exv4w3



 






Exhibit 4.3




SECURITIES PURCHASE AGREEMENT




by and among




KITTY HAWK, INC.




and




CERTAIN PURCHASERS

IDENTIFIED HEREIN




Dated as of November 9, 2005





 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	ARTICLE I. DEFINITIONS	 	 	1	 
	1.1
	 	Defined Terms	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II. PURCHASE AND SALE OF SECURITIES	 	 	7	 
	2.1
	 	Purchase and Sale of Securities	 	 	7	 
	2.2
	 	Consideration for Securities	 	 	7	 
	 
	 	 	 	 	 	 
	ARTICLE III. CLOSING	 	 	7	 
	3.1
	 	Closing	 	 	7	 
	3.2
	 	Deliveries by the Company at Closing	 	 	7	 
	3.3
	 	Deliveries by the Purchasers at Closing	 	 	8	 
	3.4
	 	Certificates; Opinions	 	 	8	 
	3.5
	 	Form of Documents and Instruments	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	8	 
	4.1
	 	Organization of the Company	 	 	8	 
	4.2
	 	Capitalization of the Company	 	 	8	 
	4.3
	 	Authorization of Issuance	 	 	9	 
	4.4
	 	Due Authorization	 	 	10	 
	4.5
	 	No Conflict	 	 	10	 
	4.6
	 	Consents and Approvals	 	 	10	 
	4.7
	 	Subsidiaries	 	 	11	 
	4.8
	 	SEC Filings; Interim Financial Statements	 	 	11	 
	4.9
	 	Absence of Undisclosed Liabilities	 	 	12	 
	4.10
	 	Absence of Certain Changes	 	 	12	 
	4.11
	 	Compliance With Laws	 	 	12	 
	4.12
	 	Litigation	 	 	13	 
	4.13
	 	Employee Benefit Plans and Other Agreements	 	 	13	 
	4.14
	 	Taxes	 	 	16	 
	4.15
	 	Environmental Matters	 	 	17	 
	4.16
	 	Insurance	 	 	18	 
	4.17
	 	Title to Assets	 	 	18	 
	4.18
	 	Condition of Tangible Assets	 	 	19	 
	4.19
	 	Labor Matters	 	 	19	 
	4.20
	 	Intellectual Property	 	 	19	 
	4.21
	 	No Brokers	 	 	20	 
	4.22
	 	Contracts; No Defaults	 	 	20	 
	4.23
	 	Customers	 	 	21	 
	4.24
	 	Affiliated Transactions	 	 	22	 
	 
	 	 	 	 	 	 
	i







 









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	4.25
	 	Real Property	 	 	22	 
	4.26
	 	Reporting Status; Eligibility to Use Form S-3	 	 	22	 
	4.27
	 	Representations Complete	 	 	22	 
	 
	 	 	 	 	 	 
	ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASERS	 	 	22	 
	5.1
	 	Standing of Purchaser	 	 	23	 
	5.2
	 	Due Authorization	 	 	23	 
	5.3
	 	No Conflict	 	 	23	 
	5.4
	 	Consents and Approvals	 	 	23	 
	5.5
	 	Purchase for Investment	 	 	24	 
	5.6
	 	Short Sales and Hedging Transactions; Regulation M	 	 	25	 
	5.7
	 	No Legal, Tax or Investment Advice	 	 	25	 
	5.8
	 	No Brokers	 	 	25	 
	 
	 	 	 	 	 	 
	ARTICLE VI. COVENANTS	 	 	25	 
	6.1
	 	Continuing Operations	 	 	25	 
	6.2
	 	Press Releases	 	 	26	 
	6.3
	 	Notification of Certain Matters	 	 	26	 
	6.4
	 	Financial Statements, Reports, Etc	 	 	27	 
	6.5
	 	Use of Proceeds	 	 	27	 
	6.6
	 	Continued Eligibility to Use Form S-3	 	 	27	 
	6.7
	 	Listing	 	 	28	 
	6.8
	 	Transfer Restrictions	 	 	28	 
	6.9
	 	Short Sales and Hedging Transactions; Regulation M	 	 	28	 
	6.10
	 	Legend	 	 	29	 
	6.11
	 	Confidentiality	 	 	29	 
	6.12
	 	Issuance of Warrants	 	 	30	 
	 
	 	 	 	 	 	 
	ARTICLE VII. CONDITIONS TO CLOSING	 	 	30	 
	7.1
	 	Condition to Each Party’s Obligations	 	 	30	 
	7.2
	 	Conditions to the Company’s Obligations	 	 	31	 
	7.3
	 	Conditions to the Purchasers’ Obligations	 	 	31	 
	 
	 	 	 	 	 	 
	ARTICLE VIII. INDEMNIFICATION	 	 	33	 
	8.1
	 	Survival of Representations, Etc.	 	 	33	 
	8.2
	 	Indemnification by the Company	 	 	33	 
	8.3
	 	Indemnification by the Purchasers	 	 	34	 
	8.4
	 	Limitation on Indemnities	 	 	34	 
	8.5
	 	Defense of Claims	 	 	34	 
	8.6
	 	Sole and Exclusive Remedy	 	 	35	 
	 
	 	 	 	 	 	 
	ARTICLE IX. MISCELLANEOUS	 	 	35	 
	ii







 









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	9.1
	 	Termination	 	 	35	 
	9.2
	 	In the Event of Termination	 	 	36	 
	9.3
	 	Expenses	 	 	36	 
	9.4
	 	Injunctive Relief	 	 	36	 
	9.5
	 	Assignment	 	 	36	 
	9.6
	 	Notices	 	 	36	 
	9.7
	 	Choice of Law	 	 	37	 
	9.8
	 	Entire Agreement; Amendments and Waivers	 	 	38	 
	9.9
	 	Acknowledgment	 	 	38	 
	9.10
	 	Counterparts	 	 	38	 
	9.11
	 	Invalidity	 	 	38	 
	9.12
	 	Headings	 	 	38	 
	iii







 









 






Exhibit 4.3




SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”), dated as of November 9, 2005,
is by and among Kitty Hawk, Inc., a Delaware corporation (the “Company”), and those
individuals and entities identified on the signature page(s) to this Agreement (collectively, the
“Purchasers”).



RECITAL




     WHEREAS, the Company desires to sell to the Purchasers, and the Purchasers desire to purchase
from the Company, an aggregate of 15,000 shares (the “Preferred Shares”) of the Series B
Convertible Preferred Stock, par value $0.01 per share, of the Company (the “Preferred
Stock”), having the rights, designations and preferences set forth in the Preferred Stock
Certificate of Designations (as defined herein), for the consideration as set forth in Section 2.2.



     WHEREAS, under certain circumstances and terms set forth in the Preferred Stock Certificate of
Designations, the Preferred Stock shall be convertible, at the option of the holders, into shares
of Common Stock (as defined herein).



AGREEMENT




     NOW, THEREFORE, in consideration of the mutual covenants and premises contained herein and for
other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged,
the parties hereto agree as follows:



ARTICLE I.

DEFINITIONS




     1.1 Defined Terms.



     As used herein, the terms below shall have the following meanings:



     “Affiliate” shall mean any entity controlling, controlled by or under common control
with the Company. For the purposes of this definition, “control” shall have the meaning presently
specified for that word in Rule 405 promulgated by the Commission under the Securities Act.



     “Agreement” shall mean this Securities Purchase Agreement, together with all schedules
and exhibits referenced herein.



     “Amendment No. 1 to Rights Agreement” means the Amendment No. 1 to Rights Agreement by
and among the Company and American Stock Transfer & Trust Company in the form attached hereto as
Exhibit A.



 









 





     “Applicable Law” means any statute, law, rule or regulation or any judgment, order,
writ, injunction or decree of any Governmental Entity to which a specified Person or property is
subject.



     “Awards” means outstanding options to purchase, or restricted stock units convertible
into, Common Stock or common stock of any of its Subsidiaries.



     “Benefit Arrangement” shall mean with respect to the Company and any of its
Subsidiaries, any employment, consulting, severance, change in control or other similar contract,
arrangement or policy and each plan, arrangement (written or oral), program, agreement or
commitment providing for insurance coverage (including, without limitation, any self-insured
arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life, health, disability or accident benefits (including,
without limitation, any “voluntary employees’ beneficiary association” as defined in Section
501(c)(9) of the Code providing for the same or other benefits), fringe benefits or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights, stock purchases,
annual or long-term cash incentive, base pay or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (A) is not a Welfare Plan, Pension Plan
or Multiemployer Plan, (B) is entered into, maintained, contributed to or required to be
contributed to, as the case may be, by the Company and any of its Subsidiaries or any ERISA
Affiliate of the Company and any of its Subsidiaries, and (C) covers any employee or former
employee, director or consultant of the Company and any of its Subsidiaries (with respect to their
relationship with any such entity).



     “Board of Directors” means the Board of Directors of the Company.



     “Business” means the business of the Company as described more fully in the “Business”
section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004.



     “Business Day” means a day other than a Saturday or Sunday or any federal or New York
holiday.



     “Bylaws” means the Second Amended and Restated Bylaws of the Company as in effect on
the date hereof.



     “Certificate of Incorporation” means the Second Amended and Restated Certificate of
Incorporation of the Company as amended or restated and as in effect on the date hereof.



     “Claim” has the meaning set forth in Section 8.5 of this Agreement.



     “Claim Notice” has the meaning set forth in Section 8.5 of this Agreement.



     “Closing” has the meaning set forth in Section 3.1 of this Agreement.



     “Closing Date” means November 14, 2005 or such other date agreed to by the parties.



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     “Code” means the Internal Revenue Code of 1986, as it may be amended from time to
time.



     “Commission” means the United States Securities and Exchange Commission.



     “Common Stock” means the common stock, $0.000001 par value per share, of the Company.



     “Company Indemnified Parties” has the meaning set forth in Section 8.3 of this
Agreement.



     “Contract” has the meaning set forth in Section 4.22(a) of this Agreement.



     “Conversion Shares” means the shares of Common Stock issuable upon the conversion of
the Preferred Shares.



     “Effectiveness Date” means the date that a registration statement on Form S-3 filed
with the Commission becomes effective for registration of the Conversion Shares and the Warrant
Shares.



     “Employee Plans” means all Benefit Arrangements, Multiemployer Plans, Pension Plans
and Welfare Plans.



     “Encumbrance” means any claim, lien, pledge, easement, security interest or
encumbrance of third parties, and, with respect to any securities, any agreements, understandings
or restrictions affecting the voting rights or other incidents of record or beneficial ownership
pertaining to such securities.



     “Environmental Conditions” means the Release or threatened Release of any Hazardous
Material (whether or not upon a Facility or any former facility or other property and whether or
not such Release constituted at the time thereof a violation of any Environmental Law) as a result
of which the Company is reasonably expected to be, or to become, liable to any Person, or by reason
of which any Facility, any former facility or any of the assets of the Company is reasonably
expected to be subjected to any Encumbrances.



     “Environmental Laws” means any and all foreign, federal, state, local or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, legally binding decrees, or other
requirement of any Governmental Entity regulating, relating to or imposing liability or standards
of conduct concerning protection of the environment or of human health relating to exposure of any
kind of Hazardous Materials, as has been or is now in effect.



     “Environmental Permits” means any and all permits, licenses, registrations,
notifications, exemptions and any other authorization required under any Environmental Law.



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.



     “ERISA Affiliate” means any entity which is (or at any relevant time was) a member of
a “controlled group of corporations” with, under “common control” with, a member of an



3









 





“affiliated service group” with, or otherwise required to be aggregated with the Company, as
set forth in Section 414(b), (c), (m) or (o) of the Code.



     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.



     “Facilities” means the offices and buildings and all other real property which are
owned, leased or operated by the Company or any Subsidiary.



     “Fixtures and Equipment” shall mean all of the furniture, fixtures, furnishings,
machinery and equipment owned by the Company or any Subsidiary.



     “GAAP” has the meaning set forth in Section 4.8 of this Agreement.



     “Governmental Entity” means any court or tribunal in any jurisdiction (domestic or
foreign) or any governmental or regulatory body, agency, department, commission or board (domestic
or foreign).



     “Hazardous Materials” means any hazardous substance, gasoline or petroleum (including
crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
ureaformaldehyde insulation, asbestos or asbestos-containing materials, pollutants, contaminants,
radioactivity, and any other materials or substances of any kind, whether solid, liquid or gas, and
whether or not any such substance is defined as hazardous under any Environmental Law, that is
regulated pursuant to any Environmental Law or that could give rise to liability under any
Environmental Law.



     “Indemnified Parties” has the meaning set forth in Section 8.3 of this Agreement.



     “Interim Period” has the meaning set forth in Section 6.1 of this Agreement.



     “IRS” has the meaning set forth in Section 4.13(b)(i)(C) of this Agreement.



     “Knowledge of the Company” (or similar language to that effect) means to the actual
knowledge, after due inquiry, of each of Robert W. Zoller, Jr., James R. Kupferschmid and Steven E.
Markhoff.



     “LTEIP” means the Kitty Hawk, Inc. 2003 Long Term Equity Incentive Plan, as amended to
date.



     “Losses” has the meaning set forth in Section 8.2 of this Agreement.



     “Material Adverse Effect” or “Material Adverse Change” shall mean an event,
occurrence or condition that has had, or would have, a material adverse change or effect on the
business, condition (financial or otherwise), prospects, assets, liabilities, or results of
operations of the Company or its Subsidiaries, taken as a whole, other than as a result of (i)
changes generally adversely affecting the United States economy or freight transportations
industry, or (ii) the announcement or pendency of the transactions contemplated by this Agreement.



4









 





     “Multiemployer Plan” means with respect to the Company and any of its Subsidiaries any
“multiemployer plan,” as defined in Section 4001(a)(3) of ERISA, (A) to which the Company and any
of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries maintains,
administers, contributes or is required to contribute and (B) which covers any employee or former
employee of the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and any
of its Subsidiaries (with respect to their relationship with such entities).



     “Owned Real Property” means all real property owned by the Company or any of its
Subsidiaries.



     “PBGC” means the Pension Benefit Guaranty Corporation.



     “Pension Plan” means with respect to the Company and any of its Subsidiaries any
“employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer
Plan) (A) which the Company and any of its Subsidiaries or any ERISA Affiliate of the Company and
any of its Subsidiaries maintains, administers, contributes to or is required to contribute to and
(B) which covers any current employee or former employee, director or consultant of the Company and
any of its Subsidiaries or any ERISA Affiliate of the Company and any of its Subsidiaries (with
respect to their relationship with such entities).



     “Permits” shall mean all material licenses, permits, orders, consents, approvals,
registrations, authorizations, qualifications and filings required by any federal, state, local or
foreign laws or governmental or regulatory bodies.



     “Permitted Encumbrances” means (i) any mechanic’s or materialmen’s lien or similar
Encumbrances with respect to amounts not yet due and payable or which are being contested in good
faith, and (ii) Encumbrances for Taxes not yet due and payable or which are being contested in good
faith.



     “Person” means any individual, corporation, association, partnership, joint venture,
limited liability company, trust, estate or other entity or organization.



     “Preferred Shares” has the meaning specified in the Recitals hereto.



     “Preferred Stock” has the meaning specified in the Recitals hereto.



     “Preferred Stock Certificate of Designations” means the Certificate of Designations of
the Series B Convertible Preferred Stock, par value $0.01 per share, of the Company, in the form
attached hereto as Exhibit B.



     “Private Placement Legend” has the meaning set forth in Section 6.10(a) of this
Agreement.



     “Proceeding” means any action, suit or proceeding by or before any Governmental
Entity, whether civil, criminal, administrative, arbitrative or investigative or any appeal in such
an action, suit or proceeding.



5









 





     “Proprietary Rights” has the meaning set forth in Section 4.20(a) of this Agreement.



     “Purchaser Indemnified Parties” has the meaning set forth in Section 8.2 of this
Agreement.



     “Registration Rights Agreement” means the Registration Rights Agreement by and among
the Company and the Purchasers in the form attached hereto as Exhibit C.



     “Release” means and includes any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment or
the workplace of any Hazardous Materials.



     “SEC Filings” means all forms, reports, schedules, statements and other documents
required to be filed by the Company under the Securities Act, Exchange Act and the rules and
regulations promulgated thereunder, including the Form 10-Q for the quarter ended September 30,
2005.



     “Securities Act” means the Securities Act of 1933, as amended.



     “Standstill Agreement” means the Standstill Agreement by and among the Company and the
Purchasers in the form attached hereto as Exhibit D.



     “Subsidiary” means, with respect to any Person, (a) any corporation of which at least
a majority in interest of the outstanding voting stock is at the time, directly or indirectly,
owned or controlled by such Person, by one or more Subsidiaries of such Person, or by such Person
and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such
Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof, has an ownership
interest and 100% of the revenue of which is included in the consolidated financial reports of such
Person consistent with generally accepted accounting principles.



     “Tax” or “Taxes” means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation, customs duties,
capital stock, franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax, including any interest, penalty or addition
thereto, whether disputed or not, imposed by any Governmental Authority or arising under any Tax
law or agreement.



     “Taxpayer” has the meaning set forth in Section 4.14 of this Agreement.



     “Tax Return” means any return, report, information return or other document (including
any related or supporting information) relating to Taxes, including without limitation all
information returns, any claims for refunds of Taxes and any amendments or supplements to any of
the foregoing.



     “Third Party Notice” has the meaning set forth in Section 8.5 of this Agreement.




6










 






     “Transaction” means, taken together, the transactions contemplated under this
Agreement.



     “Warrants” has the meaning set forth in Section 6.12 of this Agreement.



     “Warrant Shares” means the shares of Common Stock issuable upon the exercise of the
Warrants.



     “Welfare Plan” means with respect to the Company and any of its Subsidiaries any
“employee welfare benefit plan” as defined in Section 3(1) of ERISA, (A) which the Company and any
of its Subsidiaries or any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, and (B) which covers any employee or former employee of the Company and any of its
Subsidiaries (with respect to their relationship with such entities).



ARTICLE II.

PURCHASE AND SALE OF SECURITIES




     2.1 Purchase and Sale of Securities.



     Upon the terms and subject to the conditions contained herein, on the Closing Date, the
Company will sell to each Purchaser, and each Purchaser will purchase from the Company, that number
of the Preferred Shares set forth opposite such Purchaser’s name on Schedule 2 hereto.



     2.2 Consideration for Securities.



     Upon the terms and subject to the conditions contained herein, as consideration for the
purchase of the Preferred Shares, on the Closing Date, each Purchaser shall pay to the Company by
wire transfer of same day funds, the cash purchase price set forth opposite such Purchaser’s name
on Schedule 2 hereto.



ARTICLE III.

CLOSING




     3.1 Closing.



     The closing of the transactions contemplated herein (the “Closing”) shall be held at 10:00
a.m. Central Time on the Closing Date at the offices of Haynes and Boone, LLP, 901 Main Street,
Suite 3100, Dallas, Texas 75202-3789, unless the parties hereto otherwise agree.



     3.2 Deliveries by the Company at Closing.



     At Closing, the Company shall issue and deliver to the Purchasers:



          (a) certificates evidencing the Preferred Shares in the name of the Purchasers (or their
permitted assignees) in the respective amounts set forth on Schedule 2 hereto; and



7









 





          (b) all such other documents and instruments as the Purchasers or their counsel shall
reasonably request to consummate or evidence the Transaction.



     3.3 Deliveries by the Purchasers at Closing.



     At Closing, the Purchasers shall deliver to the Company:



          (a) same day funds as provided in Section 2.2;



          (b) all such other documents and instruments as the Company or its counsel shall reasonably
request to consummate or evidence the Transaction.



     3.4 Certificates; Opinions.



     At Closing, the Purchasers and the Company shall deliver the certificates, opinion of counsel,
and other documents described in ARTICLE VII.



     3.5 Form of Documents and Instruments.



     All of the documents and instruments delivered at Closing shall be in form and substance, and
shall be executed and delivered in a manner, reasonably satisfactory to the parties’ respective
counsel.



ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY




     The Company represents and warrants to the Purchasers as follows:



     4.1  Organization of the Company.



     The Company is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and authority to own,
lease, and operate its properties and to carry on its business as presently being conducted. No
actions or proceedings to dissolve the Company are pending or, to the Knowledge of the Company,
threatened. The copies of the Certificate of Incorporation and Bylaws heretofore delivered by the
Company to the Purchasers are accurate and complete as of the date of this Agreement. The Company
is duly qualified or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the property owned, leased, or operated by it or the conduct of its
business requires such qualification or licensing, except where the failure to do so taken in the
aggregate would not have a Material Adverse Effect.



     4.2 Capitalization of the Company.



          (a) The authorized capital stock of the Company as of the date hereof, consists solely of
100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, of which 120,000
shares of preferred stock have been designated Series A Preferred Stock. As of November 9, 2005,
(i) 50,310,061 shares of Common Stock were issued and outstanding,



8









 





(ii) 4,627,493 shares of Common Stock were reserved for issuance upon exercise of Awards
(whether vested or unvested as of the date hereof), (iii) 1,271,971 shares of Common Stock were
reserved for issuance upon exercise of outstanding warrants, and (iv) no shares of Series A
Preferred Stock are issued and outstanding. Since November 9, 2005, the Company has not issued any
capital stock, except pursuant to the exercise of Awards, other than pursuant to this Agreement.
All outstanding shares of Common Stock have been validly issued and are fully paid and
nonassessable and issued in compliance with the Securities Act, and no shares of capital stock of
the Company are subject to, nor have any been issued in violation of, any preemptive or similar
rights.



          (b) Except as set forth in Section 4.2(a), as contemplated by this Agreement or as set forth
on Schedule 4.2 hereof, there are outstanding (i) no shares of capital stock or other
voting securities of the Company; (ii) no securities of the Company convertible into or
exchangeable for shares of capital stock or other voting securities of the Company; or (iii) no
subscriptions, options, warrants, calls, commitments, preemptive rights or other rights of any kind
to acquire from the Company, and no obligation of the Company to issue or sell any shares of
capital stock or other voting securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting securities, except pursuant to
Awards or the LTEIP. Except as set forth on Schedule 4.2, as set forth in this Agreement
or pursuant to Awards, there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of Common Stock or any other securities of the
type described in clauses (i)-(iii) of the preceding sentence, except pursuant to Awards or the
LTEIP. Except as provided in this Agreement, there are no restrictions upon the voting or transfer
of any share of the capital stock or other voting securities of the Company pursuant to the
Certificate of Incorporation, the Bylaws or other governing documents or any agreement or other
instrument to which the Company is a party, other than restricted stock held by certain employees.



     4.3 Authorization of Issuance.



     At the Closing, Preferred Shares to be acquired by the Purchasers from the Company will be
duly authorized and validly issued, fully paid and nonassessable and not subject to, or issued in
violation of, any preemptive or similar rights, and the Conversion Shares and Warrant Shares will
be duly authorized and reserved for issuance, and, upon issuance thereof upon conversion of the
Preferred Shares in accordance with the terms of the Preferred Stock Certificate of Designations
and the exercise of the Warrants in accordance with their terms, as applicable, will be validly
issued, fully paid and nonassessable and not subject to, or issued in violation of, any preemptive
or similar rights. Assuming the accuracy of the representations and warranties of the Purchasers,
the issuance of the Preferred Shares to the Purchasers at the Closing, the issuance of the
Conversion Shares upon conversion of the Preferred Shares and the issuance of the Warrant Shares
upon the exercise of the Warrants will be exempt from the registration requirements of the
Securities Act and applicable state securities laws.



9









 





     4.4 Due Authorization.



     The Company has all required corporate power and authority to execute and deliver this
Agreement, the Warrants, the Registration Rights Agreement, the Standstill Agreement and the
Amendment No. 1 to Rights Agreement, perform its obligations thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by the Company of this
Agreement, the Warrants, the Registration Rights Agreement, the Standstill Agreement and the
Amendment No. 1 to Rights Agreement, and the consummation by it of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action of the Company.
This Agreement, the Warrants, the Registration Rights Agreement, the Standstill Agreement and the
Amendment No. 1 to Rights Agreement have been duly executed and delivered by the Company and
constitute valid and legally binding obligations of the Company, enforceable against the Company in
accordance with their terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws relating to or affecting
creditors’ rights generally, (ii) general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and (iii) laws and judicial
decisions regarding indemnification for violations of federal securities laws.



     4.5 No Conflict.



     The execution and delivery by the Company of this Agreement, the Warrants, the Registration
Rights Agreement, the Standstill Agreement and the Amendment No. 1 to Rights Agreement, and the
performance by it of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Shares, the Conversion Shares and the Warrant Shares) do
not and will not (i) conflict with or result in a violation of any provision of the Certificate of
Incorporation or the Bylaws, or the charter, bylaws, or other governing instruments of any
Subsidiary, (ii) except as set forth on Schedule 4.5, conflict with or result in a material
violation of any provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default or event of default under, give rise (with or without the giving of
notice or the passage of time or both) to any loss of benefit, or of any right of termination,
cancellation, or acceleration under, or require any consent under any Contract that would have a
Material Adverse Effect, (iii) result in the creation or imposition of any material Encumbrance
upon the properties of the Company or any Subsidiary, or (iv) violate in any material respect any
Applicable Law binding upon the Company or any Subsidiary or any rules, regulations or published
policies of the securities exchange on which the Company is listed.



     4.6 Consents and Approvals.



     No consent, approval, order, authorization of, or declaration, filing, or registration with,
any Governmental Entity, or any consent of any other Person is required to be obtained or made by
the Company or any Subsidiary in connection with the execution and delivery by the Company of this
Agreement, the Warrants, the Registration Rights Agreement, the Standstill Agreement and the
Amendment No. 1 to Rights Agreement, or the consummation of the Transaction, other than (i) as
otherwise disclosed on Schedule 4.6, (ii) as would not have a



10









 





Material Adverse Effect or (iii) as is necessary for the Company to comply with the terms of
the Registration Rights Agreement.



     4.7 Subsidiaries.



          (a) Set forth on Schedule 4.7 is a complete and accurate list of all Subsidiaries of
the Company. Each Subsidiary of the Company has been duly formed and is validly existing under the
laws of the jurisdiction of its formation and has the requisite power and authority to own or lease
and operate its properties and assets and to conduct its business as it is now being conducted.
The Company has previously made available to the Purchasers, or shall make available to the
Purchasers prior to the Closing Date, in a form reasonably acceptable to the Purchasers, copies of
the organizational documents, each as amended to date, of each Subsidiary of the Company. Such
copies are true, correct and complete and in full force and effect. Each such Subsidiary is duly
licensed or qualified and in good standing in each jurisdiction in which its ownership or leasing
and operation of its properties and assets and the conduct of its business as it is now being
conducted requires such Subsidiary to be so licensed or qualified, except where the failure to be
so licensed or qualified would not have a Material Adverse Effect. Set forth on Schedule
4.7 is a list of the jurisdiction of incorporation, organization or formation of each such
Subsidiary. Except as set forth on Schedule 4.7 and as listed above, none of the Company
and the Subsidiaries of the Company own, or have the right to acquire, any shares of stock or any
equity interest in any other corporation, partnership, joint venture or any other Person.



          (b) The outstanding shares of capital stock of each Subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and were not issued in violation
of any preemptive rights or rights of first refusal or first offer. Except as set forth on
Schedule 4.7, (i) each Subsidiary of the Company is wholly-owned of record and beneficially
by the Company or another wholly-owned Subsidiary and (ii) the ownership interests of the Company
in each such Subsidiary are owned of record and beneficially by the Company (or another
wholly-owned Subsidiary of the Company), free and clear of any Encumbrances other than Permitted
Encumbrances.



     4.8 SEC Filings; Interim Financial Statements.



     Since September 30, 2002, the Company and its Subsidiaries have filed with the Commission all
forms, reports, schedules, statements, and other documents required to be filed by it under the
Securities Act, the Exchange Act and the rules and regulations promulgated thereunder. Each SEC
Filing was prepared in accordance with, and at the time of filing complied in all material respects
with, the requirements of the Securities Act, the Exchange Act or other applicable federal
securities law and the rules and regulations promulgated thereunder, as applicable to such SEC
Filing. None of the SEC Filings, including, without limitation, any financial statements or
schedules included therein, at the time filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they were made, and at the
time they were made, not misleading. The consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC



11









 





Filings (i) have been prepared in conformity with United States generally accepted accounting
principles (“GAAP”) applied on a consistent basis (except as described therein), (ii) comply in all
material respects as to form with applicable requirements and rules and regulations of the SEC with
respect thereto and (iii) and present fairly the consolidated financial position of the Company and
its consolidated Subsidiaries at the respective dates thereof and the consolidated results of its
operations and changes in cash flows for the period indicated (subject to normal year-end audit
adjustments in the case of any unaudited interim financial statements).



     4.9 Absence of Undisclosed Liabilities.



     Except as set forth on Schedule 4.9, any liabilities incurred pursuant to this
Agreement, or to the extent disclosed in the SEC Filings filed with the Commission prior to the
date hereof, neither the Company nor any of its Subsidiaries has any material liabilities or
obligations (whether absolute, contingent, liquidated or unliquidated, or due or to become due),
except for obligations and liabilities that have arisen in the ordinary course of business
consistent with past practice.



     4.10 Absence of Certain Changes.



     Except as set forth on Schedule 4.10 or to the extent disclosed in the SEC Filings,
since December 31, 2004, there has not occurred (i) any Material Adverse Change, (ii) any
declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of the Company’s currently outstanding capital stock, (iii) any
split, combination or reclassification of any of its outstanding capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu of or in
substitution for shares of the Company’s outstanding capital stock, (iv) (x) any granting by the
Company or any of its Subsidiaries to any director or executive officer of the Company or any of
its Subsidiaries of any material increase in compensation or material acceleration of benefits,
except in the ordinary course of business consistent with prior practice or as was required or
permitted under the LTEIP, (y) granting by the Company or any of its Subsidiaries to any director,
executive officer of the Company or any of its Subsidiaries of any material increase in, or
material acceleration of benefits in respect of, severance or termination pay, or pay in connection
with a change of control of the Company, except in the ordinary course of business consistent with
prior past practice or as was required under any employment, severance or termination agreements in
effect as of September 30, 2005 or (z) any entry by the Company or any of its Subsidiaries into any
employment, change of control, or termination or similar agreement with any director, executive
officer or other employee or independent contractor other than in the ordinary course of business,
or (v) any change in accounting methods, principles or practices by the Company or any of its
Subsidiaries materially affecting its assets, liability or business, except insofar as may have
been required by GAAP.



     4.11 Compliance With Laws.



     Except as disclosed pursuant to Sections 4.13, 4.14 or 4.15 or as set forth on Schedule
4.11, and matters that, in the aggregate, would not have a Material Adverse Effect, (i) the
Company and its Subsidiaries are, and at all times during the past three (3) years have been, in



12









 





material compliance with all Applicable Laws; (ii) each of the Company and its Subsidiaries
has obtained and holds all Permits necessary for the lawful conduct of its business or the lawful
ownership, use and operation of its assets; (iii) neither the Company nor any of its Subsidiaries
has received any written notice of any material violation of any Applicable Law, which has not been
dismissed or otherwise disposed of, that the Company or any Subsidiary has not so materially
complied other than with respect to violations of Applicable Law; and (iv) neither the Company nor
any of its Subsidiaries is charged or, to the Knowledge of the Company, threatened with, or, to the
Knowledge of the Company, under investigation with respect to, any material violation of any
Applicable Law relating to any material aspect of the business of the Company or any Subsidiary.



     4.12 Litigation.



     Except as set forth on Schedule 4.12 or to the extent expressly disclosed in the SEC
Filings there are no Proceedings pending or, to the Knowledge of the Company, threatened against or
involving the Company or any Subsidiary (or any of their respective directors or officers in
connection with the business or affairs of the Company or any Subsidiary) that are reasonably
likely to have a Material Adverse Effect. As of the date hereof, there are no Proceedings pending
or, to the Knowledge of the Company, threatened seeking to restrain, prohibit, or obtain damages in
connection with this Agreement or the transactions contemplated hereby.



     4.13 Employee Benefit Plans and Other Agreements. 



          (a) Disclosure; Delivery of Copies of Relevant Documents and Other Information.
Schedule 4.13 contains a complete list of (i) Employee Plans which cover present or former
employees, directors or consultants of the Company or any of its Subsidiaries (with respect to
their relationship with such entities); (ii) Employee Plans which cover or have covered present or
former employees, directors or consultants of the Company or any of its Subsidiaries (with respect
to their relationship with such entities) with respect to which any unsatisfied liability exists;
and (iii) Pension Plans covered by Title IV of ERISA or Multiemployer Plans which cover or have
covered within the past five (5) years present or former employees, directors or consultants of the
Company or any of its Subsidiaries (with respect to their relationship with such entities).



          (b) Employee Plans. Except as set forth in Schedule 4.13, the Company
represents and warrants with respect to the Employee Plans listed on Schedule 4.13 as
follows:




     (i) Pension Plans.




          (A) To the Knowledge of the Company in reliance on its enrolled actuary, the
funding method used in connection with each Pension Plan which is subject to the
minimum funding requirements of ERISA is acceptable and the actuarial assumptions
used in connection with funding each such plan are reasonable. No “accumulated
funding deficiency” (for which an excise tax is due or would be due in the absence
of a waiver) as defined in Section 412 of the Code or as defined in Section
302(a)(2) of ERISA, whichever may apply, has been



13









 






incurred with respect to any Pension Plan with respect to any plan year,
whether or not waived. Neither the Company nor any ERISA Affiliate has failed to
pay when due any “required installment”, within the meaning of Section 412(m) of the
Code and Section 302(e) of ERISA, whichever may apply, with respect to any Pension
Plan. Neither the Company nor any ERISA Affiliate is subject to any lien imposed
under Section 412(n) of the Code or Section 302(f) of ERISA, whichever may apply,
with respect to any Pension Plan. Neither the Company nor any ERISA Affiliate has
any liability for unpaid contributions with respect to any Pension Plan.




          (B) Neither the Company nor any ERISA Affiliate is required to provide security
to any Company Pension Plan under Section 401(a)(29) of the Code.




          (C) The form of each Pension Plan and each related trust agreement, annuity
contract, or other funding instrument that is intended to be qualified is qualified
in form and tax-exempt under the provisions of Code Sections 401(a) (or 403(a), as
appropriate) and 501(a) and has been determined by the Internal Revenue Service (the
“IRS”) to be so qualified in form from its adoption date if such a
determination is required.




          (D) Each Company Pension Plan and each related trust agreement, annuity
contract or other funding instrument presently complies and has been maintained in
compliance, in all material respects, with its terms and, both as to form and in
operation, with the requirements prescribed by any and all statutes, orders, rules
and regulations which are applicable to such plans, including without limitation
ERISA and the Code, except where such noncompliance has been corrected pursuant to
the terms of or in a manner consistent with the principles under the IRS Employee
Plans Compliance Resolution System, or is not reasonably likely to have a Material
Adverse Effect.




          (E) The Company has paid all premiums (and interest charges and penalties for
late payment, if applicable) due the PBGC with respect to each Pension Plan for each
plan year thereof for which such premiums are required. Neither the Company nor any
ERISA Affiliate has engaged in, or is a successor or parent corporation to an entity
that has engaged in, a transaction described in Section 4069 of ERISA. There has
been no “reportable event” (as defined in Section 4043(b) of ERISA and the PBGC
regulations under such Section) with respect to any Pension Plan for which the
Company or any ERISA Affiliate has any unsatisfied liability. No filing has been
made by the Company or any ERISA Affiliate with the PBGC, and no proceeding has been
commenced by the PBGC, to terminate any Pension Plan. To the Knowledge of the
Company, no condition exists and no event has occurred that could constitute grounds
for the termination of any Pension Plan by the PBGC. Neither the Company nor any
ERISA Affiliate has any unsatisfied liability because the Company or any ERISA
Affiliate, at any time, (1) ceased operations at a facility so as to become subject
to the provisions



14









 






of Section 4062(e) of ERISA, (2) withdrawn as a substantial employer so as to
become subject to the provisions of Section 4063 of ERISA, or (3) ceased making
contributions on or before the Closing Date to any Pension Plan subject to Section
4064(a) of ERISA to which the Company or any ERISA Affiliate made contributions
during the six years prior to the Closing Date.




     (ii) Multiemployer Plans. Neither the Company nor any ERISA Affiliate has, at
any time within the last 72 months, maintained, contributed to or been obligated to
maintain or contribute to, or withdrawn from, a Multiemployer Plan.




     (iii) Welfare Plans.




          (A) Each Welfare Plan presently complies and has been maintained in compliance,
in all material respects, with its terms and, both as to form and operation, with
the requirements prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Welfare Plan, including without limitation ERISA and
the Code.




          (B) Except as disclosed on Schedule 4.13, none of the Company, any
ERISA Affiliate or any Welfare Plan has any present or future obligation to make any
payment to, or with respect to any present or former employee of the Company or any
ERISA Affiliate pursuant to, any retiree medical benefit plan, or other retiree
Welfare Plan, and no condition exists which would prevent the Company from amending
or terminating any such benefit plan or Welfare Plan.




     (iv) Unrelated Business Taxable Income. No Employee Plan (or trust or
other funding vehicle pursuant thereto) is subject to any tax under Code Section
511.




     (v) Fiduciary Duties and Prohibited Transactions. Neither the Company,
or to the Knowledge of the Company, any plan fiduciary of any Welfare Plan or
Pension Plan, has engaged in any transaction in violation of Sections 404 or 406 of
ERISA or any “prohibited transaction,” as defined in Section 4975(c)(1) of the Code,
for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or
(d) of the Code, or has otherwise violated the provisions of Part 4 of Title I,
Subtitle B of ERISA. The Company has not, to the Knowledge of the Company,
knowingly participated in a violation of Part 4 of Title I, Subtitle B of ERISA by
any plan fiduciary of any Welfare Plan or Pension Plan and has not been assessed any
civil penalty under Section 502(l) of ERISA.




     (vi) Validity and Enforceability. Each employee welfare benefit plan,
related trust agreement, annuity contract or other funding instrument is legally
valid and binding and in full force and effect.



15









 






     (vii) No Amendments. Except as disclosed in Schedule 4.13,
neither the Company nor any ERISA Affiliate has any announced plan or legally
binding commitment to create any additional Employee Plans which are intended to
cover present or former employees, directors or consultants of the Company or any of
its Subsidiaries (with respect to their relationship with such entities) or to amend
or modify any existing Employee Plan.




     (viii) No Other Material Liability. To the Knowledge of the Company, no
event has occurred in connection with which the Company or any ERISA Affiliate or
any Employee Plan, directly or indirectly, could be subject to any material
liability (A) under any statute, regulation or governmental order relating to any
Employee Plan or (B) pursuant to any obligation of the Company to indemnify any
Person against liability incurred under any such statute, regulation or order as
they relate to the Employee Plans.




     (ix) Unpaid Contributions. Neither the Company nor any ERISA Affiliate
has any liability for unpaid contributions under Section 515 of ERISA with respect
to any Multiemployer Plan.




     (x) No Acceleration or Creation of Rights. Except as disclosed on
Schedule 4.13, neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby will result in
the acceleration or creation of any rights of any person to benefits under any
Employee Plan.



     4.14 Taxes.



     Since September 30, 2002, except as expressly disclosed in the SEC Filings, or as set forth in
Schedule 4.14:



          (a) The Company and each of its Subsidiaries (hereinafter sometimes referred to collectively
as the “Taxpayers” or individually as a “Taxpayer”) have timely filed with the
appropriate Tax authorities all Tax Returns required to be filed by each of them, and such Tax
Returns are true, complete, and correct in all material respects.



          (b) The Taxpayers have duly paid in full all material Taxes that are payable by each such
Taxpayer on or prior to the Closing Date, and have accrued Taxes for any period that begins prior
to the Closing Date and ends after the Closing Date in the Taxpayers’ financial records and in the
financial statements contained in the SEC Filings to the extent that such Taxes are not required to
be paid on or prior to the Closing Date.



          (c) There is no audit or other matter in controversy with respect to any Taxes due and owing
by any Taxpayer, and there is no Tax deficiency or claim assessed or, to the Knowledge of the
Company, proposed or threatened in writing against any Taxpayer, other than in respect of any such
audits, controversies, deficiencies, assessments, or proposed assessments that are being contested
in good faith and, if the amount in controversy exceeds $100,000, are disclosed in Schedule
4.14.



16









 





          (d) The Taxpayers each have withheld all material Taxes required to have been withheld and
paid by them on their behalf in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder, or other third party, and such withheld Taxes have either been
duly paid to the proper Governmental Authority or set aside in accounts for such purpose.



          (e) None of the Taxpayers (i) has waived any statutory period of limitations for the
assessment of any Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency other than in the case of any such waivers or extensions in respect of an assessment or
deficiency of Tax the liability of which has been satisfied or settled or has expired, (ii) has
filed a consent under Internal Revenue Code Section 341(f) concerning collapsible corporations, or
(iii) except as set forth in Schedule 4.14, has any liability for the Taxes of any other
person as defined in Section 7701(a)(1) of the Internal Revenue Code under Treasury Regulation §
1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee, successor or
by contract other than with respect to the other Taxpayers.



          (f) No claim has been made in any taxable year which remains open by an authority in a
jurisdiction where a Taxpayer does not file Tax Returns that such Taxpayer is or may be subject to
taxation by that jurisdiction.



          (g) None of the Taxpayers has agreed to or is required to make any adjustment pursuant to
Internal Revenue Code Section 481(a) by reason of a change in accounting method initiated by such
Taxpayer, and to the Knowledge of the Company, the IRS has not proposed any such adjustment or
change in accounting method.



          (h) Except as set forth in Schedule 4.14, none of the Taxpayers has any obligation
under any Tax allocation or sharing agreement, and after the Closing Date, no Taxpayer shall be a
party to, bound by or have any obligation under any Tax allocation or sharing agreement or have any
liability thereunder for amounts due in respect of periods prior to and including the Closing Date.



          (i) Except as set forth on Schedule 4.14, none of the Taxpayers (i) has made any
payments, (ii) is obligated to make any payments (whether as a result of the transactions
contemplated hereby or otherwise), and (iii) is a party to any agreement as of the Closing Date
that could obligate it to make any payments, in each case, that will not be deductible under
Internal Revenue Code Section 280G.



     4.15 Environmental Matters.



          (a) Except as disclosed in Schedule 4.15 or the SEC Filings, the Company and its
Subsidiaries: (i) are in material compliance with all applicable Environmental Laws; and (ii) hold
all material Environmental Permits (each of which is in full force and effect) required for any of
their current operations or for any property owned, leased or otherwise operated by any of them.



17









 





          (b) Except as set forth on Schedule 4.15 or the SEC Filings, the Company and its
Subsidiaries have not received any written notice of alleged, actual or potential responsibility
for, or any inquiry or investigation regarding, any material Environmental Condition.



          (c) Except as disclosed in Schedule 4.15 or the SEC Filings, to the Knowledge of the
Company, Hazardous Materials have not been transported, disposed of or otherwise Released, to or at
any real property presently owned or leased by the Company or any of its Subsidiaries, or any other
location, which Hazardous Materials are reasonably expected to (i) give rise to any material
liability of the Company or any Subsidiary under any applicable Environmental Law, or (ii)
interfere in any material respect with the Company’s or any Subsidiary’s continued operations.



          (d) Except as disclosed in Schedule 4.15 or the SEC Filings, neither the Company nor
any of its Subsidiaries is charged or, to the Knowledge of the Company, threatened with, or, to the
Knowledge of the Company, under investigation with respect to, any material violation of any
applicable Environmental Law relating to any material aspect of the business of the Company or any
Subsidiary.



     4.16 Insurance.



     Schedule 4.16 sets forth a list all insurance policies held by, or for the benefit of,
the Company and its Subsidiaries as of the date hereof, and further sets forth the name of the
insurer, type of coverage, policy limits and deductibles and additional insureds, if any, and the
annual premium for each such policy. Each of the Company and its Subsidiaries carry insurance with
reputable insurers (except as to self-insurance) with respect to each of their respective
properties and business, in such amounts and against such risks as is customarily maintained by
other entities of similar size engaged in similar businesses (which may include self-insurance in
amounts customarily maintained by companies similarly situated or has been maintained in the past
by the Company and its Subsidiaries). Neither the Company nor any of its Subsidiaries has received
any notice of cancellation or non-renewal of any insurance policies or binders set forth on
Schedule 4.16.



     4.17 Title to Assets.



     Except for Permitted Encumbrances and except as set forth on Schedule 4.17, the
Company and its Subsidiaries have good and marketable title to, or valid and subsisting leasehold
interests in, all tangible assets material to their business as currently conducted, and valid
ownership or licensing rights to all intangible assets material to their businesses as currently
conducted. Except for Permitted Encumbrances and as set forth on Schedule 4.17, none of
the material assets is subject to any Encumbrance, except for Encumbrances which, individually or
in the aggregate, are not substantial in amount and do not materially detract from the value of the
property or assets of the Company and its Subsidiaries, taken as a whole, or materially interfere
with the present use of such property or assets (taken as a whole). All such material leases are
valid, binding and enforceable with respect to the Company and its Subsidiaries, to the extent each
is a party thereto, in accordance with their terms (except that such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization,



18









 





moratorium, and similar laws relating to or affecting creditors’ rights generally, and (ii)
general equitable principles) and are in full force and effect; no event of default has occurred
which constitutes a material default thereunder on the part of the Company or any Subsidiary and to
the Knowledge of the Company, no event has occurred which constitutes a material default thereunder
by any other party.



     4.18 Condition of Tangible Assets.



     The Facilities of the Company and its Subsidiaries and the Fixtures and Equipment taken as a
whole are in a condition reasonably sufficient for the operation of the business of the Company and
its Subsidiaries as presently conducted.



     4.19 Labor Matters.



     Except for the Collective Bargaining Agreement with the Kitty Hawk Pilots Association
International dated October 17, 2003, and as otherwise described in the SEC Filings, neither the
Company nor any of its Subsidiaries is a party to any collective bargaining or similar agreement
with any labor union, collective bargaining unit or similar organization. There is no material
unfair labor practice charge or complaint against the Company or any Subsidiary pending before the
National Labor Relations Board or any other governmental agency arising out of the activities of
the Company or any of its Subsidiaries. There is no labor strike or labor disturbance pending or,
to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries. To the
Knowledge of the Company, there is no material grievance currently being asserted against the
Company or its Subsidiaries and neither the Company nor any Subsidiary has experienced since
December 31, 2004, the assertion of a material grievance, a work stoppage or other labor
difficulty.



     4.20 Intellectual Property.



          (a) The Company and its Subsidiaries either own or have valid licenses or other rights to use
all patents, copyrights, trademarks, tradenames, software, other intellectual property used in
their businesses as presently conducted (“Proprietary Rights”), subject to the limitations
contained in the agreements governing the use of the same and, except with respect to software
other than “shrink-wrap” or “off-the-shelf” software, as set forth on Schedule 4.20. There
are no limitations contained in the agreements of the type described in the immediately preceding
sentence which, upon consummation of the transactions contemplated hereunder, will alter or impair
any such rights, breach any such agreement with any third party vendor, or require payments of
additional sums thereunder. The Company and its Subsidiaries are in compliance in all material
respects with the material licenses and agreements with respect to their Proprietary Rights.



          (b) The Proprietary Rights constitute all material intellectual property rights necessary to
conduct the business as presently conducted. To the Knowledge of the Company, the use by the
Company and its Subsidiaries of the Proprietary Rights does not infringe in any material respect on
the intellectual property or other Proprietary Rights of any other Person, and, to the Knowledge of
the Company, no other Person is infringing, in any material respects, on the Proprietary Rights.



19









 





     4.21 No Brokers.



     Except as described on Schedule 4.21 hereof, the Company has not employed, and is not
subject to the valid claim of, any broker, finder, consultant or other intermediary in connection
with the transactions contemplated hereby who might be entitled to a fee or commission from the
Company in connection with such transactions.



     4.22 Contracts; No Defaults.



          (a) Schedule 4.22(a) contains a complete and accurate list of all contracts and
arrangements described below in clauses (i) through (ix) below to which the Company or any
Subsidiary of the Company is a party (“Contracts”), excluding those Contracts expressly
described in the SEC Filings:




     (i) each contract or arrangement currently in effect involving performance of
services or delivery of goods or materials by the Company or any of its Subsidiaries
of an amount or value in any fiscal year in excess of $5,000,000;




     (ii) each note, debenture, other evidence of indebtedness, loan, or financing
agreement or instrument or other contract for money borrowed, including any
agreement or commitment for future loans, credit or financing entered into by the
Company or any of its Subsidiaries evidencing indebtedness in excess of $5,000,000,
individually or in the aggregate;




     (iii) each lease, rental agreement, installment and conditional sale agreement,
and other contract or arrangement affecting the ownership of, leasing of, or any
leasehold or other interest in, any real or personal property and involving payments
in any fiscal year in excess of $5,000,000;




     (iv) each licensing agreement or other agreement with respect to any material
Proprietary Rights;




     (v) each collective bargaining agreement or other agreement to or with any
labor union or other employee representative of a group of employees relating to
wages, hours and other conditions of employment;




     (vi) each joint venture agreement, partnership agreement, or limited liability
company agreement or other agreement (however named) involving a sharing of profits,
losses, costs or liabilities by the Company or any of its Subsidiaries with any
other Person;




     (vii) each agreement that commits capital expenditures after the date hereof in
an amount in excess of $5,000,000;



20









 






     (viii) each written warranty, guaranty or other similar undertaking with
respect to contractual performance of a third person extended by the Company or any
of its Subsidiaries other than in the ordinary course of business; and




     (ix) each contract containing covenants which in any way purport to limit the
freedom of the Company or any of its Subsidiaries to compete with any Person.



          (b) Except as set forth on Schedule 4.22(b), each of the Contracts listed on
Schedule 4.22(a): (i) is in full force and effect, (ii) represents legal, valid and binding
obligations of the Company or the Subsidiary of the Company party thereto and is enforceable
against the Company or such Subsidiary in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights
generally and general equitable principles), and (iii) to the Knowledge of the Company, represent
legal, valid and binding obligations of the other parties thereto and are enforceable against such
parties in accordance with their terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors’ rights generally and general
equitable principles). Except as set forth on Schedule 4.22(b), and to the Knowledge of
the Company, no condition exists or event has occurred which, with notice or lapse of time or both,
would constitute a material default under such Contracts.



          (c) Except as set forth on Schedule 4.22(c), there are no renegotiations of, or, to
the Knowledge of the Company, threats to renegotiate any material amounts paid or payable to the
Company or any of its Subsidiaries under the Contracts, with any Person having the contractual
right to demand or require such renegotiation.



          (d) Except as specifically noted on Schedule 4.6, no notice, consent or approval of
any party to any Contract is required in connection with the transactions contemplated hereby.



          (e) Except as set forth on Schedule 4.22(e), to the Knowledge of the Company, neither
the Company nor any of its Subsidiaries has committed any act or omission which would result in,
and there has been no occurrence which would give rise to, any material product liability or
liability for breach of warranty on the part of the Company or any of its Subsidiaries not fully
covered by the Company’s insurance, other than liabilities the claims relating to which have been
barred by the applicable statute of limitations.



     4.23 Customers.



     Except as disclosed in Schedule 4.23, neither the Company nor any Subsidiary has
received any actual notice that any of its top ten (10) customers has ceased, or intends to cease,
to use its services, or has substantially reduced, or intends to substantially reduce, the use of
such services at any time.




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     4.24 Affiliated Transactions.



     Other than this Agreement, except as set forth in Schedule 4.24, or to the extent
disclosed in the SEC Filings filed, and except for payments under an individual’s compensation or
other benefit arrangements with the Company or any of its Subsidiaries and reimbursement of
expenses in the ordinary course of employment, none of the officers, directors or other Affiliates
of the Company or any of its Subsidiaries or members of their families is, or at any time in the
last three (3) years has been, a party to any agreement, indebtedness or transaction with the
Company or any of its Subsidiaries or is directly or indirectly interested in any Contract with, or
received payments from, the Company or any of its Subsidiaries other than (i) ordinary course
employment arrangements between the Company and its Subsidiaries and their respective employees,
(ii) payment of customary directors fees to directors of the Company (and reimbursement of related
expenses) and (iii) transactions between or among the Company and its Subsidiaries. Except as set
forth on Schedule 4.24 or as set forth in the SEC Filings, neither the Company nor any of
its Subsidiaries has guaranteed or assumed any obligations of their respective officers, directors
or other Affiliates or members of any of their families.



     4.25 Real Property.



     Except as listed on Schedule 4.25, the Company and its subsidiaries have no Owned Real
Property, the Company and its Subsidiaries have no Owned Real Property. Schedule 4.25
lists the address of all real property occupied by the Company or any of its Subsidiaries.



     4.26 Reporting Status; Eligibility to Use Form S-3.



     The Common Stock is registered under Section 12g of the Exchange Act. The Company currently
meets the “registrant eligibility” requirements set forth in the general instructions to Form S-3
to enable the registration of the Registrable Securities (as defined in the Registration Rights
Agreement), and has no Knowledge of any facts or circumstances which are reasonably likely to
change its compliance with such requirements or eligibility to use Form S-3.



     4.27 Representations Complete.



     The representations and warranties made by the Company in this Agreement, and the statements
made in any certificates furnished by the Company pursuant to this Agreement, taken as a whole, do
not contain and will not contain, as of their respective dates and as of the Closing Date, any
untrue statement of a material fact or omit to state any material fact necessary in order to make
such statements, taken as a whole, in light of the circumstances under which they were made, not
misleading.



ARTICLE V.



REPRESENTATIONS AND WARRANTIES OF PURCHASERS




     Each Purchaser hereby represents and warrants, severally and not jointly, to the Company as
follows:



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     5.1 Standing of Purchaser.



     If such Purchaser is an entity, such Purchaser is duly formed or incorporated, validly
existing and in good standing under the laws of its jurisdiction of formation or incorporation, and
all other jurisdictions in which it is required to so qualify.



     5.2 Due Authorization.



     Such Purchaser has full corporate, partnership, trust, or other applicable power and authority
to enter into this Agreement, the Registration Rights Agreement, and the Standstill Agreement, and
to perform its obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by such Purchaser and constitutes, the Registration Rights Agreement has been duly
executed and delivered by such Purchaser and constitutes, and the Standstill Agreement has been
duly executed and delivered by such Purchaser and constitutes, a valid and legally binding
obligation of such Purchaser, enforceable against Purchaser in accordance with its terms, except
that such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors’ rights generally and (ii) general equitable
principles (regardless of whether such enforceability is considered in a proceeding in equity or at
law and (iii) laws and judicial decisions regarding indemnification for violations of federal
securities laws).



     5.3 No Conflict.



     The execution and delivery by such Purchaser of this Agreement and the Registration Rights
Agreement and the performance by it of the transactions contemplated hereby and thereby do not and
will not (i) conflict with or result in a violation of any provision of the agreement of any
governing agreement of such Purchaser, (ii) conflict with or result in a violation of any provision
of, or constitute (with or without the giving of notice or the passage of time or both) a default
under, or give rise (with or without the giving of notice or the passage of time or both) to any
right of termination, cancellation, or acceleration under, any material bond, debenture, note,
mortgage, indenture, lease, agreement, or other instrument or obligation to which such Purchaser is
a party or by which such Purchaser or any of its properties may be bound, (iii) result in the
creation or imposition of any Encumbrance upon the properties of such Purchaser, or (iv) violate in
any material respect any Applicable Law binding upon such Purchaser, except, in the case of clauses
(ii), (iii), and (iv) above, for any such conflicts, violations, defaults, terminations,
cancellations, accelerations, or Encumbrances which would not, individually or in the aggregate,
materially and adversely affect the ability of such Purchaser to consummate the transactions
contemplated hereby. Without limiting the generality of the foregoing, the Purchaser represents
and warrants to the Company that the execution and delivery by such Purchaser of this Agreement and
the Registration Rights Agreement and the performance by it of the transactions contemplated hereby
and thereby do not and will not violate any rule or regulation of the National Association of
Securities Dealers applicable to such Purchaser.



     5.4 Consents and Approvals.



     No consent, approval, order or authorization of, or declaration, filing or registration with,
any Government Entity or third party is required to be obtained or made by Purchaser in



23









 





connection with the execution and delivery by Purchaser of this Agreement and the Registration Rights
Agreement or the consummation of the transaction contemplated hereby and thereby other than (i) any
filings required under Section 13 of the Exchange Act and Rule 13d-1 under the Exchange Act and
(ii) such consents, approvals, orders or authorization which, if not made,
would not, individually or in the aggregate, materially and adversely affect the ability of
the Purchaser to consummate the transactions contemplated hereby.



     5.5 Purchase for Investment.



          (a) Such Purchaser has been furnished with all information that it has requested for the
purpose of evaluating the proposed acquisition of the Preferred Shares and the Warrants pursuant
hereto, and such Purchaser has had an opportunity to ask questions of and receive answers from the
Company regarding the Company and its business, assets, results of operations, financial condition
and prospects and the terms and conditions of the issuance of the Preferred Shares and the
Warrants.



          (b) Such Purchaser is acquiring the Preferred Shares and Warrants solely by and for its own
account, for investment purposes only and not for the purpose of resale or distribution; and such
Purchaser has no contract, undertaking, agreement or arrangement with any Person to sell, transfer
of pledge to such Person or anyone else any Preferred Shares or Warrants; and such Purchaser has no
present plans or intentions to enter into any such contract, undertaking or arrangement.



          (c) Such Purchaser acknowledges and understands that (i) no registration statement relating to
the Preferred Shares, the Warrants, the Conversion Shares or the Warrant Shares has been filed with
the Commission under the Securities Act or pursuant to the securities laws of any state; (ii) the
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares cannot be sold or
transferred without compliance with the registration provisions of the Securities Act or compliance
with exemptions, if any, available thereunder; (iii) the certificates representing the respective
Preferred Shares will include a legend thereon that refers to the foregoing; and (iv) the Company
has no obligation or intention to register the Preferred Shares, the Warrants, the Conversion
Shares or the Warrant Shares under any federal or state securities act or law, except as provided
in the Registration Rights Agreement.



          (d) Such Purchaser (i) is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act; (ii) has such knowledge and experience in financial and
business matters in general that it has the capacity to evaluate the merits and risks of an
investment in the Preferred Shares and the Warrants and to protect its own interest in connection
with an investment in the Preferred Shares and the Warrants; (iii) has such a financial condition
that it has no need for liquidity with respect to its investment in the Preferred Shares and the
Warrants to satisfy any existing or contemplated undertaking, obligation or indebtedness; and (iv)
is able to bear the economic risk of its investment in the Preferred Shares and the Warrants for an
indefinite period of time.



          (e) Such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act.
Such Purchaser is not an affiliate of a broker-dealer, or if such Purchaser is an



24









 







affiliate of a broker-dealer, such Purchaser has no agreement or understanding, directly or indirectly, with any
Person to distribute any of the Preferred Shares, Warrants, Conversion Shares or Warrant Shares.



     5.6 Short Sales and Hedging Transactions; Regulation M.



     Such Purchaser represents that, within the six month period prior to the Closing Date, it has
not directly or indirectly, executed or effected or caused to be executed or effected any short
sale, option or equity swap transactions in or with respect to the Preferred Shares, the Warrants,
the Conversion Shares, the Warrant Shares or any other derivative security transaction the purpose
or effect of which is to hedge or transfer to a third party all or any part of the risk of loss
associated with the ownership of the Preferred Shares, the Warrants, the Conversion Shares or the
Warrant Shares by such Purchaser. Such Purchaser has complied at all times with the provisions of
Regulation M promulgated under the Securities Act as applicable to the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares.



     5.7 No Legal, Tax or Investment Advice.



     Such Purchaser understands that nothing in this Agreement or any other materials presented to
such Purchaser in connection with the purchase and sale of the Preferred Shares or the Warrants
constitutes legal, tax or investment advice. Such Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Preferred Shares or the Warrants.



     5.8 No Brokers.



     Purchaser has not employed, and is not subject to the valid claim of, any broker, finder,
consultant or other intermediary in connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission in connection with such transactions.



ARTICLE VI.



COVENANTS




     6.1 Continuing Operations.



     From the date of this Agreement to the earlier of (i) the Closing Date and (ii) the
termination of this Agreement in accordance with Section 9.1 (the “Interim Period”), the
Company and its Subsidiaries shall conduct their businesses in the ordinary and usual course
consistent with past practices, and, except as set forth on Schedule 6.2 or as contemplated
by this Agreement, neither the Company nor any Subsidiary shall, without the prior consent of
Purchasers:



          (a) make any loans or advances to any Person, other than (i) advances to employees in the
ordinary and usual course of business and (ii) transactions among or between the Company and its
Subsidiaries conducted in the ordinary and usual course of business;



25









 





          (b) sell, lease, transfer or otherwise dispose of, all or substantially all of the assets of
the Company or its Subsidiaries, taken as a whole (other than the sale of inventory in the ordinary
course), or any equity securities of the Company or its Subsidiaries (other than the issuance of
shares of Common Stock upon exercise of Awards currently outstanding);



          (c) enter into, adopt, or (except as may be required by law) amend or terminate any collective
bargaining agreement or any material Benefit Arrangement; approve or implement any employment
severance arrangements (other than payments made under the Company’s existing severance policy in
accordance with past practice) or hire or discharge any executive officers; authorize or enter into
any employment, severance, consulting services or other agreement with any directors, officers and
executive management personnel or any of their Affiliates; or change the compensation or benefits
provided to any director, officer, or employee as of October 1, 2005, other than arrangements
previously disclosed to Purchaser (other than ordinary course changes in base compensation which in
the aggregate is not material);



          (d) enter into any speculative or commodity swaps, hedges or other derivatives transactions or
purchase any securities for investment purposes, other than in connection with cash management of
the Company or in the ordinary course of business;



          (e) issue any shares of capital stock (other than shares of Common Stock issuable upon
exercise of currently outstanding Awards);



          (f) declare or pay dividends on, or make any other distribution in respect of, any outstanding
shares of the Company’s capital stock or repurchase, redeem or otherwise retire for value any
shares of its capital stock, other than shares of Common Stock acquired in connection with the
cashless exercise of Awards; or



          (g) enter into a binding agreement to do any of the foregoing.



     6.2 Press Releases.



     Except as may be required by Applicable Law or by the rules, regulations or published policies
of the securities exchange on which the Company is listed, neither Purchasers nor the Company shall
issue any press release with respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other (which consent shall not be unreasonably withheld under the
circumstances).



     6.3 Notification of Certain Matters.



     During the Interim Period, subject to compliance with Applicable Laws and exchange rules, the
Company shall give prompt notice to the Purchasers, and the Purchasers shall give prompt notice to
the Company, of (i) the occurrence, or failure to occur, of any event which occurrence or failure
would be likely to cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect any time from the date hereof to the Closing Date and (ii) any
material failure of the Company or the Purchasers, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied



26









 





by it hereunder, and each party shall use all commercially reasonable efforts to remedy such failure.



     6.4 Financial Statements, Reports, Etc.



     The Company shall furnish to each Purchaser:



     (a) within ninety (90) days after the end of each fiscal year of the Company, a consolidated
balance sheet of the Company and its Subsidiaries, as of the end of such fiscal year and the
related consolidated statements of income for the fiscal year then ended, prepared in accordance
with GAAP and certified by a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company;



     (b) within forty five (45) days after the end of each fiscal quarter in each fiscal year, a
consolidated balance sheet of the Company and its Subsidiaries, and the related consolidated
statements of income unaudited but prepared in accordance with GAAP and certified by the Chief
Financial Officer of the Company, such consolidated balance sheet to be as of the end of such
fiscal quarter and such consolidated statements of income to be for such fiscal quarter and for the
period from the beginning of the fiscal year to the end of such fiscal quarter;



     (c) promptly after the commencement thereof, notice of all actions, suits, claims,
proceedings, investigations and inquiries of the type described in Section 4.12 of this Agreement
that could materially adversely affect the Company or any of its subsidiaries, if any;



     (d) promptly upon sending, making available or filing the same, all press releases, reports
and financial statements that the Company sends or makes available to its stockholders or directors
or files with the Commission; and



     (e) promptly, from time to time, such other information regarding the business, prospects,
financial condition, operations, property or affairs of the Company and its Subsidiaries as such
Purchaser reasonably may request.



     Notwithstanding this Section 6.4, so long as the Company is required to make filings pursuant
to the Exchange Act and makes such filings in a timely manner, the Company shall be deemed to have
furnished to the Purchasers the financial statements and other reports required by this Section
6.4.



     6.5 Use of Proceeds.



     The Company shall use the proceeds from the sale of the Preferred Shares and Warrant Shares
solely for working capital and general corporate purposes.



     6.6 Continued Eligibility to Use Form S-3.



     Throughout the Registration Period (as defined in the Registration Rights Agreement), the
Company will timely file all reports, schedules, forms, statements and other documents required to
be filed by it with the Commission under the reporting requirements of the Exchange



27









 





Act, and the Company will not terminate its status as an issuer required to file reports under the Exchange Act
even if the Exchange Act or the rules and regulations thereunder would permit such termination.
The Company will take all reasonably necessary action to continue to meet the “registrant
eligibility” requirements set forth in the general instructions to Form S-3 to enable the
registration of the Registrable Securities (as defined in the Registration Rights Agreement),
provided that the Company shall not obligated to continue to meet the Form S-3 eligibility
requirements if the Purchasers, or the relationship among the Purchasers and their affiliates,
causes the Company to fail meet such eligibility requirements.



     6.7 Listing.



     So long as any Preferred Shares or Warrants remain outstanding, the Company shall use its best
efforts to ensure that the Common Stock continues to be listed for trading on a national securities
exchange.



     6.8 Transfer Restrictions.



          (a) Each Purchaser agrees that it shall not sell, assign, pledge, transfer or otherwise
dispose of or encumber any of the Preferred Shares, the Warrants, the Conversion Shares or the
Warrant Shares, except (i) pursuant to an effective registration statement under the Securities
Act, or (ii) pursuant to an available exemption from registration under the Securities Act and
applicable state securities laws and, if requested by the Company, upon delivery by such Purchaser
of an opinion of counsel of such Purchaser reasonably satisfactory to the Company to the effect
that the proposed transfer is exempt from or does not require registration under the Securities Act
and applicable state securities laws. Any transfer or purported transfer of the Preferred Shares,
the Warrants, the Conversion Shares or the Warrant Shares in violation of this Section 6.8 shall be
void. The Company shall not register any transfer of the Preferred Shares, the Warrants, the
Conversion Shares, or the Warrant Shares in violation of this Section 6.8.



          (b) Unless the Company sells all or substantially all of its assets, mergers, consolidates
with or into another Person, enters into, effects or announces any similar transaction, enters into
any agreement to effect such transaction, effects any liquidation, dissolution or winding-up of the
Company, reclassifies any shares of Common Stock, or enters into any agreement or consummates any
transaction that would constitute a change of control, the Purchasers shall not sell, assign,
convey or otherwise transfer the Preferred Stock, the Warrants, the Conversion Shares or the
Warrant Shares prior to the earlier of (i) the Effectiveness Date and (ii) the date 120 days
following the Closing Date.



     6.9 Short Sales and Hedging Transactions; Regulation M.



          (a) Each Purchaser agrees that, until the Effectiveness Date, it will not, directly or
indirectly, execute or effect or cause to be executed or effected any short sale, option or equity
swap transactions in or with respect to the Preferred Shares, the Warrants, the Conversion Shares,
the Warrant Shares or any other derivative security transaction the purpose or effect of which is
to hedge or transfer to a third party all or any part of the risk of loss associated with the
ownership of the Preferred Shares, the Warrants, the Conversion Shares or the Warrant Shares by
such Purchaser.



28









 





          (b) Each Purchaser agrees that, for so long as such Purchaser holds Preferred Shares, the
Warrants, the Conversion Shares or the Warrant Shares, it will comply with the provisions of
Regulation M promulgated under the Securities Act as applicable to the Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares.



     6.10 Legend.



          (a) The Purchaser agrees to the placement on certificates representing Preferred Shares, the
Conversion Shares and the Warrant Shares a legend (the “Private Placement Legend”)
substantially as set forth below:




THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS.




THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN SECURITIES PURCHASE
AGREEMENT, DATED AS OF NOVEMBER 9, 2005, A COPY OF WHICH IS ON FILE AT THE
OFFICES OF THE COMPANY.



          (b) The Private Placement Legend shall be removed from any such certificate if (i) the
securities represented thereby are sold pursuant to an effective registration statement under the
Securities Act, (ii) there is delivered to the Company such satisfactory evidence, which may
include an opinion of counsel, as reasonably may be requested by the Company, to confirm that
neither such legend nor the restrictions on transfer set forth therein are required to ensure that
transfers of such securities will not violate the registration and prospectus delivery requirements
of the Securities Act, or (iii) the securities represented thereby may be resold pursuant to Rule
144(k) promulgated under the Securities Act. Other than as required by Section 151(f) of the
Delaware General Corporation Law, no other legends shall be placed on such certificates, without
the consent of the Purchasers. Notwithstanding the foregoing, after the Effectiveness Date, the
second paragraph of the Private Placement Legend shall be removed or deleted from any certificate
at the request of the rightful holder of such certificate.



     6.11 Confidentiality.



          (a) Without limiting the Purchasers’ obligations under any Confidentiality Agreement with
Company, each of the Purchasers agrees, on behalf of itself and each of its Affiliates, directors,
officers, employees and representatives, to keep confidential any confidential non-public
information supplied to it by the Company or any of its Subsidiaries pursuant to this Agreement;
provided that nothing herein shall limit the disclosure of such



29









 





information (i) after such information shall have become public other than through a violation of this Section 6.11, (ii) to
the extent required pursuant to a subpoena, civil investigative demand (or similar process), order,
statute, rule or other legal requirement promulgated or imposed by a court or by a judicial,
regulatory, self-regulatory or legislative body, organization, agency or
otherwise in connection with any judicial or administrative proceeding (including, without
limitation, in response to oral questions, interrogatories or requests for information or
documents), (iii) to counsel, auditors, accountants or other representative for any of the
Purchasers, (iv) to a Subsidiary, Affiliate, partner, director, officer or employee of such
Purchaser provided that such parties have a need to know such information and are bound by
provisions to maintain the confidentiality of such information as least as restrictive as this
Section 6.11, or (v) to the extent such information has been independently developed by such
Purchasers or its representative. Purchasers shall bear the burden of demonstrating the
applicability of any of the exceptions set forth in clauses (i) — (v) of the previous sentence.



          (b) Unless specifically prohibited by applicable law or court order, each of the Purchasers
shall, to the extent practical, prior to disclosure thereof, notify the Company of any request for
disclosure of any such non-public information by any governmental agency or representative thereof
or pursuant to legal process, and shall consult with the Company on the advisability of the
Company (at the Company’s request) taking legally available steps to resist or narrow any such
request. Such Purchaser shall be entitled to reimbursement from the Company for expenses incurred
by it, including the fees and expense of counsel, in connection with any action taken pursuant to
this Section 6.11.



     6.12 Issuance of Warrants.



     At the Closing, the Company shall issue to each Purchaser a warrant, substantially in the form
attached as Exhibit E (the “Warrants”), to purchase that number of shares of Common
Stock equal to twenty percent (20%) of the number of shares of Common Stock that the amount
invested by such Purchaser would buy at $0.82 per share. Such Warrants shall expire on the fifth
anniversary of the Closing Date.



ARTICLE VII.



CONDITIONS TO CLOSING




     7.1 Condition to Each Party’s Obligations.



     Neither party shall be obligated to consummate the transactions contemplated hereby, if on or
prior to the Closing Date, there shall (i) be any injunction or court order restraining
consummation of the transactions contemplated hereunder; (ii) be any pending or threatened action
or proceeding by or before a court or governmental body brought by or on behalf of any Governmental
Entity seeking to restrain or invalidate all or any portion of the transactions contemplated
hereunder, or (iii) have been adopted any law or regulation making all or any portion of the
transactions contemplated hereunder illegal.



30









 





     7.2 Conditions to the Company’s Obligations.



     The obligations of the Company to consummate the transactions contemplated hereby on the
Closing Date is subject to the satisfaction or waiver on the Closing Date, of each of the following
conditions:



          (a) Representations, Warranties and Covenants. Each representation and warranty of
the Purchasers contained in this Agreement shall be true and correct in all material respects
(unless such representation or warranty is qualified as to materiality, in which case it shall be
true and correct in all respects) (i) on the date hereof and (ii) at and as of the Closing Date, as
if such representations and warranties were made at and as of the Closing Date. The Purchasers
shall have performed in all material respects all agreements and covenants required hereby to be
performed by it prior to or at the Closing Date. There shall be delivered to the Company a
certificate (signed by each Purchaser or, if an entity, an officer, managing member or general
partner of such Purchaser, as appropriate) to the foregoing effect.



          (b) Consents. All consents, approvals, Permits and waivers from Governmental Entities
and other parties required to be obtained in connection with the consummation of the transactions
contemplated hereby shall have been obtained, unless the failure to obtain any such consent,
approval, Permit or waiver would not have a Material Adverse Effect.



          (c) Certificates. Each Purchaser will furnish the Company with such certificates
(signed by each Purchaser or, if an entity, an officer, managing member or general partner of such
Purchaser, as appropriate) to evidence compliance with the conditions set forth in this ARTICLE VII
as may be reasonably requested by the Company.



          (d) Standstill Agreement. The Purchasers shall have executed and delivered to the
Company the Standstill Agreement.



     7.3 Conditions to the Purchasers’ Obligations.



     The obligation of the Purchasers to consummate the transactions contemplated hereby on the
Closing Date is subject to the satisfaction or waiver on the Closing Date of each of the following
conditions:



          (a) Representations, Warranties and Covenants. Each representation and warranty of
the Company contained in this Agreement shall be true and correct in all material respects (unless
such representation or warranty is qualified as to materiality, in which case it shall be true and
correct in all respects) (i) on the date hereof and (ii) at and as of the Closing Date, as if such
representations and warranties were made at and as of the Closing Date. The Company shall have
performed in all material respects all agreements and covenants required hereby to be performed
prior to or at the Closing Date. There shall be delivered to the Purchasers a certificate (signed
by the President and Chief Executive Officer of the Company) to the foregoing effect.



31









 





          (b) Consents. All consents, approvals, Permits and waivers from Governmental Entities
and other parties required to be obtained in connection with the consummation of the transactions
contemplated hereby shall have been obtained, unless the failure to obtain any such consent,
approval, Permit or waiver would not have a Material Adverse Effect.



          (c) Opinions of Counsel. The Company shall have delivered to the Purchasers the
opinions of Haynes and Boone, LLP, counsel for the Company, with respect to the matters set forth
in Exhibit F.



          (d) Certificates. The Company shall furnish the Purchasers with such certificates of
the Chief Executive Officer and the Secretary of the Company and others to evidence compliance with
the conditions set forth in this ARTICLE VII as may be reasonably requested by the Purchasers.



          (e) No Adverse Changes. Since the date of this Agreement, there shall not have
occurred any Material Adverse Change.



          (f) All Proceedings to be Satisfactory. All corporate and other proceedings to be
taken by the Company in connection with the transactions contemplated hereby and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers and their counsel,
and the Purchasers and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.



          (g) Supporting Documents. The Purchasers and their counsel shall have received copies
of the following documents:



               (i) (A) the Certificate of Good Standing of the Company, certified as of a recent date by the
Secretary of State of the State of Delaware, and (B) a certificate of said Secretary dated as of a
recent date as to the payment of all excise taxes by the Company and listing all documents of the
Company on file with said Secretary;



               (ii) a certificate of the Secretary of the Company dated the Closing Date and certifying: (A)
that attached thereto is a true and complete copy of the Bylaws of the Company as in effect on the
date of such certification; (B) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the stockholders of the Company authorizing the
execution, delivery and performance of this Agreement, the Registration Rights Agreement, the
Standstill Agreement, the Amendment No. 1 to Rights Agreement, the issuance, sale and delivery of
the Preferred Shares and the Warrants and the reservation, issuance and delivery of the Conversion
Shares and the Warrant Shares, and that all such resolutions are in full force and effect and are
all the resolutions adopted in connection with the transactions contemplated by this Agreement; and
(C) the incumbency and specimen signature of each officer of the Company executing any of this
Agreement, the Registration Rights Agreement, the Standstill Agreement, the Amendment No. 1 to
Rights Agreement and the Warrants, and any certificate or instrument furnished pursuant hereto, and
a certification by another officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (ii); and



32









 





               (iii) such additional supporting documents and other information with respect to the
operations and affairs of the Company as the Purchasers or their counsel reasonably may request.



          (h) Certificate of Designations. The Company shall have filed with the Secretary of
State of Delaware, and delivered to the Purchasers, the Preferred Stock Certificate of Designations
and it shall have become effective.



          (i) Registration Rights Agreement. The Company shall have executed and delivered to
the Purchasers the Registration Rights Agreement.



          (j) Amendment No. 1 to Rights Agreement. The Company and American Stock Transfer &
Trust Company shall have executed and delivered to the Purchasers the Amendment No. 1 to Rights
Agreement.



          (k) Warrants. The Company shall have executed and delivered to the Purchasers the
Warrants.



ARTICLE VIII.



INDEMNIFICATION




     8.1 Survival of Representations, Etc.



     The representations, warranties, covenants and agreements of the parties hereto contained
herein shall survive the Closing for a period of 30 days after the Company’s delivery to the
Purchasers of the audited financial statement for the Company and its Subsidiaries for fiscal year
ended December 31, 2006; provided, however, that termination of the survival period of any
representation or warranty shall not relieve any party of liability for any breach of any
representation or warranty as to which a claim has been asserted prior to such date of termination.
Notwithstanding the foregoing, the covenants of the Purchasers set forth in Sections 6.8 and
6.9(b) shall survive with respect to each Purchaser for so long as such Purchaser holds Preferred
Shares, the Warrants, Conversion Shares or Warrant Shares.



     8.2 Indemnification by the Company.



     The Company shall indemnify and hold harmless each of the Purchasers and their respective
Affiliates, directors, officers, advisors, agents and employees (the “Purchaser Indemnified
Parties”) from and against any and all demands, losses, damages, penalties, claims, liabilities,
obligations, actions, causes of action, and expenses (including without limitation, costs of
investigating, preparing or defending any such claim or action and reasonable legal fees and
expenses) (collectively, “Losses”), arising by reason of or resulting from (a) any breach of any
warranty, representation, covenant or agreement of the Company contained in this Agreement, or in
any certificate, instrument or document contemplated hereby or thereby, or (b) any cause of action,
suit or claim brought against or made against such Indemnified Party and arising out of or
resulting from the execution, delivery, performance, breach or enforcement of this Agreement,



33









 





the Warrants, the Registration Rights Agreement, the Standstill Agreement or the Amendment No. 1 to
Rights Agreement by the Company.



     8.3 Indemnification by the Purchasers.



     Each Purchaser, severally and not jointly, shall indemnify and hold harmless the Company and
its Affiliates, directors, officers, advisors, agents and employees (the “Company Indemnified
Parties” and, together with the Purchasers Indemnified Parties, the “Indemnified Parties”) from and
against any and all Losses arising by reason of or resulting from any material breach of any
warranty, representation, covenant or agreement of such Purchaser contained in this Agreement or in
any certificate delivered pursuant thereto.



     8.4 Limitation on Indemnities.



     No claim may be made against an indemnifying party for indemnification pursuant to either
Section 8.2 or Section 8.3 until the aggregate dollar amount of all Losses indemnifiable pursuant
to such section exceeds $250,000; provided, however, that thereupon the Company shall become
obligated to indemnify the Purchaser Indemnified Parties for the full amount of all Losses. The
aggregate amount of all Losses for which any indemnifying party and its Affiliates, collectively,
shall be required to indemnify the indemnified parties hereunder, in aggregate, pursuant to this
ARTICLE VIII shall not exceed $6,000,000.



     8.5 Defense of Claims.



     If a claim for Losses (a “Claim”) is to be made by an Indemnified Party, such Indemnified
Party shall give written notice (a “Claim Notice”) to the indemnifying party as soon as practicable
after such Indemnified Party becomes aware of any fact, condition or event which may give rise to
Losses for which indemnification may be sought under this ARTICLE VIII. If any lawsuit or
enforcement action is filed against any Indemnified Party hereunder, notice thereof (a “Third Party
Notice”) shall be given to the indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the citation or summons). The failure of
any indemnified party to give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual damage caused by
such failure. After receipt of a Third Party Notice, if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party
shall be entitled, if it so elects, (i) to take control of the defense and investigation of such
lawsuit or action, (ii) to employ and engage attorneys of its own choice to handle and defend the
same, at the indemnifying party’s cost, risk and expense unless the named parties to such action or
proceeding include both the indemnifying party and the indemnified party and the indemnified party
has been advised in writing by counsel that there may be one or more legal defenses available to
such indemnified party that are different from or additional to those available to the indemnifying
party, and (iii) to compromise or settle such claim, which compromise or settlement shall be made
only with the written consent of the Indemnified Party. The Indemnified Party shall cooperate in
all reasonable respects with the indemnifying party and such attorneys in the investigation, trial
and defense of such lawsuit or



34









 





action and any appeal arising therefrom; and the Indemnified Party
may, at its own cost, participate in the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom and appoint its own counsel therefor, at its own cost. The
parties shall also cooperate
with each other in any notifications to insurers. If the indemnifying party fails to assume
the defense of such claim within fifteen (15) calendar days after receipt of the Third Party
Notice, the Indemnified Party against which such claim has been asserted will (upon delivering
notice to such effect to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim and the indemnifying party shall have the right to
participate therein at its own cost. In the event the Indemnified Party assumes the defense of the
claim, the Indemnified Party will keep the indemnifying party reasonably informed of the progress
of any such defense, compromise or settlement.



     8.6 Sole and Exclusive Remedy.



     Subject to Section 9.4 and except in the case of fraud, the sole and exclusive remedy for
breach of the representations, warranties, covenants and agreements in this Agreement shall be
restricted to the indemnification rights set forth in this ARTICLE VIII.



ARTICLE IX.



MISCELLANEOUS




     9.1 Termination.



     Prior to the Closing, this Agreement may be terminated:



          (a) by mutual written consent of the Company and the Purchasers;



          (b) by the Purchasers or the Company if the Closing shall not have occurred on or before
December 31, 2005; provided however, that this provision shall not be available to
the Purchaser if the Company has the right to terminate this Agreement under Section 9.1(d), and
this provision shall not be available to the Company if Purchaser has the right to terminate this
Agreement under Section 9.1(c);



          (c) by the Purchasers, if there is a material breach of any representation or warranty set
forth in ARTICLE IV hereof or any covenant or agreement to be complied with or performed by the
Company pursuant to the terms of this Agreement, and the Company has not cured such breach in all
material respects within 10 days following receipt of notice from the Purchasers thereof (or if
such breach is not capable of being cured in all material respects within such period, then
initiated in good faith a reasonable cure therefor); or



          (d) by the Company, if there is a material breach of any representation or
warranty set forth in ARTICLE V hereof or of any covenant or agreement to be complied with or
performed by the Purchasers pursuant to the terms of this Agreement, and the breaching
Purchasers have not cured such breach in all material respects within 10 days following receipt
of notice from the Company thereof (or if such breach is not capable of being cured in all
material respects within such period, then initiated in good faith a reasonable cure therefor).




35










 






     9.2 In the Event of Termination.



     In the event of termination of this Agreement, no party hereto shall have any liability or
further obligation to any other party under this Agreement (other than the obligations of the
parties pursuant to Section 9.3), provided that no such termination shall relieve any party from
liability relating to breach of this Agreement occurring prior to such termination.



     9.3 Expenses.



     Each party shall be responsible for the payment of all expenses incurred by it in connection
with the transactions contemplated hereby, regardless of whether such transactions close except
that in the case of a termination pursuant to Section 9.1(c) or Section 9.1(d), the breaching party
shall reimburse all non-breaching parties for all expenses incurred in connection with this
Agreement by such non-breaching party or parties. Notwithstanding the foregoing, the Company shall
reimburse the fees of counsel incurred by Lloyd I. Miller, III in connection with the transactions
contemplated hereby up to a maximum aggregate amount of $18,000.



     9.4 Injunctive Relief.



     The parties hereto acknowledge and agree that irreparable damage 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 seek an
injunction or injunctions to prevent breaches of the provisions of this Agreement to enforce
specifically the provisions of this Agreement, in any court of the United States or any state
thereof having jurisdiction, without the need to post a bond or other security, in addition to any
other remedy to which the parties may be entitled under this Agreement or at law or in equity.



     9.5 Assignment.



     Neither this Agreement nor any of the rights or obligations hereunder may be assigned by the
Company without the prior written consent of the Purchasers or by any Purchaser, without the
consent of the Company. Subject to the foregoing, this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns, and no other
Person shall have any right, benefit or obligation hereunder.



     9.6 Notices.



     Unless otherwise provided herein, any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered by hand-delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery, as
follows:



     If to the Company:


Kitty Hawk, Inc.

1515 West 20th Street




36









 







P. O. Box 612787

DFW International Airport, Texas 75261

Telephone: (972) 456-2200

Facsimile: (972) 456-2249

Attn: Steven E. Markhoff, Esq.




     With a copy to:


Haynes and Boone, LLP

901 Main Street

Dallas, Texas 75214

Telephone: (214) 651-5000

Facsimile: (214) 200-0428

Attn: Garrett A. DeVries, Esq.




     If to any Purchaser, to the address set forth opposite such Purchaser’s name on the
signature page hereto.



     With a copy to:


Paul, Hastings, Janofsky & Walker LLP

695 Town Center Drive, 17th Floor

Costa Mesa, California 92626

Telephone: (714) 668-6200

Facsimile: (714) 979-1921

Attn: Peter J. Tennyson




or to such other place and with such other copies as either party may designate as to itself by
written notice to the other.



     All such notices, requests, instructions or other documents shall be deemed to have been duly
given; at the time delivered by hand, if personally delivered; four Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged by addressee, if by telecopier transmission; and on the next business day if timely
delivered to an air courier guaranteeing overnight delivery.



     9.7 Choice of Law.



     This Agreement shall be construed, interpreted and the rights of the parties determined in
accordance with the internal laws of the State of Texas, without regard to the conflict of law
principles thereof, except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement, and as to those
matters the law of the jurisdiction under which the respective entity derives its powers shall
govern.



37









 





     9.8 Entire Agreement; Amendments and Waivers.



     This Agreement, including all schedules attached hereto, the exhibits attached hereto, the
Confidentiality Agreement between each Purchaser and the Company, the Registration Rights
Agreement, the Standstill Agreement, the Preferred Stock Certificate of Designations and the
Warrants, constitute the entire agreement among the parties pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, including the written summary of proposed terms between the Company and
the Purchasers. Capitalized terms used in the Schedules but not defined therein shall have the
respective meanings ascribed to such terms in this Agreement. Any item disclosed in one Schedule
shall be deemed to have been disclosed in all other Schedules.



     9.9 Acknowledgment.



     Each Purchaser hereby acknowledges that B. Riley & Co., Inc. (a) is going to receive a fee in
the amount of five percent (5%) of the aggregate purchase price paid by the Purchasers for the
Preferred Shares hereunder, such fee to be paid by the Company in cash at the Closing, and (b) is
affiliated with SACC Partners LP, one of the Purchasers, and has client relationships with, and has
acted as financial advisor to, SAAC Partners LP and certain of the other Purchasers in transactions
other than transaction contemplated by this Agreement. Each Purchaser hereby agrees to (a) and (b)
above and waives any and all conflict of interest claims such Purchaser may have with respect
thereto. The Company acknowledges the affiliate and client relationships of B. Riley & Co., Inc.,
and hereby waives any claim that B. Riley & Co., Inc. has a conflict of interest or has failed to
protect or consider the Company’s interest in connection with the transactions contemplated herein.



     9.10 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.



     9.11 Invalidity.



     In the event that any one or more of the provisions contained in this Agreement or in any
other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.



     9.12 Headings.



     The headings of the Articles and Sections herein are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or interpretation of this
Agreement.



* * * * *




38









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.



	 	 	 	 	 	 	 
	 	 	KITTY HAWK, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert W. Zoller, Jr.
 

	 	 
	 	 	Name: Robert W. Zoller, Jr.	 	 
	 	 	Title:   President and Chief Executive Officer	 	 






{Signature Page to the Securites Purchase Agreement}





 









 








     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement
to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 
	 	 	LLOYD I. MILLER, III
	 
	 	 	 	 
	 	 	  /s/ Lloyd I. Miller, III
	 	 	 
	 	 	Lloyd I. Miller, III
	 
	 	 	 	 
	 

	 	Address:
	 	4550 Gordon Drive
	 

	 	 	 	Naples, Florida 34102
	 
	 	 	 	 
	 

	 	Telephone:
	 	  239-263-8860
	 

	 	Facsimile:
	 	  239-262-8025
	 

	 	Attention:
	 	Lloyd I. Miller, III






	 	 	 	 	 	 	 	 	 
	 	 	MILFAM II L.P.,
	 	 	a Georgia limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Milfam LLC, an Ohio limited
	 	 	 	 	 	 	liability company, as general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	     /s/ Lloyd I. Miller, III
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Lloyd I. Miller, III, Managing Member
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	4550 Gordon Drive
	 	 	 	 	 	 	Naples, Florida 34102
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone:	 	239-263-8860
	 	 	Facsimile:	 	239-262-8025
	 

	 	Attention:
	 	Lloyd I. Miller, III






{Signature Page to the Securites Purchase Agreement}




 









 








     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement
to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 	 	 
	 	 	BONANZA MASTER FUND, LTD.
	 
	 	 	 	 	 	 
	 	 	  By:	 Bonanza Capital, Ltd., a Texas limited
	 	 	  partnership, as its general partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Bonanza Fund Management, Inc., a Texas
	 	 	 	 	corporation, as its general partner
	 
	 	 	 	 	 	 
	 

	 	 	 	  By:
	 	      /s/ Bernay Box
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Bernay Box, President
	 
	 	 	 	 	 	 
	 	 	Address:	 	300 Crescent Court
	 

	 	 	 	 	 	Suite 1740
	 

	 	 	 	 	 	Dallas, Texas 75201
	 
	 	 	 	 	 	 
	 	 	Telephone:	 	214-987-4962
	 

	 	Facsimile:
	 	 	214-987-4342
	 

	 	Attention:
	 	 	Bernay Box






{Signature Page to the Securites Purchase Agreement}





 










 






     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 	 	 	 	 
	 	 	POTOMAC CAPITAL PARTNERS, L.P.,
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Potomac Capital Management,
	 	 	 	 	 	 	General Partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	     /s/ Paul J. Solit
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Paul J. Solit, Managing Member
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	c/o Potomac Capital Management
	 	 	 	 	 	 	825 Third Avenue
	 	 	 	 	 	 	33rd Floor
	 	 	 	 	 	 	New York, New York 10022
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone: 212-521-5115
	 	 	Facsimile: 212-521-5116
	 	 	Attention: Paul J. Solit
	 
	 	 	 	 	 	 	 	 
	 	 	PLEIADES INVESTMENT PARTNERS-R, LP,
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Potomac Capital Management,
	 	 	 	 	 	 	General Partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	     /s/ Paul J. Solit
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Paul J. Solit, Managing Member






{Signature Page to the Securites Purchase Agreement}




 









 





	 	 	 	 	 
	 

	 	Address:
	 	c/o Potomac Capital Management
	 

	 	 	 	825 Third Avenue

33rd Floor

New York, New York 10022
	 
	 	 	 	 
	 

	 	Telephone:
	 	212-521-5115
	 

	 	Facsimile:
	 	212-521-5116
	 

	 	Attention:
	 	Paul J. Solit
	 
	 	 	 	 





	 	 	 	 	 	 	 	 	 
	 	 	POTOMAC CAPITAL INTERNATIONAL
	 	 	LTD., a British Virgin Islands corporation
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	     /s/ Paul J. Solit	 	 
	 	 	 	 	 	 	 
	 	 	 	 	Paul J. Solit, Managing Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Address:     c/o Potomac Capital Management	 	 
	 

	 	 	 	 	 	825 Third Avenue	 	 
	 

	 	 	 	 	 	33rd Floor	 	 
	 

	 	 	 	 	 	New York, New York 10022	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone: 212-521-5115
	 	 	Facsimile: 212-521-5116
	 	 	Attention: Paul J. Solit






{Signature Page to the Securites Purchase Agreement}




 









 





     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement
to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 	 	 	 	 	 	 
	 	 	SACC PARTNERS, L.P.,
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	     /s/ Bryant Riley
	 	 	 	 	 	 	 
	 	 	 	 	 	 	Bryant Riley, Managing Partner
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By:	 	Riley Investment Management, Inc.,
	 	 	 	 	 	 	 	 	Investment Advisor
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	By:
	 	     /s/ Bryant Riley
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	Bryant Riley, President
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Address:	 	11100 Santa Monica
	 	 	 	 	 	 	Suite 800
	 	 	 	 	 	 	Los Angeles, California 90025
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Telephone: 310-966-1444
	 	 	Facsimile: 310-966-1448
	 	 	Attention: Bryant Riley






	 	 	 	 	 	 	 
	 	 	B. RILEY & CO. RETIREMENT TRUST
	 	 	DATED 1/1/99
	 
	 	 	 	 	 	 
	 	 	By:	 	     /s/ Bryant Riley
	 	 	 	 	 
	 	 	 	 	Bryant Riley, Trustee
	 
	 	 	 	 	 	 
	 	 	Address:     11100 Santa Monica
	 	 	 	 	          Suite 800
	 	 	 	 	          Los Angeles, California 90025
	 
	 	 	 	 	 	 
	 	 	Telephone: 310-966-1444
	 	 	Facsimile: 310-966-1448
	 	 	Attention: Bryant Riley






{Signature Page to the Securites Purchase Agreement}




 









 







     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement
to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 	 	 	 	 
	 	 	CORKY AND RICK STEINER FAMILY L.P.,
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By: Richard Steiner, as general partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	     /s/ Richard Steiner
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	     Richard Steiner
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	4044 Rose Hill Avenue
	 	 	 	 	Cincinnati, Ohio 45229
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone:	 	513-281-9989
	 

	 	Facsimile:	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Attention:	 	Richard Steiner
	 
	 	 	 	 	 	 	 	 
	 	 	RICHARD STEINER
	 
	 	 	 	 	 	 	 	 
	 	 	     /s/ Richard Steiner
	 	 	 
	 	 	Richard Steiner
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	4044 Rose Hill Avenue
	 	 	 	 	Cincinnati, Ohio 45229
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone:	 	513-281-9989
	 

	 	Facsimile:	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Attention:	 	Richard Steiner






{Signature Page to the Securites Purchase Agreement}










 





	 	 	 	 	 
	 	 	PHILIP H. STEINER
	 
	 	 	 	 
	 	 	     /s/ Philip H. Steiner
	 	 	 
	 	 	Philip H. Steiner
	 
	 	 	 	 
	 

	 	Address:
	 	4044 Rose Hill Avenue
	 

	 	 	 	Cincinnati, Ohio 45229
	 
	 	 	 	 
	 

	 	Telephone:
	 	513-281-9989
	 

	 	Facsimile:	 	 
	 

	 	 	 	 
	 

	 	Attention:
	 	Richard Steiner





{Signature
Page to the Securites Purchase Agreement}



 









 






     IN WITNESS WHEREOF, the undersigned Purchasers have caused this Securities Purchase Agreement
to be duly executed as of the date and year first above written and to be bound hereby.



	 	 	 	 	 	 	 	 	 
	 	 	BLUEGRASS GROWTH FUND, L.P.
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Bluegrass Growth Fund Partners, LLC
	 	 	 	 	 	 	General Partner
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	     /s/ Brian Shatz
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Brian Shatz, Managing Member
	 
	 	 	 	 	 	 	 	 
	 	 	Address:	 	122 East 42nd Street
	 	 	 	 	 	 	Suite 2606
	 	 	 	 	 	 	New York, NY 10168
	 
	 	 	 	 	 	 	 	 
	 	 	Telephone:	 	 212-682-2392
	 	 	Facsimile:	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Attention:	 	 Brian Shatz






{Signature Page to the Securites Purchase Agreement}




 









 





Exhibit A




FORM OF

AMENDMENT NO. 1 TO RIGHTS AGREEMENT




 









 





Exhibit B




FORM OF




CERTIFICATE OF DESIGNATIONS,

OF

SERIES B CONVERTIBLE PREFERRED STOCK

OF

KITTY HAWK, INC.




 









 





Exhibit C




FORM OF

REGISTRATION RIGHTS AGREEMENT




 









 





Exhibit D




FORM OF

STANDSTILL AGREEMENT




 









 





Exhibit E




FORM OF

WARRANT




 









 





Exhibit F




FORM OF

LEGAL OPINION