Exhibit 10.1

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (“Agreement”), effective as of December 14, 2004
(“Effective Date”) is entered by and between Toby J. Skaar (“Executive”) and
Kitty Hawk, Inc. (“Company”).

     WHEREAS, the Company and Executive wish to enter into an Employment
Agreement which replaces and supercedes any existing contractual arrangement.

     WHEREAS, the Company desires to establish its right to the continued
services of the Executive, in the capacity described below, on the terms and
conditions and subject to the rights of termination hereinafter set forth, and
the Executive is willing to accept such employment on such terms and conditions.

     THEREFORE, in consideration of the mutual agreements hereinafter set forth,
the Executive and the Company have agreed and do hereby agree as follows:

     1. EMPLOYMENT AS Vice President and Chief Operating Officer (COO) for Kitty
Hawk Cargo. Inc. The Company does hereby agree to continue to employ Executive
as Vice President and the Executive does hereby agree to accept continued
employment with the Company as Vice President on the terms and conditions set
forth herein. Executive shall have those powers and duties normally associated
with the position of Vice President of entities comparable to the Company and
such other duties and responsibilities as may be assigned to Executive from time
to time. The Executive shall use his best efforts and devote substantially all
of his business time (other than absences due to illness or vacation) to the
performance of his duties for the Company. Notwithstanding the above, Executive
shall be permitted, to the extent that such activities do not interfere with
performance of Executive’s duties and responsibilities hereunder, to: (i) manage
Executive’s personal, financial and legal affairs, (ii) to serve on civic or
charitable boards or committees, it being expressly understood and agreed
Executive may continue serving on any such boards and/or committees on which
Executive is serving or with which Executive is associated as of the Effective
Date as set forth on Appendix 1 hereto, and (iii) to give lectures and be
involved in speaking engagements associated with Executive’s community service
or service to civic or charitable boards or committees.

          (a) PLACE OF PERFORMANCE. Unless relocated, the principal place of
employment of Executive shall be at the Company’s principle executive offices in
the Dallas/Fort Worth, Texas metropolitan area.

     2. TERM OF AGREEMENT. The term of Executive’s employment under this
Agreement shall commence on December 14, 2004 (the “Commencement Date”) and
shall continue for a period of two (2) years (the “Term”); provided, that, on
the second anniversary of the Commencement Date and on each annual anniversary
thereafter, the Term and Executive’s employment hereunder shall automatically be
extended for successive one (1) year periods unless either party gives written
notice not to extend the term of this Agreement ninety (90) days in advance of
the expiration of the Term or any extension thereof.

     3. COMPENSATION.

          (a) BASE SALARY. The Company shall pay the Executive, and the
Executive agrees to accept from the Company for payment of his services to the
Company, a base salary at the rate

 

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of One Hundred Eighty Thousand Dollars ($180,000.00) per year (“Base Salary”),
payable in equal semi-monthly installments or at such other time or times as the
Executive and the Company shall agree. Thereafter, Executive’s Base Salary shall
be reviewed on a calendar year basis by the Compensation Committee of the Board
(the “Committee”), and may be increased as determined by the Committee and
approved by the Board in its sole and absolute discretion. Such increased Base
Salary shall be used for all purposes under this Agreement. Executive’s Base
Salary shall not be decreased during the Term.

          (b) PERFORMANCE BONUS. Pursuant to the terms of any plan then
existing, Executive shall be eligible to receive an annual cash performance
bonus based on the achievement of annual performance goals to be established by
the Committee (the “Bonus”). Such Bonus, if any, shall be paid when annual
performance bonuses are customarily paid, but in no event later than 30 days
following the finalization of audited financial statements and filing of the
Company’s 10k (the “Payment Date”).

          (c) INCENTIVE COMPENSATION. To the extent that the Company maintains
or establishes any incentive compensation plans applicable to senior executive
officers and that are adopted by the Board of Directors, Executive shall
participate in any such plans or programs pursuant to the terms and conditions
contained in such plans.

     4. BENEFITS.

          (a) FRINGE BENEFITS. Executive shall be entitled to participate in any
benefit programs adopted from time to time by the Company for the benefit of its
executive officers, and Executive shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by the Company’s Board of
Directors.

          (b) BENEFIT PLANS. Executive shall be entitled to participate in any
benefit plans relating to stock options, stock purchases, pension, thrift,
profit sharing, life and disability insurance, medical coverage, executive
medical coverage, education, or other retirement or employee benefits available
to other executive employees of the Company, subject to any and all terms and
conditions contained in such plans.

          (c) VACATION. Executive shall be entitled to the number of weeks of
paid vacation per year that he was eligible for immediately prior to the date of
this Agreement. Unused vacation may be carried forward from year to year to the
extent allowed by the Company’s regular vacation policy.

     5. BUSINESS EXPENSES. The Company shall reimburse the Executive for any and
all necessary, customary, and usual business related expenses, properly
documented in accordance with Company policies.

     6. CORPORATE RELOCATION. Should the Company relocate its principal
executive offices to a location outside of the Dallas/Fort Worth, Texas,
metroplex area, and Executive is required to relocate to such area, the Company
will reimburse the Executive for all of his reasonable and customary relocation
expenses pursuant to the Company’s regular relocation policy then in effect.

     7. CONFIDENTIAL INFORMATION.

          Executive recognizes that by reason of his employment by and service
to the Company he will occupy a position of trust with respect to the business
and its employees and technical and other information of a secret or
confidential nature (“Confidential Information”) which is the property of the
Company which will be imparted to him from time to time in the course of the
performance of his duties

 

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hereunder. Company hereby agrees to provide Executive with Confidential
Information. Executive acknowledges that such information is a valuable and
unique asset of the Company and agrees that he shall not, during or after the
Term of this Agreement, directly or indirectly use or disclose any Confidential
Information of the Company to any person, except that Executive may use and
disclose to authorized personnel of the Company such Confidential Information as
is reasonably appropriate in the course of the performance of his duties
hereunder. Confidential Information of the Company shall include all information
and knowledge of any nature and in any form relating to the Company and its
subsidiaries and its affiliates including but not limited to, business plans;
development projects; computer software and related documentation and materials;
designs, practices, processes, methods, know-how and other facts relating to the
business of the Company and its subsidiaries and its affiliates; advertising,
promotions, financial matters, sales and profit figures, employee hiring,
training, evaluations and retention practices and customers or customer lists.
Confidential Information shall not include any information that is or shall
become publicly known through no fault of the Executive and any information
received in good faith on a non-confidential basis from a third party who has
the right to disclose such information and who has not received such
information, either directly or indirectly, from the Company. If Executive is
required to disclose Confidential Information by any court or governmental
tribunal, Executive shall, to the extent practical under the circumstances,
first give notice to the Company in order that it may have an opportunity to
seek a protective order. The Company and Executive shall cooperate with each
other, should either decide to seek a protective order with all costs and
expenses being borne by the party seeking such order. Executive shall abide by
the final order, judgment, or decree of any court of competent jurisdiction,
administration or regulatory body regarding such application for a protective
order.

     8. TERMINATION OF EXECUTIVE’S EMPLOYMENT.

          (a) DEATH. If the Executive dies while employed by the Company, his
employment shall immediately terminate. Upon Executive’s death, the Company
shall pay or provide to Executive’s estate or his beneficiaries within thirty
(30) business days following such death or such other time set forth herein:
(i) his earned, but unpaid Base Salary through the date of his termination of
employment, (ii) any earned, but unpaid Bonus for the year prior to the year of
termination of employment to be paid on the Payment Date with respect to that
Bonus, (iii) his earned, but unused vacation pay to the extent provided for
under the Company’s vacation policy; (iv) properly documented unreimbursed
business expenses, and (v) any other benefits in accordance with the Company’s
retirement, insurance, and other applicable benefit programs and plans then in
effect (the “Accrued Benefits”). If Executive’s death occurs during a year,
Executive’s beneficiaries or estate shall also be paid on the Payment Date, a
pro-rated Bonus, if any, for the year equal to the product of (A) and (B) where
(A) is the amount payable to Executive as a Bonus for such year had he been
employed through the last day of the year, and (B) is a fraction, the numerator
of which is the number of days the Executive was employed by the Company during
such year and the denominator is 365 (“Pro-Rated Bonus”).

          (b) DISABILITY. If, as a result of Executive’s mental or physical
incapacity, Executive shall be substantially unable to perform the services for
the Company contemplated by this Agreement for sixty (60) consecutive days or
ninety (90) days in any twelve (12) month period (“Disability”), Executive’s
employment may be terminated by the Company for Disability. During any period
prior to such termination during which Executive is absent from the full-time
performance of his duties with the Company due to Disability, the Company shall
continue to pay Executive the amounts contemplated under this Agreement;
provided, that, such payments made to the Executive shall be reduced by amounts
received from disability insurance obtained or provided by the Company.
Subsequent to the termination provided for in this Section 8(b), the Company
shall pay or provide Executive the Accrued Benefits at the times set forth in
Section 8(a) above and a Pro-Rated Bonus.

 

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          (c) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON OR DUE TO EXECUTIVE
NOT RENEWING THE TERM. Executive may terminate his employment without Good
Reason (as defined below) at any time prior to expiration of the Term. For
purposes of this clause (c), if Executive provides the notice not to renew the
Term, such termination shall be treated in the same fashion as a termination by
Executive without Good Reason. Upon such termination of employment, the Company
shall pay Executive his Accrued Benefits at the times set forth in 8(a) above;
provided, however, the benefits described in 8(a)(ii) shall only be paid if such
termination occurs after the finalization of the Company’s audited financial
statements for the year prior to the year of termination.

          (d) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
Executive’s employment under this Agreement for “Cause.” For the purposes of
this Agreement, the term “Cause” shall mean Executive’s:

     (i) conviction by a court of competent jurisdiction of a felony or serious
misdemeanor involving moral turpitude;

     (ii) willful disregard of any written directive of the Company, provided
the written directive is not inconsistent with the Certificate of Incorporation
or Bylaws of the Company or applicable law;

     (iii) breach of his or her fiduciary duty or duty of loyalty under
circumstances that involve personal profit;

     (iv) breach of a material term of this Employment Agreement; or

     (v) neglect of his duties that has a material adverse effect on the
Company.

     In the event of termination for Cause, the Company shall pay Executive his
Accrued Benefits excluding benefits described in Section 8(a)(ii) at the times
set forth in 8(a) above.

          (e) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company shall have
the right to terminate this Agreement prior to the expiration of the Term, at
any time, without Cause. In the event the Company shall so elect to terminate
this Agreement, the Executive shall receive compensation pursuant to the
provisions of Section 10 or Section 14 of this Agreement, as the case may be.

          (f) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive shall
have the right to terminate this Agreement for Good Reason. In the event
Executive so elects to terminate this Agreement, the Executive shall receive
compensation pursuant to the provisions of Section 10 or Section 14 of this
Agreement, as the case may be. For purposes of this Agreement, “Good Reason”
shall mean the occurrence, without the Executive’s prior written consent, of any
one or more of the following events:

     (i) The Company’s material breach of any of the provisions of this
Agreement; or

     (ii) A reduction in Executive’s Base Salary; or

     (iii) The relocation of the Company’s principal executive offices to a
location outside of the Dallas/Fort Worth metropolitan area without providing
the Executive with relocation expenses in accordance with Section 6 of this
Agreement; or

 

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     (iv) The failure of the Company to provide in all material respects the
indemnification set forth in this Agreement and the Company’s by-laws.

The Executive agrees to provide the Company thirty (30) days’ prior written
notice of any termination for Good Reason, during which 30-day period the
Company shall have the right to cure, if curable, the circumstances giving rise
to the Good Reason stated in such notice.

          (g) Following a termination governed by this Section 8, except as
specifically provided in this Agreement, the Executive shall not be entitled to
any other compensation or benefits, except as may be separately negotiated by
the parties and approved by the Board of Directors of the Company in writing.

     9. TERMINATION PROCEDURE. Any termination of Executive’s employment by the
Company or by Executive during the Term (other than termination pursuant to
Section 8(a)) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 15. For purposes of this
Agreement, a “Notice of Termination” shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon.

     10. COMPENSATION UPON TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY
THE EXECUTIVE FOR GOOD REASON. If the Executive’s employment shall be terminated
(i) by act of the Company other than for Cause, or (ii) by the Executive for
Good Reason, the Executive shall be entitled to the following benefits:

          (a) the Accrued Benefits which shall be paid at the times set forth in
Section 8(a) above and the Pro-Rated Bonus.

          (b) Executive shall be paid a severance amount in 18 equal
semi-monthly installments, which in the aggregate equals seventy-five percent
(75%) of Executive’s annual rate of Base Salary in effect on the date of
termination (not taking into account any reductions in Base Salary not agreed to
by Executive in writing) (the “Severance Payment”).

          (c) Notwithstanding the terms and conditions of the 2003 Equity
Incentive Plan or any agreements entered into thereunder and any other plan or
program which may be in effect from time to time (and for the purpose of this
Agreement any such plans and agreements will be deemed to be amended to reflect
the foregoing), with respect to Executive’s initial Incentive Stock Option
Agreement, under the 2003 Equity Incentive Plan, Executive’s service with the
Company will be deemed to continue for 12 months following his separation date
for purposes of vesting such that the portion of the option that would have
vested during such 12-month period will become immediately vested and
exercisable as of the separation date. With respect to any other equity based
awards granted to Executive from time to time, including, without limitation,
stock options, restricted stock, performance awards and stock appreciation
rights, (“Awards”), all such Awards, if any, will become immediately 100% vested
and, if applicable, exercisable upon Executive’s separation.

          (d) The Company shall continue to provide the Executive with life and
disability insurance, medical, vision and dental coverage, executive medical and
other health and welfare benefits for 9 months following Executive’s separation
of service or until Executive becomes an eligible participant in substantially
similar or better heath and welfare plans which do not exclude pre-existing
conditions which were covered by the Company’s plans, whichever is earlier.

 

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          (e) If, after 9 months following Executive’s termination other than
for Cause or by Executive for Good Reason, Executive demonstrates that he has
used his best efforts to obtain alternative employment but has not secured
alternative employment, the time period for payments and benefits set forth in
paragraphs 10(b) and (d) may be extended, so long as Executive remains
unemployed, for a period not to exceed three (3) months. Any payments made
during the period of continued unemployment, shall be paid in equal semi-monthly
installments and each installment shall equal 1/24th of Executive’s annual rate
of Base Salary in effect on the date of termination.

          (f) Following a termination governed by this Section 10, except as
specifically provided in this Agreement, the Executive shall not be entitled to
any other compensation or benefits, except as may be separately negotiated by
the parties and approved by the Board of Directors of the Company in writing.

     11. COMPENSATION UPON THE COMPANY’S NOT RENEWING THE AGREEMENT PURSUANT TO
PARAGRAPH 2. If, pursuant to Section 2, the Executive’s employment is terminated
as a result of the Company’s providing written notice of intent not to renew,
the Executive shall be entitled to the following benefits:

          (a) The Accrued Benefits which shall be paid at the time set forth in
Section 8(a) above and the Pro-Rated Bonus.

          (b) The Severance Payment; provided, that, such Severance Payment
shall be offset and reduced by remuneration earned by Executive during such
9 month Severance Payment period whether as an employee, consultant, advisor,
contractor, partner, agent or in another similar capacity.

          (c) Notwithstanding the terms and conditions of the Company’s 2003
Equity Incentive Plan or any agreements entered into thereunder and any other
plan or program which may be in effect from time to time (and for purposes of
this Agreement any such plans and agreements will be deemed to be amended to
reflect the foregoing), for purposes of vesting of any Awards, Executive’s
service with the Company will be deemed to continue for 12 months following his
separation date such that upon such separation date, all Awards that would have
vested during such 12-month period shall immediately vest as of the separation
date. Exercise of any vested Awards will be pursuant to terms of such plans upon
termination of service, provided, however, if within 90 days following the
termination of service, Executive is restricted from exercising any Awards as a
result of any Company or Securities Exchange Commission imposed black-out
periods, the number of days in the black-out period shall be added to the
exercise period.

          (d) The Company shall continue to provide the Executive with life and
disability insurance, medical, vision and dental coverage, executive medical and
other health and welfare benefits for 9 months following Executive’s separation
from service or until Executive becomes an eligible participant in substantially
similar or better heath and welfare plans which do not exclude pre-existing
conditions which were covered by the Company’s plans, whichever is earlier.

          (e) Following a termination governed by this Section 11, except as
specifically provided in this Agreement, the Executive shall not be entitled to
any other compensation or benefits, except as may be separately negotiated by
the parties and approved by the Board of Directors of the Company in writing.

 

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     12. NON-COMPETITION PROVISIONS.

          (a) RIGHT TO COMPANY MATERIALS. Executive agrees that all styles,
designs, lists, materials, books, files, reports, correspondence, records,
electronically stored data or software and other documents and all Confidential
Information (“Company Materials”) used, prepared, or made available to
Executive, shall be and shall remain the property of the Company. Upon the
termination of employment or the expiration of this Agreement, all Company
Materials and all other property of the Company shall be returned immediately to
the Company, and Executive shall not make or retain any copies of Company
Materials or its property following his termination of employment.

          (b) ANTI-SOLICITATION. Executive promises and agrees that during the
Term and for the twelve (12) month period commencing on the termination of his
employment (the “Restricted Period”), he will not influence or attempt to
influence customers or suppliers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly, to divert their
business to any individual, partnership, firm, corporation or other entity then
in competition with the business of the Company, or any subsidiary or affiliate
of the Company.

          (c) NON-COMPETITION. Executive promises and agrees that during the
Restricted Period, he will not within the United States, without the prior
written consent of the Company, directly or indirectly, become interested in any
capacity (whether as proprietor, director, partner, employee, agent, independent
contractor, consultant, trustee or in any other capacity) or be paid by or
otherwise receive compensation or consideration from any bulk air cargo or bulk
air freight business that is competitive with the specific products or services
sold or maintained by the Company. This shall not prevent Executive from owning
securities in any such competitive business (but without otherwise participating
in the activities of such enterprise) if (i) such securities are listed on any
national or regional securities exchange or have been registered under Section
12(g) of the Securities Exchange Act of 1934, and (ii) the Executive does not
beneficially own (as defined by Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) in excess of 5% of the outstanding capital stock of such
enterprise.

          (d) SOLICITING EMPLOYEES. During the Restricted Period commencing on
the termination of his employment, Executive promises and agrees that he will
not directly or indirectly solicit or engage any of the Company’s employees or
former employees who worked for the Company at any time during the six (6)
months preceding the termination of Executive’s employment, to work for any
business, individual, partnership, firm, corporation, or other entity then in
competition with the Company or any subsidiary or affiliate of the Company.

     13. NON-DISPARAGEMENT. The Executive agrees that subsequent to Executive’s
employment hereunder, the Executive will refrain from initiating or engaging in
any communication with any then current or former employee, officer, director,
shareholder, customer, vendor or competitor of the Company or any third party
other than Executive’s spouse or legal counsel, which could reasonably be
interpreted as derogatory or disparaging to the reputation of the Company and
its business practices, employees, officers, directors and agents.

     14. CHANGE IN CONTROL.

          (a) For purposes of this Agreement, “Change in Control” shall mean:
(i) the consummation of a merger, consolidation, share exchange or any other
corporate transaction involving the Company, as a result of which, the members
of the Board, elected by the shareholders of the Company immediately prior to
such transaction fail to constitute at least a majority of the Board of
Directors of the surviving entity resulting from such transaction, or (ii) a
sale of all or substantially all of

 

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the assets of the Company to another corporation, individual or entity, as a
result of which, the members of the Board, elected by the shareholders of the
Company immediately prior to such transaction fail to constitute at least a
majority of the Board of Directors of the entity purchasing the assets of the
Company; or (iii) any “person” (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the
Commencement Date a “beneficial owner” (as defined in Rule 13d3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
40% or more (a “40% Shareholder”) of the combined voting power of the Company’s
then outstanding securities eligible to vote for the election of the Board (the
“Company Voting Securities”); provided, however, that an event described in this
paragraph (iii) shall not be deemed to be a Change in Control if any of
following becomes such a beneficial owner: (A) the Company or any majority-owned
subsidiary (provided, that this exclusion applies solely to the ownership levels
of the Company or the majority-owned subsidiary), (B) any employee benefit plan
of the Company or any of its majority-owned subsidiaries, (C) any entity holding
voting securities of the Company for or pursuant to the terms of any such plan
or (D) Everest Capital, Resurgence Asset Management LLC or Stockton LLC or any
of their affiliates.

          (b) Upon a Change in Control, the Term of this Agreement shall
automatically renew for twelve additional months (the “Change in Control
Period”). Following the Change in Control Period, the Agreement shall renew in
accordance with Section 2 of the Agreement unless either party gives written
notice not to extend pursuant to Section 2.

          (c) (i) If Executive terminates his employment for Good Reason during
the Change in Control Period; (ii) if Executive’s employment is terminated
without Cause during the Change in Control Period or (iii) if (A) Executive’s
employment is terminated by the Company without Cause 90 days prior to a
definitive purchase agreement that results in a Change in Control and (B)
Executive reasonably demonstrates that such termination was at the request of a
third party who had taken steps reasonably calculated to effect a Change in
Control and (C) a Change in Control involving such third party (or a party
competing with such third party to effectuate a Change in Control) does occur,
then Executive shall be entitled to the following benefits:

     (i) the Accrued Benefits and the Pro-Rated Bonus at the items set forth in
8(a) above.

     (ii) A lump sum cash payment equal to two (2) times the Severance Payment.

     (iii) The Company shall continue to provide the Executive with life and
disability insurance, medical, vision and dental coverage, executive medical and
other health and welfare benefits for 9 months following his separation from
employment or until Executive becomes an eligible participant in substantially
similar or better heath and welfare plans which do not exclude pre-existing
conditions which were covered by the Company’s plans, whichever is earlier.

     (iv) Following a termination governed by this Section 14, except as
specifically provided in this Agreement, the Executive shall not be entitled to
any other compensation or benefits, except as may be separately negotiated by
the parties and approved by the Board of Directors of the Company in writing.

     (v) Notwithstanding the terms and conditions of the Company’s 2003 Equity
Incentive Plan or any agreements entered into thereunder and any other plan or
program which may be in effect from time to time (and for the purposes of this
Agreement any such plans and

 

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agreements will be deemed to be amended to reflect the foregoing), all Awards,
if any, will become immediately 100% vested and, if applicable, exercisable upon
such separation. Executive will have one year from his separation date in which
to exercise vested Awards.

     15. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by hand delivery, facsimile, first class
mail, certified or registered with return receipt requested, or express mail and
shall be deemed to have been duly given three (3) days after mailing or
twenty-four (24) hours after transmission of a facsimile to the respective
persons named below:

             
 
  If to Company:   Kitty Hawk, Inc.    

      Attn: Chief Executive Officer    

      With a copy to: General Counsel    

      1515 W. 20th Street, P.O. Box 612787    

      DFW International Airport, TX 75261    
 
           

  With a copy to:   Garrett DeVries, Esq.    

      Haynes and Boone, LLP    

      901 Main Street, Suite 3100    

      Dallas, Texas 75202-3789    
 
           

  If to Executive:   Toby J. Skaar    

      102 Monday Haus    

      Highland Village, Texas 75248    
 
           

  With a copy to:  

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     Either party may change such party’s address for notices by written notice
duly given pursuant hereto.

     16. TERMINATION OF PRIOR AGREEMENTS. Except as provided for herein, this
Agreement terminates and supersedes any and all prior agreements and
understandings between the parties with respect to employment or with respect to
the compensation of the Executive by the Company from and after the Effective
Date.

     17. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided that,
in the event of the merger, consolidation, transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the express provisions hereof, be
binding upon and inure to the benefit of Executive and such successor and such
successor shall discharge and perform all the promises, covenants, duties, and
obligations of the Company hereunder.

     18. GOVERNING LAW. This Agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the laws of the State of Texas.

     19. RESOLUTION OF DIFFERENCES; BREACH OF AGREEMENT. The parties shall use
good faith efforts to resolve any controversy or claim arising out of, or
relating to this Agreement or

 

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the breach thereof, first in accordance with the Company’s internal review
procedures. If despite their good faith efforts, the parties are unable to
resolve such controversy or claim through the Company’s internal review
procedures, then such controversy or claim shall be resolved by binding
arbitration in Dallas, Texas in accordance with the rules and procedures of the
Employment Dispute Resolution Rules of the American Arbitration Association then
in effect. The decision of the arbitrator shall be final and binding on both
parties, and any court of competent jurisdiction may enter judgment upon the
award. The prevailing party in such action shall be entitled to recoup their
costs and attorneys fees from the opposing party. This paragraph shall apply to
all controversies, disputes or claims arising out of or relating to this
Agreement, with the sole exception of controversies, disputes or claims under
paragraphs 7, 12 and 13, whereby the Company or Executive, in addition to and
not in lieu of any remedies either may have, may seek equitable and legal relief
from any court of competent jurisdiction for any breach of said paragraphs.

     20. ENTIRE AGREEMENT; HEADINGS. This Agreement embodies the entire
agreement of the parties respecting the matters within its scope and may be
modified only in writing. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

     21. WAIVER; MODIFICATION. Failure to insist upon strict compliance with any
of the terms, covenants, or conditions hereof shall not be deemed a waiver of
such term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.

     22. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, only the portions of this Agreement that violate such statute or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of is Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.

     23. INDEMNIFICATION. The Company shall indemnify and hold Executive
harmless to the maximum extent permitted by law and consistent with the
Company’s Articles of Incorporation and Bylaws of the Company, provided however,
that nothing herein shall prevent the Company from amending its Articles of
Incorporation or Bylaws; provided, however notwithstanding any such amendment,
Executive shall have the right to indemnification which is no less favorable
than any other comparable officer of the Company. The Company’s obligations
under this Section 23 shall survive the termination of this Agreement and
Executive’s employment for the maximum period permitted by law.

     24. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.

     25. MITIGATION. Executive shall not be required to mitigate amounts payable
under this Agreement by seeking other employment or otherwise, and, except as
otherwise provided in Section 10, 11 and 14 of this Agreement, there shall be no
offset against amounts or benefits due Executive under this Agreement on account
of subsequent employment and/or eligibility for benefits.

     26. SURVIVAL. The representations, warranties, agreements, covenants,
obligations and other provisions in paragraphs 7, 12, 13 and 15 through 25 shall
survive any termination of this Agreement or

 

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the employment of Executive with Company, in each case, according to their
intended terms and temporal limitations, if any.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized representative, and the Executive has hereunto signed this
Agreement, as of the date first above written.

Kitty Hawk, Inc.

         
By:
  /s/ ROBERT W. ZOLLER, JR.    

 

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  Robert W. Zoller, Jr.    

  President and Chief Executive Officer    

Executive

     
/s/ TOBY J. SKAAR
   

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Toby J. Skaar