrow Agreement,
remain in full force and effect until the payment in full in cash of the
Obligations. This Escrow Agreement shall be binding upon the Issuer, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) This Escrow Agreement (other than Issuer's obligations under
Sections 10 and 12) shall terminate upon the earlier of (i) the payment in full
in cash of the Obligations, (ii) the release of all funds and provided for
herein in accordance with the terms hereof and (iii) on any date on which, as a
result of releases provided for in Section 4 hereof, less than $5.0 million is
held in the Escrow Account. At such time, the Trustee shall, pursuant to an
Issuer Order, reassign and redeliver to the Issuer all of the Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Trustee in accordance with the terms of this Escrow Agreement and the Indenture
and take all actions that are necessary to release the security interest
created by this Escrow Agreement in and to the Collateral, including the
execution and delivery of all termination statements necessary to terminate any
financing or continuation
<PAGE> 13
13
statements filed with respect to the Collateral. Such reassignment and
redelivery shall be without warranty by or recourse to the Trustee in its
capacity as such, except as to the absence of any Liens on the Collateral
created by or arising through the Trustee, and shall be at the reasonable
expense of the Issuer.
Section 14.10. Survival of Representations and Covenants.
All representations, warranties and covenants of the Issuer contained herein
shall survive the execution and delivery of this Escrow Agreement, and shall
terminate only upon the termination of this Escrow Agreement.
Section 14.11. Waivers. The Issuer waives presentment and
demand for payment of any of the Obligations, protest and notice of dishonor or
default with respect to the Obligations, and all other notices to which the
Issuer might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 14.12. Authority of the Trustee. (a) The Trustee
shall have and be entitled to exercise all powers hereunder that are
specifically granted to the Trustee by the terms hereof and the Indenture,
together with such powers as are reasonably incident thereto. The Trustee may
perform any of its duties hereunder or in connection with the Collateral
referenced herein by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning all
such matters. Except as otherwise expressly provided in this Escrow Agreement
or the Indenture, neither the Trustee nor any director, officer, employee,
attorney or agent of the Trustee shall be liable to the Issuer for any action
taken or omitted to be taken by the Trustee, in its capacity as Trustee,
hereunder, except for its own bad faith, gross negligence or willful
misconduct, and the Trustee shall not be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security furnished
pursuant hereto. The Trustee and its directors, officers, employees, attorneys
and agents shall be entitled to rely on any communication, instrument or
document believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons.
(b) The Issuer acknowledges that the rights and responsibilities
of the Trustee under this Escrow Agreement with respect to any action taken by
the Trustee or the exercise or non-exercise by the Trustee of any option,
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Escrow Agreement shall, as between the Trustee
and the Holders of the Notes, be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Trustee and the Issuer, the Trustee shall be conclusively
presumed to be acting as agent for the Holders of the Notes with full and valid
authority so to act or refrain from acting, and the Issuer shall not be
obligated or entitled to make any inquiry respecting such authority.
Section 14.13. Rights of Holders of the Notes. No Holder of
Notes shall have any independent rights hereunder other than those rights
granted to individual Holders of the
<PAGE> 14
14
Notes pursuant to the Indenture; provided that nothing in this subsection shall
limit any rights granted to the Trustee under the Notes or the Indenture.
SECTION 14.14. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (A) THIS ESCROW AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, EXCEPT
WITH RESPECT TO THE PERFECTION OF THE SECURITY INTEREST CREATED HEREBY WHICH
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS TO THE EXTENT APPLICABLE.
NOTWITHSTANDING THE FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R. PART 357,
61 FED. REG. 43626 (AUG. 23, 1996) SHALL BE GOVERNED SOLELY BY THE LAWS
SPECIFIED THEREIN.
(B) THE ISSUER AGREES THAT THE TRUSTEE SHALL, IN ITS
CAPACITY AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
ISSUER OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD
FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE ISSUER OR THE
COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH
COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE TRUSTEE. THE ISSUER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION
OF THE COURT IN THE COUNTY OF NEW YORK ONCE THE TRUSTEE HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(C) THE ISSUER AGREES THAT NEITHER ANY HOLDER OF NOTES
NOR (EXCEPT AS OTHERWISE PROVIDED IN THIS ESCROW AGREEMENT OR THE INDENTURE)
THE TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE ISSUER
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
ISSUER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS ESCROW
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE
TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH,
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(D) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
ISSUER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY
HOLDER OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO
ENFORCE ANY JUDGMENT OR OTHER COURT
<PAGE> 15
15
ORDER PERTAINING TO THIS ESCROW AGREEMENT, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT
INJUNCTION, THIS ESCROW AGREEMENT.
<PAGE> 16
IN WITNESS WHEREOF, the Issuer and the Trustee have each
caused this Escrow Agreement to be duly executed and delivered as of the date
first above written.
Issuer:
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
----------------------------------
Name:
Title:
Trustee:
BANK ONE, N.A.,
as Trustee
By: /s/ JON BEACHAM
----------------------------------
Name:
Title:
<PAGE> 17
EXHIBIT A
BANK ONE, N.A.
OFFICER'S CERTIFICATE
Pursuant to Section 3(d) of the Escrow and Security Agreement
(the "Escrow Agreement") dated as of November 19, 1997 between Kitty Hawk, Inc.
(the "Issuer") and Bank One, N.A. as Trustee (the "Trustee") for the holders of
the Issuer's 9.95% Senior Secured Notes due 2004, the undersigned officer of
the Trustee, on behalf of the Trustee, makes the following certifications to
the Issuer. Capitalized terms used and not defined in this Officer's
Certificate have the meanings set forth or referred to in the Escrow Agreement.
1. Substantially contemporaneously with the execution and
delivery of this Officer's Certificate, the Trustee has established a
securities account in the name of "Bank One, N.A., as Trustee for the benefit
of the holders of the 9.95% Senior Secured Notes due 2004 of Kitty Hawk, Inc.
Escrow Account", Administrative Account No. ___________ with respect to which
the Trustee is the entitlement holder and through which the Trustee has
acquired a security entitlement to the United States Treasury securities
identified in Annex 1 to this Officer's Certificate (the "Pledged Securities")
and has made appropriate book entries in its records establishing that the
Pledged Securities and the Trustee's securities entitlement thereto have been
credited to and are held in the Bank One, N.A. Administrative Account No.
__________ entitled "Bank One, N.A., as Trustee for the benefit of the holders
of the 9.95% Senior Secured Notes due 2004 of Kitty Hawk, Inc. Escrow Account"
(the "Escrow Account").
2. The Trustee has established and maintained and will
maintain the Escrow Account and all securities entitlements and other positions
carried in the Escrow Account solely in its capacity as Trustee and has not
asserted and will not assert any claim to or interest in the Escrow Account or
any such securities entitlements or other positions except in such capacity.
3. The Trustee has acquired its security entitlement to the
Pledged Securities for value and without notice to an officer of the Trustee of
any adverse claim thereto. Without limiting the generality of the foregoing,
the Pledged Securities are not and the Trustee's security entitlement to the
Pledged Securities is not, to the Trustee's knowledge, subject to any lien
granted by the Trustee in favor of any securities intermediary (including,
without limitation, the Federal Reserve Bank of New York) through which the
Trustee derives its security entitlement to the Pledged Securities.
4. The Trustee has not caused or permitted the Pledged
Securities or its security entitlement thereto to become subject to any Lien
created by or arising through the Trustee.
<PAGE> 18
2
IN WITNESS WHEREOF, the undersigned officer has executed this
Officer's Certificate on behalf of Bank One, N.A. as Trustee this 19th day of
November, 1997.
Bank One, N.A., as Trustee
By:
----------------------------------
Name:
Title:
- ---------------------------
<PAGE> 19
EXHIBIT B
Issue Order
[Date]
Bank One, N.A., as Trustee
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Attention: Corporate Trust Department
Kitty Hawk Escrow Release
Dear Sir or Madam:
Pursuant to Section 4(a) of the Escrow and Security Agreement
between Bank One, N.A. and Kitty Hawk, Inc. dated November 19, 1997 (the
"Escrow Agreement") you are hereby directed to release $_____________. You are
directed to transfer such funds to the account of ___________ [name of
recipient], account number _____________, at __________ [name of financial
institution]. You are directed to wire transfer such funds no later than
__________ [time] on _________ [date] upon telephone instructions of
_____________ [name of releasing individual]. Capitalized terms used herein
have the meanings ascribed thereto in the Escrow Agreement.
Kitty Hawk, Inc. certifies that such funds will be used to pay
the purchase price of or reimburse it for prior payment of the purchase price
of one or more of the Optioned Boeing 747s or other Eligible Aircraft.
Kitty Hawk, Inc.
By:
Title:
<PAGE> 20
EXHIBIT C
Issuer Reconfiguration Order
[Date]
Bank One, N.A., as Trustee
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Attention: Corporate Trust Department
Kitty Hawk Escrow Release
Dear Sir or Madam:
Pursuant to Section 4(b) of the Escrow and Security Agreement
between Bank One, N.A. and Kitty Hawk, Inc. dated November 19, 1997 (the
"Escrow Agreement") you are hereby directed to release $_____________. You are
directed to transfer such funds to the account of ___________ [name of
recipient], account number _____________, at __________ [name of financial
institution]. You are directed to wire transfer such funds no later than
__________ [time] on _________ [date] upon telephone instructions of
_____________ [name of releasing individual]. Capitalized terms used herein
have the meanings ascribed thereto in the Escrow Agreement.
Kitty Hawk, Inc. certifies that such funds will be used to pay
the price of or reimburse it for prior payment of the price of [a portion
of]/[all of] the reconfiguration of one or more Optioned Boeing 747s or other
Eligible Aircraft.
Kitty Hawk, Inc.
By:
Title:
<PAGE> 21
EXHIBIT D
Other Release Order
[Date]
Bank One, N.A., as Trustee
100 E. Broad Street, 8th Floor
Columbus, Ohio 43215
Attention: Corporate Trust Department
Kitty Hawk Escrow Release
Dear Sir or Madam:
Pursuant to Section 4(c) of the Escrow and Security Agreement
between Bank One, N.A. and Kitty Hawk, Inc. dated November 19, 1997 (the
"Escrow Agreement") you are hereby directed to release $_____________. You are
directed to transfer such funds to the account of ___________ [name of
recipient], account number _____________, at __________ [name of financial
institution]. You are directed to wire transfer such funds no later than
__________ [time] on _________ [date] upon telephone instructions of
_____________ [name of releasing individual]. Capitalized terms used herein
have the meanings ascribed thereto in the Escrow Agreement.
Kitty Hawk, Inc. certifies that it is entitled to such funds
as a result of a payment by it of a payment for which the Collateral is
security from Issuer Funds.
Kitty Hawk, Inc.
By:
Title:
<PAGE> 22
Schedule I
$42 million U.S. Treasury Bill maturing January 8, 1998
$14 million U.S. Treasury Bill maturing May 14, 1998
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Aircraft Leasing, Inc., a Texas corporation
American International Airways, Inc., a Michigan corporation
American International Travel, Inc., a Michigan corporation
Flight One Logistics, Inc., a Michigan corporation
Kalitta Flying Service, Inc., a Michigan corporation
Kitty Hawk Aircargo, Inc., a Texas corporation
Kitty Hawk Charters, Inc., a Texas corporation
O.K. Turbines, Inc., a Michigan corporation
<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-4 No. 333-43645) and related Prospectus of Kitty Hawk, Inc. for the
registration of $340,000,000 of its 9.95% Senior Secured Notes due 2004.
We also consent to the incorporation by reference therein of our report dated
October 31, 1996, with respect to the consolidated financial statements of
Kitty Hawk, Inc. included in its Annual Report (Form 10-K) for the year ended
August 31, 1996, and our report dated February 7, 1997, with respect to the
consolidated financial statements of Kitty Hawk, Inc. included in its
Transition Report (Form 10-K) and its Transition Report, as amended (Form
10-K/A) for the four months ended December 31, 1996, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Dallas, Texas
January 30, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-43645 of Kitty Hawk, Inc. on Form S-4 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, our report dated October 16, 1997
relating to the financial statement schedule of the Companies appearing
elsewhere in this Registration Statement and to our report relating to the
statements of certain assets sold of AIA dated September 29, 1997 appearing in
Amendment No. 1 to Form 8K of Kitty Hawk, Inc. dated November 6, 1997
incorporated herein by reference.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Ann Arbor, Michigan
February 3, 1998
<PAGE> 1
EXHIBIT 25.1
Registration No. 33-60067
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
BANK ONE, N.A. F/K/A BANK ONE, COLUMBUS, N.A.
Not Applicable 31-4148768
(State of Incorporation (I.R.S. Employer
if not a national bank) Identification No.)
100 East Broad Street, Columbus, Ohio 43271-0181
(Address of trustee's principal executive offices) (Zip Code)
Jon Beacham
c/o Bank One Trust Company, NA
100 East Broad Street
Columbus, Ohio 43271-0181
(614) 248-6229
(Name, address and telephone number of agent for service)
KITTY HAWK, INC.
(Exact name of obligor as specified in its charter)
Delaware 75-2564006
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 West 20th Street 75261
Dallas/Fort Worth International Airport, Texas (Zip Code)
(Address of principal executive
office)
9.95% SENIOR SECURED NOTES DUE 2004
(Title of the Indenture securities)
<PAGE> 2
GENERAL
1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Cleveland, Cleveland, Ohio
Federal Deposit Insurance Corporation, Washington, D.C.
The Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee.
16. LIST OF EXHIBITS
LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF
ELIGIBILITY AND QUALIFICATION. (EXHIBITS IDENTIFIED IN PARENTHESES, ON
FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS
EXHIBITS HERETO.)
Exhibit 1 - A copy of the Articles of Association of the trustee as now in
effect.
Exhibit 2 - A copy of the Certificate of Authority of the trustee to commence
business, see Exhibit 2 to Form T-1, filed in connection with Form S-3 relating
to Wheeling-Pittsburgh Corporation 9 3/8% Senior Notes due 2003, Securities and
Exchange Commission File No. 33-50709.
Exhibit 3 - A copy of the Authorization of the trustee to exercise corporate
trust powers, see Exhibit 3 to Form T-1, filed in connection with Form S-3
relating to Wheeling-Pittsburgh Corporation 9 3/8% Senior Notes due 2003,
Securities and Exchange Commission File No. 33-50709.
Exhibit 4 - A copy of the Bylaws of the trustee as now in effect.
<PAGE> 3
Exhibit 5 - Not applicable.
Exhibit 6 - The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939, as amended.
Exhibit 7 - Report of Condition of the trustee as of the close of business on
June 30, 1997, published pursuant to the requirements of the Comptroller of the
Company, see Exhibit 7 to Form T-1, filed in connection with Form S-4 relating
to National Energy Group, Inc.10 3/4% Senior Notes due 2006, Securities and
Exchange Commission File No. 333-38075.
Exhibit 8 - Not applicable.
Exhibit 9 - Not applicable.
Items 3 through 15 are not answered pursuant to General Instruction B which
requires responses to Item 1, 2 and 16 only, if the obligor is not in default.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, Bank One, NA, a national banking association organized
under the National Banking Act, has duly caused this statement of eligibility
and qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in Columbus, Ohio, on January 12, 1998.
Bank One, NA
By: /s/ Jon Beacham
----------------------------
Jon Beacham
Authorized Signer
<PAGE> 4
Exhibit 1
BANK ONE, COLUMBUS, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
For the purpose of organizing an association to carry on the business of
banking under the laws of the United States, the following Articles of
Association are entered into:
FIRST. The title of this Association shall be BANK ONE, COLUMBUS, NATIONAL
ASSOCIATION.
SECOND. The main office of the Association shall be in Columbus, County of
Franklin, State of Ohio. The general business of the Association shall be
conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five Directors, the exact number of
Directors within such minimum and maximum limits to be fixed and determined
from time-to-time by resolution of the shareholders at any annual or special
meeting thereof, provided, however, that the Board of Directors, by resolution
of a majority thereof, shall be authorized to increase the number of its
members by not more than two between regular meetings of the shareholders. Each
Director, during the full term of his directorship, shall own, as qualifying
shares, the minimum number of shares of either this Association or of its
parent bank holding company in accordance with the provisions of applicable
law. Unless otherwise provided by the laws of the United States, any vacancy in
the Board of Directors for any reason, including an increase in the number
thereof, may be filled by action of the Board of Directors.
-4-
<PAGE> 5
FOURTH. The annual meeting of the shareholders for the election of
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office of this Association or such other
place as the Board of Directors may designate, on the day of each year
specified therefor in the By-Laws, but if no election is held on that day, it
may be held on any subsequent business day according to the provisions of law;
and all elections shall be held according to such lawful regulations as may be
prescribed by the Board of Directors.
FIFTH. The authorized amount of capital stock of this Association shall
be 2,073,750 shares of common stock of the par value of Ten Dollars ($10) each;
but said capital stock may be increased or decreased from time-to-time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the
Association shall have the preemptive or preferential right of subscription to
any share of any class of stock of this Association, whether now or hereafter
authorized or to any obligations convertible into stock of this Association,
issued or sold, nor any right of subscription to any thereof other than such,
if any, as the Board of Directors, in its discretion, may from time-to-time
determine and at such price as the Board of Directors may from time-to-time
fix.
This Association, at any time and from time-to-time, may
authorize and issue debt obligations, whether or not subordinated, without the
approval of the shareholders.
SIXTH. The Board of Directors shall appoint one of its members President
of the Association, who shall be Chairman of the Board, unless the Board
appoints another director to be the Chairman. The Board of Directors shall have
the power to appoint one or more Vice Presidents and to appoint a Secretary and
such other officers and employees as may be required to transact the business
of this Association.
-5-
<PAGE> 6
The Board of Directors shall have the power to define the duties
of the officers and employees of this Association; to fix the salaries to be
paid to them; to dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any increase of the capital of
this Association shall be made; to manage and administer the business and
affairs of this Association; to make all By-Laws that it may be lawful for them
to make; and generally to do and perform all acts that it may be legal for a
Board of Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of the City of
Columbus, Ohio, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of this Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than 10 percent of the stock of
this Association, may call a special meeting of shareholders at any time.
Unless otherwise provided by the laws of the United States, a notice of the
time, place and purpose of every annual and special meeting of the shareholders
shall be given by first-class mail, postage prepaid, mailed at least ten days
prior to the date of such meeting to each shareholder of record at his address
as shown upon the books of this Association.
-6-
<PAGE> 7
TENTH. Every person who is or was a Director, officer or employee of the
Association or of any other corporation which he served as a Director, officer
or employee at the request of the Association as part of his regularly assigned
duties may be indemnified by the Association in accordance with the provisions
of this paragraph against all liability (including, without limitation,
judgments, fines, penalties and settlements) and all reasonable expenses
(including, without limitation, attorneys' fees and investigative expenses)
that may be incurred or paid by him in connection with any claim, action, suit
or proceeding, whether civil, criminal or administrative (all referred to
hereafter in this paragraphs as "Claims") or in connection with any appeal
relating thereto in which he may become involved as a party or otherwise or
with which he may be threatened by reason of his being or having been a
Director, officer or employee of the Association or such other corporation, or
by reason of any action taken or omitted by him in his capacity as such
Director, officer or employee, whether or not he continues to be such at the
time such liability or expenses are incurred, provided that nothing contained
in this paragraph shall be construed to permit indemnification of any such
person who is adjudged guilty of, or liable for, willful misconduct, gross
neglect of duty or criminal acts, unless, at the time such indemnification is
sought, such indemnification in such instance is permissible under applicable
law and regulations, including published rulings of the Comptroller of the
Currency or other appropriate supervisory or regulatory authority, and provided
further that there shall be no indemnification of directors, officers, or
employees against expenses, penalties, or other payments incurred in an
administrative proceeding or action instituted by an appropriate regulatory
agency which proceeding or action results in a final order assessing civil
money penalties or requiring affirmative action by an individual or individuals
in the form of payments to the Association. Every person who may be indemnified
under the provisions of this paragraph and who has been wholly successful on
the merits with respect to any Claim shall be entitled to indemnification as of
right. Except as provided in the preceding sentence, any indemnification under
this paragraph shall be at the sole discretion of the Board of Directors and
shall be made only if the Board of Directors or the Executive Committee acting
by a quorum consisting of
-7-
<PAGE> 8
Directors who are not parties to such Claim shall find or if independent legal
counsel (who may be the regular counsel of the Association) selected by the
Board of Directors or Executive Committee whether or not a disinterested quorum
exists shall render their opinion that in view of all of the circumstances then
surrounding the Claim, such indemnification is equitable and in the best
interests of the Association. Among the circumstances to be taken into
consideration in arriving at such a finding or opinion is the existence or
non-existence of a contract of insurance or indemnity under which the
Association would be wholly or partially reimbursed for such indemnification,
but the existence or non-existence of such insurance is not the sole
circumstance to be considered nor shall it be wholly determinative of whether
such indemnification shall be made. In addition to such finding or opinion, no
indemnification under this paragraph shall be made unless the Board of
Directors or the Executive Committee acting by a quorum consisting of Directors
who are not parties to such Claim shall find or if independent legal counsel
(who may be the regular counsel of the Association) selected by the Board of
Directors or Executive Committee whether or not a disinterested quorum exists
shall render their opinion that the Director, officer or employee acted in good
faith in what he reasonably believed to be the best interests of the
Association or such other corporation and further in the case of any criminal
action or proceeding, that the Director, officer or employee reasonably
believed his conduct to be lawful. Determination of any Claim by judgment
adverse to a Director, officer or employee by settlement with or without Court
approval or conviction upon a plea of guilty or of nolocontendere or its
equivalent shall not create a presumption that a Director, officer or employee
failed to meet the standards of conduct set forth in this paragraph. Expenses
incurred with respect to any Claim may be advanced by the Association prior to
the final disposition thereof upon receipt of an undertaking satisfactory to
the Association by or on behalf of the recipient to repay such amount unless it
is ultimately determined that he is entitled to indemnification under this
paragraph. The rights of indemnification provided in this paragraph shall be in
addition to any rights to which any Director, officer or employee may otherwise
be entitled by contract or as a matter of law.
-8-
<PAGE> 9
Every person who shall act as a Director, officer or employee of this
Association shall be conclusively presumed to be doing so in reliance upon the
right of indemnification provided for in this paragraph.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
-9-
<PAGE> 10
Exhibit 4
BY-LAWS
OF
BANK ONE, COLUMBUS, NATIONAL ASSOCIATION
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETING. The regular annual meeting of the Shareholders of
the Bank for the election of Directors and for the transaction of such business
as may properly come before the meeting shall be held at its main banking
house, or other convenient place duly authorized by the Board of Directors, on
the third Monday of January of each year, or on the next succeeding banking
day, if the day fixed falls on a legal holiday. If from any cause, an election
of directors is not made on the day fixed for the regular meeting of
shareholders or, in the event of a legal holiday, on the next succeeding
banking day, the Board of Directors shall order the election to be held on some
subsequent day, as soon thereafter as practicable, according to the provisions
of law; and notice thereof shall be given in the manner herein provided for the
annual meeting. Notice of such annual meeting shall be given by or under the
direction of the Secretary or such other officer as may be designated by the
Chief Executive Officer by first-class mail, postage prepaid, to all
shareholders of record of the Bank at their respective addresses as shown upon
the books of the Bank mailed not less than ten days prior to the date fixed for
such meeting.
SECTION 1.02. SPECIAL MEETINGS. A special meeting of the shareholders of this
Bank may be called at any time by the Board of Directors or by any three or
more shareholders owning, in the aggregate, not less than ten percent of the
stock of this Bank. The notice of any special meeting of the shareholders
called by the Board of Directors, stating the time, place and purpose of the
meeting, shall be given by or under the direction of the Secretary, or such
other officer as is designated by the Chief Executive Officer, by first-class
mail, postage prepaid, to all shareholders of
-10-
<PAGE> 11
record of the Bank at their respective addresses as shown upon the books of the
Bank, mailed not less than ten days prior to the date fixed for such meeting.
Any special meeting of shareholders shall be conducted and its
proceedings recorded in the manner prescribed in these By-Laws for annual
meetings of shareholders.
SECTION 1.03. SECRETARY OF SHAREHOLDERS' MEETING. The Board of Directors may
designate a person to be the Secretary of the meetings of shareholders. In the
absence of a presiding officer, as designated in these By-Laws, the Board of
Directors may designate a person to act as the presiding officer. In the event
the Board of Directors fails to designate a person to preside at a meeting of
shareholders and a Secretary of such meeting, the shareholders present or
represented shall elect a person to preside and a person to serve as Secretary
of the meeting.
The Secretary of the meetings of shareholders shall cause the returns
made by the judges and election and other proceedings to be recorded in the
minute book of the Bank. The presiding officer shall notify the directors-elect
of their election and to meet forthwith for the organization of the new board.
The minutes of the meeting shall be signed by the presiding officer and
the Secretary designated for the meeting.
SECTION 1.04. JUDGES OF ELECTION. The Board of Directors may appoint as many as
three shareholders to be judges of the election, who shall hold and conduct the
same, and who shall, after the election has been held, notify, in writing over
their signatures, the secretary of the shareholders' meeting of the result
thereof and the names of the Directors elected; provided, however, that upon
failure for any reason of any judge or judges of election, so appointed by the
directors, to serve, the presiding officer of the meeting shall appoint other
shareholders or their proxies to fill the vacancies. The judges of election at
the request of the chairman of the
-11-
<PAGE> 12
meeting, shall act as tellers of any other vote by ballot taken at such
meeting, and shall notify, in writing over their signatures, the secretary of
the Board of Directors of the result thereof.
SECTION 1.05. PROXIES. In all elections of Directors, each shareholder of
record, who is qualified to vote under the provisions of Federal Law, shall
have the right to vote the number of shares of record in his name for as many
persons as there are Directors to be elected, or to cumulate such shares as
provided by Federal Law. In deciding all other questions at meetings of
shareholders, each shareholder shall be entitled to one vote on each share of
stock of record in his name. Shareholders may vote by proxy duly authorized in
writing. All proxies used at the annual meeting shall be secured for that
meeting only, or any adjournment thereof, and shall be dated, and if not dated
by the shareholder, shall be dated as of the date of receipt thereof. No
officer or employee of this Bank may act as proxy.
SECTION 1.06. QUORUM. Holders of record of a majority of the shares of the
capital stock of the Bank, eligible to be voted, present either in person or by
proxy, shall constitute a quorum for the transaction of business at any meeting
of shareholders, but shareholders present at any meeting and constituting less
than a quorum may, without further notice, adjourn the meeting from time to
time until a quorum is obtained. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
-12-
<PAGE> 13
ARTICLE II
DIRECTORS
SECTION 2.01. MANAGEMENT OF THE BANK. The business of the Bank shall be managed
by the Board of Directors. Each director of the Bank shall be the beneficial
owner of a substantial number of shares of BANC ONE CORPORATION and shall be
employed either in the position of Chief Executive Officer or active leadership
within his or her business, professional or community interest which shall be
located within the geographic area in which the Bank operates, or as an
executive officer of the Bank. A director shall not be eligible for nomination
and re-election as a director of the Bank if such person's executive or
leadership position within his or her business, professional or community
interests which qualifies such person as a director of Bank terminates. The age
of 70 is the mandatory retirement age as a director of the Bank. When a
person's eligibility as director of the Bank terminates, whether because of
change in share ownership, position, residency or age, within 30 days after
such termination, such person shall submit his resignation as a director to be
effective at the pleasure of the Board provided, however, that in no event
shall such person be nominated or elected as a director. Provided, however,
following a person's retirement or resignation as a director because of the age
limitations herein set forth with respect to election or re-election as a
director, such person may, in special or unusual circumstances, and at the
discretion of the Board, be elected by the directors as a Director Emeritus of
the Bank for a limited period of time. A Director Emeritus shall have the right
to participate in board meetings but shall be without the power to vote and
shall be subject to re-election by the Board at its organizational meeting
following the Bank's annual meeting of shareholders.
SECTION 2.02. QUALIFICATIONS. Each director shall have the qualification
prescribed by law. No person elected a director may exercise any of the powers
of his office until he has taken the oath of such office.
-13-
<PAGE> 14
SECTION 2.03. TERM OF OFFICE/VACANCIES. A director shall hold office until the
annual meeting for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to his prior death,
resignation, or removal from office. Whenever any vacancy shall occur among the
directors, the remaining directors shall constitute the directors of the Bank
until such vacancy is filled by the remaining directors, and any director so
appointed shall hold office for the unexpired term of his or her successor.
Notwithstanding the foregoing, each director shall hold office and serve at the
pleasure of the Board.
SECTION 2.04. ORGANIZATION MEETING. The directors elected by the share- holders
shall meet for organization of the new board at the time fixed by the presiding
officer of the annual meeting. If at the time fixed for such meeting there is
no quorum present, the Directors in attendance may adjourn from time to time
until a quorum is obtained. A majority of the number of Directors elected by
the shareholders shall constitute a quorum for the transaction of business.
SECTION 2.05. REGULAR MEETINGS. The regular meetings of the Board of Directors
shall be held on the third Monday of each calendar month excluding March and
July, which meeting will be held at 4:00 p.m. When any regular meeting of the
Board falls on a holiday, the meeting shall be held on such other day as the
Board may previously designate or should the Board fail to so designate, on
such day as the Chairman of the Board of President may fix. Whenever a quorum
is not present, the directors in attendance shall adjourn the meeting to a time
not later than the date fixed by the Bylaws for the next succeeding regular
meeting of the Board.
SECTION 2.06. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held at the call of the Chairman of the Board or President, or at the
request of two or more Directors. Any special meeting may be held at such place
in Franklin County, Ohio, and at such time as may be fixed in the call. Written
or oral notice shall be given to each Director not later than the day next
preceding the day on which special meeting is to be held, which notice may be
waived in writing.
-14-
<PAGE> 15
The presence of a Director at any meeting of the Board shall be deemed a waiver
of notice thereof by him. Whenever a quorum is not present the Directors in
attendance shall adjourn the special meeting from day to day until a quorum is
obtained.
SECTION 2.07. QUORUM. A majority of the Directors shall constitute a quorum at
any meeting, except when otherwise provided by law; but a lesser number may
adjourn any meeting, from time-to-time, and the meeting may be held, as
adjourned, without further notice. When, however, less than a quorum as herein
defined, but at least one-third and not less than two of the authorized number
of Directors are present at a meeting of the Directors, business of the Bank
may be transacted and matters before the Board approved or disapproved by the
unanimous vote of the Directors present.
SECTION 2.08. COMPENSATION. Each member of the Board of Directors shall receive
such fees for, and transportation expenses incident to, attendance at Board and
Board Committee Meetings and such fees for service as a Director irrespective
of meeting attendance as from time to time are fixed by resolution of the
Board; provided, however, that payment hereunder shall not be made to a
Director for meetings attended and/or Board service which are not for the
Bank's sole benefit and which are concurrent and duplicative with meetings
attended or board service for an affiliate of the Bank for which the Director
receives payment; and provided further, that payment hereunder shall not be
made in the case of any Director in the regular employment of the Bank or of
one of its affiliates.
SECTION 2.09. EXECUTIVE COMMITTEE. There shall be a standing committee of the
Board of Directors known as the Executive Committee which shall possess and
exercise, when the Board is not in session, all powers of the Board that may
lawfully be delegated. The Executive Committee shall also exercise the powers
of the Board of Directors in accordance with the Provisions of the "Employees
Retirement Plan" and the "Agreement and Declaration of Trust" as the same now
-15-
<PAGE> 16
exist or may be amended hereafter. The Executive Committee shall consist of not
fewer than four board members, including the Chairman of the Board and
President of the Bank, one of whom, as hereinafter required by these By-laws,
shall be the Chief Executive Officer. The other members of the Committee shall
be appointed by the Chairman of the Board or by the President, with the
approval of the Board and shall continue as members of the Executive Committee
until their successors are appointed, provided, however, that any member of the
Executive Committee may be removed by the Board upon a majority vote thereof at
any regular or special meeting of the Board. The Chairman or President shall
fill any vacancy in the Committee by the appointment of another Director,
subject to the approval of the Board of Directors. The regular meetings of the
Executive Committee shall be held on a regular basis as scheduled by the Board
of Directors. Special meetings of the Executive Committee shall be held at the
call of the Chairman or President or any two members thereof at such time or
times as may be designated. In the event of the absence of any member or
members of the Committee, the presiding member may appoint a member or members
of the Board to fill the place or places of such absent member or members to
serve during such absence. Not fewer than three members of the Committee must
be present at any meeting of the Executive Committee to constitute a quorum,
provided, however that with regard to any matters on which the Executive
Committee shall vote, a majority of the Committee members present at the
meeting at which a vote is to be taken shall not be officers of the Bank and,
provided further, that if, at any meeting at which the Chairman of the Board
and President are both present, Committee members who are not officers are not
in the majority, then the Chairman of the Board or President, which ever of
such officers is not also the Chief Executive Officer, shall not be eligible to
vote at such meeting and shall not be recognized for purposes of determining if
a quorum is present at such meeting. When neither the Chairman of the Board nor
President are present, the Committee shall appoint a presiding officer. The
Executive Committee shall keep a record of its proceedings and report its
proceedings and the action taken by it to the Board of Directors.
-16-
<PAGE> 17
SECTION 2.10 COMMUNITY REINVESTMENT ACT AND COMPLIANCE POLICY COMMITTEE. There
shall be a standing committee of the Board of Directors known as the Community
Reinvestment Act and Compliance Policy Committee the duties of which shall be,
at least once in each calendar year, to review, develop and recommend policies
and programs related to the Bank's Community Reinvestment Act Compliance and
regulatory compliance with all existing statutes, rules and regulations
affecting the Bank under state and federal law. Such Committee shall provide
and promptly make a full report of such review of current Bank policies with
regard to Community Reinvestment Act and regulatory compliance in writing to
the Board, with recommendations, if any, which may be necessary to correct any
unsatisfactory conditions. Such Committee may, in its discretion, in fulfilling
its duties, utilize the Community Reinvestment Act officers of the Bank, Banc
One Ohio Corporation and Banc One Corporation and may engage outside Community
Reinvestment Act experts, as approved by the Board, to review, develop and
recommend policies and programs as herein required. The Community Reinvestment
Act and regulatory compliance policies and procedures established and the
recommendations made shall be consistent with, and shall supplement, the
Community Reinvestment Act and regulatory compliance programs, policies and
procedures of Banc One Corporation and Banc One Ohio Corporation. The Community
Reinvestment Act and Compliance Policy Committee shall consist of not fewer
than four board members, one of whom shall be the Chief Executive Officer and a
majority of whom are not officers of the Bank. Not fewer than three members of
the Committee, a majority of whom are not officers of the Bank, must be present
to constitute a quorum. The Chairman of the Board or President of the Bank,
whichever is not the Chief Executive Officer, shall be an ex officio member of
the Community Reinvestment Act and Compliance Policy Committee. The Community
Reinvestment Act and Compliance Policy Committee, whose chairman shall be
appointed by the Board, shall keep a record of its proceedings and report its
proceedings and the action taken by it to the Board of Directors.
-17-
<PAGE> 18
SECTION 2.11. TRUST COMMITTEES. There shall be two standing Committees known as
the Trust Management Committee and the Trust Examination Committee appointed as
hereinafter provided.
SECTION 2.12. OTHER COMMITTEES. The Board of Directors may appoint such special
committees from time to time as are in its judgment necessary in the interest
of the Bank.
-18-
<PAGE> 19
ARTICLE III
OFFICERS, MANAGEMENT STAFF AND EMPLOYEES
SECTION 3.01. OFFICERS AND MANAGEMENT STAFF.
(a) The officers of the Bank shall include a President, Secretary and
Security Officer and may include a Chairman of the Board, one or
more Vice Chairmen, one or more Vice Presidents (which may
include one or more Executive Vice Presidents and/or Senior Vice
Presidents) and one or more Assistant Secretaries, all of whom
shall be elected by the Board. All other officers may be elected
by the Board or appointed in writing by the Chief Executive
Officer. The salaries of all officers elected by the Board shall
be fixed by the Board. The Board from time-to-time shall
designate the President or Chairman of the Board to serve as the
Bank's Chief Executive Officer.
(b) The Chairman of the Board, if any, and the President shall be
elected by the Board from their own number. The President and
Chairman of the Board shall be re-elected by the Board annually
at the organizational meeting of the Board of Directors following
the Annual Meeting of Shareholders. Such officers as the Board
shall elect from their own number shall hold office from the date
of their election as officers until the organization meeting of
the Board of Directors following the next Annual Meeting of
Shareholders, provided, however, that such officers may be
relieved of their duties at any time by action of the Board in
which event all the powers incident to their office shall
immediately terminate.
(c) Except as provided in the case of the elected officers who are
members of the Board, all officers, whether elected or appointed,
shall hold office at the pleasure of the Board. Except as
otherwise limited by law or these By-laws, the Board assigns to
Chief Executive Officer and/or his
-19-
<PAGE> 20
designees the authority to appoint and dismiss any elected or
appointed officer or other member of the Bank's management staff
and other employees of the Bank, as the person in charge of and
responsible for any branch office, department, section,
operation, function, assignment or duty in the Bank.
(d) The management staff of the Bank shall include officers elected
by the Board, officers appointed by the Chief Executive Officer,
and such other persons in the employment of the Bank who,
pursuant to written appointment and authorization by a duly
authorized officer of the Bank, perform management functions and
have management responsibilities. Any two or more offices may be
held by the same person except that no person shall hold the
office of Chairman of the Board and/or President and at the same
time also hold the office of Secretary.
(e) The Chief Executive Officer of the Bank and any other officer of
the Bank, to the extent that such officer is authorized in
writing by the Chief Executive Officer, may appoint persons other
than officers who are in the employment of the Bank to serve in
management positions and in connection therewith, the appointing
officer may assign such title, salary, responsibilities and
functions as are deemed appropriate by him, provided, however,
that nothing contained herein shall be construed as placing any
limitation on the authority of the Chief Executive Officer as
provided in this and other sections of these By-Laws.
SECTION 3.02. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Bank
shall have general and active management of the business of the Bank and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. Except as otherwise prescribed or limited by these By-Laws, the Chief
Executive Officer shall have full right, authority and power to control all
personnel, including elected and appointed officers, of the Bank, to employ or
direct the
-20-
<PAGE> 21
employment of such personnel and officers as he may deem necessary, including
the fixing of salaries and the dismissal of them at pleasure, and to define and
prescribe the duties and responsibility of all Officers of the Bank, subject to
such further limitations and directions as he may from time-to-time deem
proper. The Chief Executive Officer shall perform all duties incident to his
office and such other and further duties, as may, from time-to-time, be
required of him by the Board of Directors or the shareholders. The
specification of authority in these By-Laws wherever and to whomever granted
shall not be construed to limit in any manner the general powers of delegation
granted to the Chief Executive Officer in conducting the business of the Bank.
The Chief Executive Officer or, in his absence, the Chairman of the Board or
President of the Bank, as designated by the Chief Executive Officer, shall
preside at all meetings of shareholders and meetings of the Board. In the
absence of the Chief Executive Officer, such officer as is designated by the
Chief Executive Officer shall be vested with all the powers and perform all the
duties of the Chief Executive Officer as defined by these By-Laws. When
designating an officer to serve in his absence, the Chief Executive Officer
shall select an officer who is a member of the Board of Directors whenever such
officer is available.
SECTION 3.03. POWERS OF OFFICERS AND MANAGEMENT STAFF. The Chief Executive
Officer, the Chairman of the Board, the President, and those officers so
designated and authorized by the Chief Executive Officer are authorized for an
on behalf of the Bank, and to the extent permitted by law, to make loans and
discounts; to purchase or acquire drafts, notes, stock, bonds, and other
securities for investment of funds held by the Bank; to execute and purchase
acceptances; to appoint, empower and direct all necessary agents and attorneys;
to sign and give any notice required to be given; to demand payment and/or to
declare due for any default any debt or obligation due or payable to the Bank
upon demand or authorized to be declared due; to foreclose any mortgages, to
exercise any option, privilege or election to forfeit, terminate, extend or
renew any lease; to authorize and direct any proceedings for the collection of
any money or for the enforcement
-21-
<PAGE> 22
of any right or obligation; to adjust, settle and compromise all claims of
every kind and description in favor of or against the Bank, and to give
receipts, releases and discharges therefor; to borrow money and in connection
therewith to make, execute and deliver notes, bonds or other evidences of
indebtedness; to pledge or hypothecate any securities or any stocks, bonds,
notes or any property real or personal held or owned by the Bank, or to
rediscount any notes or other obligations held or owned by the Bank, to employ
or direct the employment of all personnel, including elected and appointed
officers, and the dismissal of them at pleasure, and in furtherance of and in
addition to the powers hereinabove set forth to do all such acts and to take
all such proceedings as in his judgment are necessary and incidental to the
operation of the Bank.
Other persons in the employment of the Bank, including but not limited to
officers and other members of the management staff, may be authorized by the
Chief Executive Officer, or by an officer so designated and authorized by the
chief Executive Officer, to perform the powers set forth above, subject,
however, to such limitations and conditions as are set forth in the
authorization given to such persons.
SECTION 3.04. SECRETARY. The Secretary or such other officers as may be
designated by the Chief Executive Officer shall have supervision and control of
the records of the Bank and, subject to the direction of the Chief Executive
Officer, shall undertake other duties and functions usually performed by a
corporate secretary. Other officers may be designated by the Chief Executive
Officer or the Board of Directors as Assistant Secretary to perform the duties
of the Secretary.
SECTION 3.05. EXECUTION OF DOCUMENTS. The Chief Executive Officer, Chairman of
the Board, President, any officer being a member of the Bank's management staff
who is also a person in charge of and responsible for any department within the
Bank and any other officer to the extent such officer is so designated and
authorized by the Chief Executive Officer, the Chairman of the Board, the
President, or any other officer who is a member of the Bank's management staff
who is in charge of and responsible for any department within
-22-
<PAGE> 23
the Bank, are hereby authorized on behalf of the Bank to sell, assign, lease,
mortgage, transfer, deliver and convey any real or personal property now or
hereafter owned by or standing in the name of the Bank or its nominee, or held
by this Bank as collateral security, and to execute and deliver such deeds,
contracts, leases, assignments, bills of sale, transfers or other papers or
documents as may be appropriate in the circumstances; to execute any loan
agreement, security agreement, commitment letters and financing statements and
other documents on behalf of the Bank as a lender; to execute purchase orders,
documents and agreements entered into by the Bank in the ordinary course of
business, relating to purchase, sale, exchange or lease of services, tangible
personal property, materials and equipment for the use of the Bank; to execute
powers of attorney to perform specific or general functions in the name of or
on behalf of the Bank; to execute promissory notes or other instruments
evidencing debt of the Bank; to execute instruments pledging or releasing
securities for public funds, documents submitting public fund bids on behalf of
the Bank and public fund contracts; to purchase and acquire any real or
personal property including loan portfolios and to execute and deliver such
agreements, contracts or other papers or documents as may be appropriate in the
circumstances; to execute any indemnity and fidelity bonds, proxies or other
papers or documents of like or different character necessary, desirable or
incidental to the conduct of its banking business; to execute and deliver
settlement agreements or other papers or documents as may be appropriate in
connection with a dismissal authorized by Section 3.01(c) of these By-laws; to
execute agreements, instruments, documents, contracts or other papers of like
or difference character necessary, desirable or incidental to the conduct of
its banking business; and to execute and deliver partial releases from and
discharges or assignments of mortgages, financing statements and assignments or
surrender of insurance policies, now or hereafter held by this Bank.
The Chief Executive Officer, Chairman of the Board, President, any
officer being a member of the Bank's management staff who is also a person in
charge of and responsible for any department within the Bank, and any other
officer of the Bank so designated and authorized by the Chief Executive
Officer, Chairman of the
-23-
<PAGE> 24
Board, President or any officer who is a member of the Bank's management staff
who is in charge of and responsible for any department within the Bank are
authorized for and on behalf of the Bank to sign and issue checks, drafts, and
certificates of deposit; to sign and endorse bills of exchange, to sign and
countersign foreign and domestic letters of credit, to receive and receipt for
payments of principal, interest, dividends, rents, fees and payments of every
kind and description paid to the Bank, to sign receipts for property acquired
by or entrusted to the Bank, to guarantee the genuineness of signatures on
assignments of stocks, bonds or other securities, to sign certifications of
checks, to endorse and deliver checks, drafts, warrants, bills, notes,
certificates of deposit and acceptances in all business transactions of the
Bank.
Other persons in the employment of the Bank and of its subsidiaries,
including but not limited to officers and other members of the management
staff, may be authorized by the Chief Executive Officer, Chairman of the Board,
President or by an officer so designated by the Chief Executive Officer,
Chairman of the Board, or President to perform the acts and to execute the
documents set forth above, subject, however, to such limitations and conditions
as are contained in the authorization given to such person.
SECTION 3.06. PERFORMANCE BOND. All officers and employees of the Bank shall be
bonded for the honest and faithful performance of their duties for such amount
as may be prescribed by the Board of Directors.
-24-
<PAGE> 25
ARTICLE IV
TRUST DEPARTMENT
SECTION 4.01. TRUST DEPARTMENT. Pursuant to the fiduciary powers granted to
this Bank under the provisions of Federal Law and Regulations of the
Comptroller of the Currency, there shall be maintained a separate Trust
Department of the Bank, which shall be operated in the manner specified herein.
SECTION 4.02. TRUST MANAGEMENT COMMITTEE. There shall be a standing Committee
known as the Trust Management Committee, consisting of at least five members, a
majority of whom shall not be officers of the Bank. The Committee shall consist
of the Chairman of the Board who shall be Chairman of the Com- mittee, the
President, and at least three other Directors appointed by the Board of
Directors and who shall continue as members of the Committee until their
successors are appointed. Any vacancy in the Trust Management Committee may be
filled by the Board at any regular or special meeting. In the event of the
absence of any member or members, such Committee may, in its discretion,
appoint members of the Board to fill the place of such absent members to serve
during such absence. Three members of the Committee shall constitute a quorum.
Any member of the Committee may be removed by the Board by a majority vote at
any regular or special meeting of the Board. The Committee shall meet at such
times as it may determine or at the call of the Chairman, or President or any
two members thereof.
The Trust Management Committee, under the general direction of the Board
of Directors, shall supervise the policy of the Trust Department which shall be
formulated and executed in accordance with Law, Regulations of the Comptroller
of the Currency, and sound fiduciary principles.
-25-
<PAGE> 26
SECTION 4.03. TRUST EXAMINATION COMMITTEE. There shall be a standing Commit-
tee known as the Trust Examination Committee, consisting of three directors
appointed by the Board of Directors and who shall continue as members of the
committee until their successors are appointed. Such members shall not be
active officers of the Bank. Two members of the Committee shall constitute a
quorum. Any member of the Committee may be removed by the Board by a majority
vote at any regular or special meeting of the Board. The Committee shall meet
at such times as it may determine or at the call of two members thereof.
This Committee shall, at least once during each calendar year and within
fifteen months of the last such audit, or at such other time(s) as may be
required by Regulations of the Comptroller of the Currency, make suitable
audits of the Trust Department or cause suitable audits to be made by auditors
responsible only to the Board of Directors, and at such time shall ascertain
whether the Department has been administered in accordance with Law, Regula-
tions of the Comptroller of the Currency and sound fiduciary principles.
The Committee shall promptly make a full report of such audits in writing
to the Board of Directors of the Bank, together with a recommendation as to
what action, if any, may be necessary to correct any unsatisfactory condition.
A report of the audits together with the action taken thereon shall be noted in
the Minutes of the Board of Directors and such report shall be a part of the
records of this Bank.
SECTION 4.04. MANAGEMENT. The Trust Department shall be under the management
and supervision of an officer of the Bank or of the trust affiliate of the Bank
designated by and subject to the advice and direction of the Chief Executive
Officer. Such officer having supervisory responsibility over the Trust
Department shall do or cause to be done all things necessary or proper in
carrying on the business of the Trust Department in accordance with provi-
sions of law and applicable regulations.
-26-
<PAGE> 27
SECTION 4.05. HOLDING OF PROPERTY. Property held by the Trust Department may be
carried in the name of the Bank in its fiduciary capacity, in the name of Bank,
or in the name of a nominee or nominees.
SECTION 4.06. TRUST INVESTMENTS. Funds held by the Bank in a fiduciary capacity
awaiting investment or distribution shall not be held uninvested or
undistributed any longer than is reasonable for the proper management of the
account and shall be invested in accordance with the instrument establishing a
fiduciary relationship and local law. Where such instrument does not specify
the character or class of investments to be made and does not vest in the Bank
any discretion in the matter, funds held pursuant to such instrument shall be
invested in any investment which corporate fiduciaries may invest under local
law.
The investments of each account in the Trust Department shall be kept
separate from the assets of the Bank, and shall be placed in the joint custody
or control of not less than two of the officers or employees of the Bank or of
the trust affiliate of the Bank designated for the purpose by the Trust
Management Committee.
SECTION 4.07. EXECUTION OF DOCUMENTS. The Chief Executive Officer, Chairman of
the Board, President, any officer of the Trust Department, and such other
officers of the trust affiliate of the Bank as are specifically designated and
authorized by the Chief Executive Officer, the President, or the officer in
charge of the Trust Department, are hereby authorized, on behalf of this Bank,
to sell, assign, lease, mortgage, transfer, deliver and convey any real
property or personal property and to purchase and acquire any real or personal
property and to execute and deliver such agreements, contracts, or other papers
and documents as may be appropriate in the circumstances for property now or
hereafter owned by or standing in the name of this Bank, or its nominee, in any
fiduciary capacity, or in the name of any principal for whom this Bank may now
or hereafter be acting under a power of attorney, or as agent and to execute
and deliver partial releases from
-27-
<PAGE> 28
any discharges or assignments or mortgages and assignments or surrender of
insurance policies, to execute and deliver deeds, contracts, leases,
assignments, bills of sale, transfers or such other papers or documents as may
be appropriate in the circumstances for property now or hereafter held by this
Bank in any fiduciary capacity or owned by any principal for whom this Bank may
now or hereafter be acting under a power of attorney or as agent; to execute
and deliver settlement agreements or other papers or documents as may be
appropriate in connection with a dismissal authorized by Section 3.01(c) of
these By-laws; provided that the signature of any such person shall be attested
in each case by any officer of the Trust Department or by any other person who
is specifically authorized by the Chief Executive Officer, the President or the
officer in charge of the Trust Department.
The Chief Executive Officer, Chairman of the Board, President, any
officer of the Trust Department and such other officers of the trust affiliate
of the Bank as are specifically designated and authorized by the Chief
Executive Officer, the President, or the officer in charge of the Trust
Department, or any other person or corporation as is specifically authorized by
the Chief Executive Officer, the President or the officer in charge of the
Trust Department, are hereby authorized on behalf of this Bank, to sign any and
all pleadings and papers in probate and other court proceedings, to execute any
indemnity and fidelity bonds, trust agreements, proxies or other papers or
documents of like or different character necessary, desirable or incidental to
the appointment of the Bank in any fiduciary capacity and the conduct of its
business in any fiduciary capacity; also to foreclose any mortgage, to execute
and deliver receipts for payments of principal, interest, dividends, rents,
fees and payments of every kind and description paid to the Bank; to sign
receipts for property acquired or entrusted to the Bank; also to sign stock or
bond certificates on behalf of this Bank in any fiduciary capacity and on
behalf of this Bank as transfer agent or registrar; to guarantee the
genuineness of signatures on assignments of stocks, bonds or other securities,
and to authenticate bonds, debentures, land or lease trust certificates or
other forms of security issued pursuant to any indenture under which this Bank
now or hereafter is acting as
-28-
<PAGE> 29
Trustee. Any such person, as well as such other persons as are specifically
authorized by the Chief Executive Officer or the officer in charge of the Trust
Department, may sign checks, drafts and orders for the payment of money
executed by the Trust Department in the course of its business.
SECTION 4.08. VOTING OF STOCK. The Chairman of the Board, President, any
officer of the Trust Department, any officer of the trust affiliate of the Bank
and such other persons as may be specifically authorized by Resolution of the
Trust Management Committee or the Board of Directors, may vote shares of stock
of a corporation of record on the books of the issuing company in the name of
the Bank or in the name of the Bank as fiduciary, or may grant proxies for the
voting of such stock of the granting if same is permitted by the instrument
under which the Bank is acting in a fiduciary capacity, or by the law
applicable to such fiduciary account. In the case of shares of stock which are
held by a nominee of the Bank, such shares may be voted by such person(s)
authorized by such nominee.
-29-
<PAGE> 30
ARTICLE V
STOCKS AND STOCK CERTIFICATES
SECTION 5.01. STOCK CERTIFICATES. The shares of stock of the Bank shall be
evidenced by certificates which shall bear the signature of the Chairman of the
Board, the President, or a Vice President (which signature may be engraved,
printed or impressed), and shall be signed manually by the Secretary, or any
other officer appointed by the Chief Executive Officer for that purpose.
In case any such officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such before such
certificate is issued, it may be issued by the Bank with the same effect as if
such officer had not ceased to be such at the time of its issue. Each such
certificate shall bear the corporate seal of the Bank, shall recite on its fact
that the stock represented thereby is transferable only upon the books of the
Bank properly endorsed and shall recite such other information as is required
by law and deemed appropriate by the Board. The corporate seal may be facsimile
engraved or printed.
SECTION 5.02. STOCK ISSUE AND TRANSFER. The shares of stock of the Bank shall
be transferable only upon the stock transfer books of the Bank and except as
hereinafter provided, no transfer shall be made or new certificates issued
except upon the surrender for cancellation of the certificate or certificates
previously issued therefor. In the case of the loss, theft, or destruction of
any certificate, a new certificate may be issued in place of such certificate
upon the furnishing of any affidavit setting forth the circumstances of such
loss, theft, or destruction and indemnity satisfactory to the Chairman of the
Board, the President, or a Vice President. The Board of Directors, or the Chief
Executive Officer, may authorize the issuance of a new certificate therefor
without the furnishing of indemnity. Stock Transfer Books, in which all
transfers of stock shall be recorded, shall be provided.
-30-
<PAGE> 31
The stock transfer books may be closed for a reasonable period and under
such conditions as the Board of Directors may at any time determine for any
meeting of shareholders, the payment of dividends or any other lawful purpose.
In lieu of closing the transfer books, the Board may, in its discretion, fix a
record date and hour constituting a reasonable period prior to the day
designated for the holding of any meeting of the shareholders or the day
appointed for the payment of any dividend or for any other purpose at the time
as of which shareholders entitled to notice of and to vote at any such meeting
or to receive such dividend or to be treated as shareholders for such other
purpose shall be determined, and only shareholders of record at such time shall
be entitled to notice of or to vote at such meeting or to receive such
dividends or to be treated as shareholders for such other purpose.
-31-
<PAGE> 32
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01. SEAL. The impression made below is an impression of the seal
adopted by the Board of Directors of BANK ONE, COLUMBUS, NATIONAL ASSOCIATION.
The Seal may be affixed by any officer of the Bank to any document executed by
an authorized officer on behalf of the Bank, and any officer may certify any
act, proceedings, record, instrument or authority of the Bank.
SECTION 6.02. BANKING HOURS. Subject to ratification by the Executive
Committee, the Bank and each of its Branches shall be open for business on such
days and during such hours as the Chief Executive Officer of the Bank shall,
from time to time, prescribe.
SECTION 6.03. MINUTE BOOK. The organization papers of this Bank, the Articles
of Association, the returns of the judges of elections, the By-Laws and any
amendments thereto, the proceedings of all regular and special meetings of the
shareholders and of the Board of Directors, and reports of the committees of
the Board of Directors shall be recorded in the minute book of the Bank. The
minutes of each such meeting shall be signed by the presiding Officer and
attested by the secretary of the meetings.
SECTION 6.04. AMENDMENT OF BY-LAWS. These By-Laws may be amended by vote of a
majority of the Directors.
-32-
<PAGE> 33
EXHIBIT 6
Securities and Exchange Commission
Washington, D.C. 20549
CONSENT
The undersigned, designated to act as Trustee under the Indenture for Kitty
Hawk, Inc. described in the attached Statement of Eligibility and
Qualification, does hereby consent that reports of examinations by Federal,
State, Territorial, or District Authorities may be furnished by such
authorities to the Commission upon the request of the Commission.
This Consent is given pursuant to the provision of Section 321(b) of the Trust
Indenture Act of 1939, as amended.
Bank One, NA
Dated: January 12, 1998 By: /s/ Jon Beacham
-----------------------------------
Jon Beacham
Authorized Signer
-33-
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
9.95% SENIOR SECURED NOTES DUE 2004
CUSIP NO. 498326 AC 1
OF
KITTY HAWK, INC.
AND THE GUARANTEE THEREOF BY
AIRCRAFT LEASING, INC., AMERICAN INTERNATIONAL AIRWAYS, INC., AMERICAN
INTERNATIONAL TRAVEL, INC., FLIGHT ONE LOGISTICS, INC., KALITTA FLYING SERVICE,
INC., KITTY HAWK AIRCARGO, INC., KITTY HAWK CHARTERS, INC. AND O.K. TURBINES,
INC.
Pursuant to the Exchange Offer Prospectus dated February , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON MARCH , 1998 (THE "EXPIRATION DATE") UNLESS THE EXCHANGE OFFER IS
EXTENDED, IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL MEAN THE LATEST DATE
AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN AT
ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent is:
Bank One, N.A.
<TABLE>
<S> <C>
By Overnight Mail or Hand Delivery: By Registered or Certified Mail:
Banc One Investment Management Group Banc One Investment Management Group
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
235 W. Schrock Road 235 W. Schrock Road
Westerville, Ohio 43081-0184 Westerville, Ohio 43271-0184
By Facsimile: Confirm by Telephone:
Banc One Investment Management Group (800) 346-5153
Attn: Corporate Trust Operations
(614) 248-9987
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
<PAGE> 2
The undersigned acknowledges receipt of the Prospectus dated February ,
1998 (the "Prospectus") of Kitty Hawk, Inc. (the "Company") and Aircraft
Leasing, Inc., American International Airways, Inc., American International
Travel, Inc., Flight One Logistics, Inc., Kalitta Flying Service, Inc., Kitty
Hawk Aircargo, Inc., Kitty Hawk Charters, Inc., and O.K. Turbines, Inc.
(collectively, the "Subsidiary Guarantors") and this Letter of Transmittal (the
"Letter of Transmittal"), which, together with the Prospectus, constitutes the
Company's and the Subsidiary Guarantors' offer (the "Exchange Offer") to
exchange $1,000 principal amount of the Company's 9.95% Senior Secured Notes due
2004 and the guarantees thereof (the "New Notes") for each $1,000 principal
amount of the Company's outstanding 9.95% Senior Secured Notes due 2004 and the
guarantees thereof (the "Old Notes"). Recipients of the Prospectus should read
the requirements described in such Prospectus with respect to eligibility to
participate in the Exchange Offer. Capitalized terms used but not defined herein
have the meaning given to them in the Prospectus.
The undersigned hereby tenders the Old Notes described in the box entitled
"Description of Old Notes" below pursuant to the terms and conditions described
in the Prospectus and this Letter of Transmittal. The undersigned is the
registered owner of all the Old Notes described and the undersigned represents
that it has received from each beneficial owner of Old Notes ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered Holder
from Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
This Letter of Transmittal is to be used only by a holder of Old Notes (i)
if certificates representing Old Notes are to be forwarded herewith or (ii) if
delivery of Old Notes is to be made by book-entry transfer to the Exchange
Agent's account at The Depository Trust Company (the "Depository"), pursuant to
the procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Procedures for Tendering." If delivery of the Old Notes is to be made
by book-entry transfer to the account maintained by the Exchange Agent at the
Depository, tenders of the Old Notes must be effected in accordance with the
procedures mandated by the Depository's Automated Tender Offer Program and the
procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Book-Entry Transfer."
The undersigned hereby represents and warrants that the information set
forth in the box entitled "Beneficial Owner(s)" is true and correct.
Any Beneficial Owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder of Old Notes promptly and
instruct such registered holder of Old Notes to tender on behalf of the
Beneficial Owner. If such Beneficial Owner wishes to tender on its own behalf,
such Beneficial Owner must, prior to completing and executing this Letter of
Transmittal and delivering its Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such Beneficial Owner's name or obtain
a properly completed bond power from the registered holder of its Old Notes. The
transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a holder of Old
Notes must (i) complete the box entitled "Description of Old Notes," (ii) if
appropriate, check and complete the boxes relating to book-entry transfer,
guaranteed delivery, Special Issuance Instructions and Special Delivery
Instructions, (iii) sign the Letter of Transmittal by completing the box
entitled "Sign Here" and (iv) complete the Substitute Form W-9. Each holder of
Old Notes should carefully read the detailed instructions below prior to
completing the Letter of Transmittal.
Holders of Old Notes who desire to tender their Old Notes for exchange and
(i) whose Old Notes are not immediately available, (ii) who cannot deliver their
Old Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date or (iii) who are unable to complete the procedure
for book-entry transfer on a timely basis, must tender the Old Notes pursuant to
the guaranteed delivery procedures set forth in the section of the Prospectus
entitled "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction
2 of the Instructions beginning on page 9 hereof.
Holders of Old Notes who wish to tender their Old Notes for exchange must,
at a minimum, complete columns (1), (2), if applicable (see footnote 1 below),
and (3) in the box below entitled "Description of Old Notes" and sign the box on
page 8 under the words "Sign Here." If only those columns are completed, such
holder of Old Notes will have tendered for exchange all Old Notes listed in
column (3) below. If the holder of Old Notes wishes to tender for exchange less
than all of such Old Notes, column (4) must be completed in full. In such case,
such holder of Old Notes should refer to Instruction 5 on page 10.
2
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ----------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
PRINCIPAL AMOUNT
TENDERED FOR
EXCHANGE (ONLY IF
NAME(S) AND ADDRESS(ES) OF REGISTERED OLD NOTE DIFFERENT AMOUNT
HOLDER(S) OF OLD NOTE(S), EXACTLY AS NAME(S) APPEAR(S) NUMBER(S) FROM COLUMN (3))
ON (ATTACH AGGREGATE (MUST BE IN
OLD NOTE CERTIFICATE(S) SIGNED LIST IF PRINCIPAL INTEGRAL MULTIPLES
(PLEASE FILL IN, IF BLANK) NECESSARY)(1) AMOUNT OF $1,000)(2)
- ----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
1 Column (2) need not be completed by holders of Old Notes tendering Old Notes
for exchange by book-entry transfer. Please check the appropriate box on the
next page and provide the requested information.
2 Column (4) need not be completed by holders of Old Notes who wish to tender
for exchange the principal amount of Old Notes listed in column (3).
Completion of column (4) will indicate that the holder of Old Notes wishes to
tender for exchange only the principal amount of Old Notes indicated in column
(4).
3
<PAGE> 4
[ ] CHECK HERE IF OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO
THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER
DEFINED) ONLY):
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Old Note(s):
- ---------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
- ------------------------------------------------------------------
Window Ticket Number (if available):
- --------------------------------------------------------------------------------
Name of Institution which Guaranteed Delivery:
- -----------------------------------------------------------------------
Account Number (if delivered by book-entry transfer):
- --------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL COPIES
OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO:
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
Number of Additional
Copies Desired:
---------------
4
<PAGE> 5
<TABLE>
===========================================================================================================================
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8) (SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if the New Notes issued in To be completed ONLY if the New Notes issued in
exchange for Old Notes (or if certificates for Old exchange for Old Notes (or if certificates for Old
Notes not tendered for exchange for New Notes) are to Notes not tendered for exchange for New Notes) are to
be issued in the name of someone other than the be mailed or delivered (i) to someone other than the
undersigned or (ii) if Old Notes tendered by undersigned or (ii) to the undersigned at an address
book-entry transfer which are not exchanged are to be other than the address shown below the undersigned's
returned by credit to an account maintained at the signature.
Depository. Mail or deliver to:
Issued to:
Name Name
------------------------------------------------- -------------------------------------------------
(Please Print) (Please Print)
Address Address
------------------------------------------------- -------------------------------------------------
(Include Zip Code) (Include Zip Code)
------------------------------------------------- -------------------------------------------------
(Tax Identification or Social Security No.) (Tax Identification or Social Security No.)
Credit Old Notes not exchanged and delivered by
book-entry transfer to the Depository account set
forth below:
-------------------------------------------------
(Account Number)
===========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------------------------------------------------
State of Principal Residence of Each Beneficial Principal Amount of Old Notes Held for
Owner of Old Notes Account of Beneficial Owner(s)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
</TABLE>
<PAGE> 6
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Pursuant to the offer by Kitty Hawk, Inc. (the "Company") and Aircraft
Leasing, Inc., American International Airways, Inc., American International
Travel, Inc., Flight One Logistics, Inc., Kalitta Flying Service, Inc., Kitty
Hawk Aircargo, Inc., Kitty Hawk Charters, Inc. and O.K. Turbines, Inc.,
(collectively the "Subsidiary Guarantors"), upon the terms and subject to the
conditions set forth in the Prospectus dated February , 1998 (the
"Prospectus") and this Letter of Transmittal (the "Letter of Transmittal"),
which, together with the Prospectus, constitutes the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of the Company's 9.95%
Senior Secured Notes due 2004 and the guarantees thereof (the "New Notes") for
each $1,000 principal amount of its outstanding 9.95% Senior Secured Notes due
2004 and the guarantees thereof (the "Old Notes"), the undersigned hereby
tenders to the Company and the Subsidiary Guarantors for exchange the Old Notes
indicated above.
By executing this Letter of Transmittal and subject to and effective upon
acceptance for exchange of the Old Notes tendered for exchange herewith, the
undersigned (A) acknowledges and agrees that the Company shall have fully
performed all of its obligations under that certain Registration Rights
Agreement dated as of November 19, 1997, among the Company, the Subsidiary
Guarantors and the Placement Agents (as defined in the Prospectus), except in
certain limited circumstances and (B) will have irrevocably sold, assigned and
transferred to the Company and the Subsidiary Guarantors, all right, title and
interest in, to and under all of the Old Notes tendered for exchange hereby, and
hereby appoints Bank One, N.A. (the "Exchange Agent") as the true and lawful
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as agent of the Company and the Subsidiary Guarantors) of such holder of
Old Notes with respect to such Old Notes, with full power of substitution, to
(i) deliver certificates representing such Old Notes, or transfer ownership of
such Old Notes on the account books maintained by The Depository Trust Company
(the "Depository") (together, in any such case, with all accompanying evidences
of transfer and authenticity), to the Company, (ii) present and deliver such Old
Notes for transfer on the books of the Company and (iii) receive all benefits
and otherwise exercise all rights and incidents of ownership with respect to
such Old Notes, all in accordance with the terms of the Exchange Offer. The
power of attorney granted in this paragraph shall be deemed to be irrevocable
and coupled with an interest.
The undersigned hereby represents and warrants that (i) the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
and (ii) when such Old Notes are accepted for exchange by the Company and the
Subsidiary Guarantors, the Company and the Subsidiary Guarantors will acquire
good and marketable title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claims. The undersigned
will, upon receipt, execute and deliver any additional documents deemed by the
Exchange Agent, the Company or the Subsidiary Guarantors to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered for exchange hereby.
The undersigned hereby further represents to the Company and the Subsidiary
Guarantors that (i) the New Notes to be acquired by the undersigned in exchange
for the Old Notes tendered hereby and any beneficial owner(s) of such Old Notes
in connection with the Exchange Offer will be acquired by the undersigned and
such beneficial owner(s) in the ordinary course of the undersigned's business,
(ii) the undersigned (if not a broker-dealer referred to in the last sentence of
this paragraph) is not engaging and does not intend to engage in the
distribution of the New Notes and has no arrangement or understanding with any
person to participate in the distribution of the New Notes, (iii) the
undersigned and each beneficial owner acknowledge and agree that any person
participating in the Exchange Offer for the purpose of distributing the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), in connection
with a secondary resale transaction of the New Notes acquired by such person and
cannot rely on the position of the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters, (iv) the
undersigned and each beneficial owner understand that a secondary resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (v) neither the undersigned nor any beneficial owner is an
"affiliate" of the Company or the Subsidiary Guarantors, as defined under Rule
405 under the Securities Act. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market making or
<PAGE> 7
other trading activities, it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes received in respect of such Old Notes pursuant to the Exchange
Offer; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned acknowledges that, (i) for purposes of the Exchange Offer,
the Company and the Subsidiary Guarantors will be deemed to have accepted for
exchange, and to have exchanged, validly tendered Old Notes, if, as and when the
Company gives oral or written notice thereof to the Exchange Agent. Tenders of
Old Notes for exchange may be withdrawn at any time prior to 5:00 p.m. New York
City time, on March , 1998 (the "Expiration Date"), and (ii) any Old Notes
tendered by the undersigned and not accepted for exchange will be returned to
the undersigned at the address set forth above unless otherwise indicated in the
box above entitled "Special Delivery Instructions."
The undersigned acknowledges that the Company's and the Subsidiary
Guarantors' acceptance of Old Notes validly tendered for exchange pursuant to
any one of the procedures described in the section of the Prospectus entitled
"The Exchange Offer" and in the instructions hereto will constitute a binding
agreement among the undersigned, the Company and the Subsidiary Guarantors upon
the terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Old Notes not tendered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the box
entitled "Special Delivery Instructions," please mail any certificates for Old
Notes not tendered or exchanged (and accompanying documents, as appropriate) to
the undersigned at the address shown below the undersigned's signature(s). In
the event that either "Special Issuance Instructions" or "Special Delivery
Instructions" are completed, please issue the certificates representing the New
Notes issued in exchange for the Old Notes accepted for exchange in the name(s)
of, and return any Old Notes not tendered for exchange or not exchanged to, the
person(s) so indicated. The undersigned recognizes that the Company and the
Subsidiary Guarantors have no obligation pursuant to the "Special Issuance
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the holder of Old Note(s) thereof if the Company and the Subsidiary
Guarantors do not accept for exchange any of the Old Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Old Note(s).
In order to validly tender Old Notes for exchange, holders of Old Notes
must complete, execute and deliver this Letter of Transmittal.
Except as stated in the Prospectus, all authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the undersigned,
and any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
otherwise stated in the Prospectus, this tender for exchange of Old Notes is
irrevocable.
<PAGE> 8
SIGN HERE
- --------------------------------------------------------------------------------
(Signature(s) of Owner(s))
Date: 1998
------------------------,
Must be signed by the registered holder(s) of Old Notes exactly as name(s)
appear(s) on certificate(s) representing the Old Notes or on a security position
listing or by person(s) authorized to become registered Old Note holder(s) by
certificates and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, please
provide the following information. (See Instruction 6).
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please Print)
Capacity (full title):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone No: ( )
-----------------
- ---------------------------------------------------------------------
Tax Identification or Social Security No(s):
- ------------------------------------------------------------------------
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 1)
Authorized Signature:
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
Name and Title:
- --------------------------------------------------------------------------------
(Please Print)
Name of Firm:
- --------------------------------------------------------------------------------
<PAGE> 9
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, and is a member of one of
the following recognized Signature Guarantee Programs (an "Eligible
Institution"):
a. The Securities Transfer Agents Medallion Program (STAMP)
b. The New York Stock Exchange Medallion Signature Program (MSP)
c. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Old Notes
tendered herewith and such registered holder(s) have not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on this Letter of Transmittal or (ii) if such Old Notes are
tendered for the account of an Eligible Institution. IN ALL OTHER CASES, ALL
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by holders of
Old Notes (i) if certificates are to be forwarded herewith or (ii) if tenders
are to be made pursuant to the procedures for tender by book-entry transfer or
guaranteed delivery set forth in the section of the Prospectus entitled "The
Exchange Offer." Certificates for all physically tendered Old Notes or any
confirmation of a book-entry transfer (a "Book-Entry Confirmation"), as well as
a properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth on
the cover of this Letter of Transmittal prior to 5:00 p.m., New York City time,
on the Expiration Date. Holders of Old Notes who elect to tender Old Notes and
(i) whose Old Notes are not immediately available, (ii) who cannot deliver the
Letter of Transmittal, Old Notes or other required documents to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date or (iii)
who are unable to complete the procedure for book-entry transfer on a timely
basis, may have such tender effected if: (a) such tender is made by or through
an Eligible Institution, (b) prior to 5:00 p.m., New York City time, on the
Expiration Date, the Exchange Agent has received from such Eligible Institution
a properly completed and duly executed Letter of Transmittal and Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder of such Old Notes, the certificate
number(s) of such Old Notes and the principal amount of Old Notes tendered for
exchange, stating that tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery, this Letter of Transmittal (or a manually
executed facsimile thereof), properly completed and duly executed, the
certificates representing such Old Notes (or a Book-Entry Confirmation), in
proper form for transfer, and any other documents required by this Letter of
Transmittal, will be deposited by such Eligible Institution with the Exchange
Agent, and (c) a properly completed and duly executed Letter of Transmittal (or
a manually executed facsimile thereof) with certificates for all tendered Old
Notes, or a Book-Entry Confirmation, and any other documents required by this
Letter of Transmittal are received by the Exchange Agent within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER OF
OLD NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. NEITHER THIS LETTER OF TRANSMITTAL NOR ANY OLD NOTES SHOULD BE SENT
TO THE COMPANY OR THE SUBSIDIARY GUARANTORS.
No alternative, conditional or contingent tenders will be accepted. All
tendering holders of Old Notes, by execution of this Letter of Transmittal (or
facsimile hereof, if applicable), waive any right to receive notice of the
acceptance of their Old Notes for exchange.
<PAGE> 10
3. INADEQUATE SPACE. If the space provided in the box entitled "Description
of Old Notes" above is inadequate, the certificate numbers and principal amounts
of the Old Notes being tendered should be listed on a separate signed schedule
affixed hereto.
4. WITHDRAWALS. A tender of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date by delivery of a written
notice of withdrawal to the Exchange Agent at the address set forth on the cover
of this Letter of Transmittal. To be effective, a notice of withdrawal of Old
Notes must (i) specify the name of the person who tendered the Old Notes to be
withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or numbers and aggregate principal amount of
such Old Notes), (iii) be signed by the holder of Old Notes in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor and (v) be received by the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Withdrawals of tenders of Old Notes may not be rescinded, and any Old Notes
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer, and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Properly withdrawn Old Notes may
be retendered by following one of the procedures described in the section of the
Prospectus entitled "The Exchange Offer -- Procedures for Tendering" at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. (Not applicable to holders of Old Notes who tender Old
Notes by book-entry transfer). Tenders of Old Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to be
made with respect to less than the entire principal amount of any Old Notes,
fill in the principal amount of Old Notes which are tendered for exchange in
column (4) of the box entitled "Description of Old Notes" on page 3, as more
fully described in the footnotes thereto. In case of a partial tender for
exchange, a new certificate, in fully registered form, for the remainder of the
principal amount of the Old Notes, will be sent to the holder of such Old Notes
(unless otherwise indicated in the appropriate box on this Letter of
Transmittal) as promptly as practicable after the expiration or termination of
the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND
ENDORSEMENTS.
(a) The signature(s) of the holder of Old Notes on this Letter of
Transmittal must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
(b) If tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal and any necessary or required documents as
there are different registrations.
(d) When this Letter of Transmittal is signed by the holder of the Old
Notes listed and transmitted hereby, no endorsements of Old Notes or separate
powers of attorney are required. If, however, Old Notes not tendered or not
accepted, are to be issued or returned in the name of a person other than the
holder of Old Notes, then the Old Notes transmitted hereby must be endorsed or
accompanied by appropriate powers of attorney in a form satisfactory to the
Company, in either case signed exactly as the name of the holder of Old Notes
appears on the Old Notes. Signatures on such Old Notes or powers of attorney
must be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
(e) If this Letter of Transmittal or Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Company of their authority so to act must be submitted.
(f) If this Letter of Transmittal is signed by a person other than the
registered holder of Old Notes listed, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name of
<PAGE> 11
the registered holder of Old Notes appears on the certificates. Signatures on
such Old Notes or powers of attorney must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the transfer and exchange of
Old Notes pursuant to the Exchange Offer. If issuance of New Notes is to be made
to, or Old Notes not tendered for exchange are to be issued or returned in the
name of, any person other than the registered holder of the Old Notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of Old
Notes pursuant to the Exchange Offer, and satisfactory evidence of payment of
such taxes or exemptions from taxes therefrom is not submitted with this Letter
of Transmittal, the amount of any transfer taxes payable on account of any such
transfer will be imposed on and payable by the tendering holder of Old Notes
prior to the issuance of the New Notes.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the New Notes, or if any
Old Notes not tendered for exchange, are to be issued or sent to someone other
than the holder of Old Notes or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Holders of
Old Notes tendering Old Notes by book-entry transfer may request that Old Notes
not accepted be credited to such account maintained at the Depository as such
holder of Old Notes may designate.
9. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time of receipt), acceptance and withdrawal of
Old Notes will be determined by the Company, in its sole discretion, whose
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders for exchange of any particular Old Notes that
are not in proper form, or the acceptance of which would, in the opinion of the
Company (or its counsel), be unlawful. The Company reserves the absolute right
to waive any defect, irregularity or condition of tender for exchange with
regard to any particular Old Notes. The Company's interpretation of the terms
of, and conditions to, the Exchange Offer (including the instructions herein)
will be final and binding. Unless waived, any defects or irregularities in
connection with the Exchange Offer must be cured within such time as the Company
shall determine. Neither the Company, the Subsidiary Guarantors, the Exchange
Agent nor any other person shall be under any duty to give notice of any defects
or irregularities in Old Notes tendered for exchange, nor shall any of them
incur any liability for failure to give such notice. A tender of Old Notes will
not be deemed to have been made until all defects and irregularities with
respect to such tender have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. WAIVER OF CONDITION. The Company and the Subsidiary Guarantors reserve
the absolute right to waive, amend or modify any of the specified conditions
described under "The Exchange Offer -- Conditions" in the Prospectus in the case
of any Old Notes tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. If a holder of Old
Notes desires to tender Old Notes pursuant to the Exchange Offer, but any of
such Old Notes has been mutilated, lost, stolen or destroyed, such holder of Old
Notes should contact the Trustee at the address set forth on the cover of this
Letter of Transmittal for further instructions.
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH CERTIFICATES, OR CONFIRMATION OF BOOK-ENTRY OR THE
NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
<PAGE> 12
IMPORTANT TAX INFORMATION
Under current federal income tax law, a holder of Old Notes whose tendered
Old Notes are accepted for exchange may be subject to backup withholding unless
the holder provides the Company (as payor), through the Exchange Agent, with
either (i) such holder's correct taxpayer identification number ("TIN") on
Substitute Form W-9 attached hereto, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such holder of Old Notes is awaiting a
TIN) and that (A) the holder of Old Notes has not been notified by the Internal
Revenue Service that he or she is subject to backup withholding as a result of a
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified the holder of Old Notes that he or she is no longer subject to
backup withholding or (ii) an adequate basis for exemption from backup
withholding. If such holder of Old Notes is an individual, the TIN is such
holder's social security number. If the Exchange Agent is not provided with the
correct taxpayer identification number, the holder of Old Notes may be subject
to certain penalties imposed by the Internal Revenue Service.
Certain holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Old Notes should indicate their exempt
status on Substitute Form W-9. A foreign individual may qualify as an exempt
recipient by submitting to the Exchange Agent a properly completed Internal
Revenue Service Form W-8 (the terms of which the Exchange Agent will provide
upon request) signed under penalty of perjury, attesting to the holder's exempt
status. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "Guidelines") for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of Old Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
The holder of Old Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Old Notes. If the Old Notes are held in more than one name or are
not held in the name of the actual owner, consult the enclosed Guidelines for
additional guidance regarding which number to report.
<PAGE> 13
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: Bank One, N.A.
- ------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT ------------------------------------
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number
FORM W-9 OR ------------------------------------
Department of the Treasury Employer Identification Number
Internal Revenue Service
---------------------------------------------------------------------------------------------
PART 2 -- PART 3 --
PAYER'S REQUEST FOR Certification Under Penalties of Perjury, I certify
TAXPAYER IDENTIFICATION that: Awaiting TIN [ ]
NUMBER (TIN) (1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me); and
(2) I am not subject to backup withholding either
because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or the IRS has
notified me that I am no longer subject to
backup withholding.
---------------------------------------------------------------------------------------------
Certificate instructions -- You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS that
you are subject to backup withholding you received another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out item (2).
SIGNATURE ------------------------------------------------------- DATE-----------
NAME----------------------------------------------------------------------------------
ADDRESS------------------------------------------------------------------------------
CITY------------------------- STATE---------------- ZIP CODE-------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 14
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECK THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
PAYER'S NAME: BANK ONE, N.A.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do not provide a
taxpayer identification number with sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide such a
number.
<TABLE>
<S> <C>
- ----------------------------------------------------- ---------------------------------------
Signature Date
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 15
INSTRUCTION TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
9.95% SENIOR SECURED NOTES DUE 2004
OF KITTY HAWK, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
February , 1998 (the "Prospectus") of Kitty Hawk, Inc., a Delaware corporation
(the "Company"), and Aircraft Leasing, Inc., a Texas corporation, American
International Airways, Inc., a Michigan corporation, American International
Travel, Inc., a Michigan corporation, Flight One Logistics, Inc., a Michigan
corporation, Kalitta Flying Service, Inc., a Michigan corporation, Kitty Hawk
Aircargo, Inc., a Texas corporation, Kitty Hawk Charters, Inc., a Texas
corporation, and O.K. Turbines, Inc., a Michigan corporation, (collectively, the
"Subsidiary Guarantors"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's and the
Subsidiary Guarantors' offer (the "Exchange Offer"). Capitalized terms used but
not defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder, as to the action to be taken
by you relating to the Exchange Offer with respect to the 9.95% Senior Secured
Notes due 2004 and the guarantees thereof (the "Old Notes") held by you for the
account of the undersigned.
The aggregate principal amount of the Old Notes held by you for the account
of the undersigned is (fill in amount):
$
-------------------------------- of the Old Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following principal amount of Old Notes held by you for
the account of the undersigned (insert principal amount of Old Notes to be
tendered, if any):
$
-------------------------------- of the Old Notes.
[ ] NOT to TENDER any principal amount of Old Notes held by you for the
account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner of the Old Notes, including but not limited to the
representations that (i) the undersigned's principal residence is in the state
of (fill in state)
- ---------------------------, (ii) the undersigned is acquiring the New Notes in
the ordinary course of the undersigned's business, (iii) the undersigned either
(A) is not participating, does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of New
Notes or (B) is a broker-dealer that will receive New Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, and acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act of 1933, as amended
(the "Securities Act") in connection with any resale of such New Notes received
in respect of such Old Notes pursuant to the Exchange Offer; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act,
(iv) the undersigned acknowledges that any person participating in the Exchange
Offer for the purpose of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the Securities Act, in
connection with any resale transaction of the New Notes acquired by such person
and cannot rely on the position of the Staff of the Securities and Exchange
Commission set forth in certain no-action letters (See the section of the
Prospectus entitled "The Exchange Offer -- Purpose and Effect"), (v) the
undersigned understands that a secondary resale transaction described in clause
(iv) above should be covered by an effective registration statement containing
the selling securityholder information required by Item 507 or Item 508, if
applicable, of Regulation S-K of the Commission and (vi) the undersigned is not
an "affiliate," as defined in Rule 405 under the Securities Act, of the Company
or the Subsidiary Guarantors; (b) to agree, on behalf of the undersigned, as set
forth in the Letter of Transmittal and (c) to take such other action as
necessary under the Prospectus or the Letter of Transmittal to effect the valid
tender of the Old Notes.
<PAGE> 16
SIGN HERE
Name of Beneficial Owner(s) (please print):
- -----------------------------------------------------------------------------
Signature(s):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
Telephone Number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- ----------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
<PAGE> 17
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
9.95% SENIOR SECURED NOTES DUE 2004
CUSIP NO. 498326 AC 1
OF
KITTY HAWK, INC.
AND THE GUARANTEE THEREOF BY
AIRCRAFT LEASING, INC., AMERICAN INTERNATIONAL AIRWAYS, INC., AMERICAN
INTERNATIONAL TRAVEL, INC., FLIGHT ONE LOGISTICS, INC., KALITTA FLYING SERVICE,
INC., KITTY HAWK AIRCARGO, INC., KITTY HAWK CHARTERS, INC. AND O.K. TURBINES,
INC.
This form must be used by a holder of 9.95% Senior Secured Notes due 2004
and the guarantees thereof (the "Old Notes") of Kitty Hawk, Inc., a Delaware
corporation (the "Company"), and Aircraft Leasing, Inc., a Texas corporation,
American International Airways, Inc., a Michigan corporation, American
International Travel, Inc., a Michigan corporation, Flight One Logistics, Inc.,
a Michigan corporation, Kalitta Flying Service, Inc., a Michigan corporation,
Kitty Hawk Aircargo, Inc., a Texas corporation, Kitty Hawk Charters, Inc., a
Texas corporation, and O.K. Turbines, Inc., a Michigan corporation (collectively
the "Subsidiary Guarantors") who wishes to tender Old Notes to the Exchange
Agent in exchange for 9.95% Senior Secured Notes due 2004 and the guarantees
thereof pursuant to the guaranteed delivery procedures described in the "The
Exchange Offer -- Guaranteed Delivery Procedures" of the Prospectus, dated
February , 1998 (the "Prospectus"), and in Instruction 2 to the related Letter
of Transmittal. Any holder who wishes to tender Old Notes pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives this
Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange
Offer. Capitalized terms not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
To: Bank One, N.A.
(the "Exchange Agent")
<TABLE>
<S> <C>
By Overnight Mail or Hand Delivery: By Registered or Certified Mail:
Banc One Investment Management Group Banc One Investment Management Group
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
235 W. Schrock Road 235 W. Schrock Road
Westerville, Ohio 43081-0184 Westerville, Ohio 43271-0184
By Facsimile: Confirm by Telephone:
Banc One Investment Management Group (800) 346-5153
Attn: Corporate Trust Operations
(614) 248-9987
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 18
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company and the Subsidiary
Guarantors, upon the terms and subject to the conditions set forth in the
Prospectus and the related Letter of Transmittal, receipt of which is hereby
acknowledged, the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedures set forth in the Prospectus and in Instruction 2
of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF KNOWN)
OF OLD NOTES OR ACCOUNT NUMBER AT AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature of Registered Holders(s) or Date: , 1998
or Authorized Signatory: ------------------------------------
----------------------- Address:
----------------------------------------------- ---------------------------------------
----------------------------------------------- -----------------------------------------------
Name of Registered Holder(s): Area Code and Telephone No.:
------------------- --------------------
-----------------------------------------------
-----------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as the name(s) appear(s) on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 19
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a recognized signature
guarantee medallion program and is an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, hereby guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Old Notes tendered hereby
in proper form for transfer (or confirmation of the book-entry transfer of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
described in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures" and in the Letter of Transmittal) and any other required
documents, all by 5:00 p.m., New York City time, on the third New York Stock
Exchange trading day following the date of execution of this Notice of
Guaranteed Delivery.
<TABLE>
<C> <C>
Name of Firm:
------------------------------- ----------------------------------------------
Address: Authorized Signature
-------------------------------------- Name:
-----------------------------------------
- ----------------------------------------------
Area Code and Telephone No.: Title:
------------------ ----------------------------------------
Date: , 1998
-----------------------------------
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF
OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE> 20
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and sole risk of the holder, and the delivery will be deemed made only
when actually received by the Exchange Agent. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. As an
alternative to delivery by mail, the holders may wish to consider using an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Old Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder of any Old Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder appears on
the Old Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Notice of Guaranteed Delivery evidence
satisfactory to the Company and the Subsidiary Guarantors of such person's
authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
4
