-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VzehqpSd3o4oXBnJsyXMJoWBv8OC1uN7K2uPAlVAYtMtbjrkFpPMivEzzXL85xDT VAcHdsOIRcO5fO5yvDzy3A== 0000950134-99-001682.txt : 19990317 0000950134-99-001682.hdr.sgml : 19990317 ACCESSION NUMBER: 0000950134-99-001682 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19990316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KITTY HAWK INC CENTRAL INDEX KEY: 0000932110 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 752564006 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-74469 FILM NUMBER: 99566140 BUSINESS ADDRESS: STREET 1: P O BOX 612787 STREET 2: 1515 W 20TH ST CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75261 BUSINESS PHONE: 2144562220 MAIL ADDRESS: STREET 1: P O BOX 612787 CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75261 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 1999 REGISTRATION NO. 333-____ =============================================================================== SECURITIES AND EXCHANGE COMMISSION --------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------------- KITTY HAWK, INC. (Exact name of registrant as specified in its charter) DELAWARE 75-2564006 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) M. TOM CHRISTOPHER 1515 WEST 20TH STREET CHIEF EXECUTIVE OFFICER P.O. BOX 612787 1515 WEST 20TH STREET DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS 75261 P.O. BOX 612787 (972) 456-2200 DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS 75261 (Address, including zip code, (972) 456-2200 and telephone number, including area code, (Name, address, including zip code, and telephone of registrant's principal executive offices) number, including area code, of agent for service)
---------------------------- COPIES OF COMMUNICATIONS TO: GREG R. SAMUEL HAYNES AND BOONE, LLP 3100 NATIONSBANK PLAZA 901 MAIN STREET DALLAS, TEXAS 75202-3789 (214) 651-5000 ---------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE ================================================================================================================================== TITLE OF EACH CLASS AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED MAXIMUM OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION FEE PER SHARE OFFERING PRICE - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share....................... 200,000 shares $7.75(1) $1,550,000(1) $430.90 ==================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457, based on the last reported sale price of the Common stock on the Nasdaq National Market on March 15, 1999. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. =============================================================================== 2 SUBJECT TO COMPLETION PROSPECTUS KITTY HAWK, INC. --------------- 200,000 SHARES OF COMMON STOCK --------------- Our common stock is traded on the Nasdaq National Market under the symbol "KTTY". On March 15, 1999, the last reported sale price of the common stock on the Nasdaq National Market was $7 3/4 per share. --------------- These shares of common stock are being sold by Doug Kalitta, George Kelsey, Mary Phillips and Don Schilling, the selling stockholders. We will not receive any part of the proceeds from the sale of these shares of common stock. -------------- INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 3. --------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Prospectus dated March 16, 1999 Kitty Hawk, Inc. 1515 West 20th Street P.O. Box 612787 Dallas/Fort Worth International Airport, Texas 75261 (972) 456-2200 3 TABLE OF CONTENTS
PAGE ----- Risk Factors .............................................................. 3 Forward Looking Statements ................................................ 12 Where You Can Find More Information ....................................... 12 Incorporation of Certain Information by Reference ......................... 12 The Company ............................................................... 13 Developments .............................................................. 14 Use of Proceeds ........................................................... 19 Selling Stockholders ...................................................... 19 Plan of Distribution ...................................................... 20 Legal Matters ............................................................. 20 Experts ................................................................... 20
2 4 RISK FACTORS An investment in the common stock involves a high degree of risk. This Prospectus contains forward-looking statements which involve risks and uncertainties. In addition to the other information in this Prospectus, before making an investment in the common stock, you should carefully consider the following risk factors. These risk factors are cautionary statements regarding important matters that could cause actual results to differ significantly from our expectations. If we experience the adverse effects of any of these risks, our business could suffer a material adverse effect and the value of the common stock could decline dramatically. COMPANY RELATED RISKS SUBSTANTIAL DEBT AND INTEREST PAYMENTS In November 1997, we incurred substantial debt through: (1) the issuance of $340 million of 9.95% Senior Secured Notes due 2004 (the "NOTES"); and (2) entering into a senior secured revolving credit facility (the "CREDIT FACILITY"), which currently allows us to borrow up to $90.4 million. In addition, we entered into a $45.9 million term loan (the "TERM LOAN") to refinance a $45.9 million loan incurred in September 1997. At December 31, 1998, our total debt was approximately $489.7 million. At December 31, 1998, we had borrowed $86.9 million under the Credit Facility and owed approximately $45.9 million under the Term Loan. In addition to the debt we have outstanding, the indenture pursuant to which the Notes were issued (the "INDENTURE") permits us to incur substantial amounts of additional debt for certain specified purposes, including to acquire aircraft and aircraft-related assets. Our significant debt could have important consequences, including: (1) we may be unable to obtain additional financing in the future; (2) we will have to dedicate a substantial portion of our cash flow to principal and interest payments, which will reduce funds available for other purposes; (3) we may be at a competitive disadvantage to competitors with less debt; (4) we may be unable to adjust rapidly to changing market conditions; and (5) we may be more vulnerable to: (A) downturns in general economic conditions; (B) downturns in our business; and (C) the temporary or permanent loss of business from one or more of our customers. Our ability to make scheduled principal and interest payments or to refinance our debt will depend on our future financial performance, which to a certain extent will be subject to economic, financial, competitive and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow to make principal and interest payments on time and to make necessary capital expenditures. If we cannot do this, we may be required to seek to refinance all or a portion of our debt, to sell assets or to obtain additional financing, any of which we may be unable to do on acceptable terms. 3 5 RESTRICTIVE COVENANTS Our existing debt agreements contain a number of significant covenants. These covenants generally limit our ability, among other things, to: (1) pay dividends; (2) incur additional debt, except for certain specified purposes; (3) encumber or sell assets; (4) enter into transactions with stockholders and affiliates; (5) guarantee debt; (6) merge or consolidate with another entity; and (7) transfer or lease all or substantially all of our assets. These covenants also require us to meet certain financial tests. As of the date hereof, we are in compliance with these covenants. Our ability to comply with these covenants in the future will depend on our future financial performance. If we are unable to comply with these covenants, there would be a default under our debt agreements. If the lender did not waive such a default, the default could result in acceleration of our debt and our bankruptcy. INTEGRATING THE KALITTA COMPANIES On November 19, 1997, we acquired five companies (collectively, the "KALITTA COMPANIES"): (1) American International Airways, Inc. ("AIA"), which has been renamed Kitty Hawk International, Inc. ("KITTY HAWK INTERNATIONAL"); (2) American International Travel, Inc.; (3) Flight One Logistics, Inc.; (4) Kalitta Flying Service, Inc., which has been renamed Kitty Hawk Charters, Inc.; and (5) O.K. Turbines, Inc. Over the last fifteen months, we have been integrating the Kalitta Companies' operations with our pre-acquisition operations. We cannot assure you that we will be able to successfully complete integrating the Kalitta Companies' operations or achieve the goals that motivated us to acquire the Kalitta Companies, either of which could have a material adverse effect on our business and the value of the common stock. CONTINUED LOSSES AT KITTY HAWK INTERNATIONAL From the period January 1, 1997 through November 18, 1997, Kitty Hawk International, then owned by Conrad A. Kalitta under the name American International Airways, Inc., suffered substantial net losses. Although Kitty Hawk International's 1998 financial results improved from its 1997 financial results, Kitty Hawk International still suffered a net loss of $4.8 million in 1998. In an effort to make Kitty Hawk International profitable, we recently have: (1) eliminated providing third party airframe repair and engine overhaul services, other than for JT3 and JT8 engines; (2) stopped passenger charters and parked the two Boeing 747s and two Lockheed L-1011s that flew passenger charters pending their disposition, possible cargo conversion or employment in other uses; 4 6 (3) outsourced the majority of our major maintenance on our Boeing 747, Lockheed L-1011 and Douglas DC-8 aircraft, except for the overhaul of JT3 engines used on Douglas DC-8 aircraft; and (4) eliminated approximately 450 jobs at Kitty Hawk International. In addition, we intend to: (1) eliminate approximately 1,050 additional jobs at Kitty Hawk International; (2) close surplus portions of our Oscoda, Michigan maintenance facility; and (3) reduce Kitty Hawk International's owned and leased operating fleet from 36 aircraft at December 31, 1998 to 19 aircraft at December 31, 1999, consisting of seven Boeing 747s, six Lockheed L-1011s and six Douglas DC-8s. See "Developments -- Restructuring of Kitty Hawk International." Failure to make Kitty Hawk International profitable could have a material adverse effect on our business and the value of the common stock. DEPENDENCE ON AIRCRAFT AVAILABILITY Our revenues are dependent on having aircraft available for revenue service. In the past, we have experienced unanticipated Federal Aviation Administration ("FAA") Airworthiness Directives ("DIRECTIVES") that have made aircraft unavailable for revenue service. In the event one or more of our aircraft are out of service for an extended period of time, whether due to Directives, accidents or otherwise, we may be forced to lease or purchase replacement aircraft and may be unable to fulfill our obligations under customer contracts. We cannot assure you that if necessary, we could locate suitable replacement aircraft on acceptable terms. We do not maintain business interruption insurance to cover these risks. Loss of revenue from any such business interruption, damages for non-performance under customer contracts or costs to replace aircraft could have a material adverse effect on our business and the value of the common stock. CYCLICALITY AND SEASONALITY We provide services to numerous industries and customers that experience significant fluctuations in demand based on economic conditions and other factors beyond our control. Demand for our services could be materially adversely affected by downturns in our customers' businesses. We believe a significant percentage of our 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 our business and the value of the common stock. Certain of our customers engage in seasonal businesses too, especially the U.S. Postal Service and customers in the U.S. automotive industry. As a result, our air carrier business and air freight charter logistics business have historically experienced their highest quarterly revenues and profitability during the last three months of the 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 U.S. automotive industry typically increase. Consequently, we historically experience our lowest quarterly revenue and profitability during the first three months of the year. DEPENDENCE ON KEY PERSONNEL We believe that our success depends on, and will continue to depend on, the services of: (1) M. TOM CHRISTOPHER, our founder and our Chairman of the Board of Directors and Chief Executive Officer; (2) TILMON J. REEVES, our President and Chief Operating Officer; and 5 7 (3) RICHARD R. WADSWORTH, our Senior Vice President -- Finance, Chief Financial Officer and Secretary. If we lose the services of any of them, and in particular Mr. Christopher, our business and the value of the common stock could be materially adversely affected. Each of Messrs. Christopher, Reeves and Wadsworth have employment agreements with the Company. EMPLOYEE RELATIONS Some of our pilots and flight engineers are members of the International Brotherhood of Teamsters and are employed pursuant to a collective bargaining agreement. We are in the process of renegotiating this collective bargaining agreement with representatives of the Teamsters. The pilots and flight engineers have rejected one proposed new collective bargaining agreement. We believe the current collective bargaining agreement's system for scheduling pilots and flight engineers is inefficient, which results in higher costs to us. While we are negotiating to make this scheduling system more efficient, we cannot assure you that we will be successful in these negotiations. Failure to negotiate a more efficient scheduling system could have a material adverse effect on our business and the value of the common stock. While we intend to negotiate with the Teamsters in good faith, we cannot assure you that we will be able to enter into a new collective bargaining agreement. In addition, negotiations could result in work stoppages, a substantial increase in salaries or wages, changes in work rules or other changes adverse to our business. Also, we cannot assure you that our non-union cockpit crews will remain non-union. Unionization of our non-union cockpit crews, work stoppages, increased wages or other labor-related matters could have a material adverse effect on our business and the value of the common stock. DEPENDENCE ON COMPUTER SYSTEMS We utilize a number of computer systems to schedule flights and personnel, track aircraft and freight, bill customers, pay expenses and monitor a variety of our activities, ranging from maintenance and 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 our operations, which could have a material adverse effect on our business and the value of the common stock. While we believe our computer systems are generally year 2000 compliant, the computer systems of the FAA and our customers, suppliers, vendors, bankers, maintenance providers and air logistics service providers may not be year 2000 compliant. Failure of the computer systems of the FAA or one or more of our significant customers, suppliers, vendors or air logistics service providers to correctly record, manipulate or retrieve dates from the year 2000 and beyond could have a material adverse effect on our business and the value of the common stock. CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK Our Certificate of Incorporation, as amended, and Bylaws, as amended, include certain provisions that have anti-takeover effects and that could make it more difficult for a third party to acquire control of the Company, even if such change in control would be beneficial to our stockholders. In addition, the Certificate of Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any matter and prohibits non-U.S. citizens from serving as directors or officers of the Company. The Certificate of Incorporation allows us to issue up to 1,000,000 shares of preferred stock without stockholder approval. In addition, we could issue preferred stock with voting and conversion rights that could adversely affect the voting power of holders of common stock. The issuance of preferred stock could also result in a series of securities outstanding that would have preferences over the common stock with respect to dividends and in liquidation. Any of the foregoing could have a material adverse effect on the value of the common stock. 6 8 EFFECTS OF A CHANGE OF CONTROL Holders of the Notes have the right to require us to repurchase the Notes upon a Change of Control (as defined in the Indenture) and all debt under the Credit Facility and Term Loan must be repaid upon a Change of Control (as defined in the Credit Facility). Any of the foregoing provisions could have a material adverse effect on our business and the value of the common stock. INDUSTRY RELATED RISKS GOVERNMENT REGULATION GENERAL. We are subject to Title 49 of the United States Code (formerly the Federal Aviation Act of 1958, as amended), under which the Department of Transportation ("DOT") and the FAA exercise regulatory authority over air carriers. The DOT and the FAA have the authority to modify, amend, suspend or revoke the authority and licenses issued to us 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 our business and the value of the common stock. The adoption of new laws, policies or regulations or changes in the interpretation or application of existing laws, policies or regulations, whether by the FAA, the DOT, the U.S. government or any foreign, state or local government, could have a material adverse effect on our business and the value of the common stock. In addition, we are subject to regulation by various other federal, state, local and foreign authorities, including the Department of Defense and the Environmental Protection Agency. Our international operations are governed by air services agreements between the United States and foreign countries where we operate. Under some of these 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. air carriers and are subject to approval by the applicable foreign regulators, limiting growth opportunities in such countries. SAFETY, TRAINING AND MAINTENANCE REGULATIONS. Virtually every aspect of our air carrier operations are subject to extensive FAA regulation, including the areas of safety, training and maintenance. To ensure compliance with FAA rules and regulations, the FAA routinely inspects air carrier operations and aircraft and proposes civil monetary penalties in the event of non-compliance. The imposition of civil penalties by the FAA could have a material adverse effect on our business and the value of the common stock. Recently, the FAA proposed a $1 million civil penalty against us. The FAA alleges that we operated a Douglas DC-8 aircraft in a condition that violated FAA rules. We believe we have legal and factual defenses to the FAA's allegations, and we are currently negotiating a settlement with the FAA which could reduce the amount of the penalty. We cannot assure you that we will be able to settle this matter with the FAA or that we will be able to reduce the amount of the penalty. Periodically, the FAA focuses on particular aspects of air carrier operations. For example, after the Valujet accident, the FAA adopted new procedures concerning oversight of contract maintenance, and after the Fine Air crash, the FAA conducted extensive inspections of procedures for loading cargo aircraft. These types of inspections and regulations often impose additional burdens on air carriers and increase their operating costs. We cannot predict when we will be subject to such inspections or regulations, nor the impact of such inspections or regulations. Any such inspections or regulations could have a material adverse effect on our business and the value of the common stock. NOISE ABATEMENT REGULATIONS. Airline operators must comply with FAA noise control regulations primarily promulgated under the Airport Noise and Capacity Act of 1990 (the "NOISE REGULATIONS"). Currently, we are in compliance with the Noise Regulations. We own 71 aircraft and lease 7 aircraft that are affected by the Noise Regulations, consisting of 11 Boeing 747s (two of which are grounded due to a series of Directives unrelated to the Noise Regulations), eight Lockheed L-1011s, 19 Douglas DC-8s, 35 Boeing 727s and five Douglas DC-9-15Fs (collectively, the "JET FLEET"). 7 9 Each aircraft in the Jet Fleet must comply with Stage 3 of the Noise Regulations by January 1, 2000. Any aircraft not complying with Stage 3 of the Noise Regulations on January 1, 2000 may not be operated in the U.S. until it complies with Stage 3 of such regulations. Of the 78 aircraft in the Jet Fleet, 55 aircraft currently comply with Stage 3 of the Noise Regulations or are currently being modified to comply with Stage 3 of such regulations, including all of our Boeing 747s and Lockheed L-1011s. Only six of our 19 Douglas DC-8s comply with Stage 3 of the Noise Regulations. We do not intend to modify the 13 remaining Douglas DC-8s to meet Stage 3 of the Noise Regulations. We currently intend to sell these 13 Douglas DC-8s and replace them with nine leased Boeing 727s. See "Developments -- Additional Boeing 727s." In addition, eight of our Boeing 727s do not comply with Stage 3 of the Noise Regulations, not including two Boeing 727s currently being modified to comply with Stage 3 of such regulations and one Boeing 727 currently parked. Other than the parked Boeing 727, we currently anticipate modifying our remaining Boeing 727s to comply with Stage 3 of the Noise Regulations by January 1, 2000. We anticipate the aggregate cost of these modifications to be approximately $14.4 million, not including aircraft downtime. In addition, one of our Douglas DC-9-15Fs does not comply with Stage 3 of the Noise Regulations. We currently intend to modify this Douglas DC-9-15F to comply with Stage 3 of the Noise Regulations by January 1, 2000 at a cost of $1.5 million, not including aircraft downtime. Some airport operators have adopted local regulations which, among other things, impose curfews and other noise limiting requirements and other airport operators may do so in the future. Finally, our international operations are affected by noise regulations in foreign countries that may be stricter than those in effect in the U.S. CARGO DOOR AND FLOOR MODIFICATIONS REGULATIONS. We currently operate 31 Boeing 727s which were converted from passenger configuration to freighter configuration by installing a large cargo door and various cargo container handling systems. The FAA issued authorizations, called Supplemental Type Certificates ("STCs"), to four companies to convert Boeing 727s from passenger configuration to freighter configuration. All of these 31 Boeing 727s were converted to freighter configuration pursuant to three of the four STCs. The FAA has reevaluated these STCs and has determined that they do not meet FAA standards in several respects. The FAA has issued a Directive to address the first of its concerns -- the structural strength of the aircraft floor. Other areas of concern relate to the strength of various cargo-handling systems and are expected to be addressed later. Pursuant to the Directive, each operator of Boeing 727 freighter aircraft modified pursuant to any of the four STCs must limit the weight of each cargo container position and adopt other operating restrictions, until the operator can demonstrate that the floor strength meets the FAA's standards. Under the Directive, until we can demonstrate that the floor strength meets the FAA's standards, we must limit the weight of each cargo container position to approximately 4,000 pounds and after June 2001, we must limit the weight of each cargo container position to approximately 3,000 pounds. Currently, the maximum weight of each cargo container position is approximately 8,000 pounds. Most of our Boeing 727s have 12 cargo container positions. To address this problem, during the first half of 1998, we purchased one of these four STCs. Of the 31 Boeing 727s we currently operate, five were converted to cargo configuration pursuant to this STC. As the owner of this STC, we were able to receive authority from the FAA to modify these five Boeing 727s to raise the permissible weight of each cargo container position to approximately 6,000 pounds. We expect these modifications to take one to two days and to cost between $25,000 to $50,000 per aircraft, not including aircraft downtime. We expect to perform all of these modifications at our maintenance facilities. We have also applied to the FAA for authority to modify our remaining Boeing 727s to raise the permissible weight per cargo container position to approximately 6,000 pounds. We do not expect this Directive to have a material adverse effect on our business. The FAA is now reviewing the structural integrity of other types of cargo aircraft, including Douglas DC-8s and DC-9s. We are currently working with the FAA and other industry groups to 8 10 analyze these issues and propose solutions, if any. We do not expect this matter to have a material adverse effect on our business. AGING AIRCRAFT REGULATIONS; POTENTIAL COMPLIANCE COSTS. All of our aircraft are subject to FAA Directives issued at any time under the FAA's "Aging Aircraft" program or issued on an ad hoc basis. These Directives can cause us to conduct extensive examinations and structural inspections of our aircraft and to make modifications to our aircraft to address or prevent problems of corrosion and structural fatigue. For example, the FAA has issued a Directive requiring certain modifications to the engine pylons on all Boeing 747-100s and -200s by March 2000. Three of our Boeing 747s must be modified pursuant to this Directive at an anticipated cost of between $1 million and $1.5 million per aircraft, not including downtime of approximately 45 days per aircraft. We currently intend to modify two of these Boeing 747s in 1999 and the remaining Boeing 747 in 2000. We expect to modify one Boeing 747 during regularly scheduled maintenance to minimize the impact of its downtime and will seek to have the other two aircraft modified during scheduled maintenance to the extent practicable. Our cost to comply with FAA Directives issued under the Aging Aircraft program cannot currently be estimated, but could be substantial and could have a material adverse effect on our business and the value of the common stock. HAZARDOUS MATERIALS REGULATIONS. The FAA exercises regulatory jurisdiction over transporting hazardous materials. From time to time, we transport articles that are subject to these regulations. Shippers of hazardous materials share responsibility with the air carrier for compliance with these regulations and are primarily responsible for proper packaging and labeling. If we fail to discover any undisclosed hazardous materials or mislabel or otherwise ship hazardous materials, we may suffer possible aircraft damage or liability, as well as, substantial monetary penalties. Any of these events could have a material adverse effect on our business and the value of the common stock. The FAA has recently increased its monitoring of shipments of hazardous materials. CONTRABAND RISKS. Although required to do so, customers may fail to inform us about cargo that must be processed by applicable customs authorities. If we fail to properly process cargo through customs, our aircraft could be seized and/or we may suffer substantial monetary penalties. Any of these events could have a material adverse effect on our business and the value of the common stock. In addition, some of our aircraft fly to and from countries, such as Colombia, where substantial quantities of illegal drugs are manufactured. In the past, without our prior knowledge, individuals have tried to smuggle illegal drugs into the U.S. on our aircraft. If we fail to discover any illegal drugs or other illegal cargo on our aircraft, the aircraft could be seized and/or we may suffer substantial monetary penalties. Any of these events could have a material adverse effect on our business and the value of the common stock. FOREIGN OPERATIONS REGULATED. Some of our operations are conducted between the U.S. and foreign countries, as well as between two or more points located outside the United States. As with the certificates and licenses obtained from U.S. authorities, we must comply with all applicable rules and regulations imposed by foreign aeronautical authorities or risk having our foreign operating certificates or licenses revoked, suspended, amended or modified. STOCK OWNERSHIP BY NON-U.S. CITIZENS. Under current federal aviation law, our air freight carriers could cease to be eligible to operate as air freight carriers if more than 25% of our voting stock 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 must be U.S. citizens. All of our directors and officers are U.S. citizens. Furthermore, the Certificate of Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any matter, and our Bylaws do not permit non-U.S. citizens to serve as directors or officers. COMPETITION The market for air freight services is highly competitive. Our 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 9 11 numerous new entrants in this business. We believe there are limited barriers to entry into this business and that increased demand may stimulate additional competition. The market for air logistics also has been and is expected to remain highly competitive. Our 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. Our ability to attract and retain business also is affected by whether and to what extent our customers decide to coordinate their own transportation needs. With respect to our contract charter business, it could be adversely affected by the decision of its air carrier customers to acquire additional aircraft or by its non-air carrier customers to acquire and operate their own aircraft. In this regard, many of our competitors and customers have substantially greater financial resources than us. ENVIRONMENTAL MATTERS Our 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 clean up 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 clean up 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 cleaning up contaminated property and the cost of complying with environmental laws could have a material adverse effect on our business and the value of the common stock. Currently, we are not aware of any environmental contamination for which we are liable for the cost of removal or cleanup. Until May 2001, Conrad A. Kalitta, the former owner of the Kalitta Companies, has agreed, subject to certain limitations, to indemnify us against any losses arising from any environmental liability at any of the Kalitta Companies' facilities. In part because of the highly industrialized nature of many of the locations at which we operate, there can be no assurance that we have discovered all environmental contamination for which we may be responsible. CAPITAL INTENSIVE NATURE OF AIRCRAFT OWNERSHIP Our air freight carrier business is highly capital intensive. In order to expand our air freight carrier business, we intend to purchase new or used jet aircraft. Used jet aircraft typically require certain modifications, including reconfiguring the aircraft from passenger to cargo use and installing equipment to comply with the Noise Regulations. The market for used jet aircraft is volatile and can be adversely affected by limited supply, increased demand and other market factors. We cannot assure you that we will be able to purchase and, if necessary, modify additional aircraft at favorable prices or that we will have or be able to obtain sufficient resources with which to make such purchases and, if necessary, modifications. The capital intensive nature of our business could adversely impact the value of the common stock. In the future, we may acquire domestic and/or international air freight carriers as a means of acquiring used jet aircraft. Such an acquisition would involve substantial risks, including overvaluing the acquired business and inadequately or unsuccessfully integrating the acquired business. In addition, the terms of the Credit Facility and Term Loan restrict our ability to make certain acquisitions. Further, acquisitions can result in increased amortization which would reduce earnings per share in the future. We may finance future acquisitions, if any, by issuing shares of common stock. Any future issuance of common stock may result in substantial dilution to you. 10 12 OPERATING COSTS The operation of our air freight carrier business involves considerable operational, maintenance, fuel and personnel costs. Our financial results can be adversely affected by unexpected engine or airframe repairs, compliance with 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 our business and the value of the common stock. Fuel is a significant cost of operating aircraft. 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 and may rise in 1999. We have no agreement with any fuel supplier assuring the availability or price stability of fuel and such agreements are generally not available in the industry. We generally pass on fuel cost increases to our customers under charter contracts that call for us to provide only aircraft, crews, maintenance and insurance ("ACMI"). However, under some of our contracts and in our scheduled operations, we absorb increased fuel costs. Accordingly, the future cost and availability of fuel to us cannot be predicted and substantial price increases in, or the unavailability of adequate supplies of, fuel may have a material adverse effect on our business and the value of the common stock. 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, general economic downturns could have a material adverse effect on our business and the value of the common stock. UTILIZATION OF AIRCRAFT Our operating results are highly dependent on our ability to effectively utilize our diverse fleet of aircraft. There can be no assurance, however, that operation of any of the various types of aircraft in our fleet will prove to be profitable. Inability to keep our aircraft in revenue service or achieve an acceptable level of aircraft utilization could have a material adverse effect on our business and the value of the common stock. RISK OF ACCIDENT; INSURANCE COVERAGE AND EXPENSES Our operations involve risks of potential liability against us in the event of aircraft accidents and, in the case of our air ambulance services, for medical malpractice. We are required by the DOT to carry liability insurance on each of our aircraft. We also carry medical liability insurance for our air ambulance business. Although we believe our current insurance coverage is adequate and consistent with current industry practice, we cannot assure you that our coverage will not be changed or that we will not suffer substantial losses and lost revenues from accidents. See "Risk Factors -- Dependence on Aircraft Availability." Substantial claims resulting from an accident in excess of our insurance coverage could have a material adverse effect on our business and the value of the common stock. In addition, any significant increase in our current insurance expense could have a material adverse effect on our business and the value of the common stock. Moreover, any aircraft accident, even if fully insured, could result in Directives or investigations or could cause a public perception that some of our aircraft are less safe or reliable than other aircraft, which could have a material adverse effect on our business and the value of the common stock. INTERNATIONAL BUSINESS RISK We expect to continue to derive a substantial portion of our 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: (1) potential adverse changes in the diplomatic relations between foreign countries and the U.S.; (2) hostility from local populations directed at a U.S. flag carrier; 11 13 (3) government policies against foreign-owned businesses; (4) adverse effects of currency exchange controls; (5) restrictions on the withdrawal of foreign investment and earnings; and (6) the risk of expropriation and insurrections that could result in losses against which we are not insured. Our international operations also are subject to economic uncertainties, including risks of renegotiation or modification of existing agreements or arrangements with exchange restrictions and changes in taxation. Any of these events could have a material adverse effect on our business and the value of the common stock. Nearly all of our revenue is in U.S. dollars. However, a meaningful portion of our revenue is from customers whose revenue is not in U.S. dollars. Therefore, any significant devaluation in our customers' currencies relative to the U.S. dollar could adversely effect their ability to pay us in U.S. dollars or to continue to use our services, which could have a material adverse effect on our business and the value of the common stock. FORWARD LOOKING STATEMENTS Statements contained in this prospectus or incorporated by reference into this prospectus, which can be identified by the use of forward looking terminology, such as "may," "will," "expect," "could," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology, are forward looking statements. See "Risk Factors" for cautionary statements identifying important factors with respect to such forward looking statements, including important risks and uncertainties that could cause actual results to differ materially from results referred to in the forward looking statements. There can be no assurance that our expectations regarding any of these matters will be fulfilled. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the Security and Exchange Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on its public reference room. Our Securities and Exchange Commission filings are also available to the public at the Securities and Exchange Commission's web site at http://www.sec.gov or at the offices of the National Association of Securities Dealers, Inc., 1735 K. Street N.W., Washington, D.C. 20006. We have filed a Registration Statement on Form S-3 (Registration No. 333-_____) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission of which this prospectus is a part. This prospectus does not contain all of the information set forth in the Registration Statement, some of which is contained in exhibits to the Registration Statement. Statements in this Registration Statement concerning the contents of exhibits to this Registration Statement are not necessarily complete, and therefore, we refer you to the exhibit for a more complete description of the exhibit. Each statement in this Registration Statement regarding the contents of an exhibit to the Registration Statement is qualified in its entirety by reference to such exhibit. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Securities and Exchange Commission allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. You should consider the information incorporated by reference to be part of this prospectus, and information that we file later with the Securities and Exchange Commission will automatically update and replace this information. We incorporate by reference the documents listed below and any future filings we make with the Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the earlier of the 12 14 selling stockholders selling all the shares of common stock or this offering terminating. See "Plan of Distribution." (1) Amendment No. 1 to Current Report on Form 8-K filed with the Commission on November 7, 1997; (2) Current Report on Form 8-K filed with the Commission on December 4, 1997; (3) Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (4) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; (5) Definitive Proxy Statement for our 1998 Annual Meeting of Stockholders filed on April 30, 1998 (the "PROXY STATEMENT"); and (6) The description of the common stock included in our Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 1, 1996. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Investor Relations Kitty Hawk, Inc. 1515 West 20th Street P.O. Box 612787 Dallas/Fort Worth International Airport, Texas 75261 (972) 456-2200 YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS PROSPECTUS OR THE SUPPLEMENTS TO THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. THE SELLING STOCKHOLDERS ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT TO THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS. THE COMPANY We have three main businesses. First, we are a leading U.S. and international provider of air freight carrier services, which means that we transport air freight in airplanes that we charter to third parties. In this business, we charge customers for the use of the entire airplane, regardless of the amount of freight we transport for them, and each airplane flies for only one customer at a time. Second, we are a leading provider of scheduled freight services, which means that we transport air freight on scheduled routes, and each airplane generally transports the freight of multiple customers at the same time. In this business, we charge customers by the size and the weight of the freight shipped. Finally, we are a leading provider of air logistics services in the U.S., which means that we arrange the delivery of air freight on an expedited basis, whether on our airplanes or those of a third party. In addition, we provide certain engine maintenance services for third parties as well as for our fleet of Boeing 727s, Douglas DC-8s and Douglas DC-9s. AIR FREIGHT CARRIER SERVICES We are a leading provider of air freight carrier services. Our air freight carrier operations include: (1) contractual charters under which we generally supply aircraft, crews, maintenance and insurance to a customer for multiple flights on the same route; and (2) on-demand charters which are generally ad hoc single trips. 13 15 SCHEDULED FREIGHT SERVICES Our scheduled freight operations include an overnight freight service operating within a network of approximately 45 North American cities and a service between Los Angeles, the Hawaiian Islands and several Pacific Rim countries. AIR LOGISTICS SERVICES We are a leading provider of same-day air logistics services in the U.S. We arrange the delivery of time sensitive freight using aircraft of third party air freight carriers as well as our own fleet. OTHER We provide comprehensive aircraft maintenance services, including airframe repair and engine overhauls, for our fleet of Boeing 727s and Douglas DC-8s, and we provide engine overhaul services for our fleet of Douglas DC-8s. We also provide engine overhaul services to third parties for JT3 engines, which are used on Douglas DC-8s, and JT8 engines, which are used on Boeing 727s and Douglas DC-9s. We have major maintenance facilities in Oscoda and Ypsilanti, Michigan and Dallas, Texas. In addition, we operate an air ambulance service. See the information under the caption "Business" in our Annual Report on Form 10-K for the year ended December 31, 1997, for a more complete description of our business. We are incorporated in the State of Delaware. Our principal executive offices are located at 1515 West 20th Street, Dallas/Fort Worth International Airport, Texas 75261 and our telephone number at that address is (972) 456-2200. Our website is located at http://www.kha.com. DEVELOPMENTS SUMMARY OF UNAUDITED FOURTH QUARTER AND 1998 FINANCIAL RESULTS For the fourth quarter of 1998, net income increased 125% to $11.5 million, up from pro forma net income of $5.1 million for the fourth quarter of 1997. Total revenues for the fourth quarter of 1998 increased 13% to $236.7 million, up from pro forma revenues of $209.6 million for the fourth quarter of 1997. For 1998, net income increased to $16.6 million as compared to a pro forma loss of $960,000 in 1997. For 1998, total revenues increased 13% to $714.9 million, up from pro forma revenues of $631.3 million for 1997. Air freight carrier revenues were up 13% to $602.9 million in 1998 from pro forma revenues of $531.6 million in 1997. Air logistics services revenues were up 14.6% to $80.8 million in 1998 from $70.5 million in 1997. The foregoing unaudited pro forma financial results for the fourth quarter of 1997 and the year ended December 31, 1997 give effect to: (1) the acquisition of the Kalitta Companies; (2) the issuance of the Notes; (3) the incurrence of the Term Loan; and (4) the acquisition of 16 Boeing 727s from the Kalitta Companies; as if each of these transactions had been consummated on January 1, 1997. This information is presented for illustrative purposes only and does not purport to present our results of operations had these transactions occurred on January 1, 1997, nor are they necessarily indicative of the results of operations which may be expected to occur in the future. 14 16 No pro forma adjustments have been applied to reflect: (1) revenues or operating costs generated from two Boeing 747s purchased in February 1998 and modified to cargo configuration with approximately $56 million of the net proceeds from the sale of the Notes and other internally generated funds; or (2) operating efficiencies or cost savings (other than approximately $1.5 million of insurance savings) resulting from the acquisition of the Kalitta Companies. In addition, pro forma results have not been adjusted to eliminate: (1) abnormally high engine maintenance expenses; (2) costs incurred to add and maintain flight crews in anticipation of increased air freight carrier business which had not yet materialized in part due to delays in acquiring aircraft; and (3) start-up costs previously incurred to establish our wide-body passenger charter business. RESTRUCTURING OF KITTY HAWK INTERNATIONAL Recently we changed the name of American International Airways, Inc. to Kitty Hawk International, Inc. Due to continued losses at Kitty Hawk International, we are in the process of restructuring Kitty Hawk International to focus on its core business of air freight transportation in wide body aircraft. See "Risk Factors -- Company Related Risks - Continued Losses at Kitty Hawk International." Therefore, we have eliminated our passenger charter division and have parked the two passenger Boeing 747s and two passenger Lockheed L-1011s in that division. We are currently deciding whether to sell the aircraft, convert them to cargo configuration or employ them in other uses. Because all four of these aircraft are collateral under the Notes, any sales must be made in compliance with the Indenture. Further, we have stopped providing third party airframe repair and engine overhaul services, other than on JT3 engines, which are used on Douglas DC-8s, and JT8 engines, which are used on Boeing 727s and Douglas DC-9s. In addition, we have entered into agreements to outsource a majority of our major maintenance on our fleet of Boeing 747s, Lockheed L-1011s and Douglas DC-8s, other than engine overhauls on JT3 engines. We currently anticipate that by December 31, 1999 our Oscoda, Michigan maintenance facility will be dedicated to: (1) comprehensive airframe repairs and engine overhaul services for our fleet of Boeing 727s and Douglas DC-9s; (2) comprehensive engine overhaul services for our fleet of Douglas DC-8s; (3) light maintenance checks on our fleet of Boeing 747s, Lockheed L-1011s and Douglas DC-8s; and (4) third party JT3 and JT8 engine overhauls. In connection with these changes, we eliminated approximately 450 jobs at Kitty Hawk International in 1998 and intend to eliminate approximately 1,050 additional jobs at Kitty Hawk International in 1999. In addition, we intend to close surplus portions of our Oscoda, Michigan maintenance facility. Further, we intend to reduce Kitty Hawk International's owned and leased operating fleet from 36 aircraft at December 31, 1998 to 19 aircraft at December 31, 1999, consisting of seven Boeing 747s, six Lockheed L-1011s and six Douglas DC-8s. These aircraft numbers do not include our owned and leased Boeing 727s and Douglas DC-9s operated by Kitty Hawk Aircargo, Inc., our air freight carrier that operates narrow body aircraft, or the small aircraft owned and operated by Kitty Hawk Charters, Inc., our small aircraft operator. 15 17 In connection with the closing of surplus portions of our Oscoda, Michigan maintenance facility, we took a $1 million charge in the fourth quarter of 1998. We do not currently anticipate taking any additional material charges in connection with this restructuring. BOEING 727 CARGO FLOOR MODIFICATION DIRECTIVE The FAA recently adopted a Directive requiring operators of Boeing 727 aircraft converted to cargo configuration pursuant to four STCs to limit the weight per cargo container position until the aircraft is modified to be in compliance with FAA standards. We currently operate 31 Boeing 727s that are affected by this Directive. In the first half of 1998, we purchased one of the four STCs and recently received approval from the FAA to modify five of these Boeing 727s to raise the permissible weight per cargo container position to approximately 6,000 pounds. We expect these modifications to take one to two days per aircraft and to cost between $25,000 and $50,000 per aircraft, not including aircraft downtime. In addition, we have applied to the FAA for authority to modify our remaining Boeing 727s to raise the permissible weight per cargo container to approximately 6,000 pounds. See "Risk Factors -- Industry Related Risks -- Government Regulation -- Cargo Door and Floor Modifications Regulations." RESIGNATION OF MR. KALITTA AND SEPARATION AGREEMENT On April 17, 1998, Mr. Kalitta resigned from his position as our Vice Chairman and from all other officer and employee positions of the Company, including his position as Chief Executive Officer and President of Kitty Hawk International. Mr. Kalitta joined the Company upon the consummation of our November 1997 acquisition (the "ACQUISITION") of the Kalitta Companies from Mr. Kalitta. In connection with his resignation, the Company, Mr. Kalitta and certain other affiliated parties entered into a Separation Agreement dated April 17, 1998, which was subsequently amended on June 5, 1998 (as amended, the "SEPARATION AGREEMENT"). Since that time, the parties to the Separation Agreement entered into an Agreement dated January 21, 1999 that modified certain provisions of the Separation Agreement. Under these agreements, the Company, Mr. Christopher and Mr. Kalitta terminated all voting and other agreements entered into in connection with the Acquisition that ensured Mr. Christopher and Mr. Kalitta certain rights to hold and fill officer and director positions of the Company and its subsidiaries. Pursuant to these agreements, the Company granted Mr. Kalitta certain rights to demand registration ("DEMAND REGISTRATION RIGHTS") of up to 2,900,000 shares of common stock until June 30, 2000. In addition, Mr. Kalitta granted Mr. Christopher the right to vote all shares of common stock owned by Mr. Kalitta until June 30, 2000. Pursuant to the terms of the Separation Agreement, Mr. Kalitta amended his employment agreement with Kitty Hawk International to provide that he will not engage in the air cargo charter management, or charter brokerage business, or in the business of ad hoc or scheduled carriage of air freight under Federal Aviation Administration Part 121 or Part 135 certificates, within the United States, until April 17, 2001, either directly or indirectly, whether as an employee, agent, consultant, broker, partner, principal, owner, stockholder or otherwise (provided that he shall be permitted to purchase up to a 5% interest in any publicly traded company in any such businesses). Until April 17, 2001, Mr. Kalitta agreed: (1) not to serve as an employee, officer or director of, consultant to, or independent contractor for, Trans Continental Airlines, Inc. ("TRANSCON"), an air freight carrier owned by Scott Kalitta, Mr. Kalitta's son, or TransCon's affiliates; (2) to cause his affiliates not to, capitalize, make loans to or otherwise finance TransCon in excess of an aggregate principal amount of $7,500,000 outstanding at any one time; and (3) to cause his affiliates not to, lease more than an aggregate of three aircraft of all types to TransCon at any one time. Under the terms of his amended employment agreement, Mr. Kalitta and any affiliate of Mr. Kalitta may: 16 18 (1) buy, modify, sell and lease aircraft, aircraft engines and aircraft equipment; (2) deal in or with STCs, except that neither Mr. Kalitta, nor any affiliate of Mr. Kalitta, may use his or such affiliate's STCs to modify Boeing 727 aircraft from passenger to freighter configuration until April 17, 2001. Additionally, until April 17, 1999, without our prior written approval, neither Mr. Kalitta nor any of his affiliates shall, directly or indirectly, employ or contract with any individual employed by Kitty Hawk International, Inc. or any of its affiliates as of April 17, 1998 or at any time within such one year period. Mr. Kalitta also has agreed to, among other things, repay certain loans owed to us by his affiliates, purchase certain non-airline related assets, pay future legal fees and costs associated with the litigation of certain claims we have against GATX-Airlog Company (in exchange for the receipt of all recoveries from such litigation) and abide by certain customary standstill provisions for a three year period. ADDITIONAL BOEING 747S During 1998, we acquired two Boeing 747-200s and had them converted to cargo configuration by Boeing. The first aircraft was redelivered to us in October 1998 and entered revenue service. The other Boeing 747 was redelivered to us in November 1998 and entered revenue service. In July 1998, our Oscoda, Michigan maintenance facility completed the cargo conversion of a Boeing 747-200 that we acquired in September 1997. The FAA approved the cargo conversion and the aircraft is currently in revenue service. During the approval process, the FAA determined that the structure that connects the wings to the aircraft had not been modified in certain respects and decided to limit the maximum payload of the aircraft to 200,000 pounds rather than the anticipated 240,000 pounds. The reduction in payload capacity could reduce the hourly revenue rate for the aircraft by as much as 6% from the anticipated hourly revenue rate. The FAA has also asked us to voluntarily reduce the maximum payload of two other Boeing 747-200s that have a similar issue. These two other Boeing 747s were converted to cargo configuration prior to our acquisition of the Kalitta Companies. Former management of the Kalitta Companies did not disclose this issue to our management, who did not know of the issue until the FAA raised it. We currently intend to modify each of these three Boeing 747s to fix this problem in the second half of 1999 at a cost not expected to exceed $150,000 per aircraft, not including aircraft downtime. Pending modification of these aircraft, we have decided not to reduce the maximum payload of the other two Boeing 747s affected by this problem. ADDITIONAL BOEING 727S Recently, we entered into an agreement to lease nine Boeing 727s for a period of seven years each with an option to renew each lease for an additional two year term. We expect three of these aircraft will enter revenue service in 1999 and the other six aircraft will enter revenue service in 2000. The lessor will pay the cost to modify the aircraft to cargo configuration and to bring the aircraft into compliance with Stage 3 of the Noise Regulations. MODIFICATION OF REEVES EMPLOYMENT AGREEMENT AND GRANT OF OPTIONS In April 1998, we entered into a Modified and Restated Employment Agreement (the "EMPLOYMENT AGREEMENT") with Mr. Reeves. The Employment Agreement modifies and supercedes Mr. Reeves' prior employment agreement in its entirety. The terms of the Employment Agreement are substantially similar to those of Mr. Reeves' prior employment agreement, except for the following: (1) Mr. Reeves' annual base salary was increased from $115,000 to $400,000. (2) in the event we terminate Mr. Reeves' employment other than as a result of Mr. Reeves' material breach of the Employment Agreement, Mr. Reeves' guaranteed post-termination compensation was increased from one year at 100% of his then-current salary and two additional years at 50% of his then-current salary to five years at 100% of his then-current salary, payable at the time he would have received it absent termination; and 17 19 (3) Mr. Reeves was granted a non-qualified stock option (the "OLD OPTION") to acquire 400,000 shares of common stock at an exercise price of $16.75 per share. The option vested as to 100,000 shares on each of April 27, 1999, 2000, 2001 and 2002. However, in general, in the event of our dissolution or liquidation, our reorganization, merger or consolidation where we were not the surviving entity, or our sale of substantially all of our property, the option became immediately exercisable in full. In addition, upon our termination of Mr. Reeves' employment without cause or upon Mr. Reeves' death or disability, the option became immediately exercisable in full. The option terminated on the earlier of December 31, 2005 or the 12 month anniversary of Mr. Reeves' death. In addition, if we terminated Mr. Reeves' employment for cause or if Mr. Reeves voluntarily terminated his employment before reaching age 65, other than for disability, the option terminated immediately. Further, we could have immediately terminated the option if during or after Mr. Reeves' employment, Mr. Reeves directly or indirectly engaged in competition with us or disclosed any of our proprietary and confidential business information in breach or violation of any agreement. The option generally provided for customary anti-dilution protection for Mr. Reeves and granted Mr. Reeves rights to register shares he received under the option at the same time and in the same proportion as Mr. Christopher registered shares of common stock. Neither Messrs. Christopher or Reeves have contractual rights to cause us to register shares of common stock. For a discussion of the terms of Mr. Reeves' prior employment agreement, see "Executive Compensation -- Employment Contracts" in the Proxy Statement. In February 1999, we replaced the Old Option with a non-qualified stock option (the "NEW OPTION") to acquire 400,000 shares of common stock at an exercise price of $16.75 per share. The New Option was granted under the Kitty Hawk, Inc. 1999 Executive Stock Option Plan (the "OPTION PLAN") and is subject to stockholder approval of the Option Plan at the 1999 Annual Meeting of Stockholders. In connection with the grant of the New Option, Mr. Christopher irrevocably agreed to vote all shares of common stock he is entitled to vote in favor of approving the Option Plan at the 1999 Annual Meeting of Stockholders. Mr. Christopher currently has the right to vote approximately 58.2% of the common stock, which is greater than the majority approval required to approve the Option Plan. The terms of the New Option are substantially the same as the terms of the Old Option, except that the New Option vests as to 200,000 shares on February 24, 1999 and an additional 100,000 shares on each of February 24, 2000 and 2001 and fully vests immediately upon a change of control of the Company. In addition, the term of the New Option was extended from December 31, 2005 to February 24, 2009. LITIGATION CONCERNING AMERICAN INTERNATIONAL CARGO As a result of our acquisition of AIA (now Kitty Hawk International), we acquired a 60% interest in a general partnership named American International Cargo ("AIC"). Pacific Aviation Logistics, Inc. ("PAL") owned the remaining 40% interest in AIC and was the managing partner of AIC. Beti Ward, who owns PAL, was the general manager of AIC. AIC operates a scheduled air freight service between Los Angeles, Honolulu and various destinations in the Pacific. AIC does not own any aircraft and currently leases all of its aircraft and facilities from us. In August 1998, we called a partnership meeting to designate AIA as the managing partner of AIC and to replace Ms. Ward as general manager. In response, Ms. Ward and PAL filed suit to prevent these actions and requested the court to dissolve AIC. While these issues were being addressed in court, we reached a settlement with Ms. Ward and PAL. The terms of the settlement are: (1) AIC will pay PAL a $5.4 million cash distribution from PAL's capital account in AIC. (2) We will give Ms. Ward and PAL a promissory note for an additional $2.35 million, payable in three annual installments of $700,000 each and one final payment of $250,000. This promissory note bears interest at a rate of 9.98%, and interest is payable semi-annually. (3) Ms. Ward and PAL will transfer to us all of their interest in AIC and its business. 18 20 (4) Ms. Ward and PAL will broadly covenant not to compete in the Los Angeles and Honolulu air freight markets for a period of three and one-half years. (5) Ms. Ward and PAL will return approximately $180,000 worth of AIC's property. (6) All the parties will exchange mutual releases, but we will retain the right to pursue audit actions and seek other limited recoveries against Ms. Ward and PAL. As a result of the settlement, we now have full ownership and control of AIC and its business is being conducted without interruption. USE OF PROCEEDS We will not receive any of the proceeds from the sale of common stock by the Selling Stockholders. SELLING STOCKHOLDERS This prospectus covers the Selling Stockholders' sale from time to time of up to 200,000 shares of common stock. The following table lists the name of each Selling Stockholder, the number of shares of common stock owned by each Selling Stockholder before this offering, the number of shares of common stock that may be offered by each Selling Stockholder pursuant to this prospectus and the number of shares of common stock to be owned by each Selling Stockholder upon completion of this offering, assuming all shares registered hereby are sold. The information below is as of the date of this prospectus.
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF OWNED OWNED BENEFICIALLY SHARES BENEFICIALLY BEFORE THE BEING AFTER THE NAME OFFERING SOLD OFFERING - ----------------------------------- ------------------- --------- ------------- Doug Kalitta(1) ................... 50,000 50,000 -- (2) George Kelsey(3) .................. 50,000 50,000 -- (2) Mary A. Phillips(4) ............... 150,000(5) 50,000 100,000 (2)(5) Don Schilling(6) .................. 50,000 50,000 -- (2)
- ---------- (1) Mr. Kalitta serves as Kitty Hawk International's Vice President of Customer Management, and prior to November 19, 1997, Mr. Kalitta served as a member of AIA's Board of Directors and as AIA's Vice President of Central and South American Operations. (2) Represents less than 1% of the outstanding shares of common stock. (3) Mr. Kelsey served as a member of the Company's Board of Directors from November 19, 1997 until May 29, 1998 and as a member of AIA's Board of Directors prior to November 19, 1997. Mr. Kelsey is an attorney and has represented the Company or the Kalitta Companies for more than 12 years. (4) Mrs. Phillips serves as the Company's Vice President and Chief Information Officer. On June 26, 1998, the Company purchased all of the outstanding capital stock of Longhorn Solutions, Inc. from Mrs. Phillips for 150,000 shares of common stock. (5) Includes 25,000 shares of common stock held in escrow by the Company until June 26, 2000 to satisfy Mrs. Phillips' indemnification obligations, if any, under a Stock Purchase Agreement, dated as of June 26, 1998, by and between the Company and Mrs. Phillips, pursuant to which the Company purchased all of the outstanding capital stock of Longhorn Solutions, Inc. from Mrs. Phillips. 19 21 (6) Mr. Schilling served as President of Flight One Logistics, Inc., Kitty Hawk Charters, Inc. (then named Kalitta Flying Service, Inc.) and O.K. Turbines, Inc. through June 15, 1998 and as a member of AIA's Board of Directors prior to November 19, 1997. Mr. Schilling does not currently work for the Company. PLAN OF DISTRIBUTION The Selling Stockholders may sell their shares of common stock in one or more transactions on the Nasdaq Stock Market, in special offerings, secondary distributions, negotiated transactions, or a combination of such. They may sell at market prices at the time of sale, at prices related to the market price or at negotiated prices. This offering will terminate on the earlier of: (1) the date on which all shares offered hereby have been sold by the Selling Stockholders; or (2) the 60th day after the date hereof. LEGAL MATTERS The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for the Company and the Selling Stockholders by Haynes and Boone, LLP, Dallas, Texas. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 1997, as set forth in their report, which is incorporated in this prospectus by reference. Our consolidated financial statements are incorporated by reference in reliance on their report, given on their authority 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, incorporated by reference in this prospectus and Registration Statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports 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 7, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report incorporated herein by reference. Such reports have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 20 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee ............. $ 500 Printing Expenses ............................................... 5,000 Accounting Fees and Expenses .................................... 15,000 Legal Fees and Expenses ......................................... 15,000 Fees of Transfer Agent and Registrar ............................ 500 Miscellaneous Expenses 1,000 TOTAL .................................................. $37,000
All of the above expenses except the Securities and Exchange Commission registration fee are estimated. All of such expenses will be borne by the Company. ITEM 15. 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 a merger agreement, the Company has agreed to indemnify each person who was as of, or has been 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 23 ITEM 16. EXHIBITS
Exhibit No. Exhibit - ----------- -------- 4.1 Certificate of Incorporation of Kitty Hawk, Inc. (the "Company"), filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is incorporated herein by reference. 4.2 Amendment No. 1 to the Certificate of Incorporation of the Company, filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is incorporated herein by reference. 4.3 Amended and Restated Bylaws of Kitty Hawk, filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference. 4.4 Specimen Common Stock Certificate, filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, which exhibit is incorporated herein by reference. 4.5 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, filed as an exhibit to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-43645), which exhibit is incorporated herein by reference. 4.6 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, filed as an exhibit to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-43645), which exhibit is incorporated herein by reference. 5.1** Opinion of Haynes and Boone, LLP, Special Counsel of the Company, as to the validity of Common Stock to be offered. 10.1* Separation Agreement, dated as of April 17, 1998, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.2* Amendment No. 1 to Separation Agreement, dated as of June 5, 1998, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.3* Agreement, dated as of January 21, 1999, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.4* Modified and Restated Employment Agreement, dated as of April 27, 1998, by and between the Company and Tilmon J. Reeves. 10.5* Stock Option Agreement, dated as of April 27, 1998, by and between the Company and Tilmon J. Reeves. 10.6* Non-Qualified Stock Option Agreement, dated as of February 24, 1999, by and among the Company, M. Tom Christopher and Tilmon J. Reeves. 10.7* 1999 Kitty Hawk, Inc. Executive Stock Option Plan, dated as of February 24, 1999. 21.1* Subsidiaries of the Registrant. 23.1** Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1. 23.2* Consent of Ernst & Young LLP. 23.3* Consent of Deloitte & Touche LLP. 24.1* Power of Attorney of the Directors and certain Executive Officers of the Company (on signature page hereof).
- ------------- * Filed herewith. ** To be filed by amendment. ITEM 17. UNDERTAKINGS The undersigned Registrant 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; II-2 24 (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) that, for the purpose of determining any liability under the Securities Act of 1933, 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; and (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. The undersigned Registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 of 1933 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 of 1933 and will be governed by the final adjudication of such issue. II-3 25 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on the 12th day of March, 1999. KITTY HAWK, INC. By: /s/ RICHARD R. WADSWORTH -------------------------------------- Richard R. Wadsworth Senior Vice President -- Finance, Chief Financial Officer and Secretary POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of Kitty Hawk, Inc. (the "Company") hereby constitutes and appoints, M. Tom Christopher and Richard R. Wadsworth, or either of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file any and all documents relating to this Registration Statement, including any and all amendments, exhibits and supplements thereto and including any Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933, with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on the 12th day of March, 1999:
NAME CAPACITIES ---- ---------- /s/ M. TOM CHRISTOPHER Chairman of the Board of Directors and - ------------------------------------- Chief Executive Officer M. Tom Christopher /s/ TILMON J. REEVES Chief Operating Officer, President and - ------------------------------------- Director Tilmon J. Reeves /s/ CONRAD A. KALITTA Director - ------------------------------------- Conrad A. Kalitta Senior Vice President -- Finance, Chief /s/ RICHARD R. WADSWORTH Financial Officer, Secretary, Principal - ------------------------------------- Financial and Accounting Officer and Richard R. Wadsworth Director /s/ PHILIP J. SAUDER Director - ------------------------------------- Philip J. Sauder /s/ TED J. COONFIELD Director - ------------------------------------- Ted J. Coonfield /s/ LEWIS S. WHITE Director - ------------------------------------- Lewis S. White
II-4 26 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 4.1 Certificate of Incorporation of Kitty Hawk, Inc. (the "Company"), filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is incorporated herein by reference. 4.2 Amendment No. 1 to the Certificate of Incorporation of the Company, filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, which exhibit is incorporated herein by reference. 4.3 Amended and Restated Bylaws of Kitty Hawk, filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and incorporated herein by reference. 4.4 Specimen Common Stock Certificate, filed as an exhibit to the Registrant's Registration Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, which exhibit is incorporated herein by reference. 4.5 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, filed as an exhibit to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-43645), which exhibit is incorporated herein by reference. 4.6 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, filed as an exhibit to the Registrant's Registration Statement on Form S-4 (Reg. No. 333-43645), which exhibit is incorporated herein by reference. 5.1** Opinion of Haynes and Boone, LLP, Special Counsel of the Company, as to the validity of Common Stock to be offered. 10.1* Separation Agreement, dated as of April 17, 1998, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.2* Amendment No. 1 to Separation Agreement, dated as of June 5, 1998, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.3* Agreement, dated as of January 21, 1999, by and among the Company, M. Tom Christopher, Conrad A. Kalitta and certain subsidiaries of the Company. 10.4* Modified and Restated Employment Agreement, dated as of April 27, 1998, by and between the Company and Tilmon J. Reeves. 10.5* Stock Option Agreement, dated as of April 27, 1998, by and between the Company and Tilmon J. Reeves. 10.6* Non-Qualified Stock Option Agreement, dated as of February 24, 1999, by and among the Company, M. Tom Christopher and Tilmon J. Reeves. 10.7* 1999 Kitty Hawk, Inc. Executive Stock Option Plan, dated as of February 24, 1999. 21.1* Subsidiaries of the Registrant. 23.1** Consent of Haynes and Boone, LLP, contained in the opinion filed as Exhibit 5.1. 23.2* Consent of Ernst & Young LLP. 23.3* Consent of Deloitte & Touche LLP. 24.1* Power of Attorney of the Directors and certain Executive Officers of the Company (on signature page hereof).
- ------------ * Filed herewith. ** To be filed by amendment. II-5 EX-10.1 2 SEPARATION AGREEMENT - CONRAD A. KALITTA 1 EXHIBIT 10.1 EXECUTION COPY SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (the "AGREEMENT") is entered into this 17th day of April, 1998, by and among, Kitty Hawk, Inc., a Delaware corporation (collectively with its subsidiaries, unless the context otherwise requires, the "COMPANY"), M. Tom Christopher ("CHRISTOPHER"), Conrad A. Kalitta ("KALITTA"), Kalitta Motorsports, L.L.C., a Michigan limited liability company ("MOTORSPORTS"), Kalitta L.L.C., a Michigan limited liability company ("KALITTA LLC"), 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") and O.K. Turbines, Inc., a Michigan corporation ("OKT"). AIA, AIT, FOL, KFS and OKT shall be collectively referred to as the "KALITTA COMPANIES." W I T N E S S E T H WHEREAS, Kalitta desires to resign as an officer and employee of the Company; WHEREAS, in light of the resignation of Kalitta, the parties desire to provide for the termination of certain of Kalitta's various contractual and other relationships with the Company (other than his position as a director of the Company and certain other contractual rights); and WHEREAS, to accomplish this objective the parties desire to, among other things, amend that certain Stockholders' Agreement dated as of November 19, 1997 (the "STOCKHOLDERS' AGREEMENT"), by and among the Company, Christopher and Kalitta and that certain Employment Agreement, dated September 19, 1997, by and between AIA and Kalitta (the "EMPLOYMENT AGREEMENT"); NOW, THEREFORE, in consideration of the premises, the terms and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T 1. Definitions in Stockholders' Agreement. The parties hereto hereby amend the Stockholders' Agreement, in accordance with Section 8.4 thereof, by (i) deleting the definition of "Permitted Transferee" in Section 1.1 thereof in its entirety and replacing it with the following definition, (ii) deleting clause (iii) of the definition of "Registration Expenses" in its entirety and replacing it with the following, and (iii) adding the following definition of "Required Filing Date" to Section 1.1 thereof: "Permitted Transferee" means (i) with respect to Kalitta, any one or more of Douglas Kalitta, George Kelsey, Donald Schilling up to a limit of 50,000 shares of Common Stock for each of them, and (ii) any Family Member of such Stockholder or a trustee of a trust for the sole benefit of - 1 - 2 such Stockholder and/or Family Member of such Stockholder or any partnership, partnership, corporation or other entity which is controlled by such Stockholder and/or 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 of such proposed Transfer 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. "Registration Expenses" means ... (iii) any underwriting discounts and commissions relating to the Common Stock being sold by the Selling Stockholder; provided, that in the case of a Demand Registration pursuant to Section 6.1.1, any underwriting discounts or commissions shall not exceed 5.5%. "Required Filing Date" means the sixtieth (60th) day following receipt by the Company of a Demand Request; provided, that with respect to a First Demand Request received after May 19, 1998 but prior to May 23, 1998, "Required Filing Date" shall mean the fifth (5th) day following receipt by the Company of such First Demand Request." 2. Term of Stockholders' Agreement. The parties hereto hereby amend the Stockholders' Agreement, in accordance with Section 8.4 thereof, by deleting Article II of the Stockholders' Agreement in its entirety and replacing it with the following: "Article II - Term 2. Term. Unless sooner terminated as provided in Section 6.1.1 with respect to certain demand registration rights of Kalitta, the term of this Agreement (the "TERM") shall commence on the date hereof and continue until the tenth (10th) anniversary of the date of this Agreement." 3. Demand Registration Rights. The parties hereto hereby amend the Stockholders' Agreement, in accordance with Section 8.4 thereof, by renumbering Section 6.1 thereof as Section 6.1.2 and adding the following provision immediately after the heading "6. Registration of Common Stock": "6.1 Registration Rights. 6.1.1 Demand Registration. (a) General. At any time prior to December 31, 1998, Kalitta may make a single request, by a written notice signed by Kalitta and delivered to the Company (the "FIRST DEMAND REQUEST"), that the -2- 3 Company effect the registration under the Securities Act of no less than exactly 2,300,000 shares of Common Stock that constitute Registrable Securities (the "SHARES") and are beneficially owned by any Kalitta Stockholder. In the event the managing underwriter or underwriters shall advise Kalitta that the amount of Shares proposed to be included in the registration statement filed pursuant to such First Demand Request (the "FIRST DEMAND REGISTRATION") by Kalitta exceeds the number of such Shares that can be sold in such offering within a price range acceptable to Kalitta, the Shares to be included in such First Demand Registration shall be reduced to the number of Shares that the Company and Kalitta are so advised can be sold in such First Demand Registration without a material adverse effect on the price of, or the likelihood of successful completion of, such offering. In the event, and only in the event, that not all of the Shares are sold pursuant to the First Demand Request as a result of the inability of the underwriters to sell such Shares at a price acceptable to Kalitta, Kalitta will be entitled to make a second single demand request on behalf of himself and any other Kalitta Stockholder whose Shares were excluded from the First Demand Registration by a written notice signed by Kalitta and delivered to the Company that the Company effect the registration (the "SECOND DEMAND REGISTRATION," and, collectively with the First Demand Registration, the "DEMAND REGISTRATIONS" and each individually a "DEMAND REGISTRATION") of those Shares not sold in the First Demand Registration (the "SECOND DEMAND REQUEST") at any time prior to June 30, 1999. The offering of Shares pursuant to the First Demand Request and the Second Demand Request shall both be in the form of a firm commitment underwritten offering, and Morgan Stanley Dean Witter & Co., or any successor thereof, or such other nationally recognized investment banking firm or firms as are mutually agreed upon by the Company and Kalitta, shall manage such underwritten offerings of the Shares. The Company shall have the exclusive right to grant to the managing underwriter or managing underwriters an option to sell additional shares of Common Stock for the purpose of covering over-allotments, if any, in the offering of Shares pursuant to the First Demand Request and the Second Demand Request. The number of Registrable Securities constituting Shares shall be appropriately adjusted in the event that, subsequent to April 17, 1998, 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. In no event shall the Company be required pursuant to this Section 6.1.1 to effect a shelf registration pursuant to Rule 415 promulgated under the Securities Act. -3- 4 (b) Effective Registration. (i) Subject to Section 6.1.1(b)(ii), a registration will not count as a Demand Registration unless a registration statement with respect thereto has been declared effective by the Commission in compliance with, and subject to, the provisions of this Article VI and the Securities Act with respect to the disposition of all Shares covered by such registration statement (other than Registerable Securities that are registered in a Demand Registration and subject to an over-allotment option). (ii) If, after a registration statement has been declared effective, Kalitta withdraws all of the Shares registered thereunder (as provided below in the last sentence of this clause (ii)), and the Company has performed its obligations hereunder in all material respects, such demand will count as a Demand Registration unless Kalitta pays all Registration Expenses in connection with such withdrawn registration; provided that if, after a registration statement has become effective with respect to an offering of Shares pursuant to a Demand Registration, such offering is interfered with by any stop order, injunction, or other order or similar requirement of the Commission or other governmental agency or court of competent jurisdiction, such registration will be deemed not to have been effected and will not count as a Demand Registration. Kalitta shall have the exclusive authority to withdraw Shares registered under any Demand Registration to be registered on behalf of himself and any other Kalitta Stockholder. (c) Deferral of Filing. (i) The Company may defer the filing (but not the preparation) of a registration statement with respect to a Demand Registration until a date not later than 60 days after the Required Filing Date if (A) at any time prior to the Required Filing Date, the Company or any of its subsidiaries is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board of Directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its stockholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, or (B) prior to receiving the Demand Request, the Company is actively engaged in discussions with underwriters with respect to a registered underwritten public offering of the Company's securities for the Company's account and is proceeding with reasonable diligence to effect such offering; provided that a deferral -4- 5 pursuant to this clause (B) may only occur in the case of a Second Demand Registration and that incidental registration rights under Section 6.1.2 shall be available (subject to the limitations set forth therein). (ii) A deferral of the filing of a registration statement pursuant to this Section 6.1.1(c) shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (A) of Section 6.1.1(c)(i), the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (B) of Section 6.1.1(c)(i), the proposed registration for the Company's account is completed or abandoned. (iii) In order to defer the filing of a registration statement pursuant to this Section 6.1.1(c), the Company shall promptly (but in any event within 10 days), upon determining to seek such deferral, deliver to Kalitta a certificate signed by an executive officer of the Company stating that the Company is deferring such filing pursuant to this Section 6.1.1(c) and a general statement of the reason for such deferral. Kalitta hereby agrees to keep confidential any information disclosed to him in any such certificate (including the fact that such a certificate was delivered) and further agrees that he will not, prior to the public disclosure of such information, purchase or sell any securities of the Company. Within 20 days after receiving such certificate, Kalitta may withdraw such Demand Request by giving notice to the Company; if withdrawn, the Demand Request shall be deemed not to have been made for all purposes of this Agreement. The Company may defer the filing of a particular registration statement pursuant to clauses (A) or (B) of Section 6.1.1(c) only once. (d) Suspension of Dispositions. Each Selling Stockholder agrees that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company of the happening of any event of the kind described in Section 6.2(vi), such Selling Stockholder will forthwith discontinue disposition of Registrable Securities until such Selling Stockholder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 6.2(vi), or until it is advised in writing (the "ADVICE") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus (the period from the date of the Suspension Notice until the receipt of such copies or the Advice being referred to herein as a "SUSPENSION PERIOD"), and, if so directed by the Company, such Selling Stockholder will deliver to the Company all copies, other than permanent file copies then in such Selling Stockholder's possession, of the prospectus covering such -5- 6 Registrable Securities current at the time of receipt of the Suspension Notice. In the event the Company shall give any such Suspension Notice, (i) the Company shall use commercially reasonable efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable or deliver copies of the supplemented or amended prospectus contemplated by Section 6.2(vi), and (ii) the time periods regarding the effectiveness of registration statements set forth in Section 6.2(ii) hereof shall be extended by the number of days in the Suspension Period. (e) Holdback Agreement. Unless the managing underwriter otherwise agrees, each of the Company and each Kalitta Stockholder agrees not to effect any public sale (other than pursuant to any registration on Form S-4 or Form S-8 promulgated under the Securities Act) of any Common Stock (or securities convertible into or exercisable or exchangeable for Common Stock) during the ten business days prior to the effectiveness of any underwritten registration by the Company on its own behalf and/or on behalf of Kalitta pursuant to a Demand Registration or any other security holder of securities of the same type and class (or securities that are convertible into or exercisable or exchangeable for securities of the same type and class) and during such time period after the effectiveness of any such underwritten registration (not to exceed 180 days) as the Company and the managing underwriter may agree (except, if applicable, as part of such underwritten registration). In addition, if the managing underwriter so requests in connection with any such underwritten registration, the Company, Kalitta and each Kalitta Stockholder shall enter into "lock-up" agreements in customary form providing for the restrictions on sale referred to in this Section 6.1.1(e). Notwithstanding anything contained in this Agreement to the contrary, the Company shall not be deemed to be in breach of its obligations under Section 6.1.1(a) of this Agreement if the Company fails to perform such obligations in order to comply with the restrictions set forth in this Section 6.1.1(e)." (f) Nothing in this Section 6.1.1 shall be deemed to preclude the inclusion in any Demand Registration of shares of Common Stock to be sold for the account of the Company." 4. References in Stockholders' Agreement. The parties hereto hereby amend Sections 6.1.2 (as renumbered), 6.3 and 6.5 of the Stockholder's Agreement, in accordance with Section 8.4 thereof, by replacing each reference in such Sections to "Section 6.1" with "Section 6.1.2." -6- 7 5. Provision Concerning Underwriters in Stockholders' Agreement. The parties hereto hereby delete Section 6.4 of the Stockholder's Agreement, in accordance with Section 8.4 thereof, in its entirety and replace it with the following: 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 pursuant to Section 6.1.2 hereof in connection therewith, to arrange for such underwriters to include such Registerable 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 Registerable 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 Selling Stockholders. If the Company at any time proposes to register any of its securities under the Securities Act for sale for its own account other than in connection with a demand registration pursuant to Section 6.1.1 hereof 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 6.1.2 shall be in connection with any underwritten public offering, each holder of Registerable 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 seven (7) days prior to the effective date of such registration statement and one-hundred eighty (180) days after the effective date of such registration statement. 6. Company's Indemnification in Stockholders' Agreement. The parties hereto hereby delete Section 6.6 of the Stockholders' Agreement, in accordance with Section 8.4 thereof, in its entirety and replace it with the following: 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 -7- 8 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 (unless any such omission in any preliminary prospectus 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) 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 Selling Stockholder or any director, officer, participating person or controlling person of any Selling Stockholder for use in the preparation thereof, which information was expressly provided for use in the registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such Selling Stockholder or any such director, officer, participating person or controlling person and shall survive the transfer of such securities by such Selling Stockholder. The Company shall agree to provide for a customary contribution provision relating to such indemnity if requested by any Selling Stockholder or the underwriters. 7. General Provisions of Stockholders' Agreement. The parties hereto hereby amend Section 8.3 of the Stockholders' Agreement, in accordance with Section 8.4 thereof, by adding the following to the end of Section 8.3: -8- 9 "No party may assign its rights hereunder to any person other than a Permitted Transferee in accordance with this Agreement or person receiving a Transfer pursuant to an Exempt Transfer. Any attempted assignment in violation of this Section 8.3 shall be null and void." 8. Certain Governance Matters in Stockholders' Agreement. The parties hereto hereby delete Articles III, IV and V of the Stockholders' Agreement, in accordance with Section 8.4 thereof. 9. Minimum Equity Ownership Requirement in Stockholders' Agreement. The parties hereto hereby delete Section 8.11 of the Stockholder's Agreement, in accordance with Section 8.4 thereof. 10. Governance Provisions of the Merger Agreement. The parties hereto hereby delete Section 5.5 of that certain Agreement and Plan of Merger among the Company, Kitty Hawk - AIA, Inc., Kitty Hawk - AIT, Inc., Kitty Hawk - FOL, Inc., Kitty Hawk - KFS, Inc., Kitty Hawk - OK, Inc., Christopher, AIA, AIT, FOL, KFS, OKT and Kalitta dated September 22, 1997, as amended (the "MERGER AGREEMENT") in accordance with Section 10.7 thereof. 11. Definition in Merger Agreement. The parties hereto hereby delete in its entirety the definition of "Chief Executive Officer" contained in the Appendix of Defined Terms to the Merger Agreement, in accordance with Section 10.7 thereof, and replace it with the following: "CHIEF EXECUTIVE OFFICER" shall mean the Chairman of the Board and Chief Executive Officer of Kitty Hawk." 12. Office Lease Provisions of the Merger Agreement. The parties hereto hereby delete in its entirety Section 5.2.7 of the Merger Agreement in accordance with Section 10.7 thereof. 13. Modification of Office Lease. 13.1 Term. Kalitta LLC and AIA hereby delete in its entirety Section 3 of that certain Corporate Offices Lease between Kalitta LLC and AIA dated February 25, 1997 (the "OFFICE LEASE"), in accordance with Section 20 thereof, and replace it with the following: 3. Term. This lease shall be for the term of 10 years commencing on May 14, 1997 ("commencement date") and ending on May 14, 2007; provided, that either party may terminate this lease upon 180 days written notice to the other party. 13.2 Rent. Kalitta LLC and AIA hereby delete in its entirety the first paragraph of Section 4 of the Office Lease, in accordance with Section 20 thereof, and replace it with the following: 4. Rental. Tenant shall pay to Landlord as annual rent the sum of Three Hundred Thousand Dollars ($300,000.00) payable in monthly installments of Twenty-Five -9- 10 Thousand Dollars ($25,000.00) per month in advance on the first day of each month during the term of this lease. All rent shall be paid to Landlord at the address set forth above or at any other address that Landlord designates in writing, without any prior demand by Landlord and without any deduction or offset. 14. Reduction of Indemnification Deductible. The parties hereto hereby delete in its entirety Section 10.3.1 of the Merger Agreement, in accordance with Section 10.7 thereof, and replace it with the following: "10.3.1 Deductibles. Neither Kalitta nor Kitty Hawk shall be liable for, and neither Kalitta pursuant to Section 10.2.1 nor Kitty Hawk pursuant to Section 10.2.2 shall be obligated to pay, any amount until the party to be indemnified has incurred aggregate Kalitta Established Losses or Kitty Hawk Established Losses, as applicable, in excess of the applicable Deductible (as defined below). For purposes hereof, the applicable "DEDUCTIBLE" (a) in the case of Kalitta for all Kitty Hawk Established Losses shall be $600,000 and (b) in the case of Kitty Hawk for all Kalitta Established Losses shall be $1,000,000. At such time as the aggregate Kitty Hawk Established Losses or Kalitta Established Losses, as applicable, incurred by the party to be indemnified shall exceed the applicable Deductible, the claimant shall be entitled to the full amount of such Losses in excess of the applicable Deductible; subject, however, to the further provisions of this Article." In connection with the foregoing amendment, the Company hereby unconditionally and irrevocably releases Kalitta from any and all claims arising out of or related to the transfer from AIA to Motorsports of racing fuel and other racing-related assets between November 1 and November 19, 1997. 15. Covenant Not to Compete in Employment Agreement. The parties hereto hereby delete in its entirety Section 2.8 of the Employment Agreement, in accordance with Section 4.3 thereof, and replace it with the following: "2.8 COVENANT NOT TO COMPETE. A. To further protect AIA's proprietary information, Employee agrees that upon termination of his employment with AIA for whatever reason, Employee shall not engage in the air cargo charter management, or charter brokerage business, or in the business of ad hoc or scheduled carriage of air freight under FAA Part 121 or Part 135 certificates, within the United States, for three (3) years following the date of such termination, either directly or indirectly, whether as an employee, agent, consultant, broker, partner, principal, owner, stockholder or otherwise; provided, however, that Employee shall be permitted to purchase up to a 5% interest in any publicly traded company in any such businesses. Without limiting the generality of the foregoing, during the three (3) year period following the date of such termination, Employee shall not: (i) serve as an employee, officer or director of, consultant to, or independent contractor for, Trans Continental Airlines, Inc. or its affiliates (collectively, "TRANSCON"); (ii), and -10- 11 shall cause his affiliates not to, capitalize, make loans to or otherwise finance TransCon in excess of an aggregate principal amount of $7,500,000 outstanding at any one time, and (iii), and shall cause his affiliates not to, lease more than an aggregate of three aircraft of all types to TransCon at any one time. Notwithstanding anything in this Section 2.8A to the contrary, Employee and any affiliate of Employee may (x) buy, modify, sell and lease aircraft, aircraft engines and aircraft equipment following termination of his employment with AIA and (y) deal in or with supplemental type certificates ("STCS"), except that neither Employee, nor any affiliate of Employee, may use his or such affiliate's, STCs to modify Boeing 727 aircraft from passenger to freight configuration for a period of three (3) years following termination of his employment with AIA; provided, however, this will not prevent Employee, or any such affiliate, from contracting with a third party for such a conversion. As used in this Agreement, the term "affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. B. Employees. For a period of one (1) year from the date of termination of his employment, without the prior written approval of AIA, neither Kalitta nor any of his affiliates shall, directly or indirectly, employ or contract with any individual employed by AIA or any of its affiliates as of the date hereof or at any time within such one (1) year period; provided, however, Kalitta, or any such affiliate, may employ Kathy Spino at any time and may contract with Barbara Schreck for personal income tax services on her own time, in either case without restriction. C. Remedies for Breach. In the event of a breach of any of the foregoing provisions, AIA shall be entitled to exercise any and all of the following rights, remedies, and provisions: (i) Injunction. Kalitta agrees that if he or any of his affiliates, successors or assigns violate or breach, or substantially threatens to violate or breach, any of the provisions or covenants contained in this Agreement, AIA shall be entitled to injunctive relief, and reimbursement of its attorneys' fees if it prevails. In addition, Kalitta agrees that AIA may have such injunctive relief, without bond but upon due notice, in addition to such other and further relief as may be available in equity or by law. Kalitta further agrees that the sole remedy in the event of an entry of an injunction, is dissolution of such injunction, if warranted, at a hearing and all claims for damages by reason of the wrongful issuance of any such injunction are expressly waived. (ii) Non-Exclusivity. In addition to all other remedies available to AIA in the event of any breach of any provision of this Agreement, Kalitta agrees that the remedies exercisable by AIA are not exclusive but are in addition to all of the remedies provided by this Agreement, by law or in equity and that the exercise or utilization of any one of the remedies provided by this Agreement shall not be deemed a waiver of, or prevent AIA from exercising, any other remedies available to it under this Agreement, applicable law or in equity. -11- 12 D. Severability and Substitution of Valid Provisions. To the extent that any provision of this Section 2.8 is deemed unenforceable by virtue of the scope of the area involved, the scope of the business activity prohibited, the length of time the activity is prohibited, or the scope or magnitude of the remedies provided, but potentially remedied by a reduction of any or all thereof, Kalitta agrees that this Agreement shall be enforced to the fullest extent permissible under applicable laws and public policies of the State of Michigan. 16. Severability Provisions of Employment Agreement. The parties hereto hereby delete in its entirety the second sentence of Section 4.2 of the Employment Agreement, in accordance with Section 4.3 thereof, and replace it with the following: "Subject to the provisions of Section 2.8C hereof, if a provision is prohibited by or invalid under applicable law, it shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement." 17. Voluntary Resignations. Kalitta hereby irrevocably and voluntarily resigns on the date hereof from his position as Vice Chairman of the Company and from all officer and employee positions of the Company, including, without limitation, Kalitta's position of Chief Executive Officer and President of AIA. From and after the date hereof, Kalitta shall no longer be entitled to the rights and benefits set forth in the Employment Agreement, including, without limitation, any compensation except as expressly provided in, and subject to the conditions of, Section 19 hereof. 18. Proprietary Information Disclosure Limitations of the Employment Agreement.The parties hereto hereby amend Section 2.7 of the Employment Agreement, in accordance with Section 4.3 thereof, to add a new subsection D as follows: "D. As used in this Section 2.7, the term "AIA" shall be deemed to include all affiliates of AIA, including, but not limited to, Kitty Hawk, Inc., a Delaware corporation and American International Cargo, a Michigan co-partnership." 19. Optional Compliance with Voluntary Severance Requirements of the Employment Agreement. In accordance with Section 3.3 of the Employment Agreement, Kalitta shall, upon execution of a release and confidentiality agreement in the form described in Section 3.2 of the Employment Agreement which AIA may request in furtherance of the requirements set forth in the Employment Agreement, receive from AIA one (1) month's pay in the amount of $50,000; provided, AIA shall have no obligation hereunder if Kalitta has not executed such release and confidentiality agreement prior to December 15, 1998. 20. Vacating Deadline. Kalitta hereby irrevocably agrees to remove all personal belongings from his office located at 1349 South Huron Street, Ypsilanti Township, Michigan and to vacate such premises within seven (7) days from the date hereof. -12- 13 21. AIA Claim. AIA agrees to assign to Kalitta, at Kalitta's option (the "OPTION"), all of AIA's rights, title and interest in and to its claims under, and all obligations and duties relating to, American International Airways, Inc. v. GATX Capital Corporation, et al (Case No. 97-0378 WHO) pending in the United States District Court for the Northern District of California (the "AIA CLAIM"). If Kalitta exercises the Option, the Company covenants and agrees that it will use its commercially reasonable efforts to obtain all consents, approvals, authorizations and waivers of third parties necessary for the assignment of the AIA Claim. If any such consent or authorization is not obtained within one hundred eighty (180) days after the date hereof, or if any attempted assignment or assumption would be ineffective, then the Company will make a contractual assignment to Kalitta of all rights and obligations in connection with the AIA Claim and all control thereof. The Company shall directly absorb all legal fees and costs relating to the AIA Claim through the date hereof. From and after the date hereof, Kalitta shall directly pay any and all legal fees and costs incurred with respect to the AIA Claim and will control the prosecution of the AIA Claim. The Company agrees to cooperate with Kalitta, and cause AIA to so cooperate, by providing personnel and documentation necessary to sustain the prosecution of the AIA Claim without cost to Kalitta; however, Kalitta shall pay reasonable expenses, actually incurred, including, but not limited to, per diems for employees, if necessary, at then applicable compensation rates. In the event that the Company elects either to (i) change the status of either of the Boeing 747 airframes which are the subject of the AIA Claim (bearing tail numbers N701CK and N706CK)(the "AIRFRAMES") so that it becomes commercially infeasible to repair either such Airframe for revenue service, or (ii) scrap either such Airframe, the Company shall give Kalitta written notice thereof. During the ninety (90) period following receipt of any such notice, Kalitta shall have the option to purchase the affected Airframe(s) at a price equal to the fair market scrap value of such Airframe(s), payable in immediately available funds. Kalitta shall exercise such option by written notice to the Company prior to the expiration of such ninety (90) day period and the Company and Kalitta shall close on Kalitta's purchase of such Airframe(s) on the tenth (10th) business day following delivery of Kalitta's notice of such exercise to the Company. Kalitta shall indemnify the Company and hold the Company harmless from and against, and reimburse the Company for, any and all loss, liability, damage and expense, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment to the extent the Company suffers any harm, loss or damage as a result of a counterclaim filed against the Company by GATX Capital Corporation or any of its affiliates which relates to, or arises from, the AIA Claim. 22. Modification of Amended and Restated Consulting Agreement. The parties hereto hereby amend the Amended and Restated Consulting Agreement by and between AIA and Kalitta dated October 23, 1997 (the "CONSULTING AGREEMENT"), in accordance with Section 8 thereof as follows: 22.1 Legal Fees. Section 3 of the Consulting Agreement, in accordance with Section 11 thereof, is hereby deleted and replaced with the following: "3. AIA shall directly absorb all unpaid Legal fees incurred in the GATX litigation prior to April 17, 1998. From and after April 17, 1998, Kalitta shall directly pay Legal fees incurred in the GATX litigation." -13- 14 22.2 Proceeds of Litigation. Section 4 of the Consulting Agreement, in accordance with Section 11 thereof, is hereby deleted and replaced with the following: "4. Any proceeds (which term shall include the fair market value of any benefits derived by AIA) which AIA obtains directly from the GATX litigation, whether by virtue of judgment, settlement, or some other form of payment, shall be paid to Kalitta." 22.3 Cure Rights. Section 12 of the Consulting Agreement is hereby deleted in accordance with Section 11 thereof. 23. Race Shop Facilities Lease. The parties hereto agree that Motorsports shall sublease space from AIA on substantially the terms set forth in the form of Race Shop Facilities Lease attached as Exhibit A (the "RACE SHOP LEASE"), modified as follows: (i) the term of such lease shall be until December 31, 1998, (ii) monthly rental shall be $1.00 per month throughout the term of the lease, (iii) Motorsports will have the option to terminate such lease at any time prior to December 31, 1998, upon thirty (30) days prior written notice, and (iv) the insurance provisions of Section 11 of the Race Shop lease shall be completed to require minimum limits of insurance coverage of $1,000,000 for all but property damage, which shall have a minimum limit of $500,000. 24. Airline Fuel. During the three (3) year period following the date hereof, the Company will use commercially reasonable efforts to make airline fuel available to Kalitta and his affiliates (but excluding TransCon) solely for their use at the Company's cost for such fuel. 25. Residence. AIA hereby agrees to convey the residence owned by AIA located at 9555 Van Buren, in Van Buren Township, Michigan (the "RESIDENCE") to Motorsports for its fair market value of $80,000 to be paid to the Company as provided in Section 27 hereof. The sale shall be made pursuant to a standard form of Ann Arbor Board of Realtors Sales Agreement, attached as Exhibit B, modified as indicated in such form. As required by Michigan law, AIA shall deliver the Seller's Disclosure Statement in the form attached hereto as Exhibit C. 26. Loan. Kalitta LLC agrees and acknowledges that it owes the Company $500,000 which represents loans made to it by the Company prior to the consummation of the transactions contemplated by the Merger Agreement (the "KALITTA LOAN"). 27. Payment of Loan and Residence. The parties agree that at the earlier of (i) the closing of the sale of Shares under the First Demand Registration pursuant to Section 6.1.1 of the Stockholders' Agreement, or (ii) the sale of shares of Common Stock by Kalitta other than pursuant to the First Demand Registration made pursuant to Section 6.1.1 of the Stockholder's Agreement, Kalitta shall repay the Kalitta Loan on behalf of Kalitta LLC, and pay the purchase price specified in Section 25 for the Residence on behalf of Motorsports. Each of Kalitta LLC and Motorsports agree to promptly reimburse Kalitta for such payments in the form of immediately available funds, debt or equity, as determined by Kalitta. In the case of the foregoing clause (i), the parties agree that Kalitta shall cause such payments to be made directly by the -14- 15 underwriters to the Company from the proceeds from the sale of Shares pursuant to such First Demand Registration (and Kalitta hereby so instructs the underwriters concerning such payments). In the case of the foregoing clause (ii), Kalitta shall make such payments to the Company immediately on such sale. 28. Non-Disparagement. 28.1 Kalitta. For a period of three (3) years from the date hereof, Kalitta covenants and agrees that Kalitta shall not make or cause to be made any statements, observations, opinions or communicate any information (whether oral or written) that disparages or is likely in any way to harm the reputation of the Company or any of its subsidiaries, affiliates, directors, officers, employees or agents (each, a "COMPANY HARMED PARTY"). A breach or violation of the covenants contained in this Section will damage the Company Harmed Party irreparably. For any violation of the covenants contained in this Section, Kalitta shall be subject to injunctive and other equitable relief and damages. In addition, Kalitta agrees that should it become necessary for a Company Harmed Party to enforce any of the covenants contained in this Section through legal proceedings, Kalitta shall reimburse such Company Harmed Party for any reasonable legal fees, court costs and expenses incurred by such Company Harmed Party in enforcing such covenants. 28.2. Christopher. For a period of three (3) years from the date hereof, but subject in each case to applicable securities laws and the regulations promulgated thereunder, Christopher covenants and agrees that Christopher shall not make or cause to be made any public statements, observations, opinions or communicate any information (whether oral or written) that disparages or is likely in any way to harm the reputation of Kalitta or any of his affiliates (each, a "KALITTA HARMED PARTY"). A breach or violation of the covenants contained in this Section will damage the Kalitta Harmed Party irreparably. For any violation of the covenants contained in this Section, Christopher shall be subject to injunctive and other equitable relief and damages. In addition, Christopher agrees that should it become necessary for a Kalitta Harmed Party to enforce any of the covenants contained in this Section through legal proceedings, Christopher shall reimburse such the Kalitta Harmed Party for any reasonable legal fees, court costs and expenses incurred by such Kalitta Harmed Party in enforcing such covenants. 29. Indemnification. The Company shall save, indemnify Kalitta and hold Kalitta harmless from and against, and reimburse Kalitta for, any and all loss, liability, damage and expense, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment (collectively "LOSSES") that Kalitta may suffer under or relating to any and all personal guarantees, performance bonds or other obligations securing payment, performance or insurance obligations of AIA and the Company and all of its other subsidiaries, including, without limitation, American International Cargo. 30. Standstill. 30.1 Acquisition of Additional Common Stock of the Company. Kalitta represents and warrants that he does not own any voting securities, or any securities convertible into or exchangeable or exercisable for any voting securities, or which, upon redemption thereof could -15- 16 result in Kalitta or any of his affiliates (as such term is defined in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934 (the "EXCHANGE ACT")) receiving any voting securities, or options, warrants, contractual rights or other rights of any kind to acquire or vote any voting securities, of the Company (collectively, the "KTTY VOTING SECURITIES"), other than the 4,099,150 shares of Common Stock of the Company received by Kalitta pursuant to the Merger Agreement. Kalitta hereby covenants and agrees that until the third anniversary of the date hereof, Kalitta shall not, directly or indirectly, purchase or cause to be purchased or otherwise acquire (other than pursuant to a stock split or stock dividend) or make any proposal to or agree to acquire, or become or agree to become the Beneficial Owner (as defined in the Stockholders' Agreement) of, more than 4,099,150 shares of Common Stock of the Company. 30.2 Prohibited Actions. Kalitta hereby agrees that until the third anniversary of the date hereof, Kalitta shall not, directly or indirectly, solicit, request, advise, assist or encourage others, directly or indirectly, to take any of the following actions: 30.2.1 form, join in or in any other way participate in a "partnership, limited partnership, syndicate or other group" within the meaning of Section 13(d)(3) of the Exchange Act with respect to KTTY Voting Securities or deposit any KTTY Voting Securities in a voting trust or similar arrangement or subject any KTTY Voting Securities to any voting agreement or pooling arrangement; 30.2.2 solicit proxies or written consents of stockholders with respect to KTTY Voting Securities under any circumstances, or make, or in any way participate in, any "solicitation" of any "proxy" to vote any KTTY Voting Securities, or become a "participant" in any election contest with respect to the Company (as such terms are defined or used in Rules 14a-1 and 14a-11 under the Exchange Act) or seek to advise or influence any Person (as such term is defined in the Merger Agreement) with respect to the voting of any KTTY Voting Securities; 30.2.3 seek to call, or to request the call of, a special meeting of the stockholders of the Company or seek to make, or make, a stockholder proposal at any meeting of the stockholders of the Company; 30.2.4 commence, or announce any intention to commence, any tender offer for any KTTY Voting Securities or file with or send to the Securities and Exchange Commission (the "COMMISSION") a Schedule 13D or any amendments thereto under the Exchange Act with respect to KTTY Voting Securities, except (i) the Schedule 13D to be filed with the Commission in connection with the issuance to Kalitta of KTTY Voting Securities pursuant to the Merger Agreement (the "CURRENT SCHEDULE 13D"), and (ii) any amendment to the Current Schedule 13D to reflect changes to the disclosures set forth therein and exhibits filed therewith, to the extent such changes result from actions that are not prohibited by or inconsistent with this Agreement (such permitted amendments and additional exhibits to the Current Schedule 13D being referred to as the "PERMITTED SCHEDULE 13D AMENDMENTS"); -16- 17 30.2.5 make a proposal or bid with respect to, announce any intention or desire to make, or publicly make or disclose, cause to be made or disclosed publicly, facilitate the making public or public disclosure of, any proposal or bid with respect to (i) the acquisition of any substantial portion of the assets of the Company or of the assets or stock of any of its subsidiaries or of all or any portion of the outstanding KTTY Voting Securities (except Kalitta may file Permitted Schedule 13D Amendments), or (ii) any merger, consolidation, other business combination, restructuring, recapitalization, liquidation or other extraordinary transaction involving the Company or any of its subsidiaries; 30.2.6 otherwise act alone or in concert with others except, solely in his capacity as a director of the Company, to seek to control or influence in any manner the management, the board of directors (including the composition thereof) or the business, policies, operations or affairs of the Company; 30.2.7 take any action or form any intention which would require an amendment to the Current Schedule 13D (other than amendments containing only the Permitted Schedule 13D Amendments); 30.2.8 commence, join in, or in any way participate in, any action, suit or proceeding of any kind (except in the case in which such action, suit or proceeding does not relate to the matters referred to in this Section 30.2 or in which Kalitta (i) is a defendant in any such action, suit or proceeding; provided, however, that such participation shall in every case be limited to the defense by Kalitta of the allegations made or claims brought against Kalitta pursuant to such action, suit or proceeding; provided, further, that such participation may include counterclaims only if the Company, or any subsidiary, affiliate or division of the Company, the board of directors of the Company or the officers of the Company with respect to their role as such, shall have previously brought claims under this Section 30.2 in such action, suit or proceeding or (ii) is required, by subpoena, court order or otherwise, to respond to or appear before the court in which such action, suit or proceeding has been brought), or, directly or indirectly, support or encourage (as opposed to cooperate with governmental entities in connection with) any administrative or investigative action or proceeding of any nature, against, involving or relating to the Company, or any subsidiary, affiliate or division of the Company, the board of directors of the Company, the officers of the Company, or any agent or advisor of the Company (including, without limitation, attorneys, accountants, bankers and financial advisors) with respect to its or his, as the case may be, role as such; 30.2.9 arrange, or in any way participate in, any financing for any transaction referred to in clauses 30.2.1 through 30.2.8 above; or 30.2.10 make public, or cause or facilitate the making public (including by disclosure to any journalist or other representative of the media) of: (i) any request, or otherwise seek (in any fashion that would require public disclosure by the Company, -17- 18 Kalitta or their respective affiliates), to obtain any waiver or amendment of any provision of this Section 30.2 or (ii) the taking of any action restricted hereby. 30.3 Exclusion from the Standstill Arrangements. Notwithstanding anything in this Agreement to the contrary (including Sections 30.1 and 30.2 hereof), nothing in this Agreement shall prohibit the making by Kalitta of such filings with the Commission pursuant to (i) Securities Act Rule 144(h), or (ii) Section 16(a) of the Exchange Act to reflect changes in the Beneficial Ownership of any KTTY Voting Securities of Kalitta or any of his affiliates (to the extent such changes reflect action taken by Kalitta or such affiliate which is not prohibited by this Agreement). 31. Voting by Kalitta prior to December 31, 1998. Kalitta irrevocably agrees to vote all KTTY Voting Securities Beneficially Owned by Kalitta in the manner recommended by the Board of Directors of the Company with respect to all stockholder proposals (including the election of directors of the Company) presented to the stockholders for approval until the earlier of (i) the consummation of an offering pursuant to the First Demand Registration or (ii) December 31, 1998. 32. Miscellaneous. 32.1 Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and may be amended only by an agreement in writing executed by the parties hereto. 32.2 Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 32.3 Number; Gender. Whenever the singular number is used herein, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 32.4 Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard hereto shall be validly given, made or served, if in writing and sent by U.S. certified mail, return receipt requested: if to the Company, M. Tom Christopher AIA, AIT, FOL, Chairman of the Board KFS, OKT or and Chief Executive Officer Christopher: 1515 West 20th Street Dallas/Fort Worth International Airport, Texas 75261 -18- 19 with a copy to: Haynes and Boone, LLP 901 Main Street Suite 3100 Dallas, Texas 75202-3789 Attention: Greg R. Samuel, Esq. if to Kalitta, Conrad A. Kalitta Kalitta LLC or 2702 N. I-94 Service Drive Motorsports Ypsilanti, Michigan 48197 with copies to: David N. Parsigian, Esq. Miller, Canfield, Paddock & Stone, P.L.C. 101 N. Main Street, 7th Floor Ann Arbor, Michigan 48108 32.5 Enforceability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that the parties would have executed the remaining terms, provisions, covenants and restrictions without including any such term which may be hereafter declared invalid, void or unenforceable. In addition, the parties agree to use their commercially reasonable efforts to agree upon and substitute a valid and enforceable term, provision, covenant or restriction for any of such that is held invalid, void or unenforceable by a court of competent jurisdiction. 32.6 Law Governing. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to any conflict of laws provisions thereof; provided that Sections 13, 15, 16, 18, 19, 22, 23 and 25 hereof relating to amendments to the Office Lease, the Employment Agreement, the Consulting Agreement and the Race Shop Lease shall be construed in accordance with and governed by the laws of the State of Michigan without regard to any conflict of laws provisions thereof. 32.7 Jurisdiction and Venue. The state or federal courts located in Dallas County, Texas shall have exclusive jurisdiction and venue over all disputes arising out of or related to this Agreement and will be the sole proper forum in which the parties and any of their officers, directors, employees, representatives and affiliates shall adjudicate any such dispute. The parties agree that this choice of jurisdiction and venue is enforceable by the issuance of injunctive relief against the parties and that its violation constitutes irreparable harm for which there is an inadequate remedy at law. 32.8 Legal Fees and Expenses. The prevailing party in any legal proceeding based upon this Agreement shall be entitled to reasonable attorney's fees and court costs, in addition to and other recoveries allowed by law. -19- 20 32.9 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended to confer on any person or entity other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. No party to this Agreement may assign its rights or delegate its obligations hereunder (whether voluntarily, involuntarily, or by operation of law) without the prior written consent of the other party. Any such attempted assignment shall be null and void. 32.10 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. 32.11 Section Headings. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. 32.12 No Construction Against Drafting Party. The parties agree that each has been represented by competent legal counsel in connection with this Agreement and that this Agreement shall not be construed against the party on whose behalf this Agreement has been drafted. 32.13 Cooperation. The parties agree to cooperate to the extent necessary to give full effect to the provisions of this Agreement. 32.14 REMEDIES. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT IRREPARABLE HARM WOULD OCCUR IN THE EVENT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO SPECIFIC PERFORMANCE HEREUNDER, INCLUDING, WITHOUT LIMITATION, AN INJUNCTION OR INJUNCTIONS TO PREVENT AND ENJOIN BREACHES OF THE PROVISIONS OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF IN ANY STATE OR FEDERAL COURT IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY. ANY REQUIREMENTS FOR THE SECURING OR POSTING OF ANY BOND WITH SUCH REMEDY ARE WAIVED. ALL RIGHTS AND REMEDIES UNDER THIS AGREEMENT ARE CUMULATIVE, NOT EXCLUSIVE, AND SHALL BE IN ADDITION TO ALL RIGHTS AND REMEDIES AVAILABLE TO EITHER PARTY AT LAW OR IN EQUITY. * * * * * -20- 21 The parties hereto have duly executed this Agreement as of the date first above written.
KITTY HAWK, INC. AMERICAN INTERNATIONAL TRAVEL, INC. By: By: ---------------------------------------- ---------------------------------------- Name: M. Tom Christopher Name: Conrad A. Kalitta Title: Chairman and Chief Executive Officer Title: President - ------------------------------------------- FLIGHT ONE LOGISTICS, INC. M. Tom Christopher By: - ------------------------------------------- ---------------------------------------- Conrad A. Kalitta Name: Donald L. Schilling Title: President KALITTA MOTORSPORTS, L.L.C. KALITTA FLYING SERVICE, INC. By: By: ---------------------------------------- ---------------------------------------- Name: Conrad A. Kalitta Name: Donald L. Schilling Title: Authorized Member Title: President KALITTA L.L.C. O.K. TURBINES, INC. By: By: ---------------------------------------- ---------------------------------------- Name: Conrad A. Kalitta Name: Donald L. Schilling Title: Authorized Member Title: President AMERICAN INTERNATIONAL AIRWAYS, INC. By: ---------------------------------------- Name: Conrad A. Kalitta Title: President
-21- EX-10.2 3 1ST AMENDMENT TO SEPERATION AGREEMENT 1 EXHIBIT 10.2 FIRST AMENDMENT TO SEPARATION AGREEMENT THIS FIRST AMENDMENT TO SEPARATION AGREEMENT (the "FIRST AMENDMENT") is entered into as of the 5th day of June, 1998, by and among, Kitty Hawk, Inc., a Delaware corporation (collectively with its subsidiaries, unless the context otherwise requires, the "COMPANY"), M. Tom Christopher ("CHRISTOPHER"), Conrad A. Kalitta ("KALITTA"), Kalitta Motorsports, L.L.C., a Michigan limited liability company ("MOTORSPORTS"), Kalitta L.L.C., a Michigan limited liability company ("KALITTA LLC"), 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") and O.K. Turbines, Inc., a Michigan corporation ("OKT"). AIA, AIT, FOL, KFS and OKT shall be collectively referred to as the "Kalitta Companies." WITNESSETH WHEREAS, the Company, Kalitta and certain other parties entered into that certain Separation Agreement, dated as of April 17, 1998 (the "SEPARATION AGREEMENT"); and WHEREAS, Section 3 of the Separation Agreement provided Kalitta with certain demand registration rights with respect to 2,300,000 shares of common stock in the Company beneficially owned by Kalitta; and WHEREAS, the parties hereto desire to amend the Separation Agreement to change the period during which the Company shall be required to file a registration statement relating to such common stock following exercise by Kalitta of such demand rights; NOW, THEREFORE, in consideration of the Separation Agreement and this First Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, they hereby agree that the definition of "Required Filing Date" set forth in Section 1 of the Separation Agreement is hereby deleted in its entirety and replaced with the following: "Required Filing Date" means the thirtieth (30th) day following receipt by the Company of a Demand Request. Except as modified by the foregoing paragraph, the Separation Agreement shall remain in full force and effect. This document may be executed in one or more counterparts, each of which shall constitute an original, and all of which together constitute one and the same instrument. * * * * * 2 The parties hereto have duly executed this First Amendment as of the date first written above. KITTY HAWK, INC. AMERICAN INTERNATIONAL TRAVEL, INC. By: /s/ M. TOM CHRISTOPHER By: /s/ RICHARD W. WADSWORTH ---------------------------------------- -------------------------------- Name: M. Tom Christopher Name: Richard R. Wadsworth Title: Chairman and Chief Executive Officer Title: Vice President /s/ M. TOM CHRISTOPHER FLIGHT ONE LOGISTICS, INC. - ------------------------------------------- M. Tom Christopher /s/ CONRAD A. KALITTA By: /s/ DONALD L. SCHILLING - ------------------------------------------- -------------------------------- Conrad A. Kalitta Name: Donald L. Schilling Title: President KALITTA MOTORSPORTS, L.L.C. KALITTA FLYING SERVICE, INC. By: /s/ CONRAD A. KALITTA By: /s/ DONALD L. SCHILLING ---------------------------------------- -------------------------------- Name: Conrad A. Kalitta Name: Donald L. Schilling Title: Authorized Member Title: President KALITTA L.L.C. O.K. TURBINES, INC. By: /s/ CONRAD A. KALITTA By: /s/ DONALD L. SCHILLING ---------------------------------------- -------------------------------- Name: Conrad A. Kalitta Name: Donald L. Schilling Title: Authorized Member Title: President AMERICAN INTERNATIONAL AIRWAYS, INC. By: /s/ RICHARD R. WADSWORTH ---------------------------------------- Name: Richard R. Wadsworth Title: Vice President EX-10.3 4 AGREEMENT DATED JANUARY 21, 1999 1 EXHIBIT 10.3 AGREEMENT THIS AGREEMENT (the "AGREEMENT") is entered into January 21, 1999, by and among, Kitty Hawk, Inc., a Delaware corporation (collectively with its subsidiaries, unless the context otherwise requires, the "COMPANY"), M. Tom Christopher ("CHRISTOPHER"), Conrad A. Kalitta ("KALITTA"), Kalitta Motorsports, L.L.C., a Michigan limited liability company ("MOTORSPORTS"), American International Airways, Inc., a Michigan corporation ("AIA"), American International Travel, Inc., a Michigan corporation ("AIT"), Flight One Logistics, Inc., a Michigan corporation ("FOL"), Kitty Hawk Charters, Inc. (f/k/a Kalitta Flying Service, Inc.), a Michigan corporation ("KHC"), and O.K. Turbines, Inc., a Michigan corporation ("OKT"). AIA, AIT, FOL, KHC and OKT shall be collectively referred to as the "KALITTA COMPANIES." RECITALS A. The parties hereto have entered into certain contractual arrangements, including, among others, (i) a Separation Agreement dated as of April 17, 1998, by and among the parties hereto, among others, as amended to date (as amended, the "SEPARATION AGREEMENT"); (ii) a Stockholders' Agreement dated as of November 19, 1997, by and among the Company, Christopher and Kalitta, as amended by the Separation Agreement (as amended, the "STOCKHOLDERS' AGREEMENT"); (iii) an Agreement and Plan of Merger dated as of September 22, 1997, by and among certain of the parties hereto, as amended to date (the "MERGER Agreement"); (iv) a Racing Entity Purchase Agreement, dated as of November 19, 1997, by and among AIA and Motorsports (the "RACING ENTITY PURCHASE AGREEMENT"); and (v) a Race Shop Facilities Lease, dated as of November 19, 1997, by and among AIA and Motorsports (the "RACE SHOP LEASE"). B. The parties desire to amend certain provisions of the Stockholders' Agreement, the Merger Agreement, the Racing Entity Purchase Agreement and the Race Shop Lease. NOW, THEREFORE, in consideration of the premises, the terms and conditions set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Demand Registration Rights. The parties hereto hereby amend the Stockholders' Agreement, in accordance with Section 8.4 thereof, by deleting Section 6.1.1(a) of the Stockholders' Agreement in its entirety and replacing it with the following: (a) General. At any time prior to June 30, 2000, Kalitta may make a single request, by a written notice signed by Kalitta and delivered to the Company (the "FIRST DEMAND REQUEST"), that the Company effect the registration under the Securities Act of no less than exactly 2,900,000 shares of Common Stock that constitute Registrable Securities (the "SHARES") and are beneficially owned by any Kalitta Stockholder. In the event the managing underwriter or underwriters shall advise Kalitta that the amount of Shares proposed to be included in the registration statement filed pursuant to such First 2 Demand Request (the "FIRST DEMAND REGISTRATION") by Kalitta exceeds the number of such Shares that can be sold in such offering within a price range acceptable to Kalitta, the Shares to be included in such First Demand Registration shall be reduced to the number of Shares that the Company and Kalitta are so advised can be sold in such First Demand Registration without a material adverse effect on the price of, or the likelihood of successful completion of, such offering. In the event, and only in the event, that not all of the Shares are sold pursuant to the First Demand Request as a result of the inability of the underwriters to sell such Shares at a price acceptable to Kalitta, Kalitta will be entitled to make a second single demand request on behalf of himself and any other Kalitta Stockholder whose Shares were excluded from the First Demand Registration by a written notice signed by Kalitta and delivered to the Company that the Company effect the registration (the "SECOND DEMAND REGISTRATION," and, collectively with the First Demand Registration, the "DEMAND REGISTRATIONS" and each individually a "DEMAND REGISTRATION") of those Shares not sold in the First Demand Registration (the "SECOND DEMAND REQUEST," and, collectively with the First Demand Request, the "DEMAND REQUESTS" and each individually a "DEMAND REQUEST") at any time prior to June 30, 2000. The Company shall file a registration statement under the Securities Act necessary to effect a Demand Registration on or before the Required Filing Date. The offering of Shares pursuant to the First Demand Request and the Second Demand Request shall both be in the form of a firm commitment underwritten offering, and Morgan Stanley Dean Witter & Co., BT Alex. Brown Incorporated, or any successors thereof, or such other nationally recognized investment banking firm or firms as are mutually agreed upon by the Company and Kalitta, shall manage such underwritten offerings of the Shares. The Company shall have the exclusive right to grant to the managing underwriter or managing underwriters an option to sell additional shares of Common Stock for the purpose of covering over-allotments, if any, in the offering of Shares pursuant to the First Demand Request and the Second Demand Request. The number of Registrable Securities constituting Shares shall be appropriately adjusted in the event that, subsequent to January 21, 1999, 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. In no event shall the Company be required pursuant to this Section 6.1.1 to effect a shelf registration pursuant to Rule 415 promulgated under the Securities Act. 2. Limit on Sales of Common Stock. The parties hereto hereby amend the Stockholders' Agreement, in accordance with Section 8.4 thereof, by adding the following to the end of Section 6.1.1: (g) Prior to June 30, 2000, Kalitta agrees to not sell more than 25,000 shares of Common Stock in any three month period except pursuant to a Demand Registration. -2- 3 3. Race Shop Lease. (a) The parties hereto hereby amend the Race Shop Lease by deleting Section 3 of the Race Shop Lease in its entirety and replacing it with the following: 3. Term. This lease shall be for a term commencing on November 17, 1997 (the "commencement date") and ending on June 30, 1999. (b) The parties hereto hereby amend the Race Shop Lease by deleting Section 4 of the Race Shop Lease in its entirety and replacing it with the following: 4. Rental. Through December 31, 1998, Tenant shall pay to Landlord as annual rent the sum of $12.00, payable in monthly installments, in advance, on the first day of each month. After December 31, 1998, Tenant shall pay to Landlord as annual rent $5.50 per square foot of leased space in accordance with Exhibit A attached hereto, payable in monthly installments, in advance, on the first day of each month. TENANT ASSURES LANDLORD THAT IT SHALL VACATE AND LEAVE EMPTY AND IN PROPER CONDITION THE LEASED SPACE BY JUNE 30, 1999. 4. Voting by Kalitta prior to June 30, 2000. Until June 30, 2000, Kalitta hereby irrevocably appoints Christopher as his proxy to vote all KTTY Voting Securities (as defined in the Separation Agreement) Beneficially Owned (as defined in the Stockholders' Agreement) by Kalitta, at any meeting of stockholders (whether annual or special and whether or not an adjourned meeting) of the Company, or express written consent or dissent in any action taken in lieu of such a meeting. This proxy is irrevocable and is coupled with an interest sufficient in law to support an irrevocable proxy. This proxy shall revoke any other proxy granted by Kalitta with respect to the KTTY Voting Securities, and Kalitta shall not grant any subsequent proxies with respect to the KTTY Voting Securities. 5. Amendment to Merger Agreement. The parties hereto agree that Section 9.4 of the Merger Agreement is hereby deleted in its entirety. 6. Amendment to Racing Entity Purchase Agreement. The parties hereto hereby amend the Racing Entity Purchase Agreement by deleting the last sentence of Section 4.1 of the Racing Entity Purchase Agreement in its entirety and replacing it with the following: Until November 19, 1999, Seller shall make available to Racing Entity Thursdays through Sundays for racing activities on weekends of scheduled NHRA races (without a pilot or fuel, both of which shall be provided by the Racing Entity at its expense) either (i) a Learjet at $275.00 per block hour or (ii) a MU-2 aircraft at $150.00 per block hour. In addition, until November 19, 1999, Seller shall make available to Conrad A. Kalitta (without a pilot or fuel, both of which shall be provided by Conrad A. Kalitta at his expense) either (i) a Learjet at $275.00 per block hour or (ii) a MU-2 aircraft at $150.00 per block hour, for use at such times as Seller reasonably determines that such aircraft will not be utilized by Seller in revenue service. -3- 4 7. Miscellaneous. 7.1 Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and may be amended only by an agreement in writing executed by the parties hereto. 7.2 Headings. Descriptive headings are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 7.3 Number; Gender. Whenever the singular number is used herein, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 7.4 Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard hereto shall be validly given, made or served, if in writing and sent by U.S. certified mail, return receipt requested: if to the Company, M. Tom Christopher AIA, AIT, FOL, Chairman of the Board KHC, OKT or and Chief Executive Officer Christopher: 1515 West 20th Street DFW Airport, Texas 75261 with a copy to: Haynes and Boone, LLP 901 Main Street, Suite 3100 Dallas, Texas 75202-3789 Attention: Greg R. Samuel, Esq. if to Kalitta or Conrad A. Kalitta Motorsports 2395 South Huron Parkway Ann Arbor, Michigan 48104 with a copy to: David N. Parsigian, Esq. Miller, Canfield, Paddock & Stone, P.L.C. 101 N. Main Street, 7th Floor Ann Arbor, Michigan 48108 7.5 Enforceability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that the parties would have executed the remaining terms, provisions, covenants and restrictions without including any such term which may be hereafter declared invalid, void or unenforceable. In addition, the parties agree to use their commercially reasonable efforts to agree upon and substitute a valid and enforceable term, -4- 5 provision, covenant or restriction for any of such that is held invalid, void or unenforceable by a court of competent jurisdiction. 7.6 Law Governing. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without regard to any conflict of laws provisions thereof; provided that Section 3 hereof relating to amendments to the Race Shop Lease shall be construed in accordance with and governed by the laws of the State of Michigan without regard to any conflict of laws provisions thereof. 7.7 Jurisdiction and Venue. The state or federal courts located in Dallas County, Texas shall have exclusive jurisdiction and venue over all disputes arising out of or related to this Agreement and will be the sole proper forum in which the parties and any of their officers, directors, employees, representatives and affiliates shall adjudicate any such dispute. The parties agree that this choice of jurisdiction and venue is enforceable by the issuance of injunctive relief against the parties and that its violation constitutes irreparable harm for which there is an inadequate remedy at law. 7.8 Legal Fees and Expenses. The prevailing party in any legal proceeding based upon this Agreement shall be entitled to reasonable attorney's fees and court costs, in addition to and other recoveries allowed by law. 7.9 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended to confer on any person or entity other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. No party to this Agreement may assign its rights or delegate its obligations hereunder (whether voluntarily, involuntarily, or by operation of law) without the prior written consent of the other party. Any such attempted assignment shall be null and void. 7.10 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. 7.11 Section Headings. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. 7.12 No Construction Against Drafting Party. The parties agree that each has been represented by competent legal counsel in connection with this Agreement and that this Agreement shall not be construed against the party on whose behalf this Agreement has been drafted. 7.13 Cooperation. The parties agree to cooperate to the extent necessary to give full effect to the provisions of this Agreement. 7.14 REMEDIES. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT IRREPARABLE HARM WOULD OCCUR IN THE EVENT ANY OF THE PROVISIONS OF THIS AGREEMENT -5- 6 WERE NOT PERFORMED IN ACCORDANCE WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED. IT IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO SPECIFIC PERFORMANCE HEREUNDER, INCLUDING, WITHOUT LIMITATION, AN INJUNCTION OR INJUNCTIONS TO PREVENT AND ENJOIN BREACHES OF THE PROVISIONS OF THIS AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF IN ANY STATE OR FEDERAL COURT IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY. ANY REQUIREMENTS FOR THE SECURING OR POSTING OF ANY BOND WITH SUCH REMEDY ARE WAIVED. ALL RIGHTS AND REMEDIES UNDER THIS AGREEMENT ARE CUMULATIVE, NOT EXCLUSIVE, AND SHALL BE IN ADDITION TO ALL RIGHTS AND REMEDIES AVAILABLE TO EITHER PARTY AT LAW OR IN EQUITY. * * * * * -6- 7 The parties hereto have duly executed this Agreement as of the date first above written. KITTY HAWK, INC. By: /s/ M. TOM CHRISTOPHER ---------------------------------------- Name: M. Tom Christopher Title: Chairman and Chief Executive Officer /s/ M. TOM CHRISTOPHER - ------------------------------------------- M. Tom Christopher /s/ CONRAD A. KALITTA - ------------------------------------------- Conrad A. Kalitta KALITTA MOTORSPORTS, L.L.C. By: /s/ CONRAD A. KALITTA ---------------------------------------- Name: Conrad A. Kalitta Title: Authorized Member AMERICAN INTERNATIONAL AIRWAYS, INC. By: /s/ TILMON J. REEVES ---------------------------------------- Name: Tilmon J. Reeves Title: President AMERICAN INTERNATIONAL TRAVEL, INC. By: /s/ TILMON J. REEVES ---------------------------------------- Name: Tilmon J. Reeves Title: President -7- 8 FLIGHT ONE LOGISTICS, INC. By: /s/ TILMON J. REEVES ---------------------------------------- Name: Tilmon J. Reeves Title: President KITTY HAWK CHARTERS, INC. (F/K/A KALITTA FLYING SERVICE, INC.) By: /s/ TILMON J. REEVES ---------------------------------------- Name: Tilmon J. Reeves Title: President O.K. TURBINES, INC. By: /s/ TILMON J. REEVES ------------------------------------- Name: Tilmon J. Reeves Title: President - 8 - EX-10.4 5 MODIFIED AND RESTATED EMPLOYMENT - TILMON REEVES 1 EXHIBIT 10.4 5/15/98 - -------------------------------------------------------------------------------- MODIFIED AND RESTATED EMPLOYMENT AGREEMENT - -------------------------------------------------------------------------------- 1.0 PARTIES AND DATE 1.1 Parties. The parties to this modified and restated employment agreement (this "agreement") are Kitty Hawk, Inc. ("Kitty Hawk") and Tilmon J. Reeves ("Reeves"). 1.2 Date. This agreement is dated and effective April 27, 1998. 2.0 RECITATIONS AND ACKNOWLEDGMENTS 2.1 Previous Employment Agreements. Reeves has been employed by Kitty Hawk since on or about February 24, 1992 under written employment agreements, the most recent of which, dated and effective October 27, 1994, was amended by a modification agreement dated and effective December 31, 1995. Reeves is president of Kitty Hawk, a member of its board of directors, and its chief operating officer. This agreement supersedes, modifies and restates all previous employment agreements between Reeves and Kitty Hawk. 2.2 Previous Stock Option and Life Insurance Agreement. Reeves and Kitty Hawk were also parties to a Stock Option and Life Insurance Agreement (the "1995 option agreement") dated and effective December 31, 1995, under which among other things Kitty Hawk granted stock options to Reeves and provided certain life-insurance benefits to Reeves while the options were outstanding. This agreement does not supersede the 1995 option agreement, but Reeves acknowledges that all of his stock options under the 1995 option agreement have been exercised, and that Kitty Hawk has no further obligations to Reeves under the 1995 option agreement. 3.0 TERMS OF EMPLOYMENT 3.1 Responsibilities. Reeves will be president of Kitty Hawk, and president of its subsidiaries, Kitty Hawk Aircargo, Inc. ("Aircargo") and American International Airways, Inc. ("AIA"), will report to M. Tom Christopher ("Christopher"), Kitty Hawk's chief executive officer, and will be subject to the direction of Kitty Hawk's board of directors, but he will have authority commensurate with his responsibilities. Reeves will have primary responsibility for the operational success of Aircargo and AIA, and is expected to continue to be involved in all of Kitty Hawk's business, and to play a major role in the success of the entire enterprise. Both Reeves and Kitty Hawk expect Reeves' responsibility, authority and compensation to be adjusted from time to time as determined by Kitty Hawk's board of directors and the Compensation Committee of the board of directors, but not to be less than the minimum basic annual compensation under paragraph 3.2. 2 3.2 Annual Compensation. Reeves' basic annual compensation ("basic annual compensation") at and after the effective date of this agreement shall not be less than $400,000.00, payable in equal monthly installments. His basic annual compensation may otherwise be adjusted from time to time. He will be entitled to the benefits of Kitty Hawk's Annual Incentive Compensation Plan as it is in effect from time to time, and he may be paid other bonus compensation from time to time based upon his performance and the success of the Kitty Hawk enterprise, all as determined by the Compensation Committee of the board of directors. 3.3 Fringe Benefits. Reeves shall receive the employee fringe benefits that are generally available to all Kitty Hawk employees, and such other fringe benefits as may be determined from time to time by the Compensation Committee of the board of directors. 3.4 Medical Insurance. During his employment under this agreement and thereafter so long as he lives, Kitty Hawk will provide to Reeves at no cost to Reeves medical and hospitalization insurance coverage at least substantially equivalent to the coverage that is now provided to Reeves under Kitty Hawk's current employee medical plans. 3.5 Stock Options. In consideration of Reeve's promises and employment under this agreement, and to supply additional incentives for his continuing contributions to Kitty Hawk's success, Kitty Hawk grants to Reeves the special options for the purchase of Kitty Hawk shares, upon the terms and conditions, and subject to the limitations of the option agreement (the "1998 option agreement") contained in Exhibit A, which is attached to this agreement and incorporated as part of it. 3.6 Proprietary information. A. Reeves has had and will have extensive access to and use of, and has played and will play a material role in developing, the confidential business and proprietary information of Kitty Hawk and its customers, and Kitty Hawk's confidential business practices and procedures (collectively, "Kitty Hawk's proprietary information"). Kitty Hawk's proprietary information includes but is not limited to Kitty Hawk's dynamic data base concerning air cargo aircraft in charter service and suppliers of ground handling and delivery services, customer lists and agreements, vendor lists, employee data, competitor data, price and tariffs lists, bids and quotations, aircraft use and maintenance scheduling procedures, phone lists, computer programs, documents, letters, memoranda, financial information, commission arrangements, and other specialized and confidential business arrangements and practices. Kitty Hawk relies upon its proprietary information for competitive advantage in its markets. Unauthorized disclosure, copying, destruction or removal of Kitty Hawk's proprietary information, or its use for the benefit of Kitty Hawk's competitors, could severely and irreparably damage Kitty Hawk. 3 B. Reeves shall while in Kitty Hawk's employ diligently safeguard Kitty Hawk's proprietary information; and when leaving Kitty Hawk's employment for whatever reason, shall surrender to Kitty Hawk all written or recorded evidence of Kitty Hawk's proprietary information in Reeves's possession. C. After leaving Kitty Hawk's employment for whatever reason, Reeves shall never disclose Kitty Hawk's proprietary information unless Kitty Hawk's chief executive officer expressly authorizes the disclosure in writing. 3.7 Covenant Not to Compete. To further protect Kitty Hawk's proprietary information, Reeves agrees that upon termination of Reeves' employment with Kitty Hawk for whatever reason, Reeves shall not engage in the air cargo charter-management, or charter brokerage business, or in the business of ad hoc or scheduled carriage of air freight under FAA Part 121 or Part 135 certificate, within the United States for three years following such termination, either directly or indirectly, whether as an employee, agent, consultant, broker, partner, principal, director or otherwise. Reeves further waives and releases any future claim against Kitty Hawk for attempting to enforce Reeves's covenant not to compete if Kitty Hawk does so in the good faith belief that the covenant is enforceable and that Reeves has breached or contemplates breaching it. 3.8 Termination. Both Kitty Hawk and Reeves shall have the right to terminate this employment agreement with or without cause. A. If Reeves terminates the agreement without material breach by Kitty Hawk, Reeves shall waive all rights to any compensation under this agreement that would otherwise have been payable after the termination. B. If Kitty Hawk terminates his employment without material breach by Reeves, Reeves shall be entitled as his exclusive remedies to (i) 100% of the basic annual compensation he would have received through the fifth anniversary of this agreement, payable when it would have been paid in the absence of termination, (ii) the medical insurance benefits provided under P. 3.4, and (iii) his rights under the 1998 option agreement. C. If because of disability Reeves becomes unable to perform his duties under his employment, or if Reeves dies during his employment under this agreement, his annual compensation shall cease. 4.0 GENERAL PROVISIONS 4.1 Amendments. To amend this agreement, Kitty Hawk and Reeves must sign a written amendment that identifies by paragraph number the provision that it purports to amend. No noncomplying course of dealing or waiver shall be construed to amend this agreement. 4 4.2 Construction. This agreement has been executed and delivered in Texas, whose substantive law (excluding conflict of laws rules that might apply the substantive law of another jurisdiction) shall govern its effect and construction, except that Delaware corporate law shall govern the internal affairs of Kitty Hawk and other corporate matters where applicable. No rule of construction resolving ambiguity against a drafting party shall apply. This agreement binds and benefits the parties and their respective heirs, personal representatives, successors and assigns. Reeves agrees that his obligations under this agreement to protect Kitty Hawk's proprietary information are in addition to Reeves's implied obligations under Texas law, and that all of those obligations may be enforced by equitable remedies, such as injunction, as well as by damages resulting from their breach. If any provision of this agreement is invalid or unenforceable, the remaining provisions shall nevertheless be enforceable. 4.3 Binding Agreement to Arbitrate Disputes. All disputes under or relating to this agreement must be resolved exclusively by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") in effect at the time the arbitration proceeding commences; except that (i) the locale of any arbitration shall be Dallas, Texas, (ii) the arbitrator or arbitrators shall with any final award supply written findings of fact and conclusions of law, and (iii) any party may seek from a court of competent jurisdiction any provisional remedy that may be necessary to protect its rights or assets pending the commencement of the arbitration or its determination of the merits of the controversy. The arbitration award shall be final and binding on all parties, and judgment upon such arbitration award may be entered in any court having jurisdiction. A prevailing party in arbitration or litigation about this agreement shall be entitled to recover its reasonable attorneys' fees and costs. ------------------------------- TILMON J. REEVES KITTY HAWK, INC. By: ---------------------------- M. Tom Christopher, Chairman of the Board and Chief Executive Officer EX-10.5 6 STOCK OPTION AGREEMENT DATED APRIL 27, 1998 1 EXHIBIT 10.5 - ------------------------------------------------------------------------------- Stock Option Agreement - ------------------------------------------------------------------------------ 1.0 DATE AND PARTIES 1.1 Date. This stock option agreement ("agreement") is dated and effective April 27, 1998. 1.2 Parties. The parties to this agreement are: A. Tilmon J. Reeves ("Reeves") 316 Lakeland Drive Highland Village, TX 75077 B. Kitty Hawk, Inc. ("Kitty Hawk") Attention: Chief Executive Officer P. O. Box 612787 1515 West 20th DFW Airport, TX 75261 2.0 RECITATIONS 2.1 Reeves. Reeves is president of Kitty Hawk, a member of its board of directors, and its chief operating officer. 2.2 Consideration. Kitty Hawk's covenants hereunder are in consideration of Reeves past services and contributions to Kitty Hawk's success, and to supply additional incentives for his continuing contributions to Kitty Hawk's success. 3.0 OPTION TERMS 3.1 Grant of Option. Kitty Hawk grants to Reeves an option (the "option") to purchase from Kitty Hawk 400,000 shares (the "optioned shares") of Kitty Hawk's common stock, whose par value is $.01 per share, subject to the terms and conditions of this agreement. 3.2 Term of Option; Vesting. The option shall be effective from the effective date of this agreement until the earliest of (i) the date at which all optioned shares have been delivered hereunder, (ii) December 31, 2005, or (iii) the date 12 months after Reeves' death; but the option is subject to early termination under paragraph 3.10(D) and paragraph 5.2. Reeves' rights to exercise the option are subject to the vesting schedule and conditions expressed in paragraph 3.7. 2 3.3 Exercise. Reeves may exercise the option at any time, and from time to time, in whole or in part, as to any optioned shares for which his rights are vested under the provisions of paragraph 3.7, in whole-share increments of not less than 20,000 shares at a time, by giving notice of exercise to Kitty Hawk, stating the number of shares to be purchased and confirming that the representations and warranties in paragraph 4.1 remain true as of the date of the notice with respect to the shares to be purchased under such notice. 3.4 Exercise Price. The exercise price shall be $16.75 per share, which is the price per share on April 27, 1998, the day on which the Compensation Committee of Kitty Hawk's board of directors approved the terms of this agreement. The exercise price of the optioned shares being exercised must be tendered in cash with the notice of exercise, or if Reeves elects in the notice of exercise, may be paid by deducting from the shares to be delivered the number of such shares whose value would equal the exercise price at the average last trade value of such shares for the five business days preceding the date of the notice of exercise. 3.5 Issuance. Kitty Hawk shall issue and deliver to Reeves the shares stated in a notice of exercise complying with this agreement, no later than 10 business days after receiving the notice. 3.6 Income Tax Withholding. If Kitty Hawk is required or entitled by applicable law to withhold taxes in connection with the delivery of any shares hereunder, at the time and as a condition of the delivery of such shares Reeves shall either (i) tender to Kitty Hawk the amount of such withholding in cash, or (ii) if then permitted by applicable law and with Kitty Hawk's consent (which Kitty Hawk may not withhold unreasonably), authorize Kitty Hawk to deduct from the number of shares to be delivered a number of shares of a value, determined by their then fair market value, equal to the amount of such withholding. Any shares deducted for withholding shall be deemed issued and delivered in determining the number of optioned shares that have been delivered hereunder. 3.7 Vesting and Conditions. Reeves' rights hereunder vest over time and are conditional. Reeves' rights to exercise the option vest as to 100,000 shares upon the effective date of this agreement, and as to the remaining 300,000 shares will vest at the rate of 100,000 shares on each anniversary of the effective date of this agreement; although Reeves' rights to exercise the option are subject to earlier vesting under paragraph 3.10(C) and paragraph 3.10(D), and under the following sentence. Termination of Reeves' employment by Kitty Hawk without cause, or because of Reeves' death or disability, will not affect Reeves' vested rights, and notwithstanding the preceding sentence, will cause all then unvested rights to fully vest at the time of such termination. Termination of Reeves' employment by Reeves' voluntary resignation or retirement before reaching age 65 (other than for disability) will terminate Reeves' vested but unexercised rights and his unvested rights at the time of such termination. Termination of Reeves' employment by Kitty Hawk for cause will terminate Reeves' vested but unexercised rights and his unvested rights at the time of such termination. Kitty Hawk may by notice to Reeves terminate Reeves' vested but unexercised rights and his unvested rights if during or after Reeves' employment by Kitty Hawk Reeves directly or indirectly engages in competition with Kitty Hawk or discloses any proprietary and confidential business information of Kitty Hawk or its affiliates in breach or violation of any agreement with or implied obligation to Kitty Hawk; but such termination of rights is not intended or to be construed as a waiver or relinquishment by Kitty Hawk of any other claim or remedy against Reeves for any such breach or violation. 3 3.8 Rights as Stockholder. Reeves shall have no rights as a stockholder with respect to any optioned shares that have not been delivered. 3.9 Rights as Employee. This agreement neither confers upon Reeves any rights to continue in Kitty Hawk's employ, nor modifies any of Reeves' rights or obligations under his employment or other agreements with Kitty Hawk. 3.10 Changes in Capitalization. A. This agreement does not affect in any way the right or power of Kitty Hawk to make adjustments, reclassifications, reorganizations, or changes of its capital structure, to merge or consolidate, to dissolve or liquidate, or to sell or transfer all or any part of its business or assets. B. If before the termination hereof, outstanding shares of Kitty Hawk's common stock are changed into, or exchanged for a different number or kind of shares or securities of Kitty Hawk through reorganization, merger, recapitalization, reclassification, stock split, reverse stock split, stock dividend, or similar transaction, the description of the undelivered optioned shares shall be deemed modified so that the undelivered optioned shares shall be of the same class and character as the holder of the optioned shares would have been entitled to receive had such undelivered optioned shares been delivered and outstanding before the change was effected. C. If Kitty Hawk is dissolved or liquidated, or is reorganized, merged, or consolidated with one or more other entities so that Kitty Hawk is not the surviving corporation; or if substantially all of Kitty Hawk's property is sold; then all unvested rights hereunder as to optioned shares will immediately vest, and upon exercise of the option Reeves will be entitled to receive for each undelivered optioned share, the cash, securities or property that Reeves would have been entitled to receive with respect to such optioned share had such optioned share been delivered and outstanding when the event was effected. D. Kitty Hawk may terminate this agreement as of the effective date of any reorganization, merger, consolidation, dissolution, liquidation or other change of capitalization of the types identified in paragraphs 3.10(B) or (C), but if Kitty Hawk elects to do so, Kitty Hawk must notify Reeves or his personal representative of such election at least 30 days before the effective date of such event, all unvested rights hereunder as to optioned shares will immediately vest, and Kitty Hawk must permit the exercise of the option as to all undelivered optioned shares during the 30-day period immediately preceding the effective date of such event. 3.11 Registration. If at any time Kitty Hawk registers any material portion of its common shares under the Securities Act of 1933, the Securities Exchange Act of 1934, any other federal securities-regulation statute, or any state securities act, or obtains exemption 4 from such registration for the public offer or sale of such share, Kitty Hawk shall include in such registration or exemption Reeves' delivered shares and undelivered optioned shares hereunder in at least the same ratio as Kitty Hawk's common shares then held by or for M. Tom Christopher are included in such registration or exemption. 4.0 REPRESENTATIONS, WARRANTIES AND OTHER COVENANTS 4.1 Reeves' Representations and WarrantieS. Reeves represents and warrants to Kitty Hawk that: A. Reeves holds his rights hereunder for his own account, without the participation of any other person, and with the intent of holding this agreement and all shares delivered hereunder ("delivered shares") for investment, and without the intent of participating, directly or indirectly, in a distribution of Kitty Hawk shares, and not with a view to, or for resale in connection with, any distribution of any part of the delivered shares or undelivered optioned shares. B. As a principal executive officer and member of the board of directors of Kitty Hawk and its air-carrier subsidiary, Reeves has had full access to all material information relating to the business and affairs of Kitty Hawk, and has received all information and data with respect to Kitty Hawk and the optioned shares that he has requested and has deemed relevant in connection with his receipt of his rights hereunder. Reeves does not rely upon any representation or warranty by any person or entity with respect to the future value of, or income from, the optioned shares, but rather relies upon his own independent examination and judgment as to Kitty Hawk's prospects. 4.2 Reeves' Special Covenants. Reeves acknowledges, covenants and agrees with Kitty Hawk that: A. Neither this agreement nor the optioned shares are registered under any federal or state law relating to the registration of securities for sale, and this agreement is, and the optioned shares will be, issued and delivered in reliance on exemptions from registration under such laws. B. Reeves shall not offer for sale, sell or transfer any rights hereunder or any delivered shares except in accordance with applicable securities laws and with the provisions hereof. C. Except as provided in paragraph 3.11, Kitty Hawk shall have no obligation to register delivered shares or to comply with any exemption available for Reeves' sale of delivered shares without registration, and Kitty Hawk shall have no obligation to act in any manner so as to make Rule 144 under the Securities Act of 1933 available with respect to the sale of delivered shares by Reeves. D. A legend indicating that delivered shares have not been registered under the applicable securities laws, and referring to any applicable restrictions on 5 transferability and sale of delivered shares, may be placed on any certificate delivered to Reeves with respect to any delivered shares, and any transfer agent of Kitty Hawk may be instructed to require compliance with any such legend. E. Reeves' exercise of this option as to any optioned shares, and acceptance of delivery of any delivered shares shall constitute Reeves' confirmation that all of his representations, warranties and covenants under ss.4.0 are true, correct and effective as of such time. 5.0 GENERAL PROVISIONS 5.1 Assignment. Reeves may not transfer, assign or grant any security interest in any rights hereunder. 5.2 AmendmentS. To terminate, amend, modify, supplement or waive any provision hereof, both parties must sign a written amendment that identifies by paragraph number the provision that it purports to amend. No noncomplying course of dealing shall be construed to amend this agreement. 5.3 Notices. Notices hereunder must be in writing. A notice may be given by United States certified mail, postage prepaid, return receipt requested, addressed to the intended recipient at its address in paragraph 1.2, or to such other notice address as that party designates by notice to the other party. If given by mail, a notice shall be effective three business days after mailing. A business day is any day other than a Saturday, Sunday or legal holiday in Texas. A notice given by other means shall be effective only when received by the addressee. 5.4 WAIVER OF PUNITIVE AND CONSEQUENTIAL DAMAGES. BOTH PARTIES WAIVE, RELEASE, AND AGREE NOT TO SUE OR ASSERT ANY CLAIM (INCLUDING A CLAIM SUBJECT TO ARBITRATION) AGAINST ANY PARTY TO THIS AGREEMENT, OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS OR AGENTS, FOR PUNITIVE OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY CLAIM IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT. 5.5 Construction. A. This agreement has been executed and delivered in Texas, whose substantive law (excluding conflict of laws rules that might apply the substantive law of another jurisdiction) shall govern its effect and construction, except that Delaware corporate law shall govern the internal affairs of Kitty Hawk and other corporate matters where applicable. This agreement merges and supersedes all prior oral or written agreements with respect to the subject matter. It binds the parties and their respective heirs, personal representatives, successors and assigns. B. Representations and warranties expressed herein shall survive investigation by either party and delivery of shares or other performance. 6 C. No waiver of a noncompliance hereunder shall be construed to be a waiver of any other noncompliance. D. Titles and headings are only for convenient reference and are not to be construed in interpretation. E. When used herein, defined terms (in quotation marks within parentheses immediately following the defining term or phrase) have the defined meanings unless the context clearly indicates otherwise. Defined terms may be used in the singular or plural. The words "hereof," "herein," and "hereunder" always refer to this agreement as a whole, and never to a particular provision. Unless otherwise clearly indicated, section ("section") and paragraph ("paragraph ") references are to sections and paragraphs hereof. 5.6 Binding Agreement to Arbitrate Disputes. All disputes under or relating to this agreement must be resolved exclusively by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") in effect at the time the arbitration proceeding commences; except that (i) the locale of any arbitration shall be Dallas, Texas, (ii) the arbitrator or arbitrators shall with any final award supply written findings of fact and conclusions of law, and (iii) any party may seek from a court of competent jurisdiction any provisional remedy that may be necessary to protect its rights or assets pending the commencement of the arbitration or its determination of the merits of the controversy. The arbitration award shall be final and binding on all parties, and judgment upon such arbitration award may be entered in any court having jurisdiction. A prevailing party in arbitration or litigation about this agreement shall be entitled to recover its reasonable attorneys' fees and costs. KITTY HAWK: KITTY HAWK, INC. By: ------------------------------------- M. Tom Christopher Chairman of the Board and Chief Executive Officer REEVES: ---------------------------------------- Tilmon J. Reeves EX-10.6 7 NON-QUALIFIED STOCK OPTION AGREEMENT 1 EXHIBIT 10.6 NON-QUALIFIED STOCK OPTION AGREEMENT This NON-QUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT") dated as of February 24, 1999, is entered into by and among Tilmon J. Reeves ("OPTIONEE"), Kitty Hawk, Inc., a Delaware corporation (the "COMPANY"), and M. Tom Christopher ("CHRISTOPHER"). RECITALS A. This Agreement is entered into pursuant to the Kitty Hawk, Inc. 1999 Executive Stock Option Plan (the "PLAN"), dated as of February 24, 1999. B. Optionee is currently the Company's President and Chief Operating Officer and is a member of the Company's Board of Directors. C. The Company desires to grant Optionee a Non-Qualified Stock Option (the "OPTION") to purchase 400,000 shares of the Company's Common Stock, par value $.01 per share, (the "OPTIONED SHARES"). D. Optionee and the Company desire that this Option replace and supersede the option (the "PRIOR OPTION") granted by that certain Stock Option Agreement (the "PRIOR OPTION AGREEMENT"), dated April 27, 1998, by and between Optionee and the Company, and/or that certain Modified and Restated Employment Agreement (the "MODIFIED EMPLOYMENT AGREEMENT"), dated April 27, 1998, by and between Optionee and the Company, and that upon execution of this Agreement, the Prior Option shall be superseded hereby pursuant to Section 17 hereof. E. Optionee and the Company desire to set forth herein the terms and conditions of the Option. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed by each of the parties hereto, the parties hereto agree as follows: 1. Grant of Option. The Company hereby grants to Optionee until 11:59 p.m., Dallas, Texas time, on February 24, 2009 (the "EXPIRATION DATE") the right and option to purchase the Optioned Shares from the Company at a price of $16.75 per Optioned Share (the "EXERCISE PRICE"). 2. Subject to Plan; Stockholder Vote. (a) This Option is issued pursuant to the Plan, and the obligations of the Company and the rights of the Optionee are subject to all applicable laws, 2 rules, and regulations and provisions of the Plan. This Option and its exercise are subject to the terms of the Plan. Capitalized terms used herein, but not defined herein, shall have the meanings assigned to such terms in the Plan. (b) This Option is granted subject to approval of the Plan by the Company's stockholders. In that regard, Christopher hereby irrevocably agrees to vote all shares of the Company's Common Stock, par value $0.01 per share ("COMMON STOCK"), that Christopher is entitled to vote (including specifically those shares of Common Stock owned by Conrad A. Kalitta which Christopher is entitled to vote) in favor of approving the Plan. 3. Exercise of Option. Subject to Sections 4 and 5 below, Optionee may exercise this Option, in whole or from time to time in part, at any time before the Expiration Date, by sending written notice thereof to the Company in accordance with the provisions of this Agreement. This Option may be exercised only with respect to full shares in increments of not less than 20,000 shares at a time, and no fractional shares of stock shall be issued. 4. Vesting; Time of Exercise. Except as specifically provided in Sections 5 and 6 of this Agreement, this Option shall be vested and exercisable in the following cumulative installments: (a) First installment. Up to one-half of the total Optioned Shares at any time following the date hereof. (b) Second installment. Up to an additional one-quarter of the total Optioned Shares at any time following April 1, 2000. (c) Third installment. Up to the remaining one-quarter of the total Optioned Shares at any time following April 1, 2001. Notwithstanding the foregoing, in the event of: (i) any liquidation or dissolution of the Company, any reorganization, merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, or any proposed sale of substantially all of the assets of the Company, all unvested rights to acquire Optioned Shares shall immediately vest and become exercisable; (ii) termination of Optionee's employment by the Company without cause, or because of Optionee's death or disability, all unvested rights to acquire Optioned Shares shall immediately vest and become exercisable; and (iii) a Change of Control, all unvested rights to acquire Optioned Shares shall immediately vest and become exercisable. - 2 - 3 5. Forfeiture. Subject to earlier termination under Section 6 hereof, this Option, and all unissued Optioned Shares granted to Optionee hereunder, will terminate and be forfeited on the day and at the time of the first of the following to occur: (a) the Expiration Date; (b) 5 p.m. on the date which is twelve (12) months following the Optionee's termination of service as an employee of the Company due to death; (c) immediately upon termination of Optionee's employment by Optionee's voluntary resignation or retirement before Optionee reaches age 65 (other than as a result of death or disability); and (d) immediately upon termination of Optionee's employment for cause. In addition, if during or after the termination of Optionee's employment with the Company, Optionee directly or indirectly engages in competition with the Company or discloses any proprietary and confidential business information of the Company or its affiliates in breach or violation of any agreement with or implied obligation to the Company, the Company may immediately by delivery of notice to Optionee, terminate Optionee's vested and unexercised and unvested rights under this Option. The parties hereto agree that any termination of such rights pursuant to the foregoing sentence is not intended nor to be construed as a waiver or relinquishment by the Company of any other claim or remedy against Optionee for any such breach or violation. 6. Changes in Capitalization. (a) The existence of this Option shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. (b) In the event of any liquidation or dissolution of the Company, any reorganization, merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, or of any proposed sale of substantially all of the assets of the Company, there shall be substituted for each share of Common Stock subject to the unexercised portion of the Option that number of shares of each class of stock or other securities or that amount of cash, property or assets that the Optionee would have - 3 - 4 received on a per share basis had this Option been exercised in full prior to such event. Notwithstanding the foregoing, however, the Board, in its sole discretion, may cancel this Option at least thirty (30) days prior to the effective date of any such liquidation or dissolution of the company, any reorganization, merger or consolidation, or of any such proposed sale of substantially all of the assets of the Company, and give notice to Optionee of its intention to cancel the Option and permit the purchase during the thirty (30) day period following the delivery of such notice of any or all of the shares subject to the Option, including shares as to which such Option would not otherwise be exercisable. (c) If before the termination hereof, Common Stock is changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, recapitalization, reclassification, stock split, stock dividend, or similar transaction, the description of the undelivered Optioned Shares will be deemed modified so that the undelivered Optioned Shares shall be of the same class and character as the holder the Optioned Shares would have been entitled to receive had such undelivered Optioned Shares been delivered and outstanding before the change was effected. 7. Who May Exercise. Subject to the terms and conditions set forth in Sections 3, 4 and 5 above, during the lifetime of the Optionee, this Option may be exercised only by the Optionee, or by the Optionee's guardian. If the Optionee's service as an employee of the Company terminates as a result of death or disability prior to the Expiration Date, and the Optionee has not exercised this Option in full as to the maximum percentage of Optioned Shares set forth in Section 4 hereof as of the date of death or disability, the following persons may exercise the remaining exercisable portion of this Option on behalf of the Optionee: (i) if the Optionee is disabled, the guardian of the Optionee; or (ii) if the Optionee dies, the personal representative of his estate, or the person who acquired the right to exercise this Option by bequest or inheritance or by reason of the death of the Optionee; provided that this Option shall remain subject to the other terms of this Agreement, the Plan, and applicable laws, rules, and regulations. 8. Manner of Exercise; Taxes. This Option may be exercised by the delivery of written notice to the Committee setting forth the Optionee's intention to exercise the Option and the date of exercise thereof (the "EXERCISE DATE") which shall be at least three (3) business days after giving such notice, unless an earlier date shall have been mutually agreed upon. On the Exercise Date, the Optionee shall deliver to the Company consideration with a value equal to the Exercise Price multiplied by the number of Optioned Shares being acquired. The aggregate Exercise Price must be tendered in cash with the notice of exercise, or if Optionee elects in the notice of exercise, may be paid by deducting from the shares to be delivered the number of such shares whose value would equal the Exercise Price at their Fair Market Value. As used herein, "FAIR MARKET VALUE" shall mean the average last trade value of the Common Stock on the principal - 4 - 5 securities exchange on which the Common Stock is traded for the last five (5) trading days preceding the date or event in question. Upon payment of all amounts due from the Optionee, the Company shall cause certificates for the Optioned Shares then being purchased to be delivered to the Optionee at the address specified under Section 24 within ten (10) business days after the Exercise Date. The obligation of the Company to deliver the Optioned Shares shall, however, be subject to the condition that if at any time the Committee shall determine, in its sole discretion, that the listing, registration, or qualification of the Option or the Optioned Shares upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the Option or the issuance or purchase of shares thereunder, the Option may not be exercised unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. If the Optionee fails to pay for any of the Optioned Shares specified in such notice or fails to accept delivery thereof, the Optionee's right to purchase any Optioned Shares may be terminated by the Company. If the Company is required or entitled by applicable law to withhold taxes in connection with the delivery of any shares hereunder, at the time and as a condition of the delivery of such shares Optionee shall either (i) tender to the Company the amount of such withholding in cash, or (ii) if then permitted by applicable law and with the Company's consent (which the Company may not withhold unreasonably), authorize the Company to deduct from the number of shares to be delivered a number of shares of a value, determined by their then fair market value, equal to the amount of such withholding. Any shares deducted for withholding shall be deemed issued and delivered in determining the number of Optioned Shares that have been delivered hereunder. 9. Non-Assignability. This Option is not assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 10. Rights as Stockholder. The Optionee will have no rights as a stockholder with respect to any shares covered by this Option until the issuance of a certificate or certificates to the Optionee for the Optioned Shares. 11. Optionee's Representations. Notwithstanding any of the provisions hereof, the Optionee hereby agrees that the Optionee will not exercise the Option granted hereby, and that the Company will not be obligated to issue any Optioned Shares to the Optionee hereunder, if the exercise thereof or the issuance of such Optioned Shares shall constitute a violation by the Optionee or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Committee shall be final, binding, and conclusive. - 5 - 6 In addition, Optionee represents and warrants to the Company that as a principal executive officer and member of the board of directors of the Company and its air-carrier subsidiary, Optionee has had full access to all material information relating to the business and affairs of the Company, and has received all information and data with respect to the Company and the Optioned Shares that he has requested and has deemed relevant in connection with his receipt of his rights hereunder. Optionee does not rely upon any representation or warranty by any person or entity with respect to the future value of, or income from, the Optioned Shares, but rather relies upon his own independent examination and judgment as to the Company's prospects. 12. Investment Representation. Unless the Common Stock is issued to him in a transaction registered under applicable federal and state securities laws, by his execution hereof, the Optionee represents and warrants to the Company that all Common Stock which may be purchased hereunder will be acquired by the Optionee for investment purposes for his or her own account and not with any intent for resale or distribution in violation of federal or state securities laws. Unless the Common Stock is issued to him in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend. 13. Optionee's Acknowledgments. The Optionee acknowledges, represents and warrants receipt of a copy of the Plan, which is annexed hereto, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the terms and provisions thereof. The Plan is a separate legal document that contains the general terms and conditions applicable to this Option. 14. Law Governing. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Texas (excluding any conflicts of law rule or principle of Texas law that might refer the governance, construction, or interpretation of this Agreement to the laws of another state). 15. Legal Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein. 16. Covenants and Agreements as Independent Agreements. Each of the covenants and agreements that is set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Optionee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the - 6 - 7 enforcement by the Company of the covenants and agreements that are set forth in this Agreement. 17. Entire Agreement. This Agreement and the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof, including specifically the Prior Option Agreement and the Modified Employment Agreement, and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement and the Plan. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect. 18. No Right to Continue Employment. Nothing herein shall be construed to confer upon the Optionee the right to continue in the employment of the Company or any Subsidiary or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Optionee at any time (subject to any contract rights of the Optionee). 19. Parties Bound. The terms, provisions, representations, warranties, covenants, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns. 20. Modification. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Company may amend or revoke this Option to the extent permitted in the Agreement or the Plan. 21. Headings. The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement. 22. Gender and Number. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise. 23. Notice. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company or the Optionee, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith: - 7 - 8 (a) Notice to the Company shall be addressed and delivered as follows: Kitty Hawk, Inc. 1515 West 20th Street P.O. Box 612787 Dallas/Fort Worth, Texas 75261 Attn: Chief Executive Officer (b) Notice to the Optionee shall be addressed and delivered as follows: Tilmon J. Reeves 316 Lakeland Drive Highland Village, Texas 75077 24. Optionee Covenants. Optionee acknowledges, covenants and agrees with the Company that: (a) Neither this Agreement nor the Optioned Shares are registered under any federal or state law relating to the registration of securities for sale, and this Agreement is, and the Optioned Shares will be, issued and delivered in reliance on exemptions from registration under such laws. (b) Optionee shall not offer for sale, sell or transfer shares acquired upon exercise hereof ("DELIVERED SHARES") except in accordance with applicable securities laws and with the provisions hereof. (c) Except as provided in Section 25 hereof, the Company shall have no obligation to register delivered shares or to comply with any exemption available for Optionee's sale of delivered shares without registration, and the Company shall have no obligation to act in any manner so as to make Rule 144 under the Securities Act of 1933, as amended (the "1933 ACT"), available with respect to the sale of delivered shares by Optionee. (e) Optionee's exercise of this Option as to any Optioned Shares, and acceptance of delivery of any delivered shares shall constitute Optionee's confirmation that all of his representations, warranties and covenants contained herein are true, correct and effective as of such time. 25. Registration. If at any time the Company registers any material portion of its Common Stock under the 1933 Act or obtains exemption from the 1933 Act for the public offer or sale of such material portion of Common Stock, the Company shall include in such registration or exempt transaction Optionee's delivered shares in at least the same ratio as Common Stock then held by or for Christopher are included in such registration or exempt transaction. - 8 - 9 26. Binding Agreement to Arbitrate Disputes. All disputes under or relating to this Agreement must be resolved exclusively by binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") in effect at the time the arbitration proceeding commences; except that (a) the locale of any arbitration shall be Dallas, Texas, (b) the arbitrator or arbitrators shall with any final award supply written findings of fact and conclusions of law, and (c) any party may seek from a court of competent jurisdiction any provisional remedy that may be necessary to protect its rights or assets pending the commencement of the arbitration or its determination of the merits of the controversy. The arbitration award shall be final and binding on all parties, and judgment upon such arbitration award may be entered in any court having jurisdiction. A prevailing party in arbitration or litigation about this Agreement shall be entitled to recover its reasonable attorneys' fees and costs. * * * * * - 9 - 10 IN WITNESS WHEREOF, the undersigned have signed this Agreement as of the date first listed above. KITTY HAWK, INC. By: ------------------------------------ Name: M. Tom Christopher Title: Chief Executive Officer --------------------------------------- M. Tom Christopher OPTIONEE --------------------------------------- Tilmon J. Reeves - 10 - EX-10.7 8 1999 EXECUTIVE STOCK OPTION PLAN 1 EXHIBIT 10.7 KITTY HAWK, INC. 1999 EXECUTIVE STOCK OPTION PLAN PURPOSE The purpose of the Kitty Hawk, Inc. 1999 Executive Stock Option Plan (the "PLAN") is to attract and retain key executives of Kitty Hawk, Inc., a Delaware corporation (the "COMPANY"), and to provide such persons with a proprietary interest in the Company through the granting of Incentive Stock Options and Non-Qualified Stock Options which are intended to: (i) further align the interests of such key executives with the interests of the Company's stockholders; (ii) furnish an incentive to such key executives to continue their employment with the Company; and (iii) provide a means through which the Company may attract key executives. ARTICLE I DEFINITIONS For the purpose of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated: 1.1 "BOARD" means the board of directors of the Company. 1.2 "CHANGE IN CONTROL"means the earliest date on which any of the following events shall occur: (i) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock (as defined below) would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or any lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation), in one transaction or a series of related transactions, of all, or substantially all, of the assets of the Company; (ii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company; 2 (iii) any "person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the Securities Exchange Act of 1934 (the "1934 ACT")) or any "group" (as such term is used in Rule 13d-5 promulgated under the 1934 Act), other than M. Tom Christopher, Conrad A. Kalitta, the Company or any successor of the Company or any Subsidiary (as defined) or any employee benefit plan of the Company or any Subsidiary (including such plan's trustee), becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of securities of the Company representing 20% or more of the Company's then outstanding securities having the right to vote in the election of directors; or (iv) during any period of two consecutive years, individuals who, at the beginning of such period constituted the entire Board of Directors of the Company, cease for any reason (other than death) to constitute a majority of the directors, unless the election, or the nomination for election, by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 1.3 "CODE" means the Internal Revenue Code of 1986, as amended. 1.4 "COMMON STOCK" means the Company's common stock, par value $0.01 per share. 1.5 "DATE OF GRANT" means the effective date on which an option is awarded to a Participant as set forth in the Stock Option (as defined) agreement. 1.6 "ELIGIBLE PARTICIPANT" shall have the meaning set forth in Section 5.1 hereof. 1.7 "FAIR MARKET VALUE" shall mean the average last trade value of the Common Stock on the principal securities exchange on which the Common Stock is traded for the last five (5) trading days preceding the date or event in question. 1.8 "INCENTIVE STOCK OPTION" means an option to purchase shares of Common Stock granted to an Eligible Participant pursuant to Article V and which is intended to qualify as an incentive stock option under Section 422 of the Code. 1.9 "NON-QUALIFIED STOCK OPTION" means an option to purchase shares of Common Stock granted to a Participant pursuant to Article IV and which is not intended to qualify as an incentive stock option under Section 422 of the Code. 1.10 "PARTICIPANT" means any employee of the Company or any Subsidiary (as defined below) who is, or who is proposed to be, a recipient of a Stock Option. 2 3 1.11 "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or other authority, agency, commission, court or tribunal, or other entity. 1.12 "STOCK DIVIDEND" means a dividend or other distribution declared on the shares of Common Stock payable in (i) shares of capital stock of the Company or any Subsidiary, (ii) rights, options or warrants to receive or purchase shares of capital stock of the Company or any Subsidiary, or (iii) securities convertible into or exchangeable for shares of capital stock of the Company or any Subsidiary or (iv) securities convertible into or exchangeable for securities convertible into or exchangeable for shares of capital stock of the Company or any Subsidiary 1.13 "STOCK OPTIONS" means any and all Incentive Stock Options and NonQualified Stock Options granted pursuant to the Plan. 1.14 "SUBSIDIARY" means (i) a corporation a majority of whose outstanding shares of capital stock or other equity interests with voting power, under ordinary circumstances, to elect directors, is at the time, directly or indirectly, owned the Company, by one or more subsidiaries of the Company or by the Company and one or more subsidiaries of the Company, and (ii) any other Person (other than a corporation) in which the Company, a subsidiary of the Company or the Company and one or more subsidiaries of the Company, directly or indirectly, at the date of determination thereof, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of the directors or other governing body of such Person. ARTICLE II ADMINISTRATION Subject to the terms of this Article II, the Plan shall be administered by the Compensation Committee (the "COMMITTEE") of the Board, which shall consist of at least two members. Each member of the Committee, at the time of such person's appointment to the Committee and while such person is a member thereof, must be a "Non-Employee Director", as that term is defined in Rule 16b-3 promulgated under the 1934 Act, and an "outside director" under Section 162(m) of the Code. Subject to the terms hereof, the Committee shall have exclusive power to: (i) Designate, from time to time, the particular key executives of the Company to whom Stock Options will be granted; (ii) Designate the time or times when Stock Options will be granted; 3 4 (iii) Determine the number of shares of Common Stock subject to issuance pursuant to any Stock Option award, and all of the terms, conditions, restrictions, limitations, if any, of an award of Stock Options, including the time and conditions of exercise or vesting; (iv) Accelerate the vesting or exercise of any Stock Options when such actions would be in the best interests of the Company; (v) Interpret the Plan, prescribe, amend, and rescind any rules and regulations necessary or appropriate for the administration of the Plan; and (vi) Make such other determinations and take such other action as it deems necessary or advisable in connection with the foregoing. The Committee shall have full authority and responsibility to administer the Plan, including authority to interpret and construe any provision of the Plan and the terms of any Stock Options issued under it and to adopt such rules and regulations for administering the Plan as it may deem necessary. Except as provided below, any interpretation, determination, or other action made or taken by the Committee shall be final, binding, and conclusive on all interested parties, including the Company and all Participants. ARTICLE III SHARES SUBJECT TO THE PLAN Subject to the provisions of Articles XI and XII of the Plan, the aggregate number of shares which may be issued to Participants under grants of Stock Options made by the Committee under the Plan shall be 500,000 shares of Common Stock. The aggregate number of shares of Common Stock that may be represented by grants of Stock Options made to any Participant under the Plan during any fiscal year may not exceed 400,000 shares. Shares to be distributed under Stock Options may be made available from either authorized but unissued Common Stock or Common Stock held by the Company in its treasury. Shares that by reason of the unexercised expiration or termination of a Stock Option are no longer subject to purchase may be reoffered under the Plan. ARTICLE IV STOCK OPTION GRANTS 4.1 Eligibility. The Committee shall, from time to time, select the particular key executives of the Company and its Subsidiaries to whom the Stock Options are to be 4 5 granted and/or distributed in recognition of each such Participant's contribution to the Company's or the Subsidiary's success. 4.2 Grant of Stock Options. All grants of Stock Options under this Article IV shall be awarded by the Committee. Each grant of Stock Options shall be evidenced by a stock option agreement setting forth the total number of shares subject to the Stock Option, the option exercise price, the term of the Stock Option, the vesting schedule, and such other terms and provisions as are approved by the Committee, but, except to the extent permitted herein, are not inconsistent with the Plan. In the case of an Incentive Stock Option, the stock option agreement shall also include provisions that may be necessary to assure that the Stock Option is an incentive stock option under Section 422 of the Code. The Company shall execute Stock Option agreements upon instructions from the Committee. 4.3 Exercise Price. The exercise price per share for a Stock Option shall be determined by the Committee and shall be an amount not less than the Fair Market Value per share of the Common Stock on the Date of Grant. The Committee shall determine the Fair Market Value per share of the Common Stock on the Date of Grant. Notwithstanding anything to the contrary contained in this Section 4.3, the exercise price of each Stock Option granted pursuant to the Plan shall not be less than the par value per share of the Common Stock. 4.4 Option Period. The option period will begin and terminate on the respective dates specified by the Committee, but may not terminate later than ten years from the Date of Grant. No Stock Option granted under the Plan may be exercised at any time after the expiration of its option period. The Committee may provide for the vesting and exercise of Stock Options in installments and upon such terms, conditions and restrictions as it may determine. In addition to the provisions contained elsewhere herein concerning automatic acceleration of unmatured installments of Stock Options, the Committee shall have the right to accelerate the time at which any Stock Option granted to an executive shall become vested, or exercisable. 4.5 Acceleration. The Committee may accelerate the exercisability of Stock Options granted under the Plan upon the occurrence of such events as specified in the applicable Stock Option agreement. ARTICLE V LIMITS ON INCENTIVE STOCK OPTIONS 5.1 Option Period. Notwithstanding the provisions of Sections 4.3 and 4.4 hereof, if a Participant eligible to receive a grant of an Incentive Stock Option under Section 422 of the Code (an "ELIGIBLE PARTICIPANT") owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company (or any Subsidiary) and an 5 6 Incentive Stock Option is granted to such Eligible Participant, the option period of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five years from the Date of Grant. In addition, the exercise price per share of any such Incentive Stock Option granted to any such Eligible Participant owning more than 10% of the combined voting power of all classes of stock of the Company (or any Subsidiary) shall be at least 110% of the Fair Market Value per share of the Common Stock on the Date of Grant. 5.2 Limitation on Exercises of Shares Subject to Incentive Stock Options. To the extent required by the Code for incentive stock options, the exercise of Incentive Stock Options granted under the Plan shall be subject to the $100,000 calendar year limit as set forth in Section 422(d) of the Code; to the extent that any grant exceeds such $100,000 calendar year limit, the excess portion of such Stock Option shall be deemed a Non-Qualified Stock Option. 5.3 Disqualifying Disposition. If Common Stock acquired upon exercise of an Incentive Stock Option is disposed of by an Eligible Participant prior to the expiration of the later of two years from the Date of Grant of such Incentive Stock Option or one year from the transfer of shares to such Eligible Participant pursuant to the exercise of such Incentive Stock Option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Eligible Participant shall notify the Company in writing of the date and terms of such disposition. A disqualifying disposition by an Eligible Participant shall not affect the status of any other Stock Option granted under the Plan as an incentive stock option within the meaning of Section 422 of the Code. 5.4 Termination. Notwithstanding the provisions of Article VII, the option period of an Eligible Participant's Incentive Stock Option(s) shall terminate no later than ninety (90) days after termination of such Participant's employment with the Company and its Subsidiaries; provided, that if such employment terminates by reason of the death or Total and Permanent Disability (as defined in Section 22(e) of the Code) of the Participant, then the option period of such Participant's Incentive Stock Option(s) shall terminate no later than twelve (12) months after such termination by reason of death or Total and Permanent Disability; provided, further, that upon an Eligible Participant's Termination for Cause, the option period shall terminate immediately upon the Termination for Cause and the Incentive Stock Option shall not be exercisable in whole or in part after the Termination for Cause. Notwithstanding the foregoing, an individual grant of an Incentive Stock Option to a Participant under the Plan may provide, pursuant to the terms of the particular Incentive Stock Option agreement, more restrictive terms than those contained in this Section 5.4 concerning any exercise of such Incentive Stock Option with respect to any termination of employment by such Eligible Participant. 6 7 ARTICLE VI EXERCISE OF STOCK OPTIONS; PAYMENT Full payment for shares purchased upon exercise of a Stock Option shall be made in cash or by the Participant's delivery to the Company of shares of Common Stock which have a Fair Market Value equal to the aggregate exercise price (or in any combination of cash and shares of Common Stock having an aggregate Fair Market Value equal to the aggregate exercise price). No shares may be issued until full payment of the purchase price therefor has been made, and a Participant will have none of the rights of a stockholder until shares are issued to him or her. Additionally, shares covered by a Stock Option may be purchased upon exercise, in whole or in part, in accordance with the applicable Stock Option agreement, by authorizing a third party to sell the shares (or a sufficient portion thereof) acquired upon exercise of a Stock Option, and assigning the delivery to the Company of a sufficient amount of the sale proceeds to pay for all the shares acquired through such exercise and any tax withholding obligations resulting from such exercise. In addition, the Committee may in its sole discretion set forth any other method or manner of payment that is deems acceptable in any Participant's Stock Option agreement. ARTICLE VII TERMINATION OF EMPLOYMENT Except as otherwise provided in Section 5.4 with respect to Incentive Stock Options, in the event a Participant shall cease to be employed by the Company or a Subsidiary for any reason other than (i) death or (ii) termination for cause, such Participant's Stock Options may be exercised by the Participant for the period set forth in the Participant's Stock Option agreement or until expiration of the applicable option period (if sooner). In addition, except as otherwise provided in Section 5.4 with respect to Incentive Stock Options, in the event of a Participant's death while employed, all unmatured installments of Stock Options outstanding shall thereupon automatically be accelerated and exercisable in full, and the Stock Option may be exercised for a period of twelve (12) months after the Participant's death, or until expiration of the option period (if sooner), by the Participant's estate or personal representative or by the person who acquired the right to exercise the Stock Option by bequest or inheritance or by reason of the Participant's death. In addition, except as otherwise provided in Section 5.4 with respect to Incentive Stock Options, upon a Participant's termination for cause, the option period shall terminate immediately upon the termination for cause and the Stock Option shall not be exercisable in whole or in part after the termination for cause. 7 8 Notwithstanding the foregoing, an individual grant of a Stock Option to a Participant under the Plan may provide, pursuant to the terms of the particular Stock Option agreement, more restrictive terms than those contained in this Plan concerning any exercise of such Stock Option with respect to any termination of employment by such Participant. ARTICLE VIII AMENDMENT OR DISCONTINUANCE Subject to the limitations set forth in this Article VIII, the Board may at any time and from time to time, without the consent of the Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or in part; provided, that no amendment which requires stockholder approval in order for the Plan to continue to comply with Code Section 162(m) or Code Section 422 shall be effective unless such amendment shall be approved by the requisite vote of the stockholders of the Company entitled to vote thereon. Subject to the foregoing, the Board shall have the power to amend the Plan in any manner advisable in order for Stock Options granted under the Plan to qualify for the exemption provided by Rule 16b-3 (or any successor rule relating to exemption from Section 16(b) of the 1934 Act) or to qualify as "performance-based" compensation under Section 162(m) of the Code (including amendments as a result of changes to Rule 16b-3 or Section 162(m) or the regulations thereunder to permit greater flexibility with respect to Stock Options granted under the Plan), and any such amendment shall, to the extent deemed necessary or advisable by the Committee, be applicable to any outstanding Stock Options theretofore granted under the Plan, notwithstanding any contrary provisions contained in any Stock Option agreement. In the event of any such amendment to the Plan, the holder of any Stock Option outstanding under the Plan shall, upon request of the Committee and as a condition to the exercisability thereof, execute a conforming amendment in the form prescribed by the Committee to any Stock Option agreement relating thereto within such reasonable time as the Committee shall specify in such request. Notwithstanding anything contained in this Plan to the contrary, unless required by law, no action contemplated or permitted by this Article VIII shall adversely affect any rights of Participants or obligations of the Company to Participants with respect to any Stock Options theretofore granted under the Plan without the consent of the affected Participant. ARTICLE IX EFFECT OF THE PLAN Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any employee any right to be granted a Stock Option to purchase or receive Common Stock or any other rights except as may be evidenced by a Stock Option agreement, or any amendment thereto, duly authorized by and executed on 8 9 behalf of the Company and then only to the extent of and upon the terms and conditions expressly set forth therein. ARTICLE X TERM The Plan shall be submitted to the Company's stockholders for their approval at the 1999 Annual Meeting of Stockholders and shall terminate immediately after such meeting if the Plan is not approved by at least a majority of the outstanding shares of Common Stock voting at such meeting. Unless sooner terminated by action of the Board, the Plan will terminate on January 31, 2009. Stock Options under the Plan may not be granted after that date, but Stock Options granted before that date will continue to be effective in accordance with their terms and conditions. ARTICLE XI CAPITAL ADJUSTMENTS If at any time while the Plan is in effect or unexercised Stock Options are outstanding there shall be any increase or decrease in the number of issued and outstanding shares of Common Stock through the declaration of a Stock Dividend or through any recapitalization resulting in a subdivision, combination, or exchange of shares of Common Stock, then and in such event: (i) An appropriate adjustment shall be made in the maximum number of shares of Common Stock then subject to being awarded under grants pursuant to the Plan; (ii) A similar adjustment shall be made in the maximum number of shares of Common Stock issuable under Stock Options granted to any individual Participant during any fiscal year pursuant to Article III; and (iii) An appropriate adjustment shall be made in the number of shares of Common Stock and the exercise price per share thereof then subject to purchase pursuant to each such Stock Option previously granted and unexercised. Such adjustments shall be made by the Committee and its determination in that respect shall be final, binding and conclusive. Any fractional shares resulting from any adjustment made pursuant to this Article XI shall be eliminated for the purposes of such adjustment. Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into or exercisable for shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion or exercise of shares or obligations of the Company convertible into or exercisable for such 9 10 shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or exercise price of shares of Common Stock then subject to outstanding Stock Options granted under the Plan. ARTICLE XII RECAPITALIZATION, MERGER AND CONSOLIDATION 12.1 The existence of this Plan and Stock Options granted hereunder shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 12.2 Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, any outstanding Stock Option granted hereunder shall pertain to and apply to the securities or rights (including cash, property or assets) to which a holder of the number of shares of Common Stock subject to the Stock Option would have been entitled. 12.3 In the event of any liquidation or dissolution of the Company, any reorganization, merger or consolidation pursuant to which the Company is not the surviving or resulting corporation, or of any proposed sale of substantially all of the assets of the Company, there may be substituted for each share of Common Stock subject to the unexercised portion of such outstanding Stock Option that number of shares of each class of stock or other securities or that amount of cash, property or assets that the Participant would have received on a per share basis had such Participant's Stock Option been exercised in full prior to such event. Notwithstanding the foregoing, however, the Board, in its sole discretion, may cancel all such Stock Options at least thirty (30) days prior to the effective date of any such liquidation or dissolution of the Company, any reorganization, merger or consolidation, or of any such proposed sale of substantially all of the assets of the Company, and give notice to each holder thereof or his or her personal representative of its intention to cancel such Stock Options and permit the purchase during the thirty (30) day period following the delivery of such notice of any or all of the shares subject to such outstanding Stock Options, including shares as to which such Stock Options would not otherwise be exercisable. 12.4 In the event of a Change in Control of the Company, then, notwithstanding any other provision in the Plan to the contrary, all unmatured installments of Stock Options outstanding shall thereupon automatically be accelerated and exercisable in full. 10 11 12.5 In the event that the Company shall, at any time prior to the expiration of any Stock Option, make any partial distribution of its assets in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of retained earnings or earned surplus and designated as such), then in such event the exercise prices then in effect with respect to each option shall be reduced, as of the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Company's Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution; provided, that in no event shall any adjustment of exercise prices in accordance with the terms of the Plan result in any exercise prices being reduced below the par value per share of the Common Stock. 12.6 Upon the occurrence of each event requiring an adjustment of the exercise price and/or the number of shares purchasable pursuant to Stock Options granted pursuant to the terms of this Plan, the Company shall mail forthwith to each Participant a copy of its computation of such adjustment which shall be conclusive and shall be binding upon each such Participant, except as to any Participant who contests such computation by written notice to the Company within thirty (30) days after receipt thereof by such Participant. ARTICLE XIII OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS Stock Options may be granted under the Plan from time to time in substitution for such stock options held by employees of a corporation who become or are about to become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by either of the foregoing of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Exercise of Stock Options. Stock Options granted under the Plan may be exercised during the option period, at such times and in such amounts, in accordance with the terms and conditions and subject to such restrictions as are set forth herein and in the applicable stock option agreements. Notwithstanding anything to the contrary contained herein, Stock Options may not be exercised, nor may shares be issued pursuant to a Stock Option, if any necessary listing of the shares on a stock exchange or 11 12 any registration under state or federal securities laws required under the circumstances has not been accomplished. 14.2 Non-Assignability. A Stock Option granted to a Participant may not be transferred or assigned, other than by will or the laws of descent and distribution. 14.3 Investment Intent. The Company may require that there be presented to and filed with it by any Participant(s) under the Plan, such evidence as it may deem necessary to establish that the Stock Options granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution. 14.4 Allotment of Shares. The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of Stock Options to Participants under the Plan. The grant of a Stock Option to a Participant shall not, by itself, be deemed either to entitle the Participant to, or to disqualify the Participant from, participation in any other grant of Stock Options under the Plan, except pursuant to Article III of the Plan. 14.5 No Right to Continue Employment. This Plan does not constitute a contract of employment. Nothing in the Plan or in any Stock Option confers upon any executive officer the right to continue in the employ of the Company or interferes with or restricts in any way the right of the Company to discharge any executive officer at any time (subject to any contract rights of such executive officer). 14.6 Stockholders' Rights. The holder of a Stock Option shall have none of the rights or privileges of a stockholder except with respect to shares of Common Stock which have been actually issued. 14.7 Tax Requirements. Any employee who exercises any Stock Option shall be required to pay the Company the amount of all taxes which the Company is required to withhold as a result of the exercise of the Stock Option. With respect to an Incentive Stock Option, in the event of a subsequent disqualifying disposition of Common Stock within the meaning of Section 422 of the Code, such payment of taxes may be made in cash, by check or through the delivery of shares of Common Stock which the executive then owns, which shares have an aggregate Fair Market Value equal to the required withholding payment, or any combination thereof. With respect to the exercise of a NonQualified Stock Option by a Participant who is an officer, director or 10% stockholder of the Company (as determined by reference to Section 16(b) of the 1934 Act and the rules promulgated thereunder), any obligation of such Participant to pay such taxes shall only be satisfied by the Company's withholding of that number of whole shares of Common Stock otherwise issuable upon such exercise which have an aggregate Fair Market Value which equals or exceeds (if necessary to avoid the issuance of fractional shares) the required tax withholding payment. With respect to the exercise of a Non-Qualified 12 13 Stock Option by any Participant who is not at such time an officer, director or 10% stockholder of the Company, such Participant's obligation to pay such taxes may be satisfied by the following, or any combination thereof: (i) the delivery of cash to the Company in an amount necessary to satisfy the required tax withholding obligation of the Company, and/or (ii) the actual delivery by the exercising Participant to the Company of shares of Common Stock which the Participant owns and/or the Company's withholding of a number of shares to be delivered upon the exercise of the Stock Option), which shares so delivered or withheld have an aggregate Fair Market Value which equals or exceeds (if necessary to avoid the issuance of fractional shares) the required tax withholding payment. Any such withholding payments with respect to the exercise of a Non-Qualified Stock Option made by a Participant in cash or by actual delivery of shares of Common Stock shall be required to be made within thirty (30) days after the delivery to the Participant of any certificate representing the shares of Common Stock acquired upon exercise of the Stock Option. 14.8 Indemnification of Board and Committee. No current or previous member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all such members of the Board or the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise. 14.9 Gender and Number. Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the plural form of a word shall include the singular form, and the singular form of a word shall include the plural form. ARTICLE XV EFFECTIVE DATE The effective date of the Plan shall be February 24, 1999, that is, the date on which it was first approved and adopted by the Board. Following approval by the stockholders of the Company at the 1999 Annual Meeting of Stockholders in accordance with applicable law, the Plan will continue in effect until the expiration of its term or until earlier terminated, amended, or suspended in accordance with the terms hereof. If stockholder approval is not obtained at the 1999 Annual Meeting of Stockholders, the Plan shall be nullified. * * * * * 13 14 IN WITNESS WHEREOF, the Company has caused this instrument to be executed as of February 24, 1999 by its Chief Executive Officer pursuant to prior action taken by the Committee. KITTY HAWK, INC. By: ------------------------------------- Name: M. Tom Christopher Title: Chief Executive Officer 14 EX-21.1 9 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 Aircraft Leasing, Inc. American International Travel, Inc. Kitty Hawk Aircargo, Inc. Kitty Hawk Charters, Inc. Kitty Hawk International, Inc. Flight One Logistics, Inc. O.K. Turbines, Inc. EX-23.2 10 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Kitty Hawk, Inc. for the registration of 200,000 shares of its common stock and to the incorporation by reference therein of our report dated March 4, 1998, with respect to the consolidated financial statements of Kitty Hawk, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. /s/ ERNST & YOUNG LLP Dallas, Texas March 12, 1999 EX-23.3 11 CONSENT OF DELOITTE & TOUCHE LLP MARCH 12, 1999 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT Kitty Hawk, Inc. Dallas, Texas We consent to the incorporation by reference in this Registration Statement of Kitty Hawk, Inc. on Form S-3 of our reports relating to the combined financial statements and financial statement schedule of American International Airways, Inc. and related companies (collectively the "Companies") dated October 16, 1997 (which reports express an unqualified opinion and include 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 Current Report Form 8-K of Kitty Hawk, Inc. dated December 4, 1997, and to our report dated September 29, 1997 relating to the statements of certain assets sold of AIA as of December 31, 1996 appearing in Amendment No. 1 to Current Report on Form 8-K of Kitty Hawk, Inc. dated November 7, 1997. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is part of the Registration Statement. /s/ DELOITTE & TOUCHE LLP Ann Arbor, Michigan March 12, 1999 -----END PRIVACY-ENHANCED MESSAGE-----