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Salary Continuation And Severance Agreement

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Exhibit 10.12





1.1 Parties. The parties to this salary continuation and consulting agreement (this "agreement") are Kitty Hawk, Inc. ("Kitty Hawk"), with its principal place of business located at 1515 W. 20th Street, P.O. Box 612787, DFW International Airport, Texas 75261, with a fax number of (972) 456-2449, and James R. Craig ("Craig"), who resides at 6000 Highland Hills Lane, Colleyville, Texas 76034.

1.2 Date. This agreement is dated and effective November 4, 2002.


2.1 Previous Employment. Craig was the Vice President and General Counsel of Kitty Hawk, and a member of its Board of Directors, and voluntarily resigned all of his offices on November 4, 2002. Craig has considerable knowledge and experience related to the business of Kitty Hawk as a result of his prior affiliation with Kitty Hawk as an employee; and Kitty Hawk desires to recognize the valuable and meritorious services performed for Kitty Hawk by Craig during the many years in which he served Kitty Hawk. This agreement supersedes, modifies and restates all previous agreements between Craig and Kitty Hawk.


3.1 Compensation. As severance compensation, Kitty Hawk will pay Craig six (6) months worth of what was Craig's basic annual compensation at time of his resignation, which was $225,000.00. This severance shall be payable in equal semi-monthly installments, the first being payable November 15, 2002, and the last being payable April 30, 2003, it being understood that Kitty Hawk shall have the right to deduct therefrom, if required or deemed advisable, all taxes which may be required to be deducted and withheld under any provision of applicable law (including but not limited to social security payments, federal income tax withholding and any other required deductions).

Salary Continuation and Severance Agreement Page 1

3.2 Medical Insurance. For a period of six (6) months ending April 30, 2003, Kitty Hawk shall exert reasonable efforts to cause Craig to be covered under Kitty Hawk's medical and hospitalization insurance coverage, at no cost to Craig, and such coverage shall be at least substantially equivalent to the coverage that is was provided to Craig under Kitty Hawk's employee medical plans at the time of his resignation. The insurance described in this paragraph shall be provided only if coverage is permitted by the terms of Kitty Hawk's medical and hospitalization insurance policy as in effect at any applicable time hereunder. If it is determined that Craig is not eligible to be covered by Kitty Hawk's medical and hospitalization insurance policy, Kitty Hawk agrees to pay Craig's COBRA premiums for as long as he otherwise would be entitled to the insurance coverage provided in this P. 3.2.

3.3 Transitional Obligations and Office Access. Craig agrees to use his reasonable efforts to assist Kitty Hawk in a successful and smooth transition of the oversight of the legal, human resources and security functions of Kitty Hawk to those individuals as designated by Kitty Hawk's Chief Executive Officer. Craig shall be allowed to maintain his office at Kitty Hawk through December 3, 2002, and during such period shall have the same access to Kitty Hawk's systems, information and files that was available to him before his resignation. Thereafter, Craig shall have, with the consent of Kitty Hawk's Chief Executive Officer or such person as he shall designate (which shall not be unreasonably withheld), access to Kitty Hawk's files, documents and other records, regardless of format, that he determines to be reasonably related to (i) Craig's work done on behalf of Kitty Hawk and (ii) the defense of the lawsuit filed against him by M. Tom Christopher.

3.4 Proprietary information.

A. Craig shall diligently safeguard Kitty Hawk's proprietary information
and shall surrender to Kitty Hawk or destroy all written or recorded
evidence of Kitty Hawk's proprietary information, and shall return any
Kitty Hawk property in Craig's possession, once the Christopher
litigation has concluded.

B. Craig shall never disclose, disseminate or utilize Kitty Hawk's
proprietary information unless Kitty Hawk's chief executive officer
expressly authorizes the disclosure, dissemination or utilization in
writing, except to the extent reasonably necessary for his defense of
the Christopher litigation, and then only consistently with the
applicable rules of procedure governing the litigation and with the
Delaware General Corporation Law and Kitty Hawk's certificate of

C. For the purpose of this agreement, the term "proprietary information"
shall specifically not include: (a) information that is now in or
hereafter enters

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the public domain without a breach of this agreement by Craig; (b)
information Craig knew already prior to the time of his employment by
Kitty Hawk; (c) information that is obtained, after the date of
Craig's departure from Kitty Hawk, by Craig fr
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